Loans Held for Investment (LHFI) and Allowance for Loan Losses, LHFI

9 Months Ended

Sep. 30, 2021

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Loans Held for Investment (LHFI) and Allowance for Credit Losses, LHFI

Note 3 – LHFI and Allowance for Credit Losses, LHFI

At September 30, 2021 and December 31, 2020, LHFI consisted of the following ($ in thousands):

	September 30, 2021		December 31, 2020
Loans secured by real estate:
Construction, land development and other land	$	559,804	$	514,056
Other secured by 1-4 family residential properties		509,195		524,732
Secured by nonfarm, nonresidential properties		2,924,953		2,709,026
Other real estate secured		986,163		1,065,964
Other loans secured by real estate:
Other construction		726,809		794,983
Secured by 1-4 family residential properties		1,382,097		1,216,400
Commercial and industrial loans		1,327,211		1,309,078
Consumer loans		160,802		164,386
State and other political subdivision loans		1,125,186		1,000,776
Other commercial loans		472,679		525,123
LHFI		10,174,899		9,824,524
Less ACL		104,073		117,306
Net LHFI	$	10,070,826	$	9,707,218

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At September 30, 2021 and December 31, 2020, accrued interest receivable for LHFI totaled $27.9 million and $33.0 million, respectively, with no related ACL and was reported in other assets on the accompanying consolidated balance sheet.

Loan Concentrations

Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At September 30, 2021, Trustmark’s geographic loan distribution was concentrated primarily in its five key market regions: Alabama, Florida, Mississippi, Tennessee and Texas. Accordingly, the ultimate collectability of a substantial portion of these loans is susceptible to changes in market conditions in these areas.

Nonaccrual and Past Due LHFI

No material interest income was recognized in the income statement on nonaccrual LHFI for each of the periods ended September 30, 2021 and 2020.

The following tables provide the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more still accruing interest at September 30, 2021 and December 31, 2020 ($ in thousands):

	September 30, 2021
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	4,911	$	5,629	$	—
Other secured by 1-4 family residential properties		1,355		3,204		154
Secured by nonfarm, nonresidential properties		11,319		13,077		—
Other real estate secured		56		175		—
Other loans secured by real estate:
Other construction		—		—		—
Secured by 1-4 family residential properties		—		12,562		198
Commercial and industrial loans		1,026		22,218		—
Consumer loans		—		60		273
State and other political subdivision loans		—		3,786		—
Other commercial loans		—		5,529		—
Total	$	18,667	$	66,240	$	625

	December 31, 2020
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	5,756	$	5,985	$	—
Other secured by 1-4 family residential properties		1,895		4,487		79
Secured by nonfarm, nonresidential properties		12,037		15,197		—
Other real estate secured		60		185		—
Other loans secured by real estate:
Other construction		—		—		—
Secured by 1-4 family residential properties		—		11,807		1,257
Commercial and industrial loans		12,665		15,618		—
Consumer loans		—		86		240
State and other political subdivision loans		—		3,970		—
Other commercial loans		—		5,793		—
Total	$	32,413	$	63,128	$	1,576

The following tables provide an aging analysis of the amortized cost basis of past due LHFI at September 30, 2021 and December 31, 2020 ($ in thousands):

	September 30, 2021
	Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and    other land	$	1,045	$	155	$	4,847	$	6,047	$	553,757	$	559,804
Other secured by 1-4 family residential    properties		1,965		463		381		2,809		506,386		509,195
Secured by nonfarm, nonresidential    properties		124		—		1,564		1,688		2,923,265		2,924,953
Other real estate secured		87		—		107		194		985,969		986,163
Other loans secured by real estate:
Other construction		—		—		—		—		726,809		726,809
Secured by 1-4 family residential properties		2,624		612		5,927		9,163		1,372,934		1,382,097
Commercial and industrial loans		1,141		72		3,426		4,639		1,322,572		1,327,211
Consumer loans		1,172		215		273		1,660		159,142		160,802
State and other political subdivision loans		19		—		177		196		1,124,990		1,125,186
Other commercial loans		95		25		5,091		5,211		467,468		472,679
Total	$	8,272	$	1,542	$	21,793	$	31,607	$	10,143,292	$	10,174,899

	December 31, 2020
	Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and    other land	$	339	$	34	$	161	$	534	$	513,522	$	514,056
Other secured by 1-4 family residential    properties		1,505		523		896		2,924		521,808		524,732
Secured by nonfarm, nonresidential    properties		920		—		972		1,892		2,707,134		2,709,026
Other real estate secured		103		101		107		311		1,065,653		1,065,964
Other loans secured by real estate:
Other construction		—		—		—		—		794,983		794,983
Secured by 1-4 family residential properties		3,291		1,289		5,110		9,690		1,206,710		1,216,400
Commercial and industrial loans		271		196		1,543		2,010		1,307,068		1,309,078
Consumer loans		926		190		240		1,356		163,030		164,386
State and other political subdivision loans		117		—		177		294		1,000,482		1,000,776
Other commercial loans		2,143		2,971		346		5,460		519,663		525,123
Total	$	9,615	$	5,304	$	9,552	$	24,471	$	9,800,053	$	9,824,524

