LHFI and ACL, LHFI

3 Months Ended

Mar. 31, 2024

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

Note 3 – LHFI and ACL, LHFI

At March 31, 2024 and December 31, 2023, LHFI consisted of the following ($ in thousands):


	March 31, 2024		December 31, 2023
Loans secured by real estate:
Construction, land development and other land	$	617,008	$	642,886
Other secured by 1-4 family residential properties		625,387		622,397
Secured by nonfarm, nonresidential properties		3,543,235		3,489,434
Other real estate secured		1,384,610		1,312,551
Other loans secured by real estate:
Other construction		922,453		867,793
Secured by 1-4 family residential properties		2,266,094		2,282,318
Commercial and industrial loans		1,922,711		1,922,910
Consumer loans		159,340		165,734
State and other political subdivision loans		1,052,844		1,088,466
Other commercial loans and leases		564,261		556,035
LHFI		13,057,943		12,950,524
Less ACL		142,998		139,367
Net LHFI	$	12,914,945	$	12,811,157

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At March 31, 2024 and December 31, 2023, accrued interest receivable for LHFI totaled $70.3 million and $71.0 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 March 31, 2024, 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 March 31, 2024 and 2023.

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 March 31, 2024 and December 31, 2023 ($ in thousands):


	March 31, 2024
	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	$	991	$	1,809	$	—
Other secured by 1-4 family residential properties		923		6,843		919
Secured by nonfarm, nonresidential properties		917		3,049		—
Other real estate secured		—		134		—
Other loans secured by real estate:
Other construction		—		13,098		—
Secured by 1-4 family residential properties		4,291		48,877		3,792
Commercial and industrial loans		36		23,089		49
Consumer loans		—		238		483
Other commercial loans and leases		—		1,214		—
Total	$	7,158	$	98,351	$	5,243


	December 31, 2023
	Nonaccrual With No ACL		Total Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Loans secured by real estate:
Construction, land development and other land	$	2,020	$	2,642	$	—
Other secured by 1-4 family residential properties		946		6,518		1,238
Secured by nonfarm, nonresidential properties		20,812		23,061		54
Other real estate secured		—		158		106
Other loans secured by real estate:
Other construction		—		62		—
Secured by 1-4 family residential properties		3,235		43,815		3,740
Commercial and industrial loans		79		22,303		24
Consumer loans		—		243		628
Other commercial loans and leases		—		1,206		—
Total	$	27,092	$	100,008	$	5,790

The following tables provide an aging analysis of the amortized cost basis of past due LHFI (including nonaccrual LHFI) at March 31, 2024 and December 31, 2023 ($ in thousands):


	March 31, 2024
	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	$	354	$	590	$	1,011	$	1,955	$	615,053	$	617,008
Other secured by 1-4 family residential properties		6,147		1,554		2,575		10,276		615,111		625,387
Secured by nonfarm, nonresidential properties		695		711		892		2,298		3,540,937		3,543,235
Other real estate secured		—		—		—		—		1,384,610		1,384,610
Other loans secured by real estate:
Other construction		—		13,038		—		13,038		909,415		922,453
Secured by 1-4 family residential properties		14,706		7,246		25,361		47,313		2,218,781		2,266,094
Commercial and industrial loans		12,207		446		19,018		31,671		1,891,040		1,922,711
Consumer loans		1,616		548		512		2,676		156,664		159,340
State and other political subdivision loans		972		—		—		972		1,051,872		1,052,844
Other commercial loans and leases		1,522		116		37		1,675		562,586		564,261
Total	$	38,219	$	24,249	$	49,406	$	111,874	$	12,946,069	$	13,057,943


	December 31, 2023
	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	$	93	$	507	$	2,362	$	2,962	$	639,924	$	642,886
Other secured by 1-4 family residential properties		4,493		1,687		2,716		8,896		613,501		622,397
Secured by nonfarm, nonresidential properties		1,531		1,063		727		3,321		3,486,113		3,489,434
Other real estate secured		126		—		207		333		1,312,218		1,312,551
Other loans secured by real estate:
Other construction		62		—		—		62		867,731		867,793
Secured by 1-4 family residential properties		19,298		9,327		22,164		50,789		2,231,529		2,282,318
Commercial and industrial loans		11,881		484		499		12,864		1,910,046		1,922,910
Consumer loans		2,112		772		647		3,531		162,203		165,734
State and other political subdivision loans		152		—		—		152		1,088,314		1,088,466
Other commercial loans and leases		1,247		58		—		1,305		554,730		556,035
Total	$	40,995	$	13,898	$	29,322	$	84,215	$	12,866,309	$	12,950,524

Modified LHFI

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

The following tables present the amortized cost of LHFI at the end of each of the periods presented of loans modified to borrowers experiencing financial difficulty disaggregated by class of loan and type of modification ($ in thousands). The percentage of the amortized cost basis of LHFI that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of LHFI is also presented below:


	Three Months Ended March 31, 2024
	Term Extension		% of Total Class of Loan
Loans secured by real estate:
Other secured by 1-4 family residential properties	$	1,461		0.23	%
Other loans secured by real estate:
Secured by 1-4 family residential properties		813		0.04	%
Total	$	2,274		0.02	%


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

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


		Three Months Ended March 31, 2024
		Financial Effect
		Term Extension
Loans secured by real estate:
Other secured by 1-4 family residential properties		Modified one loan and multiple lines of credit to amortize over 24 month terms.
Other loans secured by real estate:
Secured by 1-4 family residential properties		Extended the amortization periods on six loans by a weighted-average of 2.99 years.


