~~0000036146us-gaap:CommercialPortfolioSegmentMembertrmk:AllowanceForCreditLossesFinancingReceivableMember2021-12-31~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30,~~March 31, ~~2022~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-03683

Trustmark Corporation

(Exact name of registrant as specified in its charter)


Mississippi		64-0471500
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


248 East Capitol Street, Jackson, Mississippi		39201
(Address of principal executive offices)		(Zip Code)

(601) 208-5111

(Registrant’s telephone number, including area code)

Securities registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	TRMK	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 31, 2022,~~April 28, 2023, there were ~~60,953,864~~61,068,864 shares outstanding of the registrant’s common stock (no par value).

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential,” “seek,” “continue,” “could,” “would,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things, and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. You should be aware that the occurrence of the events described under the caption “Risk Factors” in Trustmark’s filings with the Securities and Exchange Commission (SEC) could have an adverse effect on our business, results of operations and financial condition. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the novel coronavirus (COVID-19) pandemic, and also by the effectiveness of varying governmental responses in ameliorating the impact of the pandemic on our customers and the economies where they operate.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, an increase in unemployment levels and slowdowns in economic growth, ~~our ability to manage the impact of the COVID-19 pandemic on our markets, as well as the effectiveness of~~ actions ~~of federal, state and local governments and agencies (including~~by the Board of Governors of the Federal Reserve System (FRB)~~) to mitigate its spread and economic~~ that impact the level of market interest rates, local, state and national economic and market conditions (including uncertainty regarding the federal government's debt limit or a prolonged shutdown of the federal government), conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets, levels of and volatility in crude oil prices, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements and costs and potential impacts to macroeconomic conditions, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including ~~the potential impact of recent heightened levels of inflation and the reactions of the FRB and other governmental departments and agencies in response thereto,~~ the potential impact of issues related to the European financial system and monetary and other governmental actions designed to address credit, securities, and/or commodity markets, the enactment of legislation and changes in existing regulations or enforcement practices or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, pandemics or other health crises, acts of war or terrorism, and other risks described in our filings with the SEC.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)


	(Unaudited)						(Unaudited)
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Assets
Cash and due from banks	$	479,637		$	2,266,829		$	1,297,144		$	734,787
Federal funds sold and securities purchased under reverse repurchase agreements		10,098			—			—			4,000
Securities available for sale, at fair value (amortized cost: $2,776,415 - 2022 $3,256,289 - 2021; allowance for credit losses (ACL): $0)		2,444,486			3,238,877
Securities held to maturity, net of ACL of $0 (fair value: $1,065,828 - 2022; $353,511 - 2021)		1,156,985			342,537
Paycheck Protection Program (PPP) loans		4,798			33,336
Securities available for sale, at fair value (amortized cost: $2,200,255 - 2023 $2,270,709 - 2022; allowance for credit losses (ACL): $0)								1,984,162			2,024,082
Securities held to maturity, net of ACL of $0 (fair value: $1,406,405 - 2023; $1,406,589 - 2022)								1,474,338			1,494,514
Loans held for sale (LHFS)		165,213			275,706			175,926			135,226
Loans held for investment (LHFI)		11,586,064			10,247,829			12,497,195			12,204,039
Less ACL, LHFI		115,050			99,457			122,239			120,214
Net LHFI		11,471,014			10,148,372			12,374,956			12,083,825
Premises and equipment, net		210,761			205,644			223,975			212,365
Mortgage servicing rights (MSR)		132,615			87,687			127,206			129,677
Goodwill		384,237			384,237			384,237			384,237
Identifiable intangible assets, net		3,952			5,074			3,352			3,640
Other real estate, net		2,971			4,557			1,684			1,986
Operating lease right-of-use assets		37,282			34,603			35,315			36,301
Other assets		686,585			568,177			794,883			770,838
Total Assets	$	17,190,634		$	17,595,636		$	18,877,178		$	18,015,478

Liabilities
Deposits:
Noninterest-bearing	$	4,358,805		$	4,771,065		$	3,797,055		$	4,093,771
Interest-bearing		10,066,375			10,316,095			10,986,606			10,343,877
Total deposits		14,425,180			15,087,160			14,783,661			14,437,648
Federal funds purchased and securities sold under repurchase agreements		544,068			238,577			477,980			449,331
Other borrowings		223,172			91,025			1,485,181			1,050,938
Subordinated notes		123,207			123,042			123,317			123,262
Junior subordinated debt securities		61,856			61,856			61,856			61,856
ACL on off-balance sheet credit exposures		31,623			35,623			34,596			36,838
Operating lease liabilities		39,797			36,468			37,988			38,932
Other liabilities		232,786			180,574			310,500			324,405
Total Liabilities		15,681,689			15,854,325			17,315,079			16,523,210

Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares Issued and outstanding: 60,953,864 shares - 2022; 61,648,679 shares - 2021		12,700			12,845
Authorized: 250,000,000 shares Issued and outstanding: 61,048,516 shares - 2023; 60,977,686 shares - 2022								12,720			12,705
Capital surplus		154,150			175,913			155,297			154,645
Retained earnings		1,648,507			1,585,113			1,636,463			1,600,321
Accumulated other comprehensive income (loss), net of tax		(306,412	)		(32,560	)		(242,381	)		(275,403	)
Total Shareholders' Equity		1,508,945			1,741,311			1,562,099			1,492,268
Total Liabilities and Shareholders' Equity	$	17,190,634		$	17,595,636		$	18,877,178		$	18,015,478

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Income

($ in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Interest Income
Interest and fees on LHFS & LHFI	$	126,441		$	91,182		$	316,855		$	272,515		$	175,509		$	90,275
Interest and fees on PPP loans		186			1,533			538			36,329			—			168
Interest on securities:
Taxable		16,222			9,973			43,140			27,902			16,761			12,357
Tax exempt		79			104			260			451			73			96
Interest on federal funds sold and securities purchased under reverse repurchase agreements		2			—			3			—			30			—
Other interest income		1,493			949			4,524			1,941			6,527			817
Total Interest Income		144,423			103,741			365,320			339,138			198,900			103,713
Interest Expense
Interest on deposits		5,097			3,691			10,631			13,544			40,898			2,760
Interest on federal funds purchased and securities sold under repurchase agreements		1,225			51			1,365			166			4,832			70
Other interest expense		1,996			1,733			5,199			5,403			15,575			1,539
Total Interest Expense		8,318			5,475			17,195			19,113			61,305			4,369
Net Interest Income		136,105			98,266			348,125			320,025			137,595			99,344
Provision for credit losses (PCL), LHFI		12,919			(2,492	)		14,775			(16,984	)		3,244			(860	)
PCL, off-balance sheet credit exposures		(1,326	)		(1,049	)		(4,000	)		(5,888	)		(2,242	)		(1,106	)
Net Interest Income After PCL		124,512			101,807			337,350			342,897			136,593			101,310
Noninterest Income
Service charges on deposit accounts		11,318			8,911			30,995			23,880			10,336			9,451
Bank card and other fees		9,305			8,549			27,914			26,322			7,803			8,442
Mortgage banking, net		6,876			14,004			24,898			52,141			7,639			9,873
Insurance commissions		13,911			12,133			41,702			36,795			14,305			14,089
Wealth management		8,778			9,071			26,934			26,433			8,780			9,054
Other, net		2,418			1,481			7,531			5,572			2,514			3,206
Total Noninterest Income		52,606			54,149			159,974			171,143			51,377			54,115
Noninterest Expense
Salaries and employee benefits		72,707			74,623			213,971			215,900			74,056			69,585
Services and fees(1)		25,795			22,306			74,786			66,559			25,426			25,314
Net occupancy - premises		7,395			6,854			21,366			20,227			7,629			7,079
Equipment expense		6,072			5,941			18,180			17,752			6,405			6,061
Other expense (1)		14,729			19,876			43,681			49,389			14,811			13,480
Total Noninterest Expense		126,698			129,600			371,984			369,827			128,327			121,519
Income Before Income Taxes		50,420			26,356			125,340			144,213			59,643			33,906
Income taxes		7,965			5,156			19,390			23,070			9,343			4,695
Net Income	$	42,455		$	21,200		$	105,950		$	121,143		$	50,300		$	29,211

Earnings Per Share
Basic	$	0.69		$	0.34		$	1.73		$	1.92		$	0.82		$	0.47
Diluted	$	0.69		$	0.34		$	1.72		$	1.92		$	0.82		$	0.47

(1)

During the first quarter of ~~2022,~~2023, Trustmark reclassified its debit card transaction fees from other ~~real estate~~ expense ~~net~~ to ~~other expense.~~ services and fees.

The prior period has been reclassified accordingly.

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

($ in thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023		2022
Net income per consolidated statements of income	$	42,455		$	21,200		$	105,950		$	121,143		$	50,300	$	29,211
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available for sale securities and transferred securities:
Net unrealized holding gains (losses) arising during the period		(85,737	)		(9,407	)		(235,887	)		(20,798	)		23,130		(116,753	)
Change in net unrealized holding loss on securities transferred to held to maturity		1,350			477			(23,588	)		1,562			2,894		400
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		21			21			62			63			21		20
Recognized net loss due to lump sum settlement		—			137			—			137			19		—
Change in net actuarial loss		221			333			686			1,007			58		237
Derivatives:
Change in the accumulated gain (loss) on effective cash flow hedge derivatives		(14,643	)		—			(14,643	)		—			4,702		—
Reclassification adjustment for (gain) loss realized in net income		(482	)		—			(482	)		—			2,198		—
Other comprehensive income (loss), net of tax		(99,270	)		(8,439	)		(273,852	)		(18,029	)		33,022		(116,096	)
Comprehensive income (loss)	$	(56,815	)	$	12,761		$	(167,902	)	$	103,114		$	83,322	$	(86,885	)

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

($ in thousands, except per share data)

(Unaudited)


													Accumulated																Accumulated
													Other																Other
	Common Stock												Comprehensive						Common Stock										Comprehensive
	Shares						Capital			Retained			Income						Shares				Capital			Retained			Income
	Outstanding			Amount			Surplus			Earnings			(Loss)			Total			Outstanding		Amount		Surplus			Earnings			(Loss)			Total
Balance, January 1, 2022		61,648,679		$	12,845		$	175,913		$	1,585,113		$	(32,560	)	$	1,741,311
Balance, January 1, 2023																				60,977,686	$	12,705	$	154,645		$	1,600,321		$	(275,403	)	$	1,492,268
Net income per consolidated statements of income		—			—			—			29,211			—			29,211			—		—		—			50,300			—			50,300
Other comprehensive income (loss), net of tax		—			—			—			—			(116,096	)		(116,096	)		—		—		—			—			33,022			33,022
Common stock dividends paid ($0.23 per share)		—			—			—			(14,186	)		—			(14,186	)		—		—		—			(14,158	)		—			(14,158	)
Shares withheld to pay taxes, long-term incentive plan		93,944			19			(1,028	)		—			—			(1,009	)		70,830		15		(1,063	)		—			—			(1,048	)
Repurchase and retirement of common stock		(279,231	)		(58	)		(9,036	)		—			—			(9,094	)
Compensation expense, long-term incentive plan		—			—			1,245			—			—			1,245			—		—		1,715			—			—			1,715
Balance, March 31, 2022		61,463,392			12,806			167,094			1,600,138			(148,656	)		1,631,382
Net income per consolidated statements of income		—			—			—			34,284			—			34,284
Other comprehensive income (loss), net of tax		—			—			—			—			(58,486	)		(58,486	)
Common stock dividends paid ($0.23 per share)		—			—			—			(14,212	)		—			(14,212	)
Shares withheld to pay taxes, long-term incentive plan		513			—			(7	)		—			—			(7	)
Repurchase and retirement of common stock		(262,782	)		(54	)		(7,451	)		—			—			(7,505	)
Compensation expense, long-term incentive plan		—			—			1,240			—			—			1,240
Balance, June 30, 2022		61,201,123			12,752			160,876			1,620,210			(207,142	)		1,586,696
Net income per consolidated statements of income		—			—			—			42,455			—			42,455
Other comprehensive income (loss), net of tax		—			—			—			—			(99,270	)		(99,270	)
Common stock dividends paid ($0.23 per share)		—			—			—			(14,158	)		—			(14,158	)
Shares withheld to pay taxes, long-term incentive plan		119			—			(2	)		—			—			(2	)
Repurchase and retirement of common stock		(247,378	)		(52	)		(7,953	)		—			—			(8,005	)
Compensation expense, long-term incentive plan		—			—			1,229			—			—			1,229
Balance, September 30, 2022		60,953,864		$	12,700		$	154,150		$	1,648,507		$	(306,412	)	$	1,508,945
Balance,March 31, 2023																				61,048,516	$	12,720	$	155,297		$	1,636,463		$	(242,381	)	$	1,562,099

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity (continued)

($ in thousands, except per share data)

(Unaudited)


													Accumulated																		Accumulated
													Other																		Other
	Common Stock												Comprehensive						Common Stock												Comprehensive
	Shares						Capital			Retained			Income						Shares						Capital			Retained			Income
	Outstanding			Amount			Surplus			Earnings			(Loss)			Total			Outstanding			Amount			Surplus			Earnings			(Loss)			Total
Balance, January 1, 2021		63,424,526		$	13,215		$	233,120		$	1,495,833		$	(1,051	)	$	1,741,117
Balance, January 1, 2022																				61,648,679		$	12,845		$	175,913		$	1,585,113		$	(32,560	)	$	1,741,311
Net income per consolidated statements of income		—			—			—			51,962			—			51,962			—			—			—			29,211			—			29,211
Other comprehensive income (loss), net of tax		—			—			—			—			(15,455	)		(15,455	)		—			—			—			—			(116,096	)		(116,096	)
Common stock dividends paid ($0.23 per share)		—			—			—			(14,685	)		—			(14,685	)		—			—			—			(14,186	)		—			(14,186	)
Shares withheld to pay taxes, long-term incentive plan		114,977			24			(1,254	)		—			—			(1,230	)		93,944			19			(1,028	)		—			—			(1,009	)
Repurchase and retirement of common stock		(144,981	)		(30	)		(4,155	)		—			—			(4,185	)		(279,231	)		(58	)		(9,036	)		—			—			(9,094	)
Compensation expense, long-term incentive plan		—			—			2,181			—			—			2,181			—			—			1,245			—			—			1,245
Balance, March 31, 2021		63,394,522			13,209			229,892			1,533,110			(16,506	)		1,759,705
Net income per consolidated statements of income		—			—			—			47,981			—			47,981
Other comprehensive income (loss), net of tax		—			—			—			—			5,865			5,865
Common stock dividends paid ($0.23 per share)		—			—			—			(14,640	)		—			(14,640	)
Shares withheld to pay taxes, long-term incentive plan		8,524			2			(13	)		—			—			(11	)
Repurchase and retirement of common stock		(629,820	)		(132	)		(20,673	)		—			—			(20,805	)
Compensation expense, long-term incentive plan		—			—			1,214			—			—			1,214
Balance, June 30, 2021		62,773,226			13,079			210,420			1,566,451			(10,641	)		1,779,309
Net income per consolidated statements of income		—			—			—			21,200			—			21,200
Other comprehensive income (loss), net of tax		—			—			—			—			(8,439	)		(8,439	)
Common stock dividends paid ($0.23 per share)		—			—			—			(14,475	)		—			(14,475	)
Shares withheld to pay taxes, long-term incentive plan		7,336			1			(97	)		—			—			(96	)
Repurchase and retirement of common stock		(318,730	)		(66	)		(9,602	)		—			—			(9,668	)
Compensation expense, long-term incentive plan		—			—			1,116			—			—			1,116
Balance, September 30, 2021		62,461,832		$	13,014		$	201,837		$	1,573,176		$	(19,080	)	$	1,768,947
Balance, March 31, 2022																				61,463,392		$	12,806		$	167,094		$	1,600,138		$	(148,656	)	$	1,631,382

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2023			2022
Operating Activities
Net income per consolidated statements of income	$	105,950		$	121,143		$	50,300		$	29,211
Adjustments to reconcile net income to net cash provided by operating activities:
PCL		10,775			(22,872	)		1,002			(1,966	)
Depreciation and amortization		30,354			34,337			7,666			10,441
Net amortization of securities		9,096			15,527			1,812			3,711
Gains on sales of loans, net		(20,674	)		(58,905	)		(2,573	)		(8,315	)
Compensation expense, long-term incentive plan		3,714			4,511			1,715			1,245
Deferred income tax provision		12,000			18,750			335			9,300
Proceeds from sales of loans held for sale		1,046,999			1,854,487			216,327			381,947
Purchases and originations of loans held for sale		(932,601	)		(1,737,168	)		(269,863	)		(326,475	)
Originations of mortgage servicing rights		(14,452	)		(22,015	)		(2,646	)		(5,128	)
Earnings on bank-owned life insurance		(3,639	)		(3,633	)		(1,263	)		(1,188	)
Net change in other assets		(21,585	)		39,808			303			(15,626	)
Net change in other liabilities		63,048			10,781			7,390			7,575
Other operating activities, net		(60,519	)		(7,551	)		(7,946	)		(22,864	)
Net cash from operating activities		228,466			247,200			2,559			61,868

Investing Activities
Proceeds from maturities, prepayments and calls of securities held to maturity		98,211			144,356			23,930			38,822
Proceeds from maturities, prepayments and calls of securities available for sale		358,130			635,138			69,054			137,766
Purchases of securities held to maturity		(600,933	)		—			—			(303,525	)
Purchases of securities available for sale		(230,527	)		(1,743,290	)		—			(76,341	)
Net proceeds from bank-owned life insurance		307			1,791
Net change in federal funds sold and securities purchased under reverse repurchase agreements		(10,098	)		50			4,000			—
Net change in member bank stock		(5,467	)		(1,217	)		(27,026	)		(68	)
Net change in LHFI and PPP loans		(1,310,309	)		(137,919	)		(295,239	)		(134,451	)
Proceeds from sales of PPP loans		—			353,287
Purchases of premises and equipment		(20,656	)		(19,499	)		(17,095	)		(5,987	)
Proceeds from sales of premises and equipment		4,926			741			1,229			1,129
Proceeds from sales of other real estate		2,038			3,611			465			1,413
Purchases of software		(5,487	)		(2,926	)		(2,716	)		(1,832	)
Investments in tax credit and other partnerships		(20,042	)		(14,690	)		(5,912	)		(1,454	)
Net cash from investing activities		(1,739,907	)		(780,567	)		(249,310	)		(344,528	)

Financing Activities
Net change in deposits		(661,980	)		874,075			346,013			26,132
Net change in federal funds purchased and securities sold under repurchase agreements		305,491			(18,102	)		28,649			(68,078	)
Net change in short-term borrowings		150,000			(19,171	)		449,999			—
Payments on long-term FHLB advances		(14	)		(14	)		(5	)		(4	)
Payments under finance lease obligations		(1,070	)		(1,072	)		(342	)		(366	)
Common stock dividends		(42,556	)		(43,800	)		(14,158	)		(14,186	)
Repurchase and retirement of common stock		(24,604	)		(34,658	)		—			(9,094	)
Shares withheld to pay taxes, long-term incentive plan		(1,018	)		(1,337	)		(1,048	)		(1,009	)
Net cash from financing activities		(275,751	)		755,921			809,108			(66,605	)

Net change in cash and cash equivalents		(1,787,192	)		222,554			562,357			(349,265	)
Cash and cash equivalents at beginning of period		2,266,829			1,952,504			734,787			2,266,829
Cash and cash equivalents at end of period	$	479,637		$	2,175,058		$	1,297,144		$	1,917,564

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation

Trustmark Corporation (Trustmark) is a bank holding company headquartered in Jackson, Mississippi. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate institutions and individual customers through offices in Alabama (includes the Georgia Loan Production Office), Florida, Mississippi, Tennessee and Texas.

The consolidated financial statements include the accounts of Trustmark and all other entities in which Trustmark has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements, and notes thereto, included in Trustmark’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2021 (2021~~2022 (2022 Annual Report).

Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of these consolidated financial statements have been included. The preparation of financial statements in conformity with these accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expense during the reporting periods and the related disclosures. Although Management’s estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that in ~~2022~~2023 actual conditions could vary from those anticipated, which could affect Trustmark’s financial condition and results of operations. Actual results could differ from those estimates.

Note 2 – Securities Available for Sale and Held to Maturity

The following tables are a summary of the amortized cost and estimated fair value of securities available for sale and held to maturity at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	Securities Available for Sale									Securities Held to Maturity									Securities Available for Sale									Securities Held to Maturity
September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2023																			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury securities	$	458,475	$	—	$	(42,197	)	$	416,278	$	—	$	—	$	—		$	—	$	415,842	$	—	$	(28,939	)	$	386,903	$	28,486	$	361	$	—		$	28,847
U.S. Government agency obligations		9,681		—		(565	)		9,116		—		—		—			—		7,745		—		(491	)		7,254		—		—		—			—
Obligations of states and political subdivisions		4,836		—		(73	)		4,763		4,512		3		(8	)		4,507		4,804		110		(7	)		4,907		4,507		3		—			4,510
Mortgage-backed securities
Residential mortgage pass- through securities
Guaranteed by GNMA		32,067		8		(3,911	)		28,164		4,527		—		(467	)		4,060		29,737		9		(2,895	)		26,851		4,336		1		(312	)		4,025
Issued by FNMA and FHLMC		1,992,351		—		(274,294	)		1,718,057		179,375		—		(19,845	)		159,530		1,492,724		15		(174,891	)		1,317,848		497,854		1,250		(15,875	)		483,229
Other residential mortgage- backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		134,630		1		(8,493	)		126,138		197,923		2		(13,637	)		184,288		115,332		—		(7,140	)		108,192		179,334		—		(11,132	)		168,202
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		144,375		—		(2,405	)		141,970		770,648		—		(57,205	)		713,443		134,071		—		(1,864	)		132,207		759,821		75		(42,304	)		717,592
Total	$	2,776,415	$	9	$	(331,938	)	$	2,444,486	$	1,156,985	$	5	$	(91,162	)	$	1,065,828	$	2,200,255	$	134	$	(216,227	)	$	1,984,162	$	1,474,338	$	1,690	$	(69,623	)	$	1,406,405


	Securities Available for Sale									Securities Held to Maturity									Securities Available for Sale									Securities Held to Maturity
December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2022																			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Securities	$	349,562	$	16	$	(4,938	)	$	344,640	$	—	$	—	$	—		$	—	$	425,719	$	308	$	(34,514	)	$	391,513	$	28,295	$	—	$	(115	)	$	28,180
U.S. Government agency obligations		14,044		20		(337	)		13,727		—		—		—			—		8,297		—		(531	)		7,766		—		—		—			—
Obligations of states and political subdivisions		5,134		580		—			5,714		7,328		64		(3	)		7,389		4,820		53		(11	)		4,862		4,510		3		(3	)		4,510
Mortgage-backed securities
Residential mortgage pass- through securities
Guaranteed by GNMA		38,942		665		(34	)		39,573		5,005		187		(3	)		5,189		30,534		7		(3,444	)		27,097		4,442		—		(395	)		4,047
Issued by FNMA and FHLMC		2,230,498		8,945		(21,014	)		2,218,429		43,444		962		—			44,406		1,541,570		12		(196,119	)		1,345,463		509,311		—		(19,586	)		489,725
Other residential mortgage- backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		193,908		2,879		(97	)		196,690		241,934		9,015		(31	)		250,918		123,755		—		(8,615	)		115,140		188,201		—		(13,826	)		174,375
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		424,201		404		(4,501	)		420,104		44,826		783		—			45,609		136,014		—		(3,773	)		132,241		759,755		34		(54,037	)		705,752
Total	$	3,256,289	$	13,509	$	(30,921	)	$	3,238,877	$	342,537	$	11,011	$	(37	)	$	353,511	$	2,270,709	$	380	$	(247,007	)	$	2,024,082	$	1,494,514	$	37	$	(87,962	)	$	1,406,589

During ~~2013, Trustmark reclassified $1.099~~ ~~billion of securities available for sale to securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6~~ ~~million ($28.8~~ ~~million, net of tax). During the second quarter of~~ 2022, Trustmark reclassified total of $~~343.1~~766.0 million of securities available for sale to securities held to maturity. At the date of ~~this transfer,~~these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $~~34.8~~91.9 million ($~~26.1~~68.9 million, net of tax).

The securities were transferred at fair value, which became the cost basis for the securities held to maturity. The net unrealized holding loss iswill be amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of ~~either transfer.~~these transfers. At ~~September 30, 2022,~~March 31, 2023, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled approximately $~~37.7~~88.5 million ($~~28.3~~66.3 million, net of tax) compared to approximately $~~6.3~~92.3 million ($~~4.7~~69.2 million, net of tax) at December 31, ~~2021.~~2022.

ACL on Securities

Securities Available for Sale

Quarterly, Trustmark evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Trustmark performs further analysis. If Trustmark determines that a credit loss exists, the credit portion of the allowance is measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss recorded by Trustmark is limited to the amount by which the amortized cost exceeds the fair value. The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by Moody’s Investor Service (Moody’s).

At both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the results of the analysis did not identify any securities that ~~violate the credit loss triggers; therefore, no~~warranted DCF analysis ~~was performed~~ and no credit loss was recognized on any of the securities available for sale.

Accrued interest receivable is excluded from the estimate of credit losses for securities available for sale. At ~~September 30,~~both March 31, 2023 and December 31, 2022, accrued interest receivable totaled $~~4.8~~4.0 million for securities available for sale ~~compared to $5.1~~ ~~million at December 31, 2021~~ and was reported in other assets on the accompanying consolidated balance sheet.

Securities Held to Maturity

At ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021, $4.5~~ ~~million and $7.3~~ ~~million, respectively, of securities had a~~2022, the potential for credit loss exposure for Trustmark's securities held to maturity was $4.5 million and ~~all~~ consisted of municipal securities. After applying appropriate probability of default (PD) and loss given default (LGD)

assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity. At ~~September 30, 2022~~March 31, 2023 accrued interest receivable totaled $~~2.2~~2.8 million for securities held to maturity compared to $~~670~~2.7 ~~thousand~~million at December 31, ~~2021~~2022 and was reported in other assets on the accompanying consolidated balance sheet.

At both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, Trustmark had no securities held to maturity that were past due 30 days or more as to principal or interest payments. Trustmark had no securities held to maturity classified as nonaccrual at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Trustmark monitors the credit quality of securities held to maturity on a monthly basis through credit ratings. The following table presents the amortized cost of Trustmark’s securities held to maturity by credit rating, as determined by Moody’s, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Aaa	$	1,152,473	$	335,208	$	1,469,830	$	1,490,004
Aa1 to Aa3		3,002		5,007		3,000		3,001
Not Rated (1)		1,510		2,322		1,508		1,509
Total	$	1,156,985	$	342,537	$	1,474,338	$	1,494,514

(1) Not rated securities primarily consist of Mississippi municipal general obligations.

The tables below include securities with gross unrealized losses for which an allowance for credit losses has not been recorded ~~and~~ segregated by length of impairment at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
September 30, 2022	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
March 31, 2023																Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities	$	158,877	$	(9,333	)	$	257,401	$	(32,864	)	$	416,278	$	(42,197	)	$	63,262	$	(1,138	)	$	323,641	$	(27,801	)	$	386,903	$	(28,939	)
U.S. Government agency obligations		3,088		(311	)		5,935		(254	)		9,023		(565	)		66		(1	)		7,188		(490	)		7,254		(491	)
Obligations of states and political subdivisions		4,763		(73	)		3,661		(8	)		8,424		(81	)		1,016		(6	)		340		(1	)		1,356		(7	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		30,577		(4,136	)		1,199		(242	)		31,776		(4,378	)		2,082		(112	)		27,700		(3,095	)		29,782		(3,207	)
Issued by FNMA and FHLMC		562,533		(60,200	)		1,315,039		(233,939	)		1,877,572		(294,139	)		12,872		(692	)		1,456,565		(190,074	)		1,469,437		(190,766	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		302,446		(21,129	)		7,610		(1,001	)		310,056		(22,130	)		51,621		(2,382	)		224,510		(15,890	)		276,131		(18,272	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		854,792		(59,601	)		622		(9	)		855,414		(59,610	)		701,178		(28,599	)		144,534		(15,569	)		845,712		(44,168	)
Total	$	1,917,076	$	(154,783	)	$	1,591,467	$	(268,317	)	$	3,508,543	$	(423,100	)	$	832,097	$	(32,930	)	$	2,184,478	$	(252,920	)	$	3,016,575	$	(285,850	)


December 31, 2021
December 31, 2022
U.S. Treasury Securities	$	315,123	$	(4,938	)	$	—	$	—		$	315,123	$	(4,938	)	$	161,298	$	(5,655	)	$	258,087	$	(28,974	)	$	419,385	$	(34,629	)
U.S. Government agency obligations		1,312		(5	)		8,619		(332	)		9,931		(337	)		1,828		(184	)		5,938		(347	)		7,766		(531	)
Obligations of states and political subdivisions		3,006		(1	)		667		(2	)		3,673		(3	)		1,017		(11	)		3,664		(3	)		4,681		(14	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		6,040		(37	)		—		—			6,040		(37	)		27,223		(3,270	)		3,577		(569	)		30,800		(3,839	)
Issued by FNMA and FHLMC		1,734,921		(19,980	)		55,303		(1,034	)		1,790,224		(21,014	)		770,865		(41,807	)		1,062,041		(173,898	)		1,832,906		(215,705	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		19,038		(99	)		2,647		(29	)		21,685		(128	)		281,964		(21,452	)		7,235		(989	)		289,199		(22,441	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		344,025		(4,492	)		639		(9	)		344,664		(4,501	)		833,970		(57,742	)		1,644		(68	)		835,614		(57,810	)
Total	$	2,423,465	$	(29,552	)	$	67,875	$	(1,406	)	$	2,491,340	$	(30,958	)	$	2,078,165	$	(130,121	)	$	1,342,186	$	(204,848	)	$	3,420,351	$	(334,969	)

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

~~Security~~Securities Gains and Losses

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ there were no gross realized gains or losses as a result of calls and dispositions of securities. Realized gains and losses are determined using the specific identification method and are included in noninterest income as ~~security~~securities gains (losses), net.

Securities Pledged

Securities with a carrying value of $~~2.376~~2.559 billion and $~~2.831~~2.693 billion at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, were pledged to collateralize public deposits and securities sold under repurchase agreements and for other purposes as permitted by law. At both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, none of these securities were pledged under the Federal Reserve Discount Window program to provide additional contingency funding capacity.

Contractual Maturities

The amortized cost and estimated fair value of securities available for sale and held to maturity at ~~September 30, 2022,~~March 31, 2023, by contractual maturity, are shown below ($ in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Securities Available for Sale				Securities Held to Maturity				Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	30,375	$	30,163	$	4,171	$	4,167	$	20,056	$	19,984	$	4,166	$	4,170
Due after one year through five years		382,241		347,173		341		340		389,619		361,580		341		340
Due after five years through ten years		53,155		45,983		—		—		14,018		13,047		28,486		28,847
Due after ten years		7,221		6,838		—		—		4,698		4,453		—		—
		472,992		430,157		4,512		4,507		428,391		399,064		32,993		33,357
Mortgage-backed securities		2,303,423		2,014,329		1,152,473		1,061,321		1,771,864		1,585,098		1,441,345		1,373,048
Total	$	2,776,415	$	2,444,486	$	1,156,985	$	1,065,828	$	2,200,255	$	1,984,162	$	1,474,338	$	1,406,405

Note 3 – LHFI and ACL, LHFI

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, LHFI consisted of the following ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Loans secured by real estate:
Construction, land development and other land	$	693,741	$	596,968	$	682,214	$	690,616
Other secured by 1-4 family residential properties		566,985		517,683		595,520		590,790
Secured by nonfarm, nonresidential properties		3,206,946		2,977,084		3,375,579		3,278,830
Other real estate secured		593,119		726,043		847,527		742,538
Other loans secured by real estate:
Other construction		953,654		711,813		1,041,558		1,028,926
Secured by 1-4 family residential properties		2,030,127		1,460,310		2,226,528		2,185,057
Commercial and industrial loans		1,689,532		1,414,279		1,914,137		1,821,259
Consumer loans		166,027		162,555		166,464		170,230
State and other political subdivision loans		1,188,703		1,146,251		1,193,727		1,223,863
Other commercial loans		497,230		534,843		453,941		471,930
LHFI		11,586,064		10,247,829		12,497,195		12,204,039
Less ACL		115,050		99,457		122,239		120,214
Net LHFI	$	11,471,014	$	10,148,372	$	12,374,956	$	12,083,825

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, accrued interest receivable for LHFI totaled $~~38.2~~57.5 million and $~~26.7~~50.7 million, respectively, with no related ACL and was reported in other assets on the accompanying consolidated balance sheet.

Loan Concentrations

Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At ~~September 30, 2022,~~March 31, 2023, Trustmark’s geographic loan distribution was concentrated primarily in its five key market regions: Alabama, Florida, Mississippi, Tennessee and Texas. Accordingly, the ultimate collectability of a substantial portion of these loans is susceptible to changes in market conditions in these areas.

Nonaccrual and Past Due LHFI

No material interest income was recognized in the income statement on nonaccrual LHFI for each of the periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

The following tables provide the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more still accruing interest at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022						March 31, 2023
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing		Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	142	$	4,383	$	—	$	119	$	2,039	$	—
Other secured by 1-4 family residential properties		489		3,531		292		473		4,313		787
Secured by nonfarm, nonresidential properties		5,263		7,738		—		4,168		6,871		—
Other real estate secured		—		574		—		—		172		—
Other loans secured by real estate:
Other construction		—		7,620		—		—		7,620		—
Secured by 1-4 family residential properties		1,233		14,774		1,086		1,672		25,247		953
Commercial and industrial loans		407		25,899		—		14,181		24,842		135
Consumer loans		—		129		416		—		239		286
State and other political subdivision loans		—		2,988		—
Other commercial loans		—		291		48		—		1,032		94
Total	$	7,534	$	67,927	$	1,842	$	20,613	$	72,375	$	2,255


	December 31, 2021						December 31, 2022
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing		Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	4,784	$	5,878	$	7	$	137	$	1,902	$	—
Other secured by 1-4 family residential properties		1,319		3,418		148		482		3,957		534
Secured by nonfarm, nonresidential properties		10,842		12,508		—		4,841		6,957		—
Other real estate secured		56		150		—		—		231		—
Other loans secured by real estate:
Other construction		—		—		—		—		7,620		—
Secured by 1-4 family residential properties		—		12,775		1,655		1,193		19,775		3,118
Commercial and industrial loans		1,363		19,328		—		14,441		25,102		—
Consumer loans		—		117		304		—		181		277
State and other political subdivision loans		—		3,664		—
Other commercial loans		4,405		4,860		—		—		247		—
Total	$	22,769	$	62,698	$	2,114	$	21,094	$	65,972	$	3,929

The following tables provide an aging analysis of the amortized cost basis of past due LHFI (including nonaccrual LHFI) at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022												March 31, 2023
	Past Due												Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI		30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	638	$	4,047	$	159	$	4,844	$	688,897	$	693,741	$	856	$	—	$	1,495	$	2,351	$	679,863	$	682,214
Other secured by 1-4 family residential properties		2,490		559		862		3,911		563,074		566,985		2,385		1,115		1,910		5,410		590,110		595,520
Secured by nonfarm, nonresidential properties		1,039		—		1,948		2,987		3,203,959		3,206,946		1,161		16		1,093		2,270		3,373,309		3,375,579
Other real estate secured		440		48		—		488		592,631		593,119		2,536		42		—		2,578		844,949		847,527
Other loans secured by real estate:
Other construction		—		—		7,620		7,620		946,034		953,654		—		—		7,620		7,620		1,033,938		1,041,558
Secured by 1-4 family residential properties		8,161		3,066		5,437		16,664		2,013,463		2,030,127		7,199		4,439		9,692		21,330		2,205,198		2,226,528
Commercial and industrial loans		1,592		45		790		2,427		1,687,105		1,689,532		1,313		503		883		2,699		1,911,438		1,914,137
Consumer loans		1,329		390		417		2,136		163,891		166,027		1,324		312		286		1,922		164,542		166,464
State and other political subdivision loans		143		—		177		320		1,188,383		1,188,703		1,286		—		—		1,286		1,192,441		1,193,727
Other commercial loans		378		29		190		597		496,633		497,230		402		179		118		699		453,242		453,941
Total	$	16,210	$	8,184	$	17,600	$	41,994	$	11,544,070	$	11,586,064	$	18,462	$	6,606	$	23,097	$	48,165	$	12,449,030	$	12,497,195


	December 31, 2021												December 31, 2022
	Past Due												Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI		30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	323	$	11	$	5,241	$	5,575	$	591,393	$	596,968	$	1,972	$	199	$	34	$	2,205	$	688,411	$	690,616
Other secured by 1-4 family residential properties		1,811		368		567		2,746		514,937		517,683		3,682		1,206		1,281		6,169		584,621		590,790
Secured by nonfarm, nonresidential properties		845		—		1,442		2,287		2,974,797		2,977,084		825		18		794		1,637		3,277,193		3,278,830
Other real estate secured		—		—		142		142		725,901		726,043		131		30		—		161		742,377		742,538
Other loans secured by real estate:
Other construction		—		—		—		—		711,813		711,813		—		—		7,620		7,620		1,021,306		1,028,926
Secured by 1-4 family residential properties		2,799		531		6,720		10,050		1,450,260		1,460,310		10,709		4,236		9,999		24,944		2,160,113		2,185,057
Commercial and industrial loans		607		41		1,107		1,755		1,412,524		1,414,279		1,966		508		8,974		11,448		1,809,811		1,821,259
Consumer loans		1,673		182		305		2,160		160,395		162,555		2,199		645		279		3,123		167,107		170,230
State and other political subdivision loans		32		—		177		209		1,146,042		1,146,251		431		—		—		431		1,223,432		1,223,863
Other commercial loans		220		32		118		370		534,473		534,843		785		45		24		854		471,076		471,930
Total	$	8,310	$	1,165	$	15,819	$	25,294	$	10,222,535	$	10,247,829	$	22,700	$	6,887	$	29,005	$	58,592	$	12,145,447	$	12,204,039

~~Troubled Debt Restructurings (TDRs)~~

~~A TDR occurs when a borrower is~~Modified LHFI

Occasionally, Trustmark modifies loans for borrowers experiencing financial difficulties ~~and~~by providing payment concessions, interest-only payments for ~~related economic~~an extended period of time, maturity extensions or legal reasons, a concession is granted to the borrower that Trustmark would not otherwise consider. Whatever the form of concession that might be granted by Trustmark, Management’s objective is to enhance collectability by obtaining more cash or other value from the borrower or by increasing the probability of receipt by granting the concession than by not granting it.interest rate reductions. Other concessions may arise from court proceedings or may be imposed by law. In ~~addition, TDRs also include those credits that are extended or renewed to a borrower who is not able to obtain funds from sources other than~~some cases, Trustmark ~~at a market interest rate for new debt with similar risk.~~

~~At September 30, 2022 and 2021, LHFI classified as TDRs totaled $15.7~~ ~~million and $23.5~~ ~~million, respectively. At September 30, 2022, TDRs were primarily comprised~~provides multiple types of ~~bankruptcies, payment~~ concessions ~~and credits with interest-only payments for an extended period of time which totaled $13.6~~ ~~million. At September 30, 2021, TDRs were primarily comprised of bankruptcies, payment concessions and credits with interest-only payments for an extended period of time which totaled $20.1~~ ~~million. Trustmark had $~~86 ~~thousand in unused commitments~~ on ~~TDRs at September 30, 2022, compared to $1.0~~ ~~million at September 30, 2021.~~one loan.

~~At September 30, 2022 and 2021, TDRs had a related ACL, LHFI of $~~14~~1.3~~

~~million and $2.6~~ ~~million, respectively. Trustmark had $~~9 ~~thousand in charge-offs on TDRs for the nine months ended September 30, 2022, compared to $3.7~~ ~~million for the nine months ended September 30, 2021.~~

The following table ~~illustrates~~presents the ~~impact~~amortized cost of ~~modifications classified as TDRs for~~LHFI at March 31, 2023 by class of loan and type of modification that were both experiencing financial difficulty and modified during the ~~periods presented~~three months ended March 31, 2023 ($ in thousands):. The percentage of the amortized cost basis of LHFI that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of LHFI is also presented below:

Three Months Ended September 30,

2022

2021

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Loans secured by real estate:

Other secured by 1-4 family
   residential properties

2

$
248

$
241

—

$
—

$
—

Secured by nonfarm,
   nonresidential properties

1

501

499

3

483

483

Other loans secured by real estate:

Secured by 1-4 family residential
   properties

4

158

166

1

152

152

Total

7

$
907

$
906

4

$
635

$
635

Nine Months Ended September 30,

2022

2021

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Loans secured by real estate:

Construction, land development
   and other land

1

$
146

$
146

5

$
5,582

$
5,582

Other secured by 1-4 family
   residential properties

4

321

314

3

37

37

Secured by nonfarm,
   nonresidential properties

4

6,505

6,503

4

860

860

Other real estate secured

1

85

85

—

—

—

Other loans secured by real estate:

Secured by 1-4 family residential
   properties

10

1,182

1,209

4

401

401

Commercial and industrial loans

1

500

500

2

1,014

1,014

Other commercial loans

—

—

—

2

4,929

4,929

Total

21

$
8,739

$
8,757

20

$
12,823

$
12,823


	March 31, 2023
	Term Extension		% of Total Class of Loan
Loans secured by real estate:
Secured by nonfarm, nonresidential properties	$	384		0.01	%
Other loans secured by real estate:
Secured by 1-4 family residential properties		492		0.02	%
Total	$	876		0.01	%

The following table ~~below includes~~details the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the period presented:


		Three Months Ended March 31, 2023
		Financial Effect
Loans secured by real estate:
Secured by nonfarm, nonresidential properties		Renewed with an extended amortization period and lowered the monthly payment amount for the borrower.
Other loans secured by real estate:
Secured by 1-4 family residential properties		Extended the amortization periods on four loans by a weighted-average of 14 years, which reduced the aggregate monthly payment amounts for the borrowers.

