0000036146 us-gaap:OtherLiabilitiesMember us-gaap:NondesignatedMember us-gaap:InterestRateSwapMember 2018-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-03683

Trustmark Corporation

(Exact name of registrant as specified in its charter)

Mississippi		64-0471500
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

248 East Capitol Street, Jackson, Mississippi		39201
(Address of principal executive offices)		(Zip Code)

(601) 208-5111

(Registrant’s telephone number, including area code)

Securities registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	TRMK	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, ~~2018,~~2019, there were ~~67,088,861~~64,260,163 shares outstanding of the registrant’s common stock (no par value).

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential,” “seek,” “continue,” “could,” “would,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things, and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. You should be aware that the occurrence of the events described under the caption “Risk Factors” in Trustmark’s filings with the Securities and Exchange Commission could have an adverse effect on our business, results of operations and financial condition. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, including potential market impacts of efforts by the Board of Governors of the Federal Reserve ~~Board~~System (FRB) to reduce the size of its balance sheet, conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets as well as crude oil prices, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of issues relating to the European financial system and monetary and other governmental actions designed to address credit, securities, and/or commodity markets, the enactment of legislation and changes in existing regulations or enforcement practices or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)

	(Unaudited)						(Unaudited)
	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets
Cash and due from banks (noninterest-bearing)	$	432,471		$	335,768		$	486,263		$	349,561
Federal funds sold and securities purchased under reverse repurchase agreements		1,000			615			—			830
Securities available for sale (at fair value)		1,864,633			2,238,635			1,553,705			1,811,813
Securities held to maturity (fair value: $907,317-2018; $1,046,247-2017)		943,883			1,056,486
Securities held to maturity (fair value: $794,685-2019; $889,733-2018)								785,422			909,643
Loans held for sale (LHFS)		182,664			180,512			292,800			153,799
Loans held for investment (LHFI)		8,747,030			8,569,967			9,223,668			8,835,868
Less allowance for loan losses, LHFI		88,874			76,733			83,226			79,290
Net LHFI		8,658,156			8,493,234			9,140,442			8,756,578
Acquired loans		132,615			261,517			81,004			106,932
Less allowance for loan losses, acquired loans		1,714			4,079			1,249			1,231
Net acquired loans		130,901			257,438			79,755			105,701
Net LHFI and acquired loans		8,789,057			8,750,672			9,220,197			8,862,279
Premises and equipment, net		178,739			179,339			188,423			178,668
Mortgage servicing rights		101,374			84,269			73,016			95,596
Goodwill		379,627			379,627			379,627			379,627
Identifiable intangible assets, net		12,391			16,360			8,345			11,112
Other real estate		36,475			43,228			31,974			34,668
Operating lease right-of-use assets								33,180			—
Other assets		517,498			532,442			531,834			498,864
Total Assets	$	13,439,812		$	13,797,953		$	13,584,786		$	13,286,460

Liabilities
Deposits:
Noninterest-bearing	$	2,786,539		$	2,978,074		$	3,064,127		$	2,937,594
Interest-bearing		8,170,371			7,599,438			8,190,056			8,426,817
Total deposits		10,956,910			10,577,512			11,254,183			11,364,411
Federal funds purchased and securities sold under repurchase agreements		486,865			469,827			376,712			50,471
Short-term borrowings		190,023			971,049
Long-term Federal Home Loan Bank (FHLB) advances		896			946
Other borrowings								76,685			79,885
Junior subordinated debt securities		61,856			61,856			61,856			61,856
Operating lease liabilities								34,319			—
Other liabilities		143,658			145,062			135,669			138,384
Total Liabilities		11,840,208			12,226,252			11,939,424			11,695,007

Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares Issued and outstanding: 67,621,369 shares - 2018; 67,746,094 shares - 2017		14,089			14,115
Authorized: 250,000,000 shares Issued and outstanding: 64,262,779 shares - 2019; 65,834,395 shares - 2018								13,390			13,717
Capital surplus		362,868			369,124			257,370			309,545
Retained earnings		1,302,593			1,228,187			1,395,460			1,323,870
Accumulated other comprehensive loss, net of tax		(79,946	)		(39,725	)		(20,858	)		(55,679	)
Total Shareholders' Equity		1,599,604			1,571,701			1,645,362			1,591,453
Total Liabilities and Shareholders' Equity	$	13,439,812		$	13,797,953		$	13,584,786		$	13,286,460

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Income

($ in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019		2018
Interest Income
Interest and fees on LHFS & LHFI	$	102,980		$	89,112		$	291,362		$	253,507		$	113,285		$	102,980		$	331,820	$	291,362
Interest and fees on acquired loans		4,033			6,625			13,932			18,077			2,309			4,033			6,235		13,932
Interest on securities:
Taxable		16,186			19,291			50,586			57,865			13,184			16,186			41,765		50,586
Tax exempt		518			717			1,748			2,328			383			518			1,329		1,748
Interest on federal funds sold and securities purchased under reverse repurchase agreements		3			14			10			26			23			3			239		10
Other interest income		1,050			355			3,038			993			1,044			1,050			4,467		3,038
Total Interest Income		124,770			116,114			360,676			332,796			130,228			124,770			385,855		360,676
Interest Expense
Interest on deposits		14,972			6,381			36,602			15,433			20,385			14,972			61,455		36,602
Interest on federal funds purchased and securities sold under repurchase agreements		1,348			1,301			3,260			3,036			547			1,348			916		3,260
Other interest expense		1,467			4,520			6,574			10,821			830			1,467			2,486		6,574
Total Interest Expense		17,787			12,202			46,436			29,290			21,762			17,787			64,857		46,436
Net Interest Income		106,983			103,912			314,240			303,506			108,466			106,983			320,998		314,240
Provision for loan losses, LHFI		8,673			3,672			15,801			9,355			3,039			8,673			7,136		15,801
Provision for loan losses, acquired loans		(467	)		(1,653	)		(758	)		(5,822	)		(140	)		(467	)		44		(758	)
Net Interest Income After Provision for Loan Losses		98,777			101,893			299,197			299,973		��	105,567			98,777			313,818		299,197
Noninterest Income
Service charges on deposit accounts		11,075			11,223			32,579			32,810			11,065			11,075			31,709		32,579
Bank card and other fees		7,459			7,150			21,155			21,020			8,349			7,459			23,544		21,155
Mortgage banking, net		8,647			4,425			28,958			23,618			8,171			8,647			21,908		28,958
Insurance commissions		10,765			10,398			30,919			29,355			11,072			10,765			33,032		30,919
Wealth management		7,789			7,530			22,834			22,617			7,691			7,789			22,916		22,834
Other, net		1,358			3,740			4,832			11,268			1,989			1,358			6,358		4,832
Security gains (losses), net		—			14			—			15			—			—			—		—
Total Noninterest Income		47,093			44,480			141,277			140,703			48,337			47,093			139,467		141,277
Noninterest Expense
Salaries and employee benefits		60,847			57,871			179,297			170,445			62,495			60,847			185,398		179,297
Defined benefit plan termination		—			—			—			17,644
Services and fees		16,404			15,133			48,472			45,474			18,838			16,404			53,815		48,472
Net occupancy - premises		6,910			6,702			19,962			19,150			6,831			6,910			19,688		19,962
Equipment expense		6,200			6,297			18,501			18,457			5,971			6,200			17,853		18,501
Other real estate expense, net		1,168			864			1,941			3,006			531			1,168			2,415		1,941
FDIC assessment expense		1,999			2,816			7,532			8,142			1,400			1,999			4,994		7,532
Other expense		11,695			13,403			35,783			44,900			10,787			11,695			34,812		35,783
Total Noninterest Expense		105,223			103,086			311,488			327,218			106,853			105,223			318,975		311,488
Income Before Income Taxes		40,647			43,287			128,986			113,458			47,051			40,647			134,310		128,986
Income taxes		4,394			8,708			16,090			23,596			6,016			4,394			17,796		16,090
Net Income	$	36,253		$	34,579		$	112,896		$	89,862		$	41,035		$	36,253		$	116,514	$	112,896

