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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, 2022 and 2021 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, 2022.

Executive Overview

Trustmark has been committed to meeting the banking and financial needs of its customers and communities for over 130 years and remains focused on providing support, advice and solutions to its customers' unique needs. Trustmark produced strong financial results during 2023, despite the challenging financial services environment and increasingly competitive deposit costs, reflected by significant growth in LHFI of $746.5 million, or 6.1%, and deposits of $1.132 billion, or 7.8%, an increase in net interest income of $58.2 million, or 11.8%, and solid credit quality. Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses.

On October 9, 2023, Trustmark entered into a settlement agreement that resolved all current and potential future claims relating to litigation involving Adams/Madison Timber. As a result, Trustmark recognized $6.5 million of litigation settlement expense which was included in noninterest expense for the third quarter of 2023.

Trustmark 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. The Board of Directors of Trustmark declared a quarterly cash dividend of $0.23 per share. The dividend is payable March 15, 2024, to shareholders of record on March 1, 2024.

Financial Highlights

Trustmark reported net income of $36.1 million, or basic and diluted earnings per share (EPS) of $0.59, for the fourth quarter of 2023, compared to a net loss of $34.1 million, or basic and diluted EPS of -$0.56, in the fourth quarter of 2022. Trustmark’s reported performance during the quarter ended December 31, 2023, produced a return on average tangible equity of 11.92%, a return on average assets of 0.77%, an average equity to average assets ratio of 8.51% and a dividend payout ratio of 38.98%, compared to a return on

average tangible equity of -12.14%, a return on average assets of -0.76%, an average equity to average assets ratio of 8.41% and a dividend payout ratio of -41.07% during the quarter ended December 31, 2022.

The increase in net income when the fourth quarter of 2023 is compared to the fourth quarter of 2022 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 decreased $5.4 million, or 13.0%, when the fourth quarter of 2023 is compared to the fourth quarter of 2022, principally due to a decrease in revenue and an increase in noninterest expense, excluding the litigation settlement expense, partially offset by a decrease in the PCL on off-balance sheet credit exposures. Revenue, which is defined as net interest income plus noninterest income, totaled $186.5 million for the quarter ended December 31, 2023 compared to $191.8 million for the quarter ended December 31, 2022, a decrease of $5.2 million, or 2.7%. The decrease in total revenue for the fourth quarter of 2023 compared to the same time period in 2022, resulted from a decrease in net interest income, principally due to increases in interest on deposits and other interest expense largely offset by increases in interest and fees on LHFS and LHFI and other interest income, partially offset by an increase in noninterest income, principally due to increases in mortgage banking, net and insurance commissions.

Net interest income for the fourth quarter of 2023 totaled $136.7 million, a decrease of $9.8 million, or 6.7%, when compared to the fourth quarter of 2022. Interest income totaled $232.9 million for the fourth quarter of 2023, an increase of $56.4 million, or 31.9%, when compared to the same time period in 2022, principally due to increases in interest and fees on LHFS and LHFI primarily due to loan growth and rising interest rates and other interest income primarily due to an increase in the rate paid by the Federal Reserve Bank of Atlanta (FRBA) on reserves. Interest expense totaled $96.1 million for the fourth quarter of 2023, an increase of $66.2 million when compared to the same time period in 2022. The increase in interest expense when the fourth quarter of 2023 is compared to the same time period in 2022 was principally due to an increase in interest on deposits primarily due to rising interest rates, increased competition for deposits and higher average balances, and an increase in other interest expense primarily due to the increase in the rate paid on short-term FHLB advances.

Noninterest income for the fourth quarter of 2023 totaled $49.8 million, an increase of $4.6 million, or 10.3%, when compared to the fourth quarter of 2022, principally due to increases in mortgage banking, net and insurance commissions. Mortgage banking, net totaled $5.5 million for the fourth quarter of 2023, an increase of $2.1 million, or 61.9%, when compared to the same time period in 2022, principally due to a decline in the net negative hedge ineffectiveness and an increase in the gain on sales of loans, net. Insurance commissions totaled $13.2 million for the fourth quarter of 2023, an increase of $1.2 million, or 9.8%, when compared to the same time period in 2022, principally due to an increase in other commission income.

Noninterest expense for the fourth quarter of 2023 totaled $136.4 million, a decrease of $94.8 million, or 41.0%, when compared to the fourth quarter of 2022, principally due to the litigation settlement expense recorded during the fourth quarter of 2022 related to the Stanford Financial Group litigation partially offset by increases in salaries and employee benefits and other expense. Excluding the litigation settlement expense, noninterest expense increased $6.0 million, or 4.6%, when the fourth quarter of 2023 is compared to the fourth quarter of 2022. Salaries and employee benefits totaled $78.0 million for the fourth quarter of 2023, an increase of $4.5 million, or 6.2%, when compared to the same time period in 2022, principally due to increases in salaries expense, primarily due to general merit increases, and accrued management performance incentives, partially offset by a decrease in commission expense due to the decline in mortgage originations. Other expense totaled $16.6 million for the fourth quarter of 2023, an increase of $1.5 million, or 10.0%, when compared to the same time period in 2022, principally due to an increase in FDIC assessment expense.

Trustmark’s PCL, LHFI for the three months ended December 31, 2023 totaled $7.6 million compared to $6.9 million for the three months ended December 31, 2022, an increase of $683 thousand, or 9.9%. The PCL, LHFI for the fourth quarter of 2023 primarily reflected an increase in required reserves as a result of net adjustments to the qualitative reserve factors, loan growth and changes in the macroeconomic forecasts, partially offset by a decline in specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled a negative $888 thousand for the three months ended December 31, 2023 compared to $5.2 million for the three months ended December 31, 2022, a decrease of $6.1 million. The PCL, off-balance sheet credit exposures for the fourth quarter of 2023 primarily reflected declines in required reserves as a result of a decline in unfunded commitments. Please see the section captioned “Provision for Credit Losses,” for additional information regarding the PCL on LHFI and off-balance sheet credit exposures.

For the year ended December 31, 2023, Trustmark reported net income of $165.5 million, or basic and diluted EPS of $2.71 and $2.70, respectively, compared to $71.9 million, or basic and diluted EPS of $1.17, for the year ended December 31, 2022 and $147.4 million, or basic and diluted EPS of $2.35 and $2.34, respectively, for the year ended December 31, 2021. Trustmark’s reported performance for the year ended December 31, 2023, produced a return on average tangible equity of 14.04%, a return on average assets of 0.89% and a dividend payout ratio of 33.95%, compared to 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% for the year ended December 31, 2022 and 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. Trustmark’s average equity to average assets ratio was 8.41%, 9.18% and 10.38% for the years ended December 31, 2023, 2022 and 2021, respectively.

Revenue totaled $759.8 million for the year ended December 31, 2023, compared to $699.9 million and $640.3 million for the years ended December 31, 2022 and 2021, respectively, an increase of $60.0 million, or 8.6%, and $59.6 million, or 9.3%, respectively. The increase in total revenue for 2023 compared to 2022 was principally due an increase in net interest income, principally due to increases in interest and fees on LHFS and LHFI and other interest income largely offset by an increase in total interest expense.

Net interest income for the year ended December 31, 2023 totaled $552.9 million, an increase of $58.2 million, or 11.8%, when compared to the year ended December 31, 2022. Interest income totaled $878.8 million for the year ended December 31, 2023, an increase of $337.0 million, or 62.2%, when compared to the year ended December 31, 2022, principally due to increases in interest and fees on LHFS and LHFI, primarily due to loan growth and rising interest rates, and other interest income, primarily due to an increase in the rate paid by the FRBA on reserves. Interest expense totaled $326.0 million for the year ended December 31, 2023, an increase of $278.8 million, when compared to the year ended December 31, 2022. The increase in interest expense when 2023 is compared to 2022 was due to an increase in interest on deposits primarily due to rising interest rates, increased competition for deposits and higher average balances, an increase in other interest expense primarily due to the increase in the amount of short-term FHLB advances held throughout 2023 as well as an increase in the rate paid for short-term FHLB advances and an increase in interest on federal funds purchased and securities sold under repurchase agreements primarily due to increases to the target rate for federal funds purchased by the FRB.