Troubled Debt Restructurings (TDR)

A TDR occurs when a borrower is experiencing financial difficulties, and for related economic or legal reasons, a concession is granted to the borrower that Trustmark would not otherwise consider. Whatever the form of concession that might be granted by Trustmark, Management’s objective is to enhance collectability by obtaining more cash or other value from the borrower or by increasing the probability of receipt by granting the concession than by not granting it. Other concessions may arise from court proceedings or may be imposed by law. In addition, TDRs also include those credits that are extended or renewed to a borrower who is not able to obtain funds from sources other than Trustmark at a market interest rate for new debt with similar risk.

At September 30, 2021 and 2020, LHFI classified as TDRs totaled $23.5 million and $25.4 million, respectively. At September 30, 2021, TDRs were primarily comprised of bankruptcies, payment concessions and credits with interest-only payments for an extended period of time which totaled $20.1 million. At September 30, 2020, TDRs were primarily comprised of credits with interest-only payments for an extended period of time and credits renewed at a rate that was not commensurate with that of new debt with similar risk which totaled $13.3 million. Trustmark had $1.0 million of unused commitments on TDRs at September 30, 2021 compared to $4.2 million at September 30, 2020.

At both September 30, 2021 and September 30, 2020, TDRs had a related ACL of $2.6 million. Trustmark had $3.7 million in charge-offs on TDRs for the nine months ended September 30, 2021, compared to $2.3 million for the nine months ended September 30, 2020.

The following table illustrates the impact of modifications classified as TDRs for the periods presented ($ in thousands):

	Three Months Ended September 30,
	2021						2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loans secured by real estate:
Other secured by 1-4 family    residential properties		—	$	—	$	—		3	$	87	$	89
Secured by nonfarm,    nonresidential properties		3		483		483		—		—		—
Other loans secured by real estate:
Secured by 1-4 family residential    properties		1		152		152		—		—		—
Commercial and industrial loans		—		—		—		1		48		47
Total		4	$	635	$	635		4	$	135	$	136

	Nine Months Ended September 30,
	2021						2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loans secured by real estate:
Construction, land development    and other land		5	$	5,582	$	5,582		—	$	—	$	—
Other secured by 1-4 family    residential properties		3		37		37		11		794		800
Secured by nonfarm,    nonresidential properties		4		860		860		1		139		139
Other loans secured by real estate:
Secured by 1-4 family residential    properties		4		401		401		—		—		—
Commercial and industrial loans		2		1,014		1,014		3		1,630		1,629
Consumer loans		—		—		—		6		26		26
State and other political subdivision    loans		—		—		—		2		3,902		3,872
Other commercial loans		2		4,929		4,929		—		—		—
Total		20	$	12,823	$	12,823		23	$	6,491	$	6,466

The table below includes the balances at default for TDRs modified within the last 12 months for which there was a payment default during the periods presented ($ in thousands):

	Nine Months Ended September 30,
	2021				2020
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Loans secured by real estate:
Construction, land development and other land		5	$	5,582		—	$	—
Other secured by 1-4 family residential properties		1		16		4		484
Secured by nonfarm, nonresidential properties		—		—		1		139
Other loans secured by real estate:
Secured by 1-4 family residential properties		1		78		—		—
Commercial and industrial loans		—		—		1		82
Other commercial loans		2		4,929		—		—
Total		9	$	10,605		6	$	705

Trustmark’s TDRs have resulted primarily from allowing the borrower to pay interest-only for an extended period of time and credits renewed at a rate that was not commensurate with that of new debt with similar risk rather than from forgiveness. Accordingly, as shown above, these TDRs have a similar recorded investment for both the pre-modification and post-modification disclosure. Trustmark has utilized loans 90 days or more past due to define payment default in determining TDRs that have subsequently defaulted.