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

Trustmark had no unused commitments on modified loans to borrowers experiencing financial difficulty at March 31, 2024.

During the three months ended March 31, 2024 and 2023, payment defaults of LHFI that were modified within the twelve months prior to that default to borrowers experiencing financial difficulty were immaterial.

Trustmark has utilized loans 90 days or more past due to define payment default in determining modified loans that have subsequently defaulted. If Trustmark determines that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off against the ACL, LHFI.

Trustmark closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following tables provide details of the performance of such LHFI that have been modified during the periods presented ($ in thousands):


	Three Months Ended March 31, 2024
	Past Due
	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current Loans		Total
Loans secured by real estate:
Other secured by 1-4 family residential properties	$	—	$	—	$	—	$	—	$	1,461	$	1,461
Other loans secured by real estate:
Secured by 1-4 family residential properties		—		—		—		—		813		813
Total	$	—	$	—	$	—	$	—	$	2,274	$	2,274


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

Collateral-Dependent Loans

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of March 31, 2024 and December 31, 2023 ($ in thousands):


	March 31, 2024
	Real Estate		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	1,539	$	—	$	—	$	1,539
Other secured by 1-4 family residential properties		923		—		—		923
Secured by nonfarm, nonresidential properties		917		—		—		917
Other loans secured by real estate:
Other construction		13,038		—		—		13,038
Secured by 1-4 family residential properties		4,291		—		—		4,291
Commercial and industrial loans		20		36		21,154		21,210
Other commercial loans and leases		—		—		1,022		1,022
Total	$	20,728	$	36	$	22,176	$	42,940


	December 31, 2023
	Real Estate		Vehicles		Miscellaneous		Total
Loans secured by real estate:
Construction, land development and other land	$	2,020	$	—	$	—	$	2,020
Other secured by 1-4 family residential properties		946		—		—		946
Secured by nonfarm, nonresidential properties		20,812		—		—		20,812
Other loans secured by real estate:
Secured by 1-4 family residential properties		3,235		—		—		3,235
Commercial and industrial loans		38		41		21,023		21,102
Other commercial loans and leases		—		—		967		967
Total	$	27,051	$	41	$	21,990	$	49,082

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

•

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

•

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

•

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

•

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

•

Other commercial loans – Loans within this loan class are secured by non-real estate collateral. 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 homogeneous nature of consumer loans, Trustmark does not assign a formal internal risk rating to each credit and therefore the criticized and classified measures are primarily composed of commercial loans.

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

•

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

•

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

•

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

•

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

Commercial Credits

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

•

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

•

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

•

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

•

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

•

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

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

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

•

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

•

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

•

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

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

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

In addition, periodic reviews of significant development, construction, multi-family, nonowner-occupied and other commercial credits 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 that is pertinent to the particular type of credit 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

The Retail Credit Review Committee, Management Credit Policy Committee and the Enterprise Risk Committee review the volume and percentage of consumer loan delinquencies and losses to monitor the overall quality of the consumer portfolio.

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 March 31, 2024 and December 31, 2023 ($ in thousands):


	Term Loans by Origination Year
	2024		2023		2022		2021			2020		Prior			Revolving Loans		Total
As of March 31, 2024	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	98,031	$	268,068	$	77,825	$	30,055		$	10,227	$	3,425		$	49,281	$	536,912
Special Mention - RR 7		—		—		—		354			—		—			—		354
Substandard - RR 8		—		265		265		1,239			18		19			—		1,806
Doubtful - RR 9		—		—		—		—			—		—			—		—
Total		98,031		268,333		78,090		31,648			10,245		3,444			49,281		539,072
Current period gross charge-offs		—		—		—		—			—		(24	)		—		(24	)

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	6,379	$	32,381	$	28,573	$	25,941		$	13,447	$	9,086		$	7,889	$	123,696
Special Mention - RR 7		28		—		53		44			8		—			—		133
Substandard - RR 8		59		165		646		155			21		364			34		1,444
Doubtful - RR 9		—		—		—		—			—		—			—		—
Total		6,466		32,546		29,272		26,140			13,476		9,450			7,923		125,273
Current period gross charge-offs		—		—		—		—			—		(12	)		—		(12	)