Earnings Per Share
Basic	$	0.54		$	0.51		$	1.67		$	1.33		$	0.64		$	0.54		$	1.80	$	1.67
Diluted	$	0.54		$	0.51		$	1.67		$	1.32		$	0.64		$	0.54		$	1.80	$	1.67

Dividends Per Share	$	0.23		$	0.23		$	0.69		$	0.69

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

($ in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net income per consolidated statements of income	$	36,253		$	34,579		$	112,896		$	89,862		$	41,035		$	36,253		$	116,514		$	112,896
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available for sale securities and transferred securities:
Net unrealized holding gains (losses) arising during the period		(7,246	)		(331	)		(35,231	)		3,912			3,116			(7,246	)		32,293			(35,231	)
Less: adjustment for net (gains) losses realized in net income		—			(8	)		—			(9	)
Change in net unrealized holding loss on securities transferred to held to maturity		730			698			2,182			2,193			637			730			2,139			2,182
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		47			39			140			116			46			47			140			140
Recognized net loss due to lump sum settlement		31			—			92			—			34			31			105			92
Change in net actuarial loss		271			219			819			1,187			186			271			562			819
Recognized net loss due to defined benefit plan termination		—			—			—			10,492
Derivatives:
Change in the accumulated gain (loss) on effective cash flow hedge derivatives		39			33			458			(61	)		14			39			(109	)		458
Less: adjustment for (gain) loss realized in net income		(79	)		34			(157	)		143
Reclassification adjustment for (gain) loss realized in net income														(75	)		(79	)		(309	)		(157	)
Other comprehensive income (loss), net of tax		(6,207	)		684			(31,697	)		17,973			3,958			(6,207	)		34,821			(31,697	)
Comprehensive income	$	30,046		$	35,263		$	81,199		$	107,835		$	44,993		$	30,046		$	151,335		$	81,199

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated ~~Condensed~~ Statements of Changes in Shareholders' Equity

($ in ~~thousands)~~thousands, except per share data)

(Unaudited)

2018

2017

Balance, January 1,

$
1,571,701

$
1,520,208

Net income per consolidated statements of income

112,896

89,862

Other comprehensive income (loss), net of tax

(31,697
)

17,973

Common stock dividends paid

(47,014
)

(47,099
)
Shares withheld to pay taxes, long-term incentive plan

(1,427
)

(1,659
)
Repurchase and retirement of common stock

(7,877
)

—

Compensation expense, long-term incentive plan

3,022

3,250

Balance, September 30,

$
1,599,604

$
1,582,535

													Accumulated
													Other
	Common Stock												Comprehensive
	Shares						Capital			Retained			Income
	Outstanding			Amount			Surplus			Earnings			(Loss)			Total
Balance, January 1, 2019		65,834,395		$	13,717		$	309,545		$	1,323,870		$	(55,679	)	$	1,591,453
Net income per consolidated statements of income		—			—			—			33,339			—			33,339
Other comprehensive income (loss), net of tax		—			—			—			—			14,764			14,764
Common stock dividends paid ($0.23 per share)		—			—			—			(15,033	)		—			(15,033	)
Shares withheld to pay taxes, long-term incentive plan		123,821			25			(1,629	)		—			—			(1,604	)
Repurchase and retirement of common stock		(1,168,273	)		(243	)		(36,650	)		—			—			(36,893	)
Compensation expense, long-term incentive plan		—			—			1,002			—			—			1,002
Balance, March 31, 2019		64,789,943			13,499			272,268			1,342,176			(40,915	)		1,587,028
Net income per consolidated statements of income		—			—			—			42,140			—			42,140
Other comprehensive income (loss), net of tax		—			—			—			—			16,099			16,099
Common stock dividends paid ($0.23 per share)		—			—			—			(14,987	)		—			(14,987	)
Shares withheld to pay taxes, long-term incentive plan		7,087			2			(3	)		—			—			(1	)
Repurchase and retirement of common stock		(398,184	)		(83	)		(12,925	)		—			—			(13,008	)
Compensation expense, long-term incentive plan		—			—			1,279			—			—			1,279
Balance, June 30, 2019		64,398,846			13,418			260,619			1,369,329			(24,816	)		1,618,550
Net income per consolidated statements of income		—			—			—			41,035			—			41,035
Other comprehensive income (loss), net of tax		—			—			—			—			3,958			3,958
Common stock dividends paid ($0.23 per share)		—			—			—			(14,904	)		—			(14,904	)
Shares withheld to pay taxes, long-term incentive plan		2,502			1			(35	)		—			—			(34	)
Repurchase and retirement of common stock		(138,569	)		(29	)		(4,486	)		—			—			(4,515	)
Compensation expense, long-term incentive plan		—			—			1,272			—			—			1,272
Balance, September 30, 2019		64,262,779		$	13,390		$	257,370		$	1,395,460		$	(20,858	)	$	1,645,362

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity (continued)

($ in thousands, except per share data)

(Unaudited)