Trustmark had no unused commitments on modified loans to borrowers experiencing financial difficulty at March 31, 2023.

During the three months ended March 31, 2023, Trustmark had term extension balances of $56 thousand at default for ~~TDRs~~LHFI in the loans secured by 1-4 family residential properties portfolio that had a payment default and were modified within the ~~last~~ twelve months ~~for which there was a payment~~prior to that default ~~during the periods presented ($ in thousands):~~to borrowers experiencing financial difficulty.

Nine Months Ended September 30,

2022

2021

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Loans secured by real estate:

Construction, land development and other land

—

$
—

5

$
5,582

Other secured by 1-4 family residential properties

—

—

1

16

Other loans secured by real estate:

Secured by 1-4 family residential properties

—

—

1

78

Other commercial loans

—

—

2

4,929

Total

—

$
—

9

$
10,605

Trustmark’s TDRs have resulted primarily from allowing the borrower to pay interest-only for an extended period of time and payment concessions. Accordingly, as shown above, these TDRs have a similar recorded investment for both the pre-modification and post-modification disclosure. Trustmark has utilized loans 90 days or more past due to define payment default in determining ~~TDRs~~modified loans that have subsequently defaulted. If Trustmark determines that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off against the ACL, LHFI.

Trustmark closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following ~~tables detail~~table provides details of the performance of such LHFI ~~classified as TDRs by loan class at September 30, 2022 and 2021~~that have been modified during the period presented ($ in thousands):


	Three Months Ended March 31, 2023
	Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total
Loans secured by real estate:
Secured by nonfarm, nonresidential properties	$	—	$	—	$	—	$	—	$	384	$	384
Other loans secured by real estate:
Secured by 1-4 family residential properties		—		—		—		—		492		492
Total	$	—	$	—	$	—	$	—	$	876	$	876

September 30, 2022

Accruing

Nonaccrual

Total

Loans secured by real estate:

Construction, land development and other land

$
—

$
4,162

$
4,162

Other secured by 1-4 family residential properties

195

862

1,057

Secured by nonfarm, nonresidential properties

—

4,117

4,117

Other real estate secured

—

79

79

Other loans secured by real estate:

Secured by 1-4 family residential properties

114

3,314

3,428

Commercial and industrial loans

—

49

49

State and other political subdivision loans

—

2,811

2,811

Other commercial loans

—

36

36

Total TDRs

$
309

$
15,430

$
15,739

1615

September 30, 2021

Accruing

Nonaccrual

Total

Loans secured by real estate:

Construction, land development and other land

$
—

$
4,607

$
4,607

Other secured by 1-4 family residential properties

—

1,007

1,007

Secured by nonfarm, nonresidential properties

394

2,961

3,355

Other loans secured by real estate:

Secured by 1-4 family residential properties

—

2,292

2,292

Commercial and industrial loans

2,000

1,600

3,600

Consumer loans

—

11

11

State and other political subdivision loans

—

3,609

3,609

Other commercial loans

—

5,009

5,009

Total TDRs

$
2,394

$
21,096

$
23,490

Collateral-Dependent Loans

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022												March 31, 2023
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Miscellaneous		Total		Real Estate		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	4,273	$	—	$	—	$	—	$	—	$	4,273	$	1,540	$	—	$	—	$	1,540
Other secured by 1-4 family residential properties		489		—		—		—		—		489		473		—		—		473
Secured by nonfarm, nonresidential properties		5,493		—		—		—		—		5,493		4,168		—		—		4,168
Other loans secured by real estate:
Other construction		7,620		—		—		—		—		7,620		7,620		—		—		7,620
Secured by 1-4 family residential properties		1,233		—		—		—		—		1,233		1,672		—		—		1,672
Commercial and industrial loans		40		—		349		398		24,494		25,281		39		70		23,392		23,501
State and other political subdivision loans		2,988		—		—		—		—		2,988
Other commercial loans		—		—		—		—		36		36		—		—		879		879
Total	$	22,136	$	—	$	349	$	398	$	24,530	$	47,413	$	15,512	$	70	$	24,271	$	39,853

December 31, 2021

Real Estate

Equipment and
Machinery

Inventory and Receivables

Vehicles

Miscellaneous

Total

Loans secured by real estate:

Construction, land development and
   other land

$
5,198

$
—

$
—

$
—

$
—

$
5,198

Secured by nonfarm, nonresidential
   properties

11,072

—

—

—

—

11,072

Other real estate secured

56

—

—

—

—

56

Other loans secured by real estate:

Secured by 1-4 family residential
   properties

1,319

—

—

—

—

1,319

Commercial and industrial loans

42

349

1,253

370

16,430

18,444

State and other political subdivision loans

3,664

—

—

—

—

3,664

Other commercial loans

4,572

—

—

—

36

4,608

Total

$
25,923

$
349

$
1,253

$
370

$
16,466

$
44,361


	December 31, 2022
	Real Estate		Inventory and Receivables		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	1,558	$	—	$	—	$	—	$	1,558
Other secured by 1-4 family residential properties		482		—		—		—		482
Secured by nonfarm, nonresidential properties		4,841		—		—		—		4,841
Other loans secured by real estate:
Other construction		7,620		—		—		—		7,620
Secured by 1-4 family residential properties		1,193		—		—		—		1,193
Commercial and industrial loans		40		233		395		23,926		24,594
Total	$	15,734	$	233	$	395	$	23,926	$	40,288

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by class of loan of the collateral that secures Trustmark’s collateral-dependent LHFI:

•

Loans secured by real estate – Loans within these loan classes are secured by liens on real estate properties. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Other loans secured by real estate – Loans within these loan classes are secured by liens on real estate properties. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Commercial and industrial loans – Loans within this loan class are primarily secured by inventory, accounts receivables, equipment and other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

•

State and other political subdivision loans – Loans within this loan class are secured by liens on real estate properties or other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

•

Other commercial loans – Loans within this loan class are secured by non-real estate collateral. One loan relationship experienced a decline in fair value to the collateral that secures the relationship due to general deterioration during the quarter. There have been no other significant changes to the collateral that secures these financial assets during the period.

Credit Quality Indicators

Trustmark’s LHFI portfolio credit quality indicators focus on six key quality ratios that are compared against bank tolerances. The loan indicators are total classified outstanding, total criticized outstanding, nonperforming loans, nonperforming assets, delinquencies and net loan losses. Due to the homogenous nature of consumer loans, Trustmark does not assign a formal internal risk rating to each credit and therefore the criticized and classified measures are primarily composed of commercial loans.

In addition to monitoring portfolio credit quality indicators, Trustmark also measures how effectively the lending process is being managed and risks are being identified. As part of an ongoing monitoring process, Trustmark grades the commercial portfolio segment as it relates to credit file completion and financial statement exceptions, underwriting, collateral documentation and compliance with law as shown below:

•

Credit File Completeness and Financial Statement Exceptions – evaluates the quality and condition of credit files in terms of content and completeness and focuses on efforts to obtain and document sufficient information to determine the quality and status of credits. Also included is an evaluation of the systems/procedures used to ensure compliance with policy.

•

Underwriting – evaluates whether credits are adequately analyzed, appropriately structured and properly approved within loan policy requirements. A properly approved credit is approved by an adequate authority in a timely manner with all conditions of approval fulfilled. Total policy exceptions measure the level of underwriting and other policy exceptions within a portfolio segment.

•

Collateral Documentation – focuses on the adequacy of documentation to perfect Trustmark’s collateral position and substantiate collateral value. Collateral exceptions measure the level of documentation exceptions within a portfolio segment. Collateral exceptions occur when certain collateral documentation is either not present or not current.

•

Compliance with Law – focuses on underwriting, documentation, approval and reporting in compliance with banking laws and regulations. Primary emphasis is directed to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Regulation O requirements and regulations governing appraisals.

Commercial Credits

Trustmark has established a loan grading system that consists of ten individual credit risk grades (risk ratings) that encompass a range from loans where the expectation of loss is negligible to loans where loss has been established. The model is based on the risk of default for an individual credit and establishes certain criteria to delineate the level of risk across the ten unique credit risk grades. Credit risk grade definitions are as follows:

•

Risk Rate (RR) 1 through RR 6 – Grades one through six represent groups of loans that are not subject to criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risk measured by using a variety of credit risk criteria such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.

•

Other Assets Especially Mentioned (Special Mention) (RR 7) – a loan that has a potential weakness that if not corrected will lead to a more severe rating. This rating is for credits that are currently protected but potentially weak because of an adverse feature or condition that if not corrected will lead to a further downgrade.

•

Substandard (RR 8) – a loan that has at least one identified weakness that is well defined. This rating is for credits where the primary sources of repayment are not viable at the time of evaluation or where either the capital or collateral is not adequate to support the loan and the secondary means of repayment do not provide a sufficient level of support to offset the identified weakness. Loss potential exists in the aggregate amount of substandard loans but does not necessarily exist in individual loans.

•

Doubtful (RR 9) – a loan with an identified weakness that does not have a valid secondary source of repayment. Generally, these credits have an impaired primary source of repayment and secondary sources are not sufficient to prevent a loss in the credit. The exact amount of the loss has not been determined at this time.

•

Loss (RR 10) – a loan or a portion of a loan that is deemed to be uncollectible.

By definition, credit risk grades special mention (RR 7), substandard (RR 8), doubtful (RR 9) and loss (RR 10) are criticized loans while substandard (RR 8), doubtful (RR 9) and loss (RR 10) are classified loans. These definitions are standardized by the bank regulatory agencies and are generally equally applied to each individual lending institution. The remaining credit risk grades are considered pass credits and are solely defined by Trustmark.

To enhance this process, Trustmark has determined that certain loans will be individually assessed, and a formal analysis will be performed and based upon the analysis the loan will be written down to the net realizable value. Trustmark will individually assess and remove loans from the pool in the following circumstances:

•

Commercial nonaccrual loans with total exposure of $500 thousand (excluding those portions of the debt that are government guaranteed or are secured by Trustmark deposits or marketable securities) or more.

•

Any loan that is believed to not share similar risk characteristics with the rest of the pool will be individually assessed. Otherwise, the loan will be left within the pool based on the results of the assessment.

•

Commercial accruing loans deemed to be a ~~TDR~~modified loan to a borrower experiencing financial difficulty with total exposure of $500 thousand (excluding those portions of the debt that are government guaranteed or are secured by Trustmark deposits or marketable securities) or more. If the loan is believed to not share similar risk characteristics with the rest of the loan pool, the loan will be individually assessed. Otherwise, the loan will be left within the pool and monitored on an ongoing basis.

Each loan officer assesses the appropriateness of the internal risk rating assigned to their credits on an ongoing basis. Trustmark’s Asset Review area conducts independent credit quality reviews of the majority of Trustmark’s commercial loan portfolio both on the underlying credit quality of each individual loan class as well as the adherence to Trustmark’s loan policy and the loan administration process.

In addition to the ongoing internal risk rate monitoring described above, Trustmark’s Credit Quality Review Committee meets monthly and performs a review of all loans of $100 thousand or more that are either delinquent 30 days or more or on nonaccrual. This review includes recommendations regarding risk ratings, accrual status, charge-offs and appropriate servicing officer as well as evaluation of problem credits for determination of ~~TDRs.~~modified status. Quarterly, the Credit Quality Review Committee reviews and modifies continuous action plans for all credits risk rated seven or worse for relationships of $100 thousand or more.

In addition, periodic reviews of significant development, commercial construction, multi-family and nonowner-occupied projects are performed. These reviews assess each particular project with respect to location, project valuations, progress of completion, leasing

status, current financial information, rents, operating expenses, cash flow, adherence to budget and projections and other information as applicable. Summary results are reviewed by Senior and Regional Credit Officers in addition to the Chief Credit Officer with a determination made as to the appropriateness of existing risk ratings and accrual status.

Consumer Credits

Consumer LHFI that do not meet a minimum custom credit score are reviewed quarterly. The Retail Credit Review Committee, Management Credit Policy Committee and the ~~Directors Credit Policy~~Enterprise Risk Committee review the volume and/or percentage of approvals that did not meet the minimum passing custom score to ensure that Trustmark continues to originate quality loans.

Trustmark monitors the levels and severity of past due consumer LHFI on a daily basis through its collection activities. A detailed assessment of consumer LHFI delinquencies is performed monthly at both a product and market level.

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on analyses performed at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	Term Loans by Origination Year																Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total		2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
As of September 30, 2022	Commercial LHFI
As of March 31, 2023																	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	303,156	$	162,650	$	36,577	$	7,545	$	1,445	$	2,772	$	78,876	$	593,021	$	108,703	$	289,271	$	96,128	$	17,647	$	3,056	$	2,923	$	59,432	$	577,160
Special Mention - RR 7		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard - RR 8		159		245		—		3,886		—		—		—		4,290		2,380		1,113		—		—		1,413		—		40		4,946
Doubtful - RR 9		—		—		—		—		—		42		—		42		—		—		—		—		—		42		—		42
Total		303,315		162,895		36,577		11,431		1,445		2,814		78,876		597,353		111,083		290,384		96,128		17,647		4,469		2,965		59,472		582,148
Current period gross charge-offs																		—		4		10		—		—		—		—		14

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	33,783	$	34,326	$	18,228	$	9,818	$	7,141	$	3,556	$	13,669	$	120,521	$	6,593	$	40,253	$	30,862	$	16,462	$	8,893	$	7,370	$	15,077	$	125,510
Special Mention - RR 7		—		98		19		—		—		—		—		117		—		29		62		15		—		—		—		106
Substandard - RR 8		522		126		123		89		156		295		—		1,311		271		351		70		71		86		480		62		1,391
Doubtful - RR 9		—		16		—		—		—		—		—		16		—		13		—		—		—		—		—		13
Total		34,305		34,566		18,370		9,907		7,297		3,851		13,669		121,965		6,864		40,646		30,994		16,548		8,979		7,850		15,139		127,020
Current period gross charge-offs																		—		—		—		—		—		—		—		—

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	680,957	$	654,012	$	616,131	$	494,170	$	258,703	$	331,303	$	121,487	$	3,156,763	$	160,322	$	857,606	$	635,982	$	654,501	$	431,127	$	459,016	$	128,726	$	3,327,280
Special Mention - RR 7		933		—		—		273		—		—		—		1,206		926		—		—		—		—		—		—		926
Substandard - RR 8		13,216		1,779		9,408		928		4,626		18,861		—		48,818		384		14,017		1,627		9,592		9,140		11,805		673		47,238
Doubtful - RR 9		36		—		—		84		—		18		—		138		31		—		—		—		73		16		—		120
Total		695,142		655,791		625,539		495,455		263,329		350,182		121,487		3,206,925		161,663		871,623		637,609		664,093		440,340		470,837		129,399		3,375,564
Current period gross charge-offs																		—		—		—		—		—		28		—		28

Other real estate secured:
Pass - RR 1 through RR 6	$	193,674	$	124,859	$	113,221	$	115,830	$	11,679	$	19,849	$	13,557	$	592,669	$	31,331	$	268,530	$	184,909	$	231,161	$	93,685	$	25,637	$	11,065	$	846,318
Special Mention - RR 7		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard - RR 8		—		—		64		—		7		79		96		246		—		180		408		304		—		65		82		1,039
Doubtful - RR 9		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		193,674		124,859		113,285		115,830		11,686		19,928		13,653		592,915		31,331		268,710		185,317		231,465		93,685		25,702		11,147		847,357
Current period gross charge-offs																		—		—		—		—		—		—		—		—


	Term Loans by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
As of March 31, 2023	Commercial LHFI
Other loans secured by real estate:
Other construction:
Pass - RR 1 through RR 6	$	98,787	$	387,849	$	331,813	$	214,664	$	825	$	—	$	—	$	1,033,938
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		—		—		7,620		—		—		—		—		7,620
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		98,787		387,849		339,433		214,664		825		—		—		1,041,558
Current period gross charge-offs		—		—		—		—		—		—		—		—

Commercial and industrial loans:
Pass - RR 1 through RR 6	$	174,523	$	723,562	$	214,009	$	89,717	$	41,429	$	56,865	$	556,025	$	1,856,130
Special Mention - RR 7		—		11		225		12,005		25		—		6,489		18,755
Substandard - RR 8		—		6,646		9,803		1,826		175		55		20,485		38,990
Doubtful - RR 9		—		162		50		5		—		32		13		262
Total		174,523		730,381		224,087		103,553		41,629		56,952		583,012		1,914,137
Current period gross charge-offs		—		204		191		58		—		11		7		471

State and other political subdivision loans:
Pass - RR 1 through RR 6	$	14,837	$	354,676	$	222,697	$	121,049	$	38,350	$	432,774	$	9,344	$	1,193,727
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		—		—		—		—		—		—		—		—
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		14,837		354,676		222,697		121,049		38,350		432,774		9,344		1,193,727
Current period gross charge-offs		—		—		—		—		—		—		—		—

Other commercial loans:
Pass - RR 1 through RR 6	$	16,001	$	76,463	$	34,515	$	26,447	$	34,269	$	13,591	$	237,774	$	439,060
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		16		4,507		89		—		—		1,104		9,141		14,857
Doubtful - RR 9		—		24		—		—		—		—		—		24
Total		16,017		80,994		34,604		26,447		34,269		14,695		246,915		453,941
Current period gross charge-offs		—		—		—		—		—		—		—		—

Total commercial LHFI	$	615,105	$	3,025,263	$	1,770,869	$	1,395,466	$	662,546	$	1,011,775	$	1,054,428	$	9,535,452
Total commercial LHFI gross charge-offs	$	—	$	208	$	201	$	58	$	—	$	39	$	7	$	513

Term Loans by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

As of September 30, 2022

Commercial LHFI

Other loans secured by real
   estate:

Other construction:

Pass - RR 1 through RR 6

$
254,890

$
320,751

$
369,552

$
841

$
—

$
—

$
—

$
946,034

Special Mention - RR 7

—

—

—

—

—

—

—

—

Substandard - RR 8

—

7,620

—

—

—

—

—

7,620

Doubtful - RR 9

—

—

—

—

—

—

—

—

Total

254,890

328,371

369,552

841

—

—

—

953,654

Commercial and industrial
   loans:

Pass - RR 1 through RR 6

$
505,209

$
273,347

$
151,087

$
50,821

$
17,795

$
72,908

$
574,211

$
1,645,378

Special Mention - RR 7

—

—

9

—

—

—

—

9

Substandard - RR 8

7,577

10,000

1,208

375

91

5,403

19,273

43,927

Doubtful - RR 9

127

16

12

10

38

4

11

218

Total

512,913

283,363

152,316

51,206

17,924

78,315

593,495

1,689,532

State and other political
   subdivision loans:

Pass - RR 1 through RR 6

$
320,188

$
234,723

$
127,801

$
41,354

$
22,216

$
436,733

$
—

$
1,183,015

Special Mention - RR 7

—

—

—

—

—

2,700

—

2,700

Substandard - RR 8

—

—

—

—

—

2,988

—

2,988

Doubtful - RR 9

—

—

—

—

—

—

—

—

Total

320,188

234,723

127,801

41,354

22,216

442,421

—

1,188,703

Other commercial loans:

Pass - RR 1 through RR 6

$
80,800

$
42,678

$
30,671

$
38,759

$
6,919

$
25,768

$
256,633

$
482,228

Special Mention - RR 7

879

—

—

—

—

—

—

879

Substandard - RR 8

3,711

106

2

36

29

1,179

9,013

14,076

Doubtful - RR 9

24

—

—

—

—

23

—

47

Total

85,414

42,784

30,673

38,795

6,948

26,970

265,646

497,230

Total commercial
   LHFI

$
2,399,841

$
1,867,352

$
1,474,113

$
764,819

$
330,845

$
924,481

$
1,086,826

$
8,848,277


	Term Loans by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
As of March 31, 2023	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	5,155	$	65,076	$	21,925	$	3,287	$	1,636	$	2,854	$	—	$	99,933
Past due 30-89 days		—		—		—		—		7		28		—		35
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		56		—		35		7		—		98
Total		5,155		65,076		21,981		3,287		1,678		2,889		—		100,066
Current period gross charge-offs		—		—		—		—		—		—		—		—

Other secured by 1-4 family residential properties:
Current	$	6,358	$	22,887	$	7,127	$	5,271	$	4,798	$	10,367	$	404,022	$	460,830
Past due 30-89 days		—		152		135		2		42		593		2,046		2,970
Past due 90 days or more		—		—		—		—		12		472		304		788
Nonaccrual		—		149		24		4		18		841		2,876		3,912
Total		6,358		23,188		7,286		5,277		4,870		12,273		409,248		468,500
Current period gross charge-offs		—		—		5		—		1		6		22		34

Secured by nonfarm, nonresidential properties:
Current	$	—	$	—	$	15	$	—	$	—	$	—	$	—	$	15
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		—		15		—		—		—		—		15
Current period gross charge-offs		—		—		—		—		—		—		—		—

Other real estate secured:
Current	$	—	$	—	$	—	$	86	$	—	$	84	$	—	$	170
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		—		—		86		—		84		—		170
Current period gross charge-offs		—		—		—		—		—		—		—		—


	Term Loans by Origination Year																Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total		2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
As of September 30, 2022	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
As of March 31, 2023																	Consumer LHFI
Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	43,286	$	42,072	$	4,438	$	2,265	$	1,728	$	2,179	$	—	$	95,968	$	97,917	$	908,617	$	553,441	$	195,241	$	107,846	$	328,376	$	—	$	2,191,438
Past due 30-89 days		—		306		—		—		19		27		—		352		—		2,997		3,303		1,131		239		1,219		—		8,889
Past due 90 days or more		—		—		—		—		—		—		—		—		—		380		225		60		114		173		—		952
Nonaccrual		—		59		—		—		—		9		—		68		—		3,798		6,291		3,466		2,111		9,583		—		25,249
Total		43,286		42,437		4,438		2,265		1,747		2,215		—		96,388		97,917		915,792		563,260		199,898		110,310		339,351		—		2,226,528
Current period gross charge-offs																		294		—		—		—		—		—		—		294

Other secured by 1-4 family residential properties:
Consumer loans:
Current	$	15,589	$	8,922	$	5,635	$	5,245	$	4,473	$	8,101	$	391,803	$	439,768	$	19,717	$	56,948	$	21,458	$	7,526	$	2,028	$	1,216	$	55,435	$	164,328
Past due 30-89 days		81		77		10		57		6		333		1,256		1,820		467		376		179		23		25		9		533		1,612
Past due 90 days or more		—		—		—		—		—		37		256		293		18		20		5		—		—		—		243		286
Nonaccrual		88		22		4		22		8		450		2,545		3,139		—		125		48		21		—		—		44		238
Total		15,758		9,021		5,649		5,324		4,487		8,921		395,860		445,020		20,202		57,469		21,690		7,570		2,053		1,225		56,255		166,464
Current period gross charge-offs																		1,373		177		75		32		1		1		496		2,155

Secured by nonfarm, nonresidential properties:
Current	$	—	$	21	$	—	$	—	$	—	$	—	$	—	$	21
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		21		—		—		—		—		—		21
Total consumer LHFI																	$	129,632	$	1,061,525	$	614,232	$	216,118	$	118,911	$	355,822	$	465,503	$	2,961,743
Total consumer LHFI gross charge-offs																	$	1,667	$	177	$	80	$	32	$	2	$	7	$	518	$	2,483

Other real estate secured:
Current	$	—	$	—	$	91	$	—	$	6	$	107	$	—	$	204
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		—		91		—		6		107		—		204
Total LHFI																	$	744,737	$	4,086,788	$	2,385,101	$	1,611,584	$	781,457	$	1,367,597	$	1,519,931	$	12,497,195
Total current period gross charge-offs																	$	1,667	$	385	$	281	$	90	$	2	$	46	$	525	$	2,996


	Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	363,824	$	119,727	$	29,632	$	3,405	$	1,016	$	2,364	$	64,953	$	584,921
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		146		199		—		1,415		—		—		44		1,804
Doubtful - RR 9		—		—		—		—		—		42		—		42
Total		363,970		119,926		29,632		4,820		1,016		2,406		64,997		586,767

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	41,996	$	33,346	$	17,215	$	9,341	$	6,798	$	2,870	$	12,209	$	123,775
Special Mention - RR 7		29		64		17		—		—		—		—		110
Substandard - RR 8		686		31		75		88		220		285		—		1,385
Doubtful - RR 9		15		—		—		—		—		—		—		15
Total		42,726		33,441		17,307		9,429		7,018		3,155		12,209		125,285

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	889,556	$	657,242	$	603,515	$	457,163	$	205,425	$	281,828	$	130,052	$	3,224,781
Special Mention - RR 7		10,284		—		—		271		—		—		—		10,555
Substandard - RR 8		12,034		1,066		9,457		905		706		18,488		693		43,349
Doubtful - RR 9		34		—		—		77		—		18		—		129
Total		911,908		658,308		612,972		458,416		206,131		300,334		130,745		3,278,814

Other real estate secured:
Pass - RR 1 through RR 6	$	293,051	$	156,386	$	143,114	$	107,827	$	11,297	$	17,626	$	12,516	$	741,817
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		30		—		309		—		5		68		126		538
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		293,081		156,386		143,423		107,827		11,302		17,694		12,642		742,355

Term Loans by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

As of September 30, 2022

Consumer LHFI

Other loans secured by real
estate:

Secured by 1-4 family
residential properties

Current

$
859,525

$
571,302

$
207,478

$
112,197

$
84,201

$
169,410

$
—

$
2,004,113

Past due 30-89 days

1,797

3,525

1,318

313

542

2,665

—

10,160

Past due 90 days or more

—

918

136

—

—

31

—

1,085

Nonaccrual

855

1,856

2,849

1,871

1,722

5,616

—

14,769

Total

862,177

577,601

211,781

114,381

86,465

177,722

—

2,030,127

Consumer loans:

Current

$
57,103

$
33,978

$
12,889

$
3,337

$
2,137

$
596

$
53,725

$
163,765

Past due 30-89 days

739

153

134

24

25

15

626

1,716

Past due 90 days or more

44

174

2

1

—

—

196

417

Nonaccrual

61

20

3

2

5

—

38

129

Total

57,947

34,325

13,028

3,364

2,167

611

54,585

166,027

Total consumer LHFI

$
979,168

$
663,405

$
234,987

$
125,334

$
94,872

$
189,576

$
450,445

$
2,737,787

Total LHFI

$
3,379,009

$
2,530,757

$
1,709,100

$
890,153

$
425,717

$
1,114,057

$
1,537,271

$
11,586,064


	Term Loans by Origination Year																Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total		2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2021	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
As of December 31, 2022																	Commercial LHFI
Other loans secured by real estate:
Other construction
Pass - RR 1 through RR 6	$	376,438	$	76,176	$	21,366	$	2,189	$	1,367	$	2,890	$	26,505	$	506,931	$	372,981	$	306,904	$	340,388	$	833	$	—	$	—	$	200	$	1,021,306
Special Mention - RR 7		71		6,382		—		—		—		—		—		6,453		—		—		—		—		—		—		—		—
Substandard - RR 8		2,243		—		3,435		30		—		—		—		5,708		—		7,620		—		—		—		—		—		7,620
Doubtful - RR 9		—		—		—		—		—		42		—		42		—		—		—		—		—		—		—		—
Total		378,752		82,558		24,801		2,219		1,367		2,932		26,505		519,134		372,981		314,524		340,388		833		—		—		200		1,028,926

Other secured by 1-4 family residential properties:
Commercial and industrial loans:
Pass - RR 1 through RR 6	$	44,208	$	23,269	$	13,194	$	9,722	$	5,737	$	3,076	$	8,771	$	107,977	$	673,848	$	261,962	$	120,123	$	44,994	$	14,265	$	69,078	$	577,749	$	1,762,019
Special Mention - RR 7		111		143		—		—		—		—		—		254		—		—		12,421		—		—		—		6,454		18,875
Substandard - RR 8		721		150		6		166		46		627		—		1,716		6,973		9,845		2,170		312		74		—		20,625		39,999
Doubtful - RR 9		22		—		—		—		—		—		—		22		240		53		10		4		35		—		24		366
Total		45,062		23,562		13,200		9,888		5,783		3,703		8,771		109,969		681,061		271,860		134,724		45,310		14,374		69,078		604,852		1,821,259

Secured by nonfarm, nonresidential properties:
State and other political subdivision loans:
Pass - RR 1 through RR 6	$	750,869	$	604,026	$	610,446	$	350,603	$	183,115	$	279,529	$	113,808	$	2,892,396	$	393,345	$	223,302	$	123,350	$	39,031	$	18,876	$	421,588	$	1,671	$	1,221,163
Special Mention - RR 7		1,510		9,584		412		—		1,562		4,522		—		17,590		—		—		—		—		—		2,700		—		2,700
Substandard - RR 8		11,017		2,357		13,609		3,591		5,988		29,309		1,025		66,896		—		—		—		—		—		—		—		—
Doubtful - RR 9		43		—		105		—		—		21		—		169		—		—		—		—		—		—		—		—
Total		763,439		615,967		624,572		354,194		190,665		313,381		114,833		2,977,051		393,345		223,302		123,350		39,031		18,876		424,288		1,671		1,223,863

Other real estate secured:
Other commercial loans:
Pass - RR 1 through RR 6	$	256,273	$	105,687	$	220,487	$	64,268	$	6,816	$	56,196	$	13,350	$	723,077	$	88,763	$	40,006	$	28,239	$	37,607	$	6,424	$	10,829	$	244,882	$	456,750
Special Mention - RR 7		—		—		—		—		—		773		—		773		879		—		—		—		—		—		—		879
Substandard - RR 8		1,684		65		—		8		—		101		—		1,858		3,728		98		—		—		16		1,134		9,301		14,277
Doubtful - RR 9		—		—		—		—		—		—		—		—		24		—		—		—		—		—		—		24
Total		257,957		105,752		220,487		64,276		6,816		57,070		13,350		725,708		93,394		40,104		28,239		37,607		6,440		11,963		254,183		471,930

Total commercial LHFI																	$	3,152,466	$	1,817,851	$	1,430,035	$	703,273	$	265,157	$	828,918	$	1,081,499	$	9,279,199

Term Loans by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

As of December 31, 2021

Commercial LHFI

Other loans secured by real
   estate:

Other construction

Pass - RR 1 through RR 6

$
273,747

$
393,580

$
25,142

$
—

$
—

$
—

$
17,909

$
710,378

Special Mention - RR 7

—

—

—

—

—

—

—

—

Substandard - RR 8

1,435

—

—

—

—

—

—

1,435

Doubtful - RR 9

—

—

—

—

—

—

—

—

Total

275,182

393,580

25,142

—

—

—

17,909

711,813

Commercial and industrial
   loans:

Pass - RR 1 through RR 6

$
503,073

$
249,171

$
74,239

$
33,403

$
50,016

$
35,883

$
400,423

$
1,346,208

Special Mention - RR 7

643

365

147

550

48

—

99

1,852

Substandard - RR 8

14,530

1,338

1,221

1,119

9,237

386

38,182

66,013

Doubtful - RR 9

20

46

29

107

—

4

—

206

Total

518,266

250,920

75,636

35,179

59,301

36,273

438,704

1,414,279

State and other political
   subdivision loans:

Pass - RR 1 through RR 6

$
381,317

$
148,156

$
56,987

$
30,558

$
95,491

$
418,319

$
8,409

$
1,139,237

Special Mention - RR 7

—

—

—

—

—

3,350

—

3,350

Substandard - RR 8

—

—

—

—

—

3,664

—

3,664

Doubtful - RR 9

—

—

—

—

—

—

—

—

Total

381,317

148,156

56,987

30,558

95,491

425,333

8,409

1,146,251

Other commercial loans:

Pass - RR 1 through RR 6

$
103,504

$
38,661

$
64,871

$
8,643

$
7,924

$
41,112

$
232,476

$
497,191

Special Mention - RR 7

4,059

—

—

—

—

—

9,013

13,072

Substandard - RR 8

4,532

6,681

82

212

—

—

13,000

24,507

Doubtful - RR 9

—

50

—

—

—

23

—

73

Total

112,095

45,392

64,953

8,855

7,924

41,135

254,489

534,843

Total commercial
   LHFI

$
2,732,070

$
1,665,887

$
1,105,778

$
505,169

$
367,347

$
879,827

$
882,970

$
8,139,048


	Term Loans by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of December 31, 2022	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	62,049	$	32,867	$	3,304	$	1,759	$	1,679	$	1,915	$	—	$	103,573
Past due 30-89 days		—		150		—		36		15		9		—		210
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		58		—		—		—		8		—		66
Total		62,049		33,075		3,304		1,795		1,694		1,932		—		103,849

Other secured by 1-4 family residential properties:
Current	$	25,402	$	7,983	$	5,389	$	4,894	$	3,701	$	7,252	$	403,123	$	457,744
Past due 30-89 days		19		35		15		134		5		286		3,197		3,691
Past due 90 days or more		—		—		—		1		—		—		452		453
Nonaccrual		88		24		4		20		7		454		3,020		3,617
Total		25,509		8,042		5,408		5,049		3,713		7,992		409,792		465,505

Secured by nonfarm, nonresidential properties:
Current	$	—	$	16	$	—	$	—	$	—	$	—	$	—	$	16
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		16		—		—		—		—		—		16

Other real estate secured:
Current	$	—	$	—	$	89	$	—	$	5	$	89	$	—	$	183
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		—		89		—		5		89		—		183

Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	939,511	$	559,804	$	198,769	$	109,466	$	80,249	$	262,196	$	—	$	2,149,995
Past due 30-89 days		3,967		3,752		2,119		425		—		1,906		—		12,169
Past due 90 days or more		835		777		272		—		134		1,100		—		3,118
Nonaccrual		2,363		4,180		3,275		1,896		2,028		6,033		—		19,775
Total		946,676		568,513		204,435		111,787		82,411		271,235		—		2,185,057

Consumer loans:
Current	$	70,858	$	25,771	$	9,514	$	2,509	$	1,513	$	295	$	56,508	$	166,968
Past due 30-89 days		1,431		238		159		8		23		10		946		2,815
Past due 90 days or more		28		12		7		1		2		—		216		266
Nonaccrual		79		41		19		17		4		—		21		181
Total		72,396		26,062		9,699		2,535		1,542		305		57,691		170,230

Total consumer LHFI	$	1,106,630	$	635,708	$	222,935	$	121,166	$	89,365	$	281,553	$	467,483	$	2,924,840

Total LHFI	$	4,259,096	$	2,453,559	$	1,652,970	$	824,439	$	354,522	$	1,110,471	$	1,548,982	$	12,204,039

Term Loans by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

As of December 31, 2021

Consumer LHFI

Loans secured by real estate:

Construction, land
   development and other
   land:

Current

$
51,849

$
16,204

$
3,024

$
3,059

$
797

$
2,404

$
—

$
77,337

Past due 30-89 days

—

265

49

5

—

14

—

333

Past due 90 days or more

—

—

—

—

—

7

—

7

Nonaccrual

64

—

—

—

—

93

—

157

Total

51,913

16,469

3,073

3,064

797

2,518

—

77,834

Other secured by 1-4 family
   residential properties:

Current

$
21,166

$
11,098

$
6,119

$
5,903

$
3,291

$
7,853

$
347,743

$
403,173

Past due 30-89 days

5

34

87

114

—

145

1,214

1,599

Past due 90 days or more

—

4

—

—

—

13

91

108

Nonaccrual

26

70

29

9

341

274

2,085

2,834

Total

21,197

11,206

6,235

6,026

3,632

8,285

351,133

407,714

Secured by nonfarm,
   nonresidential properties:

Current

$
31

$
—

$
—

$
—

$
2

$
—

$
—

$
33

Past due 30-89 days

—

—

—

—

—

—

—

—

Past due 90 days or more

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total

31

—

—

—

2

—

—

33

Other real estate secured:

Current

$
—

$
97

$
—

$
8

$
60

$
170

$
—

$
335

Past due 30-89 days

—

—

—

—

—

—

—

—

Past due 90 days or more

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total

—

97

—

8

60

170

—

335

Other loans secured by real
   estate:

Secured by 1-4 family
   residential properties

Current

$
622,330

$
233,951

$
137,500

$
107,345

$
56,374

$
285,919

$
—

$
1,443,419

Past due 30-89 days

542

494

333

10

369

714

—

2,462

Past due 90 days or more

199

501

165

122

218

450

—

1,655

Nonaccrual

272

1,875

1,419

2,105

916

6,187

—

12,774

Total

623,343

236,821

139,417

109,582

57,877

293,270

—

1,460,310

Consumer loans:

Current

$
65,366

$
25,512

$
8,498

$
4,734

$
1,289

$
378

$
54,518

$
160,295

Past due 30-89 days

989

223

123

22

10

5

468

1,840

Past due 90 days or more

26

23

6

—

—

—

248

303

Nonaccrual

71

17

2

13

8

—

6

117

Total

66,452

25,775

8,629

4,769

1,307

383

55,240

162,555

Total consumer LHFI

$
762,936

$
290,368

$
157,354

$
123,449

$
63,675

$
304,626

$
406,373

$
2,108,781

Total LHFI

$
3,495,006

$
1,956,255

$
1,263,132

$
628,618

$
431,022

$
1,184,453

$
1,289,343

$
10,247,829

Past Due LHFS

LHFS past due 90 days or more totaled $~~48.3~~41.5 million and $~~69.9~~49.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. LHFS past due 90 days or more are serviced loans eligible for repurchase, which are fully guaranteed by the Government National Mortgage Association (GNMA). GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first ~~nine~~three months of ~~2022~~2023 or ~~2021.~~2022.

ACL on LHFI

Trustmark’s ACL methodology for LHFI is based upon guidance within the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 326-20 as well as applicable regulatory guidance. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the LHFI portfolio is continuously monitored by Management and is reflected within the ACL for ~~loans.~~LHFI. The ACL is an estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL for LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan product types and similar risk characteristics.

The loans secured by real estate and other loans secured by real estate portfolio segments include loans for both commercial and residential properties. The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.

The commercial and industrial LHFI portfolio segment includes loans within Trustmark’s geographic markets made to many types of businesses for various purposes, such as ~~short term~~short-term working capital loans that are usually secured by accounts receivable and inventory and term financing for equipment and fixed asset purchases that are secured by those assets. Trustmark’s credit underwriting process for commercial and industrial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information and evaluation of underlying collateral to support the credit.

The consumer LHFI portfolio segment is comprised of loans that are centrally underwritten based on a credit scoring system as well as an evaluation of the borrower’s repayment capacity, credit, and collateral. Property appraisals are obtained to assist in evaluating collateral. Loan-to-value and debt-to-income ratios, loan amount, and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect housing prices and demand and levels of unemployment.

The state and other political subdivision LHFI and the other commercial LHFI portfolio segments primarily consist of loans to non-depository financial institutions, such as mortgage companies, finance companies and other financial intermediaries, loans to state and political subdivisions, and loans to non-profit and charitable organizations. These loans are underwritten based on the specific nature or purpose of the loan and underlying collateral with special consideration given to the specific source of repayment for the loan.