The following tables detail LHFI classified as TDRs by loan class at September 30, 2021 and 2020 ($ in thousands):

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

	September 30, 2020
	Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	13	$	13
Other secured by 1-4 family residential properties		18		3,689		3,707
Secured by nonfarm, nonresidential properties		—		2,970		2,970
Commercial and industrial loans		1,500		13,198		14,698
Consumer loans		16		19		35
State and other political subdivision loans		—		3,842		3,842
Other commercial loans		—		125		125
Total TDRs	$	1,534	$	23,856	$	25,390

The CARES Act, as amended by subsequent legislation, specified that COVID-19 related modifications executed between March 1, 2020 and the earlier of either (i) 60 days after the date of termination of the national emergency declared by the President or (ii) January 1, 2022, on loans that were current as of December 31, 2019 were not TDRs. Additionally, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 310-40, “Troubled Debt Restructuring by Creditors.” These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Commercial concessions were primarily either interest only for 90 days or full payment deferrals for 90 days. Consumer concessions were 90-day full payment deferrals. At September 30, 2021, the balance of loans remaining under some type of COVID-19 related concession totaled $20.0 million compared to $34.2 million at December 31, 2020.

Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2021 and December 31, 2020 ($ in thousands):

	September 30, 2021
	Real Estate		Equipment and  Machinery		Inventory and Receivables		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and    other land	$	4,911	$	—	$	—	$	—	$	—	$	4,911
Secured by nonfarm, nonresidential    properties		11,549		—		—		—		—		11,549
Other real estate secured		56		—		—		—		—		56
Other loans secured by real estate:
Secured by 1-4 family residential    properties		1,355		—		—		—		—		1,355
Commercial and industrial loans		42		63		4,219		63		16,671		21,058
State and other political subdivision loans		3,786		—		—		—		—		3,786
Other commercial loans		325		—		1,958		—		3,052		5,335
Total	$	22,024	$	63	$	6,177	$	63	$	19,723	$	48,050

	December 31, 2020
	Real Estate		Equipment and  Machinery		Inventory and Receivables		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and    other land	$	5,756	$	—	$	—	$	—	$	—	$	5,756
Other secured by 1-4 family    residential properties		454		—		—		—		—		454
Secured by nonfarm, nonresidential    properties		12,037		—		—		—		—		12,037
Other real estate secured		60		—		—		—		—		60
Other loans secured by real estate:
Secured by 1-4 family residential    properties		1,441		—		—		—		—		1,441
Commercial and industrial loans		86		425		4,899		135		8,531		14,076
State and other political subdivision loans		3,970		—		—		—		—		3,970
Other commercial loans		606		—		1,958		—		3,051		5,615
Total	$	24,410	$	425	$	6,857	$	135	$	11,582	$	43,409

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

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

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

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

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

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

Credit Quality Indicators

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

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

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

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

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

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

Commercial Credits

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition, periodic reviews of significant development, commercial construction, multi-family and nonowner-occupied projects are performed. These reviews assess each particular project with respect to location, project valuations, progress of completion, leasing status, current financial information, rents, operating expenses, cash flow, adherence to budget and projections and other information as applicable. Summary results are reviewed by Senior and Regional Credit Officers in addition to the Chief Credit Officer with a determination made as to the appropriateness of existing risk ratings and accrual status.

Consumer Credits

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

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

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on analyses performed at September 30, 2021 and December 31, 2020 ($ in thousands):

	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of September 30, 2021	Commercial LHFI
Loans secured by real estate:
Construction, land    development and other    land:
Pass - RR 1 through RR 6	$	283,032	$	116,423	$	29,505	$	17,454	$	1,721	$	3,345	$	20,890	$	472,370
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		1,948		—		3,461		43		4		—		—		5,456
Doubtful - RR 9		—		—		—		—		—		42		—		42
Total		284,980		116,423		32,966		17,497		1,725		3,387		20,890		477,868
Other secured by 1-4 family    residential properties:
Pass - RR 1 through RR 6	$	33,343	$	25,263	$	14,164	$	10,894	$	6,535	$	4,208	$	7,049	$	101,456
Special Mention - RR 7		83		176		—		—		—		—		—		259
Substandard - RR 8		591		315		7		173		151		642		—		1,879
Doubtful - RR 9		24		—		—		—		—		—		—		24
Total		34,041		25,754		14,171		11,067		6,686		4,850		7,049		103,618
Secured by nonfarm,    nonresidential properties:
Pass - RR 1 through RR 6	$	530,254	$	655,169	$	609,318	$	383,231	$	214,750	$	311,903	$	105,190	$	2,809,815
Special Mention - RR 7		325		9,655		416		596		1,602		4,839		—		17,433
Substandard - RR 8		9,034		2,390		24,568		3,747		1,957		54,258		1,535		97,489
Doubtful - RR 9		45		—		114		—		—		22		—		181
Total		539,658		667,214		634,416		387,574		218,309		371,022		106,725		2,924,918
Other real estate secured:
Pass - RR 1 through RR 6	$	192,093	$	155,079	$	385,085	$	154,131	$	19,297	$	62,354	$	12,947	$	980,986
Special Mention - RR 7		—		—		—		—		—		791		—		791
Substandard - RR 8		3,212		690		—		12		—		122		—		4,036
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		195,305		155,769		385,085		154,143		19,297		63,267		12,947		985,813

