TRMK US Equity☆

ITEM 1A. RISK FACTORS

Trustmark and its subsidiaries could be adversely impacted by various risks and uncertainties, which are difficult to predict. As a financial institution, Trustmark has significant exposure to market risks, including interest rate risk, liquidity risk and credit risk. This section includes a description of the risks, uncertainties and assumptions identified by Management that could, individually or in combination, materially affect Trustmark’s financial condition and results of operations, as well as the value of Trustmark’s financial instruments in general, and Trustmark common stock, in particular. Additional risks and uncertainties that Management currently deems immaterial or is unaware of may also impair Trustmark’s financial condition and results of operations. This report is qualified in its entirety by the risk factors that are identified below.

Risks Related to Trustmark’s Business

Interest Rate Risks

Trustmark’s largest source of revenue (net interest income) is subject to interest rate risk.

Trustmark’s profitability depends to a large extent on net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities, such as deposits and borrowings. Trustmark is exposed to interest rate risk in its core banking activities of lending and deposit taking, since assets and liabilities reprice at different times and by different amounts as interest rates change. Trustmark is unable to predict changes in market interest rates, which are affected by many factors beyond Trustmark’s control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Market interest rates began to rise during 2022 after an extended period at historical lows. 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, up to a range of 4.25% to 4.50% as of December 2022. The FRB also signaled the possibility of additional rate increases throughout 2023. In addition, the FRB increased the interest that it pays on reserves multiple times during 2022 from 0.10% to 4.40% as of December 2022. The prolonged period of reduced interest rates has had and may continue to have an adverse effect on net interest income and margins and profitability for financial institutions, including Trustmark. Additionally, as interest rates have increased, so have competitive pressures on the deposit cost of funds. 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.

Financial simulation models are the primary tools used by Trustmark to measure interest rate exposure. Using a wide range of scenarios, Management is provided with extensive information on the potential impact to 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. Trustmark’s simulation model using static balances at December 31, 2022, estimated that in the event of a hypothetical 200 basis point increase in interest rates, net interest income may increase 3.3%, while a hypothetical 100 basis point increase in interest rates, may increase net

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interest income 1.7%. In the event of a hypothetical 100 basis point decrease in interest rates using static balances at December 31, 2022, it is estimated net interest income may decrease by 1.8%.

Net interest income is Trustmark’s largest revenue source, and it is important to discuss how Trustmark’s interest rate risk may be influenced by the various factors shown below:

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In general, for a given change in interest rates, the amount of the change in value (positive or negative) is larger for assets and liabilities with longer remaining maturities. The shape of the yield curve may affect new loan yields, funding costs and investment income differently.

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The remaining maturity of various assets or liabilities may shorten or lengthen as payment behavior changes in response to changes in interest rates. For example, if interest rates decline sharply, fixed-rate loans may pre-pay, or pay down, faster than anticipated, thus reducing future cash flows and interest income. Conversely, if interest rates increase, depositors may cash in their certificates of deposit prior to term (notwithstanding any applicable early withdrawal penalties) or otherwise reduce their deposits to pursue higher yielding investment alternatives. Repricing frequencies and maturity profiles for assets and liabilities may occur at different times. For example, in a falling rate environment, if assets reprice faster than liabilities, there will be an initial decline in earnings. Moreover, if assets and liabilities reprice at the same time, they may not be by the same increment. For instance, if the federal funds rate increased 50 basis points, rates on demand deposits may rise by 10 basis points, whereas rates on prime-based loans will instantly rise 50 basis points.

Financial instruments do not respond in a parallel fashion to rising or falling interest rates. This causes asymmetry in the magnitude of changes in net interest income, net economic value and investment income resulting from the hypothetical increases and decreases in interest rates. Therefore, Management monitors interest rate risk and adjusts Trustmark’s investment, funding and hedging strategies to mitigate adverse effects of interest rate shifts on Trustmark’s balance sheet.

Trustmark utilizes derivative contracts to hedge the mortgage servicing rights (MSR) in order to offset changes in fair value resulting from changes in interest rate environments. In spite of Trustmark’s due diligence in regard to these hedging strategies, significant risks are involved that, if realized, may prove such strategies to be ineffective, which could adversely affect Trustmark’s financial condition or results of operations. Risks associated with these strategies include the risk that counterparties in any such derivative and other hedging transactions may not perform; the risk that these hedging strategies rely on Management’s assumptions and projections regarding these assets and general market factors, including prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, and that these assumptions and projections may prove to be incorrect; the risk that these hedging strategies do not adequately mitigate the impact of changes in interest rates, prepayment speeds or other forecasted inputs to the hedging model; and the risk that the models used to forecast the effectiveness of hedging instruments may project expectations that differ from actual results. In addition, increased regulation of the derivative markets may increase the cost to Trustmark to implement and maintain an effective hedging strategy.

Trustmark closely monitors the sensitivity of net interest income and investment income to changes in interest rates and attempts to limit the variability of net interest income as interest rates change. Trustmark makes use of both on- and off-balance sheet financial instruments to mitigate exposure to interest rate risk.

Trustmark may be adversely affected by the transition from the London Interbank Offered Rate (LIBOR) as a reference rate.

In 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced that after the end of 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. On March 5, 2021, the FCA confirmed that the publication of most LIBOR term rates will end on June 30, 2023 (excluding one-week U.S. LIBOR and two-month U.S. LIBOR, the publication of which ended on December 31, 2021). The Alternative Reference Rates Committee (ARRC), a committee of U.S. financial market participants, has identified the Secured Overnight Financing Rate (SOFR) as the reference rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. However, there are conceptual and technical differences between LIBOR and SOFR. The federal banking agencies encouraged banking organizations to cease entering into new contracts that use US$ LIBOR as a reference rate by no later than December 31, 2021, and to ensure existing contracts have robust fallback language that includes a clearly defined alternative reference rate. Market participants are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. On December 16, 2022, the FRB adopted a final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. While the benchmark provider for US$ LIBOR (which was typically the benchmark that Trustmark used) intends to provide the benchmark for some tenors of US$ LIBOR through June 2023, Trustmark has transitioned to SOFR for new variable rate loans, derivative contracts, borrowings and other financial instruments as of January 1, 2022.

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Trustmark has a significant number of existing loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since alternative reference rates are calculated differently than LIBOR, payments under contracts referencing new alternative reference rates will differ from those referencing LIBOR. The transition has changed and will continue to change, Trustmark’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, failure to adequately manage the transition could have a material adverse effect on Trustmark’s business, financial condition, results of operations and reputation with its customers.

Credit and Lending Risks

Trustmark is subject to lending risk, which could impact the adequacy of the allowance for credit losses and results of operations.

There are inherent risks associated with Trustmark’s lending activities. While the housing and real estate markets have shown continued improvement, if trends in the housing and real estate markets were to revert or further decline below recession levels, Trustmark may experience higher than normal delinquencies and credit losses. Moreover, if the United States economy returns to a recessionary state, Management expects that it could severely affect economic conditions in Trustmark’s market areas and that Trustmark could experience significantly higher delinquencies and credit losses. In addition, bank regulatory agencies periodically review Trustmark’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further charge-offs, based on judgments different from those of Management. As a result, Trustmark may elect, or be required, to make further increases in its provision for credit losses in the future, particularly if economic conditions deteriorate.

Additionally, Trustmark may rely on information furnished by or on behalf of customers and counterparties in deciding whether to extend credit or enter into other transactions. This information could include financial statements, credit reports, business plans, and other information. Trustmark may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other information could have a material adverse impact on Trustmark’s business, financial condition, and results of operations.

Trustmark is subject to environmental liability risk associated with lending activities.

A significant portion of Trustmark’s loan portfolio is secured by real property. During the ordinary course of business, Trustmark forecloses on and takes title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, Trustmark may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require Trustmark to incur substantial expenses and may materially reduce the affected property’s value or limit Trustmark’s ability to use or ability to sell the affected property or to repay the indebtedness secured by the property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase Trustmark’s exposure to environmental liability. Environmental reviews of nonresidential real estate before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on Trustmark’s business, financial condition and results of operations.

Declines in asset values may result in credit losses and adversely affect the value of Trustmark’s investments.

Trustmark maintains an investment portfolio that includes, among other asset classes, obligations of states and municipalities, agency debt securities and agency mortgage-related securities. The market value of investments in Trustmark’s investment portfolio may be affected by factors other than interest rates or the underlying performance of the issuer of the securities, such as ratings downgrades, adverse changes in the business climate and a lack of pricing information or liquidity in the secondary market for certain investment securities. In addition, government involvement or intervention in the financial markets or the lack thereof or market perceptions regarding the existence or absence of such activities could affect the market and the market prices for these securities.

On a quarterly basis, Trustmark evaluates investments and other assets for expected credit losses. At December 31, 2022, gross unrealized losses on securities for which an allowance for credit losses has not been recorded totaled $335.0 million. Trustmark may be required to record credit loss expense if these investments suffer a decline in value that is the result of a credit loss. If Trustmark determines that a credit loss exists, the credit portion of the allowance would be 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 Trustmark may record is limited to the amount by which the amortized cost exceeds the fair value, which could have a material adverse effect on results of operations in the period in which a credit loss, if any, occurs.

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Liquidity Risk

Trustmark is subject to liquidity risk, which could disrupt its ability to meet its financial obligations.

Liquidity refers to Trustmark’s 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. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ or when assets cannot be liquidated at fair market value as needed. Trustmark obtains funding through deposits and various short-term and long-term wholesale borrowings, including federal funds purchased and securities sold under repurchase agreements, the Federal Reserve Discount Window (Discount Window) and Federal Home Loan Bank (FHLB) advances. Any significant restriction or disruption of Trustmark’s ability to obtain funding from these or other sources could have a negative effect on Trustmark’s ability to satisfy its current and future financial obligations, which could materially affect Trustmark’s financial condition or results of operations.

In addition to the risk that one or more of the funding sources may become constrained due to market conditions unrelated to Trustmark, there is the risk that Trustmark’s credit profile may decline such that one or more of these funding sources becomes partially or wholly unavailable to Trustmark.

Trustmark attempts to quantify such credit event risk by modeling bank specific and systemic scenarios that estimate the liquidity impact. Trustmark estimates such impact by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. To mitigate such risk, Trustmark maintains available lines of credit with the Federal Reserve Bank of Atlanta and the FHLB of Dallas that are secured by loans and investment securities. Management continuously monitors Trustmark’s liquidity position for compliance with internal policies.

External and Market-Related Risks

Trustmark’s business may be adversely affected by conditions in the financial markets and economic conditions in general.

