Equibles

10-Q

TRUSTMARK CORP (TRMK)

10-Q 2023-11-07 For: 2023-09-30
View Original
Added on April 04, 2026

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, 2023

or

☐ 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

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Trustmark Corporation

(Exact name of registrant as specified in its charter)

Mississippi 64-0471500
(State or other jurisdiction of<br>incorporation or organization) (I.R.S. Employer<br>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, 2023, there were 61,070,437 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.

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, actions by the Board of Governors of the Federal Reserve System (FRB) that impact the level of market interest rates, local, state and national economic and market conditions, 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 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.

ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)
December 31, 2022
Assets
Cash and due from banks 750,492 $ 734,787
Federal funds sold and securities purchased under reverse repurchase agreements — 4,000
Securities available for sale, at fair value (amortized cost: 2,028,863 - 2023   2,270,709 - 2022; allowance for credit losses (ACL): 0) 1,766,174 2,024,082
Securities held to maturity, net of ACL of 0   (fair value: 1,312,871 - 2023; 1,406,589 - 2022) 1,438,287 1,494,514
Loans held for sale (LHFS) 169,244 135,226
Loans held for investment (LHFI) 12,810,259 12,204,039
Less ACL, LHFI 134,031 120,214
Net LHFI 12,676,228 12,083,825
Premises and equipment, net 230,718 212,365
Mortgage servicing rights (MSR) 142,379 129,677
Goodwill 384,237 384,237
Identifiable intangible assets, net 3,093 3,640
Other real estate, net 5,485 1,986
Operating lease right-of-use assets 39,639 36,301
Other assets 784,863 770,838
Total Assets 18,390,839 $ 18,015,478
Liabilities
Deposits:
Noninterest-bearing 3,320,124 $ 4,093,771
Interest-bearing 11,781,799 10,343,877
Total deposits 15,101,923 14,437,648
Federal funds purchased and securities sold under repurchase agreements 321,799 449,331
Other borrowings 793,193 1,050,938
Subordinated notes 123,427 123,262
Junior subordinated debt securities 61,856 61,856
ACL on off-balance sheet credit exposures 34,945 36,838
Operating lease liabilities 42,730 38,932
Other liabilities 340,615 324,405
Total Liabilities 16,820,488 16,523,210
Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares Issued and outstanding: 61,070,095 shares - 2023; 60,977,686 shares - 2022 12,724 12,705
Capital surplus 158,316 154,645
Retained earnings 1,687,199 1,600,321
Accumulated other comprehensive income (loss), net of tax (287,888 ) (275,403 )
Total Shareholders' Equity 1,570,351 1,492,268
Total Liabilities and Shareholders' Equity 18,390,839 $ 18,015,478

All values are in US Dollars.

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,
2023 2022 2023 2022
Interest Income
Interest and fees on LHFS & LHFI $ 203,236 $ 126,441 $ 568,318 $ 316,855
Interest and fees on PPP loans — 186 — 538
Interest on securities:
Taxable 16,624 16,222 50,164 43,140
Tax exempt 46 79 173 260
Interest on federal funds sold and securities purchased under reverse<br>   repurchase agreements 3 2 78 3
Other interest income 8,613 1,493 27,217 4,524
Total Interest Income 228,522 144,423 645,950 365,320
Interest Expense
Interest on deposits 69,797 5,097 165,104 10,631
Interest on federal funds purchased and securities sold under<br>   repurchase agreements 5,375 1,225 15,072 1,365
Other interest expense 14,713 1,996 49,638 5,199
Total Interest Expense 89,885 8,318 229,814 17,195
Net Interest Income 138,637 136,105 416,136 348,125
Provision for credit losses (PCL), LHFI 8,322 12,919 19,777 14,775
PCL, off-balance sheet credit exposures 104 (1,326 ) (1,893 ) (4,000 )
Net Interest Income After PCL 130,211 124,512 398,252 337,350
Noninterest Income
Service charges on deposit accounts 11,074 11,318 32,105 30,995
Bank card and other fees 8,217 9,305 24,937 27,914
Mortgage banking, net 6,458 6,876 20,697 24,898
Insurance commissions 15,303 13,911 44,372 41,702
Wealth management 8,773 8,778 26,435 26,934
Other, net 2,399 2,418 8,608 7,531
Total Noninterest Income 52,224 52,606 157,154 159,974
Noninterest Expense
Salaries and employee benefits 76,666 72,707 226,662 213,971
Services and fees (1) 27,882 26,787 81,572 77,760
Net occupancy - premises 7,383 7,395 22,120 21,366
Equipment expense 6,816 6,072 19,625 18,180
Litigation settlement expense 6,500 — 6,500 —
Other expense (1) 15,698 13,737 45,011 40,707
Total Noninterest Expense 140,945 126,698 401,490 371,984
Income Before Income Taxes 41,490 50,420 153,916 125,340
Income taxes 7,461 7,965 24,550 19,390
Net Income $ 34,029 $ 42,455 $ 129,366 $ 105,950
Earnings Per Share
Basic $ 0.56 $ 0.69 $ 2.12 $ 1.73
Diluted $ 0.56 $ 0.69 $ 2.11 $ 1.72

(1) During the first quarter of 2023, Trustmark reclassified its debit card transaction fees from other expense to services and fees.

The prior periods have 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,
2023 2022 2023 2022
Net income per consolidated statements of income $ 34,029 $ 42,455 $ 129,366 $ 105,950
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available for sale securities and<br>   transferred securities:
Net unrealized holding gains (losses) arising during the<br>   period (20,223 ) (85,737 ) (11,816 ) (235,887 )
Change in net unrealized holding loss on securities<br>   transferred to held to maturity 3,000 1,350 8,849 (23,588 )
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net<br>   income:
Net change in prior service costs 21 21 62 62
Recognized net loss due to lump sum settlement — — 19 —
Change in net actuarial loss 52 221 162 686
Derivatives:
Change in the accumulated gain (loss) on effective cash<br>   flow hedge derivatives (8,504 ) (14,643 ) (18,427 ) (14,643 )
Reclassification adjustment for (gain) loss realized in <br>   net income 3,470 (482 ) 8,666 (482 )
Other comprehensive income (loss), net of tax (22,184 ) (99,270 ) (12,485 ) (273,852 )
Comprehensive income (loss) $ 11,845 $ (56,815 ) $ 116,881 $ (167,902 )

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
Other
Comprehensive
Capital Retained Income
Amount Surplus Earnings (Loss) Total
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 — — — 50,300 — 50,300
Other comprehensive income (loss), net of tax — — — — 33,022 33,022
Common stock dividends paid    (0.23 per share) — — — (14,158 ) — (14,158 )
Shares withheld to pay taxes, long-term   incentive plan 70,830 15 (1,063 ) — — (1,048 )
Compensation expense, long-term   incentive plan — — 1,715 — — 1,715
Balance, March 31, 2023 61,048,516 12,720 155,297 1,636,463 (242,381 ) 1,562,099
Net income per consolidated statements   of income — — — 45,037 — 45,037
Other comprehensive income (loss), net of tax — — — — (23,323 ) (23,323 )
Common stock dividends paid    (0.23 per share) — — — (14,161 ) — (14,161 )
Shares withheld to pay taxes, long-term   incentive plan 20,520 4 (26 ) — — (22 )
Compensation expense, long-term   incentive plan — — 1,563 — — 1,563
Balance, June 30, 2023 61,069,036 12,724 156,834 1,667,339 (265,704 ) 1,571,193
Net income per consolidated statements   of income — — — 34,029 — 34,029
Other comprehensive income (loss), net of tax — — — — (22,184 ) (22,184 )
Common stock dividends paid (0.23 per share) — — — (14,169 ) — (14,169 )
Shares withheld to pay taxes, long-term   incentive plan 1,059 — (12 ) — — (12 )
Compensation expense, long-term   incentive plan — — 1,494 — — 1,494
Balance, September 30, 2023 61,070,095 $ 12,724 $ 158,316 $ 1,687,199 $ (287,888 ) $ 1,570,351

All values are in US Dollars.

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
Other
Comprehensive
Capital Retained Income
Amount Surplus Earnings (Loss) Total
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 — — — 29,211 — 29,211
Other comprehensive income (loss), net of tax — — — — (116,096 ) (116,096 )
Common stock dividends paid (0.23 per share) — — — (14,186 ) — (14,186 )
Shares withheld to pay taxes, long-term   incentive plan 93,944 19 (1,028 ) — — (1,009 )
Repurchase and retirement of common stock (279,231 ) (58 ) (9,036 ) — — (9,094 )
Compensation expense, long-term   incentive plan — — 1,245 — — 1,245
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

All values are in US Dollars.

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

Nine Months Ended September 30,
2023 2022
Operating Activities
Net income per consolidated statements of income $ 129,366 $ 105,950
Adjustments to reconcile net income to net cash provided by operating activities:
PCL 17,884 10,775
Depreciation and amortization 26,129 30,354
Net amortization of securities 4,590 9,096
Gains on sales of loans, net (10,923 ) (20,674 )
Compensation expense, long-term incentive plan 4,772 3,714
Deferred income tax provision (470 ) 12,000
Proceeds from sales of loans held for sale 903,938 1,046,999
Purchases and originations of loans held for sale (934,136 ) (932,601 )
Originations of mortgage servicing rights (11,025 ) (14,452 )
Earnings on bank-owned life insurance (3,868 ) (3,639 )
Net change in other assets 5,043 (21,585 )
Net change in other liabilities 9,922 63,048
Other operating activities, net (8,520 ) (60,519 )
Net cash from operating activities 132,702 228,466
Investing Activities
Proceeds from maturities, prepayments and calls of securities held to maturity 79,680 98,211
Proceeds from maturities, prepayments and calls of securities available for sale 237,752 358,130
Purchases of securities held to maturity (11,843 ) (600,933 )
Purchases of securities available for sale — (230,527 )
Net proceeds from bank-owned life insurance (27 ) 307
Net change in federal funds sold and securities purchased <br>   under reverse repurchase agreements 4,000 (10,098 )
Net change in member bank stock (3,358 ) (5,467 )
Net change in LHFI and PPP loans (617,614 ) (1,310,309 )
Purchases of premises and equipment (33,105 ) (20,656 )
Proceeds from sales of premises and equipment 1,828 4,926
Proceeds from sales of other real estate 1,744 2,038
Purchases of software (7,544 ) (5,487 )
Investments in tax credit and other partnerships (11,041 ) (20,042 )
Net cash from investing activities (359,528 ) (1,739,907 )
Financing Activities
Net change in deposits 664,275 (661,980 )
Net change in federal funds purchased and securities sold under repurchase agreements (127,532 ) 305,491
Net change in short-term borrowings (250,000 ) 150,000
Payments on long-term FHLB advances (15 ) (14 )
Payments under finance lease obligations (627 ) (1,070 )
Common stock dividends (42,488 ) (42,556 )
Repurchase and retirement of common stock — (24,604 )
Shares withheld to pay taxes, long-term incentive plan (1,082 ) (1,018 )
Net cash from financing activities 242,531 (275,751 )
Net change in cash and cash equivalents 15,705 (1,787,192 )
Cash and cash equivalents at beginning of period 734,787 2,266,829
Cash and cash equivalents at end of period $ 750,492 $ 479,637

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, 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 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, 2023 and December 31, 2022 ($ in thousands):

Securities Available for Sale Securities Held to Maturity
September 30, 2023 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Estimated<br>Fair<br>Value Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Estimated<br>Fair<br>Value
U.S. Treasury securities $ 396,070 $ — $ (32,594 ) $ 363,476 $ 28,872 $ 1 $ (987 ) $ 27,886
U.S. Government agency<br>   obligations 7,309 — (529 ) 6,780 — — — —
Obligations of states and<br>   political subdivisions 4,771 — (129 ) 4,642 341 — — 341
Mortgage-backed securities
Residential mortgage pass-<br>   through securities
Guaranteed by GNMA 27,009 — (4,128 ) 22,881 13,090 — (1,083 ) 12,007
Issued by FNMA and<br>   FHLMC 1,386,253 3 (214,735 ) 1,171,521 474,003 1 (36,482 ) 437,522
Other residential mortgage-<br>   backed securities
Issued or guaranteed by<br>   FNMA, FHLMC or<br>   GNMA 98,610 — (8,208 ) 90,402 162,031 — (14,474 ) 147,557
Commercial mortgage-backed<br>   securities
Issued or guaranteed by<br>   FNMA, FHLMC or<br>   GNMA 108,841 — (2,369 ) 106,472 759,950 1 (72,393 ) 687,558
Total $ 2,028,863 $ 3 $ (262,692 ) $ 1,766,174 $ 1,438,287 $ 3 $ (125,419 ) $ 1,312,871

9

Securities Available for Sale Securities Held to Maturity
December 31, 2022 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Estimated<br>Fair<br>Value Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Estimated<br>Fair<br>Value
U.S. Treasury Securities $ 425,719 $ 308 $ (34,514 ) $ 391,513 $ 28,295 $ — $ (115 ) $ 28,180
U.S. Government agency<br>   obligations 8,297 — (531 ) 7,766 — — — —
Obligations of states and<br>   political subdivisions 4,820 53 (11 ) 4,862 4,510 3 (3 ) 4,510
Mortgage-backed securities
Residential mortgage pass-<br>   through securities
Guaranteed by GNMA 30,534 7 (3,444 ) 27,097 4,442 — (395 ) 4,047
Issued by FNMA and<br>   FHLMC 1,541,570 12 (196,119 ) 1,345,463 509,311 — (19,586 ) 489,725
Other residential mortgage-<br>   backed securities
Issued or guaranteed by<br>   FNMA, FHLMC or<br>   GNMA 123,755 — (8,615 ) 115,140 188,201 — (13,826 ) 174,375
Commercial mortgage-backed<br>   securities
Issued or guaranteed by<br>   FNMA, FHLMC or<br>   GNMA 136,014 — (3,773 ) 132,241 759,755 34 (54,037 ) 705,752
Total $ 2,270,709 $ 380 $ (247,007 ) $ 2,024,082 $ 1,494,514 $ 37 $ (87,962 ) $ 1,406,589

During 2022, Trustmark reclassified a total of $766.0 million of securities available for sale to securities held to maturity. At the date of these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $91.9 million ($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 will 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 these transfers. At September 30, 2023, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled $60.4 million compared to $69.2 million at December 31, 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, 2023 and December 31, 2022, the results of the analysis did not identify any securities that warranted DCF analysis, 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, 2023, accrued interest receivable totaled $3.6 million for securities available for sale compared to $4.0 million at December 31, 2022 and was reported in other assets on the accompanying consolidated balance sheet.

Securities Held to Maturity

At September 30, 2023 and December 31, 2022, the potential for credit loss exposure for Trustmark's securities held to maturity was $341 thousand and $4.5 million, respectively, and 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, 2023 and December 31, 2022.

10

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity. At September 30, 2023, accrued interest receivable totaled $2.6 million for securities held to maturity compared to $2.7 million at December 31, 2022 and was reported in other assets on the accompanying consolidated balance sheet.

At both September 30, 2023 and December 31, 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, 2023 and December 31, 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, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023 December 31, 2022
Aaa $ 1,437,946 $ 1,490,004
Aa1 to Aa3 — 3,001
Not Rated (1) 341 1,509
Total $ 1,438,287 $ 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 segregated by length of impairment at September 30, 2023 and December 31, 2022 ($ in thousands):

Less than 12 Months 12 Months or More Total
September 30, 2023 Estimated<br>Fair Value Gross<br>Unrealized<br>Losses Estimated<br>Fair Value Gross<br>Unrealized<br>Losses Estimated<br>Fair Value Gross<br>Unrealized<br>Losses
U.S. Treasury securities $ 70,893 $ (2,494 ) $ 320,470 $ (31,087 ) $ 391,363 $ (33,581 )
U.S. Government agency obligations — — 6,742 (529 ) 6,742 (529 )
Obligations of states and political subdivisions 4,642 (129 ) — — 4,642 (129 )
Mortgage-backed securities
Residential mortgage pass-through<br>   securities
Guaranteed by GNMA 9,998 (652 ) 24,768 (4,559 ) 34,766 (5,211 )
Issued by FNMA and FHLMC 300,761 (15,670 ) 1,304,006 (235,547 ) 1,604,767 (251,217 )
Other residential mortgage-backed<br>   securities
Issued or guaranteed by FNMA,<br>   FHLMC or GNMA 8,264 (314 ) 229,599 (22,368 ) 237,863 (22,682 )
Commercial mortgage-backed securities
Issued or guaranteed by FNMA,<br>   FHLMC or GNMA 491,986 (44,734 ) 302,044 (30,028 ) 794,030 (74,762 )
Total $ 886,544 $ (63,993 ) $ 2,187,629 $ (324,118 ) $ 3,074,173 $ (388,111 )
December 31, 2022
U.S. Treasury Securities $ 161,298 $ (5,655 ) $ 258,087 $ (28,974 ) $ 419,385 $ (34,629 )
U.S. Government agency obligations 1,828 (184 ) 5,938 (347 ) 7,766 (531 )
Obligations of states and political subdivisions 1,017 (11 ) 3,664 (3 ) 4,681 (14 )
Mortgage-backed securities
Residential mortgage pass-through<br>   securities
Guaranteed by GNMA 27,223 (3,270 ) 3,577 (569 ) 30,800 (3,839 )
Issued by FNMA and FHLMC 770,865 (41,807 ) 1,062,041 (173,898 ) 1,832,906 (215,705 )
Other residential mortgage-backed<br>   securities
Issued or guaranteed by FNMA,<br>   FHLMC or GNMA 281,964 (21,452 ) 7,235 (989 ) 289,199 (22,441 )
Commercial mortgage-backed securities
Issued or guaranteed by FNMA,<br>   FHLMC or GNMA 833,970 (57,742 ) 1,644 (68 ) 835,614 (57,810 )
Total $ 2,078,165 $ (130,121 ) $ 1,342,186 $ (204,848 ) $ 3,420,351 $ (334,969 )

11

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.

Securities Gains and Losses

During the nine months ended September 30, 2023 and 2022, 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 securities gains (losses), net.