Noninterest income for 2023 totaled $207.0 million, an increase of $1.8 million, or 0.9%, when compared to 2022, principally due to increases in insurance commissions, other income, net and service charges on deposit accounts, partially offset by declines in bank card and other fees and mortgage banking, net. Insurance commissions totaled $57.6 million for 2023, an increase of $3.8 million, or 7.2%, when compared to 2022, principally due to increases in commercial property and casualty commissions and other commission income. Other income, net totaled $11.2 million for 2023, an increase of $1.3 million, or 13.7%, when compared to 2022, principally due to an increase in cash management service charges partially offset by an increase in the amortization of tax credit partnerships and a decrease in other miscellaneous income. Service charges on deposit accounts totaled $43.4 million for 2023, an increase of $1.3 million, or 3.0%, when compared to 2022, principally due to an increase in service charges on personal interest checking accounts partially offset by a decline in NSF and overdraft charges on consumer deposit accounts. Bank card and other fees totaled $33.4 million for 2023, a decline of $2.7 million, or 7.4%, when compared to 2022, principally due to declines in customer derivatives revenue and miscellaneous other bank fees. Mortgage banking, net totaled $26.2 million for 2023, a decrease of $2.1 million, or 7.4%, when compared to 2022, principally due to a decline in the gain on sales of loans, net and an increase in the net negative hedge ineffectiveness, partially offset by a decline in the run-off of the MSR.

Noninterest expense totaled $537.9 million for 2023, a decrease of $65.3 million, or 10.8%, when compared to 2022, principally due to the $100.8 million litigation settlement expense recorded during the fourth quarter of 2022, partially offset by the $6.5 million of litigation settlement expense recorded during the third quarter of 2023 as well as increases in salaries and employee benefits, other expense, services and fees and equipment expense. Excluding the litigation settlement expenses, noninterest expense increased $29.0 million, or 5.8%, when 2023 is compared to 2022. Salaries and employee benefits totaled $304.7 million for the year ended December 31, 2023, an increase of $17.2 million, or 6.0%, when compared to the year ended December 31, 2022, principally due to increases in salaries expense, primarily due to general merit increases, accrued management performance incentives and commission expense due to improvements in insurance production, partially offset by a decline in commission expense due to the decline in mortgage originations. Other expense totaled $61.7 million for 2023, an increase of $5.8 million, or 10.4%, when compared to 2022, principally due to increases in FDIC assessment expense, primarily due to an increase in the assessment rate, partially offset by a decline in loan expense. Services and fees totaled $109.5 million for 2023, an increase of $4.0 million, or 3.8%, when compared to 2022, principally due to increases in data processing charges related to software and business process outsourcing fees, partially offset by a decrease in other services and fees. Equipment expense totaled $26.1 million for 2023, an increase of $1.7 million, or 6.9%, when compared to 2022, principally due to increases in data processing equipment expenses, depreciation on furniture and equipment and personal property taxes.

Trustmark’s PCL, LHFI for 2023 totaled $27.4 million compared to $21.7 million for 2022, an increase of $5.7 million, or 26.2%. The PCL, LHFI for 2023 primarily reflected an increase in required reserves as a result of loan growth, net changes in the qualitative reserve factors, changes in the macroeconomic forecasts and extended maturities on the secured by 1-4 family residential properties portfolio resulting from lower prepayment speeds, partially offset by a decline in specific reserves for individually analyzed LHFI. The PCL, off-balance sheet credit exposures totaled a negative $2.8 million for 2023 compared to $1.2 million for 2022, a decrease of $4.0 million. The release in PCL on off-balance sheet credit exposures for 2023 primarily reflected a decrease in required reserves due to a decline in unfunded commitments partially offset by an increase in required reserves as a result of 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, 2023, nonperforming assets totaled $106.9 million, an increase of $38.9 million, or 57.3%, compared to December 31, 2022 principally due to an increase in nonaccrual LHFI. Total nonaccrual LHFI were $100.0 million at December 31, 2023, an increase of $34.0 million, or 51.6%, relative to December 31, 2022, primarily as a result of three large commercial credits placed on nonaccrual as well as an increase in mortgage nonaccruals that were partially offset by other commercial credits that were foreclosed, charged off,

returned to accrual or paid off. The percentage of total loans (LHFS and LHFI) that are 30 days or more past due and nonaccrual LHFI increased in 2023 to 1.69% compared to 1.33% in 2022.

LHFI totaled $12.951 billion at December 31, 2023, an increase of $746.5 million, or 6.1%, compared to December 31, 2022. The increase in LHFI during 2023 was primarily due to net growth in LHFI secured by real estate, commercial and industrial LHFI and other commercial LHFI and leases partially offset by a decline in state and other political subdivision LHFI. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

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

Total deposits were $15.570 billion at December 31, 2023, an increase of $1.132 billion, or 7.8%, compared to December 31, 2022. During 2023, noninterest-bearing deposits decreased $896.2 million, or 21.9%, as a result of declines in all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit accounts. Interest-bearing deposits increased $2.028 billion, or 19.6%, during 2023, primarily due to growth in certificates of deposits (CDs), which was principally attributable to deposit campaigns offered during 2023 and the addition of $578.8 million of brokered CDs, business and consumer money market deposit accounts (MMDA) and business interest checking accounts, partially offset by declines in consumer and public interest checking accounts and consumer savings accounts.

Federal funds purchased and repurchase agreements totaled $405.7 million at December 31, 2023 compared to $449.3 million at December 31, 2022, a decrease of $43.6 million, or 9.7%, principally due to a decrease in customer sweep transactions. Trustmark had $370.0 million of upstream federal funds purchased at December 31, 2023, compared to $383.0 million at December 31, 2022. Other borrowings totaled $483.2 million at December 31, 2023, a decrease of $567.7 million, or 54.0%, when compared with $1.051 billion at December 31, 2022, principally due to a decline in outstanding short-term FHLB advances obtained from the FHLB of Dallas.

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

The ACL, 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, 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, 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, LHFI is complex and requires judgment 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, LHFI 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 for LHFI. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology for LHFI, 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 on off-balance sheet credit exposures is complex and requires judgment 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 on off-balance sheet credit exposures 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 on off-balance sheet credit exposures. Given the nature of many of the factors, forecasts and assumptions in the ACL methodology for off-balance sheet credit exposures, 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 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.

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 may result in a decrease in the fair value of the MSR, while a decrease in either assumption may 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 speeds 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, 2023, the MSR fair value was $131.9 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, 2023, would be a decline in fair value of approximately $4.8 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.

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

Plus: Intangible amortization net of tax 505 1,076 1,738

TANGIBLE EQUITY MEASUREMENTS

Tangible equity/tangible assets (a)/(b) 6.95 % 6.27 % 7.86 %

Tangible equity/risk-weighted assets (a)/(c) 8.41 % 7.61 % 10.71 %

COMMON EQUITY TIER 1 CAPITAL (CET1) - BASEL III

CET1 adjustments and deductions:

Other adjustments and deductions for CET1 (3) (2,693 ) (3,258 ) (4,392 )

Common equity tier 1 risk-based capital ratio (e)/(c) 10.04 % 9.74 % 11.29 %

(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.

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 (net of taxes):

Reduction in force expense 1,055 0.02 — — — —

Voluntary early retirement program — — — — 4,275 0.07

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

Reduction in Force Expense

During the fourth quarter 2023, Trustmark incurred reduction in force expenses of $1.4 million related to various restructuring initiatives.

Litigation Settlement Expense

On October 9, 2023, Trustmark entered into a settlement agreement that resolved all current and potential future claims relating to litigation involving Adams/Madison Timber. 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 $6.5 million of litigation settlement expense during the third quarter of 2023.

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 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.

Regulatory Settlement Charge

During 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 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, 2023 increased $59.3 million, or 11.7%, when compared with the year ended December 31, 2022. The increase in net interest income-FTE when 2023 is compared to 2022 was principally due to increases in interest and fees on LHFS and LHFI-FTE and other interest income, partially offset by an increase in total interest expense. The net interest margin-FTE for 2023 increased 15 basis points to 3.32% when compared to 2022. The net interest margin-FTE excluding PPP loans and the balance held at the 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 3.25% for 2023, a decrease of 5 basis points when compared to 3.30% for 2022. The decrease in the net interest margin-FTE excluding PPP loans and the balance held at the FRBA for 2023 was principally due to higher costs of interest-bearing liabilities, partially offset by increases in the yields on the LHFS and LHFI and securities portfolios reflecting the higher interest rate environment.

At both December 31, 2023 and 2022, Trustmark had no PPP loans outstanding.