Economic activity continued to improve during 2022 as COVID-19 cases declined across the United States and restrictions were lifted; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the long-term effectiveness of the COVID-19 vaccine and the potential economic impact of recent geopolitical developments, such as Russia's invasion of Ukraine. Inflation has become elevated, reflecting supply and demand imbalances related to the pandemic, supply chain issues, higher energy prices and broader price pressures. Doubts surrounding the near-term direction of global markets, and the potential impact of these trends 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 conditions, and thus may have an impact upon Trustmark’s financial condition or results of operations. Strategic risk, including threats to business models from rising rates and modest economic growth, remains high. Management’s ability to plan, prioritize and allocate resources in this new environment will be critical to Trustmark’s ability to sustain earnings that will attract capital. Because of the complexities presented by current economic conditions, Management will continue to be challenged in identifying alternative sources of revenue, prudently diversifying assets, liabilities and revenue and effectively managing the costs of compliance.

Market interest rates rose during 2022 after an extended period at historical lows. The prolonged period of reduced interest rates in recent years, has and may continue to place pressure on net interest margins for Trustmark (as well as its competitors). Conversely, as interest rates rise, so do competitive pressures on the deposit cost of funds. It is not possible to predict the pace and magnitude of changes to interest rates, or the impact rate changes will have on Trustmark’s results of operations.

Trustmark does not assume that current uncertain conditions in the economy will improve significantly in the near future. A weakened economy could affect Trustmark in a variety of substantial and unpredictable ways. In particular, Trustmark may face the following risks in connection with these events:

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Market developments and the resulting economic pressure on consumers may affect consumer confidence levels and may cause increases in delinquencies and default rates, which, among other effects, could further affect Trustmark’s charge-offs and provision for credit losses.

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Loan performance could experience a significantly extended deterioration or loan default levels could accelerate, foreclosure activity could significantly increase, or Trustmark’s assets (including loans and investment securities) could materially decline in value, any one of which, or any combination of more than one of which, could have a material adverse effect on Trustmark’s financial condition or results of operations.

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Management’s ability to measure the fair value of Trustmark’s assets could be adversely affected by market disruptions that could make valuation of assets more difficult and subjective. If Management determines that a significant portion of its assets have values that are significantly below their recorded carrying value, Trustmark could recognize a material charge

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to earnings in the quarter during which such determination was made, Trustmark’s capital ratios would be adversely affected by any such charge, and a rating agency might downgrade Trustmark’s credit rating or put Trustmark on credit watch.

It is difficult to predict the extent to which these challenging economic conditions will persist or whether recent progress in the economic recovery will instead shift to the potential for further decline. If the economy does weaken in the future, it is uncertain how Trustmark’s business would be affected and whether Trustmark would be able successfully to mitigate any such effects on its business. Accordingly, these factors in the United States (and, indirectly, global) economy could have a material adverse effect on Trustmark’s financial condition and results of operations.

Trustmark operates in a highly competitive financial services industry.

Trustmark faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have greater financial resources. Such competitors primarily include banks, as well as community banks operating nationwide and regionally within the various markets in which Trustmark operates. Trustmark also faces competition from many other types of financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. Additionally, fintech developments, such as blockchain and other distributed ledger technologies, have the potential to disrupt the financial industry and change the way banks do business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.

Some of Trustmark’s competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many of Trustmark’s larger competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than Trustmark.

Trustmark’s ability to compete successfully depends on a number of factors, including: the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; the ability to continue to expand Trustmark’s market position through organic growth and acquisitions; the scope, relevance and pricing of products and services offered to meet customer needs and demands; the rate at which Trustmark introduces new products and services relative to its competitors; and industry and general economic trends. Failure to perform in any of these areas could significantly weaken Trustmark’s competitive position, which could adversely affect Trustmark’s financial condition or results of operations.

The soundness of other financial institutions could adversely affect Trustmark.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or questions or rumors about, one or more financial services institutions or the financial services industry in general, could lead to market-wide liquidity problems, which could, in turn, lead to defaults or losses by Trustmark and by other institutions. Trustmark has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, mutual funds, and other institutional clients. Many of these transactions expose Trustmark to credit risk in the event of default of its counterparty or client. In addition, Trustmark’s credit risk may be exacerbated when the collateral it holds cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure owed to Trustmark. Losses related to these credit risks could materially and adversely affect Trustmark’s results of operations.

Compliance and Regulatory Risks

Trustmark is subject to extensive government regulation and supervision and possible enforcement and other legal actions.

Trustmark, primarily through TNB and certain nonbank subsidiaries, is subject to extensive federal and state regulation and supervision, which vests a significant amount of discretion in the various regulatory authorities. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations and supervisory guidance affect Trustmark’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation or statutes, regulations, policies and supervisory guidance, could affect Trustmark in substantial and unpredictable ways. Such changes could subject Trustmark to additional costs, limit the types of financial services and products Trustmark may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, civil money penalties, other sanctions by regulatory agencies and/or reputational damage. In this regard, government authorities, including bank regulatory agencies, continue to pursue enforcement agendas with respect to compliance and other legal matters involving financial activities, which heightens the risks

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associated with actual and perceived compliance failures. Any of the foregoing could have a material adverse effect on Trustmark’s financial condition or results of operations.

Trustmark is subject to numerous laws designed to protect consumers, including fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under fair lending laws and regulations could result in a wide variety of direct or indirect negative consequences, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on geographic expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Trustmark’s business, financial condition or results of operations. In 2021, TNB settled a fair lending enforcement action with the Department of Justice, the OCC and the CFPB and incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents of majority-Black and Hispanic neighborhoods in the Memphis metropolitan statistical area. Trustmark and TNB could be subject to other enforcement actions in the future.

In addition, financial institutions face scrutiny on actions and policies that are deemed to adversely impact consumers under the Dodd-Frank Act’s prohibition against unfair, deceptive or abusive acts and practices and Section 5 of the Federal Trade Commission Act’s prohibition against unfair or deceptive acts and practices. Bank regulators and the CFPB are responsible for enforcing these prohibitions against banking organizations. These prohibitions have been applied to prohibit perceived customer abuse in connection with a range of products, services, and practices, including account openings and fees charged where inadequate or no services are rendered for which charges were imposed, as well as other instances where consumers may have been misled through bank disclosures. In addition, the enforcement priorities of the agencies enforcing consumer protection laws have evolved over time and may continue to do so.

Failure by Trustmark to perform satisfactorily on its CRA evaluations could make it more difficult for Trustmark’s business to grow.

The performance of a bank under the CRA in meeting the credit needs of its community is a factor that must be taken into consideration when the federal banking agencies evaluate applications related to mergers and acquisitions, as well as branch opening and relocations. If TNB is unable to maintain at least a “Satisfactory” CRA rating, its ability to complete the acquisition of another financial institution or open a new branch will be adversely impacted. If TNB received an overall CRA rating of less than “Satisfactory,” the FDIC would not re-evaluate its rating until its next CRA examination, which may not occur for several more years, and it is possible that a low CRA rating would not improve in the future. As of its last examination, TNB received a CRA rating of “Satisfactory.”

Trustmark is subject to stringent capital requirements.

Under the regulatory capital rules of the FRB, OCC, and FDIC that implement a set of capital requirements issued by the Basel Committee on Banking Supervision known as Basel III, Trustmark and TNB are required to maintain a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8.0% plus a capital conservation buffer of 2.5%) and a leverage ratio of Tier 1 capital to total consolidated assets of at least 4.0%. In addition, for TNB to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 capital ratio of at least 8.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific capital level for any capital measure.

The capital rules also include stringent criteria for capital instruments to qualify as Tier 1 or Tier 2 capital. For instance, the rules effectively disallow newly issued trust preferred securities to be a component of a holding company’s Tier 1 capital. Trustmark will continue to count $60.0 million in outstanding trust preferred securities issued by the Trust as Tier 1 capital up to the regulatory limit, as permitted by a grandfather provision in the capital rules, but this grandfather provision may cease to apply if Trustmark consummates an acquisition of a depository institution holding company and the resulting organization has $15 billion of more in total assets.

Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 326, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments,” requires Trustmark to recognize all expected credit losses over the life of a loan based on historical experience, current conditions and reasonable and supportable forecasts. FASB ASC Topic 326 generally is expected to result in earlier recognition of credit losses, which would increase reserves and decrease capital. Additionally, the allowance for credit losses model could be materially impacted by changes in current and forecasted macroeconomic conditions. It is not possible to predict the timing or magnitude of changes in macroeconomic conditions or the impact such changes could have on

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Trustmark’s allowance for credit losses; however, material changes in the allowance for credit losses could have a material impact on Trustmark’s reserves and capital.

The regulatory capital rules applicable to Trustmark and TNB may continue to evolve as a result of new requirements established by the Basel Committee on Banking Supervision or legislative, regulatory or accounting changes in the United States. Management cannot predict the effect that any changes to current capital requirements would have on Trustmark and TNB.

Trustmark’s use of third-party service providers and Trustmark’s other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.

Trustmark regularly uses third-party service providers and subcontractors as part of its business. Trustmark also has substantial ongoing business relationships with partners and other third-parties and relies on certain third-parties to provide products and services necessary to maintain day-to-day operations. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention by regulators, including the FRB, OCC, CFPB and FDIC. Under regulatory guidance, Trustmark is required to apply stringent due diligence, conduct ongoing monitoring and maintain effective control over third-party service providers and subcontractors and other ongoing third-party business relationships. These regulatory expectations may change, and potentially become more rigorous in certain ways, due to an interagency effort to replace existing guidance on the risk management of third-party relationships with new guidance. Trustmark expects that the regulators will hold Trustmark responsible for deficiencies in its oversight and control of its third-party relationships and in the performance of the parties with which Trustmark has these relationships. Trustmark maintains a system of policies and procedures designed to ensure adequate due diligence is performed and to monitor vendor risks. While Trustmark believes these policies and procedures effectively mitigate risk, if the regulators conclude that Trustmark has not exercised adequate oversight and control over third-party service providers and subcontractors or other ongoing third-party business relationships or that such third-parties have not performed appropriately, Trustmark could be subject to enforcement actions, including civil monetary penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation.

Operational Risks

There may be risks resulting from the extensive use of models in Trustmark’s business.

Trustmark relies on statistical and quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, assessing potential acquisition opportunities, developing presentations made to market analysts and others, creating loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy, calculating regulatory capital levels and estimating the fair value of financial instruments and balance sheet items. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If models for determining interest rate risk and asset-liability management are inadequate, Trustmark may incur increased or unexpected losses upon changes in market interest rates or other market measures. If models for determining expected credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If models to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what Trustmark could realize upon sale or settlement of such financial instruments. Any such failure in the analytical or forecasting models could have a material adverse effect on Trustmark’s financial condition or results of operations.

Also, information Trustmark provides to its regulators based on poorly designed or implemented models could be inaccurate or misleading. Certain decisions that the regulators make, including those related to capital distributions and dividends to Trustmark’s shareholders, could be adversely affected due to the regulator’s perception that the quality of Trustmark’s models used to generate the relevant information is insufficient.