2625

The following table provides a description of each of Trustmark’s portfolio segments, loan classes, loan pools and the ACL methodology and loss drivers:


Portfolio Segment	Loan Class	Loan Pool	Methodology	Loss Drivers
Loans secured by real estate	Construction, land development and other land	1-4 family residential construction	DCF	Prime Rate, National GDP
		Lots and development	DCF	Prime Rate, Southern Unemployment
		Unimproved land	DCF	Prime Rate, Southern Unemployment
		All other consumer	DCF	Southern Unemployment
	Other secured by 1-4 family residential properties	Consumer 1-4 family - 1st liens	DCF	Prime Rate, Southern Unemployment
		All other consumer	DCF	Southern Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
	Secured by nonfarm, nonresidential properties	Nonowner-occupied - hotel/motel	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonowner-occupied - office	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonowner-occupied- Retail	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonowner-occupied - senior living/nursing homes	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonowner-occupied - all other	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
	Other real estate secured	Nonresidential nonowner -occupied - apartments	DCF	Southern Vacancy Rate, Southern Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National GDP
		Nonowner-occupied - all other	DCF	Southern Vacancy Rate, Southern Unemployment
Other loans secured by real estate	Other construction	Other construction	DCF	Prime Rate, National Unemployment
	Secured by 1-4 family residential properties	Trustmark mortgage	WARM	Southern Unemployment
Commercial and industrial loans	Commercial and industrial loans	Commercial and industrial - non-working capital	DCF	Trustmark historical data
		Commercial and industrial - working capital	DCF	Trustmark historical data
		Equipment finance loans	WARM	Southern Unemployment, Southern GDP
		Credit cards	WARM	Trustmark call report data
		Equipment finance leases	WARM	Southern Unemployment, Southern GDP
Consumer loans	Consumer loans	Credit cards	WARM	Trustmark call report data
		Overdrafts	Loss Rate	Trustmark historical data
		All other consumer	DCF	Southern Unemployment
State and other political subdivision loans	State and other political subdivision loans	Obligations of state and political subdivisions	DCF	Moody's Bond Default Study
Other commercial loans	Other commercial loans	Other loans	DCF	Prime Rate, Southern Unemployment
		Commercial and industrial - non-working capital	DCF	Trustmark historical data
		Commercial and industrial - working capital	DCF	Trustmark historical data

In general, Trustmark utilizes a DCF method to estimate the quantitative portion of the ACL for loan pools. The DCF model consists of two key components, a loss driver analysis (LDA) and a cash flow analysis. For loan pools utilizing the DCF methodology, multiple assumptions are in place, depending on the loan pool. A reasonable and supportable forecast is utilized for each loan pool by developing a LDA for each loan class. The LDA uses charge off data from Federal Financial Institutions Examination Council (FFIEC) reports to

construct a periodic default rate (PDR). The PDR is decomposed into a PD. Regressions are run using the data for various

macroeconomic variables in order to determine which ones correlate to Trustmark’s losses. These variables are then incorporated into the application to calculate a quarterly PD using a third-party baseline forecast. In addition to the PD, a LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the levels of PD forecasts. This model approach is applicable to all pools within the construction, land development and other land, other secured by 1-4 family residential properties, secured by nonfarm, nonresidential properties and other real estate secured loan classes as well as ~~the all other~~ consumer loans and other ~~loans pools.~~commercial loans.

During the first quarter of 2022, Management elected to incorporate a methodology change related to the other construction pool. Components of this change include management utilizing an alternative LDA to support the PD and LGD assumptions necessary to apply a DCF methodology to the other construction pool. Fundamentally, this approach utilizes publicly reported default balances and leverages a generalized linear model (GLM) framework to estimate PD. Taken together, these differences allow for results to be scaled to be specific and directly applicable to the other construction segment. LGD is assumed to be a through-the-cycle constant based on the actual performance of Trustmark’s other construction segment. These assumptions are then input into the DCF model and used in conjunction with prepayment data to calculate the cash flows at the individual loan level. Previously, the other construction pool used the weighted average remaining maturity (WARM) method. Management believes this change is commensurate with the level of risk in the pool.

For the commercial and industrial loans related pools, Trustmark uses its own PD and LGD data, instead of the macroeconomic variables and the Frye Jacobs method described above, to calculate the PD and LGD as there were no defensible macroeconomic variables that correlated to Trustmark’s losses. Trustmark utilizes a third-party Bond Default Study to derive the PD and LGD for the obligations of state and political subdivisions pool. Due to the lack of losses within this pool, no defensible macroeconomic factors were identified to correlate.

The PD and LGD measures are used in conjunction with prepayment data as inputs into the DCF model to calculate the cash flows at the individual loan level. Contractual cash flows based on loan terms are adjusted for PD, LGD and prepayments to derive loss cash flows. These loss cash flows are discounted by the loan’s coupon rate to arrive at the discounted cash flow based quantitative loss. The prepayment studies are updated quarterly by a third-party for each applicable pool.

An alternate method of estimating the ACL is used for certain loan pools due to specific characteristics of these loans. For the non-DCF pools, specifically, those using the WARM method, the remaining life is incorporated into the ACL quantitative calculation.

Trustmark determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans. The econometric models currently in production reflect segment or pool level sensitivities of PD to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of its assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the current levels, it is not clear that the models currently in production will produce reasonably representative results since the models were originally estimated using data beginning in 2004 through 2019. During this period, a traditional, albeit severe, economic recession occurred. Thus, econometric models are sensitive to similar future levels of PD.

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), Southern GDP, Southern Vacancy Rate and the Prime Rate. The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1st and 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or LGD at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark’s historical loss experience and applied at a portfolio level.

Qualitative factors used in the ACL methodology include the following:

•

Lending policies and procedures

•

Economic conditions and concentrations of credit

•

Nature and volume of the portfolio

•

Performance trends

•

External factors

While all these factors are incorporated into the overall methodology, only four are currently considered active: (i) economic conditions and concentrations of credit, (ii) nature and volume of the portfolio, (iii) performance trends and (iv) external factors.

Two of Trustmark’s largest loan classes are the loans secured by nonfarm, nonresidential properties and the loans secured by other real estate. Trustmark elected to create a qualitative factor specifically for these loan classes which addresses changes in the economic conditions of metropolitan areas and applies additional pool level reserves. This qualitative factor is based on third-party market data and forecast trends and is updated quarterly as information is available, by market and by loan pool.

For the performance trends factor, Trustmark uses migration analyses to allocate additional ACL to non-pass/delinquent loans within each pool. In this way, Management believes the ACL will directly reflect changes in risk, based on the performance of the loans within a pool, whether declining or improving.

The nature and volume of the portfolio qualitative factor utilizes peer and industry assumptions for pools of loans where Trustmark’s historical experience might not capture the risk associated within a specific pool due to it being a different type of lending, different sources of repayment or a new line of business.

The external factors qualitative factor is Management’s best judgement on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (e.g., natural disasters, changes in legislation, impacts due to technology and pandemics). Trustmark's External Factor – Pandemic ensures reserve adequacy for collectively evaluated loans most likely to be impacted by the unique economic and behavioral conditions created by the COVID-19 pandemic. Additional qualitative reserves are derived based on two principles. The first is the disconnect of economic factors to Trustmark’s modeled PD (derived from the econometric models underpinning the quantitative pooled reserves). During the pandemic, extraordinary measures by the federal government were made available to consumers and businesses, including COVID-19 loan payment concessions, direct transfer payments to households, tax deferrals, and reduced interest rates, among others. These government interventions may have extended the lag between economic conditions and default, relative to what was captured in the model development data. Because Trustmark’s econometric PD models rely on the observed relationship from the economic downturn from 2007 to 2009 in both timing and severity, Management does not expect the models to reflect these current conditions. For example, while the models would predict contemporaneous unemployment peaks and loan defaults, this may not occur when borrowers can request payment deferrals. Thus, for the affected population, economic conditions are not fully considered as a part of Trustmark’s quantitative reserve. The second principle is the change in risk that is identified by rating changes. As a part of Trustmark’s credit review process, loans in the affected population have been given more frequent screening to ensure accurate ratings are maintained through this dynamic period. Trustmark’s quantitative reserve does not directly address changes in ratings, thus a migration qualitative factor was designed to work in concert with the quantitative reserve.

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic were not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor-Pandemic qualitative factor is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (RR 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (RR 5) or watch (RR 6) received the additional reserves based on the average of the macroeconomic conditions and ~~weighted- average~~weighted-average of the commercial loan portfolio loss rate while the loans rated special mention and substandard received additional reserves based on the weighted-average described above. During the fourth quarter of 2022, Management noted that all pass rated loans (RR 5 & RR 6) related to the External Factor-Pandemic qualitative factor either did not experience significant stress related to the pandemic or have since recovered and does not expect future stresses attributed to the pandemic that may affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rated loans.

2928

During the first quarter of 2022, in order to account for the potential uncertainty related to higher prices and low economic growth, Trustmark chose to enact a portion of the qualitative framework, External Factor - Stagflation. Management calculated the reserve using a third-party stagflation forecast and compared it to the third-party baseline forecast used in the quantitative modeling. The weighted differential is added as qualitative reserves to account for potential uncertainty. During the fourth quarter of 2022, Management determined that the likelihood of a stagflation scenario had sufficiently diminished. Management identified that the potential had already been reduced and effectively captured within a nominally more negative baseline economic forecast. As a result, Management elected to resolve the External Factor - Stagflation and fully release the reserves.

The following tables disaggregate the ACL and the amortized cost basis of the loans by the measurement methodology used at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022												March 31, 2023
	ACL						LHFI						ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and other land	$	451	$	9,800	$	10,251	$	4,273		689,468	$	693,741	$	113	$	13,147	$	13,260	$	1,540		680,674	$	682,214
Other secured by 1-4 family residential properties		—		10,739		10,739		489		566,496		566,985		—		11,918		11,918		473		595,047		595,520
Secured by nonfarm, nonresidential properties		—		25,924		25,924		5,493		3,201,453		3,206,946		—		18,640		18,640		4,168		3,371,411		3,375,579
Other real estate secured		—		3,398		3,398		—		593,119		593,119		—		2,362		2,362		—		847,527		847,527
Other loans secured by real estate:
Other construction		7,620		6,299		13,919		7,620		946,034		953,654		7,620		6,850		14,470		7,620		1,033,938		1,041,558
Secured by 1-4 family residential properties		—		15,395		15,395		1,233		2,028,894		2,030,127		—		26,156		26,156		1,672		2,224,856		2,226,528
Commercial and industrial loans		10,622		13,482		24,104		25,281		1,664,251		1,689,532		9,290		14,172		23,462		23,501		1,890,636		1,914,137
Consumer loans		—		5,028		5,028		—		166,027		166,027		—		5,532		5,532		—		166,464		166,464
State and other political subdivision loans		719		875		1,594		2,988		1,185,715		1,188,703		—		729		729		—		1,193,727		1,193,727
Other commercial loans		36		4,662		4,698		36		497,194		497,230		879		4,831		5,710		879		453,062		453,941
Total	$	19,448	$	95,602	$	115,050	$	47,413	$	11,538,651	$	11,586,064	$	17,902	$	104,337	$	122,239	$	39,853	$	12,457,342	$	12,497,195


	December 31, 2021												December 31, 2022
	ACL						LHFI						ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and other land	$	278	$	5,801	$	6,079	$	5,198	$	591,770	$	596,968	$	121	$	12,707	$	12,828	$	1,558	$	689,058	$	690,616
Other secured by 1-4 family residential properties		—		10,310		10,310		—		517,683		517,683		—		12,374		12,374		482		590,308		590,790
Secured by nonfarm, nonresidential properties		—		37,912		37,912		11,072		2,966,012		2,977,084		—		19,488		19,488		4,841		3,273,989		3,278,830
Other real estate secured		—		4,713		4,713		56		725,987		726,043		—		4,743		4,743		—		742,538		742,538
Other loans secured by real estate:
Other construction		—		5,968		5,968		—		711,813		711,813		7,620		7,512		15,132		7,620		1,021,306		1,028,926
Secured by 1-4 family residential properties		—		2,706		2,706		1,319		1,458,991		1,460,310		—		21,185		21,185		1,193		2,183,864		2,185,057
Commercial and industrial loans		5,750		13,189		18,939		18,444		1,395,835		1,414,279		9,946		13,194		23,140		24,594		1,796,665		1,821,259
Consumer loans		—		4,774		4,774		—		162,555		162,555		—		5,792		5,792		—		170,230		170,230
State and other political subdivision loans		1,394		1,314		2,708		3,664		1,142,587		1,146,251		—		885		885		—		1,223,863		1,223,863
Other commercial loans		203		5,145		5,348		4,608		530,235		534,843		—		4,647		4,647		—		471,930		471,930
Total	$	7,625	$	91,832	$	99,457	$	44,361	$	10,203,468	$	10,247,829	$	17,687	$	102,527	$	120,214	$	40,288	$	12,163,751	$	12,204,039

3029

Changes in the ACL, LHFI were as follows for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Balance at beginning of period	$	103,140		$	104,032		$	99,457		$	117,306		$	120,214		$	99,457
Loans charged-off		(2,920	)		(1,586	)		(7,439	)		(7,659	)		(2,996	)		(2,242	)
Recoveries		1,911			4,119			8,257			11,410			1,777			2,379
Net (charge-offs) recoveries		(1,009	)		2,533			818			3,751			(1,219	)		137
PCL, LHFI		12,919			(2,492	)		14,775			(16,984	)		3,244			(860	)
Balance at end of period	$	115,050		$	104,073		$	115,050		$	104,073		$	122,239		$	98,734

The following tables detail changes in the ACL, LHFI by loan class for the periods presented ($ in thousands):


	Three Months Ended September 30, 2022												Three Months Ended March 31, 2023
	Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period		Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:											.
Construction, land development and other land	$	7,301	$	(189	)	$	43	$	3,096		$	10,251	$	12,828	$	(14	)	$	8	$	438		$	13,260
Other secured by 1-4 family residential properties		10,038		(33	)		234		500			10,739		12,374		(34	)		47		(469	)		11,918
Secured by nonfarm, nonresidential properties		29,735		—			35		(3,846	)		25,924		19,488		(28	)		96		(916	)		18,640
Other real estate secured		3,297		—			4		97			3,398		4,743		—			3		(2,384	)		2,362
Other loans secured by real estate:
Other construction		14,397		(153	)		1		(326	)		13,919		15,132		—			30		(692	)		14,470
Secured by 1-4 family residential properties		12,250		(37	)		125		3,057			15,395		21,185		(294	)		6		5,259			26,156
Commercial and industrial loans		14,103		(191	)		111		10,081			24,104		23,140		(471	)		270		523			23,462
Consumer loans		5,139		(458	)		425		(78	)		5,028		5,792		(2,155	)		1,317		578			5,532
State and other political subdivision loans		1,917		—			—		(323	)		1,594		885		—			—		(156	)		729
Other commercial loans		4,963		(1,859	)		933		661			4,698		4,647		—			—		1,063			5,710
Total	$	103,140	$	(2,920	)	$	1,911	$	12,919		$	115,050	$	120,214	$	(2,996	)	$	1,777	$	3,244		$	122,239

The increases in the PCL, LHFI for the three months ended ~~September 30, 2022~~March 31, 2023 were primarily ~~due~~attributable to ~~a less positive outlook in the macroeconomic forecasting, an increase in~~ loan growth and ~~specific reserves for individually analyzed loans.~~the Nature and Volume of Portfolio qualitative factor.

The PCL, LHFI for the secured by nonfarm, nonresidential properties portfolio and the other real estate secured portfolio decreased $~~3.8~~3.3 million during the three months ended ~~September 30, 2022~~March 31, 2023 primarily due to ~~reductions~~improvements in the ~~pandemic qualitative factor.~~macroeconomic forecast variables used in the ACL modeling, such as National and Southern Unemployment, National GDP, Prime Rate, and Southern Vacancy Rate and the PD and LGD floors.


	Three Months Ended September 30, 2021												Three Months Ended March 31, 2022
	Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period		Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:
Construction, land development and other land	$	5,110	$	(3	)	$	391	$	(365	)	$	5,133	$	6,079	$	(28	)	$	843	$	457		$	7,351
Other secured by 1-4 family residential properties		10,399		(7	)		85		(254	)		10,223		10,310		(13	)		89		(519	)		9,867
Secured by nonfarm, nonresidential properties		44,416		—			45		(1,155	)		43,306		37,912		—			27		(5,909	)		32,030
Other real estate secured		5,311		—			4		(945	)		4,370		4,713		—			3		(1,076	)		3,640
Other loans secured by real estate:
Other construction		6,530		—			2		(587	)		5,945		5,968		—			3		7,976			13,947
Secured by 1-4 family residential properties		2,910		(144	)		15		(127	)		2,654		2,706		—			6		2,916			5,628
Commercial and industrial loans		13,973		(5	)		2,028		3,377			19,373		18,939		(285	)		100		(3,803	)		14,951
Consumer loans		4,876		(287	)		451		(178	)		4,862		4,774		(579	)		379		298			4,872
State and other political subdivision loans		3,233		—			—		(269	)		2,964		2,708		—			—		(337	)		2,371
Other commercial loans		7,274		(1,140	)		1,098		(1,989	)		5,243		5,348		(1,337	)		929		(863	)		4,077
Total	$	104,032	$	(1,586	)	$	4,119	$	(2,492	)	$	104,073	$	99,457	$	(2,242	)	$	2,379	$	(860	)	$	98,734

The decreases in the PCL, LHFI for the three months ended ~~September 30, 2021~~March 31, 2022 were primarily due to improvements in credit quality and in the macroeconomic forecasting variables used in the ACL modeling, such as National and Southern Unemployment, National GDP, Prime Rate and Southern Vacancy Rate and the PD and LGD floors.

3130

~~The~~For the three months ended March 31, 2022, the PCL, LHFI for the ~~commercial and industrial~~other construction loan portfolio increased $~~3.4~~8.0 million ~~during the three months ended September 30, 2021~~ primarily due to specific reserves on individually analyzed credits.

Nine Months Ended September 30, 2022

Balance at Beginning of Period

Charge-offs

Recoveries

PCL

Balance at
End of
Period

Loans secured by real estate:

Construction, land development and other land

$
6,079

$
(223
)

$
1,230

$
3,165

$
10,251

Other secured by 1-4 family residential properties

10,310

(95
)

529

(5
)

10,739

Secured by nonfarm, nonresidential properties

37,912

—

1,536

(13,524
)

25,924

Other real estate secured

4,713

(131
)

11

(1,195
)

3,398

Other loans secured by real estate:

Other construction

5,968

(153
)

205

7,899

13,919

Secured by 1-4 family residential properties

2,706

(116
)

135

12,670

15,395

Commercial and industrial loans

18,939

(566
)

414

5,317

24,104

Consumer loans

4,774

(1,394
)

1,256

392

5,028

State and other political subdivision loans

2,708

—

—

(1,114
)

1,594

Other commercial loans

5,348

(4,761
)

2,941

1,170

4,698

Total

$
99,457

$
(7,439
)

$
8,257

$
14,775

$
115,050

The increases in the PCL, LHFI for the nine months ended September 30, 2022 were primarily due to loan growth, the nature and volume of the portfolio, and specific reserves for individually analyzed loans.

For the nine months ended September 30, 2022, the decreases in the PCL, LHFI for the secured by nonfarm, nonresidential properties and other real estate secured loan portfolios was primarily due to a positive economic outlook and the initial stages of resolution of the External Factor- Pandemic qualitative factor. The decrease in the PCL, LHFI for the state and other political subdivision loans portfolio was due to routine modeling assumption updates.

Nine Months Ended September 30, 2021

Balance at Beginning of Period

Charge-offs

Recoveries

PCL

Balance at
End of
Period

Loans secured by real estate:

Construction, land development and other land

$
6,854

$
(3
)

$
1,470

$
(3,188
)

$
5,133

Other secured by 1-4 family residential properties

9,928

(91
)

337

49

10,223

Secured by nonfarm, nonresidential properties

48,523

(79
)

1,102

(6,240
)

43,306

Other real estate secured

7,382

—

15

(3,027
)

4,370

Other loans secured by real estate:

Other construction

8,158

—

46

(2,259
)

5,945

Secured by 1-4 family residential properties

5,143

(148
)

123

(2,464
)

2,654

Commercial and industrial loans

14,851

(3,702
)

3,967

4,257

19,373

Consumer loans

5,838

(1,120
)

1,200

(1,056
)

4,862

State and other political subdivision loans

3,190

—

—

(226
)

2,964

Other commercial loans

7,439

(2,516
)

3,150

(2,830
)

5,243

Total

$
117,306

$
(7,659
)

$
11,410

$
(16,984
)

$
104,073

The decreases in the PCL, LHFI for the nine months ended September 30, 2021 were primarily due to improvements in the macroeconomic forecasting variables used in the ACL modeling, such as National and Southern Unemployment, National GDP, Prime Rate and Southern Vacancy Rate.

The PCL, LHFI for the ~~commercial and industrial loan~~other loans secured by 1-4 family residential properties portfolio increased $~~4.3~~2.9 million during the ~~nine~~three months ended ~~September 30, 2021 and was~~March 31, 2022 primarily due to ~~specific reserves on individually analyzed loans.~~a decrease in prepayment speeds which resulted from the rising interest-rate environment.

Note 4 – Mortgage Banking

MSR

The activity in the MSR is detailed in the table below for the periods presented ($ in thousands):


	Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2023			2022
Balance at beginning of period	$	87,687		$	66,464		$	129,677		$	87,687
Origination of servicing assets		14,452			22,015			2,646			5,128
Change in fair value:
Due to market changes		41,529			11,037			(3,972	)		22,020
Due to run-off		(11,053	)		(15,415	)		(1,145	)		(3,785	)
Balance at end of period	$	132,615		$	84,101		$	127,206		$	111,050

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. Trustmark considers the conditional prepayment rate (CPR), which is an estimated loan prepayment rate that uses historical prepayment rates for previous loans similar to the loans being evaluated, the float rate, which is the interest rate earned on escrow balances, and the discount rate as some of the primary assumptions used in determining the fair value of the MSR. An increase in either the CPR or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. An increase in the float rate will result in an increase in the fair value of the MSR, while a decrease in the float rate will result in a decrease in the fair value of the MSR. At ~~September 30, 2022,~~March 31, 2023, the fair value of the MSR included an assumed average prepayment speed of 8 CPR and an average discount rate of ~~9.58~~10.08% compared to an assumed average prepayment speed of 129 CPR and an average discount rate of ~~9.55~~9.56% at ~~September 30, 2021.~~March 31, 2022.

Mortgage Loans Serviced/Sold

During the first ~~nine~~three months of ~~2022~~2023 and ~~2021,~~2022, Trustmark sold $~~1.026~~213.8 ~~billion~~million and $~~1.796~~373.6 ~~billion,~~million, respectively, of residential mortgage loans. Gains on these sales were recorded as noninterest income in mortgage banking, net and totaled $~~16.9~~3.8 million for the first ~~nine~~three months of ~~2022~~2023 compared to $~~47.0~~6.2 million for the first ~~nine~~three months of ~~2021.~~2022.

The table below details the mortgage loans sold and serviced for others at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Federal National Mortgage Association	$	4,724,342	$	4,709,584	$	4,690,190	$	4,684,815
Government National Mortgage Association		3,295,281		3,194,373		3,372,781		3,350,222
Federal Home Loan Mortgage Corporation		46,717		35,971		56,479		52,023
Other		11,317		13,272		32,478		28,764
Total mortgage loans sold and serviced for others	$	8,077,657	$	7,953,200	$	8,151,928	$	8,115,824

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Representations and Warranties Framework, which provides certain instances in which FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties, such as payment history and quality control review.

When a putback request is received, Trustmark evaluates the request and takes appropriate actions based on the nature of the request. Trustmark is required by FNMA and FHLMC to provide a response to putback requests within 60 days of the date of receipt. The total mortgage loan servicing putback expenses are included in other expense. At both ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Trustmark had a reserve for mortgage loan servicing putback expenses of $500 thousand.

3331

There is inherent uncertainty in reasonably estimating the requirement for reserves against potential future mortgage loan servicing putback expenses. Future putback expenses are dependent on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties. Trustmark believes that it has appropriately reserved for potential mortgage loan servicing putback requests.

Note 5 – Other Real Estate

At ~~September 30, 2022,~~March 31, 2023, Trustmark’s geographic other real estate distribution was primarily concentrated in its Mississippi market region. The ultimate recovery of a substantial portion of the carrying amount of other real estate is susceptible to changes in market conditions in this area.

For the periods presented, changes and gains (losses), net on other real estate were as follows ($ in thousands):


	Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2023			2022
Balance at beginning of period	$	4,557		$	11,651		$	1,986		$	4,557
Additions		1,430			770			300			45
Disposals		(2,503	)		(4,326	)		(542	)		(1,868	)
(Write-downs) recoveries		(513	)		(1,882	)		(60	)		453
Balance at end of period	$	2,971		$	6,213		$	1,684		$	3,187

Gains (losses), net on the sale of other real estate included in other real estate expense	$	(465	)	$	(716	)	$	(77	)	$	(455	)

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, other real estate by type of property consisted of the following ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
1-4 family residential properties	$	1,161	$	94	$	1,273	$	1,128
Nonfarm, nonresidential properties		1,513		4,463		411		561
Other real estate properties		297		—		—		297
Total other real estate	$	2,971	$	4,557	$	1,684	$	1,986

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, other real estate by geographic location consisted of the following ($ in thousands):

September 30, 2022

December 31, 2021

Alabama

$
217

$
—

Mississippi (1)

2,754

4,557

Total other real estate

$
2,971

$
4,557


	March 31, 2023		December 31, 2022
Alabama	$	—	$	194
Mississippi (1)		1,495		1,769
Tennessee (2)		189		23
Total other real estate	$	1,684	$	1,986

(1)

Mississippi includes Central and Southern Mississippi Regions.

(2)

Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

At ~~September 30, 2022,~~March 31, 2023, the balance of other real estate included $~~1.2~~1.3 million of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property compared to $941.1 ~~thousand~~million at December 31, ~~2021.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $~~1.8~~2.8 million and $~~1.2~~2.9 million, respectively.

3432

Note 6 – Leases

The following table details the components of net lease cost for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Finance leases:
Amortization of right-of-use assets	$	356		$	388		$	1,122		$	1,159		$	357		$	387
Interest on lease liabilities		46			54			143			167			42			49
Operating lease cost		1,309			1,332			3,877			3,979			1,285			1,275
Short-term lease cost		98			108			328			337			89			132
Variable lease cost		257			310			891			928			255			311
Sublease income		(4	)		(118	)		(166	)		(271	)		(3	)		(80	)
Net lease cost	$	2,062		$	2,074		$	6,195		$	6,299		$	2,025		$	2,074

The following table details the cash payments included in the measurement of lease liabilities during the periods presented ($ in thousands):


	Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2023		2022
Finance leases:
Operating cash flows included in operating activities	$	143	$	167	$	42	$	49
Financing cash flows included in payments under finance lease obligations		1,070		1,072		342		366
Operating leases:
Operating cash flows (fixed payments) included in other operating activities, net		4,389		3,509		1,242		1,276
Operating cash flows (liability reduction) included in other operating activities, net		3,075		2,929		944		1,041

The following table details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Finance lease right-of-use assets, net of accumulated depreciation	$	4,894		$	6,017		$	4,180		$	4,537
Finance lease liabilities		5,394			6,464			4,713			5,055
Operating lease right-of-use assets		37,282			34,603			35,315			36,301
Operating lease liabilities		39,797			36,468			37,988			38,932

Weighted-average lease term:
Finance leases	8.59 years			8.37 years			8.90 years			8.72 years
Operating leases	9.85 years			9.25 years			9.43 years			9.64 years

Weighted-average discount rate:
Finance leases		3.42	%		3.24	%		3.62	%		3.49	%
Operating leases		3.18	%		2.84	%		3.22	%		3.22	%

At ~~September 30, 2022,~~March 31, 2023, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):


	Finance Leases			Operating Leases			Finance Leases			Operating Leases
2022 (excluding the nine months ended September 30, 2022)	$	384		$	1,214
2023		885			4,998
2023 (excluding the three months ended March 31, 2023)							$	501		$	3,771
2024		572			5,008			572			5,031
2025		584			4,926			584			4,998
2026		589			4,730			589			4,690
2027								594			4,457
Thereafter		3,279			25,422			2,685			20,954
Total minimum lease payments		6,293			46,298			5,525			43,901
Less imputed interest		(899	)		(6,501	)		(812	)		(5,913	)
Lease liabilities	$	5,394		$	39,797		$	4,713		$	37,988

3533

Note 7 – Deposits

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, deposits consisted of the following ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Noninterest-bearing demand	$	4,358,805	$	4,771,065	$	3,797,055	$	4,093,771
Interest-bearing demand		4,391,477		4,372,500		4,654,815		4,773,219
Savings		4,583,162		4,745,137		4,163,096		4,282,435
Time		1,091,736		1,198,458		2,168,695		1,288,223
Total	$	14,425,180	$	15,087,160	$	14,783,661	$	14,437,648

Note 8 – Securities Sold Under Repurchase Agreements

Trustmark utilizes securities sold under repurchase agreements as a source of borrowing in connection with overnight repurchase agreements offered to commercial deposit customers by using its unencumbered investment securities as collateral. Trustmark accounts for its securities sold under repurchase agreements as secured borrowings in accordance with FASB ASC Subtopic 860-30, “Transfers and Servicing – Secured Borrowing and Collateral.” Securities sold under repurchase agreements are stated at the amount of cash received in connection with the transaction. Trustmark monitors collateral levels on a continual basis and may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under repurchase agreements were secured by securities with a carrying amount of $~~94.2~~41.3 million and $~~252.4~~102.4 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Trustmark’s repurchase agreements are transacted under master repurchase agreements that give Trustmark, in the event of default by the counterparty, the right of offset with the same counterparty. ~~As of September 30,~~At both March 31, 2023 and December 31, 2022, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Mortgage-backed securities
Residential mortgage pass-through securities
Issued by FNMA and FHLMC	$	33,494	$	167,310	$	24,519	$	41,732
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		1,593		1,475		624		1,111
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		44,256		24,528		—		21,277
Total securities sold under repurchase agreements	$	79,343	$	193,313	$	25,143	$	64,120

Note 9 – Revenue from Contracts with Customers

Trustmark accounts for revenue from contracts with customers in accordance with FASB ASC Topic 606, “Revenue from Contracts with Customers,” which provides that revenue be recognized in a manner that depicts the transfer of goods or services to a customer in an amount that reflects the consideration Trustmark expects to be entitled to in exchange for those goods or services. Revenue from contracts with customers is recognized either over time in a manner that depicts Trustmark’s performance, or at a point in time when control of the goods or services are transferred to the customer. Trustmark’s noninterest income, excluding all of mortgage banking, net and securities gains (losses), net and portions of bank card and other fees and other income, are considered within the scope of FASB ASC Topic 606. Gains or losses on the sale of other real estate, which are included in Trustmark’s noninterest expense as other real estate expense, are also within the scope of FASB ASC Topic 606.

Trustmark records a gain or loss from the sale of other real estate when control of the property transfers to the buyer. Trustmark records the gain or loss from the sale of other real estate in noninterest expense as other, ~~real estate expense,~~ net. Other real estate sales for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 resulted in a net ~~losses~~loss of $1178 thousand ~~and $465~~ ~~thousand, respectively,~~ compared to a net ~~losses~~loss of $~~734~~ ~~thousand and $716~~455 thousand for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022.

3634

The following table presents noninterest income disaggregated by reportable operating segment and revenue stream for the periods presented ($ in thousands):

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Topic 606

Not Topic
606 (1)

Total

Topic 606

Not Topic
606 (1)

Total

General Banking Segment

Service charges on deposit accounts

$
11,296

$
—

$
11,296

$
8,893

$
—

$
8,893

Bank card and other fees

7,644

1,648

9,292

7,561

979

8,540

Mortgage banking, net

—

6,876

6,876

—

14,004

14,004

Wealth management

263

—

263

13

—

13

Other, net

1,724

239

1,963

1,826

(413
)

1,413

Total noninterest income

$
20,927

$
8,763

$
29,690

$
18,293

$
14,570

$
32,863

Wealth Management Segment

Service charges on deposit accounts

$
22

$
—

$
22

$
18

$
—

$
18

Bank card and other fees

13

—

13

9

—

9

Wealth management

8,515

—

8,515

9,058

—

9,058

Other, net

447

10

457

32

9

41

Total noninterest income

$
8,997

$
10

$
9,007

$
9,117

$
9

$
9,126

Insurance Segment

Insurance commissions

$
13,911

$
—

$
13,911

$
12,133

$
—

$
12,133

Other, net

(2
)

—

(2
)

27

—

27

Total noninterest income

$
13,909

$
—

$
13,909

$
12,160

$
—

$
12,160

Consolidated

Service charges on deposit accounts

$
11,318

$
—

$
11,318

$
8,911

$
—

$
8,911

Bank card and other fees

7,657

1,648

9,305

7,570

979

8,549

Mortgage banking, net

—

6,876

6,876

—

14,004

14,004

Insurance commissions

13,911

—

13,911

12,133

—

12,133

Wealth management

8,778

—

8,778

9,071

—

9,071

Other, net

2,169

249

2,418

1,885

(404
)

1,481

Total noninterest income

$
43,833

$
8,773

$
52,606

$
39,570

$
14,579

$
54,149

~~(1)~~

Noninterest income not in scope for FASB ASC Topic 606 includes customer derivatives revenue and miscellaneous credit card fee income within bank card and other fees; mortgage banking, net; amortization of tax credits, accretion of the FDIC indemnification asset, cash surrender value on various life insurance policies, earnings on Trustmark’s non-qualified deferred compensation plans, other partnership investments and rental income within other, net; and security gains (losses), net.


	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021						Three Months Ended March 31, 2023									Three Months Ended March 31, 2022
	Topic 606			Not Topic 606 (1)		Total			Topic 606		Not Topic 606 (1)		Total		Topic 606			Not Topic 606 (1)			Total			Topic 606			Not Topic 606 (1)		Total
General Banking Segment
Service charges on deposit accounts	$	30,932		$	—	$	30,932		$	23,822	$	—	$	23,822	$	10,315		$	—		$	10,315		$	9,431		$	—	$	9,431
Bank card and other fees		23,726			4,153		27,879			23,264		3,031		26,295		7,643			149			7,792			7,417			1,015		8,432
Mortgage banking, net		—			24,898		24,898			—		52,141		52,141		—			7,639			7,639			—			9,873		9,873
Wealth management		468			—		468			33		—		33		233			—			233			24			—		24
Other, net		6,097			896		6,993			4,913		478		5,391		2,988			(608	)		2,380			2,518			657		3,175
Total noninterest income	$	61,223		$	29,947	$	91,170		$	52,032	$	55,650	$	107,682	$	21,179		$	7,180		$	28,359		$	19,390		$	11,545	$	30,935

Wealth Management Segment
Service charges on deposit accounts	$	63		$	—	$	63		$	58	$	—	$	58	$	21		$	—		$	21		$	20		$	—	$	20
Bank card and other fees		35			—		35			27		—		27		11			—			11			10			—		10
Wealth management		26,466			—		26,466			26,400		—		26,400		8,547			—			8,547			9,030			—		9,030
Other, net		512			29		541			99		25		124		45			95			140			32			7		39
Total noninterest income	$	27,076		$	29	$	27,105		$	26,584	$	25	$	26,609	$	8,624		$	95		$	8,719		$	9,092		$	7	$	9,099

Insurance Segment
Insurance commissions	$	41,702		$	—	$	41,702		$	36,795	$	—	$	36,795	$	14,305		$	—		$	14,305		$	14,089		$	—	$	14,089
Other, net		(3	)		—		(3	)		57		—		57		(6	)		—			(6	)		(8	)		—		(8	)
Total noninterest income	$	41,699		$	—	$	41,699		$	36,852	$	—	$	36,852	$	14,299		$	—		$	14,299		$	14,081		$	—	$	14,081

Consolidated
Service charges on deposit accounts	$	30,995		$	—	$	30,995		$	23,880	$	—	$	23,880	$	10,336		$	—		$	10,336		$	9,451		$	—	$	9,451
Bank card and other fees		23,761			4,153		27,914			23,291		3,031		26,322		7,654			149			7,803			7,427			1,015		8,442
Mortgage banking, net		—			24,898		24,898			—		52,141		52,141		—			7,639			7,639			—			9,873		9,873
Insurance commissions		41,702			—		41,702			36,795		—		36,795		14,305			—			14,305			14,089			—		14,089
Wealth management		26,934			—		26,934			26,433		—		26,433		8,780			—			8,780			9,054			—		9,054
Other, net		6,606			925		7,531			5,069		503		5,572		3,027			(513	)		2,514			2,542			664		3,206
Total noninterest income	$	129,998		$	29,976	$	159,974		$	115,468	$	55,675	$	171,143	$	44,102		$	7,275		$	51,377		$	42,563		$	11,552	$	54,115

(1)

Note 10 – Defined Benefit and Other Postretirement Benefits

Qualified Pension Plan

Trustmark maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan) to satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

The following table presents information regarding the net periodic benefit cost for the Continuing Plan for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Service cost	$	28		$	63		$	86		$	189		$	13		$	29
Interest cost		48			43			144			129			73			48
Expected return on plan assets		(30	)		(33	)		(90	)		(98	)		(26	)		(30	)
Recognized net loss due to lump sum settlements		—			183			—			183			25			—
Recognized net actuarial loss		52			149			172			446			—			60
Net periodic benefit cost	$	98		$	405		$	312		$	849		$	85		$	107

3835

For the plan year ending December 31, ~~2022,~~2023, Trustmark’s minimum required contribution to the Continuing Plan is $~~176~~159 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout ~~2022~~2023 to determine any additional funding requirements by the plan’s measurement date, which is December 31.

Supplemental Retirement Plans

Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The annual measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger date.

The following table presents information regarding the net periodic benefit cost for Trustmark’s nonqualified supplemental retirement plans for the periods presented ($ in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Service cost	$	18	$	19	$	54	$	57	$	17	$	18
Interest cost		316		277		962		847		520		330
Amortization of prior service cost		28		28		83		84		28		28
Recognized net actuarial loss		243		295		742		896		77		255
Net periodic benefit cost	$	605	$	619	$	1,841	$	1,884	$	642	$	631

Note 11 – Stock and Incentive Compensation

Trustmark has granted restricted stock ~~and incentive compensation awards and~~ units subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of restricted stock ~~and incentive compensation awards~~units are subject to the provisions of the Stock Plan, which is designed to provide flexibility to Trustmark regarding its ability to motivate, attract and retain the services of key associates and directors. The Stock Plan also allows Trustmark to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance units to key associates and directors. ~~At September 30, 2022, the maximum number of shares of Trustmark’s common stock available for issuance under the Stock Plan was~~ ~~998,756~~ ~~shares.~~

Restricted Stock Grants

Performance ~~Awards~~Units

Trustmark’s performance ~~awards~~units vest over three years and are granted to Trustmark’s executive and senior management teams. Performance ~~awards~~units granted vest based on performance goals of return on average tangible equity and total shareholder return. Performance ~~awards~~units are valued utilizing a Monte Carlo simulation model to estimate fair value of the ~~awards~~units at the grant date. The Monte Carlo simulation was performed by an independent valuation consultant and requires the use of subjective modeling assumptions. These ~~awards~~units are recognized using the straight-line method over the requisite service period. These ~~awards~~units provide for achievement units if performance measures exceed 100%. The restricted ~~share~~stock agreement for these ~~awards provides~~units provide for ~~voting rights and~~ dividend privileges. During 2020, Trustmark began granting performance units instead of performance awards. The performance units have the same attributes as the previously granted performance awards, except the performance units do not provideprivileges, but no voting rights.

Time-Based ~~Awards~~Units

Trustmark’s time-based ~~awards~~units granted to Trustmark’s executive and senior management teams vest over three years. Trustmark’s time-based ~~awards~~units granted to members of Trustmark’s Board of Directors vest over one year. Time-based ~~awards~~units are valued utilizing the fair value of Trustmark’s stock at the grant date. These ~~awards~~units are recognized on the straight-line method over the requisite service period. ~~During 2020, Trustmark began granting time-based~~The restricted stock agreement for these units ~~instead of time-based awards. The time-based units have the same attributes as the previously granted time-based awards, except~~provide for ~~the time-based units do not provide~~dividend privileges, but no voting rights.

The following table summarizes the Stock Plan activity for the periods presented:


	Three Months Ended September 30, 2022						Three Months Ended March 31, 2023
	Performance Awards and Units			Time-Vested Awards and Units			Performance Units			Time-Vested Units
Nonvested shares, beginning of period		151,756			354,709
Nonvested units, beginning of period								148,416			312,978
Granted		—			6,992			70,666			119,073
Released from restriction		—			(169	)		(39,943	)		(66,101	)
Forfeited		(1,670	)		(3,177	)		(2,728	)		(563	)
Nonvested shares, end of period		150,086			358,355
Nonvested units, end of period								176,411			365,387

Nine Months Ended September 30, 2022

Performance
Awards and Units

Time-Vested
Awards and Units

Nonvested shares, beginning of period

140,821

337,466

Granted

60,773

133,307

Released from restriction

(19,723
)

(106,096
)
Forfeited

(31,785
)

(6,322
)
Nonvested shares, end of period

150,086

358,355

The following table presents information regarding compensation expense for ~~awards and~~ units under the Stock Plan for the periods presented ($ in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Performance awards and units

$
381

$
311

$
916

$
517

Time-vested awards and units

848

805

2,798

3,994

Total compensation expense

$
1,229

$
1,116

$
3,714

$
4,511


	Three Months Ended March 31,
	2023		2022
Performance units	$	278	$	129
Time-vested units		1,437		1,116
Total compensation expense	$	1,715	$	1,245

Note 12 – Contingencies

Lending Related

Trustmark makes commitments to extend credit and issues standby and commercial letters of credit (letters of credit) in the normal course of business in order to fulfill the financing needs of its customers. The carrying amount of commitments to extend credit and letters of credit approximates the fair value of such financial instruments.

Commitments to extend credit are agreements to lend money to customers pursuant to certain specified conditions. Commitments generally have fixed expiration dates or other termination clauses. Because many of these commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contract amount of those instruments. Trustmark applies the same credit policies and standards as it does in the lending process when making these commitments. The collateral obtained is based upon the nature of the transaction and the assessed creditworthiness of the borrower. At ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Trustmark had unused commitments to extend credit of $~~5.171~~5.424 billion and $~~4.907~~5.052 billion, respectively.

Letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third-party. A financial standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument. A performance standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to perform some contractual, nonfinancial obligation. When issuing letters of credit, Trustmark uses the same policies regarding credit risk and collateral, which are followed in the lending process. At ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Trustmark’s maximum exposure to credit loss in the event of nonperformance by the customer for letters of credit was $~~140.6~~137.3 million and $~~129.0~~202.6 million, respectively. These amounts consist primarily of commitments with maturities of less than three years, which have an immaterial carrying value. Trustmark holds collateral to support standby letters of credit when deemed necessary. As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the fair value of collateral held was $~~32.6~~31.3 million and $~~38.6~~112.6 million, respectively.

ACL on Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Changes in the ACL on off-balance sheet credit exposures were as follows for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Balance at beginning of period	$	32,949		$	33,733		$	35,623		$	38,572		$	36,838		$	35,623
PCL, off-balance sheet credit exposures		(1,326	)		(1,049	)		(4,000	)		(5,888	)		(2,242	)		(1,106	)
Balance at end of period	$	31,623		$	32,684		$	31,623		$	32,684		$	34,596		$	34,517

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. The decrease in the ACL on off-balance sheet credit exposures for the three months ended ~~September 30, 2022~~March 31, 2023 was primarily due to decreases in the total reserve rate used in the calculation for off-balance sheet credit ~~exposures. The decrease~~exposures coupled with decreases in ~~the ACL on off-balance sheet credit exposures~~unfunded balances for the ~~nine months ended September 30, 2022 was primarily due to a decrease in the unfunded balances.~~

construction, land development and other land and other construction loan segments. The decrease in the ACL on off-balance sheet credit exposures for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 was primarily due to ~~improvements of the overall economy and macroeconomic factors used to determine the necessary reserves for off-balance sheet credit exposures.~~a decrease in unfunded balances.

No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by Trustmark or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Legal Proceedings

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in several lawsuits related to the collapse of the Stanford Financial Group.

On August 23, 2009, a purported class action complaint was filed in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano (collectively, Class Plaintiffs), on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as ~~defendants.~~defendants (the Rotstain Action). The complaint sought to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees and other monies received by each defendant from entities controlled by R. Allen Stanford (collectively, the Stanford Financial Group) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud on the asserted grounds that defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme.

In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas), where multiple Stanford related matters have been consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit. In August 2010, the court authorized and approved the formation of an Official Stanford Investors Committee (OSIC) to represent the interests of Stanford investors and, under certain circumstances, to file legal actions for the benefit of Stanford investors. In December 2011, the OSIC filed a motion to intervene in this action, which was granted in December 2012. The OSIC initially sought to recover from TNB and the other defendant financial institutions: (i) alleged fraudulent transfers in the amount of the fees each of the defendants allegedly received from Stanford Financial Group, the profits each of the defendants allegedly made from Stanford Financial Group deposits, and other monies each of the defendants allegedly received from Stanford Financial Group; (ii) damages attributable to alleged conspiracies by each of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud and conversion on the asserted grounds that the defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme; and (iii) punitive damages.

In July 2013, all defendants (including TNB) filed motions to dismiss the OSIC’s claims. In March 2015, the court entered an order authorizing the parties to conduct discovery regarding class certification, staying all other discovery and setting a deadline for the parties to complete briefing on class certification issues. In April 2015, the court granted in part and denied in part the defendants’ motions to dismiss the Class Plaintiffs’ claims and the OSIC’s claims. The court dismissed all of the Class Plaintiffs’ fraudulent transfer claims and dismissed certain of the OSIC’s claims. The court denied the motions by TNB and the other financial institution defendants to dismiss the OSIC’s constructive fraudulent transfer claims.

On June 23, 2015, the court allowed the Class Plaintiffs to file a Second Amended Class Action Complaint (SAC), which asserted new claims against TNB and certain of the other defendants for (i) aiding, abetting and participating in a fraudulent scheme, (ii) aiding, abetting and participating in violations of the Texas Securities Act, (iii) aiding, abetting and participating in breaches of fiduciary duty, (iv) aiding, abetting and participating in conversion and (v) conspiracy. On July 14, 2015, the defendants (including TNB) filed motions to dismiss the SAC and to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims against TNB

and the other financial institutions that are defendants in the action. On July 27, 2016, the court denied the motion by TNB and the other financial institution defendants to dismiss the SAC and also denied the motion by TNB and the other financial institution defendants to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims. On August 24, 2016, TNB filed its answer to the SAC. On October 20, 2017, the OSIC filed a motion seeking an order lifting the discovery stay and establishing a trial schedule. On November 4, 2016, the OSIC filed a First Amended Intervenor Complaint, which added claims for (i) aiding, abetting or participation in violations of the Texas Securities Act and (ii) aiding, abetting or participation in the breach of fiduciary duty. On November 7, 2017, the court denied the Class Plaintiffs’ motion seeking class certification and designation of class representatives and counsel, finding that common issues of fact did not predominate. The court granted the OSIC’s motion to lift the discovery stay that it had previously ordered.

On May 3, 2019, individual investors and entities filed motions to intervene in the action. On September 18, 2019, the court denied the motions to intervene. On October 14, 2019, certain of the proposed intervenors filed a notice of appeal. On February 3, 2021, the Fifth Circuit Court of Appeals affirmed the denial of the motions to intervene; this decision was affirmed by a panel of the Fifth Circuit on March 12, 2021.

On February 12, 2021, all defendants (including TNB) filed a motion for summary judgment with respect to OSIC claims that applied to all defendants. In addition, on the same date, TNB filed a separate motion for summary judgment with respect to aspects of OSIC claims that applied specifically to TNB. On March 19, 2021, OSIC filed notice with the court that it was abandoning as against all of the defendants (including TNB) certain of the claims previously set forth in the SAC. As a result, only the claims for (i) aiding, abetting and participating in breaches of fiduciary duty, (ii) aiding, abetting and participating in violations of the Texas Securities Act, and (iii)

punitive damages remain as against TNB. On January 20, 2022, the court denied TNB’s motion for summary judgment, as well as the motion for summary judgment filed by all defendants (including TNB) with respect to OSIC claims that apply to all defendants.

The parties to the action have agreed that the case is to be tried in the District Court for the Southern District of Texas. On March 25, 2021, the ~~judge to whom the case is currently assigned in the~~ District Court for the Northern District of Texas rescinded ~~his~~its previously-issued trial scheduling orders so that the Southern District of Texas could set scheduling for this case once the case ~~has~~had in fact been remanded. On January 19, 2022, the judge of the District Court for the Northern District of Texas to whom the case ~~is currently~~was then assigned issued a recommendation to the Judicial Panel on Multidistrict Litigation (the Panel) that the case be remanded to the District Court for the Southern District of Texas in light of that judge’s determination with respect to the summary judgment motions that triable issues of fact exist. On January 21, 2022, the Panel approved the remand of the case to the District Court for the Southern District of Texas, and on January 28, 2022 the remand of the case became effective. On June 9, 2022, the court entered an order scheduling trial beginning February 27, 2023, which will be held as a jury trial in front of Judge Kenneth M. Hoyt of the District Court for the Southern District of Texas.

On December 14, 2009, a different Stanford-related lawsuit was filed in the District Court of Ascension Parish, Louisiana, individually by Harold Jackson, Paul Blaine and Carolyn Bass Smith, Christine Nichols, and Ronald and Ramona Hebert naming TNB (misnamed as Trust National Bank) and other individuals and entities not affiliated with Trustmark as ~~defendants.~~defendants (the Jackson Action). The complaint seeks to recover the money lost by these individual plaintiffs as a result of the collapse of the Stanford Financial Group (in addition to other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which was denied on February 28, 2012. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues. ~~There have been no developments in this case since this date.~~

On April 11, 2016, Trustmark learned that a different Stanford-related lawsuit had been filed on that date in the Superior Court of Justice in Ontario, Canada, by The Toronto-Dominion Bank (TD Bank), naming TNB and three other financial institutions not affiliated with Trustmark as defendants (the TD Bank Declaratory Action). The complaint seeks a declaration specifying the degree to which each of TNB and the other defendants are liable in respect of any loss and damage for which TD Bank is found to be liable in separate litigation commenced against TD Bank brought by the joint liquidators of Stanford International Bank Limited in the Superior Court of Justice, Commercial List in Ontario, Canada (the Joint Liquidators’ Action), as well as contribution and indemnity in respect of any judgment, interest and costs TD Bank is ordered to pay in the Joint Liquidators’ Action. Trustmark understands that on or about June 8, 2021, after an extensive trial on the merits, the judge in the Joint Liquidators’ Action ruled in favor of TD Bank and found TD Bank not liable as to the claims asserted against the bank by the joint liquidators of Stanford International Bank Limited. ~~Trustmark understands that~~The plaintiffs in the Joint Liquidators’ Action appealed this decision. On November 17, 2022, the intermediate appellate court in Canada dismissed the appeal. On January 16, 2023, the plaintiffs in the Joint Liquidators’ Action ~~have appealed this decision.~~asked the Supreme Court of Canada for leave to appeal. TNB was never served in connection with the TD Bank Declaratory Action (including any of the recent ~~appeal)~~appeals), and thus has not made an appearance in that action.

On November 1, 2019, TNB was named as a defendant in a complaint filed by Paul Blaine Smith, Carolyn Bass Smith and other plaintiffs identified therein (the Smith ~~Complaint)~~Action and, collectively with the Rotstain Action and the Jackson Action, the Actions). The Smith ~~Complaint~~Action was filed in Texas state court (District Court, Harris County, Texas) and named TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as defendants. The Smith ~~Complaint~~Action relates to the collapse of the Stanford Financial Group, as does the other pending litigation relating to Stanford summarized above. Plaintiffs in the Smith ~~Complaint have~~Action demanded a jury trial.

On January 15, 2020, the court granted Stanford Financial Group receiver’s motion to stay the Texas state court action. On February 26, 2020, the lawsuit was removed to federal court in the Southern District of Texas by TNB. ~~TNB and its counsel are carefully evaluating the Smith Complaint.~~

~~TNB’s relationship with~~On December 31, 2022, TNB agreed to a settlement in principle (the Settlement) relating to litigation involving the Stanford Financial ~~Group~~Group. On January 13, 2023, TNB entered into a Settlement Agreement (the Settlement Agreement) reflecting the terms of the Settlement. The parties to the Settlement Agreement are, on the one hand, (i) Ralph S. Janvey, solely in his capacity as the court-appointed receiver (the Receiver) for the Stanford Receivership Estate; (ii) the Official Stanford Investors Committee; (iii) each of the plaintiffs in the Rotstain and Smith Actions; and, on the other hand, (iv) Trustmark. Under the terms of the Settlement Agreement, the parties have agreed to settle and dismiss the Rotstain Action, and the Smith Action, and all current or future claims by plaintiffs in either such Action arising from or related to Stanford. In addition, the Settlement Agreement provides that the parties will request dismissal of the Jackson Action pursuant to the terms of the bar orders described below. If the Settlement Agreement, including the bar orders described below, is approved by the Court and is not subject to further appeal, Trustmark will make a one-time cash payment of $100.0 million to the Receiver.

The Settlement Agreement includes the parties’ agreement to seek the Northern District of Texas District Court’s entry of bar orders prohibiting any continued or future claims by the plaintiffs in the Actions or by any other person or entity against Trustmark and its related parties relating to Stanford, whether asserted to date or not. The bar orders therefore would prohibit all litigation relating to Stanford described herein, including not only the Actions and any pending matters but also any actions that may be brought in the future. Final Court approval of these bar orders is a condition of the Settlement.

The Settlement Agreement is also subject to notice to Stanford’s investor claimants and final, non-appealable approval by the U.S. District Court for the Northern District of Texas. The timing of any final decision by the Court is subject to the discretion of the Court and any appeal thereof. While Trustmark believes that the Settlement Agreement is consistent with the terms of prior Stanford-related settlements that have been approved by the Court and were not successfully appealed, it is possible that the Court may decide not to approve the Settlement Agreement or that the Court’s approval of the settlement and its entry of the bar orders may not be upheld on appeal.

The Settlement Agreement provides that Trustmark denies and makes no admission of liability or wrongdoing in connection with any Stanford matter. As has been the case throughout the pendency of the Actions, Trustmark expressly denies any liability or wrongdoing with respect to any matter alleged in regard of the multi-billion-dollar Ponzi scheme operated by Stanford for almost 20 years. Trustmark’s relationship with Stanford began as a result of Trustmark’s acquisition of a Houston-based bank in August 2006, and consisted of ~~correspondent banking and other traditional~~ordinary banking services provided to business deposit customers.

The foregoing description of the Settlement Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Settlement Agreement, a copy of which is filed as Exhibit 10.ai to the 2022 Annual Report and is incorporated herein by reference.

On January 20, 2023, the U.S. District Court for the Northern District of Texas entered an order preliminarily finding that the Settlement is fair, reasonable, and equitable; has no obvious deficiencies; and is the product of serious, informed, good faith, and arm’s-length negotiations. The Court reserved a final ruling with respect to the terms of the Settlement until after a Final Approval Hearing is held. That Final Approval Hearing is scheduled for May 3, 2023, and will be held before Judge David C. Godbey of the District Court for the Northern District of Texas. On February 14, 2023, Judge Hoyt entered an order staying the pre-trial deadlines and the February 27, 2023 trial date with respect to Trustmark in the ~~ordinary course~~Rotstain Action pending final Court approval of ~~business. All Stanford-related lawsuits remain~~the Settlement Agreement and pending entry of the bar orders. The Smith and Jackson Actions are currently stayed.

On May 3, 2023, the District Court for the Northern District of Texas approved the Settlement from the bench. On May 4, 2023, Judge Godbey signed the written orders confirming his oral ruling, including the judgment and bar order with respect to the Jackson Action. Absent an appeal, the Settlement will become effective after 60 days (the Settlement Effective Date). Within five days of the Settlement Effective Date, the parties to the Rotstain and Smith Actions will file agreed dismissals of those cases. Absent an appeal in ~~pre-trial stages.~~either of the Rotstain and Smith Actions, those dismissals will become final 30 days after entered and signed by the respective judges. Trustmark will be required to make the Settlement payment within 30 days after those dismissals become final. Any appeal of any of the orders described above would delay the proceedings.

On December 30, 2019, a complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division by Alysson Mills in her capacity as Court-appointed Receiver (the Receiver) for Arthur Lamar Adams (Adams) and Madison Timber Properties, LLC (Madison Timber), naming TNB, two other Mississippi-based financial institutions both of which are unaffiliated with Trustmark and two individuals, one of who was employed by TNB at all times relevant to the complaint and the other was employed either by TNB or one of the other defendant financial institutions, as defendants. The complaint seeks to recover from the defendants, for the benefit of the receivership estate and also for certain investors who were allegedly defrauded by Adams and Madison Timber, damages (including punitive damages) and related costs allegedly attributable to actions of the defendants that allegedly enabled illegal and fraudulent activities engaged in by Adams and Madison Timber. The Receiver did not quantify damages. By order issued by the court on September 30, 2021, the action to which TNB is a party was consolidated with three other pending cases for purposes of discovery, based upon a finding by the court that the actions involve overlapping questions of law and fact.

TNB’s relationship with Adams and Madison Timber consisted of traditional banking services in the ordinary course of business.

Trustmark and its subsidiaries are also parties to other lawsuits and other claims that arise in the ordinary course of business. Some of the lawsuits assert claims related to the lending, collection, servicing, investment, trust and other business activities, and some of the lawsuits allege substantial claims for damages.

All pending legal proceedings described above are being vigorously contested, with the exception of the TD Bank Declaratory Action that, as noted above, Trustmark was not served in connection with. In accordance ~~with~~ FASB ASC Subtopic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for any litigation matter if and when such matter presents loss contingencies that are both

probable and reasonably estimable. As a result of the entry into the Settlement as described above, Trustmark recognized a $100.0 million litigation settlement expense included in noninterest expense related to the Stanford litigation during the fourth quarter of 2022, plus an additional $750 thousand in related legal fees. Trustmark expects that the Settlement will be tax deductible. Trustmark will remain substantially above levels considered to be well-capitalized under all relevant standards. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any currently pending legal proceeding other than the settled Stanford litigation is not probable and a reasonable estimate cannot reasonably be made.

Note 13 – Earnings Per Share (EPS)

The following table reflects weighted-average shares used to calculate basic and diluted EPS for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Basic shares		61,115		62,522		61,334		63,041		61,011		61,514
Dilutive shares		204		208		186		179		182		196
Diluted shares		61,319		62,730		61,520		63,220		61,193		61,710

Weighted-average antidilutive stock awards were excluded in determining diluted EPS. Trustmark had no weighted-average antidilutive stock awards for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Note 14 – Statements of Cash Flows

The following table reflects specific transaction amounts for the periods presented ($ in thousands):


	Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2023		2022
Income taxes paid	$	1,241	$	14,825

Interest expense paid on deposits and borrowings		17,077		19,354	$	54,823	$	4,393
Noncash transfers from loans to other real estate		1,430		770		300		45
Finance right-of-use assets resulting from lease liabilities		—		92
Operating right-of-use assets resulting from lease liabilities		6,572		6,833		—		475

Note 15 – Shareholders’ Equity

Regulatory Capital

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of Trustmark’s ~~2021~~2022 Annual Report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include a capital conservation buffer of 2.50%. Accumulated other comprehensive income (loss), net of tax, is not included in computing regulatory capital. Trustmark elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. As of ~~September 30, 2022,~~March 31, 2023, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at ~~September 30, 2022.~~March 31, 2023. To be categorized in this manner, Trustmark and TNB maintained, as applicable, minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios as set forth in the accompanying table, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since ~~September 30, 2022,~~March 31, 2023, which Management believes have affected Trustmark’s or TNB’s present classification.

4441

The following table provides Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	Actual											Actual
	Regulatory Capital					Minimum			To Be Well			Regulatory Capital					Minimum			To Be Well
	Amount		Ratio			Requirement			Capitalized			Amount		Ratio			Requirement			Capitalized
At September 30, 2022:
At March 31, 2023:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,461,134		10.63	%		7.00	%	n/a			$	1,443,971		9.76	%		7.00	%	n/a
Trustmark National Bank		1,548,097		11.26	%		7.00	%		6.50	%		1,530,429		10.35	%		7.00	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,521,134		11.06	%		8.50	%	n/a			$	1,503,971		10.17	%		8.50	%	n/a
Trustmark National Bank		1,548,097		11.26	%		8.50	%		8.00	%		1,530,429		10.35	%		8.50	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,766,527		12.85	%		10.50	%	n/a			$	1,767,798		11.95	%		10.50	%	n/a
Trustmark National Bank		1,670,283		12.15	%		10.50	%		10.00	%		1,670,939		11.30	%		10.50	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,521,134		9.01	%		4.00	%	n/a			$	1,503,971		8.29	%		4.00	%	n/a
Trustmark National Bank		1,548,097		9.19	%		4.00	%		5.00	%		1,530,429		8.46	%		4.00	%		5.00	%

At December 31, 2021:
At December 31, 2022:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,425,227		11.29	%		7.00	%	n/a			$	1,413,672		9.74	%		7.00	%	n/a
Trustmark National Bank		1,518,599		12.03	%		7.00	%		6.50	%		1,501,889		10.34	%		7.00	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,485,227		11.77	%		8.50	%	n/a			$	1,473,672		10.15	%		8.50	%	n/a
Trustmark National Bank		1,518,599		12.03	%		8.50	%		8.00	%		1,501,889		10.34	%		8.50	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,710,700		13.55	%		10.50	%	n/a			$	1,729,499		11.91	%		10.50	%	n/a
Trustmark National Bank		1,621,030		12.84	%		10.50	%		10.00	%		1,634,454		11.26	%		10.50	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,485,227		8.73	%		4.00	%	n/a			$	1,473,672		8.47	%		4.00	%	n/a
Trustmark National Bank		1,518,599		8.94	%		4.00	%		5.00	%		1,501,889		8.65	%		4.00	%		5.00	%

Stock Repurchase Program

~~On January 28, 2020, the Board of Directors of Trustmark authorized a stock repurchase program, effective April 1, 2020, under which $100.0~~ million of Trustmark’s outstanding common stock may be acquired through December 31, 2021. On March 9, 2020, Trustmark suspended its share repurchase programs to preserve capital to support customers during the COVID-19 pandemic. Trustmark resumed the repurchase of its shares in January 2021. Under this authority, Trustmark repurchased approximately ~~1.9~~ ~~million shares of its outstanding common stock valued at $61.8~~ ~~million during 2021.~~

On December 7, 2021, Trustmark's Board of Directors authorized a stock repurchase program effective January 1, 2022, under which $100.0 million of Trustmark's outstanding shares could be acquired through December 31, 2022. Under this authority, Trustmark repurchased approximately 789 thousand shares of its common stock valued at $24.6 million during 2022.

On December 6, 2022, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2023, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, ~~2022.~~2023. The repurchase program, which is subject to market conditions and management discretion, will ~~continue to~~ be implemented through open market repurchases or privately negotiated transactions. ~~Under~~No shares have been repurchased under this ~~authority, Trustmark repurchased approximately~~ ~~247~~ ~~thousand shares of its common~~ stock ~~valued at $8.0~~ ~~million during the three months ended September 30, 2022. During the first nine months of 2022, Trustmark repurchased approximately~~ ~~789~~ ~~thousand shares of its outstanding common stock valued at $24.6~~ ~~million.~~repurchase program.

4542

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

The following ~~tables present~~table presents the net change in the components of accumulated other comprehensive income (loss) and the related tax effects allocated to each component for the periods presented ($ in thousands). The amortization of prior service cost, recognized net loss due to lump sum settlements and change in net actuarial loss are included in the computation of net periodic benefit cost (see Note 10 – Defined Benefit and Other Postretirement Benefits for additional details). Reclassification adjustments related to pension and other postretirement benefit plans are included in salaries and employee benefits and other expense in the accompanying consolidated statements of income. Reclassification adjustments related to the cash flow hedge ~~derivative~~derivatives are included in interest and fees on LHFS and LHFI in the accompanying consolidated statements of income.

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Before Tax
Amount

Tax (Expense)
Benefit

Net of Tax
Amount

Before Tax
Amount

Tax (Expense)
Benefit

Net of Tax
Amount

Securities available for sale and transferred securities:

Net unrealized holding gains (losses) arising
   during the period

$
(114,317
)

$
28,580

$
(85,737
)

$
(12,543
)

$
3,136

$
(9,407
)
Change in net unrealized holding loss on
   securities transferred to held to maturity

1,800

(450
)

1,350

636

(159
)

477

Total securities available for sale
   and transferred securities

(112,517
)

28,130

(84,387
)

(11,907
)

2,977

(8,930
)
Pension and other postretirement benefit plans:

Reclassification adjustments for changes
   realized in net income:

Net change in prior service costs

28

(7
)

21

28

(7
)

21

Recognized net loss due to lump sum
   settlements

—

—

—

183

(46
)

137

Change in net actuarial loss

295

(74
)

221

444

(111
)

333

Total pension and other postretirement
   benefit plans

323

(81
)

242

655

(164
)

491

Cash flow hedge derivatives:

Change in accumulated gain (loss) on effective
   cash flow hedge derivatives

(19,524
)

4,881

(14,643
)

—

—

—

Reclassification adjustment for (gain) loss realized
   in net income

(643
)

161

(482
)

—

—

—

Total cash flow hedge derivatives

(20,167
)

5,042

(15,125
)

—

—

—

Total other comprehensive income (loss)

$
(132,361
)

$
33,091

$
(99,270
)

$
(11,252
)

$
2,813

$
(8,439
)


	Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2021									Three Months Ended March 31, 2023							Three Months Ended March 31, 2022
	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount		Tax (Expense) Benefit			Net of Tax Amount		Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising during the period	$	(314,517	)	$	78,630		$	(235,887	)	$	(27,731	)	$	6,933		$	(20,798	)	$	30,534	$	(7,404	)	$	23,130	$	(155,671	)	$	38,918		$	(116,753	)
Change in net unrealized holding loss on securities transferred to held to maturity		(31,451	)		7,863			(23,588	)		2,083			(521	)		1,562			3,859		(965	)		2,894		533			(133	)		400
Total securities available for sale and transferred securities		(345,968	)		86,493			(259,475	)		(25,648	)		6,412			(19,236	)		34,393		(8,369	)		26,024		(155,138	)		38,785			(116,353	)
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		83			(21	)		62			84			(21	)		63			28		(7	)		21		28			(8	)		20
Recognized net loss due to lump sum settlements		—			—			—			183			(46	)		137			25		(6	)		19		—			—			—
Change in net actuarial loss		914			(228	)		686			1,342			(335	)		1,007			77		(19	)		58		315			(78	)		237
Total pension and other postretirement benefit plans		997			(249	)		748			1,609			(402	)		1,207			130		(32	)		98		343			(86	)		257
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		(19,524	)		4,881			(14,643	)		—			—			—			6,269		(1,567	)		4,702		—			—			—
Reclassification adjustment for (gain) loss realized in net income		(643	)		161			(482	)		—			—			—			2,931		(733	)		2,198		—			—			—
Total cash flow hedge derivatives		(20,167	)		5,042			(15,125	)		—			—			—			9,200		(2,300	)		6,900		—			—			—
Total other comprehensive income (loss)	$	(365,138	)	$	91,286		$	(273,852	)	$	(24,039	)	$	6,010		$	(18,029	)	$	43,723	$	(10,701	)	$	33,022	$	(154,795	)	$	38,699		$	(116,096	)

The following table presents the changes in the balances of each component of accumulated other comprehensive income (loss) for the periods presented ($ in thousands). All amounts are presented net of tax.


													Securities Available for Sale and Transferred Securities			Defined Benefit Pension Items			Cash Flow Hedge Derivatives			Total
Balance at January 1, 2023													$	(254,442	)	$	(5,792	)	$	(15,169	)	$	(275,403	)
Other comprehensive income (loss) before reclassification														26,024			—			4,702			30,726
Amounts reclassified from accumulated other comprehensive income (loss)														—			98			2,198			2,296
Net other comprehensive income (loss)														26,024			98			6,900			33,022
Balance at March 31, 2023													$	(228,418	)	$	(5,694	)	$	(8,269	)	$	(242,381	)
	Securities Available for Sale and Transferred Securities			Defined Benefit Pension Items			Cash Flow Hedge Derivatives			Total
Balance at January 1, 2022	$	(17,774	)	$	(14,786	)	$	—		$	(32,560	)	$	(17,774	)	$	(14,786	)	$	—		$	(32,560	)
Other comprehensive income (loss) before reclassification		(259,475	)		—			(14,643	)		(274,118	)		(116,353	)		—			—			(116,353	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			748			(482	)		266			—			257			—			257
Net other comprehensive income (loss)		(259,475	)		748			(15,125	)		(273,852	)		(116,353	)		257			—			(116,096	)
Balance at September 30, 2022	$	(277,249	)	$	(14,038	)	$	(15,125	)	$	(306,412	)

Balance at January 1, 2021	$	17,331		$	(18,382	)	$	—		$	(1,051	)
Other comprehensive income (loss) before reclassification		(19,236	)		—			—			(19,236	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			1,207			—			1,207
Net other comprehensive income (loss)		(19,236	)		1,207			—			(18,029	)
Balance at September 30, 2021	$	(1,905	)	$	(17,175	)	$	—		$	(19,080	)
Balance at March 31, 2022													$	(134,127	)	$	(14,529	)	$	—		$	(148,656	)

4743

Note 16 – Fair Value

Financial Instruments Measured at Fair Value

The methodologies Trustmark uses in determining the fair values are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected upon exchange of the position in an orderly transaction between market participants at the measurement date. The predominant portion of assets that are stated at fair value are of a nature that can be valued using prices or inputs that are readily observable through a variety of independent data providers. The providers selected by Trustmark for fair valuation data are widely recognized and accepted vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. Trustmark has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations for anomalies.

Trustmark utilizes an independent pricing service to advise it on the carrying value of the securities available for sale portfolio. As part of Trustmark’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, Trustmark investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. Trustmark has also reviewed and confirmed its determinations in thorough discussions with the pricing source regarding their methods of price discovery.

Mortgage loan commitments are valued based on the securities prices of similar collateral, term, rate and delivery for which the loan is eligible to deliver in place of the particular security. Trustmark acquires a broad array of mortgage security prices that are supplied by a market data vendor, which in turn accumulates prices from a broad list of securities dealers. Prices are processed through a mortgage pipeline management system that accumulates and segregates all loan commitment and forward-sale transactions according to the similarity of various characteristics (maturity, term, rate, and collateral). Prices are matched to those positions that are deemed to be an eligible substitute or offset (i.e., “deliverable”) for a corresponding security observed in the marketplace.

Trustmark estimates fair value of the MSR through the use of prevailing market participant assumptions and market participant valuation processes. This valuation is periodically tested and validated against other third-party firm valuations.

Trustmark obtains the fair value of interest rate swaps from a third-party pricing service that uses an industry standard discounted cash flow methodology. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its interest rate swap contracts for the effect of nonperformance risk, Trustmark has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the FASB’s fair value measurement guidance, Trustmark made an accounting policy election to measure the credit risk of these derivative financial instruments, which are subject to master netting agreements, on a net basis by counterparty portfolio.

Trustmark has determined that the majority of the inputs used to value its interest rate swaps offered to qualified commercial borrowers fall within Level 2 of the fair value hierarchy, while the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads. Trustmark has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and has determined that the credit valuation adjustment is not significant to the overall valuation of these derivatives. As a result, Trustmark classifies its interest rate swap valuations in Level 2 of the fair value hierarchy.

Trustmark also utilizes exchange-traded derivative instruments such as Treasury note futures contracts and option contracts to achieve a fair value return that offsets the changes in fair value of the MSR attributable to interest rates. Fair values of these derivative instruments are determined from quoted prices in active markets for identical assets therefore allowing them to be classified within Level 1 of the fair value hierarchy. In addition, Trustmark utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area which lack observable inputs for valuation purposes resulting in their inclusion in Level 3 of the fair value hierarchy.

At this time, Trustmark presents no fair values that are derived through internal modeling. Should positions requiring fair valuation arise that are not relevant to existing methodologies, Trustmark will make every reasonable effort to obtain market participant assumptions, or independent evaluation.

4844

Financial Assets and Liabilities

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value ($ in thousands). There were no transfers between fair value levels for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and the year ended December 31, ~~2021.~~2022.


	September 30, 2022									March 31, 2023
	Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3
U.S. Treasury securities	$	416,278	$	416,278	$	—	$	—		$	386,903	$	386,903	$	—	$	—
U.S. Government agency obligations		9,116		—		9,116		—			7,254		—		7,254		—
Obligations of states and political subdivisions		4,763		—		4,763		—			4,907		—		4,907		—
Mortgage-backed securities		2,014,329		—		2,014,329		—			1,585,098		—		1,585,098		—
Securities available for sale		2,444,486		416,278		2,028,208		—			1,984,162		386,903		1,597,259		—
LHFS		165,213		—		165,213		—			175,926		—		175,926		—
MSR		132,615		—		—		132,615			127,206		—		—		127,206
Other assets - derivatives		9,027		16		9,879		(868	)		13,447		4,571		7,536		1,340
Other liabilities - derivatives		52,652		7,999		44,653		—			37,105		403		36,702		—


	December 31, 2021								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
U.S. Treasury securities	$	344,640	$	344,640	$	—	$	—	$	391,513	$	391,513	$	—	$	—
U.S. Government agency obligations		13,727		—		13,727		—		7,766		—		7,766		—
Obligations of states and political subdivisions		5,714		—		5,714		—		4,862		—		4,862		—
Mortgage-backed securities		2,874,796		—		2,874,796		—		1,619,941		—		1,619,941		—
Securities available for sale		3,238,877		344,640		2,894,237		—		2,024,082		391,513		1,632,569		—
LHFS		275,706		—		275,706		—		135,226		—		135,226		—
MSR		87,687		—		—		87,687		129,677		—		—		129,677
Other assets - derivatives		24,809		2,794		20,156		1,859		8,871		54		8,660		157
Other liabilities - derivatives		4,677		414		4,263		—		45,379		474		44,905		—

The changes in Level 3 assets measured at fair value on a recurring basis for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are summarized as follows ($ in thousands):


							MSR			Other Assets - Derivatives
Balance, January 1, 2023							$	129,677		$	157
Total net (loss) gain included in Mortgage banking, net (1)								(5,117	)		1,288
Additions								2,646			—
Sales								—			(105	)
Balance, March 31, 2023							$	127,206		$	1,340

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at March 31, 2023							$	(3,972	)	$	531
	MSR			Other Assets - Derivatives
Balance, January 1, 2022	$	87,687		$	1,859		$	87,687		$	1,859
Total net (loss) gain included in Mortgage banking, net (1)		30,476			(401	)		18,235			(842	)
Additions		14,452			—			5,128			—
Sales		—			(2,326	)		—			(1,537	)
Balance, September 30, 2022	$	132,615		$	(868	)
Balance, March 31, 2022							$	111,050		$	(520	)

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2022	$	41,530		$	(1,181	)

Balance, January 1, 2021	$	66,464		$	9,560
Total net (loss) gain included in Mortgage banking, net (1)		(4,378	)		7,664
Additions		22,015			—
Sales		—			(14,715	)
Balance, September 30, 2021	$	84,101		$	2,509

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2021	$	11,037		$	2,722
The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at March 31, 2022							$	22,020		$	(1,341	)

(1)

Total net (loss) gain included in Mortgage banking, net relating to the MSR includes changes in fair value due to market changes and due to run-off.

4945

Trustmark may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. Assets at ~~September 30, 2022,~~March 31, 2023, which have been measured at fair value on a nonrecurring basis, include collateral-dependent LHFI. A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell. Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or as is value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on an annual basis based on the inspection date or more often if market conditions necessitate. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Trustmark’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. At ~~September 30, 2022,~~March 31, 2023, Trustmark had outstanding balances of $~~47.4~~39.9 million with a related ACL of $~~19.4~~17.9 million in collateral-dependent LHFI, compared to outstanding balances of $~~44.4~~40.3 million with a related ACL of $~~7.6~~17.7 million in collateral-dependent LHFI at December 31, ~~2021.~~2022. The collateral-dependent LHFI are classified as Level 3 in the fair value hierarchy.

Nonfinancial Assets and Liabilities

Certain nonfinancial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is recorded at the fair value less cost to sell (estimated fair value) at the time of foreclosure. Fair value is based on independent appraisals and other relevant factors. In the determination of fair value subsequent to foreclosure, Management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market.

Foreclosed assets of $~~3.0~~430 ~~million~~thousand were remeasured during the first ~~nine~~three months of ~~2022,~~2023, requiring write-downs of $~~1.0~~20 ~~million~~thousand to reach their current fair values compared to $~~5.4~~no ~~million~~write-downs of foreclosed assets ~~that were remeasured~~ during the first ~~nine~~three months of ~~2021, requiring write-downs of $328~~ ~~thousand.~~2022.

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The carrying amounts and estimated fair values of financial instruments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, are as follows ($ in thousands):


	September 30, 2022				December 31, 2021				March 31, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Level 2 Inputs:
Cash and short-term investments	$	489,735	$	489,735	$	2,266,829	$	2,266,829	$	1,297,144	$	1,297,144	$	738,787	$	738,787
Securities held to maturity		1,156,985		1,065,828		342,537		353,511		1,474,338		1,406,405		1,494,514		1,406,589
Level 3 Inputs:
Net LHFI and PPP loans		11,475,812		11,194,672		10,181,708		10,123,379
Net LHFI										12,374,956		12,211,328		12,083,825		11,850,318

Financial Liabilities:
Level 2 Inputs:
Deposits		14,425,180		14,396,980		15,087,160		15,084,440		14,783,661		14,752,438		14,437,648		14,404,661
Federal funds purchased and securities sold under repurchase agreements		544,068		544,068		238,577		238,577		477,980		477,980		449,331		449,331
Other borrowings		223,172		223,165		91,025		91,022		1,485,181		1,485,175		1,050,938		1,050,932
Subordinated notes		123,207		113,750		123,042		128,438		123,317		106,875		123,262		113,125
Junior subordinated debt securities		61,856		47,629		61,856		49,485		61,856		45,773		61,856		46,392

5046

Fair Value Option

Trustmark has elected to account for its mortgage LHFS under the fair value option, with interest income on these mortgage LHFS reported in interest and fees on LHFS and LHFI. The fair value of the mortgage LHFS is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan. The mortgage LHFS are actively managed and monitored and certain market risks of the loans may be mitigated through the use of derivatives. These derivative instruments are carried at fair value with changes in fair value recorded as noninterest income in mortgage banking, net. The changes in the fair value of LHFS are largely offset by changes in the fair value of the derivative instruments. For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, a net ~~losses~~gain of $~~4.4~~944 ~~million and $6.7~~ ~~million, respectively, were~~thousand was recorded as noninterest income in mortgage banking, net for changes in the fair value of LHFS accounted for under the fair value option, compared to a net ~~losses~~loss of $~~593~~ ~~thousand and $8.9~~5.6 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. Interest and fees on LHFS and LHFI for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 included $~~2.0~~1.5 million ~~and $5.2~~ ~~million, respectively,~~ of interest earned on LHFS accounted for under the fair value option, compared to $~~1.7~~ ~~million and $5.5~~1.3 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. Election of the fair value option allows Trustmark to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The fair value option election does not apply to GNMA optional repurchase loans which do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option. GNMA optional repurchase loans totaled $~~67.7~~55.4 million and $~~84.5~~70.8 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and are included in LHFS on the accompanying consolidated balance sheets. For additional information regarding GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 3 – LHFI and ~~Allowance for Credit Losses,~~ACL, LHFI.

The following table provides information about the fair value and the contractual principal outstanding of LHFS accounted for under the fair value option ~~as of September 30, 2022~~at March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022			December 31, 2021		March 31, 2023		December 31, 2022
Fair value of LHFS	$	97,517		$	191,242	$	120,530	$	64,421
LHFS contractual principal outstanding		100,053			186,535		118,665		63,427
Fair value less unpaid principal	$	(2,536	)	$	4,707	$	1,865	$	994

Note 17 – Derivative Financial Instruments

Derivatives Designated as Hedging Instruments

FASB ASC Topic 815, Derivatives and Hedging (ASC 815), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

When entering into a hedge transaction, Trustmark formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge transaction, which includes designating the derivative instrument as a fair value or cash flow hedge to a specific asset or liability on the balance sheet or to specific forecasted transactions and the risk being hedged, along with a formal assessment at the inception of the hedge as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. Trustmark continues to assess hedge effectiveness on an ongoing basis using either a qualitative or a quantitative assessment (regression analysis).

As required by ASC 815, Trustmark records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether Trustmark has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. For cash flow hedges, changes in the fair value of the derivative instrument are recorded in accumulated other

comprehensive income (loss) and subsequently reclassified to net income in the same period that the hedged transaction impacts net income. Upon discontinuation of hedge accounting for cash flow hedges, any amounts in accumulated other comprehensive income (loss) related to that relationship affects earnings at the same time and in the same manner in which the hedged transaction affects earnings. If it becomes probable that the forecasted transaction will not occur, any related amounts in accumulated other comprehensive income (loss) are reclassified to earnings immediately.

During the third quarter of 2022, Trustmark initiated a cash flow hedging program. Trustmark's objectives in initiating this hedging program ~~are~~were to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates fall below the purchased floor strike rate on the contract and payments of variable-rate amounts if interest rates fall below the sold floor strike rate on the contract. Trustmark uses such derivatives to hedge the variable cash flows associated with existing and anticipated variable-rate loan assets. At ~~September 30, 2022,~~March 31, 2023, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $~~675.0~~875.0 ~~million.~~million compared to $825.0 million at December 31, 2022.

Trustmark records any gains or losses on these cash flow hedges in accumulated other comprehensive income (loss). Gains and losses on derivatives representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with Trustmark’s accounting policy election. The earnings recognition of excluded components totaled $9 thousand of amortization expense for the three months ended March 31, 2023 and is included in interest and fees on LHFS and LHFI. As interest payments are received on Trustmark's variable-rate assets, amounts reported in accumulated other comprehensive income (loss) are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. During the next twelve months, Trustmark estimates that $~~7.8~~12.4 million will be reclassified as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

Derivatives not Designated as Hedging Instruments

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in the fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting. The total notional amount of these derivative instruments was $~~260.0~~253.5 million at ~~September 30, 2022~~March 31, 2023 compared to $~~409.5~~277.0 million at December 31, ~~2021.~~2022. Changes in the fair value of these exchange-traded derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by changes in the fair value of the MSR. The impact of this strategy resulted in a net negative ineffectiveness of $~~928~~1.8 ~~thousand and a net positive ineffectiveness $144~~ ~~thousand for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, the impact was a net negative ineffectiveness of $554~~ ~~thousand~~million and a net positive ineffectiveness of $~~1.7~~1.0 million for the three months ended March 31, 2023 and 2022, respectively.