													Accumulated
													Other
	Common Stock												Comprehensive
	Shares						Capital			Retained			Income
	Outstanding			Amount			Surplus			Earnings			(Loss)			Total
Balance, January 1, 2018		67,746,094		$	14,115		$	369,124		$	1,228,187		$	(39,725	)	$	1,571,701
Accumulated other comprehensive loss adjustment, Tax Cuts and Jobs Act of 2017 (Tax Reform Act)		—			—			—			8,524			(8,524	)		—
Net income per consolidated statements of income		—			—			—			36,830			—			36,830
Other comprehensive income (loss), net of tax		—			—			—			—			(19,637	)		(19,637	)
Common stock dividends paid ($0.23 per share)		—			—			—			(15,660	)		—			(15,660	)
Shares withheld to pay taxes, long-term incentive plan		109,558			23			(1,403	)		—			—			(1,380	)
Repurchase and retirement of common stock		(80,584	)		(17	)		(2,485	)		—			—			(2,502	)
Compensation expense, long-term incentive plan		—			—			785			—			—			785
Balance, March 31, 2018		67,775,068			14,121			366,021			1,257,881			(67,886	)		1,570,137
Net income per consolidated statements of income		—			—			—			39,813			—			39,813
Other comprehensive income (loss), net of tax		—			—			—			—			(5,853	)		(5,853	)
Common stock dividends paid ($0.23 per share)		—			—			—			(15,687	)		—			(15,687	)
Shares withheld to pay taxes, long-term incentive plan		8,292			1			(43	)		—			—			(42	)
Repurchase and retirement of common stock		(162,249	)		(33	)		(5,342	)		—			—			(5,375	)
Compensation expense, long-term incentive plan		—			—			1,079			—			—			1,079
Balance, June 30, 2018		67,621,111			14,089			361,715			1,282,007			(73,739	)		1,584,072
Net income per consolidated statements of income		—			—			—			36,253			—			36,253
Other comprehensive income (loss), net of tax		—			—			—			—			(6,207	)		(6,207	)
Common stock dividends paid ($0.23 per share)		—			—			—			(15,667	)		—			(15,667	)
Shares withheld to pay taxes, long-term incentive plan		258			—			(5	)		—			—			(5	)
Repurchase and retirement of common stock		—			—			—			—			—			—
Compensation expense, long-term incentive plan		—			—			1,158			—			—			1,158
Balance, September 30, 2018		67,621,369		$	14,089		$	362,868		$	1,302,593		$	(79,946	)	$	1,599,604

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Operating Activities
Net income per consolidated statements of income	$	112,896		$	89,862		$	116,514		$	112,896
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, net		15,043			3,533			7,180			15,043
Depreciation and amortization		29,512			28,781			29,585			29,512
Net amortization of securities		7,197			8,084			5,699			7,197
Securities (gains) losses, net		—			(15	)
Gains on sales of loans, net		(16,409	)		(13,633	)		(17,556	)		(16,409	)
Compensation expense, long-term incentive plan								3,553			3,022
Deferred income tax provision		5,612			4,800			(6,400	)		5,612
Proceeds from sales of loans held for sale		836,971			885,520			943,309			836,971
Purchases and originations of loans held for sale		(823,134	)		(895,992	)		(1,078,222	)		(823,134	)
Originations of mortgage servicing rights		(12,248	)		(11,630	)		(11,431	)		(12,248	)
Earnings on bank-owned life insurance		(3,994	)		(3,753	)		(4,239	)		(3,994	)
Net change in other assets		521			29,599			(31,241	)		521
Net change in other liabilities		14			4,205			(1,625	)		14
Other operating activities, net		(10,268	)		6,280			26,874			(13,290	)
Net cash provided by operating activities		141,713			135,641
Net cash from operating activities								(18,000	)		141,713

Investing Activities
Proceeds from maturities, prepayments and calls of securities held to maturity		114,531			128,515			125,652			114,531
Proceeds from maturities, prepayments and calls of securities available for sale		334,852			351,817			306,630			334,852
Proceeds from sales of securities available for sale		—			27,682
Purchases of securities held to maturity		—			(69,989	)
Purchases of securities available for sale		(14,040	)		(338,532	)		(9,744	)		(14,040	)
Net proceeds from bank-owned life insurance		1,843			3,630			4,159			1,843
Net change in federal funds sold and securities purchased under reverse repurchase agreements		(385	)		4,185			830			(385	)
Net change in member bank stock		26,970			739			(285	)		26,970
Net change in loans		(63,796	)		(457,292	)		(370,781	)		(63,796	)
Purchases of premises and equipment		(10,870	)		(10,963	)		(11,335	)		(10,870	)
Proceeds from sales of premises and equipment		651			7,792			2,374			651
Proceeds from sales of other real estate		16,490			20,301			6,698			16,490
Purchases of software		(10,701	)		(3,492	)		(9,541	)		(10,701	)
Investments in tax credit and other partnerships		(17	)		(5,213	)		(3,426	)		(17	)
Net cash used in business acquisition		—			(19,775	)
Net cash provided by (used in) investing activities		395,528			(360,595	)
Purchase of insurance book of business								(347	)		—
Net cash from investing activities								40,884			395,528

Financing Activities
Net change in deposits		379,398			9,572			(110,228	)		379,398
Net change in federal funds purchased and securities sold under repurchase agreements		17,038			5,786			326,241			17,038
Net change in short-term borrowings		(780,606	)		283,820			344			(780,606	)
Payments on long-term FHLB advances		(50	)		(49	)		(51	)		(50	)
Redemption of junior subordinated debt securities		—			(3,000	)
Payments under finance lease obligations								(1,509	)		—
Common stock dividends		(47,014	)		(47,099	)		(44,924	)		(47,014	)
Repurchase and retirement of common stock		(7,877	)		—			(54,416	)		(7,877	)
Shares withheld to pay taxes, long-term incentive plan		(1,427	)		(1,659	)		(1,639	)		(1,427	)
Net cash provided by (used in) financing activities		(440,538	)		247,371
Net cash from financing activities								113,818			(440,538	)

Net change in cash and cash equivalents		96,703			22,417			136,702			96,703
Cash and cash equivalents at beginning of period		335,768			327,706			349,561			335,768
Cash and cash equivalents at end of period	$	432,471		$	350,123		$	486,263		$	432,471

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation

Trustmark Corporation (Trustmark) is a bank holding company headquartered in Jackson, Mississippi. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate institutions and individual customers through ~~198~~193 offices at September 30, ~~2018~~2019 in Alabama, Florida, Mississippi, Tennessee and Texas.

The consolidated financial statements include the accounts of Trustmark and all other entities in which Trustmark has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements, and notes thereto, included in Trustmark’s ~~2017~~ Annual Report on Form ~~10-K.~~10-K for its fiscal year ended December 31, 2018 (2018 Annual Report).

Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of these consolidated financial statements have been included. The preparation of financial statements in conformity with these accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expense during the reporting periods and the related disclosures. Although Management’s estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that in ~~2018~~2019 actual conditions could vary from those anticipated, which could affect Trustmark’s financial condition and results of operations. Actual results could differ from those estimates.

~~Subsequent Events~~

On October 10, 2018, Hurricane Michael struck the Florida Panhandle causing significant damages. As of September 30, 2018, Trustmark had 1,787 loans with a balance of $239.7 million and exposure of $282.1 million in the Federal Emergency Management Agency (FEMA) designated disaster areas which includes 12 counties in Florida and 20 counties in Georgia. Immediately following the storm, Trustmark initiated a process to identify all customers in the FEMA disaster areas. Efforts are now ongoing to contact those borrowers to offer assistance as well as to establish reasonable estimates of uninsured damage and to adequately assess potential risk to Trustmark. Management continues to evaluate the impact of Hurricane Michael and is unable to provide a reasonable estimate of the financial impact on Trustmark’s consolidated financial statements at this time.

Note 2 – ~~Business Combinations~~Securities Available for Sale and Held to Maturity

On April 7, 2017, Trustmark completed its merger with RB Bancorporation (Reliance), the holding company for Reliance Bank, which had seven offices serving the Huntsville, Alabama metropolitan service area (MSA). Reliance Bank was merged into Trustmark National Bank simultaneously with the merger of Trustmark and Reliance. Under the termsThe following tables are a summary of the Merger Agreement dated November 14, 2016, Trustmark paid $22.00 in cash for each share of Reliance common stock outstanding, which represented payment to Reliance common shareholders of approximately $23.7 million. In addition, Trustmark paid off Reliance Preferred Stock of $1.1 million bringing the total consideration paid to $24.8 million.