Trustmark could be required to write down goodwill and other intangible assets.

If Trustmark consummates an acquisition, a portion of the purchase price would generally be allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, 2022, goodwill and other identifiable intangible assets were $387.9 million. Under current accounting standards, if Trustmark determines goodwill or intangible assets are impaired, Trustmark would be required to write down the carrying value of these assets. Trustmark’s annual goodwill impairment evaluation performed during the fourth quarter of 2022 indicated no impairment of goodwill for any reporting segment. Management cannot provide assurance, however, that Trustmark will not be required to take an impairment charge in the future. Any impairment charge would have an adverse effect on Trustmark’s shareholders’ equity and financial condition and could cause a decline in Trustmark’s stock price.

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Trustmark holds other real estate and may acquire and hold significant additional amounts, which could lead to increased operating expenses and vulnerability to additional declines in real property values.

As business necessitates, Trustmark forecloses on and takes title to real estate serving as collateral for loans. At December 31, 2022, Trustmark held $2.0 million of other real estate, compared to $4.6 million at December 31, 2021. The amount of other real estate held by Trustmark may increase in the future as a result of, among other things, business combinations, increased uncertainties in the housing market or increased levels of credit stress in residential real estate loan portfolios. Increased other real estate balances could lead to greater expenses as Trustmark incurs costs to manage, maintain and dispose of real properties as well as to remediate any environmental cleanup costs incurred in connection with any contamination discovered on real property on which Trustmark has foreclosed and to which Trustmark has taken title. As a result, Trustmark’s earnings could be negatively affected by various expenses associated with other real estate owned, including personnel costs, insurance and taxes, completion and repair costs, valuation adjustments and other expenses associated with real property ownership, as well as by the funding costs associated with other real estate assets. The expenses associated with holding a significant amount of other real estate could have a material adverse effect on Trustmark’s financial condition or results of operations.

If Trustmark is required to repurchase a significant number of mortgage loans that it had previously sold, such repurchases could negatively affect earnings.

One of Trustmark’s primary business operations is mortgage banking under which residential mortgage loans are sold in the secondary market under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. Trustmark may be required to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the anticipated 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 the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Representations and Warranties Framework, which provides that FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties if the mortgage loans satisfy certain criteria, such as payment history or quality control review.

Changes in retail distribution strategies and consumer behavior may adversely impact Trustmark’s investments in premises, equipment, technology and other assets and may lead to increased expenditures to change its retail distribution channel.

Trustmark has significant investments in bank premises and equipment for its branch network. Advances in technology such as ecommerce, telephone, internet and mobile banking, and in-branch self-service technologies including interactive teller machines (ITMs) and other equipment, as well as an increasing customer preference for these other methods of accessing Trustmark’s products and services, could decrease the value of its branch network, technology, or other retail distribution physical assets and may cause Trustmark to change its retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce its remaining branches and work force. These actions could lead to losses on these assets or could adversely impact the carrying value of any long-lived assets and may lead to increased expenditures to renovate, reconfigure or close a number of Trustmark’s remaining branches or to otherwise reform its retail distribution channel.

Trustmark may experience disruptions of its operating systems or breaches in its information system security.

Trustmark is dependent upon communications and information systems to conduct business as such systems are used to manage virtually all aspects of Trustmark’s business. Trustmark’s operations rely on the secure processing, storage and transmission of confidential and other information within its computer systems and networks. Trustmark has taken protective measures, which are continuously monitored and modified as warranted; however, Trustmark’s computer systems, software and networks may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond Trustmark’s control. There could be sudden increases in customer transaction volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters; and events arising from local or larger scale political or social matters, including terrorist acts. Further, Trustmark’s operational and security systems and infrastructure may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious codes and cyber-attacks that could affect their information system security. If one or more of these events were to occur, Trustmark’s or its customers’ confidential and other information would be jeopardized, or such an event could cause interruptions or malfunctions in Trustmark’s or its customers’ or counterparties’ operations. Trustmark may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures in its computer systems and networks, and Trustmark may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by Trustmark. Any such losses, which may be difficult to detect, could adversely

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affect Trustmark’s financial condition or results of operations. In addition, the occurrence of such a loss could expose Trustmark to reputational risk, the loss of customer business and additional regulatory scrutiny.

Security breaches in Trustmark’s internet and mobile banking activities (myTrustmark®) could further expose Trustmark to possible liability and reputational risk. Any compromise in security could deter customers from using Trustmark’s internet and mobile banking services that involve the transmission of confidential information. Trustmark relies on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. However, these precautions may not protect Trustmark’s systems from compromise or breaches of security, which could result in significant legal liability and significant damage to Trustmark’s reputation and business.

Trustmark relies upon certain third-party vendors to provide products and services necessary to maintain day-to-day operations. Accordingly, Trustmark’s operations are exposed to the risk that these vendors might not perform in accordance with applicable contractual arrangements or service level agreements or that the security of the third-party vendors’ computer systems, software and networks may be vulnerable to compromises that could impact information system security. Trustmark maintains a system of policies and procedures designed to monitor vendor risks. While Trustmark believes these policies and procedures effectively mitigate risk, the failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements or any compromise in the security of an external vendor’s information systems could be disruptive to Trustmark’s operations, which could have a material adverse effect on its financial condition or results of operations.

Trustmark must utilize new technologies to deliver its products and services, which could require significant resources and expose Trustmark to additional risks, including cyber-security risks.

In order to deliver new products and services and to improve the productivity of existing products and services, the banking industry relies on rapidly evolving technologies. Trustmark continues to invest in technology to facilitate the ability of its customers to engage in financial transactions, and otherwise enhance the customer experience with respect to its products and services. Trustmark’s ability to effectively utilize new technologies to address customer needs and create operating efficiencies could materially affect future prospects. Management cannot provide any assurances that Trustmark will be successful in utilizing such new technologies. Incorporation of new products and services, such as internet and mobile banking services, may require significant resources and expose Trustmark to additional risks, including cyber-security risks.

Trustmark’s controls and procedures may fail or be circumvented.

Trustmark’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on assumptions, and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of Trustmark’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on Trustmark’s business, financial condition and results of operations.

Trustmark may be subject to increased claims and litigation, which could result in legal liability and reputational damage.

Trustmark has been named from time to time as a defendant in litigation relating to its businesses and activities. Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages.

In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.

Substantial legal liability against Trustmark, including its subsidiaries, could materially adversely affect Trustmark’s business, financial condition or results of operations, or cause significant harm to its reputation. TNB recently agreed to a settlement relating to litigation involving the Stanford Financial Group. For additional information regarding this settlement, see the section captioned “Legal Proceedings” in Note 16 - Commitments and Contingencies included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Damage to Trustmark’s reputation could have a significant negative impact on Trustmark’s business.

Trustmark’s ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by its reputation. Public perception of the financial services industry declined as a result of the economic downturn and related government response. Trustmark faces increased public and regulatory scrutiny resulting from the financial crisis and economic downturn. Significant harm to Trustmark’s reputation can also arise from other sources, including employee misconduct, actual or perceived

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unethical or illegal behavior, litigation or regulatory outcomes, failing to deliver minimum or required standards of service and quality, compliance failures, disclosure of confidential information, significant or numerous failures, interruptions or breaches of its information systems and the activities of its clients, customers and counterparties, including vendors. Actions by the financial services industry generally or by certain members or individuals in the industry may have a significant adverse effect on Trustmark’s reputation. Trustmark could also suffer significant reputational harm if it fails to properly identify and manage potential conflicts of interest. Management of potential conflicts of interests has become increasingly complex as Trustmark expands its business activities through more numerous transactions, obligations and interests with and among its clients. The actual or perceived failure to adequately address conflicts of interest could affect the willingness of clients to deal with Trustmark, which could adversely affect Trustmark’s businesses.

Risk Related to Acquisition Activity

Potential acquisitions by Trustmark may disrupt Trustmark’s business and dilute shareholder value.

Trustmark continuously monitors the market for merger or acquisition opportunities and, depending upon business and other considerations, may elect to pursue one or more such opportunities in the future. Any such merger or acquisition candidate would need to have a similar culture to Trustmark, have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including: potential exposure to unknown or contingent liabilities of the target company, exposure to potential asset quality issues of the target company, difficulty and expense of integrating the operations and personnel of the target company, potential disruption to Trustmark’s business, potential diversion of Trustmark’s Management’s time and attention, the possible loss of key employees and customers of the target company, difficulty in estimating the value of the target company and potential changes in banking or tax laws or regulations that may affect the target company. Acquisitions may involve the payment of a premium over book and market values, and, therefore, some dilution of Trustmark’s tangible book value and net income per share of common stock may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue projections, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on Trustmark’s financial condition or results of operations.

General Risk Factors

The stock price of financial institutions, like Trustmark, can be volatile.

The volatility in the stock prices of companies in the financial services industry, such as Trustmark, may make it more difficult for shareholders to resell Trustmark common stock at attractive prices in a timely manner. Trustmark’s stock price can fluctuate significantly in response to a variety of factors, including factors affecting the financial industry as a whole. The factors affecting financial stocks generally and Trustmark’s stock price in particular include:

•

actual or anticipated variations in earnings;

•

changes in analysts’ recommendations or projections;

•

operating and stock performance of other companies deemed to be peers;

•

perception in the marketplace regarding Trustmark, its competitors and/or the industry as a whole;

•

significant acquisitions or business combinations involving Trustmark or its competitors;

•

provisions in Trustmark’s by-laws and articles of incorporation that may discourage takeover attempts, which may make Trustmark less attractive to a potential purchaser;

•

changes in government regulation;

•

failure to integrate acquisitions or realize anticipated benefits from acquisitions; and

•

volatility affecting the financial markets in general.

General market fluctuations, the potential for breakdowns on electronic trading or other platforms for executing securities transactions, industry factors and general economic and political conditions could also cause Trustmark’s stock price to decrease regardless of operating results.

Changes in accounting standards may affect how Trustmark reports its financial condition and results of operations.

Trustmark’s accounting policies and methods are fundamental to how Trustmark records and reports its financial condition and results of operations. From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of

25

Trustmark’s financial statements. The most recent economic recession resulted in increased scrutiny of accounting standards by regulators and legislators, particularly as they relate to fair value accounting principles. In addition, ongoing efforts to achieve convergence between generally accepted accounting principles (GAAP) and International Financial Reporting Standards may result in changes to GAAP. Any such changes can be difficult to predict and can materially affect how Trustmark records and reports its financial condition or results of operations. For additional details regarding recently adopted and pending accounting pronouncements, see Note 1 – Significant Accounting Policies included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Trustmark may not be able to attract or retain key employees.

Trustmark’s success depends substantially on its ability to attract and retain skilled, experienced personnel. Competition for qualified candidates in the activities and markets that Trustmark serves is intense. While Trustmark invests significantly in the training and development of its employees, it is possible that Trustmark may not be able to retain key employees. If Trustmark were unable to retain its most qualified employees, its performance and competitive positioning could be materially adversely affected.