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	167,040	$	492,579	$	944,333	$	505,580		$	574,763	$	616,719		$	132,679	$	3,433,693
Special Mention - RR 7		—		4,260		19,546		—			133		24,979			—		48,918
Substandard - RR 8		4,794		1,521		1,800		27,323			10,711		13,266			1,129		60,544
Doubtful - RR 9		18		—		—		—			—		57			—		75
Total		171,852		498,360		965,679		532,903			585,607		655,021			133,808		3,543,230
Current period gross charge-offs		—		—		—		(2,412	)		—		(16	)		—		(2,428	)

Other real estate secured:
Pass - RR 1 through RR 6	$	116,981	$	114,564	$	539,374	$	309,788		$	209,292	$	46,190		$	8,758	$	1,344,947
Special Mention - RR 7		—		—		—		64			—		35,876			—		35,940
Substandard - RR 8		99		—		3,028		—			268		31			—		3,426
Doubtful - RR 9		—		45		—		—			—		—			—		45
Total		117,080		114,609		542,402		309,852			209,560		82,097			8,758		1,384,358
Current period gross charge-offs		—		—		—		—			—		—			—		—


	Term Loans by Origination Year
	2024		2023			2022			2021			2020			Prior			Revolving Loans		Total
As of March 31, 2024	Commercial LHFI
Other loans secured by real estate:
Other construction:
Pass - RR 1 through RR 6	$	40,364	$	208,241		$	494,239		$	149,994		$	16,177		$	—		$	340	$	909,355
Special Mention - RR 7		—		—			—			—			—			—			—		—
Substandard - RR 8		60		—			13,038			—			—			—			—		13,098
Doubtful - RR 9		—		—			—			—			—			—			—		—
Total		40,424		208,241			507,277			149,994			16,177			—			340		922,453
Current period gross charge-offs		—		—			—			—			—			—			—		—

Commercial and industrial loans:
Pass - RR 1 through RR 6	$	188,609	$	459,063		$	323,119		$	124,545		$	58,584		$	70,060		$	538,649	$	1,762,629
Special Mention - RR 7		—		12,270			22,693			2,136			554			1,323			20,264		59,240
Substandard - RR 8		2,240		4,831			47,455			13,725			11,842			350			19,884		100,327
Doubtful - RR 9		—		—			336			155			—			23			1		515
Total		190,849		476,164			393,603			140,561			70,980			71,756			578,798		1,922,711
Current period gross charge-offs		—		(3	)		(225	)		(294	)		(8	)		(54	)		—		(584	)

State and other political subdivision loans:
Pass - RR 1 through RR 6	$	16,902	$	122,135		$	243,470		$	168,190		$	96,337		$	401,066		$	4,744	$	1,052,844
Special Mention - RR 7		—		—			—			—			—			—			—		—
Substandard - RR 8		—		—			—			—			—			—			—		—
Doubtful - RR 9		—		—			—			—			—			—			—		—
Total		16,902		122,135			243,470			168,190			96,337			401,066			4,744		1,052,844
Current period gross charge-offs		—		—			—			—			—			—			—		—

Other commercial loans and leases:
Pass - RR 1 through RR 6	$	44,336	$	193,567		$	23,760		$	26,671		$	18,877		$	40,003		$	214,044	$	561,258
Special Mention - RR 7		—		—			—			120			193			—			—		313
Substandard - RR 8		992		90			123			25			—			—			1,460		2,690
Doubtful - RR 9		—		—			—			—			—			—			—		—
Total		45,328		193,657			23,883			26,816			19,070			40,003			215,504		564,261
Current period gross charge-offs		—		—			(28	)		—			—			(25	)		—		(53	)

Total commercial LHFI	$	686,932	$	1,914,045		$	2,783,676		$	1,386,104		$	1,021,452		$	1,262,837		$	999,156	$	10,054,202
Total commercial LHFI gross charge-offs	$	—	$	(3	)	$	(253	)	$	(2,706	)	$	(8	)	$	(131	)	$	—	$	(3,101	)


	Term Loans by Origination Year
	2024		2023		2022			2021		2020		Prior		Revolving Loans			Total
As of March 31, 2024	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	4,808	$	46,918	$	15,604		$	5,300	$	1,165	$	2,497	$	1,562		$	77,854
Past due 30-89 days		—		34		—			—		—		39		—			73
Past due 90 days or more		—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			6		—		3		—			9
Total		4,808		46,952		15,604			5,306		1,165		2,539		1,562			77,936
Current period gross charge-offs		—		—		—			—		—		—		—			—

Other secured by 1-4 family residential properties:
Current	$	8,491	$	24,784	$	10,059		$	5,482	$	4,202	$	10,754	$	424,148		$	487,920
Past due 30-89 days		—		30		254			169		60		286		4,451			5,250
Past due 90 days or more		—		—		5			—		100		48		684			837
Nonaccrual		—		7		87			46		10		586		5,371			6,107
Total		8,491		24,821		10,405			5,697		4,372		11,674		434,654			500,114
Current period gross charge-offs		—		—		(5	)		—		—		—		(59	)		(64	)