Securities Pledged

Securities with a carrying value of $2.389 billion and $2.693 billion at September 30, 2023 and December 31, 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, 2023 and December 31, 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, 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<br>Available for Sale Securities<br>Held to Maturity
Amortized<br>Cost Estimated<br>Fair Value Amortized<br>Cost Estimated<br>Fair Value
Due in one year or less $ 51,084 $ 49,189 $ 341 $ 341
Due after one year through five years 346,269 315,552 28,872 27,886
Due after five years through ten years 6,188 5,794 — —
Due after ten years 4,609 4,363 — —
408,150 374,898 29,213 28,227
Mortgage-backed securities 1,620,713 1,391,276 1,409,074 1,284,644
Total $ 2,028,863 $ 1,766,174 $ 1,438,287 $ 1,312,871

Note 3 – LHFI and ACL, LHFI

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

September 30, 2023 December 31, 2022
Loans secured by real estate:
Construction, land development and other land $ 655,381 $ 690,616
Other secured by 1-4 family residential properties 603,818 590,790
Secured by nonfarm, nonresidential properties 3,569,671 3,278,830
Other real estate secured 1,218,499 742,538
Other loans secured by real estate:
Other construction 953,945 1,028,926
Secured by 1-4 family residential properties 2,289,788 2,185,057
Commercial and industrial loans 1,828,924 1,821,259
Consumer loans 165,556 170,230
State and other political subdivision loans 1,056,569 1,223,863
Other commercial loans 468,108 471,930
LHFI 12,810,259 12,204,039
Less ACL 134,031 120,214
Net LHFI $ 12,676,228 $ 12,083,825

12

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At September 30, 2023 and December 31, 2022, accrued interest receivable for LHFI totaled $64.3 million and $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, 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, 2023 and 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, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023
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 $ — $ 1,190 $ —
Other secured by 1-4 family residential properties 3,801 6,339 727
Secured by nonfarm, nonresidential properties 20,973 24,009 —
Other real estate secured — 111 —
Other loans secured by real estate:
Other construction — 63 —
Secured by 1-4 family residential properties — 34,655 2,558
Commercial and industrial loans 88 10,575 39
Consumer loans — 254 480
Other commercial loans — 13,703 —
Total $ 24,862 $ 90,899 $ 3,804
December 31, 2022
--- --- --- --- --- --- ---
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 $ 137 $ 1,902 $ —
Other secured by 1-4 family residential properties 482 3,957 534
Secured by nonfarm, nonresidential properties 4,841 6,957 —
Other real estate secured — 231 —
Other loans secured by real estate:
Other construction — 7,620 —
Secured by 1-4 family residential properties 1,193 19,775 3,118
Commercial and industrial loans 14,441 25,102 —
Consumer loans — 181 277
Other commercial loans — 247 —
Total $ 21,094 $ 65,972 $ 3,929

13

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

September 30, 2023
Past Due
30-59 Days 60-89 Days 90 Days<br>or More Total Past Due Current<br>Loans Total LHFI
Loans secured by real estate:
Construction, land development and<br>   other land $ 481 $ 241 $ 508 $ 1,230 $ 654,151 $ 655,381
Other secured by 1-4 family residential<br>   properties 6,527 1,460 2,007 9,994 593,824 603,818
Secured by nonfarm, nonresidential<br>   properties 1,120 57 1,155 2,332 3,567,339 3,569,671
Other real estate secured 224 — 42 266 1,218,233 1,218,499
Other loans secured by real estate:
Other construction — — — — 953,945 953,945
Secured by 1-4 family residential properties 17,157 11,471 16,575 45,203 2,244,585 2,289,788
Commercial and industrial loans 5,413 1,156 1,040 7,609 1,821,315 1,828,924
Consumer loans 1,731 688 480 2,899 162,657 165,556
State and other political subdivision loans 110 — — 110 1,056,459 1,056,569
Other commercial loans 1,164 27 — 1,191 466,917 468,108
Total $ 33,927 $ 15,100 $ 21,807 $ 70,834 $ 12,739,425 $ 12,810,259
December 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- ---
Past Due
30-59 Days 60-89 Days 90 Days<br>or More Total Past Due Current<br>Loans Total LHFI
Loans secured by real estate:
Construction, land development and<br>   other land $ 1,972 $ 199 $ 34 $ 2,205 $ 688,411 $ 690,616
Other secured by 1-4 family residential<br>   properties 3,682 1,206 1,281 6,169 584,621 590,790
Secured by nonfarm, nonresidential<br>   properties 825 18 794 1,637 3,277,193 3,278,830
Other real estate secured 131 30 — 161 742,377 742,538
Other loans secured by real estate:
Other construction — — 7,620 7,620 1,021,306 1,028,926
Secured by 1-4 family residential properties 10,709 4,236 9,999 24,944 2,160,113 2,185,057
Commercial and industrial loans 1,966 508 8,974 11,448 1,809,811 1,821,259
Consumer loans 2,199 645 279 3,123 167,107 170,230
State and other political subdivision loans 431 — — 431 1,223,432 1,223,863
Other commercial loans 785 45 24 854 471,076 471,930
Total $ 22,700 $ 6,887 $ 29,005 $ 58,592 $ 12,145,447 $ 12,204,039

Modified LHFI

Occasionally, Trustmark modifies loans for borrowers experiencing financial difficulties by providing payment concessions, interest-only payments for an extended period of time, maturity extensions or interest rate reductions. Other concessions may arise from court proceedings or may be imposed by law. In some cases, Trustmark provides multiple types of concessions on one loan.

14

The following tables present the amortized cost of LHFI at the end of each of the periods presented of loans modified to borrowers experiencing financial difficulty disaggregated by class of loan and type of modification ($ 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, 2023
Payment Concession Term Extension Total % of Total Class of Loan
Loans secured by real estate:
Other secured by 1-4 family residential properties $ — $ 96 $ 96 0.02 %
Other loans secured by real estate:
Secured by 1-4 family residential properties — 346 346 0.02 %
Total $ — $ 442 $ 442 0.00 %
Nine Months Ended September 30, 2023
--- --- --- --- --- --- --- --- --- ---
Payment Concession Term Extension Total % of Total Class of Loan
Loans secured by real estate:
Other secured by 1-4 family residential properties $ — $ 494 $ 494 0.08 %
Secured by nonfarm, nonresidential properties — 370 370 0.01 %
Other loans secured by real estate:
Secured by 1-4 family residential properties — 912 912 0.04 %
Commercial and industrial loans 255 — 255 0.01 %
Consumer loans — 40 40 0.02 %
Other commercial loans 116 31 147 0.03 %
Total $ 371 $ 1,847 $ 2,218 0.02 %

The following tables detail the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the periods presented:

Three Months Ended September 30, 2023
Financial Effect
Payment Concessions Term Extension
Loans secured by real estate:
Other secured by 1-4 family residential properties Modified lines of credit to amortize over 12 month and 24 month terms
Other loans secured by real estate:
Secured by 1-4 family residential properties Extended amortization on loans with term adjusted by weighted-average 10.6 years
Nine Months Ended September 30, 2023
--- --- ---
Financial Effect
Payment Concessions Term Extension
Loans secured by real estate:
Other secured by 1-4 family residential properties Modifed lines of credit to amortize over 12 month and 24 month terms
Secured by nonfarm, nonresidential properties One loan renewed and extended maturity by six months
Other loans secured by real estate:
Secured by 1-4 family residential properties Extended amortization with term adjusted by weighted-average 3.2 years
Commercial and industrial loans Six month payment deferrals
Consumer loans Bankruptcies extended amortization with term adjusted by weighted average 1.3 years reducing borrower payment
Other commercial loans Six month payment deferral One loan renewed and extended maturity by seven months

15

Trustmark had no unused commitments on modified loans to borrowers experiencing financial difficulty at September 30, 2023.

During the nine months ended September 30, 2023, Trustmark had term extension balances of $108 thousand at default for LHFI in the loans secured by 1-4 family residential properties portfolio that had a payment default and were modified within the twelve months prior to that default to borrowers experiencing financial difficulty.

Trustmark has utilized loans 90 days or more past due to define payment default in determining 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 provide details of the performance of such LHFI that have been modified during the periods presented ($ in thousands):

Three Months Ended September 30, 2023
Past Due
30-59 Days 60-89 Days 90 Days<br>or More Total Past Due Current<br>Loans Total
Loans secured by real estate:
Other secured by 1-4 family residential<br>   properties $ — $ — $ — $ — $ 96 $ 96
Other loans secured by real estate:
Secured by 1-4 family residential properties — — — — 346 346
Total $ — $ — $ — $ — $ 442 $ 442
Nine Months Ended September 30, 2023
--- --- --- --- --- --- --- --- --- --- --- --- ---
Past Due
30-59 Days 60-89 Days 90 Days<br>or More Total Past Due Current<br>Loans Total
Loans secured by real estate:
Other secured by 1-4 family residential<br>   properties $ 272 $ — $ — $ 272 $ 222 $ 494
Secured by nonfarm, nonresidential<br>   properties — — — — 370 370
Other loans secured by real estate:
Secured by 1-4 family residential properties 170 — — 170 742 912
Commercial and industrial loans — — — — 255 255
Consumer loans 20 — — 20 20 40
Other commercial loans — — — — 147 147
Total $ 462 $ — $ — $ 462 $ 1,756 $ 2,218

16

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, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023
Real Estate Inventory and Receivables Vehicles Miscellaneous Total
Loans secured by real estate:
Other secured by 1-4 family<br>   residential properties $ 980 $ — $ — $ — $ 980
Secured by nonfarm, nonresidential<br>   properties 20,973 — — — 20,973
Other loans secured by real estate:
Secured by 1-4 family residential<br>   properties 2,822 — — — 2,822
Commercial and industrial loans 38 355 367 8,472 9,232
Other commercial loans — — — 13,371 13,371
Total $ 24,813 $ 355 $ 367 $ 21,843 $ 47,378
December 31, 2022
--- --- --- --- --- --- --- --- --- --- ---
Real Estate Inventory and Receivables Vehicles Miscellaneous Total
Loans secured by real estate:
Construction, land development and<br>   other land $ 1,558 $ — $ — $ — $ 1,558
Other secured by 1-4 family<br>   residential properties 482 — — — 482
Secured by nonfarm, nonresidential<br>   properties 4,841 — — — 4,841
Other loans secured by real estate:
Other construction 7,620 — — — 7,620
Secured by 1-4 family residential<br>   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. One credit relationship experienced a decline in fair value due to general deterioration during the quarter to the collateral that secures the relationship. There have been no other 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 due to general deterioration during the quarter to the assets that secure the relationship. There have been no other significant changes to the collateral that secures these financial assets during the period.

17

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 homogeneous 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.

18

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 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 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 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.

19

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, 2023 and December 31, 2022 ($ in thousands):

Term Loans by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Loans Total
As of September 30, 2023 Commercial LHFI
Loans secured by real estate:
Construction, land<br>   development and other<br>   land:
Pass - RR 1 through RR 6 $ 293,087 $ 138,233 $ 51,342 $ 16,250 $ 2,219 $ 2,166 $ 58,294 $ 561,591
Special Mention - RR 7 — — — — — — — —
Substandard - RR 8 338 592 — 20 — 23 — 973
Doubtful - RR 9 — — — — — 42 — 42
Total 293,425 138,825 51,342 16,270 2,219 2,231 58,294 562,606
Current period gross<br>   charge-offs — 4 10 — 228 — — 242
Other secured by 1-4 family<br>   residential properties:
Pass - RR 1 through RR 6 $ 28,114 $ 32,346 $ 27,894 $ 14,821 $ 8,273 $ 4,298 $ 9,176 $ 124,922
Special Mention - RR 7 — 28 53 12 — — — 93
Substandard - RR 8 704 681 29 61 82 238 99 1,894
Doubtful - RR 9 — 9 — — — — — 9
Total 28,818 33,064 27,976 14,894 8,355 4,536 9,275 126,918
Current period gross<br>   charge-offs — — 23 — — — — 23
Secured by nonfarm,<br>   nonresidential properties:
Pass - RR 1 through RR 6 $ 441,919 $ 880,761 $ 599,643 $ 626,109 $ 387,867 $ 387,001 $ 129,632 $ 3,452,932
Special Mention - RR 7 13,235 14,930 25,000 1,147 — — — 54,312
Substandard - RR 8 10,123 1,712 21,914 10,112 8,661 9,748 50 62,320
Doubtful - RR 9 24 — — — 60 14 — 98
Total 465,301 897,403 646,557 637,368 396,588 396,763 129,682 3,569,662
Current period gross<br>   charge-offs — 39 82 — 19 138 — 278
Other real estate secured:
Pass - RR 1 through RR 6 $ 102,678 $ 353,814 $ 361,897 $ 268,866 $ 56,340 $ 11,711 $ 11,631 $ 1,166,937
Special Mention - RR 7 126 14,867 — — 35,911 — — 50,904
Substandard - RR 8 — 131 — 294 — 47 — 472
Doubtful - RR 9 42 — — — — — — 42
Total 102,846 368,812 361,897 269,160 92,251 11,758 11,631 1,218,355
Current period gross<br>   charge-offs — — — — — — — —

20

Term Loans by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Loans Total
As of September 30, 2023 Commercial LHFI
Other loans secured by real<br>   estate:
Other construction:
Pass - RR 1 through RR 6 $ 175,054 $ 529,544 $ 180,594 $ 68,641 $ — $ — $ 49 $ 953,882
Special Mention - RR 7 — — — — — — — —
Substandard - RR 8 63 — — — — — — 63
Doubtful - RR 9 — — — — — — — —
Total 175,117 529,544 180,594 68,641 — — 49 953,945
Current period gross<br>   charge-offs 61 3,392 — — — — — 3,453
Commercial and industrial<br>   loans:
Pass - RR 1 through RR 6 $ 410,007 $ 529,180 $ 181,582 $ 74,467 $ 34,800 $ 46,348 $ 489,700 $ 1,766,084
Special Mention - RR 7 — 7,048 128 7 — — 1,963 9,146
Substandard - RR 8 5,842 4,862 8,265 12,055 154 88 22,238 53,504
Doubtful - RR 9 3 84 38 — — 63 2 190
Total 415,852 541,174 190,013 86,529 34,954 46,499 513,903 1,828,924
Current period gross<br>   charge-offs 28 536 651 138 94 108 7 1,562
State and other political<br>   subdivision loans:
Pass - RR 1 through RR 6 $ 74,824 $ 261,922 $ 182,951 $ 106,513 $ 34,148 $ 390,838 $ 5,373 $ 1,056,569
Special Mention - RR 7 — — — — — — — —
Substandard - RR 8 — — — — — — — —
Doubtful - RR 9 — — — — — — — —
Total 74,824 261,922 182,951 106,513 34,148 390,838 5,373 1,056,569
Current period gross<br>   charge-offs — — — — — — — —
Other commercial loans:
Pass - RR 1 through RR 6 $ 142,805 $ 35,989 $ 28,920 $ 22,720 $ 33,492 $ 9,638 $ 179,719 $ 453,283
Special Mention - RR 7 — — — — — — 20 20
Substandard - RR 8 106 3,401 48 — — 1,050 10,108 14,713
Doubtful - RR 9 92 — — — — — — 92
Total 143,003 39,390 28,968 22,720 33,492 10,688 189,847 468,108
Current period gross<br>   charge-offs — 6 — 26 — — — 32
Total commercial<br>   LHFI $ 1,699,186 $ 2,810,134 $ 1,670,298 $ 1,222,095 $ 602,007 $ 863,313 $ 918,054 $ 9,785,087
Total commercial LHFI<br>   gross charge-offs $ 89 $ 3,977 $ 766 $ 164 $ 341 $ 246 $ 7 $ 5,590

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Term Loans by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Loans Total
As of September 30, 2023 Consumer LHFI
Loans secured by real estate:
Construction, land<br>   development and other<br>   land:
Current $ 37,611 $ 42,200 $ 7,116 $ 1,754 $ 1,176 $ 2,185 $ 166 $ 92,208
Past due 30-89 days — 313 — — 33 17 — 363
Past due 90 days or more — — — — — — — —
Nonaccrual — — 200 — — 4 — 204
Total 37,611 42,513 7,316 1,754 1,209 2,206 166 92,775
Current period gross<br>   charge-offs — — — — — — — —
Other secured by 1-4 family<br>   residential properties:
Current $ 20,453 $ 13,762 $ 5,905 $ 4,603 $ 4,438 $ 8,965 $ 406,021 $ 464,147
Past due 30-89 days 6 41 58 10 44 522 5,880 6,561
Past due 90 days or more — 6 — — — 67 654 727
Nonaccrual 59 128 60 10 435 482 4,291 5,465
Total 20,518 13,937 6,023 4,623 4,917 10,036 416,846 476,900
Current period gross<br>   charge-offs — 94 5 — 10 17 81 207
Secured by nonfarm,<br>   nonresidential properties:
Current $ — $ — $ 9 $ — $ — $ — $ — $ 9
Past due 30-89 days — — — — — — — —
Past due 90 days or more — — — — — — — —
Nonaccrual — — — — — — — —
Total — — 9 — — — — 9
Current period gross<br>   charge-offs — — — — — — — —
Other real estate secured:
Current $ — $ — $ — $ 81 $ — $ 63 $ — $ 144
Past due 30-89 days — — — — — — — —
Past due 90 days or more — — — — — — — —
Nonaccrual — — — — — — — —
Total — — — 81 — 63 — 144
Current period gross<br>   charge-offs — — — — — — — —

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Term Loans by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Loans Total
As of September 30, 2023 Consumer LHFI
Other loans secured by real<br>   estate:
Secured by 1-4 family<br>   residential properties
Current $ 242,667 $ 886,235 $ 529,310 $ 183,816 $ 101,283 $ 284,715 $ — $ 2,228,026
Past due 30-89 days 1,458 12,375 6,151 2,270 297 1,996 — 24,547
Past due 90 days or more 246 1,169 938 139 — 65 — 2,557
Nonaccrual 158 9,876 9,480 4,398 2,196 8,550 — 34,658
Total 244,529 909,655 545,879 190,623 103,776 295,326 — 2,289,788
Current period gross<br>   charge-offs 1 562 156 92 — 92 — 903
Consumer loans:
Current $ 50,059 $ 39,900 $ 13,199 $ 3,511 $ 1,217 $ 471 $ 54,101 $ 162,458
Past due 30-89 days 683 394 156 1 13 8 1,109 2,364
Past due 90 days or more 29 39 1 2 — — 409 480
Nonaccrual — 113 90 16 — — 35 254
Total 50,771 40,446 13,446 3,530 1,230 479 55,654 165,556
Current period gross<br>   charge-offs 4,389 434 146 41 1 1 1,553 6,565
Total consumer LHFI $ 353,429 $ 1,006,551 $ 572,673 $ 200,611 $ 111,132 $ 308,110 $ 472,666 $ 3,025,172
Total consumer LHFI<br>   gross charge-offs $ 4,390 $ 1,090 $ 307 $ 133 $ 11 $ 110 $ 1,634 $ 7,675
Total LHFI $ 2,052,615 $ 3,816,685 $ 2,242,971 $ 1,422,706 $ 713,139 $ 1,171,423 $ 1,390,720 $ 12,810,259
Total current period<br>   gross charge-offs $ 4,479 $ 5,067 $ 1,073 $ 297 $ 352 $ 356 $ 1,641 $ 13,265
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<br>   development and other<br>   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<br>   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,<br>   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

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Term Loans by Origination Year
2022 2021 2020 2019 2018 Prior Revolving Loans Total
As of December 31, 2022 Commercial LHFI
Other loans secured by real<br>   estate:
Other construction
Pass - RR 1 through RR 6 $ 372,981 $ 306,904 $ 340,388 $ 833 $ — $ — $ 200 $ 1,021,306
Special Mention - RR 7 — — — — — — — —
Substandard - RR 8 — 7,620 — — — — — 7,620
Doubtful - RR 9 — — — — — — — —
Total 372,981 314,524 340,388 833 — — 200 1,028,926
Commercial and industrial<br>   loans:
Pass - RR 1 through RR 6 $ 673,848 $ 261,962 $ 120,123 $ 44,994 $ 14,265 $ 69,078 $ 577,749 $ 1,762,019
Special Mention - RR 7 — — 12,421 — — — 6,454 18,875
Substandard - RR 8 6,973 9,845 2,170 312 74 — 20,625 39,999
Doubtful - RR 9 240 53 10 4 35 — 24 366
Total 681,061 271,860 134,724 45,310 14,374 69,078 604,852 1,821,259
State and other political<br>   subdivision loans:
Pass - RR 1 through RR 6 $ 393,345 $ 223,302 $ 123,350 $ 39,031 $ 18,876 $ 421,588 $ 1,671 $ 1,221,163
Special Mention - RR 7 — — — — — 2,700 — 2,700
Substandard - RR 8 — — — — — — — —
Doubtful - RR 9 — — — — — — — —
Total 393,345 223,302 123,350 39,031 18,876 424,288 1,671 1,223,863
Other commercial loans:
Pass - RR 1 through RR 6 $ 88,763 $ 40,006 $ 28,239 $ 37,607 $ 6,424 $ 10,829 $ 244,882 $ 456,750
Special Mention - RR 7 879 — — — — — — 879
Substandard - RR 8 3,728 98 — — 16 1,134 9,301 14,277
Doubtful - RR 9 24 — — — — — — 24
Total 93,394 40,104 28,239 37,607 6,440 11,963 254,183 471,930
Total commercial<br>   LHFI $ 3,152,466 $ 1,817,851 $ 1,430,035 $ 703,273 $ 265,157 $ 828,918 $ 1,081,499 $ 9,279,199

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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<br>   development and other<br>   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<br>   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,<br>   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<br>   estate:
Secured by 1-4 family<br>   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

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Past Due LHFS

LHFS past due 90 days or more totaled $42.5 million and $49.3 million at September 30, 2023 and December 31, 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 months of 2023 or 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 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 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 score 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.

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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<br>   development and other land 1-4 family residential<br>   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<br>   family residential<br>   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,<br>   nonresidential properties Nonowner-occupied -<br>   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<br>   living/nursing homes DCF Southern Vacancy Rate, Southern Unemployment
Nonowner-occupied -<br>   all other DCF Southern Vacancy Rate, Southern Unemployment
Nonresidential owner-occupied DCF Southern Unemployment, National GDP
Other real estate secured Nonresidential nonowner<br>   -occupied - apartments DCF Southern Vacancy Rate, Southern Unemployment
Nonresidential owner-occupied DCF Southern Unemployment, National GDP
Nonowner-occupied -<br>   all other DCF Southern Vacancy Rate, Southern Unemployment
Other loans secured by<br>   real estate Other construction Other construction DCF Prime Rate, National Unemployment
Secured by 1-4 family<br>   residential properties Trustmark mortgage WARM Southern Unemployment
Commercial and<br>   industrial loans Commercial and<br>   industrial loans Commercial and industrial -<br>   non-working capital DCF Trustmark historical data
Commercial and industrial -<br>   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<br>   subdivision loans State and other political<br>   subdivision loans Obligations of state and<br>   political subdivisions DCF Moody's Bond Default Study
Other commercial loans Other commercial loans Other loans DCF Prime Rate, Southern Unemployment
Commercial and industrial -<br>   non-working capital DCF Trustmark historical data
Commercial and industrial -<br>   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

27

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 consumer loans and other 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 macroeconomic levels experienced during the COVID-19 pandemic, 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

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• 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 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.