Natural disasters, such as hurricanes, could have a significant negative impact on Trustmark’s business.

Many of Trustmark’s loans are secured by property or are made to businesses in or near the Gulf Coast regions of Alabama, Florida, Mississippi and Texas, which are often in the path of seasonal hurricanes. Natural disasters, such as hurricanes, could have a significant negative impact on the stability of Trustmark’s deposit base, the ability of borrowers to repay outstanding loans and the value of collateral securing loans, and could cause Trustmark to incur material additional expenses. Although Management has established disaster recovery policies and procedures, the occurrence of a natural disaster, especially if any applicable insurance coverage is not adequate to enable Trustmark’s borrowers to recover from the effects of the event, could have a material adverse effect on Trustmark’s financial condition or results of operations.

Climate change and societal responses to climate change could adversely affect Trustmark’s business and results of operations, including indirectly through impact to its customers.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions. The United States Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits and the implementation of significant operational changes, each of which may require businesses to expend significant capital and incur compliance, operating, maintenance and remediation costs. Consumers and businesses also may change their behavior on their own as a result of these concerns.

It is not possible to predict how climate change may impact Trustmark’s financial condition and operations; however, Trustmark operates in areas where its business and the activities of its customers could be impacted by the effects of climate change. The effects of climate change may include increased frequency or severity of weather-related events, such as severe storms, hurricanes, flooding and droughts and rising sea levels. These effects can disrupt business operations, damage property, devalue assets and change customer and business preferences, which may adversely affect borrowers, increase credit risk and reduce demand for Trustmark’s products and services. Trustmark and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. Trustmark and its customers may face cost increases, asset value reductions, operating process changes and the like. The impact to Trustmark’s customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. In addition, Trustmark could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Trustmark’s efforts to take these risks into account may not be effective in protecting it from the negative impact of new laws and regulations or changes in consumer or business behavior and could have a material adverse effect on Trustmark’s financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Trustmark’s principal offices are housed in its main office building located in downtown Jackson, Mississippi and owned by TNB. Trustmark’s main office building is primarily allocated for bank use with a small portion available for occupancy by tenants on a lease basis, although such incidental leasing activity is not material to Trustmark’s operations. At December 31, 2022, Trustmark, through TNB, operated 163 full-service branches, 6 limited-service branches and an automated teller machine (ATM) network, which included

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150 ATMs and 108 ITMs at its branches and other locations. In addition, Trustmark operated 16 offices in various locations providing mortgage banking, wealth management and insurance services. Trustmark leases 35 of its branch and other office locations with the remainder being owned. Trustmark believes its properties are suitable and adequate to operate its financial services business.

ITEM 3. LEGAL PROCEEDINGS

Information required in this section is set forth under the heading “Legal Proceedings” of Note 16 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

In accordance FASB ASC Subtopic 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. As a result of the entry into the Settlement relating to the litigation involving the Stanford Financial Group, Trustmark recognized a $100.0 million litigation settlement expense included in noninterest expense during the fourth quarter of 2022, plus an additional $750 thousand in related legal fees. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any currently pending legal proceeding other than the settled Stanford litigation is not probable and 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. Management 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 other than the settled Stanford litigation should not have a material adverse effect on Trustmark’s consolidated financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Prices and Dividends

Trustmark’s common stock is listed on the Nasdaq Stock Market and is traded under the symbol “TRMK.”

Trustmark paid quarterly cash dividends to shareholders of $0.23 per share, or $0.92 per share annually, in 2022. As a component of return to common shareholders, Trustmark intends to pay cash dividends when corporate financial performance and capital strength allow it to do so. All dividend payments must be approved and declared by the Board of Directors of Trustmark and are required to be in compliance with all applicable laws and regulations.

At January 31, 2023, there were approximately 3,050 registered shareholders of record and approximately 18,774 beneficial account holders of shares in nominee name of Trustmark’s common stock. Other information required by this item can be found in Note 17 - Shareholders’ Equity included in Part II. Item 8. - Financial Statements and Supplementary Data of this report.

Stock Repurchase Program

The Board of Directors of Trustmark authorized a stock repurchase program effective April 1, 2019, under which $100.0 million of Trustmark’s outstanding common shares could be acquired through March 31, 2020. Under this authority, Trustmark repurchased approximately 1.5 million shares of its common stock valued at $47.2 million.

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

On December 7, 2021, 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.

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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 have been repurchased under this authority.

Performance Graph

The following graph compares Trustmark’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the Nasdaq market value index and the S&P 500 – Regional Banks index. The S&P 500 – Regional Banks index is an industry index published by S&P Dow Jones Indices, a division of S&P Global, and is comprised of stock in the S&P Total Market Index that are classified in the Global Industry Classification Standard regional banks sub-industry. This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2017, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown.

Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2023.

Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved.

Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.

ITEM 6. SELECTED FINANCIAL DATA

The following unaudited consolidated financial data is derived from Trustmark’s audited financial statements as of and for the three years ended December 31, 2022 ($ in thousands, except per share data). The data should be read in conjunction with Part II. Item 7. -

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Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. – Financial Statements and Supplementary Data.

Consolidated Statements of Income

Per Share Data

Performance Ratios

Return on average tangible equity 6.00 % 10.81 % 12.58 %

Net interest margin (fully taxable equivalent) 3.17 % 2.76 % 3.19 %

Credit Quality Ratios (3)

Net charge-offs (recoveries)/average loans 0.01 % -0.04 % 0.02 %

PCL, LHFI / average loans 0.19 % -0.21 % 0.36 %

Nonaccrual LHFI / (LHFI + LHFS) 0.53 % 0.60 % 0.61 %

Nonperforming assets / (LHFI + LHFS) plus other real estate 0.55 % 0.64 % 0.73 %

Allowance for credit losses (ACL), LHFI / LHFI 0.99 % 0.97 % 1.19 %

(1)

During 2021, Trustmark reclassified its credit loss expense on off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly.

(2)

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

(3)

Excludes Paycheck Protection Program (PPP) loans.

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Consolidated Balance Sheets

Stock Performance

Capital Ratios

Tangible equity / tangible assets 6.27 % 7.86 % 8.34 %

Tangible equity / risk-weighted assets 7.61 % 10.71 % 11.22 %

Common equity tier 1 risk-based capital ratio (1) 9.74 % 11.29 % 11.62 %

(1)

Effective 2020, Trustmark elected the five-year phase-in transition period related to adopting FASB ASU 2016-13 for regulatory capital purposes.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following provides a narrative discussion and analysis of Trustmark’s financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data included in Part II. Item 8. – Financial Statements and Supplementary Data of this report. Discussion and analysis of Trustmark’s financial condition and results of operations for the years ended December 31, 2021 and 2020 are included in the respective sections within Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of Trustmark’s Annual Report filed on Form 10-K for the year ended December 31, 2021.

Executive Overview

Trustmark has been committed to meeting the banking and financial needs of its customers and communities for over 130 years and remains focuses on providing support, advice and solutions to its customers' unique needs. Trustmark's produced strong financial results during 2022 reflected by significant growth in LHFI of $1.956 billion, or 19.1%, the highest in Trustmark's history, expansion of the net interest margin, consistent performance from its fee businesses and solid credit quality.

On January 13, 2023, TNB entered into a settlement agreement that will, pending court approval, resolve all current and potential future claims relating to litigation involving the Stanford Financial Group that began in 2009. While Trustmark denies any liability or wrongdoing with respect to this matter, it believes the settlement is in the best interest of Trustmark and its shareholders as it eliminates risk, ongoing expense and uncertainty. In the fourth quarter of 2022, Trustmark recognized litigation settlement expense of $100.0 million as well as an additional $750 thousand in legal fees, which are included in noninterest expense for 2022.

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

Financial Highlights

Trustmark reported a net loss of $34.1 million, or basic and diluted earnings per share (EPS) of -$0.56, for the fourth quarter of 2022, compared to a net income of $26.2 million, or basic and diluted EPS of $0.42, in the fourth quarter of 2021. Trustmark’s reported performance during the quarter ended December 31, 2022, produced a return on average tangible equity of -12.14%, a return on average

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assets of -0.76%, an average equity to average assets ratio of 8.41% and a dividend payout ratio of -41.07%, compared to a return on average tangible equity of 7.72%, a return on average assets of 0.60%, an average equity to average assets ratio of 10.12% and a dividend payout ratio of 54.76% during the quarter ended December 31, 2021.

The decrease in net income when the fourth quarter of 2022 is compared to the fourth quarter of 2021 was principally due to the litigation settlement expense recorded during the fourth quarter of 2022 related to the Stanford Financial Group litigation. Excluding the litigation settlement expense, net income increased $15.3 million, or 58.3%, when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to an increase in revenue partially offset by an increase in noninterest expense, excluding the litigation settlement expense. Revenue, which is defined as net interest income plus noninterest income, totaled $191.8 million for the quarter ended December 31, 2022 compared to $149.1 million for the quarter ended December 31, 2021, an increase of $42.7 million, or 28.6%. The increase in total revenue for the fourth quarter of 2022 compared to the same time period in 2021 was principally due to an increase in interest and fees on LHFS and LHFI partially offset by an increase in interest on deposits and a decline in mortgage banking, net.

Net interest income for the fourth quarter of 2022 totaled $146.6 million, an increase of $48.3 million, or 49.1%, when compared to the fourth quarter of 2021, principally due to an increase in interest and fees on LHFS and LHFI partially offset by increases in all categories of interest expense. Noninterest income for the fourth quarter of 2022 totaled $45.2 million, a decrease of $5.6 million, or 11.0%, when compared to the fourth quarter of 2021, principally due to a decrease in mortgage banking, net partially offset by increases in service charges on deposit accounts and other income, net. Mortgage banking, net declined $8.2 million, or 70.6%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Service charges on deposit accounts increased $1.8 million, or 19.2%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in non-sufficient funds (NSF) and overdraft fees on consumer interest checking accounts and commercial demand deposit accounts (DDAs) as well as an increase in service charges on consumer interest checking accounts, partially offset by a decline in NSF and overdraft fees on consumer DDAs. Other income, net increased $1.3 million when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to an increase in cash management service fees and a decline in the amortization of tax credit partnerships.