~~The merger with Reliance was consistent with Trustmark’s strategic plan to selectively expand the Trustmark franchise~~amortized cost and ~~enhance the Trustmark franchise in north Alabama.~~

This merger was accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, “Business Combinations.” Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated ~~fair values as of the merger date.~~

~~The statement of assets purchased and liabilities assumed in the Reliance merger is presented below at their estimated fair values as of the merger date of April 7, 2017 ($ in thousands):~~

Assets:

Cash and due from banks

$
5,013

Federal funds sold and securities purchased under reverse repurchase agreements

6,900

Securities

54,843

Acquired loans

117,447

Premises and equipment, net

3,700

Identifiable intangible assets

1,850

Other real estate

475

Other assets

6,037

Total assets

196,265

Liabilities:

Deposits

166,158

Other borrowings

17,469

Other liabilities

1,322

Total liabilities

184,949

Net identifiable assets acquired at fair value

11,316

Goodwill

13,471

Total consideration paid

$
24,787

The excess of the consideration paid over the estimated fair value of the net assets acquired was $13.5 million, which was recorded as goodwill under FASB ASC Topic 805. The identifiable intangible assets acquired represent the core deposit intangible at fair value at the merger date. The core deposit intangible is being amortized on an accelerated basis over the estimated useful life, currently expected to be approximately ten years.

Loans acquired from Reliance were evaluated under a fair value process. Loans with evidence of deterioration in credit quality and for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments are referred to as acquired impaired loans and accounted for in accordance with FASB ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” See Note 5 – Acquired Loans for additional information on acquired loans.

The operations of Reliance are included in Trustmark’s operating results from April 7, 2017 and did not have a material impact on Trustmark’s results of operations. During the second quarter of 2017, Trustmark included merger transaction expenses in other noninterest expense totaling $3.2 million (change in control expense of $1.3 million; professional fees, contract termination and other expenses of $1.9 million).

~~Fair Value of Acquired Financial Instruments~~

~~For financial instruments measured at fair value, Trustmark utilized inputs within Level 2 of the fair value hierarchy to determine the~~ fair value of securities available for sale ~~(included~~and held to maturity at September 30, 2019 and December 31, 2018 ($ in securities above), time deposits (included in deposits above) and FHLB advances (included in other borrowings above). Level 3 inputs were used to determine the fair value of acquired loans, identifiable intangible assets and other real estate. The methodology and significant assumptions used in estimating the fair values of these financial assets and liabilities are as follows:thousands):

Securities Available for Sale

Estimated fair values for securities available for sale are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.

~~Acquired Loans~~

Fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of default and current market rates.

~~Identifiable Intangible Assets~~

The fair value assigned to the identifiable intangible assets, in this case the core deposit intangible, represents the future economic benefits of the potential cost savings from acquiring core deposits in the merger compared to the cost of obtaining alternative funding from market sources.

~~Other Real Estate~~

~~Other real estate was initially recorded at its estimated fair value on the merger date based on independent appraisals less estimated selling costs.~~

~~Time Deposits~~

Time deposits were valued by projecting expected cash flows into the future based on each account’s contracted rate and then determining the present value of those expected cash flows using current rates for deposits with similar maturities.

~~FHLB Advances~~

FHLB advances were valued by projecting expected cash flows into the future based on each advance’s contracted rate and then determining the present value of those expected cash flows using current rates for advances with similar maturities.

~~Please refer to Note 17 – Fair Value for more information on Trustmark’s classification of financial instruments based on valuation inputs within the fair value hierarchy.~~

~~Note 3 –~~

Securities ~~Available for Sale and~~ Held to Maturity

~~The following tables are a summary of the amortized cost and estimated fair value of securities available for sale and held to maturity at~~

September 30, ~~2018~~2019

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair

Value

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair

Value

U.S. Government agency obligations

25,359

(737

)

24,697

3,770

232

—

4,002

Obligations of states and political

subdivisions

34,463

538

—

35,001

31,806

446

(66

)

32,186

Mortgage-backed securities

Residential mortgage pass-through

securities

Guaranteed by GNMA

63,143

551

(303

)

63,391

10,994

302

)

11,291

Issued by FNMA and FHLMC

593,049

1,137

(4,224

)

589,962

102,048

465

(335

)

102,178

Other residential mortgage-backed

securities

Issued or guaranteed by FNMA,

FHLMC or GNMA

703,162

3,935

(1,496

)

705,601

510,770

7,499

(731

)

517,538

Commercial mortgage-backed securities

Issued or guaranteed by FNMA,

FHLMC or GNMA

134,188

1,088

(223

)

135,053

126,034

1,508

(52

)

127,490

Total

1,553,364

7,324

(6,983

)

1,553,705

785,422

10,452

(1,189

)

794,685

December 31, ~~2017 ($ in thousands):~~2018

U.S. Government agency obligations

31,235

109

(1,009

)

30,335

3,736

—

3,814

Obligations of states and political

subdivisions

Securities Available for Sale

Securities Held to Maturity

September 30, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

U.S. Government agency obligations

$
33,511

$
126

$
(1,266
)

$
32,371

$
3,725

$
26

$
—

$
3,751

Obligations of states and political
   subdivisions

57,127

201

(64
)

57,264

42,623

173

(156
)

42,640

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

68,844

118

(3,115
)

65,847

12,316

33

(389
)

11,960

Issued by FNMA and FHLMC

713,673

125

(29,324
)

684,474

119,040

3

(4,652
)

114,391

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

872,699

86

(32,712
)

840,073

600,635

—

(27,473
)

573,162

Commercial mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

189,248

154

(4,798
)

184,604

165,544

41

(4,172
)

161,413

Total

$
1,935,102

$
810

$
(71,279
)

$
1,864,633

$
943,883

$
276

$
(36,842
)

$
907,317

December 31, 2017

U.S. Government agency obligations

$
45,763

$
322

$
(800
)

$
45,285

$
3,692

$
182

$
—

$
3,874

Obligations of states and political
   subdivisions

78,433

850

(54
)

79,229

46,039

1,044

(59
)

47,024

Mortgage-backed securities

Residential mortgage pass-through
   securities

Guaranteed by GNMA

66,634

215

(1,103
)

65,746

13,539

207

(73
)

13,673

Issued by FNMA and FHLMC

824,872

827

(11,249
)

814,450

133,975

210

(1,559
)

132,626

Other residential mortgage-backed
   securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

1,028,176

1,808

(13,194
)

1,016,790

678,926

1,209

(11,065
)

669,070

Commercial mortgage-backed securities

Issued or guaranteed by FNMA,
   FHLMC or GNMA

218,252

426

(1,543
)

217,135

180,315

1,102

(1,437
)

179,980

Total

$
2,262,130

$
4,448

$
(27,943
)