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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, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023
ACL LHFI
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<br>   other land $ — $ 17,241 $ 17,241 $ — 655,381 $ 655,381
Other secured by 1-4 family residential<br>   properties — 12,563 12,563 980 602,838 603,818
Secured by nonfarm, nonresidential<br>   properties — 23,298 23,298 20,973 3,548,698 3,569,671
Other real estate secured — 3,565 3,565 — 1,218,499 1,218,499
Other loans secured by real estate:
Other construction — 6,306 6,306 — 953,945 953,945
Secured by 1-4 family residential<br>   properties — 30,144 30,144 2,822 2,286,966 2,289,788
Commercial and industrial loans 9,118 14,637 23,755 9,232 1,819,692 1,828,924
Consumer loans — 5,804 5,804 — 165,556 165,556
State and other political subdivision loans — 665 665 — 1,056,569 1,056,569
Other commercial loans 5,837 4,853 10,690 13,371 454,737 468,108
Total $ 14,955 $ 119,076 $ 134,031 $ 47,378 $ 12,762,881 $ 12,810,259
December 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- ---
ACL LHFI
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<br>   other land $ 121 $ 12,707 $ 12,828 $ 1,558 $ 689,058 $ 690,616
Other secured by 1-4 family residential<br>   properties — 12,374 12,374 482 590,308 590,790
Secured by nonfarm, nonresidential<br>   properties — 19,488 19,488 4,841 3,273,989 3,278,830
Other real estate secured — 4,743 4,743 — 742,538 742,538
Other loans secured by real estate:
Other construction 7,620 7,512 15,132 7,620 1,021,306 1,028,926
Secured by 1-4 family residential<br>   properties — 21,185 21,185 1,193 2,183,864 2,185,057
Commercial and industrial loans 9,946 13,194 23,140 24,594 1,796,665 1,821,259
Consumer loans — 5,792 5,792 — 170,230 170,230
State and other political subdivision loans — 885 885 — 1,223,863 1,223,863
Other commercial loans — 4,647 4,647 — 471,930 471,930
Total $ 17,687 $ 102,527 $ 120,214 $ 40,288 $ 12,163,751 $ 12,204,039

30

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

Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Balance at beginning of period $ 129,298 $ 103,140 $ 120,214 $ 99,457
Loans charged-off (7,496 ) (2,920 ) (13,265 ) (7,439 )
Recoveries 3,907 1,911 7,305 8,257
Net (charge-offs) recoveries (3,589 ) (1,009 ) (5,960 ) 818
PCL, LHFI 8,322 12,919 19,777 14,775
Balance at end of period $ 134,031 $ 115,050 $ 134,031 $ 115,050

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

Three Months Ended September 30, 2023
Balance at Beginning of Period Charge-offs Recoveries PCL Balance at <br>End of <br>Period
Loans secured by real estate:
Construction, land development and other land $ 15,343 $ (228 ) $ 22 $ 2,104 $ 17,241
Other secured by 1-4 family residential properties 12,173 (110 ) 43 457 12,563
Secured by nonfarm, nonresidential properties 20,376 (192 ) 2,216 898 23,298
Other real estate secured 3,481 — — 84 3,565
Other loans secured by real estate:
Other construction 14,377 (3,453 ) 15 (4,633 ) 6,306
Secured by 1-4 family residential properties 28,555 (448 ) 7 2,030 30,144
Commercial and industrial loans 23,170 (635 ) 267 953 23,755
Consumer loans 5,540 (2,421 ) 1,337 1,348 5,804
State and other political subdivision loans 676 — — (11 ) 665
Other commercial loans 5,607 (9 ) — 5,092 10,690
Total $ 129,298 $ (7,496 ) $ 3,907 $ 8,322 $ 134,031

The increases in the PCL, LHFI for the three months ended September 30, 2023 were primarily attributable to an individually evaluated and reserved for nonaccrual loan, loan growth, the weakening macroeconomic forecasts and the net adjustment to the qualitative factors.

The PCL, LHFI for the other construction portfolio decreased $4.6 million during the three months ended September 30, 2023 primarily due to the transfer of a fully-reserved nonaccrual loan to other real estate, net.

Three Months Ended September 30, 2022
Balance at Beginning of Period Charge-offs Recoveries PCL Balance at <br>End of <br>Period
Loans secured by real estate:
Construction, land development and other land $ 7,301 $ (189 ) $ 43 $ 3,096 $ 10,251
Other secured by 1-4 family residential properties 10,038 (33 ) 234 500 10,739
Secured by nonfarm, nonresidential properties 29,735 — 35 (3,846 ) 25,924
Other real estate secured 3,297 — 4 97 3,398
Other loans secured by real estate:
Other construction 14,397 (153 ) 1 (326 ) 13,919
Secured by 1-4 family residential properties 12,250 (37 ) 125 3,057 15,395
Commercial and industrial loans 14,103 (191 ) 111 10,081 24,104
Consumer loans 5,139 (458 ) 425 (78 ) 5,028
State and other political subdivision loans 1,917 — — (323 ) 1,594
Other commercial loans 4,963 (1,859 ) 933 661 4,698
Total $ 103,140 $ (2,920 ) $ 1,911 $ 12,919 $ 115,050

The increases in the PCL, LHFI for the three months ended September 30, 2022 were primarily due to a less positive outlook in the macroeconomic forecasting, an increase in loan growth and specific reserves for individually analyzed loans.

The PCL, LHFI for the secured by nonfarm, nonresidential properties portfolio decreased $3.8 million during the three months ended September 30, 2022 primarily due to reductions in the pandemic qualitative factor.

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Nine Months Ended September 30, 2023
Balance at Beginning of Period Charge-offs Recoveries PCL Balance at <br>End of <br>Period
Loans secured by real estate:
Construction, land development and other land $ 12,828 $ (242 ) $ 94 $ 4,561 $ 17,241
Other secured by 1-4 family residential properties 12,374 (230 ) 165 254 12,563
Secured by nonfarm, nonresidential properties 19,488 (278 ) 2,322 1,766 23,298
Other real estate secured 4,743 — 5 (1,183 ) 3,565
Other loans secured by real estate:
Other construction 15,132 (3,453 ) 63 (5,436 ) 6,306
Secured by 1-4 family residential properties 21,185 (903 ) 27 9,835 30,144
Commercial and industrial loans 23,140 (1,562 ) 754 1,423 23,755
Consumer loans 5,792 (6,565 ) 3,875 2,702 5,804
State and other political subdivision loans 885 — — (220 ) 665
Other commercial loans 4,647 (32 ) — 6,075 10,690
Total $ 120,214 $ (13,265 ) $ 7,305 $ 19,777 $ 134,031

The increases in the PCL, LHFI for the nine months ended September 30, 2023 were primarily attributable to loan growth, extended maturities on the secured by 1-4 family residential properties resulting from lower prepayment speeds, the weakening macroeconomic forecast and net adjustments to the qualitative factors.

The PCL, LHFI for the other construction portfolio decreased $5.4 million during the nine months ended September 30, 2023 primarily due to the transfer of a fully-reserved nonaccrual loan to other real estate, net. The PCL, LHFI for the other real estate secured portfolio decreased $1.2 million during the nine months ended September 30, 2023 primarily due to reductions in the pandemic qualitative factor.

Nine Months Ended September 30, 2022
Balance at Beginning of Period Charge-offs Recoveries PCL Balance at <br>End of <br>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 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.

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,
2023 2022
Balance at beginning of period $ 129,677 $ 87,687
Origination of servicing assets 11,025 14,452
Change in fair value:
Due to market changes 8,735 41,529
Due to run-off (7,058 ) (11,053 )
Balance at end of period $ 142,379 $ 132,615

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, 2023, the fair value of the MSR included an assumed average prepayment speed of 8 CPR and an average discount rate of 10.07% compared to an assumed average prepayment speed of 8 CPR and an average discount rate of 9.58% at September 30, 2022.

Mortgage Loans Serviced/Sold

During the first nine months of 2023 and 2022, Trustmark sold $893.0 million and $1.026 billion, respectively, of residential mortgage loans. Gains on these sales were recorded as noninterest income in mortgage banking, net and totaled $11.4 million for the first nine months of 2023 compared to $16.9 million for the first nine months of 2022.

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

September 30, 2023 December 31, 2022
Federal National Mortgage Association $ 4,802,861 $ 4,684,815
Government National Mortgage Association 3,478,965 3,350,222
Federal Home Loan Mortgage Corporation 90,119 52,023
Other 31,440 28,764
Total mortgage loans sold and serviced for others $ 8,403,385 $ 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, 2023 and 2022, Trustmark had a reserve for mortgage loan servicing putback expenses of $500 thousand.

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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, 2023, Trustmark’s geographic other real estate distribution was primarily concentrated in its Texas and Mississippi market regions. 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,
2023 2022
Balance at beginning of period $ 1,986 $ 4,557
Additions 5,434 1,430
Disposals (1,903 ) (2,503 )
(Write-downs) recoveries (32 ) (513 )
Balance at end of period $ 5,485 $ 2,971
Gains (losses), net on the sale of other real estate included in<br>   other real estate expense $ (159 ) $ (465 )

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

September 30, 2023 December 31, 2022
1-4 family residential properties $ 902 $ 1,128
Nonfarm, nonresidential properties 4,528 561
Other real estate properties 55 297
Total other real estate $ 5,485 $ 1,986

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

September 30, 2023 December 31, 2022
Alabama $ 315 $ 194
Mississippi (1) 942 1,769
Tennessee (2) — 23
Texas 4,228 —
Total other real estate $ 5,485 $ 1,986

(1)

Mississippi includes Central and Southern Mississippi Regions.

(2)

Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

At September 30, 2023, the balance of other real estate included $902 thousand of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property compared to $1.1 million at December 31, 2022. At September 30, 2023 and December 31, 2022, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $6.0 million and $2.9 million, respectively.

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,
2023 2022 2023 2022
Finance leases:
Amortization of right-of-use assets $ 113 $ 356 $ 673 $ 1,122
Interest on lease liabilities 41 46 124 143
Operating lease cost 1,372 1,309 3,976 3,877
Short-term lease cost 62 98 218 328
Variable lease cost 208 257 690 891
Sublease income (3 ) (4 ) (9 ) (166 )
Net lease cost $ 1,793 $ 2,062 $ 5,672 $ 6,195

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,
2023 2022
Finance leases:
Operating cash flows included in operating activities $ 124 $ 143
Financing cash flows included in payments under finance lease obligations 627 1,070
Operating leases:
Operating cash flows (fixed payments) included in other operating activities, net 3,430 4,389
Operating cash flows (liability reduction) included in other operating activities, net 2,771 3,075

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

September 30, 2023 December 31, 2022
Finance lease right-of-use assets, net of accumulated depreciation $ 3,864 $ 4,537
Finance lease liabilities 4,427 5,055
Operating lease right-of-use assets 39,639 36,301
Operating lease liabilities 42,730 38,932
Weighted-average lease term:
Finance leases 8.60 years 8.72 years
Operating leases 10.15 years 9.64 years
Weighted-average discount rate:
Finance leases 3.61 % 3.49 %
Operating leases 3.63 % 3.22 %

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

Finance Leases Operating Leases
2023 (excluding the nine months ended September 30, 2023) $ 133 $ 843
2024 572 5,394
2025 584 5,425
2026 589 5,176
2027 594 4,971
Thereafter 2,685 30,194
Total minimum lease payments 5,157 52,003
Less imputed interest (730 ) (9,273 )
Lease liabilities $ 4,427 $ 42,730

Note 7 – Deposits

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

September 30, 2023 December 31, 2022
Noninterest-bearing demand $ 3,320,124 $ 4,093,771
Interest-bearing demand 4,835,577 4,773,219
Savings 3,547,547 4,282,435
Time 3,398,675 1,288,223
Total $ 15,101,923 $ 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 $61.0 million and $102.4 million at September 30, 2023 and December 31, 2022, respectively. Trustmark’s repurchase agreements are transacted under master repurchase agreements that give Trustmark, in the event of default by the counterparty, the right of offset with the same counterparty. At both September 30, 2023 and December 31, 2022, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at September 30, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023 December 31, 2022
Mortgage-backed securities
Residential mortgage pass-through securities
Issued by FNMA and FHLMC $ 42,108 $ 41,732
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA 1,294 1,111
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA — 21,277
Total securities sold under repurchase agreements $ 43,402 $ 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, net. Other real estate sales for the three months ended September 30, 2023 result in a net loss of $47 thousand compared to a net loss of $11 thousand for the three months ended September 30, 2022. Other real estate sales for the nine months ended September 30, 2023 resulted in a net loss of $159 thousand compared to a net loss of $465 thousand for the nine months ended September 30, 2022.

36

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

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
Topic 606 Not Topic <br>606 (1) Total Topic 606 Not Topic <br>606 (1) Total
General Banking Segment
Service charges on deposit accounts $ 11,052 $ — $ 11,052 $ 11,296 $ — $ 11,296
Bank card and other fees 7,332 873 8,205 7,644 1,648 9,292
Mortgage banking, net — 6,458 6,458 — 6,876 6,876
Wealth management 202 — 202 263 — 263
Other, net 2,843 (579 ) 2,264 1,724 239 1,963
Total noninterest income $ 21,429 $ 6,752 $ 28,181 $ 20,927 $ 8,763 $ 29,690
Wealth Management Segment
Service charges on deposit accounts $ 22 $ — $ 22 $ 22 $ — $ 22
Bank card and other fees 12 — 12 13 — 13
Wealth management 8,571 — 8,571 8,515 — 8,515
Other, net 41 94 135 447 10 457
Total noninterest income $ 8,646 $ 94 $ 8,740 $ 8,997 $ 10 $ 9,007
Insurance Segment
Insurance commissions $ 15,303 $ — $ 15,303 $ 13,911 $ — $ 13,911
Other, net — — — (2 ) — (2 )
Total noninterest income $ 15,303 $ — $ 15,303 $ 13,909 $ — $ 13,909
Consolidated
Service charges on deposit accounts $ 11,074 $ — $ 11,074 $ 11,318 $ — $ 11,318
Bank card and other fees 7,344 873 8,217 7,657 1,648 9,305
Mortgage banking, net — 6,458 6,458 — 6,876 6,876
Insurance commissions 15,303 — 15,303 13,911 — 13,911
Wealth management 8,773 — 8,773 8,778 — 8,778
Other, net 2,884 (485 ) 2,399 2,169 249 2,418
Total noninterest income $ 45,378 $ 6,846 $ 52,224 $ 43,833 $ 8,773 $ 52,606

(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.

37

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
Topic 606 Not Topic <br>606 (1) Total Topic 606 Not Topic <br>606 (1) Total
General Banking Segment
Service charges on deposit accounts $ 32,040 $ — $ 32,040 $ 30,932 $ — $ 30,932
Bank card and other fees 23,011 1,890 24,901 23,726 4,153 27,879
Mortgage banking, net — 20,697 20,697 — 24,898 24,898
Wealth management 650 — 650 468 — 468
Other, net 8,763 (1,516 ) 7,247 6,097 896 6,993
Total noninterest income $ 64,464 $ 21,071 $ 85,535 $ 61,223 $ 29,947 $ 91,170
Wealth Management Segment
Service charges on deposit accounts $ 65 $ — $ 65 $ 63 $ — $ 63
Bank card and other fees 36 — 36 35 — 35
Wealth management 25,785 — 25,785 26,466 — 26,466
Other, net 122 285 407 512 29 541
Total noninterest income $ 26,008 $ 285 $ 26,293 $ 27,076 $ 29 $ 27,105
Insurance Segment
Insurance commissions $ 44,372 $ — $ 44,372 $ 41,702 $ — $ 41,702
Other, net 954 — 954 (3 ) — (3 )
Total noninterest income $ 45,326 $ — $ 45,326 $ 41,699 $ — $ 41,699
Consolidated
Service charges on deposit accounts $ 32,105 $ — $ 32,105 $ 30,995 $ — $ 30,995
Bank card and other fees 23,047 1,890 24,937 23,761 4,153 27,914
Mortgage banking, net — 20,697 20,697 — 24,898 24,898
Insurance commissions 44,372 — 44,372 41,702 — 41,702
Wealth management 26,435 — 26,435 26,934 — 26,934
Other, net 9,839 (1,231 ) 8,608 6,606 925 7,531
Total noninterest income $ 135,798 $ 21,356 $ 157,154 $ 129,998 $ 29,976 $ 159,974

(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.

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,
2023 2022 2023 2022
Service cost $ 13 $ 28 $ 39 $ 86
Interest cost 73 48 219 144
Expected return on plan assets (27 ) (30 ) (80 ) (90 )
Recognized net loss due to lump sum settlements — — 25 —
Recognized net actuarial loss — 52 — 172
Net periodic benefit cost $ 59 $ 98 $ 203 $ 312

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For the plan year ending December 31, 2023, Trustmark’s minimum required contribution to the Continuing Plan is $159 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 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,
2023 2022 2023 2022
Service cost $ 17 $ 18 $ 51 $ 54
Interest cost 497 316 1,515 962
Amortization of prior service cost 28 28 83 83
Recognized net actuarial loss 70 243 216 742
Net periodic benefit cost $ 612 $ 605 $ 1,865 $ 1,841

Note 11 – Stock and Incentive Compensation

Trustmark has granted restricted stock units subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of restricted stock 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.

Restricted Stock Grants

Performance Units

Trustmark’s performance units vest over three years and are granted to Trustmark’s executive and senior management teams. Performance units granted vest based on performance goals of return on average tangible equity and total shareholder return. Performance units are valued utilizing a Monte Carlo simulation model to estimate fair value of the 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 units are recognized using the straight-line method over the requisite service period. These units provide for achievement units if performance measures exceed 100%. The restricted stock agreement for these units provide for dividend privileges, but no voting rights.

Time-Based Units

Trustmark’s time-based units granted to Trustmark’s executive and senior management teams vest over three years. Trustmark’s time-based units granted to members of Trustmark’s Board of Directors vest over one year. Time-based units are valued utilizing the fair value of Trustmark’s stock at the grant date. These units are recognized on the straight-line method over the requisite service period. The restricted stock agreement for these units provide for dividend privileges, but no voting rights.

The following tables summarize the Stock Plan activity for the periods presented:

Three Months Ended September 30, 2023
Performance<br>Units Time-Vested<br>Units
Nonvested units, beginning of period 174,214 364,198
Granted — —
Released from restriction — (1,500 )
Forfeited — (688 )
Nonvested units, end of period 174,214 362,010

39

Nine Months Ended September 30, 2023
Performance<br>Units Time-Vested<br>Units
Nonvested units, beginning of period 148,416 312,978
Granted 70,666 145,003
Released from restriction (39,943 ) (89,041 )
Forfeited (4,925 ) (6,930 )
Nonvested units, end of period 174,214 362,010

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

Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Performance units $ 449 $ 381 $ 1,181 $ 916
Time-vested units 1,045 848 3,591 2,798
Total compensation expense $ 1,494 $ 1,229 $ 4,772 $ 3,714

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, 2023 and 2022, Trustmark had unused commitments to extend credit of $5.030 billion and $5.171 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, 2023 and 2022, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the customer for letters of credit was $127.8 million and $140.6 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, 2023 and 2022, the fair value of collateral held was $32.0 million and $32.6 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, 2023 and December 31, 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,
2023 2022 2023 2022
Balance at beginning of period $ 34,841 $ 32,949 $ 36,838 $ 35,623
PCL, off-balance sheet credit exposures 104 (1,326 ) (1,893 ) (4,000 )
Balance at end of period $ 34,945 $ 31,623 $ 34,945 $ 31,623

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. The increase in the ACL on off-balance sheet credit exposures for the three months ended September 30, 2023 was primarily due to the weakening

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macroeconomic forecasts as well as the net adjustment to the qualitative factors. The decrease in the ACL on off-balance sheet credit exposures for the nine months ended September 30, 2023 was primarily due to decreases in unfunded balances for the construction, land development and other land portfolio and other construction loan portfolio. The decrease in the ACL on off-balance sheet credit exposures for the three and nine months ended September 30, 2022 was primarily due to a decrease in the 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 (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 the United States District Court for 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 refusal 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

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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 remained 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 agreed that the case was to be tried in the District Court for the Southern District of Texas. On March 25, 2021, the District Court for the Northern District of Texas rescinded its previously-issued trial scheduling orders so that the Southern District of Texas could set scheduling for this case once the case 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 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 the 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 to begin February 27, 2023, which was to 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 (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.