As part of Trustmark’s risk management strategy in the mortgage banking area, derivative instruments such as forward sales contracts are utilized. Trustmark’s obligations under forward sales contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. Changes in the fair value of these derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by changes in the fair value of LHFS. Trustmark’s off-balance sheet obligations under these derivative instruments totaled $~~140.5~~162.5 million at ~~September 30, 2022,~~March 31, 2023, with a negative valuation adjustment of $735 thousand, compared to $97.0 million, with a positive valuation adjustment of $~~5.5~~ ~~million, compared to $236.0~~ ~~million, with a negative valuation adjustment of $~~81168 thousand, at December 31, ~~2021.~~2022.

Trustmark also utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area. Interest rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified time period. Changes in the fair value of these derivative instruments are recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of forward sales contracts. Trustmark’s off-balance sheet obligations under these derivative instruments totaled $~~85.5~~126.9 million at ~~September 30, 2022,~~March 31, 2023, with a ~~negative~~positive valuation adjustment of $~~868~~1.3 ~~thousand,~~million, compared to $~~142.6~~68.4 million, with a positive valuation adjustment of $~~1.9~~157 ~~million,~~thousand, at December 31, ~~2021.~~2022.

Trustmark offers certain derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. At ~~September 30, 2022,~~March 31, 2023, Trustmark had interest rate swaps with an aggregate notional amount of $~~1.491~~1.414 billion related to this program, compared to $~~1.225~~1.391 billion at December 31, ~~2021.~~2022.

Credit-risk-related Contingent Features

Trustmark has agreements with its financial institution counterparties that contain provisions where if Trustmark defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Trustmark could also be declared in default on its derivatives obligations.

At ~~September 30, 2022, there was~~ noMarch 31, 2023, the termination value of interest rate swaps in a liability position totaled $832 thousand, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements compared to ano termination value ~~of $655~~ ~~thousand~~ at December 31, ~~2021.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, Trustmark had posted collateral of $401.2 ~~thousand~~million and $~~850~~740 thousand, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at ~~September 30, 2022,~~March 31, 2023, it could have been required to settle its obligations under the agreements at the termination value.

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third-party default on the underlying swap. At ~~September 30,~~March 31, 2023 and December 31, 2022, Trustmark had entered into five risk participation agreements as a beneficiary with an aggregate notional ~~amount~~amounts of $~~50.6~~49.9 million ~~compared to~~ ~~six~~ ~~risk participation agreements as a beneficiary with an aggregate notional amount of~~and $~~52.0~~50.2 million, ~~at December~~respectively. At March 31, ~~2021. At September 30, 2022,~~2023, Trustmark had entered into twenty-eight risk participation agreements as a guarantor with an aggregate notional amount of $~~225.6~~242.1 million compared to ~~twenty-four~~twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of $~~173.5~~235.8 million at December 31, ~~2021.~~2022. The aggregate fair values of these risk participation agreements were immaterial at both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Tabular Disclosures

The following tables disclose the fair value of derivative instruments in Trustmark’s consolidated balance sheets at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 as well as the effect of these derivative instruments on Trustmark’s results of operations for the periods presented ($ in thousands):


	September 30, 2022			December 31, 2021		March 31, 2023		December 31, 2022
Derivatives in hedging relationships:
Interest rate contracts:
Interest rate swaps included in other assets (1)						$	863	$	—
Interest rate floors included in other assets							628		—
Interest rate swaps included in other liabilities (1)	$	933		$	—		—		761

Derivatives not designated as hedging instruments:
Interest rate contracts:
Exchange traded purchased options included in other assets	$	16		$	438	$	59	$	38
OTC written options (rate locks) included in other assets		(868	)		1,859		1,340		157
Futures contracts included in other assets		—			2,356		4,512		16
Interest rate swaps included in other assets (1)		9,870			20,115		6,039		8,654
Credit risk participation agreements included in other assets		9			41		6		6
Futures contracts included in other liabilities		6,370			—		—		268
Forward contracts included in other liabilities		(5,550	)		81		735		(168	)
Exchange traded written options included in other liabilities		1,629			414		403		206
Interest rate swaps included in other liabilities (1)		49,260			4,144		35,941		44,304
Credit risk participation agreements included in other liabilities		10			38		26		8

(1)

In accordance with GAAP, the variation margin collateral payments made or received for interest rate swaps that are centrally cleared are legally characterized as settled. As a result, the centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Derivatives in hedging relationships:
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and recognized in interest and fees on LHFS & LHFI	$	643		$	—		$	643		$	—		$	(2,931	)	$	—

Derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in mortgage banking, net	$	(8,405	)	$	(1,612	)	$	(39,181	)	$	(12,424	)	$	2,455		$	(17,518	)
Amount of gain (loss) recognized in bank card and other fees		63			217			385			1,152			(10	)		409

The following table discloses the amount included in other comprehensive income (loss), net of tax, for derivative instruments

designated as cash flow hedges for the periods presented ($ in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2022			2021		2022			2021		2023		2022
Derivatives in cash flow hedging relationship
Amount of gain (loss) recognized in other comprehensive income (loss), net of tax	$	(14,643	)	$	—	$	(14,643	)	$	—	$	4,702	$	—

Trustmark’s interest rate swap derivative instruments are subject to master netting agreements, and therefore, eligible for offsetting in the consolidated balance sheets. Trustmark has elected to not offset any derivative instruments in its consolidated balance sheets. Information about financial instruments that are eligible for offset in the consolidated balance sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 is presented in the following tables ($ in thousands):


Offsetting of Derivative Assets
As of September 30, 2022
As of March 31, 2023
							Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received			Net Amount
Derivatives	$	9,870	$	—	$	9,870	$	—	$	(3,070	)	$	6,800	$	7,530	$	—	$	7,530	$	(1,084	)	$	(1,230	)	$	5,216


Offsetting of Derivative Liabilities
As of September 30, 2022
As of March 31, 2023
							Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Posted			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted			Net Amount
Derivatives	$	50,193	$	—	$	50,193	$	—	$	(40	)	$	50,153	$	35,941	$	—	$	35,941	$	(1,084	)	$	(1,230	)	$	33,627


Offsetting of Derivative Assets
As of December 31, 2021
As of December 31, 2022
							Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received		Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received			Net Amount
Derivatives	$	20,115	$	—	$	20,115	$	(55	)	$	—	$	20,060	$	9,415	$	—	$	9,415	$	—	$	(2,230	)	$	7,185


Offsetting of Derivative Liabilities
As of December 31, 2021
As of December 31, 2022
							Gross Amounts Not Offset in the Statement of Financial Position														Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Posted			Net Amount
Derivatives	$	4,144	$	—	$	4,144	$	(55	)	$	(850	)	$	3,239	$	44,304	$	—	$	44,304	$	—	$	(740	)	$	43,564

Note 18 – Segment Information

Trustmark’s management reporting structure includes three segments: General Banking, Wealth Management and Insurance. For a complete overview of Trustmark’s operating segments, see Note 2120 – Segment Information included in Part II. Item 8. – Financial Statements and Supplementary Data, of Trustmark’s ~~2021~~2022 Annual Report.

The accounting policies of each reportable segment are the same as those of Trustmark except for its internal allocations. Noninterest expenses for back-office operations support are allocated to segments based on estimated uses of those services. Trustmark measures the net interest income of its business segments with a process that assigns cost of funds or earnings credit on a matched-term basis. This process, called “funds transfer pricing”, charges an appropriate cost of funds to assets held by a business unit, or credits the business

unit for potential earnings for carrying liabilities. The net of these charges and credits flows through to the General Banking Segment, which contains the management team responsible for determining TNB’s funding and interest rate risk strategies.

The following table discloses financial information by reportable segment for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
General Banking
Net interest income	$	134,842		$	96,928		$	344,185		$	316,205		$	136,159		$	97,991
Provision for credit losses		11,595			(3,539	)		10,785			(22,865	)		934			(1,959	)
Noninterest income		29,690			32,863			91,170			107,682			28,359			30,935
Noninterest expense		108,740			112,996			318,425			319,159			109,590			103,333
Income before income taxes		44,197			20,334			106,145			127,593			53,994			27,552
Income taxes		6,396			3,693			14,571			18,953			7,924			3,101
General banking net income	$	37,801		$	16,641		$	91,574		$	108,640		$	46,070		$	24,451
Selected Financial Information
Total assets	$	16,897,083		$	17,015,176		$	16,897,083		$	17,015,176		$	18,578,910		$	17,123,482
Depreciation and amortization	$	9,439		$	11,653		$	29,610		$	33,563		$	7,443		$	10,176

Wealth Management
Net interest income	$	1,266		$	1,341		$	3,948		$	3,828		$	1,439		$	1,356
Provision for credit losses		(2	)		(2	)		(10	)		(7	)		68			(7	)
Noninterest income		9,007			9,126			27,105			26,609			8,719			9,099
Noninterest expense		8,224			7,747			24,637			23,690			8,034			8,282
Income before income taxes		2,051			2,722			6,426			6,754			2,056			2,180
Income taxes		515			685			1,609			1,694			513			546
Wealth management net income	$	1,536		$	2,037		$	4,817		$	5,060		$	1,543		$	1,634
Selected Financial Information
Total assets	$	205,873		$	265,672		$	205,873		$	265,672		$	207,414		$	231,295
Depreciation and amortization	$	71		$	65		$	217		$	199		$	69		$	73

Insurance
Net interest income	$	(3	)	$	(3	)	$	(8	)	$	(8	)	$	(3	)	$	(3	)
Noninterest income		13,909			12,160			41,699			36,852			14,299			14,081
Noninterest expense		9,734			8,857			28,922			26,978			10,703			9,904
Income before income taxes		4,172			3,300			12,769			9,866			3,593			4,174
Income taxes		1,054			778			3,210			2,423			906			1,048
Insurance net income	$	3,118		$	2,522		$	9,559		$	7,443		$	2,687		$	3,126
Selected Financial Information
Total assets	$	87,678		$	83,796		$	87,678		$	83,796		$	90,854		$	86,774
Depreciation and amortization	$	159		$	191		$	527		$	575		$	154		$	192

Consolidated
Net interest income	$	136,105		$	98,266		$	348,125		$	320,025		$	137,595		$	99,344
Provision for credit losses		11,593			(3,541	)		10,775			(22,872	)		1,002			(1,966	)
Noninterest income		52,606			54,149			159,974			171,143			51,377			54,115
Noninterest expense		126,698			129,600			371,984			369,827			128,327			121,519
Income before income taxes		50,420			26,356			125,340			144,213			59,643			33,906
Income taxes		7,965			5,156			19,390			23,070			9,343			4,695
Consolidated net income	$	42,455		$	21,200		$	105,950		$	121,143		$	50,300		$	29,211
Selected Financial Information
Total assets	$	17,190,634		$	17,364,644		$	17,190,634		$	17,364,644		$	18,877,178		$	17,441,551
Depreciation and amortization	$	9,669		$	11,909		$	30,354		$	34,337		$	7,666		$	10,441

5551

Note 19 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements

Accounting Policies Recently Adopted

Except for the changes detailed below, Trustmark has consistently applied its accounting policies to all periods presented in the accompanying consolidated financial statements.

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” Issued in March 2020, ASU 2020-04 seeks to provided additional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The FASB issued ASU 2020-04 is response to concerns about the structural risks of interbank offered rates and, in particular, the risk that the London Interbank Offer Rate (LIBOR) will no longer be used. Regulators have begun reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. Stakeholders have raised operational challenges likely to arise with the reference rate reform, particularly related to contract modifications and hedge accounting. The amendments of ASU 2020-04, which are elective and apply to all entities, provide expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by the reference rate reform id certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications should be applied consistently for all contracts or transactions within the relevant Codification Topic or Subtopic or Industry Subtopic that contains the related guidance. The optional expedients for hedging relationships can be elected on an individual hedging relationship basis. As the guidance in ASU 2020-04 is intended to assist entity’s during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. On January 7, 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” to clarify the scope of the reference rate reform guidance in FASB ASC Topic 848. ASU 2021-01 refines the scope of FASB ASC Topic 848 to clarify that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The amendments in ASU 2021-01 also amend the expedients and exceptions in FASB ASC Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments of ASU 2021-01 were effective immediately when issued. Entities may choose to apply the amendments of ASU 2021-01 retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments in this ASU for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date that the entity applies the election. While the benchmark provider for U.S. LIBOR (which was typically the benchmark that Trustmark used) intends to provide the benchmark for some tenors of U.S. LIBOR through June 2023, Trustmark has transitioned to Secured Overnight Financing Rate (SOFR) for new variable rate loans, derivative contracts, borrowings and other financial instruments as of January 1, 2022. Management cannot make a determination at this time as to the impact the amendments of ASU 2020-04 and ASU 2021-01 or the reference rate reform will have on its consolidated financial statements.

~~Pending Accounting Pronouncements~~

ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Trouble Debt Restructurings and Vintage Disclosures.” Issued in March 2022, ASU 2022-02 seeks to improve the decision usefulness of information provided to investors concerning certain loan refinancings, restructurings and write-offs. In regard to troubled debt restructurings (TDRs) by creditors, investors and preparers observed that the additional designation of a loan modification as a TDR and the related accounting are unnecessarily complex and no longer provide decision-useful information. The amendments of ASU 2022-02 eliminate the accounting guidance for TDRs by creditors in FASB ASC Subtopic 310-40, “Receivables-Troubled Debt Restructurings by Creditors,” as it is no longer meaningful due to the implementation of FASB ASC Topic 326, which requires an entity to consider lifetime expected credit losses on loans when establishing an allowance for credit losses. Therefore, most losses that would have been realized for a TDR under FASB ASC Subtopic 310-40 are now captured by the accounting required under FASB ASC Topic 326. The amendments of ASU 2022-02 also enhanced disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Stakeholders also noted inconsistency in the requirement for a public business entity (PBE) to disclose gross write-offs and gross recoveries by class of financing receivable and major security type in certain vintage disclosures. Financial statement users expressed that, in addition to the existing vintage disclosures in FASB ASC Topic 326, information about gross write-offs by year of origination would be helpful in understanding credit quality changes in an entity’s loan portfolio and underwriting performance. For PBEs, the amendments of ASU 2022-02 require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” For write-offs associated with origination dates that are more than five annual periods before the reporting period, an entity may present aggregate amounts in the current period for financing receivables and net investment in leases. The amendments of ASU 2022-02 are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022 for entities that have already adopted the amendments of ASU 2016-13. Early adoption is permitted, provided that an entity has

adopted ASU 2016-13. If an entity elects to early adopt the amendments of this ASU during an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. In addition, an entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. Trustmark ~~intends to adopt~~adopted the amendments of ASU 2022-02 ~~as of~~ effective January 1, ~~2023.~~2023. The amendments of ASU 2022-02 include only changes to certain financial statement ~~disclosures,~~disclosures; and, therefore, adoption of ASU 2022-02 ~~is not expected to~~did not have a material impact on Trustmark’s consolidated financial statements or results of operations. The enhanced disclosures required by ASU 2022-02 are presented in Note 3 - LHFI and ACL, LHFI of this report.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following provides a narrative discussion and analysis of Trustmark Corporation’s (Trustmark) financial condition and results of operations. This discussion should be read in conjunction with the unaudited consolidated financial statements and the supplemental financial data included in Part I. Item 1. – Financial Statements of this report.

Description of Business

Trustmark, a Mississippi business corporation incorporated in 1968, is a bank holding company headquartered in Jackson, Mississippi. Trustmark’s principal subsidiary is Trustmark National Bank (TNB), initially chartered by the State of Mississippi in 1889. At ~~September 30, 2022,~~March 31, 2023, TNB had total assets of ~~$17.188~~$18.875 billion, which represented approximately 99.99% of the consolidated assets of Trustmark.

Through TNB and its other subsidiaries, Trustmark operates as a financial services organization providing banking and other financial solutions through offices and ~~2,717~~2,758 full-time equivalent associates (measured at ~~September 30, 2022)~~March 31, 2023) located in the states of Alabama (includes the Georgia Loan Production Office (LPO), which are collectively referred to herein as Trustmark's Alabama market region), Florida (primarily in the northwest or “Panhandle” region of that state, which is referred to herein as Trustmark’s Florida market), Mississippi, Tennessee (in the Memphis and Northern Mississippi regions, which are collectively referred to herein as Trustmark’s Tennessee market), and Texas (primarily in Houston, which is referred to herein as Trustmark’s Texas market). Trustmark’s operations are managed along three operating segments: General Banking Segment, Wealth Management Segment and Insurance Segment. For a complete overview of Trustmark’s business, see the section captioned “The Corporation” included in Part I. Item 1. – Business of Trustmark’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2021 (2021~~2022 (2022 Annual Report).

Executive Overview

Trustmark's financial results for the three months ended March 31, 2023 reflected solid growth in loans held for investment (LHFI) and deposits of $293.2 million, or 2.4%, and $346.0 million, or 2.4%, respectively, and credit quality remained strong. Trustmark's strong financial performance during the first quarter of 2023 was impacted by the challenging financial services environment and increasingly competitive deposit costs; however, Trustmark ~~has been~~remains well-positioned and committed to meeting the banking and financial needs of its customers and the communities ~~for over 130 years,~~it serves, and remains focused on providing support, advice and solutions to meet its customers’ unique needs. Trustmark produced strong financial results for the three and nine months ended September 30, 2022 reflected by significant growth in loans held for investment (LHFI) of $641.2 million, or 5.9%, and $1.338 billion, or 13.1%, respectively, expansion of the net interest margin, consistent performance from its fee businesses and solid credit quality.

Trustmark is committed to managing the franchise for the long term, supporting investments to promote profitable revenue growth, realigning delivery channels to support changing customer preferences as well as reengineering and efficiency opportunities to enhance long-term shareholder value. Trustmark's capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable ~~December~~June 15, ~~2022,~~2023, to shareholders of record on ~~December~~June 1, ~~2022.~~2023.

Recent Economic and Industry Developments

Economic activity ~~continued to improve~~improved slightly during the first ~~nine~~three months of ~~2022 as COVID-19 cases declined across the United States and restrictions were lifted;~~2023; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the ~~long-term effectiveness of the COVID-19 vaccine and the~~ potential economic impact of ~~recent~~ geopolitical developments, such as Russia's invasion of Ukraine, inflation, uncertainty regarding the federal government’s debt limit or a prolonged shutdown of the federal government, the consequences of recent bank failures and ~~COVID-19 lockdowns in China. Inflation has become elevated, reflecting supply~~other economic and ~~demand imbalances related to the pandemic,~~industry volatility, supply chain issues, higher energy prices and broader price pressures. Doubts surrounding the near-term direction of global markets and the potential impact on the United States economy are expected to persist for the near term. While Trustmark's customer base is wholly domestic, international economic conditions affect domestic economic conditions, and thus may have an impact upon Trustmark's financial condition or results of operations.

Market interest rates ~~have begun~~began to rise during 2022 after an extended period at historical ~~lows. In~~lows and have continued to rise in early 2023. Starting in March 2022, the FRB began raising the target federal funds rate for the first time in three years and ~~has~~ continued with ~~four additional~~multiple increases ~~during~~throughout 2022 and the first ~~nine~~three months of ~~2022. The FRB raised the target federal funds rate in July 2022~~2023, up to a range of ~~2.25%~~4.75% to ~~2.50% and again in September 2022 to a range~~

5.00% as of ~~3.00% to 3.25% and~~March 2023. The FRB also signaled the possibility of additional rate increases throughout ~~2022.~~2023. In addition, the FRB increased the interest that it pays on reserves ~~five~~multiple times during 2022 and the first ~~nine~~three months of ~~2022~~2023 from 0.10% to ~~3.15%~~4.90% as of ~~September 2022. The prolonged period of reduced~~March 2023. As interest rates ~~has had and may continue to~~ have ~~an adverse effect on net interest income and margins and profitability for financial institutions, including Trustmark. Additionally, as interest rates increase,~~increased, so ~~will~~have competitive pressures on the deposit cost of funds. This has been exacerbated by recent bank failures and the resulting heightened competition for deposits, which has also affected the interest that Trustmark pays on deposits. It is not possible to predict the pace and magnitude of changes in interest rates, or the impact rate changes will have on Trustmark's results of operations.

In the ~~October 2022~~April 2023 “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the twelve Federal Reserve Districts’ reports suggested that economic activity during the reporting period (covering the period from ~~August 29, 2022~~February 28, 2023 through ~~October 7, 2022) expanded at a modest pace;~~April 10, 2023) increased slightly; however, conditions varied across industries and Federal Reserve Districts (Districts). Reports by the twelve Districts noted the following during the reporting period:

•

~~Retail~~Consumer spending was ~~relatively~~generally seen as flat ~~reflecting lower discretionary spending.~~to down slightly amid continued reports of moderate price growth. Auto ~~dealers noted sustained sluggishness in~~ sales ~~stemming from limited inventories, high vehicle prices~~remained steady overall, with a couple Districts reporting improved sales and ~~rising interest rates.~~inventory levels. Travel and ~~tourist activity rose strongly, boosted by continued strength in leisure activity and a pickup in business travel.~~tourism increased across much of the country. Manufacturing activity ~~held steady~~was widely reported as flat or ~~expanded in most Districts in part due~~down even as supply chains continued to ~~easing supply chain disruptions, though there~~improve. Transportation and freight volumes were ~~a few reports of output declines.~~also flat to down.

•

~~Rising mortgage rates and elevated housing prices further weakened single-family starts and sales, but help buoy apartment leasing and rents, which generally remained high. Commercial~~On balance, residential real estate ~~slowed in both~~sales and new construction activity softened modestly. Nonresidential construction was little changed while sales and ~~sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices. Industrial~~ leasing ~~remained robust, while office demand~~activity was ~~tepid.~~generally flat to down.

•

~~Bankers in most reporting~~Lending volumes and loan demand generally declined across consumer and business loan types. Several Districts ~~cited declines in loan volumes, partly a result of shrinking residential real estate lending.~~noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity.

•

~~Energy activity expanded moderately, whereas agricultural reports~~The majority of Districts reported steady to increasing demand and sales for nonfinancial services. Agriculture conditions were ~~mixed, as drought conditions and high input costs remained a challenge.~~mostly unchanged, while some softening was reported in energy markets.

•

Employment ~~continued to rise~~growth moderated somewhat during the reporting period as several Districts reported a slower pace of growth. A small number of firms (centered at a ~~modest~~subset of the largest companies) reported mass layoffs, while other firms opted to ~~moderate pace in most Districts.~~allow for natural attrition to occur and to hire only for critically important roles. Contacts reported the labor market becoming less tight as several Districts noted increases to the labor supply. Firms benefited from better employee retention, which allowed them to hire for open roles while not constantly trying to back-fill positions. Wages showed some moderation but remained elevated. Several Districts reported ~~a cooling in labor demand, with some noting businesses were hesitant~~declining needs for off-cycle wage increases compared to add to payrolls amid increased concerns of an economic downturn. Overall labor market conditions remained tight, though half of Districts noted some easing of hiring and/or retention difficulties. Wage growth remained widespread, though an easing was reported in several Districts. Some businesses said elevated inflation and higher costs of living were pushing wages up, coupled with upward pressure from labor market tightness. Contacts expect wage growth to continue as higher pay remains essential for retaining talent in the ~~current environment.~~prior year.

•

~~Price growth remained elevated,~~Overall price levels rose moderately, though ~~some easing was~~the rate of price increase appeared to be slowing. Contacts noted ~~across several Districts. Significant input price increases were reported in a variety of industries, though some~~modest-to-sharp declines in ~~commodity, fuel~~the prices of nonlabor inputs and significantly lower freight ~~costs were noted. Growth~~costs. Producer prices for finished goods rose modestly,

albeit at a slightly slower pace. Selling price pressures eased broadly in ~~selling~~manufacturing and services sectors. Consumer prices ~~was mixed, with stronger increases reported by some~~generally increased due to still-elevated demand as well as higher inventory and labor costs. Prices for homes and rents leveled out in most Districts ~~and a moderation seen in others. Some contacts noted solid pricing power over the past six weeks, while others said~~but remained at near record highs. Contacts expected further relief from input cost ~~passthrough was becoming~~pressures but anticipated changing their prices more ~~difficult as customers push back. Expectations were for price increases~~frequently compared to ~~generally moderate.~~

•

~~Outlooks for future economic growth grew more pessimistic amidst growing concerns about weakening demand.~~previous years.

Reports by the Federal Reserve’s Sixth District, Atlanta (which includes Trustmark’s Alabama, Florida and Mississippi market regions), Eighth District, St. Louis (which includes Trustmark’s Tennessee market region), and Eleventh District, Dallas (which includes Trustmark’s Texas market region), noted similar findings for the reporting period as those discussed above. The Federal Reserve's Sixth District also reported that deposit growth declined and institutions increased borrowing as a source of funding and additions to securities portfolios slowed and unrealized losses increased. The Federal Reserve'sReserve’s Sixth District also noted that ~~conditions at~~liquidity pressures persisted for some financial institutions, ~~were steady as~~but despite concerns about liquidity, banks indicated loan growth ~~improved, with~~remained solid over the reporting period. Banking contacts in the Sixth District reported that a limited number of customers expressed concerns about recent bank failures and their level of uninsured deposits held at a single institution; however, banks have not experienced a large outflow of deposits. The Federal Reserve’s Sixth District also noted that unrealized losses remained elevated, limiting the ability to sell securities for liquidity without negatively impacting capital. The Federal Reserve’s Eighth District also reported that banking conditions remain stable, loan growth declined slightly in the commercial, industrial and consumer lending ~~experiencing~~sectors but increased in the ~~strongest growth among loan portfolios,~~real estate sector, and total deposits fell. The Federal Reserve’s Eighth District also noted that contacts expect net interest margins to begin contracting if they have not already, as deposit ~~balances were flat.~~costs are still increasing. Memphis banking contacts in the Eighth District reported a renewed focus in the industry on liquidity in light of recent bank failures, while expressing confidence in their diverse and strong deposit base. The Federal Reserve’s Eleventh District also reported ~~that energy activity~~loan demand continued to ~~expand~~decline as bankers reported worsening business activity, loan volumes fell, driven largely by a sharp contraction in consumer loans, loan performance worsened slightly overall, credit standards and terms tightened sharply and increases in loan pricing was noted. Banking outlooks continued to deteriorate in the Federal Reserve’s Eleventh District, with contacts expecting a contraction in loan demand ~~for oilfield services was high, but~~and business activity and an increase in nonperforming loans over the ~~industry was constrained by equipment and labor shortages.~~next six months. The Federal Reserve’s Eleventh District also ~~reported~~noted that ~~outlooks for~~increased uncertainty and lack of confidence resulting from the ~~energy sector~~recent banking issues were ~~strong,~~cited as concerns.

The rapid rise in interest rates during 2022 and the first three months of 2023, the resulting industry-wide reduction in the fair value of securities portfolios and the recent bank runs that led to the failures of some financial institutions in March 2023, among other events, have resulted in a current state of volatility and uncertainty with ~~contacts expecting oil~~respect to the health of the United States banking system. There is heightened awareness around liquidity, uninsured deposits, deposit composition, unrecognized investment losses and ~~natural gas prices to remain high enough to prompt an upward trend~~capital. See further discussion around these items in ~~energy activity for~~ the ~~foreseeable future.~~remaining sections of the Management’s Discussion and Analysis of this document.

Financial Highlights

Trustmark reported net income of ~~$42.5~~$50.3 million, or basic and diluted earnings per share (EPS) of ~~$0.69,~~$0.82, in the ~~third~~first quarter of ~~2022,~~2023, compared to ~~$21.2~~$29.2 million, or basic and diluted EPS of ~~$0.34,~~$0.47, in the ~~third~~first quarter of ~~2021.~~2022. Trustmark’s reported performance during the quarter ended ~~September 30, 2022~~March 31, 2023 produced a return on average tangible equity of ~~13.90%~~18.03%, a return on average assets of ~~0.98%~~1.10%, an average equity to average assets ratio of ~~9.32%~~8.24% and a dividend payout ratio of ~~33.33%~~28.05%, compared to a return on average tangible equity of ~~6.16%~~9.05%, a return on average assets of ~~0.49%~~0.68%, an average equity to average assets ratio of ~~10.39%~~9.79% and a dividend payout ratio of ~~67.65%~~48.94% during the quarter ended ~~September 30, 2021.~~

Trustmark report net income of $106.0 million, or basic and diluted EPS of $1.73 and $1.72, respectively, for the first nine months of 2022, compared to $121.1 million, or basic and diluted EPS of $1.92, for the same time period in 2021. Trustmark's reported performance for the nine months ended September 30, 2022 produced a return on average tangible equity of 11.39%, a return on average assets of 0.81%, an average equity to average assets ratio of 9.45% and a dividend payout ratio of 39.88%, compared to a return on average tangible equity of 11.84%, a return on average assets of 0.96%, an average equity to average assets ratio of 10.47% and a dividend payout ratio of 35.94% for the nine months ended September 30, 2021.March 31, 2022.

Total revenue, which is defined as net interest income plus noninterest income, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was ~~$188.7~~$189.0 million, ~~and $508.1 million, respectively,~~ an increase of ~~$36.3~~$35.5 million, or ~~23.8%~~23.1%, ~~and $16.9 million, or 3.4%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021.~~2022. The increase in total revenue for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023, when compared to the same time ~~periods~~period in ~~2021,~~2022, primarily resulted from an increase in net interest income, ~~primarily~~principally due to increases in interest and fees on loans held for sale (LHFS) and LHFI, other interest income and interest on securities, partially offset by ~~a decrease noninterest income, primarily due to a decline~~an increase in ~~mortgage banking, net. These factors are discussed in further detail below.~~total interest expense.

Net interest income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$136.1~~$137.6 million, ~~and $348.1 million, respectively,~~ an increase of ~~$37.8~~$38.3 million, or 38.5%, ~~and $28.1 million, or 8.8%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021.~~2022. Interest income totaled ~~$144.4 million and $365.3~~$198.9 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, an increase of ~~$40.7~~$95.2 million, or ~~39.2%~~91.8%, ~~and $26.2 million, or 7.7%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021,~~2022, principally due to increases in interest and fees on LHFS and LHFI primarily due to loan growth and rising interest rates, ~~interest on securities primarily due to securities purchased and~~ other interest income primarily due to an increase in the rate paid by the Federal Reserve Bank of Atlanta (FRBA) on reserves ~~partially offset by a decline in~~and interest ~~and fees~~ on ~~PPP loans,~~securities primarily due to ~~PPP loans forgiven by the U.S. Small Business Administration (SBA) as well as the PPP loans sold during the second quarter of 2021.~~higher-yielding securities purchased throughout 2022. Interest expense totaled ~~$8.3 million and $17.2~~$61.3 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, an increase of ~~$2.8~~$56.9 million ~~or 51.9%, and a decrease of $1.9 million, or 10.0%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021.~~2022. The increase in interest expense ~~for~~ when the ~~third~~first quarter of ~~2022~~2023 is compared to the same time period in ~~2021~~2022 was ~~principally~~ due to increases in interest on deposits primarily due to rising interest rates, increased competition for deposits and higher average balances, other interest expense primarily due to the increase in short-term Federal Home Loan Bank (FHLB) advances, and interest ofon federal funds purchased and securities sold under repurchase agreements primarily due to ~~an increase in upstream federal funds purchased. The decrease in interest expense when the first nine months of 2022 is compared~~increases to the ~~same time period in 2021 was principally due to the decline in interest on deposits partially offset by an increase in interest of~~target rate for federal funds purchased ~~and securities sold under repurchase agreements. The decrease in interest on deposits when~~by the first nine months of 2022 is compared to the same time period in 2021 was primarily a result of lower interest rates and a decrease in the average balances of time deposits. The increase in interest on federal funds purchased and securities sold under repurchase agreements when the first nine months of 2022 is compared to the same time period in 2021 was primarily due toFRB as well as an increase in upstream federal funds purchased.

Noninterest income for the three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$52.6~~$51.4 million, a decrease of ~~$1.5~~$2.7 million, or ~~2.8%~~5.1%, when compared to the same time period in ~~2021,~~2022, primarily due to a decline in mortgage banking, ~~net, partially offset by increases in service charges on deposit accounts and insurance commissions.~~net. Mortgage banking, net totaled ~~$6.9~~ $7.6

million for the three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of ~~$7.1~~$2.2 million, or ~~50.9%~~22.6%, when compared to the same time period in ~~2021,~~2022, principally due to ~~a decline~~declines in the gain on sales of loans, ~~net. Service charges on deposit accounts totaled $11.3 million~~net and the net hedge ineffectiveness, partially offset by a decline in the run-off of the mortgage servicing rights (MSR).

Noninterest expense for the ~~third quarter of 2022,~~three months ended March 31, 2023 totaled $128.3 million, an increase of ~~$2.4~~$6.8 million, or ~~27.0%~~5.6%, when compared to the same time period in ~~2021~~2022. The increase in noninterest expense for the first quarter of 2023 was principally due to increases in ~~the amount of non-sufficient funds (NSF)~~salaries and ~~overdraft occurrences on consumer interest checking accounts~~employee benefits and ~~service charges on consumer interest checking accounts. Insurance commissions~~other expense. Salaries and employee benefits totaled ~~$13.9~~$74.1 million for the three months ended ~~September 30, 2022,~~March 31, 2023, an increase of ~~$1.8~~$4.5 million, or ~~14.7%~~6.4%, when compared to the same time period in ~~2021, principally due to growth in commissions from commercial property and casualty business and other commission income.~~

~~Noninterest income for the nine months ended September 30,~~ 2022, totaled $160.0 million, a decrease of $11.2 million, or 6.5%, when compared to the same time period in 2021, principally due to a decline in mortgage banking, net, partially offset by increases in service charges on deposit accounts, insurance commissions, other income, net and bank card and other fees. Mortgage banking, net totaled $24.9 million for the nine months ended September 30, 2022, a decrease of $27.2 million, or 52.2%, when compared to the same time period in 2021, principally due to a decline in the gain on sales of loans, net. Service charges on deposit accounts totaled $31.0 million for the first nine months of 2022, an increase of $7.1 million, or 29.8%, when compared to the same time period in 2021 principally due to increases in the amount of NSF and overdraft occurrences on consumer interest checking accounts and service charges on consumer interest checking accounts. Insurance commissions totaled $41.7 million for the nine months ended September 30, 2022, an increase of $4.9 million, or 13.3%, when compared to the same time period in 2021, principally due to growth in commissions from commercial property and casualty business and other commission income. Other income, net totaled $7.5 million for the first nine months of 2022, an increase of $2.0 million, or 35.2%, when compared to the same time period in 2021, principally due to gains on the sale of two closed bank branch locations, increases in other miscellaneous income and cash management service fees as well as a decrease in the amortization of investments in tax credit partnerships, partially offset by a decline in the FDIC indemnification asset final settlement completed during the second quarter of 2021. Bank card and other fees totaled $27.9 million for the first nine months of 2022, an

increase of $1.6 million, or 6.0%, when compared to the same time period in 2021 principally due to increases in customer derivatives revenue and interchange income, partially offset by a decrease in ATM surcharge revenue.

Noninterest expense for the three and nine months ended September 30, 2022 totaled $126.7 million and $372.0 million, respectively, a decrease of $2.9 million, or 2.2%, and an increase of $2.2 million, or 0.6%, respectively, when compared to the same time periods in 2021. The decrease in noninterest expense for the third quarter of 2022 was principally due to declines in other expense and salaries and employee benefits, partially offset by an increase in services and fees. The increase in noninterest expense for the first nine months of 2022 was principally due to an increase in services and fees and net occupancy-premises partially offset by declines in other expense and salaries and employee benefits. Services and fees totaled $25.8 million and $74.8 million for the three and nine months ended September 30, 2022, respectively, an increase of $3.5 million, or 15.6%, and $8.2 million, or 12.4%, respectively, when compared to the same time periods in 2021, primarily due to increases in other services and fees, software licenses and outsourcing fees related to transaction processing. Net occupancy-premises totaled $21.4 million for the first nine months of 2022, an increase of $1.1 million, or 5.6%, principally due to increases in depreciation expense related to building improvements, rental expense, and landscaping expenses as well as a decline in building rental income, partially offset by declines in janitorial expenses. Salaries and employee benefits totaled $72.7 million and $214.0 million for the three and nine months ended September 30, 2022, respectively, a decrease of $1.9 million, or 2.6%, and $1.9 million, or 0.9%, respectively, when compared to the same time periods in 2021, principally due to the $5.6 million of nonroutine salaries and employee benefits expense related to the voluntary early retirement program completed during the third quarter of 2021. Excluding these nonroutine expenses, salaries and employee benefits increased $3.7 million, or 5.4%, and $3.7 million, or 1.8%, for the three and nine months ended September 30, 2022, respectively, principally due to increases in salaries expense, primarily due to general merit increases as well as employees added related to the new Georgia LPO and accrued management performance incentives, ~~and other salaries expense.~~partially offset by a decline in commission expense due to the decline in mortgage originations. Other expense totaled ~~$14.7 million and $43.7~~$14.8 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively, a decrease~~March 31, 2023, an increase of ~~$5.1~~$1.3 million, or ~~25.9%~~9.9%, ~~and $5.7 million, or 11.6%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021,~~2022, principally due to ~~the $5.0 million regulatory settlement~~increases in FDIC assessment expense, ~~incurred during the third quarter of 2021.~~stationery and supplies expense, and other miscellaneous expenses, partially offset by a decline in loan expense.

Trustmark’s provision for credit losses (PCL) on LHFI for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$12.9~~$3.2 million, ~~and $14.8 million, respectively,~~ an increase of ~~$15.4~~$4.1 million ~~and $31.8 million, respectively,~~ when compared to the same time ~~periods~~period in 2021. The PCL on LHFI for the third quarter of 2022 was primarily driven by specific reserves for individually analyzed credits, a less positive outlook in the macroeconomic forecasts and an increase in reserves related to loan growth.2022. The PCL on LHFI for the first ~~nine~~three months of ~~2022~~2023 primarily reflected an increase in required reserves as a result of loan growth and ~~specific reserves on individually analyzed LHFI.~~the Nature and Volume of Portfolio qualitative factor. The PCL on off-balance sheet credit exposures totaled a negative ~~$1.3 million and a negative $4.0~~$2.2 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively, an increase of $277 thousand, or 26.4%, and~~March 31, 2023, a decrease of ~~$1.9~~$1.1 million ~~or 32.1%, respectively,~~ when compared to the same time ~~periods~~period in 2021. The negative PCL on off-balance sheet credit exposures for the third quarter of 2022 was primarily driven by a decline in required reserves as a result of changes in the total reserve rate used in the calculation of the allowance for credit losses (ACL) on off-balance sheet credit exposures, partially offset by an increase in required reserves as a result of an increase in unfunded balances.2022. The negative PCL on off-balance sheet credit exposures for the first ~~nine~~three months of ~~2022~~2023 primarily reflected a decline in required reserves as a result of changes in the total reserve rate used in the calculation of the ACL on off-balance sheet credit ~~exposures.~~exposures and a decline in the unfunded commitments balance. Please see the section captioned “Provision for Credit Losses” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

At ~~September 30, 2022,~~March 31, 2023, nonperforming assets totaled ~~$70.9~~$74.1 million, an increase of ~~$3.6~~$6.1 million, or ~~5.4%~~9.0%, compared to December 31, ~~2021,~~2022, primarily as a result of an increase in nonaccrual ~~loans partially offset by a decline in other real estate.~~loans. Nonaccrual LHFI totaled ~~$67.9~~$72.4 million at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$5.2~~$6.4 million, or ~~8.3%~~9.7%, relative to December 31, ~~2021,~~2022, primarily due to ~~one large commercial credit~~loans placed on nonaccrual status in each of the Alabama and Texas market regions, partially offset by reductions and pay-offs of nonaccrual loans in the Alabama and Texas market regions and a commercial credit that returned to accrual status in the Tennessee market region. Other real estate totaled $3.0 million at September 30, 2022, a decline of $1.6 million, or 34.8%, compared to December 31, 2021, principally due to properties sold in the Mississippi market region.

LHFI totaled ~~$11.586~~$12.497 billion at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$1.338 billion,~~$293.2 million, or ~~13.1%~~2.4%, compared to December 31, ~~2021.~~2022. The increase in LHFI during the first ~~nine~~three months of ~~2022~~2023 was primarily due to net growth in LHFI secured by real estate ~~primarily in the Mississippi, Alabama~~ and ~~Texas market regions as well as growth in~~ commercial and industrial LHFI, ~~in the Mississippi and Alabama market regions~~ partially offset by a decline in ~~commercial~~state and ~~industrial LHFI in the Tennessee market region.~~other political subdivision LHFI. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

Management has continued its practice of maintaining excess funding capacity to provide Trustmark with adequate liquidity for its ongoing operations. In this regard, Trustmark benefits from its strong deposit base, its highly liquid investment portfolio and its access to funding from a variety of external funding sources such as upstream federal funds lines, FHLB advances and ~~on a limited basis,~~ brokered deposits. See the section captioned “Capital Resources and Liquidity” for further discussion of the components of Trustmark’s excess funding capacity.