Secured by nonfarm, nonresidential properties:
Current	$	—	$	—	$	—		$	5	$	—	$	—	$	—		$	5
Past due 30-89 days		—		—		—			—		—		—		—			—
Past due 90 days or more		—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			—		—		—		—			—
Total		—		—		—			5		—		—		—			5
Current period gross charge-offs		—		—		—			—		—		—		—			—

Other real estate secured:
Current	$	131	$	—	$	—		$	—	$	75	$	46	$	—		$	252
Past due 30-89 days		—		—		—			—		—		—		—			—
Past due 90 days or more		—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			—		—		—		—			—
Total		131		—		—			—		75		46		—			252
Current period gross charge-offs		—		—		—			—		—		—		—			—


	Term Loans by Origination Year
	2024			2023			2022			2021			2020			Prior			Revolving Loans			Total
As of March 31, 2024	Consumer LHFI
Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	33,184		$	249,825		$	871,791		$	506,872		$	178,382		$	355,532		$	—		$	2,195,586
Past due 30-89 days		—			2,410			9,575			2,777			830			2,246			—			17,838
Past due 90 days or more		—			527			1,175			1,052			127			911			—			3,792
Nonaccrual		—			1,765			17,942			12,782			6,080			10,309			—			48,878
Total		33,184			254,527			900,483			523,483			185,419			368,998			—			2,266,094
Current period gross charge-offs		—			(59	)		(315	)		(29	)		—			(8	)		—			(411	)

Consumer loans:
Current	$	20,996		$	43,982		$	26,201		$	8,570		$	2,098		$	840		$	53,867		$	156,554
Past due 30-89 days		348			518			288			122			1			5			784			2,066
Past due 90 days or more		19			58			66			4			8			—			328			483
Nonaccrual		—			64			56			77			19			—			21			237
Total		21,363			44,622			26,611			8,773			2,126			845			55,000			159,340
Current period gross charge-offs		(1,544	)		(282	)		(122	)		(20	)		(27	)		—			(753	)		(2,748	)

Total consumer LHFI	$	67,977		$	370,922		$	953,103		$	543,264		$	193,157		$	384,102		$	491,216		$	3,003,741
Total consumer LHFI gross charge-offs	$	(1,544	)	$	(341	)	$	(442	)	$	(49	)	$	(27	)	$	(8	)	$	(812	)	$	(3,223	)

Total LHFI	$	754,909		$	2,284,967		$	3,736,779		$	1,929,368		$	1,214,609		$	1,646,939		$	1,490,372		$	13,057,943
Total current period gross charge-offs	$	(1,544	)	$	(344	)	$	(695	)	$	(2,755	)	$	(35	)	$	(139	)	$	(812	)	$	(6,324	)


	Term Loans by Origination Year
	2023		2022			2021			2020		2019			Prior			Revolving Loans		Total
As of December 31, 2023	Commercial LHFI
Loans secured by real estate:
Construction, land development and other land:
Pass - RR 1 through RR 6	$	359,813	$	98,742		$	35,095		$	10,591	$	2,036		$	1,961		$	52,351	$	560,589
Special Mention - RR 7		—		—			360			—		—			—			—		360
Substandard - RR 8		606		336			1,512			19		—			21			—		2,494
Doubtful - RR 9		—		—			—			—		—			24			—		24
Total		360,419		99,078			36,967			10,610		2,036			2,006			52,351		563,467
Current period gross charge-offs		—		(4	)		(10	)		—		(228	)		—			—		(242	)

Other secured by 1-4 family residential properties:
Pass - RR 1 through RR 6	$	33,072	$	30,760		$	29,159		$	14,309	$	8,084		$	2,822		$	10,077	$	128,283
Special Mention - RR 7		—		82			48			10		—			—			—		140
Substandard - RR 8		220		625			157			22		80			306			98		1,508
Doubtful - RR 9		—		—			—			—		—			—			—		—
Total		33,292		31,467			29,364			14,341		8,164			3,128			10,175		129,931
Current period gross charge-offs		—		—			(24	)		—		—			(6	)		—		(30	)

Secured by nonfarm, nonresidential properties:
Pass - RR 1 through RR 6	$	501,327	$	919,519		$	526,412		$	596,240	$	323,687		$	369,250		$	129,142	$	3,365,577
Special Mention - RR 7		4,271		14,930			—			138		23,966			—			—		43,305
Substandard - RR 8		6,332		1,964			47,491			10,809		8,614			5,200			48		80,458
Doubtful - RR 9		21		—			—			—		53			13			—		87
Total		511,951		936,413			573,903			607,187		356,320			374,463			129,190		3,489,427
Current period gross charge-offs		—		(39	)		(82	)		—		(19	)		(138	)		—		(278	)