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. 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 filed an application with the Supreme Court of Canada for leave to appeal, which the Supreme Court of Canada dismissed on July 20, 2023. TNB was never served in connection with the TD Bank Declaratory Action (including any of the 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 Action and, collectively with the Rotstain Action and the Jackson Action, the Actions). The Smith 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 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 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.

On December 31, 2022, TNB agreed to a settlement in principle (the Stanford Settlement) relating to litigation involving the Stanford Financial Group. On January 13, 2023, TNB entered into a Settlement Agreement (the Stanford Settlement Agreement) reflecting the terms of the Stanford Settlement. The parties to the Stanford Settlement Agreement are, on the one hand, (i) Ralph S. Janvey, solely in his capacity as the court-appointed receiver (the Stanford Receiver) for the Stanford Receivership Estate; (ii) the Official Stanford

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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 Stanford Settlement Agreement, the parties agreed to settle and dismiss the Rotstain Action, the Smith Action, and all current or future claims by plaintiffs in either such Action arising from or related to Stanford. In addition, the Stanford Settlement Agreement provided that the parties would request dismissal of the Jackson Action pursuant to the terms of the bar orders described below. If the Court’s approval (as described below) of the Stanford Settlement Agreement, including the bar orders described below, is upheld on appeal, Trustmark will make a one-time cash payment of $100.0 million to the Stanford Receiver.

The Stanford Settlement Agreement included 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 Stanford Settlement.

The Stanford Settlement Agreement is also subject to notice to Stanford’s investor claimants (which has been provided) and final, non-appealable approval by the U.S. District Court for the Northern District of Texas. While Trustmark believes that the Stanford 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’s approval of the Stanford Settlement Agreement (which has occurred, as described further below) may not be upheld on appeal.

The Stanford Settlement Agreement also 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 to 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 ordinary banking services provided to business deposit customers.

The foregoing description of the terms of the Stanford Settlement Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Stanford 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 Stanford Settlement is fair, reasonable, and equitable; has no obvious deficiencies; and is the product of serious, informed, good faith, and arm’s-length negotiations. Following the provision of notice as required by the Stanford Settlement Agreement and by the Court’s preliminary order, the Court (Judge David C. Godbey, presiding) held a Final Approval Hearing on May 3, 2023, at which the Court approved the Stanford Settlement from the bench. On May 4, 2023, Judge Godbey signed the written orders confirming his oral ruling, including the bar order contemplated by the Stanford Settlement Agreement and the judgment and bar order with respect to the Jackson Action.

On May 10, 2023, Robert Allen Stanford, writing from prison, appealed the District Court’s approval of the Stanford Settlement to the Fifth Circuit Court of Appeals. On June 12, 2023, the Stanford Receiver moved to dismiss the appeal as frivolous. On July 25, 2023, a three-judge panel of the Fifth Circuit issued a per curiam order dismissing Stanford’s appeal as frivolous. On August 8, 2023, Mr. Stanford filed a motion for stay of mandate pending petition for certiorari. On August 22, 2023, the Fifth Circuit denied the motion for stay of mandate. On August 30, 2023, the Fifth Circuit issued the mandate.

The Stanford Settlement will become effective when the trial court’s ruling approving the Stanford Settlement and entering the bar order becomes final and non-appealable, as defined in the Stanford Settlement Agreement (the Stanford Settlement Effective Date). Within five days of the Stanford Settlement Effective Date, the parties to the Rotstain and Smith Actions will file agreed dismissals of those cases. Absent any further appeal in either of the Rotstain or Smith Actions, those dismissals will become final 30 days after entered and signed by the respective judges. Trustmark will be required to make the Stanford Settlement payment within 16 days after those dismissals become final. Any further appeal of any of the orders described above would delay the making of the Stanford Settlement payment.

On August 11, 2023, the Stanford Receiver filed a Motion to Enforce Settlement Agreement in the Northern District of Texas District Court, asking Judge Godbey to rule that the Stanford Settlement Effective Date has occurred. The Stanford Receiver took the position that Mr. Stanford’s appeals are frivolous and do not prevent the trial court’s ruling from becoming final and non-appealable, as defined in the Stanford Settlement Agreement. Trustmark filed a response in opposition to the Stanford Receiver’s Motion to Enforce. The trial court has not yet ruled on the Motion to Enforce. On September 22, 2023, the Stanford Receiver filed a Motion to Enjoin, requesting that the trial court enjoin Mr. Stanford from making court filings in any Stanford-related case, including notices of appeal, without obtaining leave of the court. The court has not yet ruled on the Motion to Enjoin.

Pending the resolution of the Stanford Settlement approval process, the Rotstain, Smith and Jackson Actions are stayed.

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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 Adams/Madison Timber Receiver) for Arthur Lamar Adams and Madison Timber Properties, LLC (collectively, Adams/Madison Timber), naming TNB, two other Mississippi-based financial institutions both of which are unaffiliated with TNB 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 Adams/Madison Timber Action). 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/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/Madison Timber. The Adams/Madison Timber 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/Madison Timber consisted of traditional banking services in the ordinary course of business.

TNB 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.

On August 30, 2023, TNB agreed to a settlement in principle (the Adams/Madison Timber Settlement) relating to litigation and claims involving Arthur Lamar Adams and Madison Timber Properties, LLC ( collectively, Adams/Madison Timber). On October 9, 2023, TNB entered into a Settlement Agreement (the Adams/Madison Timber Settlement Agreement) reflecting the terms of the Adams/Madison Timber Settlement. The parties to the Adams/Madison Timber Settlement are, on the one hand, Alysson Mills in her capacity as Court-appointed Receiver ( the Adams/Madison Timber Receiver); and, on the other hand, TNB. Under the terms of the Adams/Madison Timber Settlement Agreement, the parties agreed to settle and dismiss the Adams/Madison Timber Action, and the Adams/Madison Timber Receiver will fully release all claims against TNB and any of its employees, agents and representatives. The Adams/Madison Timber Settlement includes the parties’ agreement to seek the Court’s entry of bar orders prohibiting any continued or future claims by anyone against TNB and its related parties relating to Adams/Madison Timber, whether asserted to date or not. The bar orders therefore would prohibit all litigation relating to Adams/Madison Timber described herein. Final Court approval of a bar order is a condition of the Adams/Madison Timber Settlement.

The Adams/Madison Timber Settlement is also subject to notice to Adams/Madison Timber investors, and final, non-appealable approval by the Court and entry of a judgment dismissing the Lawsuit against TNB. The timing of any final decision by the Court is subject to the discretion of the Court and any appeal. If the Adams/Madison Timber Settlement, including the bar order described above, is approved by the Court and is not subject to further appeal, TNB will make a one-time cash payment of $6.5 million to the Adams/Madison Timber Receiver.

While TNB believes that the Adams/Madison Timber Settlement is consistent with the terms of settlements in similar cases that have been approved and were not successfully appealed, it is possible that the Court may decide not to approve the Adams/Madison Timber Settlement Agreement or that the Court of Appeals could reject the Adams/Madison Timber Settlement Agreement on an appeal, either of which could render the Adams/Madison Timber Settlement a nullity.

All pending legal proceedings described above are being vigorously contested, with the exception of the TD Bank Declaratory Action that, as noted above, TNB was not served in connection with. In accordance with FASB ASC Subtopic 450-20, “Loss Contingencies,” TNB 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 Stanford Settlement as described above, Trustmark Corporation 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. As a result of the entry into the Adams/Madison Timber Settlement as described above, Trustmark Corporation recognized a $6.5 million litigation settlement expense included in noninterest expense related to the Adams/Madison Timber litigation during the third quarter of 2023. Trustmark Corporation expects that both the Stanford Settlement and Adams/Madison Timber Settlement will be tax deductible. Trustmark Corporation and TNB will remain substantially above levels considered to be well-capitalized under all relevant standards. At the present time, TNB 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 and Adams/Madison Timber 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,
2023 2022 2023 2022
Basic shares 61,070 61,115 61,048 61,334
Dilutive shares 193 204 171 186
Diluted shares 61,263 61,319 61,219 61,520

Weighted-average antidilutive stock awards were excluded in determining diluted EPS. The following table reflects weighted-average antidilutive stock awards for the periods presented (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Weighted-average antidilutive stock awards 23 — 75 —

Note 14 – Statements of Cash Flows

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

Nine Months Ended September 30,
2023 2022
Income taxes paid $ 34,898 $ 1,241
Interest expense paid on deposits and borrowings 214,745 17,077
Noncash transfers from loans to other real estate 5,434 1,430
Operating right-of-use assets resulting from lease liabilities 7,092 6,572

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 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, 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, 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, 2023, which Management believes have affected Trustmark’s or TNB’s present classification.

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

Actual
Regulatory Capital Minimum To Be Well
Amount Ratio Requirement Capitalized
At September 30, 2023:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,498,217 9.89 % 7.00 % n/a
Trustmark National Bank 1,579,132 10.43 % 7.00 % 6.50 %
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,558,217 10.29 % 8.50 % n/a
Trustmark National Bank 1,579,132 10.43 % 8.50 % 8.00 %
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,834,295 12.11 % 10.50 % n/a
Trustmark National Bank 1,731,783 11.44 % 10.50 % 10.00 %
Tier 1 Leverage (to Average Assets)
Trustmark Corporation $ 1,558,217 8.49 % 4.00 % n/a
Trustmark National Bank 1,579,132 8.63 % 4.00 % 5.00 %
At December 31, 2022:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,413,672 9.74 % 7.00 % n/a
Trustmark National Bank 1,501,889 10.34 % 7.00 % 6.50 %
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,473,672 10.15 % 8.50 % n/a
Trustmark National Bank 1,501,889 10.34 % 8.50 % 8.00 %
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $ 1,729,499 11.91 % 10.50 % n/a
Trustmark National Bank 1,634,454 11.26 % 10.50 % 10.00 %
Tier 1 Leverage (to Average Assets)
Trustmark Corporation $ 1,473,672 8.47 % 4.00 % n/a
Trustmark National Bank 1,501,889 8.65 % 4.00 % 5.00 %

Stock Repurchase Program

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, 2023. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares have been repurchased under this stock repurchase program.

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

The following tables present 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 derivatives are included in interest and fees on LHFS and LHFI in the accompanying consolidated statements of income.

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
Before Tax<br>Amount Tax (Expense)<br>Benefit Net of Tax<br>Amount Before Tax<br>Amount Tax (Expense)<br>Benefit Net of Tax<br>Amount
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising <br>   during the period $ (26,963 ) $ 6,740 $ (20,223 ) $ (114,317 ) $ 28,580 $ (85,737 )
Change in net unrealized holding loss on <br>   securities transferred to held to maturity 4,000 (1,000 ) 3,000 1,800 (450 ) 1,350
Total securities available for sale <br>   and transferred securities (22,963 ) 5,740 (17,223 ) (112,517 ) 28,130 (84,387 )
Pension and other postretirement benefit plans:
Reclassification adjustments for changes<br>   realized in net income:
Net change in prior service costs 28 (7 ) 21 28 (7 ) 21
Recognized net loss due to lump sum<br>   settlements — — — — — —
Change in net actuarial loss 70 (18 ) 52 295 (74 ) 221
Total pension and other postretirement<br>   benefit plans 98 (25 ) 73 323 (81 ) 242
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective<br>   cash flow hedge derivatives (11,338 ) 2,834 (8,504 ) (19,524 ) 4,881 (14,643 )
Reclassification adjustment for (gain) loss realized <br>   in net income 4,627 (1,157 ) 3,470 (643 ) 161 (482 )
Total cash flow hedge derivatives (6,711 ) 1,677 (5,034 ) (20,167 ) 5,042 (15,125 )
Total other comprehensive income (loss) $ (29,576 ) $ 7,392 $ (22,184 ) $ (132,361 ) $ 33,091 $ (99,270 )

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Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
Before Tax<br>Amount Tax (Expense)<br>Benefit Net of Tax<br>Amount Before Tax<br>Amount Tax (Expense)<br>Benefit Net of Tax<br>Amount
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising <br>   during the period $ (16,062 ) $ 4,246 $ (11,816 ) $ (314,517 ) $ 78,630 $ (235,887 )
Change in net unrealized holding loss on <br>   securities transferred to held to maturity 11,799 (2,950 ) 8,849 (31,451 ) 7,863 (23,588 )
Total securities available for sale <br>   and transferred securities (4,263 ) 1,296 (2,967 ) (345,968 ) 86,493 (259,475 )
Pension and other postretirement benefit plans:
Reclassification adjustments for changes<br>   realized in net income:
Net change in prior service costs 83 (21 ) 62 83 (21 ) 62
Recognized net loss due to lump sum<br>   settlements 25 (6 ) 19 — — —
Change in net actuarial loss 216 (54 ) 162 914 (228 ) 686
Total pension and other postretirement<br>   benefit plans 324 (81 ) 243 997 (249 ) 748
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective<br>   cash flow hedge derivatives (24,569 ) 6,142 (18,427 ) (19,524 ) 4,881 (14,643 )
Reclassification adjustment for (gain) loss realized <br>   in net income 11,555 (2,889 ) 8,666 (643 ) 161 (482 )
Total cash flow hedge derivatives (13,014 ) 3,253 (9,761 ) (20,167 ) 5,042 (15,125 )
Total other comprehensive income (loss) $ (16,953 ) $ 4,468 $ (12,485 ) $ (365,138 ) $ 91,286 $ (273,852 )

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 <br>Available for Sale <br>and Transferred <br>Securities Defined<br>Benefit <br>Pension Items Cash Flow <br>Hedge <br>Derivatives Total
Balance at January 1, 2023 $ (254,442 ) $ (5,792 ) $ (15,169 ) $ (275,403 )
Other comprehensive income (loss) before reclassification (2,967 ) — (18,427 ) (21,394 )
Amounts reclassified from accumulated other <br>   comprehensive income (loss) — 243 8,666 8,909
Net other comprehensive income (loss) (2,967 ) 243 (9,761 ) (12,485 )
Balance at September 30, 2023 $ (257,409 ) $ (5,549 ) $ (24,930 ) $ (287,888 )
Balance at January 1, 2022 $ (17,774 ) $ (14,786 ) $ — $ (32,560 )
Other comprehensive income (loss) before reclassification (259,475 ) — (14,643 ) (274,118 )
Amounts reclassified from accumulated other <br>   comprehensive income (loss) — 748 (482 ) 266
Net other comprehensive income (loss) (259,475 ) 748 (15,125 ) (273,852 )
Balance at September 30, 2022 $ (277,249 ) $ (14,038 ) $ (15,125 ) $ (306,412 )

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.

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Financial Assets and Liabilities

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 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 months ended September 30, 2023 and the year ended December 31, 2022.

September 30, 2023
Total Level 1 Level 2 Level 3
U.S. Treasury securities $ 363,476 $ 363,476 $ — $ —
U.S. Government agency obligations 6,780 — 6,780 —
Obligations of states and political subdivisions 4,642 — 4,642 —
Mortgage-backed securities 1,391,276 — 1,391,276 —
Securities available for sale 1,766,174 363,476 1,402,698 —
LHFS 169,244 — 169,244 —
MSR 142,379 — — 142,379
Other assets - derivatives 16,846 8 16,641 197
Other liabilities - derivatives 56,135 3,327 52,808 —
December 31, 2022
--- --- --- --- --- --- --- --- ---
Total Level 1 Level 2 Level 3
U.S. Treasury securities $ 391,513 $ 391,513 $ — $ —
U.S. Government agency obligations 7,766 — 7,766 —
Obligations of states and political subdivisions 4,862 — 4,862 —
Mortgage-backed securities 1,619,941 — 1,619,941 —
Securities available for sale 2,024,082 391,513 1,632,569 —
LHFS 135,226 — 135,226 —
MSR 129,677 — — 129,677
Other assets - derivatives 8,871 54 8,660 157
Other liabilities - derivatives 45,379 474 44,905 —

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

MSR Other Assets -<br>Derivatives
Balance, January 1, 2023 $ 129,677 $ 157
Total net (loss) gain included in Mortgage banking, net (1) 1,677 1,672
Additions 11,025 —
Sales — (1,632 )
Balance, September 30, 2023 $ 142,379 $ 197
The amount of total gains (losses) for the period included in earnings<br>   that are attributable to the change in unrealized gains or <br>   losses still held at September 30, 2023 $ 8,734 $ 559
Balance, January 1, 2022 $ 87,687 $ 1,859
Total net (loss) gain included in Mortgage banking, net (1) 30,476 (401 )
Additions 14,452 —
Sales — (2,326 )
Balance, September 30, 2022 $ 132,615 $ (868 )
The amount of total gains (losses) for the period included in<br>   earnings that are attributable to the change in unrealized<br>   gains or losses still held at September 30, 2022 $ 41,530 $ (1,181 )

(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.

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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, 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, 2023, Trustmark had outstanding balances of $47.4 million with a related ACL of $15.0 million in collateral-dependent LHFI, compared to outstanding balances of $40.3 million with a related ACL of $17.7 million in collateral-dependent LHFI at December 31, 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 $765 thousand were remeasured during the first nine months of 2023, requiring write-downs of $205 thousand to reach their current fair values compared to $3.0 million of foreclosed assets that were remeasured during the first nine months of 2022, requiring write-downs of $1.0 million.

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, 2023 and December 31, 2022, are as follows ($ in thousands):

September 30, 2023 December 31, 2022
Carrying<br>Value Estimated<br>Fair Value Carrying<br>Value Estimated<br>Fair Value
Financial Assets:
Level 2 Inputs:
Cash and short-term investments $ 750,492 $ 750,492 $ 738,787 $ 738,787
Securities held to maturity 1,438,287 1,312,871 1,494,514 1,406,589
Level 3 Inputs:
Net LHFI 12,676,228 12,505,990 12,083,825 11,850,318
Financial Liabilities:
Level 2 Inputs:
Deposits 15,101,923 15,076,677 14,437,648 14,404,661
Federal funds purchased and securities sold under<br>   repurchase agreements 321,799 321,799 449,331 449,331
Other borrowings 793,193 793,188 1,050,938 1,050,932
Subordinated notes 123,427 103,750 123,262 113,125
Junior subordinated debt securities 61,856 45,928 61,856 46,392

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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, 2023, net losses of $602 thousand and $841 thousand, respectively, were 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 net losses of $4.4 million and $6.7 million for the three and nine months ended September 30, 2022, respectively. Interest and fees on LHFS and LHFI for the three and nine months ended September 30, 2023 included $2.3 million and $5.9 million, respectively, of interest earned on LHFS accounted for under the fair value option, compared to $2.0 million and $5.2 million for the three and nine months ended September 30, 2022, respectively. 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 $63.7 million and $70.8 million at September 30, 2023 and December 31, 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 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 at September 30, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023 December 31, 2022
Fair value of LHFS $ 105,542 $ 64,421
LHFS contractual principal outstanding 105,618 63,427
Fair value less unpaid principal $ (76 ) $ 994

Note 17 – Derivative Financial Instruments

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 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, 2023, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $1.000 billion 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 $13 thousand and $35 thousand of amortization expense for the three and nine months ended September 30, 2023, respectively, and are 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 $18.4 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.

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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 $270.0 million at September 30, 2023 compared to $277.0 million at December 31, 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 $1.0 million and $928 thousand for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the impact was a net negative ineffectiveness of $4.1 million and $554 thousand, 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 $133.0 million at September 30, 2023, with a positive valuation adjustment of $1.5 million, compared to $97.0 million, with a positive valuation adjustment of $168 thousand, at December 31, 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 $96.8 million at September 30, 2023, with a positive valuation adjustment of $197 thousand, compared to $68.4 million, with a positive valuation adjustment of $157 thousand, at December 31, 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, 2023, Trustmark had interest rate swaps with an aggregate notional amount of $1.365 billion related to this program, compared to $1.391 billion at December 31, 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 both September 30, 2023 and December 31, 2022, there was no termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. At September 30, 2023 and December 31, 2022, Trustmark had posted collateral of $40 thousand and $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, 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, 2023 and December 31, 2022, Trustmark had entered into five risk participation agreements as a beneficiary with aggregate notional amounts of $49.1 million and $50.2 million, respectively. At September 30, 2023, Trustmark had entered into thirty-four risk participation agreements as a guarantor with an aggregate notional amount of $281.9 million compared to twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of $235.8 million at December 31, 2022. The aggregate fair values of these risk participation agreements were immaterial at both September 30, 2023 and December 31, 2022.