	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of September 30, 2021	Commercial LHFI
Other loans secured by real    estate:
Other construction:
Pass - RR 1 through RR 6	$	223,507	$	371,269	$	103,566	$	12,837	$	—	$	—	$	14,217	$	725,396
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		1,413		—		—		—		—		—		—		1,413
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		224,920		371,269		103,566		12,837		—		—		14,217		726,809
Commercial and industrial    loans:
Pass - RR 1 through RR 6	$	369,588	$	289,157	$	82,992	$	39,484	$	59,199	$	43,148	$	379,014	$	1,262,582
Special Mention - RR 7		730		385		180		601		62		—		109		2,067
Substandard - RR 8		12,394		2,528		18,486		1,289		3,469		2,992		21,200		62,358
Doubtful - RR 9		—		37		35		109		—		23		—		204
Total		382,712		292,107		101,693		41,483		62,730		46,163		400,323		1,327,211
State and other political    subdivision loans:
Pass - RR 1 through RR 6	$	283,286	$	154,957	$	84,901	$	35,182	$	97,614	$	450,583	$	11,527	$	1,118,050
Special Mention - RR 7		—		—		—		—		—		3,350		—		3,350
Substandard - RR 8		—		—		—		—		—		3,786		—		3,786
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		283,286		154,957		84,901		35,182		97,614		457,719		11,527		1,125,186
Other commercial loans:
Pass - RR 1 through RR 6	$	67,431	$	42,992	$	65,384	$	9,646	$	8,308	$	43,696	$	197,403	$	434,860
Special Mention - RR 7		4,167		—		—		—		—		—		9,013		13,180
Substandard - RR 8		70		7,098		2,096		371		—		127		14,804		24,566
Doubtful - RR 9		—		50		—		—		—		23		—		73
Total		71,668		50,140		67,480		10,017		8,308		43,846		221,220		472,679
Total commercial    LHFI	$	2,016,570	$	1,833,633	$	1,424,278	$	669,800	$	414,669	$	990,254	$	794,898	$	8,144,102

	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of September 30, 2021	Consumer LHFI
Loans secured by real estate:
Construction, land    development and other    land:
Current	$	37,059	$	29,173	$	7,958	$	3,212	$	897	$	2,701	$	—	$	81,000
Past due 30-89 days		—		703		—		32		—		11		—		746
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		190		—		190
Total		37,059		29,876		7,958		3,244		897		2,902		—		81,936
Other secured by 1-4 family    residential properties:
Current	$	21,308	$	12,368	$	6,727	$	6,913	$	3,388	$	8,768	$	341,019	$	400,491
Past due 30-89 days		32		8		193		7		66		371		1,531		2,208
Past due 90 days or more		—		—		—		—		—		123		31		154
Nonaccrual		12		56		13		10		347		372		1,914		2,724
Total		21,352		12,432		6,933		6,930		3,801		9,634		344,495		405,577
Secured by nonfarm,    nonresidential properties:
Current	$	33	$	—	$	—	$	—	$	2	$	—	$	—	$	35
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		33		—		—		—		2		—		—		35
Other real estate secured:
Current	$	—	$	100	$	—	$	8	$	33	$	209	$	—	$	350
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		—		100		—		8		33		209		—		350

	Term Loans by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of September 30, 2021	Consumer LHFI
Other loans secured by real    estate:
Secured by 1-4 family    residential properties
Current	$	475,651	$	243,852	$	147,846	$	117,312	$	64,973	$	317,231	$	—	$	1,366,865
Past due 30-89 days		316		600		330		351		164		711		—		2,472
Past due 90 days or more		5		—		—		11		—		182		—		198
Nonaccrual		174		1,123		1,272		2,529		647		6,817		—		12,562
Total		476,146		245,575		149,448		120,203		65,784		324,941		—		1,382,097
Consumer loans:
Current	$	53,613	$	33,221	$	11,432	$	6,256	$	1,677	$	653	$	52,231	$	159,083
Past due 30-89 days		412		231		91		26		26		—		600		1,386
Past due 90 days or more		36		33		3		9		—		—		192		273
Nonaccrual		11		14		2		17		9		—		7		60
Total		54,072		33,499		11,528		6,308		1,712		653		53,030		160,802
Total consumer LHFI	$	588,662	$	321,482	$	175,867	$	136,693	$	72,229	$	338,339	$	397,525	$	2,030,797
Total LHFI	$	2,605,232	$	2,155,115	$	1,600,145	$	806,493	$	486,898	$	1,328,593	$	1,192,423	$	10,174,899