Total deposits were ~~$14.425~~$14.784 billion at ~~September 30, 2022, a decrease~~March 31, 2023, an increase of ~~$662.0~~$346.0 million, or ~~4.4%~~2.4%, compared to December 31, ~~2021.~~2022. During the first ~~nine~~three months of ~~2022,~~2023, noninterest-bearing deposits decreased ~~$412.3~~$296.7 million, or ~~8.6%~~7.2%, reflecting declines in ~~consumer and public demand~~all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit ~~accounts (DDAs) partially offset by an increase in commercial DDAs.~~accounts. Interest-bearing deposits ~~decreased $249.7~~increased $642.7 million, or ~~2.4%~~6.2%, during the first ~~nine~~three months of ~~2022,~~2023, primarily due to ~~declines~~growth in ~~public~~consumer and ~~commercial interest checking accounts, commercial~~business certificates of deposits (CDs), which was principally attributable to deposit campaigns offered during the first quarter of 2023, the addition of $150.0 million of brokered CDs and growth in consumer and business money market deposit accounts (MMDAs), ~~and all categories of certificates of deposits,~~ partially offset by ~~growth~~declines in consumer interest checking accounts and ~~consumer~~all categories of savings accounts.

Federal funds purchased and securities sold under repurchase agreements totaled ~~$544.1~~$478.0 million at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$305.5~~$28.6 million, or 6.4%, compared to December 31, 2022, principally due to an increase in upstream federal funds purchased. Other borrowings totaled ~~$223.2 million~~$1.485 billion at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$132.1~~$434.2 million, or 41.3%, compared to December 31, ~~2021,~~2022, principally due to ~~$150.0 million of~~an increase in short-term ~~Federal Home Loan Bank (FHLB)~~FHLB advances obtained from the FHLB of Dallas. The increases in the upstream federal funds purchased and short-term FHLB ~~advance~~advances as funding sources ~~are~~were principally due to Trustmark's ~~deployment of its excess cash to purchase investment securities and the subsequent~~ continued strong loan ~~growth. In addition, as the FRB has begun to tighten monetary policy,~~growth and increased competition for ~~deposits has also increased.~~deposits.

Recent Legislative and Regulatory Developments

~~On October 17, 2022,~~Potential Regulatory Reforms in Response to Recent Bank Failures

The recent failures of Silicon Valley Bank, Santa Clara, California, Signature Bank, New York, New York, and First Republic Bank, San Francisco, California, in March and April of this year, may lead to regulatory changes and initiatives that could impact Trustmark.

For example, the ~~Federal Deposit Insurance Corporation (FDIC) issued~~FDIC has stated that it plans to impose a ~~final rule to increase initial base~~special deposit insurance assessment ~~rates for insured depository institutions by 2 basis points, beginning with~~on banks in order to recover losses that the ~~first quarterly assessment period of 2023. The assessment rate schedules under this final rule will remain in effect unless and until the reserve ratio of the~~FDIC’s Deposit Insurance Fund ~~meets~~(DIF) incurred in the receiverships of these institutions. Trustmark cannot predict the amount or ~~exceeds 2 percent. Under this final rule, TNB's~~timing of any special assessment or changes to the assessment calculation the FDIC ~~insurance costs will increase; however,~~may choose to impose in order to recover losses incurred by the ~~additional expense is not expected to be~~FDIC's DIF. However, any special assessments or changes in the assessment calculation imposed by the FDIC could have a material toadverse effect on Trustmark's financial condition orand results of operations. In addition, President Biden has encouraged the federal banking agencies to adopt various reforms, including the completion of an incentive compensation rule for bank executives pursuant to Section 956 of the Dodd-Frank Act, in response to these bank failures. On April 28, 2023, the FRB and the FDIC issued reports on the potential causes of failures of Silicon Valley Bank and Signature Bank, respectively. Among the changes discussed, the FRB and the FDIC highlighted potential changes needed to supervisory approaches for banks of all sizes as well as to regulatory requirements. Currently, it is unclear what actions federal regulatory agencies will take as a result of these failures.

Small Business Lending Data Collection Rule

On March 30, 2023, the CFPB finalized a rule under section 1071 of the Dodd-Frank Act requiring lenders to collect and report data regarding small business lending activity. Trustmark is evaluating the impact of the new rule.

For additional information regarding legislation and regulation applicable to Trustmark, see the section captioned “Supervision and Regulation” included in Part I. Item 1. – Business of Trustmark’s ~~2021~~2022 Annual Report.

Selected Financial Data

The following tables present financial data derived from Trustmark’s consolidated financial statements as of and for the periods presented ($ in thousands, except per share data):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Consolidated Statements of Income
Total interest income	$	144,423		$	103,741		$	365,320		$	339,138		$	198,900		$	103,713
Total interest expense		8,318			5,475			17,195			19,113			61,305			4,369
Net interest income		136,105			98,266			348,125			320,025			137,595			99,344
Provision for credit losses (PCL), LHFI		12,919			(2,492	)		14,775			(16,984	)		3,244			(860	)
PCL, off-balance sheet credit exposures		(1,326	)		(1,049	)		(4,000	)		(5,888	)		(2,242	)		(1,106	)
Noninterest income		52,606			54,149			159,974			171,143			51,377			54,115
Noninterest expense		126,698			129,600			371,984			369,827			128,327			121,519
Income before income taxes		50,420			26,356			125,340			144,213			59,643			33,906
Income taxes		7,965			5,156			19,390			23,070			9,343			4,695
Net Income	$	42,455		$	21,200		$	105,950		$	121,143		$	50,300		$	29,211

Total Revenue (1)	$	188,711		$	152,415		$	508,099		$	491,168		$	188,972		$	153,459

Per Share Data
Basic EPS	$	0.69		$	0.34		$	1.73		$	1.92		$	0.82		$	0.47
Diluted EPS		0.69			0.34			1.72			1.92			0.82			0.47
Cash dividends per share		0.23			0.23			0.69			0.69			0.23			0.23

Performance Ratios
Return on average equity		10.48	%		4.72	%		8.62	%		9.13	%		13.39	%		6.91	%
Return on average tangible equity		13.90	%		6.16	%		11.39	%		11.84	%		18.03	%		9.05	%
Return on average assets		0.98	%		0.49	%		0.81	%		0.96	%		1.10	%		0.68	%
Average equity / average assets		9.32	%		10.39	%		9.45	%		10.47	%		8.24	%		9.79	%
Net interest margin (fully taxable equivalent)		3.50	%		2.57	%		3.00	%		2.84	%		3.39	%		2.58	%
Dividend payout ratio		33.33	%		67.65	%		39.88	%		35.94	%		28.05	%		48.94	%

Credit Quality Ratios (2)
Net charge-offs (recoveries) / average loans		0.03	%		-0.10	%		-0.01	%		-0.05	%		0.04	%		-0.01	%
PCL, LHFI / average loans		0.45	%		-0.10	%		0.18	%		-0.22	%		0.10	%		-0.03	%
Nonaccrual LHFI / (LHFI + LHFS)		0.58	%		0.63	%								0.57	%		0.61	%
Nonperforming assets / (LHFI + LHFS) plus other real estate		0.60	%		0.69	%								0.58	%		0.64	%
ACL, LHFI / LHFI		0.99	%		1.02	%								0.98	%		0.95	%

(1)

Consistent with Trustmark’s audited annual financial statements, total revenue is defined as net interest income plus noninterest income.

(2)

Excludes PPP loans.


	September 30,						March 31,
	2022			2021			2023			2022
Consolidated Balance Sheets
Total assets	$	17,190,634		$	17,364,644		$	18,877,178		$	17,441,551
Securities		3,601,471			3,452,510			3,458,500			3,625,844
Total loans (LHFI + LHFS)		11,751,277			10,510,238			12,673,121			10,619,667
Deposits		14,425,180			14,922,839			14,783,661			15,113,292
Total shareholders' equity		1,508,945			1,768,947			1,562,099			1,631,382

Stock Performance
Market value - close	$	30.63		$	32.22		$	24.70		$	30.39
Book value		24.76			28.32			25.59			26.54
Tangible book value		18.39			22.08			19.24			20.22

Capital Ratios
Total equity / total assets		8.78	%		10.19	%		8.28	%		9.35	%
Tangible equity / tangible assets		6.67	%		8.12	%		6.35	%		7.29	%
Tangible equity / risk-weighted assets		8.15	%		11.19	%		7.94	%		9.79	%
Tier 1 leverage ratio		9.01	%		8.92	%		8.29	%		8.66	%
Common equity Tier 1 risk-based capital ratio		10.63	%		11.68	%		9.76	%		11.23	%
Tier 1 risk-based capital ratio		11.06	%		12.17	%		10.17	%		11.70	%
Total risk-based capital ratio		12.85	%		14.01	%		11.95	%		13.53	%

Non-GAAP Financial Measures

In addition to capital ratios defined by U.S. generally accepted accounting principles (GAAP) and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets. Trustmark's common equity Tier 1 capital includes common stock, capital surplus and retained earnings, and is reduced by goodwill and other intangible assets, net of associated net deferred tax liabilities as well as disallowed deferred tax assets and threshold deductions as applicable.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations. In Management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculation methods may not be comparable with those of other organizations. Also, there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety and not to rely on any single financial measure.

6357

The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP for the periods presented ($ in thousands, except per share data):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021			2022			2021				2023			2022
TANGIBLE EQUITY
AVERAGE BALANCES
Total shareholders' equity		$	1,606,469		$	1,782,304		$	1,642,450		$	1,774,204			$	1,523,828		$	1,713,752
Less: Goodwill			(384,237	)		(384,237	)		(384,237	)		(384,540	)			(384,237	)		(384,237	)
Identifiable intangible assets			(4,131	)		(5,899	)		(4,479	)		(6,482	)			(3,523	)		(4,879	)
Total average tangible equity		$	1,218,101		$	1,392,168		$	1,253,734		$	1,383,182			$	1,136,068		$	1,324,636

PERIOD END BALANCES
Total shareholders' equity		$	1,508,945		$	1,768,947									$	1,562,099		$	1,631,382
Less: Goodwill			(384,237	)		(384,237	)									(384,237	)		(384,237	)
Identifiable intangible assets			(3,952	)		(5,621	)									(3,352	)		(4,591	)
Total tangible equity	(a)	$	1,120,756		$	1,379,089								(a)	$	1,174,510		$	1,242,554

TANGIBLE ASSETS
Total assets		$	17,190,634		$	17,364,644									$	18,877,178		$	17,441,551
Less: Goodwill			(384,237	)		(384,237	)									(384,237	)		(384,237	)
Identifiable intangible assets			(3,952	)		(5,621	)									(3,352	)		(4,591	)
Total tangible assets	(b)	$	16,802,445		$	16,974,786								(b)	$	18,489,589		$	17,052,723
Risk-weighted assets	(c)	$	13,748,819		$	12,324,254								(c)	$	14,793,893		$	12,691,545

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION	NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION													NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income		$	42,455		$	21,200		$	105,950		$	121,143			$	50,300		$	29,211
Plus: Intangible amortization net of tax			234			412			842			1,327				216			362
Net income adjusted for intangible amortization		$	42,689		$	21,612		$	106,792		$	122,470			$	50,516		$	29,573
Period end shares outstanding	(d)		60,953,864			62,461,832								(d)		61,048,516			61,463,392

TANGIBLE EQUITY MEASUREMENTS
Return on average tangible equity (1)			13.90	%		6.16	%		11.39	%		11.84	%			18.03	%		9.05	%
Tangible equity/tangible assets	(a)/(b)		6.67	%		8.12	%							(a)/(b)		6.35	%		7.29	%
Tangible equity/risk-weighted assets	(a)/(c)		8.15	%		11.19	%							(a)/(c)		7.94	%		9.79	%
Tangible book value	(a)/(d)*1,000	$	18.39		$	22.08								(a)/(d)*1,000	$	19.24		$	20.22

COMMON EQUITY TIER 1 CAPITAL (CET1)
Total shareholders' equity		$	1,508,945		$	1,768,947									$	1,562,099		$	1,631,382
CECL transitional adjustment			19,500			26,419										13,000			19,500
AOCI-related adjustments			306,412			19,080										242,381			148,656
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs)			(370,217	)		(370,264	)									(370,234	)		(370,240	)
Other adjustments and deductions for CET1 (2)			(3,506	)		(4,817	)									(3,275	)		(4,015	)
CET1 capital	(e)		1,461,134			1,439,365								(e)		1,443,971			1,425,283
Additional Tier 1 capital instruments plus related surplus			60,000			60,000										60,000			60,000
Tier 1 Capital		$	1,521,134		$	1,499,365									$	1,503,971		$	1,485,283

Common equity Tier 1 risk-based capital ratio	(e)/(c)		10.63	%		11.68	%							(e)/(c)		9.76	%		11.23	%

(1)

Calculated using annualized net income adjusted for intangible amortization divided by total average tangible equity.

(2)

Includes other intangible assets, net of DTLs, disallowed deferred tax assets and threshold deductions, as applicable.

Trustmark discloses certain non-GAAP financial measures, including net income adjusted for significant non-routine transactions, because Management uses these measures for business planning purposes, including to manage Trustmark’s business against internal projected results of operations and to measure Trustmark’s performance. Trustmark views these as measures of its core operating business, which exclude the impact of the items detailed below, as these items are generally not operational in nature. These non-GAAP financial measures also provide another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the consolidated financial statements by excluding potential differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety, and not to rely on any single financial measure.

The following table presents adjustments to net income and selected financial ratios as reported in accordance with GAAP resulting from significant non-routine items occurring during the periods presented ($ in thousands, except per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Amount

Diluted EPS

Amount

Diluted EPS

Amount

Diluted EPS

Amount

Diluted EPS

Net Income (GAAP)

$
42,455

$
0.69

$
21,200

$
0.34

$
105,950

$
1.72

$
121,143

$
1.92

Significant non-routine
   transactions (net of taxes):

Voluntary early retirement
   program

—

—

4,275

0.07

—

—

4,275

0.07

Regulatory settlement
   charge (not tax deductible)

—

—

5,000

0.08

—

—

5,000

0.08

Net Income adjusted for
   significant non-routine
   transactions (Non-GAAP)

$
42,455

$
0.69

$
30,475

$
0.49

$
105,950

$
1.72

$
130,418

$
2.07

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Return on average equity

10.48
%

n/a

4.72
%

6.77
%

8.62
%

n/a

9.13
%

9.82
%
Return on average tangible equity

13.90
%

n/a

6.16
%

8.77
%

11.39
%

n/a

11.84
%

12.72
%
Return on average assets

0.98
%

n/a

0.49
%

0.71
%

0.81
%

n/a

0.96
%

1.03
%

~~n/a – not applicable~~

Results of Operations

Net Interest Income

Net interest income is the principal component of Trustmark’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The net interest margin is computed by dividing fully taxable equivalent (FTE) net interest income by average interest-earning assets and measures how effectively Trustmark utilizes its interest-earning assets in relationship to the interest cost of funding them. The accompanying yield/rate analysis ~~tables show~~table shows the average balances for all assets and liabilities of Trustmark and the interest income or expense associated with earning assets and interest-bearing liabilities. The yields and rates have been computed based upon interest income and expense adjusted to a FTE basis using the federal statutory corporate tax rate in effect for each of the periods shown. Loans on nonaccrual have been included in the average loan balances, and interest collected prior to these loans having been placed on nonaccrual has been included in interest income. Loan fees included in interest associated with the average LHFS and LHFI balances were immaterial.

Net interest income-FTE for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$37.9~~$38.7 million, or ~~37.4%~~37.8%, ~~and $28.2 million, or 8.6%, respectively,~~ when compared with the same time ~~periods~~period in ~~2021.~~2022. The increase in net interest income-FTE when the ~~third~~first quarter of ~~2022~~2023 is compared to the same time period in ~~2021~~2022 was principally due to increases in interest and fees on LHFS and LHFI, other interest income and taxable interest on securities, partially offset by ~~a decline in interest and fees on PPP loans and~~ increases in interest on deposits, other interest expense and interest on federal funds purchased and reverse repurchase agreements. The increase in net interest income-FTE when the first nine months of 2022 is compared to the same time period in 2021 was principally due to increases in interest and fees on LHFS and LHFI, taxable interest on securities and other interest income as well as a decline in interest on deposits, partially offset by a decline in interest and fees on PPP loans and an increase in interest on federal funds purchased and reversesold under repurchase agreements. The net interest margin-FTE for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased 9381 basis points to ~~3.50% and 16 basis points to 3.00%, respectively,~~3.39% when compared to the same time ~~periods~~period in ~~2021.~~2022. The net interest margin excluding PPP loans and the balance held at the FRBA, which equals the reported net interest income-FTE excluding interest and fees on PPP and interest on the FRBA balance, as a percentage of average earning assets excluding average PPP loans and the FRBA balance, was ~~3.53% and 3.17%~~3.36% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, an increase of 6348 basis points ~~and 23 basis points, respectively,~~ when compared to the same time ~~periods~~period in ~~2021.~~2022. The increase in the net interest margin excluding PPP loans and the balance held at the FRBA for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same time ~~periods~~period in ~~2021,~~2022, was principally due to ~~the reasons~~increases in interest and fees on LHFS and LHFI and taxable interest on securities, partially offset by increases in interest expense as discussed above.

At ~~September 30, 2022,~~March 31, 2023, Trustmark had no PPP loans outstanding ~~totaling $4.8~~compared to $18.6 million, net of ~~deferred fees and costs of $95 thousand, compared to $46.5 million, net of $798~~$401 thousand of deferred fees and costs, outstanding at ~~September 30, 2021.~~March 31, 2022. Processing fees earned by TNB as the originating lender ~~are being~~were amortized over the life of the loans. Payments on PPP loans ~~are~~were deferred until the date the SBA ~~remits~~remitted the borrower’s loan forgiveness amount to the lender (or, if the borrower ~~does~~did not apply for loan forgiveness, ten months after the end

of the borrower’s loan forgiveness covered period). During the first ~~nine~~three months of 2022, PPP loans totaling ~~$28.9~~$8.1 million were forgiven by the SBA. During the second quarter of 2021, Trustmark sold $354.2 million of its outstanding PPP loans, resulting in accelerated recognition of $18.6 million of unamortized PPP loan origination fees, net of cost, which was included in net interest income-FTE for the quarter ended June 30, 2021. In addition, PPP loans totaling $605.5 million were forgiven by the SBA during 2021. Average PPP loans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 totaled ~~$9.8 million and $18.8 million, respectively, a decrease of $112.4 million, or 92.0%, and $435.6 million, or 95.9%, respectively, when compared to the same time periods in 2021.~~$29.0 million. Interest and fees on PPP loans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 ~~decreased $1.3 million, or 87.9%, and $35.8 million, or 98.5%, respectively, when compared to the same time periods~~totaled $168 thousand, resulting in ~~2021. The~~ yield on PPP loans for the three and nine months ended September 30, 2022 increased to 7.51% and decreased to 3.83%, respectively, compared to 4.98% and 10.69%, respectively, for the three and nine months ended September 30, 2021.of 2.35%.

The average FRBA balance, included in other earning assets, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$275.4~~$555.5 million, ~~and $1.031 billion, respectively,~~ a decrease of ~~$1.721~~$1.202 billion, or ~~86.2%~~68.4%, ~~and $741.5 million, or 41.8%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021,~~2022, principally due to ~~purchases~~the deployment of ~~securities~~excess cash and the significant growth in the LHFI ~~as well as the decline in deposits.~~portfolio during 2022. Interest earned on FRBA balances increased ~~$475 thousand and $2.3~~$5.2 million ~~respectively,~~ when the three ~~and nine~~ months ended ~~September 30, 2022 are~~March 31, 2023 is compared to the same time ~~periods~~period in ~~2021.~~2022. The yield on the FRBA balance was ~~1.86% and 0.51%~~4.32% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to 0.16% ~~and 0.12%, respectively,~~ for the same time ~~periods~~period in ~~2021,~~2022, reflecting increases in the interest rate that the FRBA pays on ~~reserves beginning in the third quarter of 2021.~~reserves.

Average interest-earning assets for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 were ~~$15.770 billion and $15.937~~$16.856 billion compared to ~~$15.653 billion and $15.456~~$16.060 billion for the same time ~~periods~~period in ~~2021,~~2022, an increase of ~~$117.3~~$796.0 million, or ~~0.7%, and $480.8 million, or 3.1%~~5.0%, principally due to ~~increases~~an increase in ~~average securities and~~ average loans (LHFS and LHFI), partially offset by ~~declines~~a decline in ~~average PPP loans and~~ average other earning assets. Average securities increased $872.7 million, or 28.1%, and $1.014 billion, or 35.7%, respectively, when the three and nine months ended September 30, 2022 are compared to the same time periods in 2021 primarily due to purchases of securities, partially offset by calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed securities. Average loans (LHFS and LHFI) increased ~~$1.070~~$1.980 billion, or ~~10.3%, and $635.8 million, or 6.1%~~18.8%, when the three ~~and nine~~ months ended ~~September 30, 2022 are~~March 31, 2023 is compared to the same time ~~periods~~period in ~~2021~~2022 reflecting an increase in the average balance of the LHFI portfolio of ~~$1.222~~$2.083 billion, or ~~12.3%~~20.2%, ~~and $797.1 million, or 8.0%, respectively,~~ partially offset by a decrease in the average balance of the LHFS portfolio of ~~$152.2~~$103.3 million, or ~~43.9%, and $161.3 million, or 44.3%, respectively.~~42.6%. The ~~increases~~increase in the LHFI portfolio ~~were principally~~when the balance at March 31, 2023 is compared to March 31, 2022 was due to net growth in all LHFI ~~secured by real estate~~categories with the exception of state and ~~commercial~~other political subdivision LHFI and ~~industrial~~other commercial LHFI. The ~~decreases~~decrease in the LHFS portfolio ~~were~~when the balance at March 31, 2023 is compared to March 31, 2022 was principally due to ~~Trustmark's decision during 2021 to retain certain~~ mortgage loans sold in ~~its LHFI portfolio.~~excess of mortgage loans purchased or originated as well as a decline in the GNMA loans eligible for repurchase. Average other earning assets decreased ~~$1.713~~$1.164 billion, or ~~84.0%~~64.2%, ~~and $733.5 million, or 40.3%, respectively,~~ when the three ~~and nine~~ months ended ~~September 30, 2022 are~~March 31, 2023 is compared to the same time ~~periods~~period in ~~2021, was~~2022, primarily due to the decrease in ~~excess~~ reserves held at the FRBA.

Interest income-FTE for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$147.4~~$202.4 million, ~~and $374.2 million, respectively,~~ an increase of ~~$40.7~~$95.7 million, or ~~38.2%~~89.6%, ~~and $26.3 million, or 7.6%, respectively,~~ while the yield on total earning assets increased to ~~3.71% and 3.14%, respectively,~~4.87% compared to ~~2.70% and 3.01%, respectively,~~2.69% for the same time ~~periods~~period in ~~2021.~~2022. Interest income-FTE, excluding PPP loans and the balance held at the FRBA, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$41.6~~$90.6 million, or ~~39.9%~~85.6%, ~~and $59.8 million, or 19.3%, respectively,~~ while the yield on total earning assets excluding PPP loans and the balance held at the FRBA increased 68188 basis points to ~~3.74% and 19 basis points to 3.32%, respectively,~~4.89% when compared to the same time ~~periods~~period in ~~2021.~~2022. The increase in interest income-FTE, excluding PPP loans and the balance held at the FRBA, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was primarily due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, interest and fees on LHFS and LHFI-FTE increased ~~$35.3~~$85.7 million, or ~~37.5%~~91.9%, ~~and $44.5 million, or 15.8%, respectively,~~ while the yield on LHFS and LHFI increased 89221 basis points to ~~4.48% and 33 basis points to 3.97%, respectively,~~5.79% when compared to the same time ~~periods~~period in ~~2021,~~2022, primarily due to the higher interest rate environment ~~during~~as well as the ~~first nine months~~increase in the average balance of ~~2022.~~LHFI. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, interest on securities-taxable increased ~~$6.2~~$4.4 million, or ~~62.7%~~35.6%, ~~and $15.2 million, or 54.6%, respectively,~~ while the yield on securities-taxable increased 3448 basis points to ~~1.62% and 18 basis points to 1.50%, respectively,~~1.85% when compared to the same time ~~periods~~period in ~~2021,~~2022, primarily due to purchases of higher-yielding taxable securities ~~and the higher interest rate environment during the first nine months of~~throughout 2022.

6659

Average interest-bearing liabilities for the three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$10.763~~$12.585 billion compared to ~~$10.543~~$10.902 billion for the same time period in ~~2021,~~2022, an increase of ~~$219.9 million,~~$1.683 billion, or 2.1%. Average interest-bearing liabilities for the first nine months of 2022 totaled $10.808 billion compared to $10.439 billion for the same time period in 2021, an increase of $368.9 million, or 3.5%15.4%. The increase in average interest-bearing liabilities when the three months ended ~~September 30, 2022~~March 31, 2023 is compared to the same time period in ~~2021~~2022 was primarily the result of the increases in average other borrowings, average interest-bearing deposits and average federal funds purchased and securities sold under repurchase agreements. ~~The increase in average interest-bearing liabilities when~~Average other borrowings for the ~~nine~~three months ended ~~September 30, 2022 is~~March 31, 2023 increased $1.020 billion when compared to the same time period in ~~2021 was primarily~~2022, principally due to the ~~result~~increase in outstanding short-term FHLB advances with the FHLB of ~~the increases in average interest-bearing deposits.~~Dallas. Average interest-bearing deposits for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$138.5~~$438.8 million, or ~~1.4%~~4.2%, ~~and $387.4 million, or 3.9%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021,~~2022, primarily reflecting growth in average time deposits and average interest-bearing demand deposits. Average federal funds purchased and securities sold under repurchase agreements for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$102.2~~$224.5 million ~~or 69.2%,~~ when compared to the same time period in ~~2021,~~2022, principally due to the increase in upstream federal funds ~~purchased during the third quarter of 2022.~~purchased.

Interest expense for the three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$8.3~~$61.3 million, an increase of ~~$2.8~~$56.9 million ~~or 51.9%,~~ when compared with the same time period in ~~2021,~~2022, while the rate on total interest-bearing liabilities increased 10182 basis points to ~~0.31%~~1.98%, ~~primarily due to~~reflecting increases in interest on deposits, ~~and~~other interest ~~on federal funds purchased~~expense and securities sold under repurchase agreements. Interest expense for the nine months ended September 30, 2022 totaled $17.2 million, a decrease of $1.9 million, or 10.0%, when compared with the same time period in 2021, while the rate on total interest-bearing liabilities decreased 3 basis points to 0.21%, primarily due to a decline in interest on deposits partially offset by an increase in interest on federal funds purchased and securities sold under repurchase agreements. Interest on deposits for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$1.4~~$38.1 million, ~~or 38.1%,~~ while the rate on interest-bearing deposits increased 6142 basis points to ~~0.20%~~1.53%, when compared to the same time period in ~~2021,~~2022, primarily due to higher interest ~~rates. Interest~~rates, reflecting the increased competitive pressures on deposits, and increases in average balances of time deposits and interest checking accounts. Other interest expense for the ~~nine~~three months ended ~~September 30, 2022 decreased $2.9~~March 31, 2023 increased $14.0 million, ~~or 21.5%,~~ while the rate on ~~interest-bearing deposits decreased 4~~other borrowings increased 261 basis points to ~~0.14%~~4.87%, when compared to the same time period in ~~2021,~~2022, primarily due to ~~lower interest rates and~~ the ~~decline~~increase in ~~average balances~~outstanding short-term FHLB advances with the FHLB of ~~time deposits.~~Dallas. Interest on federal funds purchased and securities sold under repurchase agreements for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$1.2~~$4.8 million, ~~respectively,~~ while the rate on federal funds purchased and securities sold under repurchase agreements increased 436 basis points to ~~1.95% and 0.94%, respectively,~~4.49% when compared to ~~0.14%, respectively, for~~ the same time ~~periods~~period in ~~2021,~~2022, reflecting the FRB's increases to the target rate for federal funds purchased as well as the increase in upstream federal funds purchased.

6760

The following table provides the tax equivalent basis yield or rate for each component of the tax equivalent net interest margin for the periods presented ($ in thousands):

Three Months Ended September 30,

2022

2021

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Assets

Interest-earning assets:

Federal funds sold and securities
   purchased under reverse repurchase
   agreements

$
226

$
2

3.51
%

$
69

$
—

—

Securities - taxable

3,964,939

16,222

1.62
%

3,088,450

9,973

1.28
%
Securities - nontaxable

9,985

100

3.97
%

13,800

132

3.79
%
PPP Loans

9,821

186

7.51
%

122,176

1,533

4.98
%
Loans (LHFS and LHFI)

11,459,551

129,395

4.48
%

10,389,826

94,101

3.59
%
Other earning assets

325,620

1,493

1.82
%

2,038,515

949

0.18
%
Total interest-earning assets

15,770,142

147,398

3.71
%

15,652,836

106,688

2.70
%
Other assets

1,576,653

1,602,611

ACL, LHFI

(102,951
)

(104,857
)

Total Assets

$
17,243,844

$
17,150,590

Liabilities and Shareholders' Equity

Interest-bearing liabilities:

Interest-bearing deposits

$
10,239,752

5,097

0.20
%

$
10,101,229

3,691

0.14
%
Federal funds purchased and
   securities sold under repurchase
   agreements

249,809

1,225

1.95
%

147,635

51

0.14
%
Other borrowings

273,724

1,996

2.89
%

294,542

1,733

2.33
%
Total interest-bearing liabilities

10,763,285

8,318

0.31
%

10,543,406

5,475

0.21
%
Noninterest-bearing demand deposits

4,444,370

4,566,924

Other liabilities

429,720

257,956

Shareholders' equity

1,606,469

1,782,304

Total Liabilities and
   Shareholders' Equity

$
17,243,844

$
17,150,590

Net Interest Margin

139,080

3.50
%

101,213

2.57
%

Less tax equivalent adjustment

2,975

2,947

Net Interest Margin per
   Consolidated Statements
   of Income

$
136,105

$
98,266


	Nine Months Ended September 30,																Three Months Ended March 31,
	2022								2021								2023								2022
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	131		$	3		3.06	%	$	86		$	—		—		$	2,379		$	30		5.11	%	$	56		$	—		—
Securities - taxable		3,843,549			43,140		1.50	%		2,820,885			27,902		1.32	%		3,666,404			16,761		1.85	%		3,656,353			12,357		1.37	%
Securities - nontaxable		11,050			329		3.98	%		19,674			571		3.88	%		9,321			92		4.00	%		12,454			122		3.97	%
PPP Loans		18,788			538		3.83	%		454,436			36,329		10.69	%		—			—		—			29,009			168		2.35	%
Loans (LHFS and LHFI)		10,976,809			325,680		3.97	%		10,340,960			281,193		3.64	%		12,530,449			178,967		5.79	%		10,550,712			93,252		3.58	%
Other earning assets		1,086,771			4,524		0.56	%		1,820,293			1,941		0.14	%		647,760			6,527		4.09	%		1,811,713			817		0.18	%
Total interest-earning assets		15,937,098			374,214		3.14	%		15,456,334			347,936		3.01	%		16,856,313			202,377		4.87	%		16,060,297			106,716		2.69	%
Other assets		1,546,972								1,608,754								1,762,449								1,550,848
ACL, LHFI		(100,495	)							(112,199	)							(119,978	)							(99,390	)
Total Assets	$	17,383,575							$	16,952,889							$	18,498,784							$	17,511,755

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	10,342,528			10,631		0.14	%	$	9,955,108			13,544		0.18	%	$	10,852,367			40,898		1.53	%	$	10,413,595			2,760		0.11	%
Federal funds purchased and securities sold under repurchase agreements		193,661			1,365		0.94	%		162,984			166		0.14	%		436,535			4,832		4.49	%		212,006			70		0.13	%
Other borrowings		271,653			5,199		2.56	%		320,841			5,403		2.25	%		1,295,980			15,575		4.87	%		276,007			1,539		2.26	%
Total interest-bearing liabilities		10,807,842			17,195		0.21	%		10,438,933			19,113		0.24	%		12,584,882			61,305		1.98	%		10,901,608			4,369		0.16	%
Noninterest-bearing demand deposits		4,544,698								4,481,662								3,813,248								4,601,108
Other liabilities		388,585								258,090								576,826								295,287
Shareholders' equity		1,642,450								1,774,204								1,523,828								1,713,752
Total Liabilities and Shareholders' Equity	$	17,383,575							$	16,952,889							$	18,498,784							$	17,511,755

Net Interest Margin					357,019		3.00	%					328,823		2.84	%					141,072		3.39	%					102,347		2.58	%

Less tax equivalent adjustment					8,894								8,798								3,477								3,003
Net Interest Margin per Consolidated Statements of Income				$	348,125							$	320,025							$	137,595							$	99,344

Provision for Credit Losses

The PCL, LHFI is the amount necessary to maintain the ACL for LHFI at the amount of expected credit losses inherent within the LHFI portfolio. The amount of PCL and the related ACL for LHFI are based on Trustmark’s ACL methodology. The PCL, LHFI totaled ~~$12.9 million and $14.8~~$3.2 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to a negative ~~$2.5 and a negative $17.0 million, respectively,~~$860 thousand for the same time ~~periods~~period in 2021. The PCL on LHFI for the third quarter of 2022 was primarily driven by specific reserves for individually analyzed credits, a less positive outlook in the macroeconomic forecasts and an increase in reserves related to loan growth.2022. The PCL on LHFI for the first ~~nine months~~quarter of ~~2022~~2023 primarily reflected an increase in required reserves as a result of loan growth and ~~specific reserves on individually analyzed LHFI.~~the Nature and Volume of Portfolio qualitative factor.

FASB ASC Topic 326 requires Trustmark to estimate expected credit losses for off-balance sheet credit exposures which are not unconditionally cancellable by Trustmark. Trustmark maintains a separate ACL for off-balance sheet credit exposures, including unfunded commitments and letters of credit. Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. The PCL, off-balance sheet credit exposures totaled a negative ~~$1.3 million and a negative $4.0~~$2.2 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to a negative ~~$1.0~~$1.1 million ~~and a negative $5.9 million, respectively,~~ for the same time ~~periods~~period in 2021. The negative PCL on off-balance sheet credit exposures for the third quarter of 2022 was primarily driven by a decline in required reserves as a result of changes in the total reserve rate used in the calculation of the ACL on off-balance sheet credit exposures, partially offset by an increase in required reserves as a result of an increase in unfunded

~~balances.~~2022. The negative PCL on off-balance sheet credit exposures for the first ~~nine months~~quarter of ~~2022~~2023 primarily reflected a decline in required reserves as a result of changes in the total reserve rate used in the calculation of the ACL on off-balance sheet credit ~~exposures.~~exposures and a decline in the unfunded commitments balance.

See the section captioned “Allowance for Credit Losses” for information regarding Trustmark’s ACL methodology as well as further analysis of the PCL.

Noninterest Income

Noninterest income represented ~~27.9% and 31.5%~~27.2% of total revenue for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~35.5% and 34.8% for~~35.3% or the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, respectively. The following table provides the comparative components of noninterest income for the periods presented ($ in thousands):


	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended March 31,
	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change			2023		2022		$ Change			% Change
Service charges on deposit accounts	$	11,318	$	8,911	$	2,407			27.0	%	$	30,995	$	23,880	$	7,115			29.8	%	$	10,336	$	9,451	$	885			9.4	%
Bank card and other fees		9,305		8,549		756			8.8	%		27,914		26,322		1,592			6.0	%		7,803		8,442		(639	)		-7.6	%
Mortgage banking, net		6,876		14,004		(7,128	)		-50.9	%		24,898		52,141		(27,243	)		-52.2	%		7,639		9,873		(2,234	)		-22.6	%
Insurance commissions		13,911		12,133		1,778			14.7	%		41,702		36,795		4,907			13.3	%		14,305		14,089		216			1.5	%
Wealth management		8,778		9,071		(293	)		-3.2	%		26,934		26,433		501			1.9	%		8,780		9,054		(274	)		-3.0	%
Other, net		2,418		1,481		937			63.3	%		7,531		5,572		1,959			35.2	%		2,514		3,206		(692	)		-21.6	%
Total noninterest income	$	52,606	$	54,149	$	(1,543	)		-2.8	%	$	159,974	$	171,143	$	(11,169	)		-6.5	%	$	51,377	$	54,115	$	(2,738	)		-5.1	%

Changes in various components of noninterest income are discussed in further detail below. For analysis of Trustmark’s insurance commissions and wealth management income, please see the section captioned “Results of Segment Operations.”

~~Service Charges on Deposit Accounts~~

The increases in service charges on deposit accounts for the three and nine months ended September 30, 2022 compared to the same time periods in 2021 were principally due to increases in the amount of NSF and overdraft occurrences on consumer interest checking accounts and service charges on consumer interest checking accounts.

~~Bank Card and Other Fees~~

The increase in bank card and other fees for the first nine months of 2022 was principally due to principally due to increases in customer derivatives revenue and interchange income, partially offset by a decrease in ATM surcharge revenue.

Mortgage Banking, Net

The following table illustrates the components of mortgage banking, net included in noninterest income for the periods presented ($ in thousands):


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	2022			2021			$ Change			% Change			2022			2021			$ Change			% Change			2023			2022			$ Change			% Change
Mortgage servicing income, net	$	6,669		$	6,406		$	263			4.1	%	$	19,655		$	18,905		$	750			4.0	%	$	6,785		$	6,429		$	356			5.5	%
Change in fair value-MSR from runoff		(3,462	)		(5,283	)		1,821			34.5	%		(11,053	)		(15,415	)		4,362			28.3	%		(1,145	)		(3,785	)		2,640			69.7	%
Gain on sales of loans, net		4,597			12,737			(8,140	)		-63.9	%		16,850			46,971			(30,121	)		-64.1	%		3,797			6,223			(2,426	)		-39.0	%
Mortgage banking income before net hedge ineffectiveness		7,804			13,860			(6,056	)		-43.7	%		25,452			50,461			(25,009	)		-49.6	%		9,437			8,867			570			6.4	%
Change in fair value-MSR from market changes		10,770			1,806			8,964		n/m				41,529			11,037			30,492		n/m				(3,972	)		22,020			(25,992	)	n/m
Change in fair value of derivatives		(11,698	)		(1,662	)		(10,036	)	n/m				(42,083	)		(9,357	)		(32,726	)	n/m				2,174			(21,014	)		23,188		n/m
Net hedge ineffectiveness		(928	)		144			(1,072	)	n/m				(554	)		1,680			(2,234	)	n/m				(1,798	)		1,006			(2,804	)	n/m
Mortgage banking, net	$	6,876		$	14,004		$	(7,128	)		-50.9	%	$	24,898		$	52,141		$	(27,243	)		-52.2	%	$	7,639		$	9,873		$	(2,234	)		-22.6	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

The decrease in mortgage banking, net for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 when compared to the same time ~~periods~~period in ~~2021~~2022 was principally due to ~~a decline~~declines in the gain on sales of loans, ~~net.~~net and the net hedge ineffectiveness, partially offset by a decline in the run-off of the MSR. Mortgage loan production for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was ~~$508.3~~$361.1 million, ~~and $1.734 billion, respectively,~~ a decrease of ~~$200.5~~$183.3 million, or ~~28.3%~~33.7%, ~~and $478.2 million, or 21.6%, respectively,~~ when compared to the same time ~~periods~~period in ~~2021.~~2022. Loans serviced for others totaled ~~$8.078~~$8.152 billion at ~~September 30, 2022,~~March 31, 2023, compared with ~~$7.877~~$8.007 billion at ~~September 30, 2021,~~March 31, 2022, an increase of ~~$201.1~~$145.2 million, or ~~2.6%~~1.8%.

Representing a significant component of mortgage banking income is the gain on sales of loans, net. The decrease in the gain on sales of loans, net when the three months ended ~~September 30, 2022~~March 31, 2023 is compared to the same time period in 2021, was primarily the result of a decline in the volume of loans sold and lower profit margins in secondary marketing activities. The decrease in the gain on sales of loans, net when the nine months ended September 30, 2022, ~~is compared to the same time period in 2021,~~ was primarily the result of a decline in the volume of loans sold and lower profit margins in secondary marketing activities, partially offset by an increase in the mortgage ~~valuation~~fair value adjustment. Loan sales totaled ~~$315.3~~$213.8 million ~~and $1.026 billion~~ for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, a decrease of ~~$191.2 million, or 37.7%, and $769.3~~$159.9 million, or 42.8%, ~~respectively,~~ when compared with the same time ~~periods~~period in ~~2021.~~2022.

Other Income, Net

The following table illustrates the components of other income, net included in noninterest income for the periods presented ($ in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Partnership amortization for
tax credit purposes

$
(1,531
)

$
(2,045
)

$
514

25.1
%

$
(4,342
)

$
(5,556
)

$
1,214

21.9
%
Increase in life insurance cash
surrender value

1,676

1,663

13

0.8
%

4,986

4,955

31

0.6
%
Other miscellaneous income

2,273

1,863

410

22.0
%

6,887

6,173

714

11.6
%
Total other, net

$
2,418

$
1,481

$
937

63.3
%

$
7,531

$
5,572

$
1,959

35.2
%

The increase in other income, net for the first nine months of 2022 when compared to the same time period in 2021 was principally due to gains on the sale of two closed bank branch locations, increases in other miscellaneous income and cash management service fees as well as a decrease in the amortization of investments in tax credit partnerships, partially offset by a decline in the FDIC indemnification asset final settlement completed during the second quarter of 2021.