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Tabular Disclosures

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

September 30, 2023 December 31, 2022
Derivatives in hedging relationships:
Interest rate contracts:
Interest rate floors included in other assets $ 203 $ —
Interest rate swaps included in other liabilities (1) 2,302 761
Derivatives not designated as hedging instruments:
Interest rate contracts:
Exchange traded purchased options included in other assets $ 8 $ 38
OTC written options (rate locks) included in other assets 197 157
Futures contracts included in other assets — 16
Interest rate swaps included in other assets (1) 16,437 8,654
Credit risk participation agreements included in other assets 1 6
Futures contracts included in other liabilities 2,764 268
Forward contracts included in other liabilities (1,479 ) (168 )
Exchange traded written options included in other liabilities 563 206
Interest rate swaps included in other liabilities (1) 51,953 44,304
Credit risk participation agreements included in other liabilities 32 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,
2023 2022 2023 2022
Derivatives in hedging relationships:
Amount of gain (loss) reclassified from accumulated other <br> comprehensive income (loss) and recognized in <br> interest and fees on LHFS & LHFI $ (4,627 ) $ 643 $ (11,555 ) $ 643
Derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in mortgage banking, net $ (7,634 ) $ (8,405 ) $ (11,526 ) $ (39,181 )
Amount of gain (loss) recognized in bank card and other fees 381 63 571 385

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,
2023 2022 2023 2022
Derivatives in cash flow hedging relationship
Amount of gain (loss) recognized in other comprehensive <br>   income (loss), net of tax $ (8,504 ) $ (14,643 ) $ (18,427 ) $ (14,643 )

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, 2023 and December 31, 2022 is presented in the following tables ($ in thousands):

Offsetting of Derivative Assets
As of September 30, 2023
Gross Amounts Not Offset in the<br>Statement of Financial Position
Gross <br>Amounts of <br>Recognized <br>Assets Gross Amounts<br>Offset in the<br>Statement of<br>Financial Position Net Amounts of<br>Assets presented in<br>the Statement of<br>Financial Position Financial <br>Instruments Cash Collateral <br>Received Net Amount
Derivatives $ 16,640 $ — $ 16,640 $ (2,618 ) $ (6,230 ) $ 7,792

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Offsetting of Derivative Liabilities
As of September 30, 2023
Gross Amounts Not Offset in the <br>Statement of Financial Position
Gross <br>Amounts of <br>Recognized<br>Liabilities Gross Amounts<br>Offset in the<br>Statement of<br>Financial Position Net Amounts of <br>Liabilities presented <br>in the Statement of <br>Financial Position Financial<br>Instruments Cash Collateral<br>Posted Net Amount
Derivatives $ 54,255 $ — $ 54,255 $ (2,618 ) $ (40 ) $ 51,597
Offsetting of Derivative Assets
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
As of December 31, 2022
Gross Amounts Not Offset in the <br>Statement of Financial Position
Gross <br>Amounts of <br>Recognized <br>Assets Gross Amounts<br>Offset in the<br>Statement of<br>Financial Position Net Amounts of<br>Assets presented in<br>the Statement of<br>Financial Position Financial <br>Instruments Cash Collateral<br>Received Net Amount
Derivatives $ 9,415 $ — $ 9,415 $ — $ (2,230 ) $ 7,185
Offsetting of Derivative Liabilities
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
As of December 31, 2022
Gross Amounts Not Offset in the <br>Statement of Financial Position
Gross <br>Amounts of <br>Recognized<br>Liabilities Gross Amounts <br>Offset in the <br>Statement of <br>Financial Position Net Amounts of<br>Liabilities presented<br>in the Statement of<br>Financial Position Financial <br>Instruments Cash Collateral<br>Posted Net Amount
Derivatives $ 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 20 – Segment Information included in Part II. Item 8. – Financial Statements and Supplementary Data, of Trustmark’s 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.

55

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,
2023 2022 2023 2022
General Banking
Net interest income $ 137,145 $ 134,842 $ 411,682 $ 344,185
Provision for credit losses 10,646 11,595 20,015 10,785
Noninterest income 28,181 29,690 85,535 91,170
Noninterest expense 122,045 108,740 345,329 318,425
Income before income taxes 32,635 44,197 131,873 106,145
Income taxes 5,245 6,396 19,024 14,571
General banking net income $ 27,390 $ 37,801 $ 112,849 $ 91,574
Selected Financial Information
Total assets $ 18,099,301 $ 16,897,083 $ 18,099,301 $ 16,897,083
Depreciation and amortization $ 9,483 $ 9,439 $ 25,496 $ 29,610
Wealth Management
Net interest income $ 1,494 $ 1,266 $ 4,462 $ 3,948
Provision for credit losses (2,220 ) (2 ) (2,131 ) (10 )
Noninterest income 8,740 9,007 26,293 27,105
Noninterest expense 8,281 8,224 24,276 24,637
Income before income taxes 4,173 2,051 8,610 6,426
Income taxes 1,043 515 2,153 1,609
Wealth management net income $ 3,130 $ 1,536 $ 6,457 $ 4,817
Selected Financial Information
Total assets $ 194,837 $ 205,873 $ 194,837 $ 205,873
Depreciation and amortization $ 63 $ 71 $ 199 $ 217
Insurance
Net interest income $ (2 ) $ (3 ) $ (8 ) $ (8 )
Noninterest income 15,303 13,909 45,326 41,699
Noninterest expense 10,619 9,734 31,885 28,922
Income before income taxes 4,682 4,172 13,433 12,769
Income taxes 1,173 1,054 3,373 3,210
Insurance net income $ 3,509 $ 3,118 $ 10,060 $ 9,559
Selected Financial Information
Total assets $ 96,701 $ 87,678 $ 96,701 $ 87,678
Depreciation and amortization $ 135 $ 159 $ 434 $ 527
Consolidated
Net interest income $ 138,637 $ 136,105 $ 416,136 $ 348,125
Provision for credit losses 8,426 11,593 17,884 10,775
Noninterest income 52,224 52,606 157,154 159,974
Noninterest expense 140,945 126,698 401,490 371,984
Income before income taxes 41,490 50,420 153,916 125,340
Income taxes 7,461 7,965 24,550 19,390
Consolidated net income $ 34,029 $ 42,455 $ 129,366 $ 105,950
Selected Financial Information
Total assets $ 18,390,839 $ 17,190,634 $ 18,390,839 $ 17,190,634
Depreciation and amortization $ 9,681 $ 9,669 $ 26,129 $ 30,354

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 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 adopted the amendments of ASU 2022-02 effective January 1, 2023. The amendments of ASU 2022-02 include only changes to certain financial statement disclosures; and, therefore, adoption of ASU 2022-02 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, 2023, TNB had total assets of $18.388 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 2,756 full-time equivalent associates (measured at September 30, 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, 2022 (2022 Annual Report).

Executive Overview

Trustmark's financial results for the three and nine months ended September 30, 2023 reflected solid growth in loans held for investment (LHFI) of $196.3 million, or 1.6%, and $606.2 million, or 5.0%, respectively, as well as growth in deposits of $188.0 million, or 1.3%, and $664.3 million, or 4.6%, respectively, stable net interest income and continued credit quality strength. Trustmark's strong financial performance during the first nine months of 2023 was achieved despite the challenging financial services environment and increasingly competitive deposit costs. On October 9, 2023, Trustmark entered into a settlement agreement that will, pending court approval, resolve all current and potential future claims relating to litigation involving Adams/Madison Timber. As a result, Trustmark recognized $6.5 million of litigation settlement expense which was included in noninterest expense for the third quarter of 2023. Trustmark's capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses.

Trustmark remains well-positioned and committed to meeting the banking and financial needs of its customers and the communities it serves, and remains focused on providing support, advice and solutions to meet its customers’ unique needs. 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 Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable December 15, 2023, to shareholders of record on December 1, 2023.

Recent Economic and Industry Developments

Economic activity improved slightly during the first nine months of 2023; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the potential economic impact of geopolitical developments, such as Russia's invasion of Ukraine, inflation, the consequences of recent bank failures and other economic and 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 began to rise during 2022 after an extended period at historical lows and have continued to rise in 2023. Starting in March 2022, the FRB began raising the target federal funds rate for the first time in three years and continued with multiple increases throughout 2022 and the first nine months of 2023, up to a range of 5.25% to 5.50% as of September 2023. The FRB also signaled the possibility of additional rate increases. In addition, the FRB increased the interest that it pays on reserves multiple times during 2022 and the first nine months of 2023 from 0.10% to 5.40% as of September 2023. As interest rates have increased, so 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 2023 “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the twelve Federal Reserve Districts’ reports suggested that during the reporting period (covering the period from August 28, 2023 through October 6, 2023) there was little to no change in economic activity; however, conditions varied across Federal Reserve Districts (Districts). Reports by the twelve Districts noted the following during the reporting period:

• Consumer spending reports were mixed, especially among general retailers and auto dealers, due to differences in prices and product offerings. Tourism activity continued to improved, although some Districts reported a slight slowing in consumer travel and a few Districts reported an increase in business travel. Manufacturing activity was mixed, although contacts across multiple Districts noted an improving outlook for the sector.

• Banking contacts reported slight to modest declines in loan demand. Consumer credit quality was generally described as stable or healthy, with delinquency rates still historically low but slightly increasing. Real estate conditions were little changed and the inventory of homes for sale remained low.

• Overall economic expectations for the coming months was generally described as stable or having slightly weaker growth.

• Labor market tightness continued to ease across the nation. Most Districts reported slight to moderate increases in overall employment and firms hiring less urgently. Several Districts reported improvements in hiring and retention; however, most Districts still reported ongoing challenges in recruiting and hiring skilled tradespeople. Wage growth remained modest to moderate in most Districts. There were multiple reports of firms modifying their compensation packages to mitigate higher labor costs.

• Prices increased at a modest pace overall. Districts noted that input cost increases have slowed or stabilized for manufacturers but continued to rise for services sector firms. Increases in fuel costs, wages and insurance contributed to growth in prices

across Districts. Sales prices increased at a slower rate than input prices, as businesses struggled to pass along cost pressures because consumers had grown more sensitive to prices, causing firms to struggle to maintain desired profit margins. Overall, firms expect prices to increase, but at a slower rate, for the next few quarters.

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 noted on balance, loan growth slowed across most portfolios, and, while asset quality remained stable, consumers appeared to experience increased financial stress as evidenced by an increase in consumer loan delinquencies. The Federal Reserve's Sixth District reported that financial institutions continued to fund loan growth with large time deposits given heightened competition for core deposits; however, the higher funding cost of time deposits put increased pressure on net interest margins and earnings. The Federal Reserve’s Eighth District also reported that banking conditions remained stable, even as rising deposit interest rates continue to create a tight market for deposits, raising the cost of funds and shrinking profit margins. The Federal Reserve’s Eighth District also noted that demand for consumer loans continued to decline and credit card usage remained elevated, and while banking contacts reported that signs of consumer financial stress are increasing, they believe that overall credit risk remains moderate. The Federal Reserve’s Eighth District also reported that merger and acquisition activity of smaller banks has increased, with investment bankers reaching out for potential buyers. The Federal Reserve’s Eleventh District also reported loan demand and overall loan volumes continued to decline at an accelerated pace during the reporting period, loan nonperformance rose particularly for consumer loans, though increased delinquency was seen across the board, credit standards continued to tighten, loan pricing pushed up further, though at the slowest rate so far this year. The Federal Reserve’s Eleventh District also noted that banking outlooks remain pessimistic, with expectations for increasing loan nonperformance, decreasing loan demand and worsening business activity over the next six months.

The rapid rise in interest rates during 2022 and the first nine 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 respect to the health of the United States banking system. There is heightened awareness around liquidity, uninsured deposits, deposit composition, unrecognized investment losses and capital. See further discussion of these items in the remaining sections of the Management’s Discussion and Analysis of this document.

Financial Highlights

Trustmark reported net income of $34.0 million, or basic and diluted earnings per share (EPS) of $0.56, in the third quarter of 2023, compared to $42.5 million, or basic and diluted EPS of $0.69, in the third quarter of 2022. Trustmark’s reported performance during the quarter ended September 30, 2023 produced a return on average tangible equity of 11.32%, a return on average assets of 0.72%, an average equity to average assets ratio of 8.46% and a dividend payout ratio of 41.07%, compared to a return on average tangible equity of 13.90%, a return on average assets of 0.98%, an average equity to average assets ratio of 9.32% and a dividend payout ratio of 33.33% during the quarter ended September 30, 2022.

Trustmark reported net income of $129.4 million, or basic and diluted EPS of $2.12 and $2.11, respectively, for the first nine months of 2023, compared to $106.0 million, or basic and diluted EPS of $1.73 and $1.72, respectively, for the same time period in 2022. Trustmark's reported performance for the nine months ended September 30, 2023 produced a return on average tangible equity of 14.77%, a return on average assets of 0.93%, an average equity to average assets ratio of 8.37% and a dividend payout ratio of 32.55%, compared to 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% for the nine months ended September 30, 2022.

Total revenue, which is defined as net interest income plus noninterest income, for the three and nine months ended September 30, 2023 was $190.9 million and $573.3 million, respectively, an increase of $2.2 million, or 1.1%, and $65.2 million, or 12.8%, respectively, when compared to the same time periods in 2022. The increase in total revenue for the three and nine months ended September 30, 2023, when compared to the same time periods in 2022, primarily resulted from an increase in net interest income, principally due to increases in interest and fees on loans held for sale (LHFS) and LHFI and other interest income, largely offset by an increase in total interest expense.

Net interest income for the three and nine months ended September 30, 2023 totaled $138.6 million and $416.1 million, respectively, an increase of $2.5 million, or 1.9%, and $68.0 million, or 19.5%, respectively, when compared to the same time periods in 2022. Interest income totaled $228.5 million and $646.0 million for the three and nine months ended September 30, 2023, respectively, an increase of $84.1 million, or 58.2%, and $280.6 million, or 76.8%, respectively, when compared to the same time periods in 2022, principally due to increases in interest and fees on LHFS and LHFI primarily due to loan growth and rising interest rates and other interest income primarily due to an increase in the rate paid by the Federal Reserve Bank of Atlanta (FRBA) on reserves. Interest expense totaled $89.9 million and $229.8 million for the three and nine months ended September 30, 2023, respectively, an increase of $81.6 million and $212.6 million, respectively, when compared to the same time periods in 2022. The increase in interest expense when

the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was due to an increase in interest on deposits primarily due to rising interest rates, increased competition for deposits and higher average balances, an increase in other interest expense primarily due to the increase in short-term Federal Home Loan Bank (FHLB) advances and an increase in interest on federal funds purchased and securities sold under repurchase agreements primarily due to increases to the target rate for federal funds purchased by the FRB.

Noninterest income for the three months ended September 30, 2023 totaled $52.2 million, a slight decrease of $382 thousand, or 0.7%, when compared to the same time period in 2022, primarily due to declines in bank card and other fees and mortgage banking, net, which were largely offset by an increase in insurance commissions. Bank card and other fees for the three months ended September 30, 2023, totaled $8.2 million, a decrease of $1.1 million, or 11.7%, when compared to the same time period in 2022, principally due to declines in customer derivatives income. Mortgage banking, net totaled $6.5 million for the three months ended September 30, 2023, a decrease of $418 thousand, or 6.1%, when compared to the same time period in 2022, principally due to declines in the gain on sales of loans, net, partially offset by a decline in the run-off of the mortgage servicing rights (MSR) and an increase in mortgage servicing income. Insurance commissions totaled $15.3 million for the third quarter of 2023, an increase of $1.4 million, or 10.0%, when compared to the same time period in 2022, principally due to increases in commercial property and casualty commissions, policy fees and other commission income.

Noninterest income for the first nine months of 2023 totaled $157.2 million, a decrease of $2.8 million, or 1.8%, when compared to the same time period in 2022, principally due to declines in mortgage banking, net and bank card and other fees, partially offset by increases in insurance commissions, service charges on deposit accounts and other income, net. Mortgage banking, net totaled $20.7 million for the first nine months of 2023, a decrease of $4.2 million, or 16.9%, when compared to the first nine months of 2022, principally due to declines in the gain on sales of loans, net and the net hedge ineffectiveness, partially offset by a decline in the run-off of the MSR. Bank card and other fees totaled $24.9 million for the first nine months of 2023, a decline of $3.0 million, or 10.7%, when compared to the same time period in 2022, principally due to a decline in customer derivatives revenue. Insurance commissions totaled $44.4 million for the first nine months of 2023, an increase of $2.7 million, or 6.4%, when compared to the same time period in 2022, principally due to growth in commercial property and casualty commissions. Service charges on deposit accounts totaled $32.1 million for the first nine months of 2023, an increase of $1.1 million, or 3.6%, when compared to the same time period in 2022, principally due to an increase in service charges on personal interest checking accounts. Other income, net totaled $8.6 million for the first nine months of 2023, an increase of $1.1 million, or 14.3%, when compared to the same time period in 2022, principally due to an increase in cash management service charges partially offset by an increase in the amortization of tax credit partnerships.

Noninterest expense for the three and nine months ended September 30, 2023 totaled $140.9 million and $401.5 million, an increase of $14.2 million, or 11.2%, and $29.5 million, or 7.9%, respectively, when compared to the same time periods in 2022. The increase in noninterest expense for the three and nine months ended September 30, 2023 was principally due to increases in salaries and employee benefits, services and fees and other expense as well as the $6.5 million of litigation settlement expense. Excluding the litigation settlement expense, noninterest expense increased $7.7 million, or 6.1%, and $23.0 million, or 6.2%, respectively, when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022. Salaries and employee benefits totaled $76.7 million and $226.7 million for the three and nine months ended September 30, 2023, respectively, an increase of $4.0 million, or 5.4%, and $12.7 million, or 5.9%, respectively, when compared to the same time periods in 2022, principally due to increases in salaries expense, primarily due to general merit increases, accrued management performance incentives and commission expense due to improvements in insurance production, partially offset by a decline in commission expense due to the decline in mortgage originations. Services and fees totaled $27.9 million and $81.6 million for the three and nine months ended September 30, 2023, respectively, an increase of $1.1 million, or 4.1%, and $3.8 million, or 4.9%, respectively, when compared to the same time periods in 2022, principally due to increases in data processing charges related to software, business processing outsourcing fees and advertising expense, partially offset by an decrease in other services and fees. Other expense totaled $15.7 million and $45.0 million for the three and nine months ended September 30, 2023, respectively, an increase of $2.0 million, or 14.3%, and $4.3 million, or 10.6%, respectively, when compared to the same time period in 2022, principally due to increases in FDIC assessment expense, primarily due to an increase in the assessment rate, and other miscellaneous expenses.

Trustmark’s provision for credit losses (PCL) on LHFI for the three and nine months ended September 30, 2023 totaled $8.3 million and $19.8 million, respectively, a decrease of $4.6 million, or 35.6%, and an increase of $5.0 million, or 33.9%, respectively, when compared to the same time periods in 2022. The PCL on LHFI for the three and nine months ended September 30, 2023 primarily reflected an increase in required reserves as a result of loan growth, weakening in the macroeconomic forecasts and the net impact of qualitative changes including adjustments to the credit quality trend reserve, the commercial real estate concentration reserve and the nature and volume of the portfolio, partially offset by a decline in specific reserves for individually analyzed LHFI. The PCL on off-balance sheet credit exposures totaled $104 thousand and a negative $1.9 million for the three and nine months ended September 30, 2023, respectively, an increase in provision expense of $1.4 million and $2.1 million, respectively, when compared to the same time periods in 2022. The PCL on off-balance sheet credit exposures for the three months ended September 30, 2023, primarily reflected an increase in required reserves as a result of changes in the total reserve rate, which was largely offset by a decrease in required reserves

due to a decline in unfunded commitments. The release in PCL on off-balance sheet credit exposures for the nine months ended September 30, 2023, primarily reflected a decrease in required reserves due to a decline in unfunded commitments. 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, 2023, nonperforming assets totaled $96.4 million, an increase of $28.4 million, or 41.8%, compared to December 31, 2022, primarily as a result of an increase in nonaccrual LHFI. Nonaccrual LHFI totaled $90.9 million at September 30, 2023, an increase of $24.9 million, or 37.8%, relative to December 31, 2022, primarily as a result of two large commercial credits placed on nonaccrual that were partially offset by other commercial credits that were foreclosed, charged-off, returned to accrual or paid off.