Noninterest expense for the fourth quarter of 2022 totaled $231.2 million, an increase of $111.8 million, or 93.5%, when compared to the fourth quarter of 2021, principally due to the litigation settlement expense recorded during the fourth quarter of 2022 related to the Stanford Financial Group litigation. Excluding the litigation settlement expense, noninterest expense increased $11.0 million, or 9.2%, when the fourth quarter of 2022 is compared to the fourth quarter of 2021, principally due to increases in salaries and employee benefits, services and fees, other expense and net occupancy-premises. Salaries and employee benefits increased $5.2 million, or 7.6%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in salary expense as a result of general merit increases and the addition of employees in the Georgia LPO, severance expense, management performance incentives expense and commissions expense as a result of improvements in insurance business, partially offset by a decline in commission expense related to mortgage originations. Services and fees increased $3.9 million, or 16.8%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in legal fees and business processing outsourcing expenses. Other expense increased $1.2 million, or 7.9%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in loan expenses, sponsorships and contributions and FDIC assessment expense, partially offset by declines in other miscellaneous expenses. Net occupancy-premises expense increased $1.1 million, or 15.9%, when the fourth quarter of 2022 is compared to the same time period in 2021, principally due to increases in rental expense primarily due to lease termination expense, depreciation of building improvements and other office occupancy expense.

Trustmark’s PCL, LHFI for the three months ended December 31, 2022 totaled $6.9 million compared to a negative $4.5 million for the three months ended December 31, 2021, an increase of $11.4 million. The PCL, LHFI for the fourth quarter of 2022 primarily reflected increases in reserves as a result of loan growth, the weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors and a decline in specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled $5.2 million for the three months ended December 31, 2022 compared to $2.9 million for the three months ended December 31, 2021, an increase of $2.3 million, or 77.4%. The PCL, off-balance sheet credit exposures for the fourth quarter of 2022 primarily reflected changes in the total reserve rate and an increase in unfunded balances. Please see the section captioned “Provision for Credit Losses,” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

For the year ended December 31, 2022, Trustmark reported net income of $71.9 million, or basic and diluted EPS of $1.17, compared to $147.4 million, or basic and diluted EPS of $2.35 and $2.34, respectively, for the year ended December 31, 2021 and $160.0 million, or basic and diluted EPS of $2.52 and $2.51, respectively, for the year ended December 31, 2020. Trustmark’s reported performance for the year ended December 31, 2022, produced a return on average tangible equity of 6.00%, a return on average assets of 0.41% and a dividend payout ratio of 78.63%, compared to a return on average tangible equity of 10.81%, a return on average assets of 0.86% and a dividend payout ratio of 39.15% for the year ended December 31, 2021 and a return on average tangible equity of 12.58%, a return on

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average assets of 1.05% and a dividend payout ratio of 36.51% for the year ended December 31, 2020. Trustmark’s average equity to average assets ratio was 9.18%, 10.38% and 11.05% for the years ended December 31, 2022, 2021 and 2020, respectively.

Revenue totaled $699.9 million for the year ended December 31, 2022, compared to $640.3 million and $701.1 million for the years ended December 31, 2021 and 2020, respectively, an increase of $59.6 million, or 9.3%, and a decrease of $60.9 million, or 8.7%, respectively. The increase in total revenue for 2022 compared to 2021 was principally due to increases in interest and fees on LHFS and LHFI and interest on securities partially offset by declines in mortgage banking, net and interest and fees on PPP loans as well as an increase in total interest expense.

Net interest income for the year ended December 31, 2022 totaled $494.7 million, an increase of $76.4 million, or 18.3%, when compared to the year ended December 31, 2021, principally due to increases in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest and fees on PPP loans and an increase in interest expense on deposits. Interest and fees on LHFS and LHFI increased $109.2 million, or 30.0%, and interest on securities increased $20.8 million, or 53.0%, when 2022 is compared to 2021 as a result of increases in average balances and higher interest rates. Interest and fees on PPP loans decreased $36.1 million, or 98.3%, when 2022 is compared to 2021 principally due to the accelerated recognition of the unamortized loan fees on the PPP loans sold during the second quarter of 2021 as well as PPP loans that were forgiven by the Small Business Administration (SBA). Interest expense on deposits increased $12.1 million, or 71.5%, when 2022 is compared to 2021 principally due to increases in interest rates on interest checking and money market deposit accounts as well as declines in average balances and interest rates on certificates of deposits. Interest expense on federal funds purchased and securities sold under repurchase agreements increased $5.9 million when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased as well as the FRB’s increase in the target range for the federal funds rate. Other interest expense increased $4.9 million, or 70.8%, when 2022 is compared to 2021, principally due to an increase in the amount of short-term FHLB advances obtained from the FHLB of Dallas.

Noninterest income totaled $205.1 million for 2022, a decrease of $16.8 million, or 7.6%, when compared to 2021, principally due to a decrease in mortgage banking, net partially offset by increases in service charges on deposit accounts, insurance commissions and other income, net. Mortgage banking, net decreased $35.4 million, or 55.6%, when 2022 is compared to 2021, principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Service charges on deposit accounts increased $8.9 million, or 26.8%, when 2022 is compared to 2021, principally due to increases in NSF and overdraft fees on consumer interest checking accounts and commercial DDAs as well as service charges on consumer interest checking accounts. Insurance commissions increased $5.2 million, or 10.7%, when 2022 is compared to 2021 principally due to increases in property and casualty commissions, other commission income and group health commissions. Other income, net increased $3.3 million, or 50.2%, when 2022 is compared to 2021, principally due to increases in cash management service fees and other miscellaneous income as well as a decline in the amortization of tax credit partnerships.

Noninterest expense totaled $603.2 million for 2022, an increase of $113.9 million, or 23.3%, when compared to 2021, principally due to the $100.8 million litigation settlement expense recorded during the fourth quarter of 2022. Excluding the litigation settlement expense, noninterest expense increased $13.2 million, or 2.7%, when 2022 is compared to 2021, principally due to increases in services and fees, salaries and employee benefits and net occupancy-premises, partially offset by a decline in other expense. Services and fees increased $12.1 million, or 13.5%, when 2022 is compared to 2021, primarily due to increases in professional services and fees, business processing outsourcing expenses and software licenses. Salaries and employee benefits expense increased $3.3 million, or 1.2%, when 2022 is compared to 2021 principally due to increases in salaries expense primarily related to general merit increases and the addition of the Georgia LPO associates, commissions expense primarily related to improvements in insurance business volumes, management performance incentives, severance expense and other salaries expense, partially offset by non-routine expenses related to the voluntary early retirement program completed during the third quarter of 2021 and a decline in commission expense related to mortgage production. Trustmark completed a voluntary early retirement program during 2021 and incurred $5.6 million of non-routine salaries and employee benefits expense related to this program. Excluding these non-routine expenses, salaries and employee benefits increased $8.9 million, or 3.2%, when 2022 is compared to 2021. Net occupancy-premises increased $2.2 million, or 8.2%, when 2022 is compared to 2021, principally due to increases in landscaping expense, building rental expense primarily due to lease termination expense and depreciation of building improvements. Other expense decreased $4.5 million, or 7.0%, when 2022 is compared to 2021 principally due to the $5.0 million regulatory settlement expense incurred during the third quarter of 2021 as well as a decline in other real estate expense, net, partially offset by increases FDIC assessment expense, travel and entertainment expenses and loan expenses. Excluding the non-routine regulatory settlement expense, other expense increased $471 thousand, or 0.8%, when 2022 is compared to 2021.

Trustmark’s PCL, LHFI for 2022 totaled $21.7 million compared to a negative $21.5 million for 2021, an increase of $43.2 million. The increase in the PCL, LHFI during 2022 was principally due to the weakening of the macroeconomic forecasts, loan growth and specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled $1.2 million for 2022 compared to a negative $2.9 million for 2021, an increase of $4.2 million. The increase in the PCL, off-balance sheet credit exposures was

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principally due to changes in the total reserve rate. Please see the section captioned “Provision for Credit Losses” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

At December 31, 2022, nonperforming assets totaled $68.0 million, an increase of $703 thousand, or 1.0%, compared to December 31, 2021 reflecting an increase in nonaccrual LHFI largely offset by a decline other real estate. Total nonaccrual LHFI were $66.0 million at December 31, 2022, an increase of $3.3 million, or 5.2%, relative to December 31, 2021, principally due to LHFI placed on nonaccrual status partially offset by reductions, pay-offs and charge-offs of nonaccrual LHFI in the Mississippi, Alabama, Texas and Tennessee market regions. The percentage of loans, excluding PPP loans, that are 30 days or more past due and nonaccrual LHFI decreased in 2022 to 1.33% compared to 1.51% in 2021. Other real estate totaled $2.0 million at December 31, 2022, a decline of $2.6 million, or 56.4%, when compared to December 31, 2021, principally due to properties sold in Trustmark’s Mississippi market region partially offset by properties foreclosed in the Mississippi market region.

LHFI totaled $12.204 billion at December 31, 2022, an increase of $1.956 billion, or 19.1%, compared to December 31, 2021. The increase in LHFI during 2022 was primarily due to net growth in all classes of LHFI with the exception of other commercial LHFI. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

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

Total deposits were $14.438 billion at December 31, 2022, a decrease of $649.5 million, or 4.3%, compared to December 31, 2021. During 2022, noninterest-bearing deposits decreased $677.3 million, or 14.2%, reflecting declines in all categories of noninterest-bearing deposit accounts. Interest-bearing deposits increased $27.8 million, or 0.3%, during 2022, primarily due to growth in consumer and commercial interest checking accounts, consumer savings accounts and all categories of certificates of deposits, partially offset by declines in all categories of Money Market Deposit Accounts (MMDA) as well as public interest checking accounts.

Federal funds purchased and repurchase agreements totaled $449.3 million at December 31, 2022 compared to $238.6 million at December 31, 2021, an increase of $210.8 million, or 88.3%. Trustmark had $383.0 million of upstream federal funds purchased at December 31, 2022, compared to none at December 31, 2021. Other borrowings totaled $1.051 billion at December 31, 2022, an increase of $959.9 million when compared with $91.0 million at December 31, 2021, primarily due to an increase in outstanding short-term FHLB advances with the FHLB of Dallas. The increases in the upstream federal funds purchased and FHLB advances during 2022 were the result of changes in funding needs to support the strong loan growth.

Critical Accounting Policies and Accounting Estimates

Trustmark’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the financial services industry. Application of these accounting principles requires Management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on historical experience, current information and other factors deemed relevant as of the date of the consolidated financial statements; accordingly, as this information changes, actual financial results could differ from those estimates.

Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. An accounting estimate is considered critical if the accounting estimate requires Management to make assumptions about matters with a significant level of uncertainty and if the accounting estimate, or changes to the accounting estimate that are reasonably likely to occur from period to period, have had or are reasonable likely to have a material impact to the consolidated financial statements.

For additional information regarding the accounting policies discussed below, please see Note 1 – Significant Accounting Policies set forth in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Allowance for Credit Losses (ACL)

LHFI

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The ACL for LHFI is a valuation account, calculated in accordance with FASB ASC Topic 326, that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL for LHFI represents Management’s best estimate of current expected credit losses on Trustmark’s existing LHFI portfolio considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. The ACL for LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

The credit 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. Determining the appropriateness of the ACL is complex and requires judgement by Management about the effect of matters that are inherently uncertain. While Management utilizes its best judgment and information available, the ultimate adequacy of Trustmark’s ACL is dependent upon a variety of factors beyond its controls, including the performance of the portfolios, the economy, changes in interest rates and the view of regulatory authorities toward classification of assets. 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 ACL and PCL, LHFI in those future periods. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology, it is not possible to provide meaningful estimates of the impact of any such potential change.