The average FRBA balance, included in other earning assets, for 2023 totaled $617.6 million, a decrease of $229.3 million, or 27.1%, when compared to 2022. Interest earned on the FRBA balance increased $25.0 million when 2023 is compared to 2022. The yield on the FRBA balance was 5.17% and 0.82% for 2023 and 2022, respectively, an increase of 435 basis points reflecting the FRBA's increase in the interest rate that it pays on reserves during 2023.

Average interest-earning assets for 2023 were $17.082 billion compared to $16.014 billion for 2022, an increase of $1.068 billion, or 6.7%. The increase in average earning assets during 2023 was primarily due to an increase in average loans (LHFS and LHFI) of $1.565 billion, or 13.9%, which was partially offset by decreases in average securities of $302.5 million, or 7.9%, and average other earning assets of $179.2 million, or 19.8%. The increase in average loans (LHFS and LHFI) was primarily attributable to an increase in the average balance of the LHFI portfolio of $1.596 billion, or 14.5%, partially offset by a decrease in the average balance of the LHFS portfolio of $30.8 million, or 15.9%, when balances at December 31, 2023 are compared to balances at December 31, 2022. See the sections captioned "LHFS" and "LHFI" for additional information regarding changes in the LHFS and LHFI portfolios. The decrease in average securities when 2023 is compared to 2022 was principally due to calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed securities. The decrease in average other earning assets when 2023 is compared to 2022 was primarily due to a decrease in reserves held at the FRBA.

Interest income-FTE totaled $892.3 million for 2023, an increase of $338.1 million, or 61.0%, while the yield on total earning assets increased 176 basis points to 5.22% when compared to 2022. The increase in interest income-FTE in 2023 primarily reflects increases in interest and fees on LHFS and LHFI-FTE and other interest income. During 2023, interest and fees on LHFS and LHFI-FTE increased $303.5 million, or 62.5%, when compared to 2022, while the yield on loans (LHFS and LHFI) increased to 6.16% compared to 4.32% as a result of the increase in the average balance of the LHFI portfolio as well as higher interest rates. During 2023, other interest income increased $29.1 million when compared to 2022, while the yield on other earning assets increased to 5.10% compared to 0.89%, principally due to the FRBA's increase in the interest rate paid on reserves during 2023. See the discussion above regarding changes in interest income and yields on balances held at the FRBA.

Average interest-bearing liabilities for 2023 totaled $12.983 billion compared to $10.987 billion for 2022, an increase of $1.996 billion, or 18.2%. The increase in average interest-bearing liabilities was primarily the result of increases in average interest-bearing deposits, average other borrowings and average federal funds purchased and securities sold under repurchase agreements. Average interest-bearing deposits for 2023 increased $1.083 billion, or 10.5%, when compared to 2022, reflecting growth in average time deposits and average interest-bearing demand deposits partially offset by declines in average savings deposits. Average other borrowings for 2023 increased $785.6 million when compared to 2022, principally due to the increase in short-term FHLB advances outstanding during the year. Average federal funds purchased and securities sold under repurchase agreements increased $127.6 million, or 45.0%, when 2023 is compared to 2022, principally due to an increase in upstream federal funds purchased during the year.

Interest expense for 2023 totaled $326.0 million, an increase of $278.8 million when compared with 2022, while the rate on total interest-bearing liabilities increased to 2.51% compared to 0.43%. The increase in total interest expense for 2023 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 $216.9 million, while the rate on interest-bearing deposits increased to 2.16% compared to 0.28% when 2023 is compared to 2022, primarily due to increases in interest on all categories of interest checking accounts, CDs and MMDAs, reflecting rising interest rates and higher average balances. Other interest expense increased $47.7 million, while the rate on other borrowings increased to 5.09% compared to 3.11%, when 2023 is compared to 2022, principally due to an increase in the amount of short-term FHLB advances obtained from the FHLB of Dallas during the year as well as the interest rate paid on short-term FHLB advances. Interest expense on federal funds purchased and securities sold under repurchase agreements increased $14.3 million, while the rate on federal funds purchased and securities sold under repurchase agreements increased to 4.97% compared to 2.16%, when 2023 is compared to 2022, principally due to the FRB’s increase in the target range for the federal funds rate as well as an increase in upstream federal funds purchased during the year.

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:

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:

Nontaxable (13 ) — (13 ) (7 ) 3 (4 )

Securities held to maturity:

Interest paid on:

Subordinated notes 10 (10 ) — 9 (10 ) (1 )

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 the 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, 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 $27.4 million for 2023, compared to a PCL, LHFI of $21.7 million for 2022 and a negative PCL, LHFI of $21.5 million for 2021. The PCL, LHFI for 2023 primarily reflected an increase in required reserves as a result of loan growth, net changes in the qualitative reserve factors, changes in the macroeconomic forecasts and extended maturities on the secured by 1-4 family residential properties portfolio resulting from lower prepayment speeds, partially offset by a decline in specific reserves for individually analyzed LHFI.

FASB ASC Topic 326 requires Trustmark to estimate expected credit losses for off-balance sheet credit exposures which are not unconditionally cancellable by Trustmark. Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded commitments and letters of credit. Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. The PCL, off-balance sheet credit exposures totaled a negative $2.8 million for 2023 compared to $1.2 million for 2022, and a negative $2.9 million for 2021. The release in PCL on off-balance sheet credit exposures for 2023 primarily reflected a decrease in required reserves due to a decline in unfunded commitments partially offset by an increase in required reserves as a result of changes in the total reserve rate.

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

Noninterest Income

Noninterest income represented 27.2%, 29.3% and 34.7% of total revenue, before securities gains (losses), net in 2023, 2022 and 2021, 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

Securities gains (losses), net 39 n/m — — — —

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

Changes in various components of noninterest income for the year ended December 31, 2023 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 2023 is compared to 2022 was principally due to an increase in service charges on personal interest checking accounts partially offset by a decline in NSF and overdraft charges on consumer deposit accounts.

Bank Card and Other Fees

The decrease in bank card and other fees when 2023 is compared to 2022 was principally due to declines in customer derivatives revenue and miscellaneous other bank fees.

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

Change in fair value-MSR from market changes (1,489 ) n/m 38,181 n/m 13,258 n/m

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

The decrease in mortgage banking, net when 2023 is compared to 2022 was principally due to a decline in the gain on sales of loans, net and an increase in the net negative hedge ineffectiveness, partially offset by a decline in the run-off of the MSR. Mortgage loan production totaled $1.454 billion for 2023, a decrease of $670.7 million, or 31.6%, when compared to 2022. Mortgage loan production totaled $2.125 billion for 2022, a decrease of $678.1 million, or 24.2%, when compared to 2021. Loans serviced for others totaled $8.477 billion at December 31, 2023, compared with $8.116 billion at December 31, 2022, and $7.953 billion at December 31, 2021.

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 2023 is compared to 2022 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 $107.0 million, or 8.6%, during 2023 to total $1.136 billion compared to a decrease of $1.043 billion, or 45.6%, during 2022 to total $1.243 billion. The decrease in loan sales during 2023 and 2022 was principally due to a decline in mortgage lending activity as result of rising interest rates.

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 2023 is compared to 2022 was primarily due to an increase in other miscellaneous income partially offset by an increase in the amortization of tax credit partnerships as a result of investment in new tax credit partnerships. The increase in other miscellaneous income when 2023 is compared with 2022 was principally due to increases in cash management service charges partially offset by declines in gains on the sales of premises and equipment and gain on non-qualified benefit plans.

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

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

(1)

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

(2)

During 2023, Trustmark reclassified its debit card transaction fees from other expense to services and fees. Prior periods have been reclassified accordingly.

Changes in the various components of noninterest expense for the year ended December 31, 2023 are discussed in further detail below. Management considers disciplined expense management a key area of focus in the support of improving shareholder value.

Salaries and Employee Benefits

The increase in salaries and employee benefits expense when 2023 is compared to 2022 was principally due to increases in salaries expense, primarily due to general merit increases, accrued management performance incentives and commission expense due to improvements in insurance production, partially offset by a decline in commission expense due to the decline in mortgage originations.

Services and Fees

The increase in services and fees when 2023 is compared to 2022 was principally due to increases in data processing charges related to software and business process outsourcing fees, partially offset by a decrease in other services and fees.

Equipment Expense

The increase in equipment expense when 2023 is compared to 2022 was principally due to increases in data processing equipment expenses, depreciation on furniture and equipment and personal property taxes.