LHFI totaled $12.810 billion at September 30, 2023, an increase of $606.2 million, or 5.0%, compared to December 31, 2022. The increase in LHFI during the first nine months of 2023 was primarily due to net growth in LHFI secured by real estate partially offset by a decline in state and 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 investment portfolio and its access to funding from a variety of external funding sources such as upstream federal funds lines, FHLB advances and 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 $15.102 billion at September 30, 2023, an increase of $664.3 million, or 4.6%, compared to December 31, 2022. During the first nine months of 2023, noninterest-bearing deposits decreased $773.6 million, or 18.9%, as a result of declines in all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit accounts. Interest-bearing deposits increased $1.438 billion, or 13.9%, during the first nine months of 2023, primarily due to growth in certificates of deposits (CDs), which was principally attributable to deposit campaigns offered during the first nine months of 2023 and the addition of $727.3 million of brokered CDs, business and consumer money market deposit accounts (MMDA) and business interest checking accounts, partially offset by declines in public and consumer interest checking accounts and consumer savings accounts.

Federal funds purchased and securities sold under repurchase agreements totaled $321.8 million at September 30, 2023, a decrease of $127.5 million, or 28.4%, compared to December 31, 2022, principally due to a decrease in upstream federal funds purchased. Other borrowings totaled $793.2 million at September 30, 2023, a decrease of $257.7 million, or 24.5%, compared to December 31, 2022, principally due to a decline in short-term FHLB advances obtained from the FHLB of Dallas.

Recent Legislative and Regulatory Developments

Community Reinvestment Act Reform

On October 24, 2023, the Office of the Comptroller of the Currency, the FRB and the FDIC (the Agencies) released a final rule significantly revising the framework that the Agencies use to evaluate banks’ records of meeting the credit needs of their entire communities under the Community Reinvestment Act (CRA). Under the revised framework, banks with assets of at least $2 billion, including TNB, are considered large banks and, accordingly, will have their retail lending, retail services and products, community development financing and community development services subject to periodic evaluation under complex, multi-part standards. Large banks will be subject to enhanced data collection and reporting requirements, with additional data collection and reporting requirements applying to banks, including Trustmark, with assets greater than $10 billion. Depending on a large bank’s geographic concentrations of lending, the evaluation of retail lending may include assessment areas in which the bank extends loans but does not operate any deposit-taking facilities, in addition to assessment areas in which the bank has deposit-taking facilities. The rule becomes effective April 1, 2024. Compliance with most provisions of the final rule will be required beginning January 1, 2026, and compliance with the remaining provisions will be required beginning January 1, 2027. Trustmark is evaluating the impact of the final rule.

FDIC Special Assessment

On May 11, 2023, the FDIC issued a proposed rule if adopted would impose special assessments to recover the loss to the FDIC’s Deposit Insurance Fund (DIF) incurred in the receiverships of these institutions. Under the proposed rule, the FDIC would collect special assessments at an annual rate of approximately 12.5 basis points, over eight quarterly assessment periods. The assessment base for the special assessments under the proposed rule would be equal to an insured depository institution's estimated uninsured deposits, reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. Under the proposed rule, the FDIC would retain the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period to collect the difference between estimated or actual losses and the amounts collected, and impose

a final shortfall special assessment on a one-time basis after the receiverships for Silicon Valley Bank and Signature Bank terminate. The special assessments as proposed are not expected to be material to Trustmark's financial condition or results of operations.

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. The rule was scheduled to take effect on August 29, 2023, and requires compliance by October 1, 2024, April 1, 2025, or January 1, 2026, depending on the number of covered small business loans that a covered lender originates. On July 31 2023, the U.S. District Court for the Southern District of Texas enjoined the CFPB from implementing and enforcing the rule with respect to American Bankers Association members, which includes Trustmark, pending the U.S. Supreme Court's consideration of the constitutionality of the CFPB's funding structure in a separate case. On October 26, 2023, the court expanded the scope of its injunction to cover banks nationwide.

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 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,
2023 2022 2023 2022
Consolidated Statements of Income
Total interest income $ 228,522 $ 144,423 $ 645,950 $ 365,320
Total interest expense 89,885 8,318 229,814 17,195
Net interest income 138,637 136,105 416,136 348,125
Provision for credit losses (PCL), LHFI 8,322 12,919 19,777 14,775
PCL, off-balance sheet credit exposures 104 (1,326 ) (1,893 ) (4,000 )
Noninterest income 52,224 52,606 157,154 159,974
Noninterest expense 140,945 126,698 401,490 371,984
Income before income taxes 41,490 50,420 153,916 125,340
Income taxes 7,461 7,965 24,550 19,390
Net Income $ 34,029 $ 42,455 $ 129,366 $ 105,950
Total Revenue (1) $ 190,861 $ 188,711 $ 573,290 $ 508,099
Per Share Data
Basic EPS $ 0.56 $ 0.69 $ 2.12 $ 1.73
Diluted EPS 0.56 0.69 2.11 1.72
Cash dividends per share 0.23 0.23 0.69 0.69
Performance Ratios
Return on average equity 8.53 % 10.48 % 11.07 % 8.62 %
Return on average tangible equity 11.32 % 13.90 % 14.77 % 11.39 %
Return on average assets 0.72 % 0.98 % 0.93 % 0.81 %
Average equity / average assets 8.46 % 9.32 % 8.37 % 9.45 %
Net interest margin (fully taxable equivalent) 3.29 % 3.50 % 3.34 % 3.00 %
Dividend payout ratio 41.07 % 33.33 % 32.55 % 39.88 %
Credit Quality Ratios (2)
Net charge-offs (recoveries) / average loans 0.11 % 0.03 % 0.06 % -0.01 %
PCL, LHFI / average loans 0.26 % 0.45 % 0.21 % 0.18 %
Nonaccrual LHFI / (LHFI + LHFS) 0.70 % 0.58 %
Nonperforming assets / (LHFI + LHFS)<br>   plus other real estate 0.74 % 0.60 %
ACL, LHFI / LHFI 1.05 % 0.99 %

(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,
2023 2022
Consolidated Balance Sheets
Total assets $ 18,390,839 $ 17,190,634
Securities 3,204,461 3,601,471
Total loans (LHFI + LHFS) 12,979,503 11,751,277
Deposits 15,101,923 14,425,180
Total shareholders' equity 1,570,351 1,508,945
Stock Performance
Market value - close $ 21.73 $ 30.63
Book value 25.71 24.76
Tangible book value 19.37 18.39
Capital Ratios
Total equity / total assets 8.54 % 8.78 %
Tangible equity / tangible assets 6.57 % 6.67 %
Tangible equity / risk-weighted assets 7.81 % 8.15 %
Tier 1 leverage ratio 8.49 % 9.01 %
Common equity Tier 1 risk-based capital ratio 9.89 % 10.63 %
Tier 1 risk-based capital ratio 10.29 % 11.06 %
Total risk-based capital ratio 12.11 % 12.85 %

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.

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,
2023 2022 2023 2022
TANGIBLE EQUITY
AVERAGE BALANCES
Total shareholders' equity $ 1,582,885 $ 1,606,469 $ 1,562,551 $ 1,642,450
Less: Goodwill (384,237 ) (384,237 ) (384,237 ) (384,237 )
Identifiable intangible assets (3,174 ) (4,131 ) (3,331 ) (4,479 )
Total average tangible equity $ 1,195,474 $ 1,218,101 $ 1,174,983 $ 1,253,734
PERIOD END BALANCES
Total shareholders' equity $ 1,570,351 $ 1,508,945
Less: Goodwill (384,237 ) (384,237 )
Identifiable intangible assets (3,093 ) (3,952 )
Total tangible equity (a) $ 1,183,021 $ 1,120,756
TANGIBLE ASSETS
Total assets $ 18,390,839 $ 17,190,634
Less: Goodwill (384,237 ) (384,237 )
Identifiable intangible assets (3,093 ) (3,952 )
Total tangible assets (b) $ 18,003,509 $ 16,802,445
Risk-weighted assets (c) $ 15,143,531 $ 13,748,819
NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income $ 34,029 $ 42,455 $ 129,366 $ 105,950
Plus: Intangible amortization net of tax 96 234 409 842
Net income adjusted for intangible amortization $ 34,125 $ 42,689 $ 129,775 $ 106,792
Period end shares outstanding (d) 61,070,095 60,953,864
TANGIBLE EQUITY MEASUREMENTS
Return on average tangible equity (1) 11.32 % 13.90 % 14.77 % 11.39 %
Tangible equity/tangible assets (a)/(b) 6.57 % 6.67 %
Tangible equity/risk-weighted assets (a)/(c) 7.81 % 8.15 %
Tangible book value (a)/(d)*1,000 $ 19.37 $ 18.39
COMMON EQUITY TIER 1 CAPITAL (CET1)
Total shareholders' equity $ 1,570,351 $ 1,508,945
CECL transitional adjustment 13,000 19,500
AOCI-related adjustments 287,888 306,412
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs) (370,219 ) (370,217 )
Other adjustments and deductions for CET1 (2) (2,803 ) (3,506 )
CET1 capital (e) 1,498,217 1,461,134
Additional Tier 1 capital instruments plus related surplus 60,000 60,000
Tier 1 Capital $ 1,558,217 $ 1,521,134
Common equity Tier 1 risk-based capital ratio (e)/(c) 9.89 % 10.63 %

(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,
2023 2022 2023 2022
Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS
Net Income (GAAP) $ 34,029 $ 0.56 $ 42,455 $ 0.69 $ 129,366 $ 2.11 $ 105,950 $ 1.72
Significant non-routine<br>   transactions (net of taxes):
Litigation Settlement Expense 4,875 0.08 — — 4,875 0.08 — —
Net Income adjusted for<br>   significant non-routine<br>   transactions (Non-GAAP) $ 38,904 $ 0.64 $ 42,455 $ 0.69 $ 134,241 $ 2.19 $ 105,950 $ 1.72
Reported (GAAP) Adjusted <br>(Non-GAAP) Reported (GAAP) Adjusted <br>(Non-GAAP) Reported (GAAP) Adjusted <br>(Non-GAAP) Reported (GAAP) Adjusted <br>(Non-GAAP)
Return on average equity 8.53 % 9.74 % 10.48 % n/a 11.07 % 11.48 % 8.62 % n/a
Return on average tangible equity 11.32 % 12.92 % 13.90 % n/a 14.77 % 15.31 % 11.39 % n/a
Return on average assets 0.72 % 0.83 % 0.98 % n/a 0.93 % 0.96 % 0.81 % n/a

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 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, 2023 increased $2.9 million, or 2.1%, and $69.3 million, or 19.4%, respectively, when compared with the same time periods in 2022. The increase in net interest income-FTE when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was principally due to increases in interest and fees on LHFS and LHFI-FTE and other interest income, partially offset by increases in all categories of interest expense. The net interest margin-FTE for the three and nine months ended September 30, 2023 decreased 21 basis points to 3.29% and increased 34 basis points to 3.34%, respectively, when compared to the same time periods in 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 3.24% and 3.27% for the three and nine months ended September 30, 2023, respectively, a decrease of 29 basis points and an increase of 10 basis points, respectively, when compared to the same time periods in 2022. The decrease in the net interest margin excluding PPP loans and the balance held at the FRBA for the three months ended September 30, 2023 when compared to the same time period in 2022, was principally due to increases in the costs of interest-bearing liabilities partially offset by the increase in the yield on the LHFS and LHFI portfolios. The increase in the net interest margin excluding PPP loans and the balance held at the FRBA for the nine months ended September 30, 2023 compared to the same time period in 2022, was principally due to the increase in the yield on the LHFS and LHFI portfolio partially offset by increases in the costs of interest-bearing liabilities.

At September 30, 2023, Trustmark had no PPP loans outstanding compared to $4.8 million, net of $95 thousand of deferred fees and costs, outstanding at September 30, 2022. Processing fees earned by TNB as the originating lender were amortized over the life of the loans. Payments on PPP loans were deferred until the date the SBA remitted the borrower’s loan forgiveness amount to the lender (or, if the borrower did not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period). During the first nine months of 2022, PPP loans originated by Trustmark totaling $28.9 million were forgiven by the SBA. Average PPP loans

for the three and nine months ended September 30, 2022 totaled $9.8 million and $18.8 million, respectively. Interest and fees on PPP loans for the three and nine months ended September 30, 2022 totaled $186 thousand and $538 thousand, respectively, resulting in yield on PPP loans of 7.51% and 3.83%, respectively.

The average FRBA balance, included in other earning assets, for the three and nine months ended September 30, 2023 totaled $566.3 million and $633.0 million, respectively, an increase of $290.9 million and a decrease of $398.5 million, respectively, when compared to the same time periods in 2022. The increase in the average FRBA balance when the three months ended September 30, 2023 is compared to the same time period in 2022, was principally due to Management's decision to manage the FRBA to a higher balance to increase on hand liquidity during the period. The decrease in the average FRBA balance when the nine months ended September 30, 2023 is compared to the same time period in 2022, was principally due to the deployment of excess cash and the significant growth in the LHFI portfolio during 2022. Interest earned on FRBA balances increased $5.7 million and $19.6 million, respectively, when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022. The yield on the FRBA balance was 4.92% and 4.97% for the three and nine months ended September 30, 2023, respectively, compared to 1.86% and 0.51% for the same time periods in 2022, respectively, reflecting increases in the interest rate that the FRBA pays on reserves.

Average interest-earning assets for the three and nine months ended September 30, 2023 were $17.110 billion and $17.076 billion, respectively, compared to $15.770 billion and $15.937 billion for the same time periods in 2022, respectively, an increase of $1.340 billion, or 8.5%, and $1.139 billion, or 7.1%, respectively. The increase in average interest-earning assets for the three months ended September 30, 2023 when compared to the same time period in 2022, was principally due to increases in average loans (LHFS and LHFI) and average other earning assets, partially offset by a decline in average total securities. The increase in average earning assets for the nine months ended September 30, 2023 when compared to the same time period in 2022, was principally due to increases in average loans (LHFS and LHFI), partially offset by declines in average other earning assets and average securities. Average loans (LHFS and LHFI) increased $1.467 billion, or 12.8%, and $1.754 billion, or 16.0%, when the three and nine months ended September 30, 2023 are compared to the same time period in 2022, respectively, principally due to an increase in the average balance of the LHFI portfolio of $1.274 billion, or 11.9%, and $1.702 billion, or 15.8%, respectively. The increase in the LHFI portfolio when the balances at September 30, 2023 are compared to September 30, 2022 was principally due to net growth in LHFI secured by real estate and commercial and industrial LHFI, partially offset by a decrease in state and other political subdivision LHFI. Average other earning assets increased $357.0 million when the three months ended September 30, 2023 is compared to the same time period in 2022, primarily due to an increase in reserves held at the FRBA. Average other earning assets decreased $339.1 million, or 31.2%, when the nine months ended September 30, 2023 is compared to the same time period in 2022, respectively, primarily due to the decrease in reserves held at the FRBA. Average total securities declined $474.3 million, or 11.9%, and $259.8 million, or 6.7%, when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022, respectively, principally due to calls, maturities and pay-downs of the loans underlying GSE guaranteed securities.

Interest income-FTE for the three and nine months ended September 30, 2023 totaled $231.8 million and $656.1 million, respectively, an increase of $84.4 million, or 57.3%, and $281.9 million, or 75.3%, respectively, while the yield on total earning assets increased to 5.38% and 5.14%, respectively, compared to 3.71% and 3.14% for the same time periods in 2022, respectively. Interest income-FTE, excluding PPP loans and the balance held at the FRBA, for the three and nine months ended September 30, 2023 increased $78.9 million, or 54.1%, and $262.8 million, or 71.1%, respectively, while the yield on total earning assets excluding PPP loans and the balance held at the FRBA increased to 5.39% and 5.14%, respectively, compared 3.74% and 3.32% for the same time periods in 2022, respectively. 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, 2023 was primarily due to increases in interest and fees on LHFS and LHFI-FTE. During the three and nine months ended September 30, 2023, interest and fees on LHFS and LHFI-FTE increased $77.1 million, or 59.6%, and $252.8 million, or 77.6%, respectively, while the yield on LHFS and LHFI increased 186 basis points to 6.34% and 210 basis points to 6.07%, respectively, when compared to the same time periods in 2022, primarily due to the higher interest rate environment as well as the increase in the average balance of LHFI.

Average interest-bearing liabilities for the three and nine months ended September 30, 2023 totaled $13.105 billion and $12.914 billion, respectively, compared to $10.763 billion and $10.808 billion for the same time periods in 2022, respectively, an increase of $2.342 billion, or 21.8%, and $2.106 billion, or 19.5%, respectively. The increase in average interest-bearing liabilities when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was primarily the result of the increases in average interest-bearing deposits, average other borrowings and average federal funds purchased and securities sold under repurchase agreements. Average interest-bearing deposits for the three and nine months ended September 30, 2023 increased $1.353 billion, or 13.2%, and $855.9 million, or 8.3%, respectively, when compared to the same time periods in 2022, reflecting growth in average time deposits and average interest-bearing demand deposits, partially offset by declines in savings deposits. Average other borrowings for the three and nine months ended September 30, 2023 increased $823.7 million and $1.030 billion, respectively, when compared to the same time periods in 2022, principally due to the increase in outstanding short-term FHLB advances with the FHLB of Dallas as a result of changes in funding needs to support the strong loan growth. Average federal funds purchased and securities sold under repurchase

agreements for the three and nine months ended September 30, 2023 increased $164.9 million and $219.9 million, respectively, when compared to the same time periods in 2022, principally due to an increase in upstream federal funds purchased.

Interest expense for the three and nine months ended September 30, 2023 totaled $89.9 million and $229.8 million, respectively, an increase of $81.6 million and $212.6 million, respectively, when compared with the same time periods in 2022, while the rate on total interest-bearing liabilities increased 241 basis points to 2.72% and 217 basis points to 2.38%, respectively, reflecting increases in all categories of interest expense. Interest on deposits for the three and nine months ended September 30, 2023 increased $64.7 million and $154.5 million, respectively, while the rate on interest-bearing deposits increased 219 basis points to 2.39% and 183 basis points to 1.97%, respectively, when compared to the same time periods in 2022, primarily due to higher interest rates, reflecting the increased competitive pressures on deposits, and increases in average balances of time deposits and business interest checking accounts. Other interest expense for the three and nine months ended September 30, 2023 increased $12.7 million and $44.4 million, respectively, while the rate on other borrowings increased to 5.32% and 5.10%, respectively, compared to 2.89% and 2.56% for the same time periods in 2022, respectively, primarily due to the increase in outstanding short-term FHLB advances with the FHLB of Dallas. Interest on federal funds purchased and securities sold under repurchase agreements for the three and nine months ended September 30, 2023 increased $4.2 million and $13.7 million, respectively, while the rate on federal funds purchased and securities sold under repurchase agreements increased to 5.14% and 4.87%, respectively, when compared to 1.95% and 0.94% for the same time periods in 2022, respectively, reflecting the FRB's increases to the target rate for federal funds purchased as well as the increase in average upstream federal funds purchased.