For a complete description of Trustmark’s ACL methodology for the LHFI portfolio, please see Note 4 – LHFI and Allowance for Credit Losses, LHFI included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

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 are not unconditionally cancellable. The ACL on off-balance sheet credit exposures is a liability account calculated in accordance with FASB ASC Topic 326 and presented in the accompanying consolidated balance sheets. Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures.

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. In addition to the unfunded balances, Trustmark uses a funding rate for loan pools that are considered open-ended. In order to mitigate volatility and incorporate historical experience in the funding rate, Trustmark uses a twelve-quarter moving average. For the closed-ended loan pools, Trustmark takes a conservative approach and uses a 100% funding rate. The expected funding rate 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. In addition to the funding rate being applied to the unfunded commitment balance, a reserve rate is applied that 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.

Evaluations of the unfunded commitments are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the ACL is complex and requires judgement by Management about the effect of matters that are inherently uncertain. While Management utilizes its best judgment and information available, the ultimate adequacy of Trustmark’s ACL is dependent upon a variety of factors beyond its control, including the performance of the portfolios, the economy, changes in interest rates and the view of regulatory authorities toward classification of assets. In future periods, evaluations of off-balance sheet credit exposures, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and PCL, off-balance sheet credit exposures in those future periods. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology, it is not possible to provide meaningful estimates of the impact of any such potential change.

For a complete description of Trustmark’s ACL methodology for the off-balance sheet credit exposures, please see the section captioned “Lending Related” in Note 16 – Commitments and Contingencies included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Mortgage Servicing Rights (MSR)

Trustmark recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSR when loans are sold and the associated servicing rights are retained. Trustmark has elected to account for the MSR at fair value.

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The fair value of the MSR is determined 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, escrow account earnings and contractual servicing fee income and costs. Management reviews all significant assumptions at least 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 December 31, 2022, the MSR fair value was $129.7 million. The impact on the MSR fair value of either a 10% adverse change in prepayment speeds or a 100 basis point increase in discount rates at December 31, 2022, would be a decline in fair value of approximately $4.5 million and $5.4 million, respectively. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts. See the section captioned “MSR” in Note 6 – Mortgage Banking included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for additional information regarding the valuation of the MSR.

Recent Legislative and Regulatory Developments

For information regarding legislation and regulation applicable to Trustmark, see the section captioned “Supervision and Regulation” included in Part I. Item 1. – Business of this report.

Non-GAAP Financial Measures

In addition to capital ratios defined by 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 calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its audited consolidated financial statements and the notes related thereto in their entirety and not to rely on any single financial measure.

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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):

Years Ended December 31,

AVERAGE BALANCES

PERIOD END BALANCES

TANGIBLE ASSETS

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

TANGIBLE EQUITY MEASUREMENTS

Tangible equity/tangible assets (a)/(b) 6.27 % 7.86 % 8.34 %

Tangible equity/risk-weighted assets (a)/(c) 7.61 % 10.71 % 11.22 %

COMMON EQUITY TIER 1 CAPITAL (CET1) - BASEL III

CET1 adjustments and deductions:

Other adjustments and deductions for CET1 (3) (3,258 ) (4,392 ) (6,190 )

Common equity tier 1 risk-based capital ratio (e)/(c) 9.74 % 11.29 % 11.62 %

(1)

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

(2)

Trustmark elected the five-year phase-in transition period related to adopting FASB ASU 2016-13 for regulatory capital purposes.

(3)

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

Significant Non-routine Transactions

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 net income adjusted for significant non-routine transactions as a measure of its core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. This non-GAAP measure also provides another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the audited 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 audited consolidated financial statements and the notes related thereto, included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, in their entirety, and not to rely on any single financial measure.

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The following table presents adjustments to net income and select 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):

Years Ended December 31,

Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS

Significant non-routine transactions:

Litigation settlement expense 75,563 1.23 — — — —

Regulatory settlement charge (not tax deductible) — — 5,000 0.08 — —

Litigation Settlement Expense

On January 13, 2023, TNB entered into a settlement agreement relating to the litigation involving the Stanford Financial Group. Information regarding this settlement and related litigation is set forth under the heading “Legal Proceedings” of Note 16 – Commitments and Contingencies in Part II. Item 8. – Financial Statements and Supplementary Data of this report. As a result of this settlement, Trustmark recognized a one-time charge of $100.0 million of litigation settlement expense as well as an additional $750 thousand of legal fees during the fourth quarter of 2022.

Voluntary Early Retirement Program

During the third quarter of 2021, Trustmark completed a voluntary early retirement program and incurred one-time charges of $5.7 million ($5.6 million of non-routine salaries and employee benefits expense and $89 thousand of non-routine other miscellaneous expense) related to this program.

During the first quarter of 2020, Trustmark completed a voluntary early retirement program and incurred one-time charges of $4.4 million ($4.3 million of non-routine salaries and employee benefits expense and $102 thousand of non-routine other miscellaneous expense) related to this program.

Regulatory Settlement Charge

During the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis metropolitan statistical area (MSA). Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA.

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 Table shows the average balances for all assets and liabilities of Trustmark and the interest income or expense associated with earning assets and interest-bearing liabilities. The yields and rates have been computed based upon interest income and expense adjusted to a FTE basis using the federal statutory corporate tax rate in effect for each of the periods shown. Loans on nonaccrual have been included in the average loan balances, and interest collected prior to these loans having been placed on

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nonaccrual has been included in interest income. Loan fees included in interest associated with the average LHFS and LHFI balances are immaterial.

Net interest income-FTE for the year ended December 31, 2022 increased $77.0 million, or 17.9%, when compared with the year ended December 31, 2021. The increase in net interest income-FTE when 2022 is compared to 2021 was principally due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable, partially offset by a decline in interest and fees on PPP loans and an increase in total interest expense. The net interest margin-FTE for 2022 increased 41 basis points to 3.17% when compared to 2021. The net interest margin-FTE excluding PPP loans and the balance held at the Federal Reserve Bank of Atlanta (FRBA), which equals the reported net interest income-FTE excluding interest and fees on PPP loans and interest on the FRBA balance, as a percentage of average earning assets excluding average PPP loans and the average FRBA balance, was 3.30% for 2022, an increase of 39 basis points when compared to 2.91% for 2021. The increase in the net interest margin-FTE excluding PPP loans and the balance held at the FRBA for 2022 was principally due to increases in the yields on the LHFS and LHFI and securities portfolios, partially offset by higher costs of interest-bearing liabilities reflecting the higher interest rate environment.

At December 31, 2022, Trustmark had no PPP loans outstanding compared to $33.3 million, net of deferred fees and costs of $500 thousand, at December 31, 2021. 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). PPP loans totaling $33.5 million were forgiven by the SBA during 2022. During the second quarter of 2021, Trustmark sold $354.2 million of its outstanding PPP loans, resulting in accelerated recognition of $18.6 million of unamortized PPP loan origination fees, net of cost, which was included in net interest income-FTE for 2021. In addition, PPP loans totaling $605.5 million were forgiven by the SBA during 2021. Average PPP loans for 2022 totaled $14.9 million, a decrease of $335.8 million, or 95.8%, when compared to 2021. Interest and fees on PPP loans decreased $36.1 million, or 98.3%, when 2022 is compared to 2021. The yield on PPP loans decreased to 4.30% for 2022 compared to 10.47% for 2021.

The average FRBA balance, included in other earning assets, for 2022 totaled $846.9 million, a decrease of $929.6 million, or 52.3%, when compared to 2021. Interest earned on the FRBA balance increased $4.6 million when 2022 is compared to 2021. The yield on the FRBA balance was 0.82% and 0.13% for 2022 and 2021, respectively, an increase of 69 basis points reflecting the FRBA's increase in the interest rate that it pays on reserves during 2022.

Average interest-earning assets for 2022 were $16.014 billion compared to $15.569 billion for 2021, an increase of $445.1 million, or 2.9%. The increase in average earning assets during 2022 was primarily due to increases in average securities of $838.5 million, or 27.8%, and average loans (LHFS and LHFI) of $858.4 million, or 8.3%, which were partially offset by decreases in average other earning assets of $917.7 million, or 50.3%, and average PPP loans of $335.8 million, or 95.8%. The increase in average securities when 2022 is compared to 2021 was principally due to purchases of securities partially offset by calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed securities. The increase in average loans (LHFS and LHFI) was primarily attributable to an increase in the average balance of the LHFI portfolio of $1.058 billion, or 10.6%, partially offset by a decrease in the average balance of the LHFS portfolio of $163.0 million, or 45.7%, when balances at December 31, 2022 are compared to balances at December 31, 2021. See the sections captioned "LHFS" and "LHFI" for additional information regarding changes in the LHFS and LHFI portfolios. The decrease in average other earning assets when 2022 is compared to 2021 was primarily due to a decrease in reserves held at the FRBA. The decrease in average PPP loans when 2022 is compared to 2021 was principally due to the loans forgiven by the SBA.

Interest income-FTE totaled $554.2 million for 2022, an increase of $100.0 million, or 22.0%, while the yield on total earning assets increased 54 basis points to 3.46% when compared to 2021. The increase in interest income-FTE in 2022 primarily reflects increases in interest and fees on LHFS and LHFI-FTE, interest on securities-taxable and other interest income, partially offset by the decrease in interest and fees on PPP loans. During 2022, interest and fees on LHFS and LHFI-FTE increased $109.9 million, or 29.3%, when compared to 2021, while the yield on loans (LHFS and LHFI) increased 70 basis points to 4.32% as a result of the increase in the average balance of the LHFI portfolio as well as higher interest rates. During 2022, interest on securities-taxable increased $21.0 million, or 54.3%, while the yield on securities-taxable increased 26 basis points to 1.55% when compared to 2021, primarily due to securities purchased during 2022 as well as higher interest rates. During 2022, other interest income increased $5.3 million when compared to 2021, while the yield on other earning assets increased 74 basis points to 0.89%, principally due to FRBA's increase in the interest rate paid on reserves during 2022. See the discussion above regarding changes in interest income and yields on PPP loans and balances held at the FRBA.

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Average interest-bearing liabilities for 2022 totaled $10.987 billion compared to $10.490 billion for 2021, an increase of $497.0 million, or 4.7%. The increase in average interest-bearing liabilities was primarily the result of increases in average interest-bearing deposits and average federal funds purchased and securities sold under repurchase agreements. Average interest-bearing deposits for 2022 increased $313.1 million, or 3.1%, when compared to 2021, reflecting growth in average interest-bearing demand deposits partially offset by declines in average savings and time deposits. Average federal funds purchased and securities sold under repurchase agreements increased $110.5 million, or 64.0%, when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased to fund loan growth.