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 — — — -100.0 % 5,000 n/m

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

(1)

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

(2)

During 2023, Trustmark reclassified its debit card transaction fees from other expense to services and fees. Prior periods have been reclassified accordingly.

The increase in other expense when 2023 is compared to 2022 was principally due to an increase in FDIC assessment expense, primarily due to an increase in the assessment rate, partially offset by a decline in loan expense.

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

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,

General Banking

Net interest income for the General Banking Segment for 2023 increased $57.6 million, or 11.8%, when compared with 2022, principally due to increases in interest and fees on LHFS and LHFI, other interest income and interest on securities, partially offset by an increase in total interest expense. 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. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for 2023 totaled $26.7 million compared to a PCL of $22.9 million during 2022 and a negative PCL of $24.4 million during 2021. 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 $2.9 million, or 2.5%, during 2023 compared to a decrease of $21.5 million, or 15.6%, during 2022. The decrease in noninterest income for the General Banking Segment during 2023 was primarily due to the decreases in bank card and other fees and 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 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. Noninterest income for the General Banking Segment represented 17.2% of total revenue for 2023, 19.2% for 2022 and 25.0% for 2021. Noninterest income for the General Banking Segment includes service charges on deposit accounts; wealth management; bank card and other fees; mortgage banking, net; other income, net and securities gains (losses), net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income.”

Noninterest expense for the General Banking Segment decreased $67.9 million, or 12.8%, during 2023 compared to an increase of $109.8 million, or 26.1%, during 2022. The decrease in noninterest expense for the General Banking Segment for 2023 was principally due to decreases in litigation settlement expense, outside services and fees and loan expenses, partially offset by increases in salaries and employee benefits, data processing expenses related to software and FDIC assessment expense. During 2023, Trustmark recognized litigation settlement expense of $6.5 million as a result of the settlement relating to the litigation involving the Adams/Madison timber compared to litigation settlement expense of $100.0 million and legal fees of $750 thousand recognized in 2022 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 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. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

During 2023, net income for the Wealth Management Segment increased $2.3 million, or 40.3%, compared to a decrease of $979 thousand, or 14.7%, during 2022. The increase in net income for the Wealth Management Segment during 2023 was principally due to an increase in the negative PCL. The decrease in net income for the Wealth Management Segment during 2022 was principally due to an increase in noninterest expense.

Net interest income for the Wealth Management Segment increased $558 thousand, or 10.5%, during 2023 compared to an increase of $160 thousand, or 3.1%, during 2022. The increase in net interest income for the Wealth Management Segment during 2023 and 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 PCL for the Wealth Management Segment for 2023 totaled a negative $2.1 million compared to a negative PCL of $21 thousand during 2022 and a negative PCL of $9 thousand during 2021.

Noninterest income for the Wealth Management Segment, which includes income related to investment management, trust and brokerage services, decreased $136 thousand, or 0.4%, during 2023, principally due to declines in income from brokerage services and other miscellaneous income partially offset by increases in income from trust management and annuity services and indirect income allocated to the Wealth Management Segment. Noninterest income for the Wealth Management Segment 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 expense decreased $534 thousand, or 1.6%, during 2023 compared to an increase of $1.2 million, or 3.6%, during 2022. The decrease in noninterest expense for the Wealth Management Segment for 2023 was principally due to a decrease in data processing charges related to software, partially offset by an increase in business process outsourcing expenses. 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.

At December 31, 2023 and 2022, Trustmark held assets under management and administration of $8.250 billion and $16.913 billion and brokerage assets of $2.592 billion and $2.327 billion, respectively.

Insurance

Net income for the Insurance Segment during 2023 increased $1.2 million, or 11.1%, compared to an increase of $1.6 million, or 17.2%, during 2022. Noninterest income for the Insurance Segment, which predominately consists of insurance commissions, increased $4.8 million, or 8.9%, during 2023, compared to an increase of $5.1 million, or 10.5%, during 2022. The increase in noninterest income for the Insurance Segment during 2023 was principally due to increases in commercial property and casualty commissions, other commission income and other miscellaneous income. 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.

Noninterest expense for the Insurance Segment increased $3.1 million, or 8.1%, during 2023 and $2.9 million, or 8.1%, during 2022. The increase in noninterest expense for the Insurance Segment for 2023 was principally due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes. 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.

Trustmark performed an annual impairment test of the book value of goodwill held in the Insurance Segment as of October 1, 2023, 2022, and 2021. 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, 2023, Trustmark’s combined effective tax rate was 16.1% compared to 2.5% in 2022 and 16.0% in 2021. The decline in the effective tax rate for 2022 was principally due to the net loss recorded for 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 $17.082 billion, or 91.5% of total average assets, at December 31, 2023, compared with $16.014 billion, or 91.6% of total average assets, at December 31, 2022, an increase of $1.068 billion, or 6.7%.

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, 2023 and 2022 was 4.5 and 4.9 years, respectively.

When compared with December 31, 2022, total investment securities decreased by $329.4 million, or 9.4%, during 2023. This decrease resulted primarily from calls, maturities and pay-downs of the underlying loans of GSE guaranteed securities partially offset by an increase in the fair market value of securities available for sale. Trustmark sold $4.8 million of available for sale securities during 2023, generating a net gain of $39 thousand, compared to no securities sold during 2022.

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

At December 31, 2023, the net unamortized, unrealized loss on all transferred securities included in accumulated other comprehensive income (loss) (AOCI) in the accompanying consolidated balance sheets totaled $57.6 million compared to $69.2 million at December 31, 2022.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCI, a separate component of shareholders’ equity. At December 31, 2023, available for sale securities totaled $1.763 billion, which represented 55.3% of the securities portfolio, compared to $2.024 billion, or 57.5%, at December 31, 2022. At December 31, 2023, unrealized losses, net on available for sale securities totaled $196.1 million compared to unrealized losses, net of $246.6 million at December 31, 2022. At December 31, 2023, available for sale securities consisted of U.S. Treasury securities, 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, 2023, held to maturity securities totaled $1.426 billion and represented 44.7% of the total securities portfolio, compared with $1.495 billion, or 42.5%, at December 31, 2022.

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, 2023 (tax equivalent basis):

Maturing

Securities Available for Sale

U.S. Treasury securities 1.08 % 1.18 % — — 1.17 %

Mortgage-backed securities

Residential mortgage pass-through securities

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA — 2.37 % 2.40 % 2.13 % 2.26 %

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA 4.88 % 3.41 % 5.63 % 3.57 % 5.56 %

Securities Held to Maturity

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

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

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA — — — 4.49 % 4.49 %

Other residential mortgage-backed securities

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

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA — 2.53 % 2.09 % 2.96 % 2.32 %

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.

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 99.99% 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, 2023, 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, 2023 ($ 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, 2023, approximately 100.0% of the available for sale securities, measured at the estimated fair value, and the held to maturity securities, measured at amortized cost, were rated Aaa.

LHFS

At December 31, 2023, LHFS totaled $184.8 million, consisting of $106.0 million of residential real estate mortgage loans in the process of being sold to third parties and $78.8 million of Government National Mortgage Association (GNMA) optional repurchase loans. At December 31, 2022, LHFS totaled $135.2 million, consisting of $64.4 million of residential real estate mortgage loans in the process of being sold to third parties and $70.8 million of GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during 2023 or 2022.

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.

LHFI

The table below provides the carrying value of the LHFI portfolio by loan class for the years ended December 31, 2023 and 2022 ($ in thousands):

December 31,

Amount % Amount %

Loans secured by real estate:

Other loans secured by real estate:

LHFI at December 31, 2023 increased $746.5 million, or 6.1%, compared to December 31, 2022. The increase in LHFI during 2023 was primarily due to net growth in LHFI secured by real estate, commercial and industrial LHFI and other commercial LHFI and leases partially offset by a decline in state and other political subdivision LHFI.