$
2,238,635

$
1,056,486

$
3,954

$
(14,193
)

$
1,046,247

~~During 2013, Trustmark reclassified approximately $1.099 billion of~~

50,503

200

(27

)

50,676

35,783

255

(139

)

35,899

Mortgage-backed securities ~~available for sale to~~

Residential mortgage pass-through

securities ~~held to maturity. The~~

Guaranteed by GNMA

69,648

147

(2,301

)

67,494

12,090

(257

)

11,878

Issued by FNMA and FHLMC

685,520

127

(18,963

)

666,684

115,133

(2,887

)

112,289

Other residential mortgage-backed

securities were transferred at fair value, which became the cost basis for the securities held to maturity. At the date of transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). The net unrealized holding loss is amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization

Issued or ~~accretion of the original purchase premium~~guaranteed by FNMA,

FHLMC or ~~discount on the associated security. There were no gains~~GNMA

830,129

(18,595

)

811,601

578,827

189

(15,441

)

563,575

Commercial mortgage-backed securities

Issued or losses recognized as a result of the transfer. At September 30, 2018, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss in the accompanying balance sheet totaled approximately $16.6 million ($12.4 million, net of tax).

~~Temporarily Impaired Securities~~guaranteed by FNMA,

~~The tables below include securities with gross unrealized losses segregated by length of impairment at September 30, 2018 and December 31, 2017 ($ in thousands):~~ FHLMC or GNMA

Less than 12 Months

12 Months or More

Total

September 30, 2018

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

U.S. Government agency obligations

$
—

$
—

$
26,421

$
(1,266
)

$
26,421

$
(1,266
)
Obligations of states and political subdivisions

29,786

(179
)

3,791

(41
)

33,577

(220
)
Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

24,843

(677
)

49,000

(2,827
)

73,843

(3,504
)
Issued by FNMA and FHLMC

134,720

(3,928
)

655,161

(30,048
)

789,881

(33,976
)
Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or
   GNMA

531,793

(14,120
)

865,762

(46,065
)

1,397,555

(60,185
)
Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or
   GNMA

168,750

(3,334
)

158,538

(5,636
)

327,288

(8,970
)
Total

$
889,892

$
(22,238
)

$
1,758,673

$
(85,883
)

$
2,648,565

$
(108,121
)

December 31, 2017

U.S. Government agency obligations

$
5,214

$
(113
)

$
29,432

$
(687
)

$
34,646

$
(800
)
Obligations of states and political subdivisions

19,345

(80
)

3,874

(33
)

23,219

(113
)
Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

37,304

(351
)

29,446

(825
)

66,750

(1,176
)
Issued by FNMA and FHLMC

506,410

(4,219
)

369,060

(8,589
)

875,470

(12,808
)
Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or
   GNMA

755,013

(7,668
)

534,955

(16,591
)

1,289,968

(24,259
)
Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or
   GNMA

230,898

(1,719
)

55,288

(1,261
)

286,186

(2,980
)
Total

$
1,554,184

$
(14,150
)

$
1,022,055

$
(27,986
)

$
2,576,239

$
(42,136
)

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Trustmark does not consider these investments to be other-than-temporarily impaired at September 30, 2018. There were no other-than-temporary impairments for the nine months ended September 30, 2018 and 2017.

187,494

191

(2,662

)

185,023

164,074

299

(2,095

)

162,278

Total

1,854,529

841

(43,557

)

1,811,813

909,643

909

(20,819

)

889,733

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale to securities held to maturity. The securities were transferred at fair value, which became the cost basis for the securities held to maturity. At the date of transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). The net unrealized holding loss is amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. At September 30, 2019, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss in the accompanying balance sheet totaled approximately $12.9 million ($9.6 million, net of tax) compared to approximately $15.7 million ($11.8 million, net of tax) at December 31, 2018.

Temporarily Impaired Securities

The tables below include securities with gross unrealized losses segregated by length of impairment at September 30, 2019 and December 31, 2018 ($ in thousands):

	Less than 12 Months					12 Months or More					Total
September 30, 2019	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Government agency obligations	$	6,881	$	(46	)	$	14,729	$	(691	)	$	21,610	$	(737	)
Obligations of states and political subdivisions		—		—			6,216		(66	)		6,216		(66	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		4,019		(7	)		20,111		(301	)		24,130		(308	)
Issued by FNMA and FHLMC		163,210		(302	)		299,860		(4,257	)		463,070		(4,559	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		155,071		(550	)		165,713		(1,677	)		320,784		(2,227	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		57,642		(183	)		11,449		(92	)		69,091		(275	)
Total	$	386,823	$	(1,088	)	$	518,078	$	(7,084	)	$	904,901	$	(8,172	)


December 31, 2018
U.S. Government agency obligations	$	—	$	—		$	25,045	$	(1,009	)	$	25,045	$	(1,009	)
Obligations of states and political subdivisions		4,954		(9	)		12,802		(157	)		17,756		(166	)
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		9,163		(54	)		61,141		(2,504	)		70,304		(2,558	)
Issued by FNMA and FHLMC		31,931		(172	)		731,749		(21,678	)		763,680		(21,850	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		46,643		(110	)		1,296,221		(33,926	)		1,342,864		(34,036	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		5,497		(37	)		272,789		(4,720	)		278,286		(4,757	)
Total	$	98,188	$	(382	)	$	2,399,747	$	(63,994	)	$	2,497,935	$	(64,376	)

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Trustmark does not consider these investments to be other-than-temporarily impaired at September 30, 2019. There were 0 other-than-temporary impairments for the nine months ended September 30, 2019 and 2018.

Security Gains and Losses

~~Gross~~During the nine months ended September 30, 2019 and 2018, there were no gross realized gains or losses as a result of calls and dispositions of ~~securities, as well as any associated proceeds, were as follows for the periods presented ($ in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

Available for Sale

2018

2017

2018

2017

Proceeds from calls and sales of securities

$
—

$
1,273

$
—

$
27,682

Gross realized gains

—

15

—

16

Gross realized (losses)

—

(1
)

—

(1
)

securities. Realized gains and losses are determined using the specific identification method and are included in noninterest income as security gains (losses), net.

Securities Pledged

Securities with a carrying value of ~~$2.092~~$1.877 billion and ~~$1.834~~$2.144 billion at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, were pledged to collateralize public deposits and securities sold under repurchase agreements and for other purposes as permitted by law. At both September 30, ~~2018~~2019 and December 31, ~~2017, none~~2018, NaN of these securities were pledged under the Federal Reserve Discount Window program to provide additional contingency funding capacity.