The following tables provide 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,
2023 2022
Average<br>Balance Interest Yield/<br>Rate Average<br>Balance Interest Yield/<br>Rate
Assets
Interest-earning assets:
Federal funds sold and securities<br>   purchased under reverse repurchase<br>   agreements $ 230 $ 3 5.17 % $ 226 $ 2 3.51 %
Securities - taxable 3,494,901 16,624 1.89 % 3,964,939 16,222 1.62 %
Securities - nontaxable 5,686 58 4.05 % 9,985 100 3.97 %
PPP Loans — — — 9,821 186 7.51 %
Loans (LHFS and LHFI) 12,926,942 206,523 6.34 % 11,459,551 129,395 4.48 %
Other earning assets 682,644 8,613 5.01 % 325,620 1,493 1.82 %
Total interest-earning assets 17,110,403 231,821 5.38 % 15,770,142 147,398 3.71 %
Other assets 1,721,310 1,576,653
ACL, LHFI (127,915 ) (102,951 )
Total Assets $ 18,703,798 $ 17,243,844
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 11,593,096 69,797 2.39 % $ 10,239,752 5,097 0.20 %
Federal funds purchased and<br>   securities sold under repurchase<br>   agreements 414,696 5,375 5.14 % 249,809 1,225 1.95 %
Other borrowings 1,097,398 14,713 5.32 % 273,724 1,996 2.89 %
Total interest-bearing liabilities 13,105,190 89,885 2.72 % 10,763,285 8,318 0.31 %
Noninterest-bearing demand deposits 3,429,815 4,444,370
Other liabilities 585,908 429,720
Shareholders' equity 1,582,885 1,606,469
Total Liabilities and<br>   Shareholders' Equity $ 18,703,798 $ 17,243,844
Net Interest Margin 141,936 3.29 % 139,080 3.50 %
Less tax equivalent adjustment 3,299 2,975
Net Interest Margin per<br>   Consolidated Statements<br>   of Income $ 138,637 $ 136,105
Nine Months Ended September 30,
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2023 2022
Average<br>Balance Interest Yield/<br>Rate Average<br>Balance Interest Yield/<br>Rate
Assets
Interest-earning assets:
Federal funds sold and securities<br>   purchased under reverse repurchase<br>   agreements $ 1,953 $ 78 5.34 % $ 131 $ 3 3.06 %
Securities - taxable 3,587,670 50,164 1.87 % 3,843,549 43,140 1.50 %
Securities - nontaxable 7,161 219 4.09 % 11,050 329 3.98 %
PPP Loans — — — 18,788 538 3.83 %
Loans (LHFS and LHFI) 12,731,268 578,431 6.07 % 10,976,809 325,680 3.97 %
Other earning assets 747,627 27,217 4.87 % 1,086,771 4,524 0.56 %
Total interest-earning assets 17,075,679 656,109 5.14 % 15,937,098 374,214 3.14 %
Other assets 1,707,608 1,546,972
ACL, LHFI (123,313 ) (100,495 )
Total Assets $ 18,659,974 $ 17,383,575
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 11,198,409 165,104 1.97 % $ 10,342,528 10,631 0.14 %
Federal funds purchased and<br>   securities sold under repurchase<br>   agreements 413,608 15,072 4.87 % 193,661 1,365 0.94 %
Other borrowings 1,302,133 49,638 5.10 % 271,653 5,199 2.56 %
Total interest-bearing liabilities 12,914,150 229,814 2.38 % 10,807,842 17,195 0.21 %
Noninterest-bearing demand deposits 3,611,592 4,544,698
Other liabilities 571,681 388,585
Shareholders' equity 1,562,551 1,642,450
Total Liabilities and<br>   Shareholders' Equity $ 18,659,974 $ 17,383,575
Net Interest Margin 426,295 3.34 % 357,019 3.00 %
Less tax equivalent adjustment 10,159 8,894
Net Interest Margin per<br>   Consolidated Statements<br>   of Income $ 416,136 $ 348,125

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 $8.3 million and $19.8 million for the three and nine months ended September 30, 2023, respectively, compared to $12.9 million and $14.8 million, respectively, for the same time periods in 2022. The PCL on LHFI for the three and nine months ended September 30, 2023 primarily reflected an increase in required reserves as a result of loan growth, weakening in the macroeconomic forecasts and the net impact of qualitative changes including adjustments to the credit quality trend reserve, the commercial real estate concentration reserve and the nature and volume of the portfolio, partially offset by a decline in specific reserves for individually analyzed LHFI.

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 $104 thousand and a negative $1.9 million for the three and nine months ended September 30, 2023, respectively, compared to a negative $1.3 million and a negative $4.0 million, respectively, for the same time periods in 2022. The PCL on off-balance sheet credit exposures for the three months ended September 30, 2023, primarily reflected an increase in required reserves as a result of changes in the total reserve rate, which was largely offset by a decrease in required reserves due to a decline in unfunded commitments. The release in PCL on off-balance sheet credit exposures

for the nine months ended September 30, 2023, primarily reflected a decrease in required reserves due to a decline in unfunded commitments.

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 27.4% of total revenue for both the three and nine months ended September 30, 2023, respectively, compared to 27.9% and 31.5% or the three and nine months ended September 30, 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,
2023 2022 Change % Change 2023 2022 Change % Change
Service charges on deposit accounts $ 11,074 $ 11,318 ) -2.2 % $ 32,105 $ 30,995 3.6 %
Bank card and other fees 8,217 9,305 ) -11.7 % 24,937 27,914 ) -10.7 %
Mortgage banking, net 6,458 6,876 ) -6.1 % 20,697 24,898 ) -16.9 %
Insurance commissions 15,303 13,911 10.0 % 44,372 41,702 6.4 %
Wealth management 8,773 8,778 ) -0.1 % 26,435 26,934 ) -1.9 %
Other, net 2,399 2,418 ) -0.8 % 8,608 7,531 14.3 %
Total noninterest income $ 52,224 $ 52,606 ) -0.7 % $ 157,154 $ 159,974 ) -1.8 %

All values are in US Dollars.

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 increase in service charges on deposit accounts when the first nine months of 2023 is compared to the same time period in 2022 was principally due to an increase in service charges on personal interest checking accounts.

Bank Card and Other Fees

The decrease in bank card and other fees when the three and nine months ended September 30, 2023 is compared to the same time period in 2022 was principally due to declines in customer derivatives income.

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,
2023 2022 Change % Change 2023 2022 Change % Change
Mortgage servicing income, net $ 6,916 $ 6,669 3.7 % $ 20,465 $ 19,655 4.1 %
Change in fair value-MSR from<br>   runoff (3,203 ) (3,462 ) 7.5 % (7,058 ) (11,053 ) 36.1 %
Gain on sales of loans, net 3,748 4,597 ) -18.5 % 11,432 16,850 ) -32.2 %
Mortgage banking income<br>   before net hedge<br>   ineffectiveness 7,461 7,804 ) -4.4 % 24,839 25,452 ) -2.4 %
Change in fair value-MSR from<br>   market changes 6,809 10,770 ) -36.8 % 8,735 41,529 ) -79.0 %
Change in fair value of<br>   derivatives (7,812 ) (11,698 ) 33.2 % (12,877 ) (42,083 ) 69.4 %
Net hedge ineffectiveness (1,003 ) (928 ) ) -8.1 % (4,142 ) (554 ) ) n/m
Mortgage banking, net $ 6,458 $ 6,876 ) -6.1 % $ 20,697 $ 24,898 ) -16.9 %

All values are in US Dollars.

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

The decrease in mortgage banking, net for the three months ended September 30, 2023 when compared to the same time period in 2022 was principally due to decline in the gain on sales of loans, net, partially offset by a decline in the run-off of the MSR and an increase in mortgage servicing income. The decrease in mortgage banking, net when the first nine months of 2023 is compared to the same time period in 2022 was principally due to declines in the gain on sales of loans, 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, 2023 was $389.9 million and $1.182 billion, respectively, a decrease of $118.4 million, or 23.3%, and $551.8 million, or 31.8%, respectively, when compared to the same time periods in 2022. Loans serviced for others totaled $8.403 billion at September 30, 2023, compared with $8.078 billion at September 30, 2022, an increase of $325.7 million, or 4.0%.

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, 2023 is compared to the same time period in 2022, was primarily the result of lower profit margins in secondary marketing activities partially offset by increases in the mortgage fair value adjustment and the volume of loans sold. The decrease in the gain on sales of loans, net when the nine months ended September 30, 2023 is compared to the same time period in 2022, was primarily the result of lower profit margins in secondary marketing activities and a decline in the volume of loans sold, partially offset by an increase in the mortgage fair value adjustment. Loan sales totaled $343.7 million and $893.0 million for the three and nine months ended September 30, 2023, respectively, an increase of $28.5 million, or 9.0%, and a decreased if $133.3 million, or 13.0%, respectively, when compared with the same time periods in 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,
2023 2022 Change % Change 2023 2022 Change % Change
Partnership amortization for<br>   tax credit purposes $ (1,995 ) $ (1,531 ) ) -30.3 % $ (5,975 ) $ (4,342 ) ) -37.6 %
Increase in life insurance cash<br>   surrender value 1,784 1,676 6.4 % 5,193 4,986 4.2 %
Other miscellaneous income 2,610 2,273 14.8 % 9,390 6,887 36.3 %
Total other, net $ 2,399 $ 2,418 ) -0.8 % $ 8,608 $ 7,531 14.3 %

All values are in US Dollars.

The increase in other income, net for the first nine months of 2023, when compared to the same time period in 2022 was principally due to an increase in cash management service charges partially offset by an increase in the amortization of tax credit partnerships.

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,
2023 2022 Change % Change 2023 2022 Change % Change
Salaries and employee benefits $ 76,666 $ 72,707 5.4 % $ 226,662 $ 213,971 5.9 %
Services and fees (1) 27,882 26,787 4.1 % 81,572 77,760 4.9 %
Net occupancy-premises 7,383 7,395 ) -0.2 % 22,120 21,366 3.5 %
Equipment expense 6,816 6,072 12.3 % 19,625 18,180 7.9 %
Litigation settlement expense 6,500 — 100.0 % 6,500 — 100.0 %
Other expense (1) 15,698 13,737 14.3 % 45,011 40,707 10.6 %
Total noninterest expense $ 140,945 $ 126,698 11.2 % $ 401,490 $ 371,984 7.9 %

All values are in US Dollars.

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

(1)

During the first quarter of 2023, Trustmark reclassified its debit card transaction fees from other expense to services and fees. The prior periods have 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 increase in salaries and employee benefits when the three and nine months ended September 30, 2023 is compared to the same time periods in 2022 was principally due to increases in salaries expense, primarily due to general merit increases, accrued management

performance incentives and commission expense due to improvements in insurance production, partially offset by a decline in commission expense due to the decline in mortgage originations.

Services and Fees

The increase in services and fees for the three and nine months ended September 30, 2023 was principally due to increases in data processing charges related to software, business processing outsourcing fees and advertising expense, partially offset by a decrease in other services and fees.

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,
2023 2022 Change % Change 2023 2022 Change % Change
Loan expense (1) $ 3,130 $ 2,866 9.2 % $ 8,734 $ 9,341 ) -6.5 %
Amortization of intangibles 129 312 ) -58.7 % 547 1,122 ) -51.2 %
FDIC assessment expense 3,765 1,945 93.6 % 8,685 5,255 65.3 %
Other real estate expense, net (40 ) 497 ) n/m 303 1,155 ) -73.8 %
Other miscellaneous expense 8,714 8,117 7.4 % 26,742 23,834 12.2 %
Total other expense (1) $ 15,698 $ 13,737 14.3 % $ 45,011 $ 40,707 10.6 %

All values are in US Dollars.

(1)

During the first quarter of 2023, Trustmark reclassified its debit card transaction fees from other expense to services and fees. The prior periods have been reclassified accordingly.

The increase in other expense when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was principally due to increases in FDIC assessment expense and other miscellaneous expenses. The increase in FDIC assessment expense when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was principally due to changes in the assessment rate calculation, deployment of Trustmark's excess cash balance during 2022, which increased the overall assessment rate, and the 2 basis point increase in the initial base assessment rate by the FDIC during the second quarter of 2023 as part of the FDIC's final rule to restore the DIF to required levels. The increase in other miscellaneous expenses when the three and nine months ended September 30, 2023 are compared to the same time periods in 2022 was principally due to increases in travel and entertainment expense and other various miscellaneous expenses.

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 months ended September 30, 2023 and 2022.

General Banking

Net interest income for the General Banking Segment increased $67.5 million, or 19.6%, when the nine months ended September 30, 2023 is compared with the same time period in 2022. The increase in net interest income was principally due to increases in interest and fees on LHFS and LHFI and other interest income, partially offset by increases in all categories of interest expense. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for the nine months ended September 30, 2023 totaled $20.0 million compared to a PCL of $10.8 million for the same period in 2022, an increase of $9.2 million, or 85.6%. 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 $5.6 million, or 6.2%, when the first nine months of 2023 is compared to the same time period in 2022, primarily due to the declines in mortgage banking, net and bank card and other fees partially offset by an increase in service charges on deposit accounts. Noninterest income for the General Banking Segment represented 17.2% of total revenue for this segment for the first nine months of 2023 compared to 20.9% for the same time period in 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 increased $26.9 million, or 8.4%, when the first nine months of 2023 is compared with the same time period in 2022, principally due to increases in salaries and employee benefits, data processing charges related to software, FDIC assessment expense and the $6.5 million of litigation settlement expense, partially offset by declines in loan expenses and other services and fees. Excluding the litigation settlement expense, noninterest expense increased $20.4 million, or 6.4%, when the first nine months of 2023 is compared to the same time period in 2022. 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 months of 2023 increased $1.6 million, or 34.0%, when compared to the same time period in 2022, primarily due to an increase in the negative PCL, partially offset by a decrease in noninterest income. Net interest income for the Wealth Management Segment increased $514 thousand, or 13.0%, when the first nine months of 2023 is compared to the same time period in 2022, principally due to an increase in interest and fees on loans generated by the Private Banking Department partially offset by an increase in interest expense on deposits. The PCL for the nine months ended September 30, 2023 totaled a negative $2.1 million compared to a negative PCL of $10 thousand for the same period in 2022. Noninterest income for the Wealth Management Segment, which primarily includes income related to investment management, trust and brokerage services, decreased $812 thousand, or 3.0%, when the first nine months of 2023 is compared to the same time period in 2022, primarily due to a decline in income from brokerage services partially offset by an increase in income from trust management services. Noninterest expense for the Wealth Management Segment decreased $361 thousand, or 1.5%, when the first nine months of 2023 is compared to the same time period in 2022, principally due to a decrease in salaries and employee benefits expense, primarily related to broker commissions and trust incentives.

At September 30, 2023 and 2022, Trustmark held assets under management and administration of $8.235 billion and $16.528 billion, respectively, and brokerage assets of $2.431 billion and $2.172 billion, respectively.

Insurance

Net income for the Insurance Segment for the first nine months of 2023 increased $501 thousand, or 5.2%, when compared to the same time period in 2022. Noninterest income for the Insurance Segment, which is predominately composed of insurance commissions, increased $3.6 million, or 8.7%, when the first nine months of 2023 is compared to the same time period in 2022, primarily due to new business commission volume in the commercial property and casualty business. Noninterest expense for the Insurance Segment increased $3.0 million, or 10.2%, when the first nine months of 2023 is compared to the same time period in 2022, primarily due to increases in salary expense as a result of general merit increases and commission expense as a result of higher business volumes.

Income Taxes

For the three and nine months ended September 30, 2023, Trustmark’s combined effective tax rate was 18.0% and 16.0%, respectively, compared to 15.8% and 15.5%, respectively, for the same time periods in 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 $17.076 billion, or 91.5% of total average assets, for the nine months ended September 30, 2023, compared to $15.937 billion, or 91.7% of total average assets, for the nine months ended September 30, 2022, an increase of $1.139 billion, or 7.1%.

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 4.7 years at September 30, 2023 compared to 4.9 years at December 31, 2022.

When compared to December 31, 2022, total investment securities decreased by $314.1 million, or 8.9%, during the first nine months of 2023. This decrease resulted primarily from calls, maturities and pay-downs of the loans underlying GSE guaranteed securities. Trustmark sold no securities during the first nine months of 2023 or 2022.

During 2022, Trustmark reclassified approximately $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 these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $91.9 million ($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, 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 $60.4 million, net of tax, compared to $69.2 million, net of tax, at December 31, 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, 2023, available for sale securities totaled $1.766 billion, which represented 55.1% of the securities portfolio, compared to $2.024 billion, or 57.5% of total securities, at December 31, 2022. At September 30, 2023, unrealized losses, net on available for sale securities totaled $262.7 million compared to unrealized losses, net of $246.6 million at December 31, 2022. At September 30, 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, 2023, held to maturity securities totaled $1.438 billion, which represented 44.9% of the total securities portfolio, compared to $1.495 billion, or 42.5% of total securities, at December 31, 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 99.9% 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, 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, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023
Amortized Cost Estimated Fair Value
Amount % Amount %
Securities Available for Sale
Aaa $ 2,024,092 99.8 % $ 1,761,532 99.7 %
A1 to A3 1,014 — 1,000 0.1 %
Not Rated (1) 3,757 0.2 % 3,642 0.2 %
Total securities available for sale $ 2,028,863 100.0 % $ 1,766,174 100.0 %
Securities Held to Maturity
Aaa $ 1,437,946 100.0 % $ 1,312,530 100.0 %
Not Rated (1) 341 — 341 —
Total securities held to maturity $ 1,438,287 100.0 % $ 1,312,871 100.0 %
December 31, 2022
--- --- --- --- --- --- --- --- --- --- ---
Amortized Cost Estimated Fair Value
Amount % Amount %
Securities Available for Sale
Aaa $ 2,265,889 99.8 % $ 2,018,912 99.7 %
A1 to A3 1,028 — 1,017 0.1 %
Not Rated (1) 3,792 0.2 % 4,153 0.2 %
Total securities available for sale $ 2,270,709 100.0 % $ 2,024,082 100.0 %
Securities Held to Maturity
Aaa $ 1,490,004 99.7 % $ 1,402,079 99.7 %
Aa1 to Aa3 3,001 0.2 % 2,999 0.2 %
Not Rated (1) 1,509 0.1 % 1,511 0.1 %
Total securities held to maturity $ 1,494,514 100.0 % $ 1,406,589 100.0 %

(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.

LHFS

At September 30, 2023, LHFS totaled $169.2 million, consisting of $105.5 million of residential real estate mortgage loans in the process of being sold to third parties and $63.7 million of GNMA optional repurchase loans. At December 31, 2022, LHFS totaled $135.2 million, consisting of $64.4 million of residential real estate mortgage loans in the process of being sold to third parties and $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 months of 2023 or 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, 2023 and December 31, 2022, LHFI consisted of the following ($ in thousands):

September 30, 2023 December 31, 2022
Amount % Amount %
Loans secured by real estate:
Construction, land development and other land $ 655,381 5.1 % $ 690,616 5.7 %
Other secured by 1-4 family residential properties 603,818 4.7 % 590,790 4.8 %
Secured by nonfarm, nonresidential properties 3,569,671 27.9 % 3,278,830 26.9 %
Other real estate secured 1,218,499 9.5 % 742,538 6.1 %
Other loans secured by real estate:
Other construction 953,945 7.4 % 1,028,926 8.4 %
Secured by 1-4 family residential properties 2,289,788 17.9 % 2,185,057 17.9 %
Commercial and industrial loans 1,828,924 14.3 % 1,821,259 14.9 %
Consumer loans 165,556 1.3 % 170,230 1.4 %
State and other political subdivision loans 1,056,569 8.2 % 1,223,863 10.0 %
Other commercial loans 468,108 3.7 % 471,930 3.9 %
LHFI $ 12,810,259 100.0 % $ 12,204,039 100.0 %

LHFI increased $606.2 million, or 5.0%, compared to December 31, 2022. The increase in LHFI during the first nine months of 2023 was primarily due to net growth in LHFI secured by real estate partially offset by a decline in state and other political subdivision LHFI.

LHFI secured by real estate increased $774.3 million, or 9.1%, during the first nine months of 2023, primarily due to net growth in LHFI secured by other real estate, LHFI secured by nonfarm, nonresidential properties (NFNR) and LHFI secured by 1-4 family residential properties, partially offset by a decline in other construction LHFI and construction, land development and other land LHFI. LHFI secured by other real estate increased $476.0 million, or 64.1%, during the first nine months of 2023, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Alabama, Texas and Mississippi market regions. Excluding other construction loan reclassifications, LHFI secured by other real estate decreased $52.2 million, or 7.0%, during the first nine months of 2023 principally due to declines in LHFI secured by multi-family residential properties in the Mississippi and Alabama market regions, partially offset by growth in LHFI secured by multi-family LHFI in the Texas market region. NFNR LHFI increased $290.8 million, or 8.9%, during the first nine months of 2023 principally due to other construction loans that moved to NFNR LHFI in all five market regions. Excluding other construction loan reclassifications, NFNR LHFI decreased $152.2 million, or 4.6%, during the first nine months of 2023 due to declines in nonowner-occupied loans across all market regions with the exception of Texas as well as owner-occupied loans in all market regions with the exception of Mississippi. LHFI secured by 1-4 family residential properties increased $104.7 million, or 4.8%, during the first nine months of 2023 primarily reflecting new mortgage loan production. Other construction loans decreased $75.0 million, or 7.3%, during the first nine months of 2023 primarily due to new construction loans 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 months of 2023, $971.2 million loans were moved from other construction to other loan categories, including $528.2 million to multi-family residential loans, $383.2 million to nonowner-occupied loans and $59.8 million to owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans totaled $892.6 million, or 86.8%, during the first nine months of 2023. LHFI secured by construction, land development and other land decreased $35.2 million, or 5.1%, during the first nine months of 2023 primarily due to declines in 1-4 family construction loans in the Alabama, Florida, Mississippi and Tennessee market regions.

State and other political subdivision LHFI declined $167.3 million, or 13.7%, during the first nine 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, 2023 December 31, 2022
Home equity loans $ 50,310 $ 45,532
Home equity lines of credit 420,457 412,013
Percentage of loans and lines for which Trustmark holds first lien 48.5 % 51.7 %
Percentage of loans and lines for which Trustmark does not hold first lien 51.5 % 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.