LHFI secured by real estate (loans secured by real estate and other loans secured by real estate) increased $700.6 million, or 8.2%, during 2023, principally due to net growth in Trustmark's Alabama, Mississippi and Texas market regions. LHFI secured by other real estate increased $570.0 million, or 76.8%, during 2023, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Alabama, Texas and Mississippi market regions, 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 $160.8 million, or 21.7%. LHFI secured by nonfarm, nonresidential properties (NFNR LHFI) increased $210.6 million, or 6.4%, during 2023, principally due to movement from the other construction loans category. Excluding other construction loan reclassifications, the NFNR LHFI portfolio decreased $286.0 million, or 8.7%, during 2023 primarily due to declines in nonowner-occupied loans in the Mississippi, Alabama, Florida and Tennessee market regions as well as declines in owner-occupied loans in the Texas and Alabama market regions, which were partially offset by growth in owner-occupied loans in the Mississippi market region and nonowner-occupied loans in the Texas market region. Other construction loans decreased $161.1 million, or 15.7%, during 2023 primarily due to other construction loans moved to other loan categories upon the completion of the related construction project partially offset by new construction loans across all five market regions. During 2023, $1.227 billion loans were moved from other construction to other loan categories, including $730.8 million to multi-family residential loans, $419.1 million to nonowner-occupied loans and $77.5 million to owner-occupied loans. Excluding all reclassifications between loan categories, other construction loans increased $1.060 billion during 2023, reflecting growth in the Alabama, Texas, Mississippi and Florida market regions. LHFI secured by 1-4 family residential properties increased $97.3 million, or 4.5%, during 2023, primarily in the Mississippi market region. Trustmark's LHFI secured by 1-4 family residential properties are primarily included in the Mississippi market region because these loans are centrally analyzed and approved as part of the mortgage line of business which is located in Jackson, Mississippi. LHFI secured by construction, land development and other land decreased $47.7 million, or 6.9%, during 2023 principally due to declines in 1-4 family construction loans in Trustmark's Alabama, Florida, Tennessee and Mississippi market regions. LHFI secured by other 1-4 family residential properties, which primarily consists of revolving home equity lines of credit, increased $31.6 million, or 5.4%, during 2023 reflecting growth across all five market regions.

Commercial and industrial LHFI increased $101.7 million, or 5.6%, during 2023, primarily due to growth in Trustmark’s Alabama market region, principally due to the growth in equipment finance (EF) loans, partially offset by a decline in the Tennessee market region. Other commercial LHFI and leases increased $84.1 million, or 17.8%, during 2023, principally due to an increase in the Alabama market region, primarily due to growth in EF leases, partially offset by declines in the Mississippi and Tennessee market regions. During 2023, Trustmark introduced the EF lending line of business through its Georgia LPO providing commercial customers with loans and leases for equipment and machinery. At December 31, 2023, EF loans totaled $130.5 million and were included in the commercial and industrial LHFI loan portfolio in Trustmark's Alabama market region. At December 31, 2023, EF leases, which include sales-type and direct financing leases, totaled $137.7 million and were included in the other commercial LHFI and leases portfolio in Trustmark's Alabama market region. For additional information regarding the EF leases, please see the sections captioned “Lessor Arrangements” included in Note 1 - Significant Accounting Policies and Note 9 – Leases of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

State and other political subdivision LHFI decreased $135.4 million, or 11.1%, during 2023 reflecting declines across all five market regions.

The following table provides information regarding Trustmark’s home equity loans and home equity lines of credit which are included in the LHFI secured by 1-4 family residential properties at December 31, 2023 and 2022 ($ in thousands):

December 31,

Percentage of loans and lines for which Trustmark holds first lien 47.8 % 51.7 %

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

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

The following table presents the LHFI composition by region at December 31, 2023 and reflects a diversified mix of loans by region ($ in thousands):

LHFI Composition by Region Total Alabama Florida Mississippi Tennessee Texas

Loans secured by real estate:

Other loans secured by real estate:

Construction, Land Development and Other Land Loans by Region

Loans Secured by Nonfarm, Nonresidential (NFNR) Properties by Region

Nonowner-occupied:

Owner-occupied:

Trustmark’s variable rate LHFI are based primarily on various prime and SOFR interest rate bases. The following table provides information regarding Trustmark’s LHFI maturities by loan class and interest rate terms at December 31, 2023 ($ in thousands):

Maturing

One Year Five Years

Within Through Through After

One Year Five Fifteen Fifteen

or Less Years Years Years Total

Loans secured by real estate:

Other loans secured by real estate:

Loans with Fixed Interest Rates

Loans secured by real estate:

Other loans secured by real estate:

Loans with Variable Interest Rates

Loans secured by real estate:

Other loans secured by real estate:

Allowance for Credit Losses

LHFI

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

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

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

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

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

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic are not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor – Pandemic qualitative factor

is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (risk rates 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (risk rate 5) or watch (risk rate 6) received the additional reserves based on the average of the macroeconomic conditions and weighted average of the commercial loan portfolio loss rate while the loans rated special mention (risk rate 7) and substandard (risk rate 8) received additional reserves based on the weighted-average described above. During 2022, Management noted that all pass rate loans (risk rate 5 and 6) related to the External Factor - Pandemic qualitative factor either did not experience significant stress related to the pandemic or have since recovered and does not expect future stresses attributed to the pandemic that may affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rate loans as a result of pandemic conditions resolving. During the fourth quarter of 2023, Management decided to resolve the External Factor-Pandemic qualitative factor as a result of the remaining loan balances that were identified as COVID affected loans were immaterial from both a reserve and balance perspective. The remaining loans were incorporated back into the performance qualitative factor as a result of this resolution. Further, due to this resolution there is no longer any active External Factor as of December 31, 2023.

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

During 2022, Management elected to activate the nature and volume of the portfolio qualitative factor as a result of a sub-pool of the secured by 1-4 family residential properties growing to a significant size along with the underlying nature being different as well. The nature and volume of the portfolio qualitative factor utilizes a WARM methodology that uses industry data for the assumptions to support the qualitative adjustment. The industry data is used to compile a PD based on credit score ranges along with using the industry data to compile an LGD. The sub-pool of credits is then aggregated into the appropriate credit score bands in which a weighted average loss rate is calculated based on the PD and LGD for each credit score range. This weighted average loss rate is then applied to the expected balance for the sub-segment of credits. This total is then used as the qualitative reserve adjustment.

Trustmark's current quantitative methodologies do not completely incorporate changes in credit quality. As a result, Trustmark utilizes the performance trends factor. This factor is based on migration analyses, that allocates additional ACL to non-pass/delinquent loans within each pool. In this way, Management believes the ACL will directly reflect changes in risk, based on the performance of the loans with a pool, whether declining or improving.

The performance trends qualitative factor is estimated by properly segmenting loan pools into risk levels by risk rating for commercial credits and delinquency status for consumer credits. A migration analysis is then performed quarterly using a third-party software and the results for each risk level are compiled to calculate the historical PD average for each loan portfolio based on risk levels. This average historical PD rate is updated annually. For the mortgage portfolio, Trustmark uses an internal report to incorporate a roll rate method for the calculation of the PD rate. In addition, to the PD rate for each portfolio, Management incorporates the quantitative rate and the k value derived from the Frye-Jacobs method to calculate a loss estimate that includes both PD and LGD. The quantitative rate is used to eliminate any additional reserve that the quantitative reserve already includes. Finally, the loss estimate rate is then applied to the total balances for each risk level for each portfolio to calculate a qualitative reserve

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

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

At December 31, 2023, the ACL, LHFI was $139.4 million, an increase of $19.2 million, or 15.9%, when compared with December 31, 2022. The increase in the ACL, LHFI during 2023 was principally due to loan growth, net changes in the qualitative reserve factors, changes in the macroeconomic forecasts and extended maturities on the secured by 1-4 family residential properties portfolio resulting from lower prepayment speeds, partially offset by a decline in specific reserves for individually analyzed LHFI. Allocation of Trustmark’s ACL, LHFI represented 0.85% of commercial LHFI and 1.81% of consumer and home mortgage LHFI, resulting in an

ACL to total LHFI of 1.08% at December 31, 2023. This compares with an ACL to total LHFI of 0.99% at December 31, 2022, which was allocated to commercial LHFI at 0.85% and to consumer and home mortgage LHFI at 1.41%.

The table below illustrates the changes in Trustmark’s ACL on LHFI as well as Trustmark’s loan loss experience for the periods presented ($ in thousands):

Years Ended December 31,

Charge-offs exceeded recoveries for 2023 resulting in net charge-offs of $8.2 million, or 0.06% of average loans (LHFS and LHFI), compared to net charge-offs of $920 thousand, or 0.01% of average loans (LHFS and LHFI), in 2022, and net recoveries of $3.7 million, or -0.04% of average loans (LHFS and LHFI), in 2021. The increase in net charge-offs during 2023 was principally due to increases in charge-offs in the Texas, Mississippi and Alabama market regions as well as declines in recoveries in the Alabama, Mississippi and Florida market regions, partially offset by an increase in recoveries in the Tennessee market region.