Other real estate secured:
Pass - RR 1 through RR 6	$	194,141	$	447,200		$	332,818		$	209,757	$	56,024		$	11,080		$	8,880	$	1,259,900
Special Mention - RR 7		126		2,076			—			—		35,881			—			—		38,083
Substandard - RR 8		—		14,064			—			290		—			39			—		14,393
Doubtful - RR 9		42		—			—			—		—			—			—		42
Total		194,309		463,340			332,818			210,047		91,905			11,119			8,880		1,312,418
Current period gross charge-offs		—		—			—			—		—			—			—		—


	Term Loans by Origination Year
	2023			2022			2021			2020			2019			Prior			Revolving Loans			Total
As of December 31, 2023	Commercial LHFI
Other loans secured by real estate:
Other construction
Pass - RR 1 through RR 6	$	179,676		$	518,062		$	149,883		$	14,062		$	—		$	6		$	6,042		$	867,731
Special Mention - RR 7		—			—			—			—			—			—			—			—
Substandard - RR 8		62			—			—			—			—			—			—			62
Doubtful - RR 9		—			—			—			—			—			—			—			—
Total		179,738			518,062			149,883			14,062			—			6			6,042			867,793
Current period gross charge-offs		(61	)		—			(3,392	)		—			—			—			—			(3,453	)

Commercial and industrial loans:
Pass - RR 1 through RR 6	$	497,730		$	474,737		$	158,659		$	80,646		$	31,876		$	44,972		$	537,527		$	1,826,147
Special Mention - RR 7		12,570			10,141			3,149			1,381			110			—			126			27,477
Substandard - RR 8		4,797			16,872			13,909			11,958			40			80			21,528			69,184
Doubtful - RR 9		6			58			1			—			—			25			12			102
Total		515,103			501,808			175,718			93,985			32,026			45,077			559,193			1,922,910
Current period gross charge-offs		(42	)		(1,071	)		(700	)		(138	)		(95	)		(108	)		(7	)		(2,161	)

State and other political subdivision loans:
Pass - RR 1 through RR 6	$	152,157		$	247,034		$	174,812		$	99,786		$	32,118		$	377,225		$	5,334		$	1,088,466
Special Mention - RR 7		—			—			—			—			—			—			—			—
Substandard - RR 8		—			—			—			—			—			—			—			—
Doubtful - RR 9		—			—			—			—			—			—			—			—
Total		152,157			247,034			174,812			99,786			32,118			377,225			5,334			1,088,466
Current period gross charge-offs		—			—			—			—			—			—			—			—

Other commercial loans and leases:
Pass - RR 1 through RR 6	$	211,402		$	48,947		$	30,071		$	21,377		$	32,837		$	8,468		$	201,339		$	554,441
Special Mention - RR 7		—			—			—			208			—			—			20			228
Substandard - RR 8		106			211			42			—			—			—			987			1,346
Doubtful - RR 9		—			—			—			—			—			20			—			20
Total		211,508			49,158			30,113			21,585			32,837			8,488			202,346			556,035
Current period gross charge-offs		(40	)		(248	)		—			(26	)		—			—			—			(314	)

Total commercial LHFI	$	2,158,477		$	2,846,360		$	1,503,578		$	1,071,603		$	555,406		$	821,512		$	973,511		$	9,930,447
Total commercial LHFI gross charge-offs	$	(143	)	$	(1,362	)	$	(4,208	)	$	(164	)	$	(342	)	$	(252	)	$	(7	)	$	(6,478	)


	Term Loans by Origination Year
	2023		2022			2021			2020			2019			Prior			Revolving Loans			Total
As of December 31, 2023	Consumer LHFI
Loans secured by real estate:
Construction, land development and other land:
Current	$	44,912	$	23,110		$	5,973		$	1,203		$	1,082		$	1,864		$	653		$	78,797
Past due 30-89 days		—		250			—			—			30			191			—			471
Past due 90 days or more		—		—			—			—			—			—			—			—
Nonaccrual		—		—			148			—			—			3			—			151
Total		44,912		23,360			6,121			1,203			1,112			2,058			653			79,419
Current period gross charge-offs		—		—			—			—			—			—			—			—

Other secured by 1-4 family residential properties:
Current	$	29,636	$	11,366		$	5,733		$	4,471		$	4,313		$	7,674		$	417,383		$	480,576
Past due 30-89 days		225		68			74			4			51			220			4,292			4,934
Past due 90 days or more		—		264			—			—			—			41			934			1,239
Nonaccrual		8		76			48			8			—			616			4,961			5,717
Total		29,869		11,774			5,855			4,483			4,364			8,551			427,570			492,466
Current period gross charge-offs		—		(100	)		(9	)		(2	)		(10	)		(22	)		(147	)		(290	)

Secured by nonfarm, nonresidential properties:
Current	$	—	$	—		$	7		$	—		$	—		$	—		$	—		$	7
Past due 30-89 days		—		—			—			—			—			—			—			—
Past due 90 days or more		—		—			—			—			—			—			—			—
Nonaccrual		—		—			—			—			—			—			—			—
Total		—		—			7			—			—			—			—			7
Current period gross charge-offs		—		—			—			—			—			—			—			—