	Term Loans by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of December 31, 2020	Commercial LHFI
Loans secured by real estate:
Construction, land    development and other    land:
Pass - RR 1 through RR 6	$	287,218	$	62,078	$	26,401	$	4,487	$	3,274	$	3,564	$	28,548	$	415,570
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		5,419		4,363		1,226		12		494		22		101		11,637
Doubtful - RR 9		—		—		—		—		—		42		—		42
Total		292,637		66,441		27,627		4,499		3,768		3,628		28,649		427,249
Other secured by 1-4 family    residential properties:
Pass - RR 1 through RR 6	$	35,139	$	19,596	$	15,399	$	9,605	$	10,273	$	4,786	$	8,486	$	103,284
Special Mention - RR 7		255		—		50		—		—		—		—		305
Substandard - RR 8		1,155		8		914		341		302		337		3,950		7,007
Doubtful - RR 9		29		—		—		—		—		—		—		29
Total		36,578		19,604		16,363		9,946		10,575		5,123		12,436		110,625
Secured by nonfarm,    nonresidential properties:
Pass - RR 1 through RR 6	$	697,439	$	496,476	$	442,264	$	293,072	$	254,747	$	251,219	$	96,098	$	2,531,315
Special Mention - RR 7		13,452		6,139		2,956		4,466		4,957		20,545		—		52,515
Substandard - RR 8		19,119		20,572		4,516		12,956		38,956		25,438		2,779		124,336
Doubtful - RR 9		52		163		—		—		217		306		—		738
Total		730,062		523,350		449,736		310,494		298,877		297,508		98,877		2,708,904
Other real estate secured:
Pass - RR 1 through RR 6	$	146,803	$	376,765	$	347,472	$	48,626	$	89,824	$	23,680	$	12,116	$	1,045,286
Special Mention - RR 7		—		—		—		—		—		841		—		841
Substandard - RR 8		18,649		14		18		—		556		122		—		19,359
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		165,452		376,779		347,490		48,626		90,380		24,643		12,116		1,065,486

	Term Loans by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of December 31, 2020	Commercial LHFI
Other loans secured by real    estate:
Other construction
Pass - RR 1 through RR 6	$	262,544	$	425,936	$	81,476	$	14,074	$	2,464	$	—	$	7,735	$	794,229
Special Mention - RR 7		—		—		—		—		—		—		—		—
Substandard - RR 8		754		—		—		—		—		—		—		754
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		263,298		425,936		81,476		14,074		2,464		—		7,735		794,983
Commercial and industrial    loans:
Pass - RR 1 through RR 6	$	444,304	$	165,163	$	77,611	$	77,985	$	59,131	$	43,214	$	372,486	$	1,239,894
Special Mention - RR 7		677		45		—		—		—		—		240		962
Substandard - RR 8		12,090		1,814		9,737		3,735		2,160		5,024		33,380		67,940
Doubtful - RR 9		151		95		—		—		32		4		—		282
Total		457,222		167,117		87,348		81,720		61,323		48,242		406,106		1,309,078
State and other political    subdivision loans:
Pass - RR 1 through RR 6	$	250,363	$	79,595	$	41,334	$	113,817	$	132,634	$	372,831	$	1,446	$	992,020
Special Mention - RR 7		—		—		—		—		—		4,018		—		4,018
Substandard - RR 8		—		—		—		247		—		4,491		—		4,738
Doubtful - RR 9		—		—		—		—		—		—		—		—
Total		250,363		79,595		41,334		114,064		132,634		381,340		1,446		1,000,776
Other commercial loans:
Pass - RR 1 through RR 6	$	101,230	$	70,990	$	20,769	$	9,723	$	33,481	$	30,715	$	225,533	$	492,441
Special Mention - RR 7		7,500		—		—		—		—		—		11,333		18,833
Substandard - RR 8		381		2,099		683		6		707		—		9,948		13,824
Doubtful - RR 9		2		—		—		—		—		23		—		25
Total		109,113		73,089		21,452		9,729		34,188		30,738		246,814		525,123
Total commercial    LHFI	$	2,304,725	$	1,731,911	$	1,072,826	$	593,152	$	634,209	$	791,222	$	814,179	$	7,942,224