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

Years Ended December 31,

Total net (charge-offs) recoveries $ (8,209 ) $ (920 ) $ 3,650

The following table presents selected credit ratios for the periods presented ($ in thousands):

Years Ended December 31,

Nonaccrual LHFI to Total LHFI 0.77 % 0.53 % 0.61 %

Net (Charge-offs) Recoveries to Average LHFI

Construction, land development and other land loans -0.02 % 0.16 % 0.28 %

Other loans secured by 1-4 family residential properties 0.02 % 0.07 % 0.08 %

Net (charge-offs) recoveries $ 119 $ 372 $ 396

Loans secured by nonfarm, nonresidential properties 0.06 % 0.05 % 0.04 %

Other loans secured by real estate — -0.02 % —

Net (charge-offs) recoveries $ 28 $ (117 ) $ 20

Other construction loans -0.35 % 0.01 % 0.01 %

Net (charge-offs) recoveries $ (3,380 ) $ 69 $ 47

Loans secured by 1-4 family residential properties -0.06 % — —

Net (charge-offs) recoveries $ (1,419 ) $ 13 $ (49 )

Commercial and industrial loans -0.06 % 0.02 % 0.03 %

Net (charge-offs) recoveries $ (1,095 ) $ 284 $ 336

Net (charge-offs) recoveries $ (4,098 ) $ (562 ) $ 25

State and other political subdivision loans — — —

Net (charge-offs) recoveries $ — $ — $ —

Other commercial loans and leases -0.06 % -0.72 % 0.06 %

Net (charge-offs) recoveries $ (314 ) $ (3,451 ) $ 274

Net (charge-offs) recoveries $ (8,209 ) $ (920 ) $ 3,650

The PCL, LHFI for 2023 totaled 0.21% of average loans (LHFS and LHFI), compared to 0.19% of average loans (LHFS and LHFI) in 2022 and -0.21% of average loans (LHFS and LHFI) in 2021. The PCL, LHFI for 2023 primarily reflected an increase in required reserves as a result of loan growth, net changes in the qualitative reserve factors, changes in the macroeconomic forecasts and extended maturities on the secured by 1-4 family residential properties portfolio resulting from lower prepayment speeds, partially offset by a decline in specific reserves for individually analyzed LHFI.

Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheets. Expected credit losses for off-balance sheet credit exposures are estimated by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by Trustmark. Trustmark calculates a loan pool level unfunded amount for the period. Trustmark calculates an expected funding rate each period which is applied to each pool’s unfunded commitment balances to ensure that reserves will be applied to each pool based upon balances expected to be funded based upon historical levels. Additionally, a reserve rate is applied to the unfunded commitment balance, which incorporates both quantitative and qualitative aspects of the current period’s expected credit loss rate. The reserve rate is loan pool specific and is applied to the unfunded amount to ensure loss factors, both quantitative and qualitative, are being considered on the unfunded portion of the loan pool, consistent with the methodology applied to the funded loan pools. See the section captioned “Lending Related” in Note 16 – Commitments and Contingencies included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for complete description of Trustmark’s ACL methodology on off-balance sheet credit exposures.

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. At December 31, 2023, the ACL on off-balance sheet credit exposures totaled $34.1 million compared to $36.8 million at December 31, 2022, a decrease of $2.8 million, or 7.5%. The PCL, off-balance sheet credit exposures totaled a negative $2.8 million for 2023, compared to a PCL, off-balance sheet credit exposures totaled $1.2 million for 2022 and a negative PCL, off-balance sheet credit exposures of $2.9 million for 2021. The release in PCL, off-balance sheet credit exposures for 2023 primarily reflected a decrease in required reserves due to a decline in unfunded commitments partially offset by an increase in required reserves as a result of changes in the total reserve rate.

Nonperforming Assets

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

December 31,

Nonaccrual LHFI

Other real estate

Tennessee — 23

Loans Past Due 90 Days or More

LHFS - Guaranteed GNMA services loans (1) $ 51,243 $ 49,320

(1)

No obligation to repurchase.

For additional information regarding the Trustmark’s serviced GNMA loans eligible for repurchase, please see the section captioned “Loans Held for Sale (LHFS)” included in Note 1 – Significant Accounting Policies of Part II. Item 8. – Financial Statements and Supplementary Data of this report.

Nonaccrual LHFI

At December 31, 2023, nonaccrual LHFI totaled $100.0 million, or 0.76% of total LHFS and LHFI, reflecting an increase of $34.0 million, or 51.6%, relative to December 31, 2022. The increase in nonaccrual LHFI was primarily as a result of three large commercial credits placed on nonaccrual as well as an increase in mortgage nonaccruals that were partially offset by other commercial credits that were foreclosed, charged off, returned to accrual or paid off.

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

Other Real Estate

Other real estate at December 31, 2023 increased $4.9 million when compared with December 31, 2022, principally due to properties foreclosed in the Texas, Mississippi and Alabama market regions partially offset by properties sold in Trustmark’s Mississippi market region.

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

Total Alabama Mississippi Tennessee Texas

Net (write-downs) recoveries 199 324 (125 ) — —

Total Alabama Mississippi Tennessee Texas

Balance at beginning of period $ 4,557 $ — $ 4,557 $ — $ —

Net (write-downs) recoveries 38 91 (53 ) — —

Total Alabama Mississippi Tennessee Texas

Balance at end of period $ 4,557 $ — $ 4,557 $ — $ —

Net recoveries of other real estate increased $161 thousand during 2023 compared to a decrease in net write-downs of other real estate of $970 thousand during 2022. The increase in net recoveries of other real estate during 2023 compared to 2022 was primarily due to a decline in write-downs on foreclosed properties in the Mississippi market region as well as an increase in recoveries at foreclosure for properties in the Alabama market region, partially offset by reserves released during 2022 as a result of properties sold in the Mississippi and Alabama market regions.

The following table illustrates other real estate by type of property at December 31, 2023 and 2022 ($ in thousands):

December 31,

Nonfarm, nonresidential properties 4,835 561

Other real estate properties 55 297

Deposits

Trustmark’s deposits are its primary source of funding and consist primarily of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, MMDA, certificates of deposit and individual retirement accounts. Total deposits were $15.570 billion at December 31, 2023 compared to $14.438 billion at December 31, 2022, an increase of $1.132 billion, or 7.8%, primarily reflecting an increase in interest-bearing deposits partially offset by a decrease in noninterest-bearing deposit accounts. During 2023, noninterest-bearing deposits decreased $896.2 million, or 21.9%, as a result of declines in all categories of noninterest-bearing deposits reflecting customers' desire for higher-yielding deposit accounts. Interest-bearing deposits increased $2.028 billion, or 19.6%, during 2023, primarily due to growth in CDs, which was principally attributable to deposit campaigns offered during 2023 and the addition of $578.8 million of brokered CDs, business and consumer MMDA and business interest checking accounts, partially offset by declines in consumer and public interest checking accounts and consumer savings accounts.

At December 31, 2023, Trustmark's total uninsured deposits were $5.601 billion, or 36.0% of total deposits, compared to $5.831 billion, or 40.4% of total deposits, at December 31, 2022.

The maturities of time deposits that exceed the FDIC insurance limit of $250 thousand at December 31, 2023 are as follows ($ in thousands):

Over three months through six months 286,191

Over six months through twelve months 153,104

Total time deposits in excess of FDIC insurance limit $ 822,431

Borrowings

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

Federal funds purchased and repurchase agreements totaled $405.7 million at December 31, 2023 compared to $449.3 million at December 31, 2022, a decrease of $43.6 million, or 9.7%. At December 31, 2023 and 2022, $35.7 million and $66.3 million, respectively, represented customer related transactions, such as commercial sweep repurchase balances. Trustmark had $370.0 million of upstream federal funds purchased at December 31, 2023, compared to $383.0 million at December 31, 2022.

Other borrowings totaled $483.2 million at December 31, 2023, a decrease of $567.7 million, or 54.0%, when compared with $1.051 billion at December 31, 2022, principally due to a decline in outstanding short-term FHLB advances obtained from the FHLB of Dallas.

Benefit Plans

Defined Benefit Plans

As disclosed in Note 14 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan) to satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

At December 31, 2023, the fair value of the Continuing Plan’s assets totaled $2.4 million and was exceeded by the projected benefit obligation of $5.9 million by $3.5 million. Net periodic benefit cost equaled $262 thousand in 2023, compared to $410 thousand in 2022 and $1.1 million in 2021.