Contractual Maturities

The amortized cost and estimated fair value of securities available for sale and held to maturity at September 30, ~~2018,~~2019, by contractual maturity, are shown below ($ in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity				Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	25,525	$	25,554	$	170	$	170	$	29,699	$	29,834	$	105	$	105
Due after one year through five years		37,426		37,661		41,912		41,934		4,125		4,164		31,701		32,081
Due after five years through ten years		3,124		3,054		4,266		4,287		2,622		2,571		3,770		4,002
Due after ten years		24,563		23,366		—		—		23,376		23,129		—		—
		90,638		89,635		46,348		46,391		59,822		59,698		35,576		36,188
Mortgage-backed securities		1,844,464		1,774,998		897,535		860,926		1,493,542		1,494,007		749,846		758,497
Total	$	1,935,102	$	1,864,633	$	943,883	$	907,317	$	1,553,364	$	1,553,705	$	785,422	$	794,685

Note 43 – ~~Loans Held for Investment (LHFI)~~LHFI and Allowance for Loan Losses, LHFI

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, LHFI consisted of the following ($ in thousands):

	September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
Loans secured by real estate:
Construction, land development and other land	$	1,031,491		$	987,624		$	1,135,999	$	1,056,601
Secured by 1-4 family residential properties		1,801,029			1,675,311			1,820,455		1,825,492
Secured by nonfarm, nonresidential properties		2,294,289			2,193,823			2,442,308		2,220,914
Other real estate secured		453,687			517,956			668,667		543,820
Commercial and industrial loans		1,565,922			1,570,345			1,491,367		1,538,715
Consumer loans		182,709			171,918			176,894		182,448
State and other political subdivision loans		929,178			952,483			978,456		973,818
Other loans		488,725			500,507			509,522		494,060
LHFI		8,747,030			8,569,967			9,223,668		8,835,868
Allowance for loan losses, LHFI		(88,874	)		(76,733	)
Less allowance for loan losses, LHFI								83,226		79,290
Net LHFI	$	8,658,156		$	8,493,234		$	9,140,442	$	8,756,578

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, ~~2018,~~2019, Trustmark’s geographic loan distribution was concentrated primarily in its ~~five~~5 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

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying amounts of nonaccrual LHFI were ~~$67.8~~$59.0 million and ~~$67.6~~$61.6 million, respectively. Included in these amounts were ~~$33.6~~$29.2 million and ~~$23.2~~$16.7 million, respectively, of nonaccrual LHFI classified as troubled debt restructurings (TDRs). No material interest income was recognized in the income statement on nonaccrual LHFI for each of the periods ended September 30, ~~2018~~2019 and ~~2017.~~2018.

The following tables provide an aging analysis of past due and nonaccrual LHFI by loan type at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018														September 30, 2019
	Past Due														Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI		30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	203	$	5	$	—	$	208	$	2,262	$	1,029,021	$	1,031,491	$	240	$	39	$	—	$	279	$	1,144	$	1,134,576	$	1,135,999
Secured by 1-4 family residential properties		5,626		1,304		447		7,377		15,164		1,778,488		1,801,029		3,928		715		540		5,183		18,598		1,796,674		1,820,455
Secured by nonfarm, nonresidential properties		256		280		—		536		5,389		2,288,364		2,294,289		1,453		765		—		2,218		7,757		2,432,333		2,442,308
Other real estate secured		5		—		—		5		742		452,940		453,687		177		—		—		177		1,067		667,423		668,667
Commercial and industrial loans		1,727		9		21		1,757		33,870		1,530,295		1,565,922		973		181		40		1,194		25,313		1,464,860		1,491,367
Consumer loans		1,480		241		258		1,979		228		180,502		182,709		1,554		227		298		2,079		110		174,705		176,894
State and other political subdivision loans		—		—		—		—		8,762		920,416		929,178		—		—		—		—		4,078		974,378		978,456
Other loans		419		33		—		452		1,419		486,854		488,725		161		36		—		197		963		508,362		509,522
Total	$	9,716	$	1,872	$	726	$	12,314	$	67,836	$	8,666,880	$	8,747,030	$	8,486	$	1,963	$	878	$	11,327	$	59,030	$	9,153,311	$	9,223,668

(1)	Past due 90 days or more but still accruing interest.

	December 31, 2017														December 31, 2018
	Past Due														Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI		30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual		Current Loans		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	391	$	1	$	—	$	392	$	2,105	$	985,127	$	987,624	$	284	$	—	$	—	$	284	$	2,218	$	1,054,099	$	1,056,601
Secured by 1-4 family residential properties		6,412		2,084		1,917		10,413		19,022		1,645,876		1,675,311		8,600		1,700		569		10,869		14,718		1,799,905		1,825,492
Secured by nonfarm, nonresidential properties		2,319		256		—		2,575		12,608		2,178,640		2,193,823		1,887		—		—		1,887		9,621		2,209,406		2,220,914
Other real estate secured		—		—		—		—		212		517,744		517,956		197		99		—		296		927		542,597		543,820
Commercial and industrial loans		759		1,233		12		2,004		33,338		1,535,003		1,570,345		1,346		300		—		1,646		23,938		1,513,131		1,538,715
Consumer loans		2,141		255		242		2,638		135		169,145		171,918		1,800		353		287		2,440		205		179,803		182,448
State and other political subdivision loans		350		39		—		389		—		952,094		952,483		186		—		—		186		8,595		965,037		973,818
Other loans		18		4		—		22		155		500,330		500,507		83		—		—		83		1,402		492,575		494,060
Total	$	12,390	$	3,872	$	2,171	$	18,433	$	67,575	$	8,483,959	$	8,569,967	$	14,383	$	2,452	$	856	$	17,691	$	61,624	$	8,756,553	$	8,835,868

(1)	Past due 90 days or more but still accruing interest.

Impaired LHFI

Trustmark’s individually evaluated impaired LHFI include all commercial nonaccrual relationships of $500 thousand or more, which are specifically reviewed for impairment and deemed impaired, and all LHFI classified as TDRs in accordance with FASB ASC Topic 310-10-50-20 “Impaired Loans”, and are primarily collateral dependent loans. Fair value estimates for collateral dependent loans are derived from appraised values based on the current market value or as is value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on an annual basis based on the inspection date or more often if market conditions necessitate. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Trustmark’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated. At the time a LHFI that has been ~~individually evaluated~~specifically reviewed for impairment is deemed to be impaired, the full difference between book value and the most likely estimate of the collateral’s net realizable value is charged ~~off.~~off or a specific reserve is established. As subsequent events dictate and estimated net realizable values ~~decline, required reserves~~change, further adjustments may be ~~established or further adjustments recorded.~~necessary.

No material interest income was recognized in the income statement on impaired LHFI for each of the periods ended September 30, ~~2018~~2019 and ~~2017.~~2018.