	Term Loans by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of December 31, 2020	Consumer LHFI
Loans secured by real estate:
Construction, land    development and other    land:
Current	$	47,336	$	24,174	$	8,496	$	2,036	$	1,447	$	2,868	$	—	$	86,357
Past due 30-89 days		—		318		20		—		1		12		—		351
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		99		—		99
Total		47,336		24,492		8,516		2,036		1,448		2,979		—		86,807
Other secured by 1-4 family    residential properties:
Current	$	20,864	$	10,253	$	12,037	$	4,177	$	2,082	$	11,124	$	348,830	$	409,367
Past due 30-89 days		93		12		—		13		—		133		1,058		1,309
Past due 90 days or more		—		—		—		—		—		30		22		52
Nonaccrual		6		44		121		428		—		382		2,398		3,379
Total		20,963		10,309		12,158		4,618		2,082		11,669		352,308		414,107
Secured by nonfarm,    nonresidential properties:
Current	$	109	$	—	$	—	$	4	$	—	$	9	$	—	$	122
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		109		—		—		4		—		9		—		122
Other real estate secured:
Current	$	107	$	—	$	38	$	37	$	96	$	200	$	—	$	478
Past due 30-89 days		—		—		—		—		—		—		—		—
Past due 90 days or more		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total		107		—		38		37		96		200		—		478
Other loans secured by real    estate:
Secured by 1-4 family    residential properties
Current	$	289,521	$	214,056	$	173,324	$	92,564	$	109,031	$	321,250	$	—	$	1,199,746
Past due 30-89 days		499		93		753		366		1,080		799		—		3,590
Past due 90 days or more		159		214		208		127		—		549		—		1,257
Nonaccrual		283		711		2,024		682		239		7,868		—		11,807
Total		290,462		215,074		176,309		93,739		110,350		330,466		—		1,216,400
Consumer loans:
Current	$	65,370	$	25,303	$	13,140	$	3,893	$	1,257	$	345	$	53,669	$	162,977
Past due 30-89 days		524		158		67		19		7		3		305		1,083
Past due 90 days or more		77		—		4		—		—		—		159		240
Nonaccrual		12		4		55		13		2		—		—		86
Total		65,983		25,465		13,266		3,925		1,266		348		54,133		164,386
Total consumer LHFI	$	424,960	$	275,340	$	210,287	$	104,359	$	115,242	$	345,671	$	406,441	$	1,882,300
Total LHFI	$	2,729,685	$	2,007,251	$	1,283,113	$	697,511	$	749,451	$	1,136,893	$	1,220,620	$	9,824,524

Past Due LHFS

LHFS past due 90 days or more totaled $75.1 million and $119.4 million at September 30, 2021 and December 31, 2020, respectively. LHFS past due 90 days or more are serviced loans eligible for repurchase, which are fully guaranteed by the Government National Mortgage Association (GNMA). GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first nine months of 2021 or 2020.

ACL on LHFI

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

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

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

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

The consumer LHFI portfolio segment is comprised of loans which are underwritten after evaluating a borrower’s repayment capacity, credit and collateral. Several factors are considered when assessing a borrower’s capacity to repay the obligation, including the borrower’s employment, income, current debt and assets. Credit is assessed using a credit report that provides credit scores and the borrower’s current and past information about their credit history. Property appraisals are obtained to assist in evaluating collateral. Loan-to-value and debt-to-income ratios, loan amount and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect housing prices and demand and levels of unemployment.

The state and other political subdivision LHFI and the other commercial LHFI portfolio segments primarily consist of loans to non-depository financial institutions, such as mortgage companies, finance companies and other financial intermediaries, loans to state and

political subdivisions, and loans to non-profit and charitable organizations. These loans are underwritten based on the specific nature or purpose of the loan and underlying collateral with special consideration given to the specific source of repayment for the loan.

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

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

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

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

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

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

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

Trustmark determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans. The econometric models currently in production reflect segment or pool level sensitivities of PD to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of its assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting have 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 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. During the second quarter of 2021, the forecast related to the macroeconomic variables used in the quantitative modeling process were positively impacted due to the updated forecast effects. However, due to multiple periods in the second quarter of 2021 having a PD or LGD at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark’s historical loss experience and applied at a portfolio level.

Qualitative factors used in the ACL methodology include the following:

Lending policies and procedures

Economic conditions and concentrations of credit

Nature and volume of the portfolio

Performance trends

External factors

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

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

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

The external factors qualitative factor is Management’s best judgement on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (e.g., natural disasters, changes in legislation, impacts due to technology and pandemics). During the third quarter of 2020, Trustmark activated the External Factor – Pandemic to ensure 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 probability of default (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. In a downturn, the qualitative factor is inactive for most pools because changes in ratings are congruent with changes in macroeconomic conditions, which directly influence the PD models in 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 the fourth quarter of 2020, due to unforeseen pandemic conditions that varied from Management’s expectations during the third quarter of 2020, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor-Pandemic qualitative factor is reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that is quantitative in nature. To dimension the additional reserve, Management uses the sensitivity of the quantitative commercial loan reserve to changes in macroeconomic conditions to apply to loans rated acceptable or better (RR 1-4). In addition, to account for the known changes in risk, a weighted average of the commercial loan portfolio loss rate, derived from the performance trends qualitative factor, is used to dimension additional reserves for downgraded credits. Loans rated acceptable with risk (RR 5) or watch (RR 6) received the additional reserves based on the average of the macroeconomic conditions and weighted- average of the commercial loan portfolio loss rate while the loans rated special mention and substandard received additional reserves based on the weighted-average described above.