The fair value of plan assets is determined utilizing current market quotes, while the benefit obligation and periodic benefit costs are determined utilizing actuarial methodology with certain weighted-average assumptions. For 2023, 2022 and 2021, the process used to select the discount rate assumption under FASB ASC Topic 715, "Compensation-Retirement Benefits," takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. Assumptions, which have been chosen to represent the estimate of a particular event as required by GAAP, have been reviewed and approved by Management based on recommendations from its actuaries.

The range of potential contributions to the Continuing Plan is determined annually by the Continuing Plan’s actuary in accordance with applicable IRS rules and regulations. Trustmark’s policy is to fund amounts that are sufficient to satisfy the annual minimum funding requirements and do not exceed the maximum that is deductible for federal income tax purposes. The actual amount of the contribution is determined annually based on the Continuing Plan’s funded status and return on plan assets as of the measurement date, which is December 31. For the plan year ending December 31, 2023, Trustmark’s minimum required contribution to the Continuing Plan was $154 thousand; however, Trustmark contributed $609 thousand, $455 thousand in excess of the minimum required. For the plan year ending December 31, 2024, Trustmark’s minimum required contribution to the Continuing Plan is expected to be $128 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2024 to determine any additional funding requirements by the plan’s measurement date.

Supplemental Retirement Plans

As disclosed in Note 14 – Defined Benefit and Other Postretirement Benefits included in Part II. Item 8. – Financial Statements and Supplementary Data of this report, Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The annual measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger dates.

At December 31, 2023, the accrued benefit obligation for the supplemental retirement plans equaled $41.6 million, while the net periodic benefit cost equaled $2.5 million in 2023, $2.4 million in 2022 and $2.5 million in 2021. The net periodic benefit cost and projected benefit obligation are determined using actuarial assumptions as of the plans’ measurement date. The process used to select the discount rate assumption under FASB ASC Topic 715 takes into account the benefit cash flow and the segmented yields on high-quality corporate bonds that would be available to provide for the payment of the benefit cash flow. At December 31, 2023, unrecognized actuarial losses and unrecognized prior service costs continue to be amortized over future service periods.

Legal Environment

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.

Off-Balance Sheet Arrangements

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

Capital Resources and Liquidity

At December 31, 2023, Trustmark’s total shareholders’ equity was $1.662 billion, an increase of $169.6 million, or 11.4%, when compared to December 31, 2022. The increase in shareholders’ equity during 2023 was primarily as a result of net income of $165.5 million as well as an increase in the fair market value of available for sale securities, net of tax, of $38.1 million and a decrease in the unrealized net holding losses on securities transferred from available for sale to held to maturity, net of tax, of $11.7 million, partially offset by common stock dividends of $56.7 million. Trustmark utilizes a capital model in order to provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities and protect the balance sheet against sudden adverse market conditions, while maintaining an attractive return on equity to shareholders.

Regulatory Capital

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of this report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include a capital conservation buffer of 2.5%. AOCI is not included in computing regulatory capital. Trustmark has elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. At December 31, 2023, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met

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

In 2020, Trustmark enhanced its capital structure with the issuance of $125.0 million of subordinated notes. At December 31, 2023 and 2022,the carrying amount of the subordinated notes was $123.5 million and $123.3 million, respectively. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. For regulatory capital purposes, the subordinated notes qualified as Tier 2 capital for Trustmark at December 31, 2023 and 2022. Trustmark may utilize the full carrying value of the subordinated notes as Tier 2 capital until December 1, 2025 (five years prior to maturity). Beginning December 1, 2025, the subordinated notes will phase out of Tier 2 capital 20.0% each year until maturity.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital at December 31, 2023 and 2022. Trustmark intends to continue to utilize $60.0 million in trust preferred securities issued by the Trust as Tier 1 capital up to the regulatory limit, as permitted by the grandfather provision in the Dodd-Frank Act and the Basel III Final Rule.

Refer to the section captioned “Regulatory Capital” included in Note 17 – Shareholders’ Equity in Part II. Item 8. – Financial Statements and Supplementary Data of this report for an illustration of Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at December 31, 2023 and 2022.

Dividends on Common Stock

Dividends per common share for each of the years ended December 31, 2023, 2022 and 2021 were $0.92. Trustmark’s dividend payout ratio for 2023, 2022 and 2021 was 33.95%, 78.63%, and 39.15%, respectively. The increase in the dividend payout ratio for 2022 was principally due to the $100.8 million of litigation settlement expense recorded during the fourth quarter of 2022. Since Trustmark is a holding company and does not conduct operations, its primary source of liquidity are dividends paid from TNB and borrowings from outside sources. Approval by TNB’s regulators is required if the total of all dividends declared in any calendar year exceeds the total of its net income for that year combined with its retained net income of the preceding two years. In 2024, TNB will have available approximately $95.1 million plus its net income for that year to pay as dividends to Trustmark. The actual amount of any dividends declared in 2024 by Trustmark will be determined by Trustmark’s Board of Directors. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable of March 15, 2024, to shareholders of record on March 1, 2024.

Stock Repurchase Plan

From time to time, Trustmark’s Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow Trustmark to proactively manage its capital position and return excess capital to shareholders. Shares purchased also provide Trustmark with shares of common stock necessary to satisfy obligations related to stock compensation awards. Under the stock repurchase plan effective April 1, 2020 through December 31, 2021, Trustmark repurchased approximately 1.9 million shares of its common stock valued at $61.8 million. Under the stock repurchase plan effective January 1, 2022 through December 31, 2022, Trustmark repurchased approximately 789 thousand shares of its common stock valued at $24.6 million. Under the stock repurchase plan effective January 1, 2023 through December 31, 2023, Trustmark did not repurchase any of its outstanding common stock. On December 5, 2023, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, 2024, under which $50.0 million of Trustmark’s outstanding common stock may be acquired through December 31, 2024. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares have been repurchased under this stock repurchase program.

Liquidity

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

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

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

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled to $14.935 billion for 2023 and represented approximately 80.0% of average liabilities and shareholders’ equity, compared to average deposits of $14.772 billion, which represented 84.5% of average liabilities and shareholders’ equity for 2022.

Trustmark had $712.0 million held in an interest-bearing account at the FRBA at December 31, 2023, compared to $434.0 million at December 31, 2022. The increase in Trustmark's balance held at the FRBA was principally due to cash balance management at year-end.

Trustmark utilizes brokered deposits to supplement other wholesale funding sources. At December 31, 2023, brokered sweep MMDA deposits totaled $10.6 million compared to $15.1 million at December 31, 2022. In addition, Trustmark had $578.8 million of brokered CDs at December 31, 2023 compared to none at December 31, 2022. The increase in brokered CDs during 2023 was primarily due to leveraging comparatively attractive brokered CD pricing as a component of funding loan growth.

At December 31, 2023, Trustmark had $370.0 million of upstream federal funds purchased compared to $383.0 million of upstream federal funds purchased at December 31, 2022. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided $400.0 million of outstanding short-term advances and no long-term advances at December 31, 2023, compared to $975.0 million of short-term and no long-term FHLB advances outstanding at December 31, 2022. Trustmark had no letters of credit outstanding with the FHLB of Dallas at December 31, 2023, and 2022. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances with the FHLB of Dallas by $4.003 billion at December 31, 2023.

In addition, at December 31, 2023, Trustmark had no short-term and $58 thousand in long-term FHLB advances outstanding with the FHLB of Atlanta, which were acquired in the BancTrust merger, compared to no short-term and $78 thousand in long-term FHLB advances outstanding at December 31, 2022. Trustmark has non-member status and thus no additional borrowing capacity with the FHLB of Atlanta.

Additionally, Trustmark has the ability to leverage its unencumbered investment securities as collateral. At December 31, 2023, Trustmark had approximately $842.0 million available in unencumbered Treasury and agency securities compared to $797.0 million at December 31, 2022.

Another borrowing source is the Discount Window. At December 31, 2023, Trustmark had approximately $1.374 billion available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with $1.345 billion at December 31, 2022.

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

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

During 2020, Trustmark issued $125.0 million aggregate principal amount of its 3.625% fixed-to-floating rate subordinated notes. The subordinated notes. At December 31, 2023 and 2022,the carrying amount of the subordinated notes was $123.5 million and $123.3 million, respectively. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. The subordinated notes are unsecured obligations and are subordinated in right of payment to all of Trustmark’s existing and future senior indebtedness, whether secured or unsecured. The subordinated notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including TNB.