Other real estate secured:
Current	$	—	$	—		$	—		$	78		$	—		$	55		$	—		$	133
Past due 30-89 days		—		—			—			—			—			—			—			—
Past due 90 days or more		—		—			—			—			—			—			—			—
Nonaccrual		—		—			—			—			—			—			—			—
Total		—		—			—			78			—			55			—			133
Current period gross charge-offs		—		—			—			—			—			—			—			—


	Term Loans by Origination Year
	2023			2022			2021			2020			2019			Prior			Revolving Loans			Total
As of December 31, 2023	Consumer LHFI
Other loans secured by real estate:
Secured by 1-4 family residential properties
Current	$	258,800		$	878,893		$	516,324		$	180,272		$	98,552		$	277,664		$	—		$	2,210,505
Past due 30-89 days		3,370			11,293			5,513			2,121			298			1,664			—			24,259
Past due 90 days or more		376			1,219			1,208			682			—			255			—			3,740
Nonaccrual		678			15,586			11,452			4,884			1,848			9,366			—			43,814
Total		263,224			906,991			534,497			187,959			100,698			288,949			—			2,282,318
Current period gross charge-offs		(64	)		(930	)		(217	)		(104	)		—			(142	)		—			(1,457	)

Consumer loans:
Current	$	59,496		$	32,767		$	10,698		$	2,604		$	917		$	294		$	55,321		$	162,097
Past due 30-89 days		1,274			475			134			34			5			5			839			2,766
Past due 90 days or more		64			44			3			1			—			—			516			628
Nonaccrual		44			65			84			26			—			—			24			243
Total		60,878			33,351			10,919			2,665			922			299			56,700			165,734
Current period gross charge-offs		(6,138	)		(559	)		(167	)		(43	)		(1	)		(1	)		(2,381	)		(9,290	)

Total consumer LHFI	$	398,883		$	975,476		$	557,399		$	196,388		$	107,096		$	299,912		$	484,923		$	3,020,077
Total consumer LHFI gross charge-offs	$	(6,202	)	$	(1,589	)	$	(393	)	$	(149	)	$	(11	)	$	(165	)	$	(2,528	)	$	(11,037	)

Total LHFI	$	2,557,360		$	3,821,836		$	2,060,977		$	1,267,991		$	662,502		$	1,121,424		$	1,458,434		$	12,950,524
Total current period gross charge-offs	$	(6,345	)	$	(2,951	)	$	(4,601	)	$	(313	)	$	(353	)	$	(417	)	$	(2,535	)	$	(17,515	)

Past Due LHFS

LHFS past due 90 days or more totaled $56.5 million and $51.2 million at March 31, 2024 and December 31, 2023, 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 three months of 2024 or 2023.

ACL on LHFI

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

The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific

component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan product types and similar risk characteristics.

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

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

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

The state and other political subdivision LHFI and the other commercial LHFI and leases 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 lease segment primarily consists of commercial equipment finance leases. Trustmark’s credit underwriting process for equipment finance leases 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.

During the first quarter of 2024 as part of Trustmark's ongoing model monitoring procedures the annual loss driver analysis was performed. The analysis resulted in changes in the loss drivers for all discounted cash-flow models along with changes in the loss drivers for the equipment and finance loans and leases model. These changes were a result of updating Trustmark's peer group and incorporating data through 2022 which led to more intuitive loss drivers. All models were validated by a third party before implementation.

The following table provides a description of each of Trustmark’s portfolio segments, loan classes, loan pools and the ACL methodology and loss drivers at March 31, 2024:


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	National HPI, National Unemployment
		Lots and development	DCF	National HPI, National Unemployment
		Unimproved land	DCF	National HPI, National Unemployment
		All other consumer	DCF	National HPI, National Unemployment
	Other secured by 1-4 family residential properties	Consumer 1-4 family - 1st liens	DCF	National HPI, National Unemployment
		All other consumer	DCF	National HPI, National Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National CRE Price Index
	Secured by nonfarm, nonresidential properties	Nonowner-occupied - hotel/motel	DCF	National CRE Price Index, Southern Unemployment
		Nonowner-occupied - office	DCF	National CRE Price Index, Southern Unemployment
		Nonowner-occupied- Retail	DCF	National CRE Price Index, Southern Unemployment
		Nonowner-occupied - senior living/nursing homes	DCF	National CRE Price Index, Southern Unemployment
		Nonowner-occupied - all other	DCF	National CRE Price Index, Southern Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National CRE Price Index
	Other real estate secured	Nonresidential nonowner -occupied - apartments	DCF	National CRE Price Index, Southern Unemployment
		Nonresidential owner-occupied	DCF	Southern Unemployment, National CRE Price Index
		Nonowner-occupied - all other	DCF	National CRE Price Index, Southern Unemployment
Other loans secured by real estate	Other construction	Other construction	DCF	National CRE Price Index, National Unemployment, BBB 7-10 US CBI
	Secured by 1-4 family residential properties	Trustmark mortgage	WARM	Southern Unemployment