The following tables disaggregate the ACL and the amortized cost basis of the loans by the measurement methodology used at September 30, 2021 and December 31, 2020 ($ in thousands):

	September 30, 2021
	ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and    other land	$	—	$	5,133	$	5,133	$	4,911		554,893	$	559,804
Other secured by 1-4 family residential    properties		—		10,223		10,223		—		509,195		509,195
Secured by nonfarm, nonresidential    properties		—		43,306		43,306		11,549		2,913,404		2,924,953
Other real estate secured		—		4,370		4,370		56		986,107		986,163
Other loans secured by real estate:
Other construction		—		5,945		5,945		—		726,809		726,809
Secured by 1-4 family residential    properties		—		2,654		2,654		1,355		1,380,742		1,382,097
Commercial and industrial loans		7,034		12,339		19,373		21,058		1,306,153		1,327,211
Consumer loans		—		4,862		4,862		—		160,802		160,802
State and other political subdivision loans		1,517		1,447		2,964		3,786		1,121,400		1,125,186
Other commercial loans		797		4,446		5,243		5,335		467,344		472,679
Total	$	9,348	$	94,725	$	104,073	$	48,050	$	10,126,849	$	10,174,899

	December 31, 2020
	ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and    other land	$	—	$	6,854	$	6,854	$	5,756	$	508,300	$	514,056
Other secured by 1-4 family residential    properties		—		9,928		9,928		454		524,278		524,732
Secured by nonfarm, nonresidential    properties		—		48,523		48,523		12,037		2,696,989		2,709,026
Other real estate secured		—		7,382		7,382		60		1,065,904		1,065,964
Other loans secured by real estate:
Other construction		—		8,158		8,158		—		794,983		794,983
Secured by 1-4 family residential    properties		—		5,143		5,143		1,441		1,214,959		1,216,400
Commercial and industrial loans		579		14,272		14,851		14,076		1,295,002		1,309,078
Consumer loans		—		5,838		5,838		—		164,386		164,386
State and other political subdivision loans		1,700		1,490		3,190		3,970		996,806		1,000,776
Other commercial loans		2,100		5,339		7,439		5,615		519,508		525,123
Total	$	4,379	$	112,927	$	117,306	$	43,409	$	9,781,115	$	9,824,524

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Balance at beginning of period	$	104,032		$	119,188		$	117,306		$	84,277
FASB ASU 2016-13 adoption adjustments:
LHFI		—			—			—			(3,039	)
Allowance for loan losses, acquired loans transfer		—			—			—			815
Acquired loans ACL adjustment		—			—			—			1,007
Loans charged-off		(1,586	)		(1,263	)		(7,659	)		(8,678	)
Recoveries		4,119			2,325			11,410			7,102
Net (charge-offs) recoveries		2,533			1,062			3,751			(1,576	)
PCL		(2,492	)		1,760			(16,984	)		40,526
Balance at end of period	$	104,073		$	122,010		$	104,073		$	122,010

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

	Three Months Ended September 30, 2021
	Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:
Construction, land development and other land	$	5,110	$	(3	)	$	391	$	(365	)	$	5,133
Other secured by 1-4 family residential properties		10,399		(7	)		85		(254	)		10,223
Secured by nonfarm, nonresidential properties		44,416		—			45		(1,155	)		43,306
Other real estate secured		5,311		—			4		(945	)		4,370
Other loans secured by real estate:
Other construction		6,530		—			2		(587	)		5,945
Secured by 1-4 family residential properties		2,910		(144	)		15		(127	)		2,654
Commercial and industrial loans		13,973		(5	)		2,028		3,377			19,373
Consumer loans		4,876		(287	)		451		(178	)		4,862
State and other political subdivision loans		3,233		—			—		(269	)		2,964
Other commercial loans		7,274		(1,140	)		1,098		(1,989	)		5,243
Total	$	104,032	$	(1,586	)	$	4,119	$	(2,492	)	$	104,073

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

The PCL for the commercial and industrial loan portfolio increased $3.4 million during the three months ended September 30, 2021 primarily due to the specific reserves on individually analyzed credits.