Trustmark’s variable rate LHFI are based primarily on various prime and SOFR interest rate bases. The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of September 30, 2023 and December 31, 2022 ($ in thousands):

September 30, 2023
Fixed Variable Total
Loans secured by real estate:
Construction, land development and other land $ 177,466 $ 477,915 $ 655,381
Other secured by 1- 4 family residential properties 171,716 432,102 603,818
Secured by nonfarm, nonresidential properties 1,448,692 2,120,979 3,569,671
Other real estate secured 110,276 1,108,223 1,218,499
Other loans secured by real estate:
Other construction 12,597 941,348 953,945
Secured by 1- 4 family residential properties 1,394,874 894,914 2,289,788
Commercial and industrial loans 697,358 1,131,566 1,828,924
Consumer loans 137,316 28,240 165,556
State and other political subdivision loans 990,612 65,957 1,056,569
Other commercial loans 253,292 214,816 468,108
LHFI $ 5,394,199 $ 7,416,060 $ 12,810,259
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

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.

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

September 30, 2023
LHFI Composition by Region Total Alabama Florida Mississippi Tennessee Texas
Loans secured by real estate:
Construction, land development and other land $ 655,381 $ 292,229 $ 40,847 $ 180,562 $ 36,803 $ 104,940
Other secured by 1-4 family residential<br>   properties 603,818 143,673 53,575 297,529 78,982 30,059
Secured by nonfarm, nonresidential properties 3,569,671 1,034,874 225,415 1,472,990 158,448 677,944
Other real estate secured 1,218,499 574,432 1,786 339,070 7,234 295,977
Other loans secured by real estate:
Other construction 953,945 371,433 7,780 239,794 — 334,938
Secured by 1-4 family residential properties 2,289,788 — — 2,285,308 4,480 —
Commercial and industrial loans 1,828,924 596,259 24,918 748,944 210,930 247,873
Consumer loans 165,556 22,383 7,843 104,865 20,143 10,322
State and other political subdivision loans 1,056,569 75,952 61,154 794,052 25,302 100,109
Other commercial loans 468,108 159,380 8,642 194,610 33,139 72,337
LHFI $ 12,810,259 $ 3,270,615 $ 431,960 $ 6,657,724 $ 575,461 $ 1,874,499
Construction, Land Development and Other Land Loans by Region
Lots $ 70,356 $ 28,476 $ 9,633 $ 17,847 $ 3,786 $ 10,614
Development 141,561 66,958 1,264 37,430 9,547 26,362
Unimproved land 104,733 21,528 12,079 33,736 8,399 28,991
1-4 family construction 338,731 175,267 17,871 91,549 15,071 38,973
Construction, land development and<br>   other land loans $ 655,381 $ 292,229 $ 40,847 $ 180,562 $ 36,803 $ 104,940
Loans Secured by Nonfarm, Nonresidential Properties by Region
Nonowner-occupied:
Retail $ 347,583 $ 113,885 $ 26,299 $ 117,698 $ 20,497 $ 69,204
Office 279,701 102,062 17,527 90,600 1,679 67,833
Hotel/motel 302,738 172,577 50,221 53,467 26,473 —
Mini-storage 158,429 32,591 1,952 103,801 765 19,320
Industrial 401,023 90,512 20,175 134,431 9,839 146,066
Health care 96,798 68,699 — 25,316 335 2,448
Convenience stores 30,278 7,105 432 13,618 561 8,562
Nursing homes/senior living 500,572 224,541 — 158,619 5,076 112,336
Other 128,293 46,672 9,382 53,862 8,558 9,819
Total nonowner-occupied loans 2,245,415 858,644 125,988 751,412 73,783 435,588
Owner-occupied:
Office 156,016 43,789 35,448 46,191 11,153 19,435
Churches 62,835 16,432 4,261 36,020 3,594 2,528
Industrial warehouses 164,150 15,231 3,957 40,616 17,002 87,344
Health care 126,980 11,400 6,017 88,912 2,287 18,364
Convenience stores 143,188 11,801 29,443 67,261 196 34,487
Retail 90,471 10,370 13,880 39,378 17,836 9,007
Restaurants 57,112 4,095 3,467 31,116 15,181 3,253
Auto dealerships 44,669 5,780 206 21,859 16,824 —
Nursing homes/senior living 346,129 43,995 — 275,934 — 26,200
Other 132,706 13,337 2,748 74,291 592 41,738
Total owner-occupied loans 1,324,256 176,230 99,427 721,578 84,665 242,356
Loans secured by nonfarm, nonresidential<br>   properties $ 3,569,671 $ 1,034,874 $ 225,415 $ 1,472,990 $ 158,448 $ 677,944

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.

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.

The econometric models currently in production reflect segment or pool level sensitivities of probability 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 macroeconomic levels experienced during the COVID-19 pandemic, 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 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 historical loss experience and applied at a portfolio level.

The external factors qualitative factor is Management’s best judgment 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). 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 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 - 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 judgment 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, 2023, the ACL on LHFI was $134.0 million, an increase of $13.8 million, or 11.5%, when compared with December 31, 2022. The increase in the ACL during the first nine months of 2023 was principally due to loan growth, weakening in the macroeconomic forecasts, credit downgrades and the nature and volume of the portfolio, partially offset by a decline in specific reserves for individually analyzed LHFI. Allocation of Trustmark’s $134.0 million ACL on LHFI, represented 0.86% of commercial LHFI and 1.66% of consumer and home mortgage LHFI, resulting in an ACL to total LHFI of 1.05% as of September 30, 2023. This compares with an ACL to total LHFI of 0.99% at December 31, 2022, which was allocated to commercial LHFI at 0.85% and to consumer and mortgage LHFI at 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,
2023 2022 2023 2022
Balance at beginning of period $ 129,298 $ 103,140 $ 120,214 $ 99,457
Provision for credit losses, LHFI 8,322 12,919 19,777 14,775
LHFI charged-off (7,496 ) (2,920 ) (13,265 ) (7,439 )
Recoveries 3,907 1,911 7,305 8,257
Net (charge-offs) recoveries (3,589 ) (1,009 ) (5,960 ) 818
Balance at end of period $ 134,031 $ 115,050 $ 134,031 $ 115,050

The increase in net charge-offs when the three months ended September 30, 2023 is compared to the same time period in 2022 was principally due to increases in gross charge-offs in the Texas and Mississippi market regions, partially offset by an increase in recoveries in the Tennessee market region. The increase in net charge-offs when the first nine months of 2023 is compared to the same time period in 2022 was principally due to increases in gross charge-offs in the Texas and Mississippi market regions as well as a decline in recoveries in the Alabama market region, partially offset by an increase in recoveries in the 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,
2023 2022 2023 2022
Alabama $ (165 ) $ 93 $ (574 ) $ 1,921
Florida 21 (23 ) (50 ) 712
Mississippi (1,867 ) (702 ) (3,404 ) (1,056 )
Tennessee 2,127 (202 ) 1,837 (595 )
Texas (3,705 ) (175 ) (3,769 ) (164 )
Total net (charge-offs) recoveries $ (3,589 ) $ (1,009 ) $ (5,960 ) $ 818

The PCL, LHFI for the three and nine months ended September 30, 2023 totaled 0.26% and 0.21% of average loans (LHFS and LHFI), respectively, compared to 0.45% and 0.18% of average loans (LHFS and LHFI), respectively, for the same time periods in 2022. The PCL on LHFI for the three and nine months ended September 30, 2023 primarily reflected an increase in required reserves as a result of loan growth, weakening in the macroeconomic forecasts and the net impact of qualitative changes including adjustments to the credit

quality trend reserve, the commercial real estate concentration reserve and the nature and volume of the portfolio, partially offset by a decline in specific reserves for individually analyzed LHFI.

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 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 “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, 2023, the ACL on off-balance sheet credit exposures totaled $34.9 million compared to $36.8 million at December 31, 2022, a decrease of $1.9 million, or 5.1%. The PCL, off-balance sheet credit exposures totaled $104 thousand and a negative $1.9 million for the three and nine months ended September 30, 2023, respectively, compared to a negative $1.3 million and a negative $4.0 million, respectively, for the same time periods in 2022. The PCL on off-balance sheet credit exposures for the three months ended September 30, 2023, primarily reflected an increase in required reserves as a result of changes in the total reserve rate, which was largely offset by a decrease in required reserves due to a decline in unfunded commitments. The release in PCL on off-balance sheet credit exposures for the nine months ended September 30, 2023, primarily reflected a decrease in required reserves due to a decline in unfunded commitments.

Nonperforming Assets

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

September 30, 2023 December 31, 2022
Nonaccrual LHFI
Alabama $ 23,530 $ 12,300
Florida 151 227
Mississippi 45,050 24,683
Tennessee 1,841 5,566
Texas 20,327 23,196
Total nonaccrual LHFI 90,899 65,972
Other real estate
Alabama 315 194
Mississippi 942 1,769
Tennessee — 23
Texas 4,228 —
Total other real estate 5,485 1,986
Total nonperforming assets $ 96,384 $ 67,958
Nonperforming assets/total loans (LHFS and LHFI) and ORE 0.74 % 0.55 %
Loans past due 90 days or more
LHFI $ 3,804 $ 3,929
LHFS - Guaranteed GNMA serviced loans (1) $ 42,532 $ 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, 2023, nonaccrual LHFI totaled $90.9 million, or 0.70% of total LHFS and LHFI, reflecting an increase of $24.9 million, or 37.8%, relative to December 31, 2022. The increase in nonaccrual LHFI during the first nine months of 2023 was primarily as a result of two large commercial credits placed on nonaccrual that were partially offset by other commercial credits that were foreclosed, charged-off, returned to accrual or paid off.

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, 2023 increased $3.5 million when compared with December 31, 2022. The increase in other real estate was principally due to one property foreclosed in the Texas market region, partially offset by properties sold in the Mississippi market region.

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

Three Months Ended September 30, 2023
Total Alabama Mississippi Tennessee Texas
Balance at beginning of period $ 1,137 $ — $ 1,137 $ — $ —
Additions 4,864 179 457 — 4,228
Disposals (637 ) — (637 ) — —
(Write-downs) recoveries 121 136 (15 ) — —
Balance at end of period $ 5,485 $ 315 $ 942 $ — $ 4,228
Three Months Ended September 30, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total Alabama Mississippi Tennessee Texas
Balance at beginning of period $ 3,034 $ 84 $ 2,950 $ — $ —
Additions 974 100 874 — —
Disposals (635 ) (25 ) (610 ) — —
(Write-downs) recoveries (402 ) 58 (460 ) — —
Balance at end of period $ 2,971 $ 217 $ 2,754 $ — $ —
Nine Months Ended September 30, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total Alabama Mississippi Tennessee Texas
Balance at beginning of period $ 1,986 $ 194 $ 1,769 $ 23 $ —
Additions 5,434 179 797 230 4,228
Disposals (1,903 ) (194 ) (1,456 ) (253 ) —
(Write-downs) recoveries (32 ) 136 (168 ) — —
Balance at end of period $ 5,485 $ 315 $ 942 $ — $ 4,228
Nine Months Ended September 30, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total Alabama 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 $ — $ —

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 $481 thousand, or 93.8%, when the first nine months of 2023 is compared to the same time period in 2022, primarily due to a decrease in write-downs as a result of period revaluations of other real estate properties..

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 $15.102 billion at September 30, 2023 compared to $14.438 billion at December 31, 2022, an increase of $664.3 million, or 4.6%. During the first nine months of 2023, noninterest-bearing deposits decreased $773.6 million, or 18.9%, reflecting declines in all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit accounts. Interest-bearing deposits increased $1.438 billion, or 13.9%, during the first nine months of 2023, primarily due to growth in CDs, which was principally attributable to deposit campaigns offered during the first nine months of 2023 and the addition of $727.3 million of brokered CDs, business and consumer MMDAs and business interest checking accounts, partially offset by declines in public and consumer interest checking accounts and consumer savings accounts.

At September 30, 2023, Trustmark's total uninsured deposits were $5.390 billion, or 35.7% 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 $321.8 million at September 30, 2023 compared to $449.3 million at December 31, 2022, a decrease of $127.5 million, or 28.4%, principally due to a decrease in upstream federal funds purchased. At September 30, 2023 and December 31, 2022, $51.8 million and $66.3 million represented customer related transactions, such as commercial sweep repurchase balances. Trustmark had $270.0 million of upstream federal funds purchased at September 30, 2023 compared to $383.0 million at December 31, 2022.

Other borrowings totaled $793.2 million at September 30, 2023, a decrease of $257.7 million, or 24.5%, when compared with $1.051 billion at December 31, 2022, principally due to a decline in short-term FHLB advances obtained from the FHLB of Dallas.

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

Trustmark places a significant emphasis on the maintenance of a 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 terms of lower yields on short-term, more liquid earning assets and higher expenses for extended liability maturities. Trustmark manages capital based upon risks and 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 September 30, 2023, Trustmark’s total shareholders’ equity was $1.570 billion, an increase of $78.1 million, or 5.2%, when compared to December 31, 2022. During the first nine months of 2023, shareholders’ equity increased primarily as a result of net income of $129.4 million, partially offset by common stock dividends of $42.5 million.

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 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%. AOCI 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, 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, 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, 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. At September 30, 2023 and December 31, 2022, the carrying amount of the subordinated notes was $123.4 million and $123.3 million, respectively. 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 September 30, 2023 and December 31, 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, 2023 and December 31, 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, 2023 and December 31, 2022.

Dividends on Common Stock

Dividends per common share for the nine months ended September 30, 2023 and 2022 were $0.69. Trustmark’s indicated dividend for 2023 is $0.92 per common share, which is the same as dividends per common share declared in 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 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, 2023. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares were repurchased under this authority during the first nine months of 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. 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, the Federal Reserve Discount Window (Discount Window) and 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 $14.810 billion for the first nine months of 2023 and represented approximately 79.4% of average liabilities and shareholders’ equity, compared to average deposits of $14.887 billion, which represented 85.6% of average liabilities and shareholders’ equity for the first nine months of 2022. The decline in total average deposits when the first nine 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. For more information on average interest-bearing deposits, please see the analysis included in the section captioned “Net Interest Income.”

Trustmark had $486.9 million held in an interest-bearing account at the FRBA at September 30, 2023, compared to $434.0 million held at December 31, 2022.

Trustmark utilizes brokered deposits to supplement other wholesale funding sources. At September 30, 2023, brokered sweep MMDA deposits totaled $12.9 million compared to $15.1 million at December 31, 2022. In addition, Trustmark had $727.3 million of brokered CDs at September 30, 2023 compared to none at December 31, 2022. The increase in brokered CDs during the first nine months of 2023 was primarily due to leveraging comparatively attractive brokered CD pricing as a component of funding loan growth.

At September 30, 2023 Trustmark had $270.0 million of upstream federal funds purchased compared to $383.0 million of upstream federal funds purchased at December 31, 2022. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided $725.0 million of outstanding short-term and no long-term advances at September 30, 2023, compared to $975.0 million of outstanding short-term and no long-term advances at December 31, 2022. Trustmark had no standby letters of credit outstanding with the FHLB of Dallas at September 30, 2023 and December 31, 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 $3.595 billion at September 30, 2023.

In addition, at September 30, 2023, Trustmark had no short-term and $63 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 $78 thousand in long-term FHLB advances at December 31, 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, 2023, Trustmark had approximately $774.0 million available in unencumbered agency securities compared to $797.0 million in unencumbered Treasury and agency securities at December 31, 2022.

Another borrowing source is the Discount Window. At September 30, 2023, Trustmark had approximately $1.384 billion available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with $1.345 billion at December 31, 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 September 30, 2023, Trustmark had not accessed the BTFP.

During 2020, Trustmark issued $125.0 million aggregate principal amount of its 3.625% fixed-to-floating rate subordinated notes. At September 30, 2023 and December 31, 2022, the carrying amount of the subordinated notes was $123.4 million and $123.3 million, respectively. 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, 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, 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 2022 Annual Report for the expected timing of such payments as of September 30, 2023 and December 31, 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.

Following the LIBOR cessation date of June 30, 2023, the nationwide process for replacing LIBOR in financial contracts that mature thereafter and that do not provide for an effective means to replace LIBOR upon its cessation took effect pursuant to the Adjustable Interest Rate (LIBOR) Act. 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 had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR. As of September 30, 2023, substantially all of Trustmark’s LIBOR exposure was remediated or in the process of being remediated and the remaining LIBOR-based contracts are expected to transition out of LIBOR dependency by year-end 2023. The transition from LIBOR could create costs and additional risk. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, Trustmark has implemented various measures to manage the transition and mitigate risks. 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 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 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, 2023, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $1.000 billion 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 $13 thousand and $35 thousand of amortization expense for the three and nine months ended September 30, 2023, respectively, 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 and nine months ended September 30, 2023, Trustmark reclassified a loss, net of tax, of $3.5 million and $8.7 million, respectively, into interest and fees on LHFS and LHFI compared to a gain, net of tax, of $482 thousand for both the three and nine months ended September 30, 2022. During the next twelve months, Trustmark estimates that $18.4 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 $229.8 million at September 30, 2023, with a positive valuation adjustment of $1.7 million, compared to $165.4 million, with a positive valuation adjustment of $325 thousand at December 31, 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 $270.0 million at September 30, 2023 compared to $277.0 million at December 31, 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 $1.0 million and $928 thousand for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the impact of this strategy was a net negative ineffectiveness of $4.1 million and $554 thousand, 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, 2023, Trustmark had interest rate swaps with an aggregate notional amount of $1.365 billion related to this program, compared to $1.391 billion as of December 31, 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 deemed to be in default on its derivatives obligations.

At both September 30, 2023 and December 31, 2022, there was no termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. At September 30, 2023 and December 31, 2022, Trustmark had posted collateral of $40 thousand and $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, 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, 2023 and December 31, 2022, Trustmark had entered into five risk participation agreements as a beneficiary with an aggregate notional amount of $49.1 million and $50.2 million, respectively. At September 30, 2023, Trustmark had entered into thirty-four risk participation agreements as a guarantor with an aggregate notional amount of $281.9 million, compared to twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of $235.8 million at December 31, 2022. The aggregate fair values of these risk participation agreements were immaterial at both September 30, 2023 and December 31, 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, 2023 and 2022. Given the substantial increase in market rates, the down 200 basis points scenario has been added to the table below for the nine months ended September 30, 2023.

Estimated % Change<br>in Net Interest Income
Change in Interest Rates 2023 2022
+200 basis points 2.0 % 5.4 %
+100 basis points 1.0 % 2.7 %
-100 basis points -1.2 % -5.8 %
-200 basis points -2.8 % —

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 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 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, 2023 and 2022.

Estimated % Change<br>in Net Portfolio Value
Change in Interest Rates 2023 2022
+200 basis points -2.7 % -0.1 %
+100 basis points -1.2 % 0.1 %

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, 2023, the MSR fair value was $142.4 million, compared to $132.6 million at September 30, 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, 2023, would be a decline in fair value of approximately $5.0 million and $6.0 million, respectively, compared to a decline in fair value of approximately $4.7 million and $5.7 million, respectively, at September 30, 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 2022 Annual Report. There have been no significant changes in Trustmark’s critical accounting policies during the first nine months of 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.

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 2022 Annual Report.

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

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, 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, 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, 2023 to July 31, 2023 — $ — — $ 50,000
August 1, 2023 to August 31, 2023 — — — 50,000
September 1, 2023 to September 30, 2023 — — — 50,000
Total — —

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 30, 2023, none of Trustmark’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Trustmark’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

ITEM 6. EXHIBITS

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

EXHIBIT INDEX

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.

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 7, 2023 DATE: November 7, 2023

EX-31.a

Exhibit 31-a

TRUSTMARK CORPORATION

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Duane A. Dewey, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Trustmark Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

BY: /s/ Duane A. Dewey
Duane A. Dewey
President and Chief Executive Officer
DATE: November 7, 2023

EX-31.b

Exhibit 31-b

TRUSTMARK CORPORATION

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas C. Owens, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Trustmark Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

BY: /s/ Thomas C. Owens
Thomas C. Owens
Treasurer and Principal Financial Officer
DATE: November 7, 2023

EX-32.a

Exhibit 32-a

TRUSTMARK CORPORATION

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Trustmark Corporation (Trustmark) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Duane A. Dewey, President and Chief Executive Officer of Trustmark, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Trustmark.

BY: /s/ Duane A. Dewey
Duane A. Dewey
President and Chief Executive Officer
DATE: November 7, 2023

EX-32.b

Exhibit 32-b

TRUSTMARK CORPORATION

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Trustmark Corporation (Trustmark) on Form 10-Q for the quarter ended September 30,2023, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas C. Owens, Treasurer and Principal Financial Officer of Trustmark, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Trustmark.

BY: /s/ Thomas C. Owens
Thomas C. Owens
Treasurer and Principal Financial Officer
DATE: November 7, 2023

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