Interest expense for 2022 totaled $47.1 million, an increase of $23.0 million, or 95.1%, when compared with 2021, while the rate on total interest-bearing liabilities increased 20 basis points to 0.43%. The increase in total interest expense for 2022 reflected increases in interest on deposits, interest on federal funds purchased and securities sold under repurchase agreements and other interest expense. Interest on deposits increased $12.1 million, or 71.5%, while the rate on interest-bearing deposits increased 11 basis points to 0.28% when 2022 is compared to 2021, primarily due to increases in interest on all categories of interest checking accounts and MMDAs, reflecting rising interest rates, partially offset by a decline in interest on time deposits, reflecting declines average balances. Interest expense on federal funds purchased and securities sold under repurchase agreements increased $5.9 million, while the rate on federal funds purchased and securities sold under repurchase agreements increased to 2.16% compared to 0.13%, when 2022 is compared to 2021, principally due to an increase in upstream federal funds purchased as well as the FRB’s increase in the target range for the federal funds rate. Other interest expense increased $4.9 million, or 70.8%, while the rate on other borrowings increased 86 basis points to 3.11%, when 2022 is compared to 2021, principally due to an increase in the amount of short-term FHLB advances obtained from the FHLB of Dallas.

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

Years Ended December 31,

Average Yield/ Average Yield/ Average Yield/

Balance Interest Rate Balance Interest Rate Balance Interest Rate

Assets

Interest-earning assets:

Securities available for sale:

Securities held to maturity:

Liabilities and Shareholders' Equity

Interest-bearing liabilities:

Less tax equivalent adjustments:

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The table below shows the change from year to year for each component of the tax equivalent net interest margin in the amount generated by volume changes and the amount generated by changes in the yield or rate (tax equivalent basis) for the periods presented ($ in thousands):

Increase (Decrease) Due To: Increase (Decrease) Due To:

Yield/ Yield/

Volume Rate Net Volume Rate Net

Interest earned on:

Securities available for sale:

Securities held to maturity:

Interest paid on:

The change in interest due to both volume and yield or rate has been allocated to change due to volume and change due to yield or rate in proportion to the absolute value of the change in each. Tax-exempt income has been adjusted to a tax equivalent basis using the federal statutory corporate tax rate in effect for each of the three years presented. The balances of nonaccrual loans and related income recognized have been included for purposes of these computations.

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 $21.7 million for 2022, compared to a negative PCL, LHFI of $21.5 million for 2021 and a PCL, LHFI of $36.1 million for 2020. The PCL, LHFI for 2022 was primarily driven by loan growth, specific reserves on individually analyzed loans, weakening of the macroeconomic forecasts and the nature and volume of the portfolio, partially offset by reserves released as a result of updates and adjustments to the qualitative factors.

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 $1.2 million for 2022 compared to a negative $2.9 million for 2021, and $8.9 million for 2020. The PCL, off-balance sheet credit exposures for 2022 primarily reflected an increase in unfunded balances.

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

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Noninterest Income

Noninterest income represented 29.3%, 34.7% and 39.2% of total revenue, before securities gains (losses), net in 2022, 2021 and 2020, respectively. The following table provides the comparative components of noninterest income for the periods presented ($ in thousands):

Years Ended December 31,

Amount % Change Amount % Change Amount % Change

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

Changes in various components of noninterest income for the year ended December 31, 2022 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 2022 is compared to 2021 was principally due to increases in NSF and overdraft fees on consumer interest checking accounts and commercial DDAs as well as service charges on consumer interest checking accounts.

Mortgage Banking, Net

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

Years Ended December 31,

Amount % Change Amount % Change Amount % Change

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

The decrease in mortgage banking, net when 2022 is compared to 2021 was principally due to decreases in gain on sales of loans, net and the net hedge ineffectiveness partially offset by a decline in the MSR run-off. Mortgage loan production totaled $2.125 billion for 2022, a decrease of $678.1 million, or 24.2%, when compared to 2021. Mortgage loan production totaled $2.803 billion for 2021, a decrease of $181.7 million, or 6.1%, when compared to 2020. Loans serviced for others totaled $8.116 billion at December 31, 2022, compared with $7.953 billion at December 31, 2021, and $7.657 billion at December 31, 2020.

Representing a significant component of mortgage banking income is gain on sales of loans, net. The decrease in the gain on sales of loans, net when 2022 is compared to 2021 was primarily the result of decreases in the volume of loans sold as well as lower profit margins in secondary marketing activities partially offset by an increase in the mortgage valuation adjustment. Loan sales decreased $1.043 billion, or 45.6%, during 2022 to total $1.243 billion compared to a decrease of $246.0 million, or 9.7%, during 2021 to total $2.286 billion. The decrease in loan sales during 2022 was principally due to a decline in mortgage lending activity as result of rising interest rates. The decrease in loan sales during 2021 was principally due to a decline in mortgage lending activity as refinance activity slowed following the record setting levels of 2020.

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Other Income, Net

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

Years Ended December 31,

Amount % Change Amount % Change Amount % Change

The increase in other income, net when 2022 is compared to 2021 was primarily due to an increase in other miscellaneous income as well as a decline in the amortization of tax credit partnerships. The increase in other miscellaneous income when 2022 is compared with 2021 was principally due to increases in cash management service fees and gains on the sales of three closed branch locations.

Noninterest Expense

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

Years Ended December 31,

Amount % Change Amount % Change Amount % Change

Litigation settlement expense 100,750 n/m — — — —

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

(1)

During 2021, Trustmark reclassified its credit loss expense related to off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly.

(2)

During 2022, Trustmark reclassified its other real estate expense, net to other expense. Prior periods have been reclassified accordingly.

Changes in the various components of noninterest expense for the year ended December 31, 2022 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

Trustmark completed voluntary early retirement programs during 2021 and 2020 and incurred $5.6 million and $4.3 million, respectively, of non-routine salaries and employee benefits expense related to these programs. Excluding these non-routine expenses, salaries and employee benefits increased $8.9 million, or 3.2%, when 2022 is compared to 2021, compared to an increase of $10.6 million, or 3.9%, when 2021 is compared to 2020.

The increase in salaries and employee benefits expense, excluding the non-routine expenses, for the year ended December 31, 2022 was principally due to increases in salaries expense primarily related to general merit increases and the addition of the Georgia LPO associates, commissions expense primarily related to improvements in insurance business volumes, management performance incentives, severance expense and other salaries expense, partially offset by a decline in commission expense related to mortgage production.

Services and Fees

The increase in services and fees when 2022 is compared to 2021 was primarily due to increases in professional services and fees, business processing outsourcing expenses and software licenses.

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Net Occupancy-Premises

The increase in net occupancy-premises when 2022 is compared to 2021 was principally due to increases in landscaping expense, building rental expense primarily due to lease termination expense and depreciation of building improvements. Trustmark has continued efforts to optimize its branch network, reflecting changing customer preferences and the continued migration to mobile and digital channels. During 2022, Trustmark consolidated 12 branch offices, opened a full-service banking center as well as loan production offices in Birmingham, Alabama and Memphis, Tennessee.

Other Expense

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

Years Ended December 31,

Amount % Change Amount % Change Amount % Change

Regulatory settlement charge — n/m 5,000 n/m — —

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

(1)

During 2021, Trustmark reclassified certain expenses related to mortgage loan appraisals from other miscellaneous expense to loan expense. Prior period amounts have been reclassified accordingly.

(2)

During 2022, Trustmark reclassified its other real estate expense, net to other expense. Prior periods have been reclassified accordingly.

During the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis MSA. Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA. Excluding the non-routine regulatory settlement expense, other expense increased $471 thousand, or 0.8%, when 2022 is compared to 2021, compared to a decrease of $2.7 million, or 4.7%, when 2021 is compared to 2020.

The increase in other expense, excluding the non-routine regulatory settlement expense, when 2022 is compared to 2021 was principally due to increases in FDIC assessment expense, travel and entertainment expenses and loan expenses partially offset by a decline in other real estate expense, net.

For additional analysis of other real estate and foreclosure expenses, please see the section captioned “Nonperforming Assets, Excluding PPP and Acquired Loans.”

Results of Segment Operations

Trustmark’s operations are managed along three operating segments: General Banking, Wealth Management and Insurance. A description of each segment and the methodologies used to measure financial performance and financial information by reportable segment are included in Note 20 – Segment Information located in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

The following table provides the net income by reportable segment for the periods presented ($ in thousands):

Years Ended December 31,

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General Banking

Net interest income for the General Banking Segment for 2022 increased $76.2 million, or 18.4%, when compared with 2021, principally due to increases in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest and fees on PPP loans and an increase in total interest expense. Net interest income for the General Banking Segment for 2021 decreased $7.0 million, or 1.7%, when compared with 2020, principally due to declines in interest and fees on LHFS and LHFI and interest on securities, partially offset by a decline in interest expense on deposits and an increase in interest and fees on PPP loans. During 2021, Trustmark reclassified its credit loss expense related to off-balance sheet credit exposures from noninterest expense to PCL, off-balance sheet credit exposures. Prior periods have been reclassified accordingly. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for 2022 totaled $22.9 million compared to a negative PCL of $24.4 million during 2021 and a PCL of $45.1 million during 2020. For more information on these net interest income items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income for the General Banking Segment decreased $21.5 million, or 15.6%, during 2022 compared to a decrease of $59.8 million, or 30.3%, during 2021. The decrease in noninterest income for the General Banking Segment during 2022 was primarily due to the decrease in mortgage banking, net, partially offset by increases in service charges on deposit accounts and other income, net. The decrease in noninterest income for the General Banking Segment during 2021 was primarily due to decrease in mortgage banking, net and other income, net, partially offset by an increase in bank card and other fees. Noninterest income for the General Banking Segment represented 19.2% of total revenue for 2022, 25.0% for 2021 and 32.0% for 2020. 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 $109.8 million, or 26.1%, during 2022 compared to an increase of $19.8 million, or 4.9%, during 2021. The increase in noninterest expense for the General Banking Segment for 2022 was principally due to increases in litigation settlement expense, services and fees, net occupancy-premises and salaries and employee benefits, partially offset by non-routine transaction expenses incurred during 2021. During the fourth quarter of 2022, Trustmark recognized litigation settlement expense of $100.0 million as well as an additional $750 thousand in legal fees as a result of the settlement relating to the litigation involving the Stanford Financial Group. The increase in noninterest expense for the General Banking Segment for 2021 was principally due to increases in salaries and employee benefits, data processing charges related to software, other miscellaneous expenses and other real estate expense, net. During the third quarter of 2021, Trustmark completed a voluntary early retirement program which resulted in non-routine transaction expenses of $5.7 million ($5.6 million of salaries and employee benefits expense and $89 thousand of other expense). In addition, during the third quarter of 2021, Trustmark finalized a settlement with regulatory authorities to resolve fair lending allegations in the Memphis MSA. Trustmark incurred a one-time settlement expense of $5.0 million and made other commitments to enhance credit opportunities to residents in majority-Black and Hispanic neighborhoods in the Memphis MSA. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

During 2022, net income for the Wealth Management Segment decreased $979 thousand, or 14.7%, compared to an increase of $1.1 million, or 19.7%, during 2021. The decrease in net income for the Wealth Management Segment during 2022 was principally due to an increase in noninterest expense. The increase in net income for the Wealth Management Segment during 2021 was principally due to an increase in noninterest income, partially offset by an increase in noninterest expense.