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, individually evaluated impaired LHFI consisted of the following ($ in thousands):

	September 30, 2018												September 30, 2019
	LHFI												LHFI
	Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Carrying Amount		Related Allowance		Average Recorded Investment		Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Recorded Investment		Related Allowance		Average Recorded Investment
Loans secured by real estate:
Construction, land development and other land	$	1,801	$	1,546	$	26	$	1,572	$	—	$	1,747	$	937	$	631	$	18	$	649	$	—	$	1,100
Secured by 1-4 family residential properties		4,771		126		3,614		3,740		43		4,217		6,079		2,244		2,880		5,124		29		4,543
Secured by nonfarm, nonresidential properties		3,585		3,010		360		3,370		78		5,845		6,892		6,087		329		6,416		228		7,946
Other real estate secured		—		—		—		—		—		—		69		69		—		69		—		159
Commercial and industrial loans		39,845		14,657		19,045		33,702		13,869		28,218		26,786		11,898		12,543		24,441		3,435		27,579
Consumer loans		3		—		3		3		—		6		24		—		23		23		—		12
State and other political subdivision loans		8,765		4,079		4,683		8,762		683		4,381		4,079		4,079		—		4,079		—		6,337
Other loans		1,432		230		1,076		1,306		1,076		816		1,330		230		685		915		685		1,099
Total	$	60,202	$	23,648	$	28,807	$	52,455	$	15,749	$	45,230	$	46,196	$	25,238	$	16,478	$	41,716	$	4,377	$	48,775

	December 31, 2017												December 31, 2018
	LHFI												LHFI
	Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Carrying Amount		Related Allowance		Average Recorded Investment		Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Total Recorded Investment		Related Allowance		Average Recorded Investment
Loans secured by real estate:
Construction, land development and other land	$	1,704	$	1,206	$	199	$	1,405	$	75	$	1,923	$	1,794	$	1,528	$	24	$	1,552	$	—	$	1,738
Secured by 1-4 family residential properties		6,031		160		4,576		4,736		1,331		4,693		4,951		95		3,868		3,963		39		4,328
Secured by nonfarm, nonresidential properties		15,205		10,027		396		10,423		165		8,321		8,282		6,728		2,748		9,476		413		8,898
Other real estate secured		—		—		—		—		—		—		—		—		248		248		—		124
Commercial and industrial loans		36,874		31,281		518		31,799		131		22,734		37,786		12,893		17,824		30,717		4,334		26,725
Consumer loans		17		—		17		17		—		9		2		—		2		2		—		6
State and other political subdivision loans		—		—		—		—		—		—		8,688		4,079		4,516		8,595		516		4,297
Other loans		556		—		556		556		41		325		1,418		230		1,052		1,282		1,052		804
Total	$	60,387	$	42,674	$	6,262	$	48,936	$	1,743	$	38,005	$	62,921	$	25,553	$	30,282	$	55,835	$	6,354	$	46,920

Troubled Debt Restructurings

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.

All loans whose terms have been modified in a TDR are evaluated for impairment under FASB ASC Topic 310, “Receivables”. Accordingly, Trustmark measures any loss on the restructuring in accordance with that guidance. A TDR in which Trustmark receives physical possession of the borrower’s assets, regardless of whether formal foreclosure or repossession proceedings take place, is accounted for in accordance with FASB ASC Subtopic 310-40, “Troubled Debt Restructurings by Creditors.” Thus, the loan is treated as if assets have been received in satisfaction of the loan and reported as a foreclosed asset. At September 30, ~~2018~~2019 and December 31, 2017, Trustmark held $203 thousand and $366 thousand, respectively, of foreclosed residential real estate as a result of foreclosure or in substance repossession of consumer mortgage LHFI classified as TDRs. At September 30, 2018, ~~Trustmark had $55 thousand of consumer mortgage LHFI classified as TDRs in the process of formal foreclosure proceedings compared to none at December 31, 2017.~~

A TDR may be returned to accrual status if Trustmark is reasonably assured of repayment of principal and interest under the modified terms and the borrower has demonstrated sustained performance under those terms for a period of at least six months. Otherwise, the restructured loan must remain on nonaccrual.

~~At September 30, 2018 and 2017,~~ LHFI classified as TDRs totaled ~~$36.0~~$30.5 million and ~~$24.4~~$36.0 million, respectively, and were primarily comprised of both credits with interest-only payments for an extended period of time ~~which~~and credits renewed at a rate that was not commensurate with that of new debt with similar risk and totaled ~~$24.7~~$20.2 million and ~~$21.1~~$24.7 million, respectively. The remaining TDRs at September 30, ~~2018~~2019 and ~~2017~~2018 resulted from bankruptcies or from payment or maturity extensions. Trustmark had $7.9 million of unused commitments on TDRs at September 30, 2019 compared to $7.7 million of unused commitments on TDRs at September 30, ~~2018 compared to no material unused commitments on TDRs at September 30, 2017.~~ 2018.

For TDRs, Trustmark had a related loan loss allowance of ~~$14.3~~$2.9 million and ~~$393 thousand~~$14.3 million at September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. LHFI classified as TDRs are charged down to the most likely fair value estimate less an estimated cost to sell for collateral dependent loans, which would approximate net realizable value. Specific charge-offs related to TDRs totaled $472 thousand for the nine months ended September 30, 2019 compared to $4.7 million for the nine months ended September 30, ~~2018 compared to $126 thousand for the nine months ended September 30, 2017.~~2018.

The following tables illustrate the impact of modifications classified as TDRs ~~as well as those~~for the periods presented ($ in thousands):

	Three Months Ended September 30,
	2019						2018
	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:
Secured by 1-4 family residential properties		4	$	113	$	102		3	$	121	$	121
Commercial and industrial loans		—		—		—		9		11,153		10,062
Total		4	$	113	$	102		12	$	11,274	$	10,183

	Nine Months Ended September 30,
	2019						2018
	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		—	$	—	$	—		1	$	22	$	22
Secured by 1-4 family residential properties		11		992		980		19		1,873		1,432
Secured by nonfarm, nonresidential properties		1		5,055		5,055		—		—		—
Commercial and industrial loans		8		9,167		9,054		15		22,899		21,791
Consumer loans		2		30		30		3		4		4
Total		22	$	15,244	$	15,119		38	$	24,798	$	23,249

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 ~~period for the~~ periods presented ($ in thousands):

Three Months Ended September 30,

2018

2017

Troubled Debt Restructurings

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 1-4
   family residential
   properties

3

$
121

$
121

1

$
112

$
113

Loans secured by
   nonfarm, nonresidential
   properties

—

—

—

1

426

426

Commercial and industrial
   loans

9

11,153

10,062

6

12,500

12,500

Total

12

$
11,274

$
10,183

8

$
13,038

$
13,039

Nine Months Ended September 30,

2018

2017

Troubled Debt Restructurings

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

Construction, land
   development and other
   land loans

1

$
22

$
22

1

$
341

$
325

Loans secured by 1-4
   family residential
   properties

19

1,873

1,432

17

1,280

1,290

Loans secured by
   nonfarm, nonresidential
   properties

—

—

—

1

426

426

Commercial and industrial
   loans

15

22,899

21,791

7

12,744

12,744

Consumer loans

3

4

4

—

—

—

Total

38

$
24,798

$
23,249

26

$
14,791

$
14,785

	Nine Months Ended September 30,
	2019				2018
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Loans secured by real estate:
Construction, land development and other land		—	$	—		1	$	21
Secured by 1-4 family residential properties		1		46		6		321
Commercial and industrial loans		8		254		6		13,985
Consumer loans		1		27		—		—
Total		10	$	327		13	$	14,327

Nine Months Ended September 30,

2018

2017

TDRs that Subsequently Defaulted

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Construction, land development and other land loans

1

$
21

—

$
—

Loans secured by 1-4 family residential properties

6

321

4

64

Commercial and industrial loans

6

13,985

2

—

Total

13

$
14,327

6

$
64

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 type at September 30, ~~2018~~2019 and ~~2017~~2018 ($ in thousands):