Portfolio Segment	Loan Class	Loan Pool	Methodology	Loss Drivers
Commercial and industrial loans	Commercial and industrial loans	Commercial and industrial - non-working capital	DCF	Trustmark historical data
		Commercial and industrial - working capital	DCF	Trustmark historical data
		Equipment finance loans	WARM	Southern Unemployment, National GDP
		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	National HPI, National 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 and leases	Other commercial loans and leases	Other loans	DCF	BBB 7-10 US CBI, Southern Unemployment
		Commercial and industrial - non-working capital	DCF	Trustmark historical data
		Commercial and industrial - working capital	DCF	Trustmark historical data
		Equipment finance leases	WARM	Southern Unemployment, National GDP

The following table provides a description of each of Trustmark’s portfolio segments, loan classes, loan pools and the ACL methodology and loss drivers at December 31, 2023:


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

In general, Trustmark utilizes a DCF method to estimate the quantitative portion of the ACL for loan pools. The DCF model consists of two key components, a loss driver analysis (LDA) and a cash flow analysis. For loan pools utilizing the DCF methodology, multiple assumptions are in place, depending on the loan pool. A reasonable and supportable forecast is utilized for each loan pool by developing a LDA for each loan class. The LDA uses charge off data from Federal Financial Institutions Examination Council (FFIEC) reports to construct a periodic default rate (PDR). The PDR is decomposed into a PD. Regressions are run using the data for various macroeconomic variables in order to determine which ones correlate to Trustmark’s losses. These variables are then incorporated into the application to calculate a quarterly PD using a third-party baseline forecast. In addition to the PD, a LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the levels of PD forecasts. This model approach is applicable to all pools within the construction, land development and other land, other secured by 1-4 family residential properties, secured by nonfarm, nonresidential properties and other real estate secured loan classes as well as consumer loans and other commercial loans.

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

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

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

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

Trustmark determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans. The econometric models currently in production reflect segment or pool level sensitivities of PD to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of Trustmark’s assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the macroeconomic levels experienced during the COVID-19 pandemic, it was not clear that the models in production would 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), National Home Price Index (HPI), National Commercial Real Estate (CRE) Price Index and the BBB 7-10 Year US Corporate Bond Index (CBI). 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 1stand 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or LGD at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark’s historical loss experience and applied at a portfolio level.

Qualitative factors used in the ACL methodology include the following:

•

Lending policies and procedures

•

Economic conditions and concentrations of credit

•

Nature and volume of the portfolio

•

Performance trends

•

External factors

While all these factors are incorporated into the overall methodology, only three are currently considered active at March 31, 2024: (i) economic conditions and concentrations of credit, (ii) nature and volume of the portfolio and (iii) performance trends.

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.

Trustmark's current quantitative methodologies do not completely incorporate changes in credit quality. As a result, Trustmark utilizes the performance trends qualitative 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 within 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.

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.

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

As discussed above, the disconnect of economic factors means that changes in rating caused by deteriorating and weak economic conditions as a result of the pandemic were not being captured in the quantitative reserve. During 2020, due to unforeseen pandemic conditions that varied from Management’s expectations, additional reserves were further dimensioned in order to appropriately reflect the risk within the portfolio related to the COVID-19 pandemic. In an effort to ensure the External Factor-Pandemic qualitative factor was reasonable and supportable, historical Trustmark loss data was leveraged to construct a framework that was quantitative in nature. To dimension the additional reserve, Management used 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, was 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 (RR 7) and substandard (RR 8) received additional reserves based on the weighted-average described above. During 2022, Management noted that all pass rated loans (RR 5 & RR 6) related to the External Factor-Pandemic qualitative factor either did not experience significant stress related to the pandemic or had since recovered and did not expect future stresses attributed to the pandemic that could affect these loans. As a result, Management decided to accelerate the release of the additional pandemic reserves on all pass rated 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 being 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.

The following tables disaggregate the ACL and the amortized cost basis of the loans by the measurement methodology used at March 31, 2024 and December 31, 2023 ($ in thousands):


	March 31, 2024
	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	$	12	$	5,731	$	5,743	$	1,539		615,469	$	617,008
Other secured by 1-4 family residential properties		—		10,554		10,554		923		624,464		625,387
Secured by nonfarm, nonresidential properties		—		33,292		33,292		917		3,542,318		3,543,235
Other real estate secured		—		9,251		9,251		—		1,384,610		1,384,610
Other loans secured by real estate:
Other construction		626		11,439		12,065		13,038		909,415		922,453
Secured by 1-4 family residential properties		—		31,946		31,946		4,291		2,261,803		2,266,094
Commercial and industrial loans		10,960		16,970		27,930		21,210		1,901,501		1,922,711
Consumer loans		—		5,523		5,523		—		159,340		159,340
State and other political subdivision loans		—		638		638		—		1,052,844		1,052,844
Other commercial loans and leases		1,022		5,034		6,056		1,022		563,239		564,261
Total	$	12,620	$	130,378	$	142,998	$	42,940	$	13,015,003	$	13,057,943