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

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

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

In the ordinary course of business, Trustmark has entered into contractual obligations and has made other commitments to make future payments. Please refer to the accompanying notes to the consolidated financial statements included in Part II. Item 8. – Financial Statements and Supplementary Data of this report for the expected timing of such payments as of December 31, 2023. These include payments related to (i) short-term and long-term borrowings (Note 11 – Borrowings), (ii) operating and finance leases (Note 9 – Leases), (iii) time deposits with stated maturity dates (Note 10 – Deposits) and (iv) commitments to extend credit and standby letters of credit (Note 16 – Commitments and Contingencies).

Asset/Liability Management

Overview

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

Following the LIBOR cessation date of June 30, 2023, the nationwide process for replacing LIBOR in financial contracts that mature thereafter and that do not provide for an effective means to replace LIBOR upon its cessation took effect pursuant to the Adjustable Interest Rate (LIBOR) Act. For contracts in which a party has the discretion to identify a replacement rate, the Adjustable Interest Rate (LIBOR) Act also provides a safe harbor to parties if they choose the SOFR-based benchmark replacement rate to be identified by the FRB. Trustmark had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR. As December 31, 2023, all of Trustmark’s LIBOR exposure was remediated or in the process of being remediated. The transition from LIBOR could create costs and additional risk. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, Trustmark has implemented various measures to manage the transition and mitigate risks. For additional information regarding the transition from LIBOR and Trustmark’s management of this transition, please see the respective risk factor included in Part I. Item 1A. – Risk Factors of this report.

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

Derivatives

Trustmark uses financial derivatives for management of interest rate risk. Management’s Asset/Liability Committee, in its oversight role for the management of interest rate risk, approves the use of derivatives in balance sheet hedging strategies. The most common

derivatives employed by Trustmark are interest rate lock commitments, forward contracts (both futures contracts and options on futures contracts), interest rate swaps, interest rate caps and interest rate floors. As a general matter, the values of these instruments are designed to be inversely related to the values of the assets that they hedge (i.e., if the value of the hedged asset falls, the value of the related hedge rises). In addition, Trustmark has entered into derivatives contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge interest rate, currency or other exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the derivatives markets may increase the cost to Trustmark to administer derivatives programs.

Derivatives Designated as Hedging Instruments

During 2022, Trustmark initiated a cash flow hedging program. Trustmark's objectives in initiating this hedging program were to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates fall below the purchased floor strike rate on the contract and payments of variable-rate amounts if interest rates fall below the sold floor strike rate on the contract. Trustmark uses such derivatives to hedge the variable cash flows associated with existing and anticipated variable-rate loan assets. At December 31, 2023, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $1.125 billion compared to $825.0 million at December 31, 2022.

Trustmark records any gains or losses on these cash flow hedges in AOCI. Gains and losses on derivatives representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with Trustmark’s accounting policy election. The earnings recognition of excluded components totaled $57 thousand of amortization expense for the year ended December 31, 2023, and is included in interest and fees on LHFS and LHFI. As interest payments are received on Trustmark's variable-rate assets, amounts reported in AOCI are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. For the years ended December 31, 2023 and 2022, Trustmark reclassified a loss, net of tax, of $12.3 million and $345 thousand, respectively, into interest and fees on LHFS and LHFI. During the next twelve months, Trustmark estimates that $13.2 million will be reclassified as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

Derivatives Not Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled $171.4 million at December 31, 2023, with a negative valuation adjustment of $150 thousand, compared to $165.4 million, with a positive valuation adjustment of $325 thousand at December 31, 2022.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in the fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments was $285.0 million at December 31, 2023 compared to $277.0 million at December 31, 2022. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded as noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $6.3 million for the year ended December 31, 2023, compared to a net negative ineffectiveness of $4.1 million for the year ended December 31, 2022 and a net positive ineffectiveness of $2.5 million for the year ended December 31, 2021.

Trustmark offers certain interest rate derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk under loans they have entered into with TNB. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships under GAAP and are, therefore, carried on Trustmark’s financial statements at fair value with the change in fair value recorded as noninterest

income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. At December 31, 2023, Trustmark had interest rate swaps with an aggregate notional amount of $1.500 billion related to this program, compared to $1.391 billion at December 31, 2022.

Credit-Risk-Related Contingent Features

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

At December 31, 2023, the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.4 million compared to none at December 31, 2022. At December 31, 2023 and 2022, Trustmark had posted collateral of $2.0 million and $740 thousand, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at December 31, 2023, it could have been required to settle its obligations under the agreements at the termination value (which is expected to approximate fair market value).

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third-party default on the underlying swap. At December 31, 2023, Trustmark had entered into six risk participation agreements as a beneficiary with and aggregate notional amount of $40.1 million compared to five risk participation agreements as a beneficiary with an aggregate notional amount of $50.2 million at December 31, 2022. At December 31, 2023, Trustmark had entered into thirty-five risk participation agreements as a guarantor with an aggregate notional amount of $304.7 million, compared to twenty-nine risk participation agreements as a guarantor with an aggregate notional amount of $235.8 million at December 31, 2022. The aggregate fair values of these risk participation agreements were immaterial at December 31, 2023 and 2022.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market/Interest Rate Risk Management

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

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

Based on the results of the simulation models using static balances, the table below summarizes the effect various one-year interest rate shift scenarios would have on net interest income compared to a base case, flat scenario at December 31, 2023 and 2022. Given the

substantial increase in market rates, the down 200 basis points scenario has been added to the table below for the year ended December 31, 2023.

Estimated % Change

in Net Interest Income

-200 basis points -1.0 % —

Management cannot provide any assurance about the actual effect of changes in interest rates on net interest income. The estimates provided do not include the effects of possible strategic changes in the balances of various assets and liabilities throughout 2024 or additional actions Trustmark could undertake in response to changes in interest rates. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

Another component of interest rate risk management is measuring the economic value-at-risk for a given change in market interest rates. The economic value-at-risk may indicate risks associated with longer-term balance sheet items that may not affect net interest income at risk over shorter time periods. Trustmark uses computer-modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The economic value of equity (EVE), also known as net portfolio value, is defined as the difference between the present value of asset cash flows and the present value of liability cash flows. The resulting change in EVE in different market rate environments, from the base case scenario, is the amount of EVE at risk from those rate environments.

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

Estimated % Change

in Net Portfolio Value

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

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

At December 31, 2023, the MSR fair value was $131.9 million, compared to $129.7 million at December 31, 2022. The impact on the MSR fair value of a 10% adverse change in prepayment speeds or a 100-basis point increase in discount rates at December 31, 2023 would be a decline in fair value of approximately $4.8 million and $5.4 million, respectively, compared to a decline in fair value of approximately $4.5 million and $5.4 million, respectively, at December 31, 2022. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of Trustmark Corporation

Jackson, Mississippi

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Trustmark Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses, LHFI Reasonable and Supportable Forecasts

As described in Note 1 - Significant Accounting Policies and Note 4 – Loans Held For Investment and Allowance for Credit Losses, LHFI to the consolidated financial statements, the Company uses a third-party software application to calculate the quantitative portion of the allowance for credit losses, which employs a discounted cash flow (DCF) or weighted average remaining maturity (WARM) method by loan pool. A reasonable and supportable forecast is developed through a Loss Driver Analysis (LDA) by loan class. The LDA uses charge off data from Trustmark National Bank’s Federal Financial Institutions Examination Council (FFIEC) reports to construct a periodic default rate (PDR). The PDR is decomposed into a probability of default (PD). Regressions are run using the data for various macroeconomic variables in order to determine which correlate to the Company’s losses. These variables are then incorporated into the application to calculate a quarterly PD using a third-party baseline forecast. Loss given default (LGD) is derived from a method that traces the relationship between LGD and PD over a period of time and projects LGD based on the PD forecast. This model approach is applicable to all pools within the construction, land development and other land, other secured by 1-4 family residential properties, secured by nonfarm, nonresidential properties and other real estate secured loan classes, as well as all other consumer and other loans pools. For commercial and industrial loan pools, the Company uses its own PD and LGD data. The Company utilizes a third-party bond default study to derive the PD and LGD for the obligations of state and political subdivisions pool.

The Company determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools in which models were developed through the LDA. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans.

TRMK US Equity

TRMK · 10-K · period ended 2023-12-31

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TRMK US Equity☆

TRMK · 10-K · period ended 2023-12-31

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TRMK US Equity