	Three Months Ended March 31,
	2023			2022			$ Change			% Change
Partnership amortization for tax credit purposes	$	(1,961	)	$	(1,336	)	$	(625	)		-46.8	%
Increase in life insurance cash surrender value		1,693			1,627			66			4.1	%
Other miscellaneous income		2,782			2,915			(133	)		-4.6	%
Total other, net	$	2,514		$	3,206		$	(692	)		-21.6	%

Noninterest Expense

The following table illustrates the comparative components of noninterest expense for the periods presented ($ in thousands):


	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended March 31,
	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change			2023		2022		$ Change		% Change
Salaries and employee benefits	$	72,707	$	74,623	$	(1,916	)		-2.6	%	$	213,971	$	215,900	$	(1,929	)		-0.9	%	$	74,056	$	69,585	$	4,471		6.4	%
Services and fees(1)		25,795		22,306		3,489			15.6	%		74,786		66,559		8,227			12.4	%		25,426		25,314		112		0.4	%
Net occupancy-premises		7,395		6,854		541			7.9	%		21,366		20,227		1,139			5.6	%		7,629		7,079		550		7.8	%
Equipment expense		6,072		5,941		131			2.2	%		18,180		17,752		428			2.4	%		6,405		6,061		344		5.7	%
Other expense (1)		14,729		19,876		(5,147	)		-25.9	%		43,681		49,389		(5,708	)		-11.6	%		14,811		13,480		1,331		9.9	%
Total noninterest expense	$	126,698	$	129,600	$	(2,902	)		-2.2	%	$	371,984	$	369,827	$	2,157			0.6	%	$	128,327	$	121,519	$	6,808		5.6	%

(1)

During the first quarter of ~~2022,~~2023, Trustmark reclassified its debit card transaction fees from other ~~real estate~~ expense ~~net~~ to ~~other expense. Prior periods have~~services and fees. The prior period has been reclassified accordingly.

Changes in the various components of noninterest expense are discussed in further detail below. Management considers disciplined expense management a key area of focus in the support of improving shareholder value.

Salaries and Employee Benefits

The ~~decrease~~increase in salaries and employee benefits when the three ~~and nine~~ months ended ~~September 30, 2022 are~~March 31, 2023 is compared to the same time periods in ~~2021~~2022 was principally due to the $5.6 million of nonroutine salaries and employee benefits expense related to the voluntary early retirement program completed during the third quarter of 2021. Excluding these nonroutine expenses, salaries and employee benefits increased $3.7 million, or 5.4%, and $3.7 million, or 1.8%, for the three and nine months ended September 30, 2022, respectively, principally due to increases in salaries expense primarily due to general merit increases as well as employees added related to the new Georgia LPO and accrued management performance incentives, ~~and other salaries expense.~~

~~Services and Fees~~

The increase in services and fees when the three and nine months ended September 30, 2022 are compared to the same time periods in 2021 was primarily due to increases in other services and fees, software licenses and outsourcing fees related to transaction processing.

~~Net Occupancy-Premises~~

The increase in net occupancy-premises when the first nine months of 2022 is compared to the same time period in 2021 was principally due to increases in depreciation expense related to building improvements, rental expense, and landscaping expenses as well aspartially offset by a decline in ~~building rental income, partially offset by declines~~commission expense due to the decline in ~~janitorial expenses.~~mortgage originations.

Other Expense

The following table illustrates the comparative components of other noninterest expense for the periods presented ($ in thousands):


	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended March 31,
	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change			2023		2022		$ Change			% Change
Loan expense(1)	$	3,858	$	4,022	$	(164	)		-4.1	%	$	12,315	$	11,927	$	388			3.3	%	$	2,538	$	3,528	$	(990	)		-28.1	%
Amortization of intangibles		312		549		(237	)		-43.2	%		1,122		1,768		(646	)		-36.5	%		288		482		(194	)		-40.2	%
FDIC assessment expense		1,945		1,275		670			52.5	%		5,255		4,040		1,215			30.1	%		2,370		1,500		870			58.0	%
Regulatory settlement charge		—		5,000		(5,000	)	n/m				—		5,000		(5,000	)	n/m
Other real estate expense, net (1)		497		1,357		(860	)		-63.4	%		1,155		3,192		(2,037	)		-63.8	%
Other real estate expense, net																						172		35		137		n/m
Other miscellaneous expense		8,117		7,673		444			5.8	%		23,834		23,462		372			1.6	%		9,443		7,935		1,508			19.0	%
Total other expense	$	14,729	$	19,876	$	(5,147	)		-25.9	%	$	43,681	$	49,389	$	(5,708	)		-11.6	%
Total other expense (1)																					$	14,811	$	13,480	$	1,331			9.9	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

(1)

The ~~decrease~~increase in other expense when the three ~~and nine~~ months ended ~~September 30, 2022 are~~March 31, 2023 is compared to the same time ~~periods~~period in ~~2021~~2022 was principally due to increases in other miscellaneous expenses and FDIC assessment expense, partially offset by a decline in loan expense. The increase in other miscellaneous expenses when the ~~$5.0 million regulatory settlement~~first three months of 2023 is compared to the same time period in 2022 was principally due to increases in stationery and supplies expense, ~~incurred during the third quarter of 2021.~~insurance expense, travel and entertainment expense and other various miscellaneous expenses. The increase in FDIC assessment expense when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021~~2022 was principally due to changes in the assessment rate calculation and deployment of Trustmark's excess cash balance during 2022, which increased the overall assessment rate. The decrease in ~~other real estate~~loan expense ~~net for~~when the ~~nine~~first three months ~~ended September 30, 2022~~of 2023 is compared to the same time period in ~~2021~~2022 was principally due to ~~a decline~~declines in ~~provisions for other real estate write-downs.~~numerous loan related expenses and fees.

Results of Segment Operations

For a description of the methodologies used to measure financial performance and financial information by reportable segment, please see Note 18 – Segment Information included in Part I. Item 1. – Financial Statements of this report. The following discusses changes in the results of operations of each reportable segment for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

General Banking

Net interest income for the General Banking Segment increased ~~$28.0~~$38.2 million, or ~~8.8%~~39.0%, when the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is compared with the same time period in ~~2021.~~2022. The increase in net interest income was principally due to increases in interest and fees on LHFS and LHFI, other interest income and interest on securities, ~~and other interest income as well as the decrease in interest on deposits,~~ partially offset by ~~the decrease~~increases in interest ~~and fees~~expense on ~~PPP loans~~deposits, other interest expense and ~~an increase in~~ interest on federal funds purchased and securities sold under repurchase agreements. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$10.8 million~~$934 thousand compared to a negative PCL of ~~$22.9~~$2.0 million for the same period in ~~2021,~~2022, an increase of ~~$33.7~~$2.9 million. For more information on these net interest income and PCL items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income for the General Banking Segment decreased ~~$16.5~~$2.6 million, or ~~15.3%~~8.3%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, primarily due to the decline in mortgage banking, ~~net, partially offset by increases in service charges on deposit accounts, bank card and other fees and other income,~~ net. Noninterest income for the General Banking Segment represented ~~20.9%~~17.2% of total revenue for this segment for the first ~~nine~~three months of ~~2022~~2023 compared to ~~25.4%~~24.0% for the same time period in ~~2021.~~2022. Noninterest income for the General Banking Segment includes service charges on deposit accounts; bank card and other fees; mortgage banking, net and other income, net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income.”

Noninterest expense for the General Banking Segment ~~decreased $734 thousand,~~increased $6.3 million, or ~~0.2%~~6.1%, when the first ~~nine~~three months of ~~2022~~2023 is compared with the same time period in ~~2021,~~2022, principally due to ~~declines~~increases in salaries and employee benefits and other miscellaneous expense, principally due to non-routine transactions completed during the third quarter of 2021, as well as a decline in other real estate expense, partially offset by increases in other services and fees, outsourcing expenses related to transaction processing, FDIC assessment expense and occupancy and premises expenses.expense. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

Net income for the Wealth Management Segment for the first ~~nine~~three months of ~~2022~~2023 decreased ~~$243~~$91 thousand, or ~~4.8%~~5.6%, when compared to the same time period in ~~2021,~~2022, primarily due to ~~an increase~~a decrease in noninterest ~~expense~~income partially offset by ~~an increase~~a decrease in noninterest ~~income.~~expense. Net interest income for the Wealth Management Segment increased ~~$120~~$83 thousand, or ~~3.1%~~6.1%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, principally due to ~~a slight~~an increase in interest and fees on loans ~~partially offset by a slight increase in interest on deposits~~ generated by the Private Banking Department. The PCL for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~a negative $10~~$68 thousand compared to a negative PCL of $7 thousand for the same period in ~~2021, an increase in the negative PCL of $3 thousand, or 42.9%, primarily due to improvements in the macroeconomic factors used in the calculation of the ACL.~~2022. Noninterest income for the Wealth Management Segment, which primarily includes income related to investment management, trust and brokerage services, ~~increased $496~~decreased $380 thousand, or ~~1.9%~~4.2%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, primarily due to ~~increases in income investment services and other miscellaneous income partially offset by~~ declines in income from both trust management and brokerage services partially offset by an increase in income from investment services. Noninterest expense for the Wealth Management Segment ~~increased $947~~decreased $248 thousand, or ~~4.0%~~3.0%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, principally due to ~~increases~~a decrease in salary and employee benefit expense, primarily related to broker commissions and trust ~~incentives, and data processing charges related to software, partially offset by declines in other miscellaneous expenses.~~incentives.

At ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Trustmark held assets under management and administration of ~~$16.528~~$17.448 billion and ~~$15.446~~$15.971 billion, respectively, and brokerage assets of ~~$2.172~~$2.375 billion and ~~$2.323~~$2.355 billion, respectively.

Insurance

Net income for the Insurance Segment for the first ~~nine~~three months of ~~2022 increased $2.1 million,~~2023 decreased $439 thousand, or ~~28.4%~~14.0%, when compared to the same time period in ~~2021.~~2022. Noninterest income for the Insurance Segment, which is predominately composed of insurance commissions, increased ~~$4.8 million,~~$218 thousand, or ~~13.2%~~1.5%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, primarily due to new business commission volume in the commercial property and casualty ~~business and other commission income.~~business. Noninterest expense for the Insurance Segment

increased ~~$1.9 million,~~$799 thousand, or ~~7.2%~~8.1%, when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, primarily due to ~~an increase~~increases in salary expense as a result of general merit increases and commission expense as a result of higher business ~~volumes, partially offset by a decrease in outside services and fees related to independent contractor expenses.~~volumes.

Income Taxes

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, Trustmark’s combined effective tax rate was ~~15.8% and 15.5%, respectively,~~15.7% compared to ~~19.6% and 16.0%, respectively,~~13.8% for the same time ~~periods~~period in ~~2021.~~2022. Trustmark’s effective tax rate continues to be less than the statutory rate primarily due to various tax-exempt income items and its utilization of income tax credit programs. Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low-income housing tax credits or historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

Financial Condition

Earning assets serve as the primary revenue streams for Trustmark and are comprised of securities, loans, federal funds sold, securities sold under reverse repurchase agreements and other earning assets. Average earning assets totaled ~~$15.937~~$16.856 billion, or 91.1% of total average assets, for the three months ended March 31, 2023, compared to $16.060 billion, or 91.7% of total average assets, for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, ~~compared to $15.456 billion, or 91.2% of total average assets, for the nine months ended September 30, 2021,~~ an increase of ~~$480.8~~$796.0 million, or ~~3.1%~~5.0%.

Securities

The securities portfolio is utilized by Management to manage interest rate risk, generate interest income, provide liquidity and use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering duration, composition and/or balance of the portfolio. The weighted-average life of the portfolio was ~~5.2~~4.8 years at ~~September 30, 2022~~March 31, 2023 compared to ~~4.3~~4.9 years at December 31, ~~2021.~~2022.

When compared to December 31, ~~2021,~~2022, total investment securities ~~increased~~decreased by ~~$20.1~~$60.1 million, or ~~0.6%~~1.7%, during the first ~~nine~~three months of ~~2022.~~2023. This ~~increase~~decrease resulted primarily from ~~purchases of securities, partially offset by~~ calls, maturities and pay-downs of the loans underlying GSE guaranteed securities ~~and a decline~~partially offset by an increase in the fair market value of securities available for sale. Trustmark sold no securities during the first ~~nine~~three months of ~~2022~~2023 or ~~2021.~~2022.

During 2013, Trustmark reclassified $1.099 billion of securities available for sale to securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). During the second quarter of 2022, Trustmark reclassified approximately ~~$343.1~~$766.0 million of securities available for sale to securities held to maturity to mitigate the potential adverse impact of a rising interest rate environment on the fair value of the available for sale securities and the related impact on tangible common equity. At the date of ~~transfer,~~these transfers, the net unrealized holding loss on the available for sale securities totaled approximately ~~$34.8~~$91.9 million ($~~26.1~~68.9 million net of tax). The resulting net unrealized holding losses are being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

At ~~September 30, 2022,~~March 31, 2023, the net unamortized, unrealized loss on all transferred securities included in accumulated other comprehensive income (loss), net of tax, (AOCI) in the accompanying consolidated balance sheets totaled ~~$37.7~~$88.5 million ($~~28.3~~66.3 million net of tax) compared to ~~$6.3~~$92.3 million ($~~4.7~~69.2 million net of tax) at December 31, ~~2021.~~2022.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCI, a separate component of shareholders’ equity. At ~~September 30, 2022,~~March 31, 2023, available for sale securities totaled ~~$2.444~~$1.984 billion, which represented ~~67.9%~~57.4% of the securities portfolio, compared to ~~$3.239~~$2.024 billion, or ~~90.4%~~57.5% of total securities, at December 31, ~~2021.~~2022. At ~~September 30, 2022,~~March 31, 2023, unrealized losses, net on available for sale securities totaled ~~$331.9~~$216.1 million compared to unrealized losses, net of ~~$17.4~~$246.6 million at December 31, ~~2021.~~2022. At ~~September 30, 2022,~~March 31, 2023, available for sale securities consisted of U.S. Treasury securities, obligations of states and political subdivisions, GSE guaranteed mortgage-related securities and direct obligations of government agencies and GSEs.

Held to maturity securities are carried at amortized cost and represent those securities that Trustmark both intends and has the ability to hold to maturity. At ~~September 30, 2022,~~March 31, 2023, held to maturity securities totaled ~~$1.157~~$1.474 billion, which represented ~~32.1%~~42.6% of the total securities portfolio, compared to ~~$342.5 million,~~$1.495 billion, or ~~9.6%~~42.5% of total securities, at December 31, ~~2021.~~2022.

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of 99.8% of the portfolio in GSE-backed obligations and other Aaa-rated securities as determined by Moody’s Investors Services (Moody’s). None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the FHLB of Dallas, FHLB of Atlanta and FRBA, Trustmark does not hold any other equity investment in a GSE or other governmental entity.

As of ~~September 30, 2022,~~March 31, 2023, Trustmark did not hold securities of any one issuer with a carrying value exceeding 10% of total shareholders’ equity, other than certain GSEs which are exempt from inclusion. Management continues to closely monitor the credit quality as well as the ratings of the debt and mortgage-backed securities issued by the GSEs and held in Trustmark’s securities portfolio.

The following table presents Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating, as determined by Moody’s, at ~~September 30, 2022~~March 31, 2023 ($ in thousands):


	September 30, 2022										March 31, 2023
	Amortized Cost					Estimated Fair Value					Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%			Amount		%			Amount		%
Securities Available for Sale
Aaa	$	2,771,579		99.8	%	$	2,439,723		99.8	%	$	2,195,453		99.8	%	$	1,979,257		99.8	%
A1 to A3		1,033		—			1,013		—			1,023		—			1,016		—
Not Rated (1)		3,803		0.2	%		3,750		0.2	%		3,779		0.2	%		3,889		0.2	%
Total securities available for sale	$	2,776,415		100.0	%	$	2,444,486		100.0	%	$	2,200,255		100.0	%	$	1,984,162		100.0	%

Securities Held to Maturity
Aaa	$	1,152,473		99.6	%	$	1,061,321		99.6	%	$	1,469,830		99.7	%	$	1,401,894		99.7	%
Aa1 to Aa3		3,002		0.3	%		2,996		0.3	%		3,000		0.2	%		3,000		0.2	%
Not Rated (1)		1,510		0.1	%		1,511		0.1	%		1,508		0.1	%		1,511		0.1	%
Total securities held to maturity	$	1,156,985		100.0	%	$	1,065,828		100.0	%	$	1,474,338		100.0	%	$	1,406,405		100.0	%

(1)

Not rated securities primarily consist of Mississippi municipal general obligations.

The table above presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security. At ~~September 30, 2022,~~March 31, 2023, approximately 99.8% of the available for sale securities, measured at the estimated fair value, and ~~99.6%~~99.7% of the held to maturity securities, measured at amortized cost, were rated Aaa.

LHFS

At ~~September 30, 2022,~~March 31, 2023, LHFS totaled ~~$165.2~~$175.9 million, consisting of ~~$97.5~~$120.5 million of residential real estate mortgage loans in the process of being sold to third parties and ~~$67.7~~$55.4 million of GNMA optional repurchase loans. At December 31, ~~2021,~~2022, LHFS totaled ~~$275.7~~$135.2 million, consisting of ~~$191.2~~$64.4 million of residential real estate mortgage loans in the process of being sold to third parties and ~~$84.5~~$70.8 million of GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first ~~nine~~three months of ~~2022~~2023 or ~~2021.~~2022.

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 3 – LHFI and Allowance for Credit Losses, LHFI of Part I. Item 1. – Financial Statements of this report.

LHFI

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, LHFI consisted of the following ($ in thousands):


	September 30, 2022					December 31, 2021					March 31, 2023					December 31, 2022
	Amount		%			Amount		%			Amount		%			Amount		%
Loans secured by real estate:
Construction, land development and other land	$	693,741		6.0	%	$	596,968		5.8	%	$	682,214		5.5	%	$	690,616		5.7	%
Other secured by 1-4 family residential properties		566,985		4.9	%		517,683		5.1	%		595,520		4.8	%		590,790		4.8	%
Secured by nonfarm, nonresidential properties		3,206,946		27.7	%		2,977,084		29.1	%		3,375,579		27.0	%		3,278,830		26.9	%
Other real estate secured		593,119		5.1	%		726,043		7.1	%		847,527		6.8	%		742,538		6.1	%
Other loans secured by real estate:
Other construction		953,654		8.2	%		711,813		6.9	%		1,041,558		8.3	%		1,028,926		8.4	%
Secured by 1-4 family residential properties		2,030,127		17.5	%		1,460,310		14.2	%		2,226,528		17.8	%		2,185,057		17.9	%
Commercial and industrial loans		1,689,532		14.6	%		1,414,279		13.8	%		1,914,137		15.3	%		1,821,259		14.9	%
Consumer loans		166,027		1.4	%		162,555		1.6	%		166,464		1.3	%		170,230		1.4	%
State and other political subdivision loans		1,188,703		10.3	%		1,146,251		11.2	%		1,193,727		9.6	%		1,223,863		10.0	%
Other commercial loans		497,230		4.3	%		534,843		5.2	%		453,941		3.6	%		471,930		3.9	%
LHFI	$	11,586,064		100.0	%	$	10,247,829		100.0	%	$	12,497,195		100.0	%	$	12,204,039		100.0	%

LHFI increased ~~$1.338 billion,~~$293.2 million, or ~~13.1%~~2.4%, compared to December 31, ~~2021.~~2022. The increase in LHFI during the first ~~nine~~three months of ~~2022~~2023 was primarily due to net growth in LHFI secured by real estate ~~primarily in the Mississippi, Alabama~~ and ~~Texas market regions as well as growth in~~ commercial and industrial LHFI, ~~in the Mississippi and Alabama market regions~~ partially offset by a decline in ~~commercial~~state and ~~industrial LHFI in the Tennessee market region.~~other political subdivision LHFI.

LHFI secured by real estate increased ~~$1.055 billion,~~$252.2 million, or ~~15.1%~~3.0%, during the first ~~nine~~three months of ~~2022~~2023 reflecting net growth in all categories of LHFI secured by real estate with the exception of construction, land development and other land LHFI. LHFI secured by other real estate increased $105.0 million, or 14.1%, during the first three months of 2023, primarily due to other construction loans that moved to LHFI secured ~~LHFI.~~by multi-family residential properties in the Texas, Alabama and Mississippi market regions, partially offset by declines in LHFI secured by other real estate in the Mississippi and Texas market regions. Excluding other construction loan reclassifications, LHFI secured by other real estate decreased $43.3 million, or 5.8%, during the first three months of 2023. LHFI secured by nonfarm, nonresidential properties (NFNR) increased $96.7 million, or 3.0%, during the first three months of 2023 principally due to other construction loans that moved to NFNR LHFI in the Mississippi, Texas, Alabama and Tennessee market regions. Excluding other construction loan reclassifications, NFNR LHFI decreased $54.5 million, or 1.7%, during the first three months of 2023 due to declines in nonowner-occupied loans in the Mississippi, Tennessee, Florida and Alabama market regions as well as owner-occupied loans in the Texas, Alabama and Tennessee market regions, partially offset by growth in nonowner-occupied loans in the Texas market region and owner-occupied loans in the Mississippi market region. LHFI secured by 1-4 family residential properties increased ~~$569.8~~$41.5 million, or ~~39.0%~~1.9%, during the first ~~nine~~three months of ~~2022~~2023 primarily due to growth in the Mississippi market region, reflecting ~~Trustmark's decision in 2021 to retain certain~~the addition of new mortgage ~~loans in its portfolio.~~loan products. Other construction loans increased ~~$241.8~~$12.6 million, or ~~34.0%~~1.2%, during the first ~~nine~~three months of ~~2022~~2023 primarily due to new construction loans ~~across all five~~in the Alabama, Texas, Mississippi and Florida market regions partially offset by other construction loans moved to other loan categories upon the completion of the related construction project. During the first ~~nine~~three months of ~~2022, $411.2~~2023, $299.5 million loans were moved from other construction to other loan categories, including ~~$162.9~~$148.3 million to multi-family residential loans, ~~$135.8~~$128.3 million to nonowner-occupied loans and ~~$111.9~~$22.9 million to owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans ~~across all five market regions~~ totaled ~~$635.8~~$312.1 million, or ~~89.3%~~30.3%, during the first ~~nine~~three months of 2022. LHFI secured by nonfarm, nonresidential properties (NFNR) increased $229.9 million, or 7.7%, during the first nine months of 2022 principally due other construction loans that moved to NFNR LHFI across all five market regions. Excluding other construction loan reclassifications, NFNR LHFI decreased $17.8 million, or 0.6%, during the first nine months of 2022 due to declines in owner-occupied LHFI in the Alabama, Mississippi and Florida market regions and nonowner-occupied LHFI in the Alabama, Texas and Florida market regions, which were partially offset by growth in nonowner-occupied LHFI in the Mississippi and Tennessee market regions as well as owner-occupied LHFI in the Texas and Tennessee market regions. LHFI secured by

construction, land development and other land increased $96.8 million, or 16.2%, during the first nine months of 2022 primarily due to growth in 1-4 family construction loans across all five market regions.2023. LHFI secured by other 1-4 family residential properties increased ~~$49.3~~$4.7 million, or ~~9.5%~~0.8%, during the first ~~nine~~three months of ~~2022~~2023 reflecting growth ~~across all five~~in the Alabama, Tennessee, Florida and Texas market ~~regions.~~regions partially offset by a decline in the Mississippi market region. LHFI secured by construction, land development and other ~~real estate~~land decreased ~~$132.9~~$8.4 million, or ~~18.3%~~1.2%, during the first ~~nine~~three months of ~~2022,~~2023 primarily due to declines in ~~all five~~1-4 family construction, land development and other land loans in the Mississippi market region as well as declines in 1-4 family construction loans in the Florida and Tennessee market regions, partially offset by ~~other~~growth in land development and 1-4 family construction loans ~~that moved to LHFI secured by multi-family residential properties~~ in the ~~Texas, Mississippi and~~ Alabama market ~~regions. Excluding other construction loan reclassifications, LHFI secured by other real estate decreased $295.9 million, or 40.7%, during the first nine months of 2022.~~region.

Commercial and industrial LHFI increased ~~$275.3~~$92.9 million, or ~~19.5%~~5.1%, during the first ~~nine~~three months of ~~2022, principally due to~~2023, reflecting growth in the ~~Mississippi~~Alabama, Texas and ~~Alabama~~Florida market regions partially offset by declines in the Tennessee and Mississippi market ~~region.~~regions. State and other political subdivision LHFI declined $30.1 million, or 2.5%, during the first three months of 2023, reflecting declines across all five market regions.

The following table provides information regarding Trustmark’s home equity loans and home equity lines of credit which are included in the LHFI secured by 1-4 family residential properties for the periods presented ($ in thousands):


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Home equity loans	$	40,083		$	36,223		$	50,559		$	45,532
Home equity lines of credit		397,406			351,128			412,253			412,013
Percentage of loans and lines for which Trustmark holds first lien		53.4	%		58.2	%		50.0	%		51.7	%
Percentage of loans and lines for which Trustmark does not hold first lien		46.6	%		41.8	%		50.0	%		48.3	%

Due to the increased risk associated with second liens, loan terms and underwriting guidelines differ from those used for products secured by first liens. Loan amounts and loan-to-value ratios are limited and are lower for second liens than first liens. Also, interest rates and maximum amortization periods are adjusted accordingly. In addition, regardless of lien position, the passing credit score for approval of all home equity lines of credit is generally higher than that of term loans. The ACL on LHFI is also reflective of the increased risk related to second liens through application of a greater loss factor to this portion of the portfolio.

~~The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of September 30, 2022 and December 31, 2021 ($ in thousands).~~ Trustmark’s variable rate LHFI are based primarily on various prime and LIBOR interest rate bases. Trustmark ~~has~~ transitioned to SOFR for new variable rate loans as of January 1, 2022. The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of March 31, 2023 and December 31, 2022 ($ in thousands):


	September 30, 2022						March 31, 2023
	Fixed		Variable		Total		Fixed		Variable		Total
Loans secured by real estate:
Construction, land development and other land	$	198,590	$	495,151	$	693,741	$	200,035	$	482,179	$	682,214
Other secured by 1- 4 family residential properties		149,599		417,386		566,985		163,344		432,176		595,520
Secured by nonfarm, nonresidential properties		1,466,197		1,740,749		3,206,946		1,465,909		1,909,670		3,375,579
Other real estate secured		184,090		409,029		593,119		126,776		720,751		847,527
Other loans secured by real estate:
Other construction		34,859		918,795		953,654		27,656		1,013,902		1,041,558
Secured by 1- 4 family residential properties		1,233,076		797,051		2,030,127		1,342,236		884,292		2,226,528
Commercial and industrial loans		576,647		1,112,885		1,689,532		648,459		1,265,678		1,914,137
Consumer loans		138,999		27,028		166,027		137,563		28,901		166,464
State and other political subdivision loans		1,128,278		60,425		1,188,703		1,126,397		67,330		1,193,727
Other commercial loans		163,337		333,893		497,230		160,471		293,470		453,941
LHFI	$	5,273,672	$	6,312,392	$	11,586,064	$	5,398,846	$	7,098,349	$	12,497,195


	December 31, 2022
	Fixed		Variable		Total
Loans secured by real estate:
Construction, land development and other land	$	204,191	$	486,425	$	690,616
Other secured by 1- 4 family residential properties		162,210		428,580		590,790
Secured by nonfarm, nonresidential properties		1,482,199		1,796,631		3,278,830
Other real estate secured		150,378		592,160		742,538
Other loans secured by real estate:
Other construction		33,917		995,009		1,028,926
Secured by 1- 4 family residential properties		1,310,914		874,143		2,185,057
Commercial and industrial loans		612,064		1,209,195		1,821,259
Consumer loans		142,841		27,389		170,230
State and other political subdivision loans		1,163,083		60,780		1,223,863
Other commercial loans		145,378		326,552		471,930
LHFI	$	5,407,175	$	6,796,864	$	12,204,039

December 31, 2021

Fixed

Variable

Total

Loans secured by real estate:

Construction, land development and other land

$
167,674

$
429,294

$
596,968

Other secured by 1- 4 family residential properties

178,097

339,586

517,683

Secured by nonfarm, nonresidential properties

1,543,699

1,433,385

2,977,084

Other real estate secured

261,236

464,807

726,043

Other loans secured by real estate:

Other construction

139,857

571,956

711,813

Secured by 1- 4 family residential properties

926,898

533,412

1,460,310

Commercial and industrial loans

688,219

726,060

1,414,279

Consumer loans

135,010

27,545

162,555

State and other political subdivision loans

1,088,032

58,219

1,146,251

Other commercial loans

303,168

231,675

534,843

LHFI

$
5,431,890

$
4,815,939

$
10,247,829

In the following tables, LHFI reported by region (along with related nonperforming assets and net charge-offs) are associated with location of origination except for loans secured by 1-4 family residential properties (representing traditional mortgages) and credit cards. These loans are included in the Mississippi Region because they are centrally analyzed and approved as part of a specific line of business located at Trustmark’s headquarters in Jackson, Mississippi.

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The following table presents the LHFI composition by region at ~~September 30, 2022~~March 31, 2023 and reflects each region’s diversified mix of loans ($ in thousands):


		September 30, 2022													March 31, 2023
LHFI Composition by Region		Total		Alabama		Florida		Mississippi		Tennessee		Texas			Total		Alabama		Florida		Mississippi		Tennessee		Texas
Loans secured by real estate:
Construction, land development and other land		$	693,741	$	314,156	$	48,765	$	192,650	$	38,347	$	99,823		$	682,214	$	341,912	$	45,255	$	167,750	$	25,741	$	101,556
Other secured by 1-4 family residential properties			566,985		126,847		48,428		296,491		65,511		29,708			595,520		135,830		52,395		301,561		76,402		29,332
Secured by nonfarm, nonresidential properties			3,206,946		911,567		249,549		1,292,254		173,434		580,142			3,375,579		901,613		204,533		1,462,426		161,899		645,108
Other real estate secured			593,119		101,680		1,758		337,458		7,036		145,187			847,527		264,170		1,985		334,758		7,018		239,596
Other loans secured by real estate:
Other construction			953,654		454,426		9,136		226,820		9		263,263			1,041,558		567,871		29,370		166,236		—		278,081
Secured by 1-4 family residential properties			2,030,127		—		—		2,024,308		5,819		—			2,226,528		—		—		2,221,390		5,138		—
Commercial and industrial loans			1,689,532		420,001		25,879		743,116		260,939		239,597			1,914,137		588,865		28,068		768,940		272,153		256,111
Consumer loans			166,027		23,506		7,561		104,269		19,226		11,465			166,464		22,977		9,372		103,904		19,011		11,200
State and other political subdivision loans			1,188,703		77,853		70,293		831,431		28,879		180,247			1,193,727		74,925		62,353		845,902		27,380		183,167
Other commercial loans			497,230		70,079		10,130		302,443		54,206		60,372			453,941		69,438		9,194		258,802		53,317		63,190
LHFI		$	11,586,064	$	2,500,115	$	471,499	$	6,351,240	$	653,406	$	1,609,804		$	12,497,195	$	2,967,601	$	442,525	$	6,631,669	$	648,059	$	1,807,341

Construction, Land Development and Other Land Loans by Region	Construction, Land Development and Other Land Loans by Region													Construction, Land Development and Other Land Loans by Region
Lots		$	72,411	$	40,195	$	8,822	$	16,441	$	1,937	$	5,016		$	66,925	$	31,642	$	10,281	$	15,010	$	2,220	$	7,772
Development			144,989		51,404		1,690		54,266		6,604		31,025			142,477		74,820		1,379		30,507		6,773		28,998
Unimproved land			99,197		21,327		13,174		32,514		4,707		27,475			103,649		22,480		14,148		31,056		4,754		31,211
1-4 family construction			377,144		201,230		25,079		89,429		25,099		36,307			369,163		212,970		19,447		91,177		11,994		33,575
Construction, land development and other land loans		$	693,741	$	314,156	$	48,765	$	192,650	$	38,347	$	99,823		$	682,214	$	341,912	$	45,255	$	167,750	$	25,741	$	101,556

Loans Secured by Nonfarm, Nonresidential Properties by Region	Loans Secured by Nonfarm, Nonresidential Properties by Region													Loans Secured by Nonfarm, Nonresidential Properties by Region
Nonowner-occupied:
Retail		$	324,948	$	122,602	$	34,912	$	85,101	$	22,155	$	60,178		$	347,775	$	124,551	$	26,625	$	113,299	$	21,143	$	62,157
Office			269,068		102,266		18,027		86,812		10,604		51,359			292,032		102,166		16,905		105,561		10,255		57,145
Hotel/motel			298,266		171,299		73,974		24,721		28,272		—			290,681		168,832		40,506		53,942		27,401		—
Mini-storage			159,898		27,253		2,150		110,838		500		19,157			154,053		28,261		2,058		104,063		481		19,190
Industrial			344,013		116,897		18,636		106,635		247		101,598			333,132		69,107		17,524		105,769		2,774		137,958
Health care			50,239		17,864		1,017		27,427		347		3,584			70,317		40,435		—		27,002		340		2,540
Convenience stores			29,170		8,706		668		15,019		604		4,173			33,226		7,318		592		14,709		582		10,025
Nursing homes/senior living			346,795		139,263		—		139,029		5,765		62,738			449,014		152,155		—		202,163		5,423		89,273
Other			122,999		17,496		9,979		60,027		16,596		18,901			125,798		40,814		9,840		53,248		8,696		13,200
Total nonowner-occupied loans			1,945,396		723,646		159,363		655,609		85,090		321,688			2,096,028		733,639		114,050		779,756		77,095		391,488
Owner-occupied:
Office			152,004		42,342		37,200		45,750		9,316		17,396			167,317		43,797		36,759		49,046		10,104		27,611
Churches			75,039		16,676		5,348		42,353		7,577		3,085			68,028		15,531		4,592		38,625		6,697		2,583
Industrial warehouses			167,154		18,112		2,920		38,509		17,408		90,205			168,429		17,468		4,644		43,359		16,083		86,875
Health care			126,382		11,077		6,491		91,939		2,360		14,515			144,201		11,397		6,272		105,568		2,323		18,641
Convenience stores			153,282		12,891		21,626		68,967		398		49,400			133,875		12,194		21,451		63,187		235		36,808
Retail			95,058		11,993		8,780		43,985		19,373		10,927			94,435		11,194		9,588		44,745		18,987		9,921
Restaurants			53,409		3,098		4,732		29,428		12,293		3,858			55,190		4,247		4,105		31,642		11,931		3,265
Auto dealerships			50,838		7,290		235		24,924		18,389		—			47,930		6,470		222		23,688		17,550		—
Nursing homes/senior living			252,203		50,363		—		175,640		—		26,200			257,998		32,615		—		199,183		—		26,200
Other			136,181		14,079		2,854		75,150		1,230		42,868			142,148		13,061		2,850		83,627		894		41,716
Total owner-occupied loans			1,261,550		187,921		90,186		636,645		88,344		258,454			1,279,551		167,974		90,483		682,670		84,804		253,620
Loans secured by nonfarm, nonresidential properties		$	3,206,946	$	911,567	$	249,549	$	1,292,254	$	173,434	$	580,142		$	3,375,579	$	901,613	$	204,533	$	1,462,426	$	161,899	$	645,108

Allowance for Credit Losses

LHFI

Trustmark’s ACL methodology for LHFI is based upon guidance within FASB ASC Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” as well as applicable regulatory guidance from its primary regulator. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the LHFI portfolio is continuously monitored by Management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL on LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

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The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Trustmark’s LHFI portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is estimated. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations.

During the first quarter of 2022, Management elected to incorporate a methodology change related to the other construction pool. Components of this change include management utilizing an alternative LDA to support the PD and LGD assumptions necessary to apply a DCF methodology to the other construction pool. Fundamentally, this approach utilizes publicly reported default balances and leverages a GLM framework to estimate PD. Taken together, these differences allow for results to be scaled to be specific and directly applicable to the other construction segment. LGD is assumed to be a through-the-cycle constant based on the actual performance of Trustmark’s other construction segment. These assumptions are then input into the DCF model and used in conjunction with prepayment data to calculate the cash flows at the individual loan level. Previously, the other construction pool used the WARM method. Management believes this change is commensurate with the level of risk in the pool.

The econometric models currently in production reflect segment or pool level sensitivities of PDprobability of default (PD) to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of its assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the current levels, it is not clear that the models currently in production will produce reasonably representative results since the models were originally estimated using data beginning in 2004 through 2019. During this period, a traditional, albeit severe, economic recession occurred. Thus, econometric models are sensitive to similar future levels of PD.

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), Southern GDP, Southern Vacancy Rate and the Prime Rate. The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1st and 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or ~~LGD~~loss given default (LGD) at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on ~~Trustmark’s~~Trustmark's historical loss experience and applied at a portfolio level.

During the second quarter of 2022, Trustmark activated the nature and volume of the portfolio qualitative factor in the ACL methodology. The nature and volume of the portfolio qualitative factor utilizes peer and industry assumptions for pools of loans where Trustmark’s historical experience might not capture the risk associated within a specific pool due to it being a different type of lending, different sources of repayment or a new line of business.

The external factors qualitative factor is Management’s best judgement on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (i.e., natural disasters, changes in legislation, impacts due to technology and pandemics). ~~During 2020, Trustmark activated the~~Trustmark's External Factor – Pandemic ~~to ensure~~ensures reserve adequacy for collectively evaluated loans most likely to be impacted by the unique economic and behavioral conditions created by the COVID-19 pandemic. Additional qualitative reserves are derived based on two principles. The first is the disconnect of economic factors to Trustmark’s modeled PD (derived from the econometric models underpinning the quantitative pooled reserves). During the pandemic, extraordinary measures by the federal government were made available to consumers and businesses, including COVID-19 loan payment concessions, direct transfer payments to households, tax deferrals and reduced interest rates, among others. These government interventions may have extended the lag between economic conditions and default, relative to what was captured in the model development data. Because Trustmark’s econometric PD models rely on the observed relationship from the economic downturn from 2007 to 2009 in both timing and severity, Management does not expect the models to reflect these current conditions. For example, while the models would predict contemporaneous unemployment peaks and loan defaults, this may not occur when borrowers can request payment deferrals. Thus, for the affected population, economic conditions are not fully considered as a part of Trustmark’s quantitative reserve. The second principle is the change in risk that is identified by rating changes. As a part of Trustmark’s credit review process, loans in the affected population have been given more frequent screening to ensure accurate ratings are maintained through this dynamic period. Trustmark’s quantitative reserve does not directly address changes in ratings; thus, a migration qualitative factor was designed to work in concert with the quantitative reserve.

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic are not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor – Pandemic qualitative factor is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (risk rates 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (risk rate 5) or watch (risk rate 6) received the additional reserves based on the average of the macroeconomic conditions and weighted average of the commercial loan portfolio loss rate while the loans rated special mention (risk rate 7) and substandard (risk rate 8) received additional reserves based on the weighted-average described above. During the fourth quarter of 2022, Management noted that all pass rate loans (risk rate 5 and 6) related to the External Factor - Pandemic qualitative factor either did not experience significant stress related to the pandemic or have since recovered

and does not expect future stresses attributed to the pandemic that may affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rate loans as a result of pandemic conditions resolving.

During the first quarter of 2022, in order to account for the potential uncertainty related to higher prices and low economic growth, Trustmark chose to enact a portion of the qualitative framework, External ~~Factor-~~Factor - Stagflation. Management calculated the reserve using a third-party stagflation forecast and compared it to the third-party baseline forecast used in the quantitative modeling. The weighted differential was added as qualitative reserves to account for potential uncertainty. During the fourth quarter of 2022, Management determined that the likelihood of a stagflation scenario had sufficiently diminished. Management identified that the potential had already been reduced and effectively captured within a nominally more negative baseline economic forecast. As a result, Management elected to resolve the External Factor - Stagflation and fully release the reserves.

Determining the appropriateness of the allowance is complex and requires judgement by Management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall LHFI portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.

For a complete description of Trustmark’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see Note 3 – LHFI and Allowance for Credit Losses, LHFI included in Part I. Item 1. – Financial Statements of this report.

At ~~September 30, 2022,~~March 31, 2023, the ACL on LHFI was ~~$115.1~~$122.2 million, an increase of ~~$15.6~~$2.0 million, or ~~15.7%~~1.7%, when compared with December 31, ~~2021.~~2022. The increase in the ACL during the first ~~nine~~three months of ~~2022~~2023 was principally due to loan growth and ~~an increase in specific reserves for individually analyzed credits.~~updates to qualitative factors. Allocation of Trustmark’s ~~$115.1~~$122.2 million ACL on LHFI, represented ~~0.93%~~0.80% of commercial LHFI and ~~1.20%~~1.54% of consumer and home mortgage LHFI, resulting in an ACL to total LHFI of ~~0.99%~~0.98% as of ~~September 30, 2022.~~March 31, 2023. This compares with an ACL to total LHFI of ~~0.97%~~0.99% at December 31, ~~2021,~~2022, which was allocated to commercial LHFI at ~~1.00%~~0.85% and to consumer and mortgage LHFI at ~~0.87%~~1.41%.