	December 31, 2023
	ACL						LHFI
	Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total		Individually Evaluated for Credit Loss		Collectively Evaluated for Credit Loss		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	17,192	$	17,192	$	2,020	$	640,866	$	642,886
Other secured by 1-4 family residential properties		—		12,942		12,942		946		621,451		622,397
Secured by nonfarm, nonresidential properties		—		24,043		24,043		20,812		3,468,622		3,489,434
Other real estate secured		—		4,488		4,488		—		1,312,551		1,312,551
Other loans secured by real estate:
Other construction		—		5,758		5,758		—		867,793		867,793
Secured by 1-4 family residential properties		—		34,794		34,794		3,235		2,279,083		2,282,318
Commercial and industrial loans		11,436		15,202		26,638		21,102		1,901,808		1,922,910
Consumer loans		—		5,794		5,794		—		165,734		165,734
State and other political subdivision loans		—		646		646		—		1,088,466		1,088,466
Other commercial loans and leases		967		6,105		7,072		967		555,068		556,035
Total	$	12,403	$	126,964	$	139,367	$	49,082	$	12,901,442	$	12,950,524

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


	Three Months Ended March 31,
	2024			2023
Balance at beginning of period	$	139,367		$	120,214
Loans charged-off		(6,324	)		(2,996	)
Recoveries		2,247			1,777
Net (charge-offs) recoveries		(4,077	)		(1,219	)
PCL, LHFI		7,708			3,244
Balance at end of period	$	142,998		$	122,239

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


	Three Months Ended March 31, 2024
	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	$	17,192	$	(24	)	$	1	$	(11,426	)	$	5,743
Other secured by 1-4 family residential properties		12,942		(76	)		450		(2,762	)		10,554
Secured by nonfarm, nonresidential properties		24,043		(2,428	)		9		11,668			33,292
Other real estate secured		4,488		—			—		4,763			9,251
Other loans secured by real estate:
Other construction		5,758		—			17		6,290			12,065
Secured by 1-4 family residential properties		34,794		(411	)		38		(2,475	)		31,946
Commercial and industrial loans		26,638		(584	)		198		1,678			27,930
Consumer loans		5,794		(2,748	)		1,505		972			5,523
State and other political subdivision loans		646		—			—		(8	)		638
Other commercial loans and leases		7,072		(53	)		29		(992	)		6,056
Total	$	139,367	$	(6,324	)	$	2,247	$	7,708		$	142,998

The PCL, LHFI for the secured by nonfarm, nonresidential properties and other real estate secured portfolios for the three months ended March 31, 2024 was primarily due to changes in the macroeconomic forecast associated with these specific loss driver models as a result of the loss driver update coupled with loan growth. The PCL, LHFI for the other construction portfolio for the three months ended March 31, 2024 was also primarily due to changes in the macroeconomic forecast associated with this specific loss driver model as a result of the loss driver update coupled with loan growth and net adjustments to the qualitative factors due to credit migration. The PCL,

LHFI for the commercial and industrial portfolio for the three months ended March 31, 2024 was primarily due to net adjustments to the qualitative factors due to credit migration.

The negative PCL, LHFI for the construction, land development and other land, other secured by 1-4 family residential properties, and other commercial loans and leases portfolios for the three months ended March 31, 2024 was primarily due to changes in the macroeconomic forecast associated with these specific loss driver models as a result of the loss driver update for these loan portfolios. The negative PCL, LHFI for the secured by 1-4 family residential properties portfolio for the three months ended March 31, 2024 was primarily due to adjustments to the Nature and Volume of Portfolio qualitative factor.


	Three Months Ended March 31, 2023
	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	$	12,828	$	(14	)	$	8	$	438		$	13,260
Other secured by 1-4 family residential properties		12,374		(34	)		47		(469	)		11,918
Secured by nonfarm, nonresidential properties		19,488		(28	)		96		(916	)		18,640
Other real estate secured		4,743		—			3		(2,384	)		2,362
Other loans secured by real estate:
Other construction		15,132		—			30		(692	)		14,470
Secured by 1-4 family residential properties		21,185		(294	)		6		5,259			26,156
Commercial and industrial loans		23,140		(471	)		270		523			23,462
Consumer loans		5,792		(2,155	)		1,317		578			5,532
State and other political subdivision loans		885		—			—		(156	)		729
Other commercial loans and leases		4,647		—			—		1,063			5,710
Total	$	120,214	$	(2,996	)	$	1,777	$	3,244		$	122,239

The increases in the PCL, LHFI for the three months ended March 31, 2023 were primarily attributable to loan growth and the Nature and Volume of Portfolio qualitative factor.

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