	Three Months Ended September 30, 2020
	Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:
Construction, land development and other land	$	11,940	$	—		$	443	$	(1,478	)	$	10,905
Other secured by 1-4 family residential properties		12,716		(18	)		75		(1,415	)		11,358
Secured by nonfarm, nonresidential properties		36,417		(115	)		18		7,442			43,762
Other real estate secured		7,600		—			42		(470	)		7,172
Other loans secured by real estate:
Other construction		10,803		—			30		(624	)		10,209
Secured by 1-4 family residential properties		10,899		—			18		(2,183	)		8,734
Commercial and industrial loans		12,550		(71	)		447		232			13,158
Consumer loans		6,397		(384	)		375		(348	)		6,040
State and other political subdivision loans		3,414		—			—		(456	)		2,958
Other commercial loans		6,452		(675	)		877		1,060			7,714
Total	$	119,188	$	(1,263	)	$	2,325	$	1,760		$	122,010

The decrease in the PCL for loans and other loans secured by real estate during the three months ended September 30, 2020 were primarily due to improvements in the microeconomic forecasting variables used in the ACL modeling, such as National and Southern Unemployment, National GDP and Prime Rate.

During the third quarter of 2020, Trustmark conducted a review of significantly impacted borrowers that received one or more payment concessions and other borrowers in industries significantly impacted by COVID-19. The increases in the PCL for loans secured by nonfarm, nonresidential properties and other commercial loans during the three months ended September 30, 2020 were primarily due to downgrades that resulted from the in-depth portfolio review for those loans affected by the COVID-19 pandemic.

	Nine Months Ended September 30, 2021
	Balance at Beginning of Period		Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:
Construction, land development and other land	$	6,854	$	(3	)	$	1,470	$	(3,188	)	$	5,133
Other secured by 1-4 family residential properties		9,928		(91	)		337		49			10,223
Secured by nonfarm, nonresidential properties		48,523		(79	)		1,102		(6,240	)		43,306
Other real estate secured		7,382		—			15		(3,027	)		4,370
Other loans secured by real estate:
Other construction		8,158		—			46		(2,259	)		5,945
Secured by 1-4 family residential properties		5,143		(148	)		123		(2,464	)		2,654
Commercial and industrial loans		14,851		(3,702	)		3,967		4,257			19,373
Consumer loans		5,838		(1,120	)		1,200		(1,056	)		4,862
State and other political subdivision loans		3,190		—			—		(226	)		2,964
Other commercial loans		7,439		(2,516	)		3,150		(2,830	)		5,243
Total	$	117,306	$	(7,659	)	$	11,410	$	(16,984	)	$	104,073

Decreases in the PCL for the first nine months of 2021 were primarily due to improvements in the macroeconomic forecasting variables used in the ACL modeling, such as National and Southern Unemployment, National GDP, Prime Rate and Southern Vacancy Rate.

The PCL for the commercial and industrial loan portfolio increased $4.3 million during the nine months ended September 30, 2021 and was primarily due to specific reserves for individually analyzed loans.

	Nine Months Ended September 30, 2020
	Balance at Beginning of Period		FASB ASU 2016-13 Adoption Adjustment			Charge-offs			Recoveries		PCL			Balance at End of Period
Loans secured by real estate:
Construction, land development and other land	$	6,371	$	(188	)	$	(7	)	$	629	$	4,100		$	10,905
Other secured by 1-4 family residential properties		5,888		4,188			(118	)		221		1,179			11,358
Secured by nonfarm, nonresidential properties		26,158		(8,179	)		(2,563	)		524		27,822			43,762
Other real estate secured		4,024		(765	)		(8	)		60		3,861			7,172
Other loans secured by real estate:
Other construction		1,889		3,202			—			70		5,048			10,209
Secured by 1-4 family residential properties		3,044		2,891			(19	)		124		2,694			8,734
Commercial and industrial loans		25,992		(8,964	)		(1,350	)		1,180		(3,700	)		13,158
Consumer loans		3,379		2,059			(1,745	)		1,316		1,031			6,040
State and other political subdivision loans		2,229		2,455			—			—		(1,726	)		2,958
Other commercial loans		5,303		2,084			(2,868	)		2,978		217			7,714
Total	$	84,277	$	(1,217	)	$	(8,678	)	$	7,102	$	40,526		$	122,010

The increase in the PCL for loans and other loans secured by real estate and consumer loans during the nine months ended September 30, 2020 were primarily due to the negative impact of COVID-19 on the macroeconomic forecasting variables used in the ACL modeling, such as National and Southern Unemployment, National GDP, Prime Rate and Southern Vacancy Rate.

The PCL for the commercial and industrial loan portfolio decreased $3.7 million during the nine months ended September 30, 2020 primarily due to loans that had been specifically reserved for being charged down, upgrades on loans from substandard to pass, paydowns as well as a slight decrease in the calculated PD and LGD, which uses Trustmark’s historical data. The decrease in the PCL for state

and other political subdivision loans of $1.7 million was primarily due to a decrease in reserves based on routine updates to the qualitative portion of the allowance calculation.