Net interest income for the Wealth Management Segment increased $160 thousand, or 3.1%, during 2022 compared to a decrease of $921 thousand, or 15.1%, during 2021. The increase in net interest income for the Wealth Management Segment during 2022 was principally due to an increase in interest and fees on loans partially offset by an increase in interest on deposits generated by the Private Banking Group. The decrease in net interest income for the Wealth Management Segment during 2021 was principally due to a decline in interest and fees on loans partially offset by a decrease in interest on deposits generated by the Private Banking Group. The PCL for the Wealth Management Segment for 2022 totaled a negative $21 thousand compared to a negative PCL of $9 thousand during 2021 and a negative PCL of $11 thousand during 2020.

Noninterest income for the Wealth Management Segment, which includes income related to investment management, trust and brokerage services, decreased $348 thousand, or 1.0%, during 2022, principally due to declines in income from brokerage services and trust management services partially offset by an increase in income from annuity services. Noninterest income for the Wealth Management Segment increased $3.8 million, or 12.0%, during 2021, principally due to an increase in income from brokerage services and trust management services. Noninterest expense increased $1.2 million, or 3.6%, during 2022 compared to an increase of $1.4 million, or 4.6%, during 2021. The increase in noninterest expense for the Wealth Management Segment for 2022 was principally due to an increase in salary and employee benefit expense, primarily due to increases in commissions expense and annual performance incentives, and data processing charges related to software, partially offset by a decline in other miscellaneous expenses. The increase

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in noninterest expense for the Wealth Management Segment for 2021 was principally due to an increase in salary and employee benefit expense, primarily due to increases in commissions expense and annual performance incentives, partially offset by a decline in other miscellaneous expenses.

At December 31, 2022 and 2021, Trustmark held assets under management and administration of $16.913 billion and $15.703 billion and brokerage assets of $2.327 billion and $2.417 billion, respectively.

Insurance

Net income for the Insurance Segment during 2022 increased $1.6 million, or 17.2%, compared to an increase of $938 thousand, or 11.0%, during 2021. Noninterest income for the Insurance Segment, which predominately consists of insurance commissions, increased $5.1 million, or 10.5%, during 2022, compared to an increase of $3.3 million, or 7.4%, during 2021. The increase in noninterest income for the Insurance Segment during 2022 was principally due to increases in property and casualty commissions, other commission income and group health commissions. The increase in noninterest income for the Insurance Segment during 2021 was principally due to increases in property and casualty commissions and other commission income.

Noninterest expense for the Insurance Segment increased $2.9 million, or 8.1%, during 2022 and $1.8 million, or 5.4%, during 2021. The increase in noninterest expense for the Insurance Segment for 2022 was principally due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes, partially offset by a decrease in outside services and fees. The increase in noninterest expense for the Insurance Segment for 2021 was principally due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes, as well as increases in outside services and fees, partially offset by a decrease in other miscellaneous expense.

Trustmark performed an annual impairment test of the book value of goodwill held in the Insurance Segment as of October 1, 2022, 2021, and 2020. Based on this analysis, Trustmark concluded that no impairment charge was required. An extended period of falling prices and suppressed demand for the products of the Insurance Segment could result in impairment of goodwill in the future. FBBI’s ability to maintain the current income trend is dependent on the success of the subsidiary’s continued initiatives to attract new business through cross referrals between practice units and bank relationships and seeking new business in other markets.

Income Taxes

For the year ended December 31, 2022, Trustmark’s combined effective tax rate was 2.5% compared to 16.0% in 2021 and 15.7% in 2020. The decline in the effective tax rate for 2022 was principally due to the net loss recorded for the fourth quarter of 2022 as a result of the $100.8 million of litigation settlement expense. 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 purchased under reverse repurchase agreements and other earning assets. Average earning assets totaled $16.014 billion, or 91.6% of total average assets, at December 31, 2022, compared with $15.569 billion, or 91.3% of total average assets, at December 31, 2021, an increase of $445.1 million, or 2.9%.

Securities

The securities portfolio is utilized by Management to manage interest rate risk, generate interest income, provide liquidity and use as collateral for public 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 at December 31, 2022 and 2021 was 4.9 and 4.3 years, respectively.

When compared with December 31, 2021, total investment securities decreased by $62.8 million, or 1.8%, during 2022. This decrease resulted primarily from calls, maturities and pay-downs of the underlying loans of GSE guaranteed securities and a decline in the fair market value of securities available for sale partially offset by purchases of securities. Trustmark sold no securities during 2022 or 2021.

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale as securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million net of tax). During 2022, Trustmark reclassified approximately $766.0 million of securities available for sale to securities held to

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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 December 31, 2022, 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 $92.3 million ($69.2 million net of tax) compared to $6.3 million ($4.7 million net of tax) at December 31, 2021.

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 December 31, 2022, available for sale securities totaled $2.024 billion, which represented 57.5% of the securities portfolio, compared to $3.239 billion, or 90.4%, at December 31, 2021. At December 31, 2022, unrealized losses, net on available for sale securities totaled $246.6 million compared to unrealized losses, net of $17.4 million at December 31, 2021. At December 31, 2022, 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 December 31, 2022, held to maturity securities totaled $1.495 billion and represented 42.5% of the total securities portfolio, compared with $342.5 million, or 9.6%, at December 31, 2021.

The following table details the weighted-average yield for each range of maturities of securities available for sale and held to maturity using the amortized cost at December 31, 2022 (tax equivalent basis):

Maturing

Securities available for sale

Obligations of states and political subdivisions — 2.77 % 4.52 % — 4.15 %

Mortgage-backed securities

Residential mortgage pass-through securities

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA — 2.36 % 2.38 % 2.16 % 2.26 %

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA 4.17 % 4.88 % 3.36 % 3.55 % 3.44 %

Securities held to maturity

U.S. Treasury securities — — 1.04 % — 1.04 %

Obligations of states and political subdivisions 4.15 % 5.17 % — — 4.22 %

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA — — — 3.05 % 3.05 %

Issued by FNMA and FHLMC — — 1.89 % 1.58 % 1.58 %

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA — — 1.93 % 1.95 % 1.94 %

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA — 3.04 % 2.09 % 2.96 % 2.33 %

Mortgage-backed securities and collateralized mortgage obligations are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

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

At December 31, 2022, Trustmark did not hold securities of any one issuer with a carrying value exceeding ten percent 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 December 31, 2022 ($ in thousands):

Amortized Cost Estimated Fair Value

Amount % Amount %

Securities Available for Sale

Securities Held to Maturity

(1)

Not rated issues primarily consist of Mississippi municipal general obligations.

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

LHFS

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 Government National Mortgage Association (GNMA) optional repurchase loans. At December 31, 2021, LHFS totaled $275.7 million, consisting of $191.2 million of residential real estate mortgage loans in the process of being sold to third parties and $84.5 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 2022 or 2021.

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 4 – LHFI and Allowance for Credit Losses, LHFI of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

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LHFI

The table below provides the carrying value of the LHFI portfolio by loan class for the years ended December 31, 2022 and 2021 ($ in thousands):

December 31,

Amount % Amount %

Loans secured by real estate:

Other loans secured by real estate:

LHFI at December 31, 2022 increased $1.956 billion, or 19.1%, compared to December 31, 2021. The increase in LHFI during 2022 was reflecting net growth in all classes of LHFI with the exception of other commercial LHFI.

LHFI secured by real estate (loans secured by real estate and other loans secured by real estate) increased $1.527 billion, or 21.8%, during 2022 representing net growth in Trustmark's Mississippi, Alabama and Texas market regions partially offset by net declines in the Tennessee and Florida market regions. LHFI secured by 1-4 family residential properties increased $724.7 million, or 49.6%, during 2022, primarily in the Mississippi market region as a result of Trustmark's decision to retain certain mortgage loans in its portfolio. Other construction loans increased $317.1 million, or 44.6%, during 2022 primarily due to new construction loans across all five market regions partially offset by other construction loans moved to other loan categories upon the completion of the related construction project. During 2022, $619.2 million loans were moved from other construction to other loan categories, including $257.2 million to multi-family residential loans, $238.0 million to nonowner-occupied loans and $121.4 million to owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans across all five market regions totaled $919.1 million during 2022. LHFI secured by nonfarm, nonresidential properties (NFNR LHFI) increased $301.7 million, or 10.1%, during 2022, principally due to movement from the other construction loans category. Excluding other construction loan reclassifications, the NFNR LHFI portfolio decreased $57.6 million, or 1.9%, during 2022 primarily due to declines in owner-occupied loans in the Alabama, Mississippi and Florida market regions as well as declines in nonowner-occupied loans in the Alabama, Florida and Texas market regions, which were partially offset by growth in nonowner-occupied loans in the Mississippi market region and owner-occupied loans in the Texas market region. LHFI secured by construction, land development and other land increased $93.6 million, or 15.7%, during 2022 principally due to growth in 1-4 family construction loans in Trustmark's Alabama and Mississippi market regions. LHFI secured by other 1-4 family residential properties, which primarily consists of revolving home equity lines of credit, increased $73.1 million, or 14.1%, during 2022 reflecting growth across all five market regions. LHFI secured by other real estate increased $16.5 million, or 2.3%, during 2022, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Texas, Alabama and Mississippi market regions partially offset by pay-offs of LHFI secured by multi-family residential properties. Excluding other construction loan reclassifications, LHFI secured by other real estate declined by $240.7 million, or 33.2%.

Commercial and industrial LHFI increased $407.0 million, or 28.8%, during 2022, primarily due to growth in Trustmark’s Mississippi and Alabama market regions partially offset by declines in the Tennessee and Texas market regions. State and other political subdivision LHFI increased $77.6 million, or 6.8%, during 2022 principally due to growth in the Mississippi market region partially offset by declines in the Alabama, Texas, Florida and Tennessee market regions. Other commercial LHFI decreased $62.9 million, or 11.8%, during 2022, principally due to a decline in the Mississippi market region partially offset by growth in the Tennessee and Texas market regions.

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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 at December 31, 2022 and 2021 ($ in thousands):

December 31,

Percentage of loans and lines for which Trustmark holds first lien 51.7 % 58.2 %