The following table presents changes in the ACL on LHFI for the periods presented ($ in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Balance at beginning of period	$	103,140		$	104,032		$	99,457		$	117,306		$	120,214		$	99,457
Provision for credit losses, LHFI		12,919			(2,492	)		14,775			(16,984	)		3,244			(860	)
LHFI charged-off		(2,920	)		(1,586	)		(7,439	)		(7,659	)		(2,996	)		(2,242	)
Recoveries		1,911			4,119			8,257			11,410			1,777			2,379
Net (charge-offs) recoveries		(1,009	)		2,533			818			3,751			(1,219	)		137
Balance at end of period	$	115,050		$	104,073		$	115,050		$	104,073		$	122,239		$	98,734

The increase in net charge-offs when the three months ended ~~September 30, 2022~~March 31, 2023 is compared to the same time period in ~~2021~~2022 was principally due to ~~declines~~increases in ~~recoveries~~charge-offs in the Mississippi market region. The decrease in net recoveries when the nine months ended September 30, 2022 is compared to the same time period in 2021 was primarily due to a declines in recoveries in the Mississippi, Texas and ~~Tennessee~~Alabama market regions ~~partially offset by an increase~~as well as a decline in recoveries in the Alabama market region, ~~and~~partially offset by a decline in charge-offs in the ~~Mississippi~~Tennessee market region.

The following table presents the net (charge-offs) recoveries by geographic market region for the periods presented ($ in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Alabama

$
93

$
247

$
1,921

$
552

Florida

(23
)

356

712

553

Mississippi

(702
)

1,436

(1,056
)

572

Tennessee

(202
)

(8
)

(595
)

1,070

Texas

(175
)

502

(164
)

1,004

Total net (charge-offs) recoveries

$
(1,009
)

$
2,533

$
818

$
3,751


	Three Months Ended March 31,
	2023			2022
Alabama	$	(268	)	$	699
Florida		(36	)		(26	)
Mississippi		(775	)		(88	)
Tennessee		(124	)		(424	)
Texas		(16	)		(24	)
Total net (charge-offs) recoveries	$	(1,219	)	$	137

The PCL, LHFI for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~0.45% and 0.18%~~0.10% of average loans (LHFS and LHFI)~~, respectively,~~ compared to ~~-0.10% and -0.22%~~-0.03% of average loans (LHFS and LHFI) for the same time ~~periods~~period in ~~2021, respectively.~~2022. The PCL on LHFI for the first ~~nine~~three months of ~~2022~~2023 primarily reflected an increase in required reserves as a result of loan growth and ~~specific reserves on individually analyzed LHFI.~~the Nature and Volume of Portfolio qualitative factor.

Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of ~~credit.~~credit, which is included on the accompanying consolidated balance sheets. Expected credit losses for off-balance sheet credit exposures are estimated by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by Trustmark. Trustmark calculates a loan pool level unfunded amount for the period. Trustmark calculates an expected funding rate each period which is applied to each pool’s unfunded commitment balances to ensure that reserves will be applied to each pool based upon balances expected to be funded based upon historical levels. Additionally, a reserve rate is applied to the unfunded commitment balance, which incorporates both quantitative and qualitative aspects of the current period’s expected credit loss rate. The reserve rate is loan pool specific and is applied to the unfunded amount to ensure loss factors, both quantitative and qualitative, are being considered on the unfunded portion of the loan pool, consistent with the methodology applied to the funded loan pools. See the section captioned ~~“Lending Related”~~“ACL on Off-Balance Sheet Credit Exposures” in Note 12 – Contingencies included in Part I. Item 1. – Financial Statements of this report for complete description of Trustmark’s ACL methodology on off-balance sheet credit exposures.

Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. At ~~September 30, 2022,~~March 31, 2023, the ACL on off-balance sheet credit exposures totaled ~~$31.6~~$34.6 million compared to ~~$35.6~~$36.8 million at December 31, ~~2021,~~2022, a decrease of ~~$4.0~~$2.2 million, or ~~11.2%~~6.1%. The PCL, off-balance sheet credit exposures totaled a negative ~~$1.3 million and a negative $4.0~~$2.2 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to a negative ~~$1.0 million and a negative $5.9~~$1.1 million for the same time ~~periods~~period in ~~2021, respectively.~~2022. The negative PCL on off-balance sheet credit exposures for the first ~~nine~~three months of ~~2022~~2023 primarily reflected a decline in required reserves as a result of changes in the total reserve rate used in the calculation of the ACL on off-balance sheet credit ~~exposures.~~exposures and a decline in the unfunded commitments balance.

Nonperforming Assets

The table below provides the components of nonperforming assets by geographic market region at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 ($ in thousands):


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Nonaccrual LHFI
Alabama	$	12,710		$	8,182		$	10,919		$	12,300
Florida		227			313			256			227
Mississippi		23,517			21,636			32,560			24,683
Tennessee		5,120			10,501			5,416			5,566
Texas		26,353			22,066			23,224			23,196
Total nonaccrual LHFI		67,927			62,698			72,375			65,972
Other real estate
Alabama		217			—			—			194
Mississippi		2,754			4,557			1,495			1,769
Tennessee								189			23
Total other real estate		2,971			4,557			1,684			1,986
Total nonperforming assets	$	70,898		$	67,255		$	74,059		$	67,958

Nonperforming assets/total loans (LHFS and LHFI) and ORE		0.60	%		0.64	%		0.58	%		0.55	%

Loans past due 90 days or more
LHFI	$	1,842		$	2,114		$	2,255		$	3,929

LHFS - Guaranteed GNMA serviced loans (1)	$	48,313		$	69,894		$	41,468		$	49,320

(1)

No obligation to repurchase.

See the previous discussion of LHFS for more information on Trustmark’s serviced GNMA loans eligible for repurchase and the impact of Trustmark’s repurchases of delinquent mortgage loans under the GNMA optional repurchase program.

Nonaccrual LHFI

At ~~September 30, 2022,~~March 31, 2023, nonaccrual LHFI totaled ~~$67.9~~$72.4 million, or ~~0.58%~~0.57% of total LHFS and LHFI, reflecting an increase of ~~$5.2~~$6.4 million, or ~~8.3%~~9.7%, relative to December 31, ~~2021.~~2022. The increase in nonaccrual LHFI during the first ~~nine~~three months of ~~2022~~2023 was primarily due to ~~one large commercial credit~~loans placed on nonaccrual status in ~~each of~~ the Alabama and Texas market regions, partially offset by reductions and pay-offs of nonaccrual loans in the Alabama and Texas market regions and a commercial credit that returned to accrual status in the TennesseeMississippi market region.

For additional information regarding nonaccrual LHFI, see the section captioned “Nonaccrual and Past Due LHFI” included in Note 3 – LHFI and Allowance for Credit Losses, LHFI in Part I. Item 1. – Financial Statements of this report.

Other Real Estate

Other real estate at ~~September 30, 2022~~March 31, 2023 decreased ~~$1.6 million,~~$302 thousand, or ~~34.8%~~15.2%, when compared with December 31, ~~2021.~~2022. The decrease in other real estate was principally due to properties sold in the Mississippi and Alabama market ~~region.~~regions, partially offset by properties foreclosed in the Tennessee and Mississippi market regions.

The following tables illustrate changes in other real estate by geographic market region for the periods presented ($ in thousands):


	Three Months Ended September 30, 2022															Three Months Ended March 31, 2023
	Total			Alabama			Florida		Mississippi			Tennessee		Texas		Total			Alabama			Florida		Mississippi			Tennessee			Texas
Balance at beginning of period	$	3,034		$	84		$	—	$	2,950		$	—	$	—	$	1,986		$	194		$	—	$	1,769		$	23		$	—
Additions		974			100			—		874			—		—		300			—			—		111			189			—
Disposals		(635	)		(25	)		—		(610	)		—		—		(542	)		(194	)		—		(325	)		(23	)		—
(Write-downs) recoveries		(402	)		58			—		(460	)		—		—		(60	)		—			—		(60	)		—			—
Balance at end of period	$	2,971		$	217		$	—	$	2,754		$	—	$	—	$	1,684		$	—		$	—	$	1,495		$	189		$	—

Three Months Ended September 30, 2021

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
9,439

$
2,830

$
—

$
6,550

$
59

$
—

Additions

388

—

—

379

9

—

Disposals

(3,177
)

(2,296
)

—

(813
)

(68
)

—

(Write-downs) recoveries

(437
)

79

—

(516
)

—

—

Balance at end of period

$
6,213

$
613

$
—

$
5,600

$
—

$
—

Nine Months Ended September 30, 2022

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
4,557

$
—

$
—

$
4,557

$
—

$
—

Additions

1,430

151

—

1,279

—

—

Disposals

(2,503
)

(25
)

—

(2,478
)

—

—

(Write-downs) recoveries

(513
)

91

—

(604
)

—

—

Balance at end of period

$
2,971

$
217

$
—

$
2,754

$
—

$
—


	Nine Months Ended September 30, 2021																Three Months Ended March 31, 2022
	Total			Alabama			Florida		Mississippi			Tennessee			Texas		Total			Alabama		Florida		Mississippi			Tennessee		Texas
Balance at beginning of period	$	11,651		$	3,271		$	—	$	8,330		$	50		$	—	$	4,557		$	—	$	—	$	4,557		$	—	$	—
Additions		770			—			—		717			53			—		45			—		—		45			—		—
Disposals		(4,326	)		(2,525	)		—		(1,673	)		(128	)		—		(1,868	)		—		—		(1,868	)		—		—
(Write-downs) recoveries		(1,882	)		(133	)		—		(1,774	)		25			—		453			—		—		453			—		—
Balance at end of period	$	6,213		$	613		$	—	$	5,600		$	—		$	—	$	3,187		$	—	$	—	$	3,187		$	—	$	—

Other real estate is revalued on an annual basis or more often if market conditions necessitate. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against the reserve for other real estate write-downs or net income in other real estate expense, if a reserve does not exist. Write-downs of other real estate ~~decreased $1.4 million, or 72.7%,~~increased $513 thousand when the first ~~nine~~three months of ~~2022~~2023 is compared to the same time period in ~~2021,~~2022, primarily due to a decrease in reserves for other real estate write-downs in the Mississippi market region as a result of properties sold for which ~~were~~reserves had previously ~~reserved for.~~been established during the first three months of 2022.

For additional information regarding other real estate, please see Note 5 – Other Real Estate included in Part I. Item 1. – Financial Statements of this report.

Deposits

Trustmark’s deposits are its primary source of funding and consist of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. Total deposits were ~~$14.425~~$14.784 billion at ~~September 30, 2022~~March 31, 2023 compared to ~~$15.087~~$14.438 billion at December 31, ~~2021, a decrease~~2022, an increase of ~~$662.0~~$346.0 million, or ~~4.4%~~2.4%. During the first ~~nine~~three months of ~~2022,~~2023, noninterest-bearing deposits decreased ~~$412.3~~$296.7 million, or ~~8.6%~~7.2%, reflecting declines in ~~consumer and public DDAs partially offset by an increase in commercial DDAs.~~all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit accounts. Interest-bearing deposits ~~decreased $249.7~~increased $642.7 million, or ~~2.4%~~6.2%, during the first ~~nine~~three months of ~~2022,~~2023, primarily due to ~~declines~~growth in ~~public~~consumer and ~~commercial interest checking accounts, commercial~~business CDs, which was principally attributable to deposit campaigns offered during the first quarter of 2023, the addition of $150.0 million of brokered CDs and growth in consumer and business MMDAs, ~~and all categories of certificates of deposits,~~ partially offset by ~~growth~~declines in consumer interest checking accounts and ~~consumer~~all categories of savings accounts.

At March 31, 2023, Trustmark's total uninsured deposits were $5.674 billion, or 38.4% of total deposits, compared to $5.831 billion, or 40.4% of total deposits, at December 31, 2022.

Borrowings

Trustmark uses short-term borrowings, such as federal funds purchased, securities sold under repurchase agreements and short-term FHLB advances, to fund growth of earning assets in excess of deposit growth. See the section captioned “Liquidity” for further discussion of the components of Trustmark’s excess funding capacity.

Federal funds purchased and securities sold under repurchase agreements totaled ~~$544.1~~$478.0 million at ~~September 30, 2022~~March 31, 2023 compared to ~~$238.6~~$449.3 million at December 31, ~~2021,~~2022, an increase of ~~$305.5 million.~~$28.6 million, or 6.4%, primarily due to an increase in upstream federal funds purchased partially offset by a decline in customer sweep transactions. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, $93.1~~2022, $28.0 million and ~~$238.6~~$66.3 million represented customer related transactions, such as commercial sweep repurchase balances. Trustmark had ~~$451.0~~$450.0 million of upstream federal funds purchased at ~~September 30, 2022~~March 31, 2023 compared to ~~none~~$383.0 million at December 31, 2021. The increase in the upstream federal funds purchased as a funding source was due to Trustmark's deployment of its excess cash to purchase investment securities and the subsequent continued strong loan growth. In addition, as the FRB has begun to tighten monetary policy, competition for deposits has also increased.2022.

Other borrowings totaled ~~$223.2 million~~$1.485 billion at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$132.1~~$434.2 million, or 41.3%, when compared with ~~$91.0 million~~$1.051 billion at December 31, ~~2021,~~2022, principally due to ~~$150.0 million of~~an increase in short-term FHLB advances obtained from the FHLB of Dallas.

The increases in the upstream federal funds purchased and short-term FHLB advances as funding sources were principally due to Trustmark's continued strong loan growth and increased competition for deposits.

Legal Environment

Information required in this section is set forth under the heading “Legal Proceedings” of Note 12 – Contingencies included in Part I. Item 1. – Financial Statements of this report.

Off-Balance Sheet Arrangements

Information required in this section is set forth under the heading “Lending Related” of Note 12 – Contingencies included in Part I. Item 1. – Financial Statements of this report.

Capital Resources and Liquidity

~~At September 30, 2022, Trustmark’s total shareholders’ equity was $1.509 billion,~~Trustmark places a ~~decrease of $232.4 million, or 13.3%, when compared to December 31, 2021. During~~significant emphasis on the ~~first nine months of 2022, shareholders’ equity decreased primarily as a result~~maintenance of a ~~decline~~strong capital position, which promotes investor confidence, provides access to funding sources under favorable terms and enhances Trustmark’s ability to capitalize on business growth and acquisition opportunities. Higher levels of liquidity, however, bear corresponding costs, measured in ~~the fair market value~~terms of ~~securities available~~lower yields on short-term, more liquid earning assets and higher expenses for sale, net of tax, of $235.9 million, common stock dividends of $42.6 million, common stock repurchases of $24.6 million, unrealized net holding loss on the securities transferred to held to maturity, net of tax, of $23.6 millionextended liability maturities. Trustmark manages capital based upon risks and ~~a decline in the fair market value of cash flow hedges, net of tax, of $15.1 million, partially offset by net income of $106.0 million.~~growth opportunities as well as regulatory requirements. Trustmark utilizes a capital model in order to provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities and protect the balance sheet against sudden adverse market conditions, while maintaining an attractive return on equity to shareholders.

At March 31, 2023, Trustmark’s total shareholders’ equity was $1.562 billion, an increase of $69.8 million, or 4.7%, when compared to December 31, 2022. During the first three months of 2023, shareholders’ equity increased primarily as a result of net income of $50.3 million and an increase in the fair market value of securities available for sale, net of tax, of $23.1 million, partially offset by common stock dividends of $14.2 million.

Regulatory Capital

ability to pay dividends. As of ~~September 30, 2022,~~March 31, 2023, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at ~~September 30, 2022.~~March 31, 2023. To be categorized in this manner, Trustmark and TNB maintained, as applicable, minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since ~~September 30, 2022~~March 31, 2023 which Management believes have affected Trustmark’s or TNB’s present classification.

In 2020, Trustmark enhanced its capital structure with the issuance of $125.0 million of subordinated notes. ~~The subordinated notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses.~~ At ~~September 30,~~both March 31, 2023 and December 31, 2022, the carrying amount of the subordinated notes was ~~$123.2 million compared to $123.0 million at December 31, 2021.~~$123.3 million. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. For regulatory capital purposes, the subordinated notes qualified as Tier 2 capital for Trustmark at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Trustmark may utilize the full carrying value of the subordinated notes as Tier 2 capital until December 1, 2025 (five years prior to maturity). Beginning December 1, 2025, the subordinated notes will phase out of Tier 2 capital 20.0% each year until maturity.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Trustmark intends to continue to utilize $60.0 million in trust preferred securities issued by Trustmark Preferred Capital Trust I (the Trust) as Tier 1 capital up to the regulatory limit, as permitted by the grandfather provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III capital rules.

Refer to the section captioned “Regulatory Capital” included in Note 15 – Shareholders’ Equity in Part I. Item 1. – Financial Statements of this report for an illustration of Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Dividends on Common Stock

Dividends per common share for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were ~~$0.69.~~$0.23. Trustmark’s indicated dividend for ~~2022~~2023 is $0.92 per common share, which is the same as dividends per common share declared in ~~2021.~~2022.

Stock Repurchase Program

From time to time, Trustmark's Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow Trustmark to proactively manage its capital position and return excess capital to shareholders. Shares purchased also provide Trustmark with shares of common stock necessary to satisfy obligations related to stock compensation awards.

On January 28, 2020, the Board of Directors of Trustmark authorized a stock repurchase program, effective April 1, 2020, under which $100.0 million of Trustmark’s outstanding common stock could be acquired through December 31, 2021. Under this authority, Trustmark repurchased approximately 1.9 million shares of its outstanding common stock valued at $61.8 million.

On December 7, 2021, the Board of Directors of Trustmark authorized a stock repurchase program, effective January 1, 2022, under which $100.0 million of Trustmark’s outstanding common stock could be acquired through December 31, 2022. Under this authority, Trustmark repurchased approximately 789 thousand shares of its common stock value at $24.6 million during 2022.

On December 6, 2022, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, 2023, under which $50.0 million of Trustmark's outstanding common stock may be acquired through December 31, ~~2022.~~2023. The ~~shares may~~repurchase program, which is subject to market conditions and management discretion, will be ~~purchased from time to time at prevailing market prices,~~implemented through open market repurchases or ~~private transactions, depending on market conditions, and in conjunction with its disciplined share repurchase framework. There is no guarantee as to the number of~~privately negotiated transactions. No shares ~~that may be~~were repurchased ~~by Trustmark, and Trustmark may discontinue repurchases at any time at Management's discretion. Under~~under this authority ~~Trustmark repurchased approximately 247 thousand shares of its outstanding common stock valued at $8.0 million~~ during the first three months ~~ended September 30, 2022. During the first nine months~~ of ~~2022, Trustmark repurchased approximately 789 thousand shares of its outstanding common stock valued at $24.6 million.~~2023.

Liquidity

Liquidity is the ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs and other corporate purposes. Consistent cash flows from operations and adequate capital provide internally generated liquidity. Furthermore, Management maintains funding capacity from a variety of external sources to meet daily funding needs, such as those required to meet deposit withdrawals, loan disbursements and security settlements. Liquidity strategy also includes the use of wholesale funding sources to provide for the seasonal fluctuations of

deposit and loan demand and the cyclical fluctuations of the economy that impact the availability of funds. Management keeps excess funding capacity available to meet potential demands associated with adverse circumstances.

The asset side of the balance sheet provides liquidity primarily through maturities and cash flows from loans and securities as well as the ability to pledge or sell certain loans and securities while the liability portion of the balance sheet provides liquidity primarily through noninterest and interest-bearing deposits. Trustmark utilizes federal funds purchased, FHLB advances, securities sold under repurchase agreements, ~~as well as~~ the Federal Reserve Discount Window (Discount Window) and ~~on a limited basis as discussed below,~~ brokered deposits to provide additional liquidity. Access to these additional sources represents Trustmark’s incremental borrowing capacity.

Trustmark's liquidity position is continuously monitored and adjustments are made to manage the balance as deemed appropriate. Liquidity risk management is an important element to Trustmark's asset/liability management process. Trustmark regularly models liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions or other significant occurrences as deemed appropriate by Management. These scenarios are incorporated into Trustmark's contingency funding plan, which provides the basis for the identification of its liquidity needs.

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled ~~$14.887~~$14.666 billion for the first ~~nine~~three months of ~~2022~~2023 and represented approximately ~~85.6%~~79.3% of average liabilities and shareholders’ equity, compared to average deposits of ~~$14.437~~$15.015 billion, which represented ~~85.2%~~85.7% of average liabilities and shareholders’ equity for the first ~~nine~~three months of ~~2021.~~2022. The decline in total average deposits when the first three months of 2023 is compared to the same time period in 2022 was a result of a decline in average noninterest-bearing deposits partially offset by an increase in average interest-bearing deposits, reflecting customers’ desire for higher yielding deposit accounts as well as increased competition for deposits.

Trustmark had ~~$198.7 million~~$1.025 billion held in an interest-bearing account at the FRBA at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.064 billion~~$434.0 million held at December 31, ~~2021.~~2022. The increase in the balance held at the FRBA during the first three months of 2023 was primarily due to Trustmark's decision to modestly increase its reserve balance in response to the market events in March 2023.

Trustmark utilizes ~~a limited amount of~~ brokered deposits to supplement other wholesale funding sources. At ~~September 30, 2022,~~March 31, 2023, brokered sweep MMDA deposits totaled ~~$22.0~~$23.6 million compared to ~~$29.6~~$15.1 million at December 31, ~~2021.~~2022. In addition, Trustmark had $150.0 million of brokered CDs at March 31, 2023 compared to none at December 31, 2022.

At ~~September 30, 2022~~March 31, 2023 Trustmark had ~~$451.0~~$450.0 million of upstream federal funds purchased compared to no$383.0 million of upstream federal funds purchased at December 31, ~~2021.~~2022. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity. The increase in the upstream federal funds purchased as a funding source was due to Trustmark's deployment of its excess cash to purchase investment securities and the subsequent continued strong loan growth. In addition, as the FRB has begun to tighten monetary policy, competition for deposits has also increased.

Trustmark maintains a relationship with the FHLB of Dallas, which provided ~~$150.0~~$1.425 billion of outstanding short-term and no long-term advances at March 31, 2023, compared to $975.0 million of outstanding short-term and no long-term advances at ~~September 30, 2022, compared to no outstanding short-term or long-term advances at~~ December 31, ~~2021.~~2022. Trustmark had no standby letters of credit outstanding with the FHLB of Dallas at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances or letters of credit with the FHLB of Dallas by ~~$3.791~~$2.798 billion at ~~September 30, 2022.~~March 31, 2023.

In addition, at ~~September 30, 2022,~~March 31, 2023, Trustmark had no short-term and ~~$83~~$73 thousand in long-term FHLB advances outstanding with the FHLB of Atlanta, which were acquired in the BancTrust merger in 2013, compared to no short-term and ~~$97~~$78 thousand in long-term FHLB advances at December 31, ~~2021.~~2022. Trustmark has non-member status and thus no additional borrowing capacity with the FHLB of Atlanta.

Additionally, Trustmark has the ability to leverage its unencumbered investment securities as collateral. At ~~September 30, 2022,~~March 31, 2023, Trustmark had approximately ~~$1.182 billion~~$877.0 million available in unencumbered Treasury and agency securities compared to ~~$751.0~~$797.0 million at December 31, ~~2021.~~2022.

Another borrowing source is the Discount Window. At ~~September 30, 2022,~~March 31, 2023, Trustmark had approximately ~~$1.307~~$1.431 billion available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with ~~$876.8 million~~$1.345 billion at December 31, ~~2021.~~2022.

Additionally, on March 15, 2020, in response to the COVID-19 pandemic, the FRB reduced reserve requirements for insured depository institutions to zero percent, which increased TNB’s available liquidity.

On March 12, 2023, the U.S. Treasury Department, the FRB and the FDIC jointly announced the establishment of the Bank Term Funding Program (BTFP), in response to recent liquidity concerns within the banking industry in part due to recent deposit runs that resulted in a few large bank failures. The BTFP was designed to provide available additional funding to eligible depository institutions to help assure that banks have the ability to meet the needs of all their depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities and other qualifying assets (valued at par) as collateral. The BTFP is intended to eliminate the need for depository institutions to quickly sell their securities when they are experiencing stress on their liquidity. As of March 31, 2023, Trustmark had not accessed the BTFP.

During 2020, Trustmark ~~agreed to issue and sell~~issued $125.0 million aggregate principal amount of its 3.625% fixed-to-floating rate subordinated notes. ~~The subordinated notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses.~~ At ~~September 30,~~both March 31, 2023 and December 31, 2022, the carrying amount of the subordinated notes was ~~$123.2~~$123.3 million ~~compared to $123.0 million at December 31, 202~~1.. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. The subordinated notes are unsecured obligations and are subordinated in right of

payment to all of Trustmark’s existing and future senior indebtedness, whether secured or unsecured. The subordinated notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including TNB.

During 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through a newly formed Delaware trust affiliate, the Trust. The trust preferred securities mature September 30, 2036 and are redeemable at Trustmark’s option. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.9 million in aggregate principal amount of Trustmark’s junior subordinated debentures.

The Board of Directors of Trustmark currently has the authority to issue up to 20.0 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At ~~September 30, 2022,~~March 31, 2023, Trustmark had no shares of preferred stock issued and outstanding.

Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions. As of ~~September 30, 2022,~~March 31, 2023, Management is not aware of any events that are reasonably likely to have a material adverse effect on Trustmark's liquidity, capital resources or operations. In addition, Management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on Trustmark.

In the ordinary course of business, Trustmark has entered into contractual obligations and has made other commitments to make future payments. Please refer to the accompanying notes to the consolidated financial statements included in Part I. Item 1. – Financial Statements of this report and Trustmark's ~~2021~~2022 Annual Report for the expected timing of such payments as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. There have been no material changes in Trustmark's contractual obligations since year-end.

Asset/Liability Management

Overview

Market risk reflects the potential risk of loss arising from adverse changes in interest rates and market prices. Trustmark has risk management policies to monitor and limit exposure to market risk. Trustmark’s primary market risk is interest rate risk created by core banking activities. Interest rate risk is the potential variability of the income generated by Trustmark’s financial products or services, which results from changes in various market interest rates. Market rate changes may take the form of absolute shifts, variances in the relationships between different rates and changes in the shape or slope of the interest rate term structure.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, confirmed that the publication of most LIBOR term rates will end on June ~~30,~~20, 2023 (excluding one-week U.S. LIBOR and two-month U.S. LIBOR, the publication of which ended on December 31, 2021). Additionally, on March 15, 2022. the Adjustable Interest Rate (LIBOR) Act was signed into law as part of the Consolidated Appropriations Act, 2022. The Adjustable Interest Rate (LIBOR) Act establishes a nationwide process for replacing LIBOR in financial contracts that mature after the cessation of the overnight, one-, three-, six- and 12-month U.S. LIBOR tenors on June 30, 2023 and that do not provide for an effective means to replace LIBOR upon its cessation. For contracts in which a party has the discretion to identify a replacement rate, the Adjustable Interest Rate (LIBOR) Act also provides a safe harbor to parties if they choose the SOFR-based benchmark replacement rate to be identified by the FRB. Trustmark has a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, failure to adequately manage the transition could have a material adverse effect on Trustmark’s business, financial condition and results of operations. For additional information regarding the transition from LIBOR and Trustmark’s management of this transition, please see the respective risk factor included in Part I. Item 1A. – Risk Factors, of Trustmark’s ~~2021~~2022 Annual Report.

Management continually develops and applies cost-effective strategies to manage these risks. Management’s Asset/Liability Committee sets the day-to-day operating guidelines, approves strategies affecting net interest income and coordinates activities within policy limits established by the Board of Directors of Trustmark. A key objective of the asset/liability management program is to quantify, monitor and manage interest rate risk and to assist Management in maintaining stability in the net interest margin under varying interest rate environments.

Derivatives

Trustmark uses financial derivatives for management of interest rate risk. Management’s Asset/Liability Committee, in its oversight role for the management of interest rate risk, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives employed by Trustmark are interest rate lock commitments, forward contracts (both futures contracts and options on futures contracts), interest rate swaps, interest rate caps and interest rate floors. As a general matter, the values of these instruments are designed

to be inversely related to the values of the assets that they hedge (i.e., if the value of the hedged asset falls, the value of the related hedge rises). In addition, Trustmark has entered into derivatives contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge interest rate, currency or other exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the derivatives markets may increase the cost to Trustmark to administer derivatives programs.

Derivatives Designated as Hedging Instruments

During the third quarter of 2022, Trustmark initiated a cash flow hedging program. Trustmark's objectives in initiating this hedging program ~~are~~were to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates fall below the purchased floor strike rate on the contract and payments of variable-rate amounts if interest rates fall below the sold floor strike rate on the contract. Trustmark uses such derivatives to hedge the variable cash flows associated with existing and anticipated variable-rate loan assets. At ~~September 30, 2022,~~March 31, 2023, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled ~~$675.0 million.~~$875.0 million compared to $825.0 million at December 31, 2022.

Trustmark records any gains or losses on these cash flow hedges in AOCI. Gains and losses on derivatives representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with Trustmark’s accounting policy election. The earnings recognition of excluded components totaled $9 thousand of amortization expense for the three months ended March 31, 2023 and is included in interest and fees on LHFS and LHFI. As interest payments are received on Trustmark's variable-rate assets, amounts reported in AOCI are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. For the three months ended ~~September 30, 2022,~~March 31, 2023, Trustmark reclassified a ~~gain~~loss, net of ~~$643 thousand~~tax, of $2.2 million into interest and fees on LHFS and LHFI. During the next twelve months, Trustmark estimates that ~~$7.8~~$12.4 million will be reclassified as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

Derivatives Not Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$226.0~~$289.4 million at ~~September 30, 2022,~~March 31, 2023, with a positive valuation adjustment of ~~$4.7 million,~~$605 thousand, compared to ~~$378.6~~$165.4 million, with a positive valuation adjustment of ~~$1.8 million~~$325 thousand at December 31, ~~2021.~~2022.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments was ~~$260.0~~$253.5 million at ~~September 30, 2022~~March 31, 2023 compared to ~~$409.5~~$277.0 million at December 31, ~~2021.~~2022. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of ~~$928 thousand~~$1.8 million and a net positive ineffectiveness of ~~$144 thousand~~$1.0 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively. For the nine months ended September 30, 2022 and 2021, the impact was a net negative ineffectiveness of $554 thousand and net positive ineffectiveness of $1.7 million,~~ respectively.

Trustmark offers certain interest rate derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk under loans they have entered into with TNB. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships under GAAP and are, therefore, carried on Trustmark’s financial statements at fair value with the change in fair value recorded as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. As of ~~September 30, 2022,~~March 31, 2023, Trustmark had interest rate swaps with an aggregate notional amount of ~~$1.491~~$1.414 billion related to this program, compared to ~~$1.225~~$1.391 billion as of December 31, ~~2021.~~2022.

Credit-Risk-Related Contingent Features

At ~~September 30, 2022, there was no~~March 31, 2023, the termination value of interest rate swaps in a liability position totaled $832 thousand, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements compared to ano termination value ~~of $655 thousand~~ at December 31, ~~2021.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, Trustmark had posted collateral of ~~$40 thousand~~$1.2 million and ~~$850~~$740 thousand, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at ~~September 30, 2022,~~March 31, 2023, it could have been required to settle its obligations under the agreements at the termination value (which is expected to approximate fair market value).

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third-party default on the underlying swap. At ~~September 30,~~March 31, 2023 and December 31, 2022, Trustmark had entered into five risk participation agreements as a beneficiary with an aggregate notional amount of ~~$50.9~~$49.9 million ~~compared to six risk participation agreements as a beneficiary with an aggregate notional amount of $52.0~~and $50.2 million, ~~at December~~respectively. At March 31, ~~2021. At September 30, 2022,~~2023, Trustmark had entered into twenty-eight risk participation agreements as a guarantor with an aggregate notional amount of ~~$225.6~~$242.1 million, compared to ~~twenty-four~~twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of ~~$173.5~~$235.8 million at December 31, ~~2021.~~2022. The aggregate fair values of these risk participation agreements were immaterial at both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Trustmark’s participation in the derivatives markets is subject to increased federal regulation of these markets. Trustmark believes that it may continue to use financial derivatives to manage interest rate risk and also to offer derivatives products to certain qualified commercial lending clients in compliance with the Volcker Rule. However, the increased federal regulation of the derivatives markets has increased the cost to Trustmark of administering its derivatives programs. Some of these costs (particularly compliance costs related to the Volcker Rule and other federal regulations) are expected to recur in the future.

Market/Interest Rate Risk Management

The primary purpose in managing interest rate risk is to invest capital effectively and preserve the value created by the core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

Financial simulation models are the primary tools used by Management’s Asset/Liability Committee to measure interest rate exposure. The significant increase in short-term market interest rates and the overall interest rate environment is likely to affect the balance sheet composition and rates. The simulation incorporates assumptions regarding the effects of such changes based on a combination of historical analysis and expected behavior. Using a wide range of scenarios, Management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Trustmark’s balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of Trustmark’s balance sheet, resulting from both strategic plans and customer behavior. In addition, the model incorporates Management’s assumptions and expectations regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates.

Based on the results of the simulation models using static balances, the table below summarizes the effect various one-year interest rate shift scenarios would have on net interest income compared to a base case, flat scenario at ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. Given the substantial increase in market rates, the down 200 basis points scenario has been added to the table below for the three months ended March 31, 2023.


	Estimated % Change in Net Interest Income						Estimated % Change in Net Interest Income
Change in Interest Rates	2022			2021			2023			2022
+200 basis points		5.4	%		21.7	%		3.5	%		17.3	%
+100 basis points		2.7	%		10.7	%		1.7	%		8.3	%
-100 basis points		-5.8	%		-6.7	%		-1.8	%		-8.6	%
-200 basis points								-4.8	%		—

Management cannot provide any assurance about the actual effect of changes in interest rates on net interest income. The estimates provided do not include the effects of possible strategic changes in the balances of various assets and liabilities throughout ~~2022~~2023 or additional actions Trustmark could undertake in response to changes in interest rates. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

Another component of interest rate risk management is measuring the economic value-at-risk for a given change in market interest rates. The economic value-at-risk may indicate risks associated with longer-term balance sheet items that may not affect net interest income

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at risk over shorter time periods. Trustmark uses computer-modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The economic value of equity (EVE), also known as net portfolio value, is defined as the difference between the present value of asset cash flows and the present value of liability cash flows. The resulting change in EVE in different market rate environments, from the base case scenario, is the amount of EVE at risk from those rate environments.

The following table summarizes the effect that various interest rate shifts would have on net portfolio value at ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Estimated % Change in Net Portfolio Value						Estimated % Change in Net Portfolio Value
Change in Interest Rates	2022			2021			2023			2022
+200 basis points		-0.1	%		11.5	%		-1.7	%		5.6	%
+100 basis points		0.1	%		6.6	%		-0.6	%		3.3	%

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income and other ancillary income such as late fees. Management reviews all significant assumptions quarterly. Mortgage loan prepayment speeds, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change.

By way of example, an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. In recent years, there have been significant market-driven fluctuations in loan prepayment speeds and discount rates. These fluctuations can be rapid and may continue to be significant. Therefore, estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

At ~~September 30, 2022,~~March 31, 2023, the MSR fair value was ~~$132.6~~$127.2 million, compared to ~~$84.1~~$111.1 million at ~~September 30, 2021.~~March 31, 2022. The impact on the MSR fair value of a 10% adverse change in prepayment speed or a 100 basis point increase in discount rate at ~~September 30, 2022,~~March 31, 2023, would be a decline in fair value of approximately ~~$4.7~~$4.5 million and ~~$5.7~~$5.2 million, respectively, compared to a decline in fair value of approximately $4.4 million and ~~$3.2~~$4.6 million, respectively, at ~~September 30, 2021.~~March 31, 2022. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

Critical Accounting Policies

For an overview of Trustmark’s critical accounting policies, see the section captioned “Critical Accounting Policies” included in Part II. Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Trustmark’s ~~2021~~2022 Annual Report. There have been no significant changes in Trustmark’s critical accounting policies during the first ~~nine~~three months of ~~2022.~~2023.

For additional information regarding Trustmark’s basis of presentation and accounting policies, see Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation included in Part I. Item 1. – Financial Statements of this report.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

For a complete list of recently adopted and pending accounting policies and the impact on Trustmark, see Note 19 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements included in Part I. Item 1. – Financial Statements of this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the discussion of Market/Interest Rate Risk Management found in Management’s Discussion and Analysis.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by Trustmark’s Management, with the participation of its Chief Executive Officer and Treasurer and Principal Financial Officer (Principal Financial Officer), of the effectiveness of Trustmark’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Principal Financial Officer concluded that Trustmark’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There has been no change in Trustmark’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Trustmark’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information required in this section is set forth under the heading “Legal Proceedings” of Note 12 – Contingencies in Part I. Item 1 – Financial Statements of this report.

In accordance with FASB Accounting Standards Codification (ASC) Topic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for litigation matters when those matters present loss contingencies that are both probable and reasonably estimable. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any such proceeding is not probable and reasonably estimable. All matters will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. In view of the inherent difficulty of predicting the outcome of legal proceedings, Trustmark cannot predict the eventual outcomes of the currently pending matters or the timing of their ultimate resolution. Trustmark currently believes, however, based upon the advice of legal counsel and Management’s evaluation and after taking into account its current insurance coverage, that the legal proceedings currently pending should not have a material adverse effect on Trustmark’s consolidated financial condition.

ITEM 1A. RISK FACTORS

There has been no material change in the risk factors previously disclosed in Trustmark’s ~~2021~~2022 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December ~~7, 2021,~~6, 2022, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, ~~2022,~~2023, under which ~~$100.0~~$50.0 million of Trustmark's outstanding common stock may be acquired through December 31, ~~2022.~~2023. The shares may be purchased from time to time at prevailing market prices, through open market or private transactions, depending on market conditions, and in conjunction with its disciplined share repurchase framework. There is no guarantee as to the number of shares that may be repurchased by Trustmark, and Trustmark may discontinue repurchases at any time at Management's discretion.

The following table provides information with respect to purchases by Trustmark or made on behalf of Trustmark of its common stock during the three months ended ~~September 30, 2022~~March 31, 2023 ($ in thousands, except per share amounts):

Period

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plan

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan at the End of the Period

July 1, 2022 to July 31, 2022

26,000

$
32.37

26,000

$
82,559

August 1, 2022 to August 31, 2022

96,730

32.68

96,730

79,398

September 1, 2022 to September 30, 2022

124,648

32.11

124,648

75,395

Total

247,378

247,378


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan at the End of the Period
January 1, 2023 to January 31, 2023		—	$	—		—	$	50,000
February 1, 2023 to February 28, 2023		—		—		—		50,000
March 1, 2023 to March 31, 2023		—		—		—		50,000
Total		—				—

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

9081

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed in the Exhibit Index are filed herewith or are incorporated herein by reference.

EXHIBIT INDEX


~~10-ag~~3-a		~~Amendment No. 2022-1~~Articles of Incorporation of Trustmark, as restated April 25, 2023.

3-b		Amended and Restated Bylaws of Trustmark Corporation as of February 15, 2023. Incorporated herein by reference to Exhibit 3.1 to Trustmark’s Form 8-K Current Report filed on February 17, 2023.

10-aj		Exhibit 2 Company Contribution in Respect of the Year Ending December 31, 2023 to the Trustmark Corporation Deferred Compensation Plan*

31-a		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31-b		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32-a		Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32-b		Certification by Principal Financial Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Inline XBRL Interactive Data.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

* - Denotes management contract.

All other exhibits are omitted, as they are inapplicable or not required by the related instructions.

9182

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TRUSTMARK CORPORATION


BY:	/s/ Duane A. Dewey		BY:		/s/ Thomas C. Owens
	Duane A. Dewey				Thomas C. Owens
	President and Chief Executive Officer				Treasurer and Principal Financial Officer


DATE:	~~November 3, 2022~~	May 8, 2023		DATE:		~~November 3, 2022~~May 8, 2023

9283


	September 30, 2022
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	4,162	$	4,162
Other secured by 1-4 family residential properties		195		862		1,057
Secured by nonfarm, nonresidential properties		—		4,117		4,117
Other real estate secured		—		79		79
Other loans secured by real estate:
Secured by 1-4 family residential properties		114		3,314		3,428
Commercial and industrial loans		—		49		49
State and other political subdivision loans		—		2,811		2,811
Other commercial loans		—		36		36
Total TDRs	$	309	$	15,430	$	15,739


	September 30, 2021
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	4,607	$	4,607
Other secured by 1-4 family residential properties		—		1,007		1,007
Secured by nonfarm, nonresidential properties		394		2,961		3,355
Other loans secured by real estate:
Secured by 1-4 family residential properties		—		2,292		2,292
Commercial and industrial loans		2,000		1,600		3,600
Consumer loans		—		11		11
State and other political subdivision loans		—		3,609		3,609
Other commercial loans		—		5,009		5,009
Total TDRs	$	2,394	$	21,096	$	23,490