	September 30, 2018						September 30, 2019
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	26	$	26	$	—	$	18	$	18
Secured by 1-4 family residential properties		563		3,052		3,615		101		3,373		3,474
Secured by nonfarm, nonresidential properties		—		360		360		—		5,243		5,243
Commercial and industrial loans		1,783		29,636		31,419		1,246		20,262		21,508
Consumer loans		—		3		3		—		23		23
Other loans		—		540		540		—		244		244
Total TDRs	$	2,346	$	33,617	$	35,963	$	1,347	$	29,163	$	30,510

	September 30, 2017						September 30, 2018
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	272	$	272	$	—	$	26	$	26
Secured by 1-4 family residential properties		14		3,077		3,091		563		3,052		3,615
Secured by nonfarm, nonresidential properties		426		436		862		—		360		360
Commercial and industrial loans		—		20,153		20,153		1,783		29,636		31,419
Consumer loans		—		1		1		—		3		3
Other loans								—		540		540
Total TDRs	$	440	$	23,939	$	24,379	$	2,346	$	33,617	$	35,963

Credit Quality Indicators

Trustmark’s loan portfolio credit quality indicators focus on ~~six~~6 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 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 insure 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 loan portfolio.

•

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 loan portfolio. 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.

•

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.~~

•

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.

Each commercial loan is assigned a credit risk grade that is an indication for the likelihood of default and is not a direct indication of loss at default. The loss at default aspect of the subject risk ratings is neither uniform across the nine primary commercial loan groups or constant between the geographic areas. To account for the variance in the loss at default aspects of the risk rating system, the loss expectations for each risk rating are integrated into the allowance for loan loss methodology where the calculated loss at default is allotted for each individual risk rating with respect to the individual loan group and unique geographic area. The loss at default aspect of the reserve methodology is calculated each quarter as a component of the overall reserve factor for each risk grade by loan group and geographic area.

To enhance this process, commercial nonaccrual relationships of $500 thousand or more ~~that are rated in one of the criticized categories~~ are routinely reviewed to establish an expectation of loss, if any, and if such examination indicates that the level of reserve is not adequate to cover the expectation of loss, a special reserve or impairment is generally applied.

The distribution of the losses is accomplished by means of a loss distribution model that assigns a loss factor to each risk rating (1 to 9) in each commercial loan pool. A factor is not applied to risk rate 10 as loans classified as losses are charged off within the period that the loss is determined and are not carried on Trustmark’s books over quarter-end.

The expected loss distribution is spread across the various risk ratings by the perceived level of risk for loss. The nine grade scale described above ranges from a negligible risk of loss to an identified loss across its breadth. The loss distribution factors are graduated through the scale on a basis proportional to the degree of risk that appears manifest in each individual rating and assumes that migration through the loan grading system will occur.

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 portfolio as well as the adherence to Trustmark’s loan policy and the loan administration process. In general, Asset Review conducts reviews of each lending area within a six to eighteen month window depending on the overall credit quality results of the individual area.

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 thirty 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, a semi-annual review of significant development and commercial construction ~~multi-family~~projects and an annual review of certain existing non-owner occupied projects and multi-family projects is performed. The review assesses 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 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 by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer 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 by delivery channel, which incorporates the perceived level of risk at time of underwriting.

The tables below present LHFI by loan type and credit quality indicator at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018											September 30, 2019
		Commercial LHFI											Commercial LHFI
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal			Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land		$	961,316	$	78	$	4,512	$	208	$	966,114		$	1,052,274	$	67	$	4,361	$	187	$	1,056,889
Secured by 1-4 family residential properties			125,998		175		2,960		60		129,193			115,855		45		3,061		44		119,005
Secured by nonfarm, nonresidential properties			2,259,388		3,052		31,302		484		2,294,226			2,397,641		—		44,290		346		2,442,277
Other real estate secured			452,095		454		515		—		453,064			666,967		—		961		—		667,928
Commercial and industrial loans			1,490,431		9,721		63,936		1,834		1,565,922			1,416,225		948		73,498		671		1,491,342
Consumer loans			—		—		—		—		—			—		—		—		—		—
State and other political subdivision loans			913,286		5,250		10,642		—		929,178			968,335		4,650		5,471		—		978,456
Other loans			458,118		15,597		10,469		77		484,261			484,729		3,409		17,302		33		505,473
Total		$	6,660,632	$	34,327	$	124,336	$	2,663	$	6,821,958		$	7,102,026	$	9,119	$	148,944	$	1,281	$	7,261,370

	Consumer LHFI												Consumer LHFI
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI		Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	65,028	$	3	$	—	$	346	$	65,377	$	1,031,491	$	78,814	$	70	$	—	$	226	$	79,110	$	1,135,999
Secured by 1-4 family residential properties		1,651,019		6,566		447		13,804		1,671,836		1,801,029		1,679,502		4,523		539		16,886		1,701,450		1,820,455
Secured by nonfarm, nonresidential properties		63		—		—		—		63		2,294,289		31		—		—		—		31		2,442,308
Other real estate secured		623		—		—		—		623		453,687		739		—		—		—		739		668,667
Commercial and industrial loans		—		—		—		—		—		1,565,922		25		—		—		—		25		1,491,367
Consumer loans		180,503		1,721		258		227		182,709		182,709		174,706		1,781		298		109		176,894		176,894
State and other political subdivision loans		—		—		—		—		—		929,178		—		—		—		—		—		978,456
Other loans		4,464		—		—		—		4,464		488,725		4,049		—		—		—		4,049		509,522
Total	$	1,901,700	$	8,290	$	705	$	14,377	$	1,925,072	$	8,747,030	$	1,937,866	$	6,374	$	837	$	17,221	$	1,962,298	$	9,223,668

	December 31, 2017											December 31, 2018
		Commercial LHFI											Commercial LHFI
		Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal			Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land		$	922,563	$	316	$	3,780	$	222	$	926,881		$	982,305	$	75	$	5,645	$	203	$	988,228
Secured by 1-4 family residential properties			127,405		134		4,948		76		132,563			123,191		216		2,731		229		126,367
Secured by nonfarm, nonresidential properties			2,135,749		6,684		50,785		527		2,193,745			2,182,106		1,250		37,025		473		2,220,854
Other real estate secured			517,036		—		517		—		517,553			537,958		323		4,610		—		542,891
Commercial and industrial loans			1,437,590		28,780		103,089		886		1,570,345			1,468,262		12,431		55,943		2,079		1,538,715
Consumer loans			—		—		—		—		—			—		—		—		—		—
State and other political subdivision loans			936,420		5,850		10,213		—		952,483			958,214		5,250		10,354		—		973,818
Other loans			478,083		—		16,390		108		494,581			460,568		17,842		10,323		49		488,782
Total		$	6,554,846	$	41,764	$	189,722	$	1,819	$	6,788,151		$	6,712,604	$	37,387	$	126,631	$	3,033	$	6,879,655

	Consumer LHFI												Consumer LHFI
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI		Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual		Subtotal		Total LHFI
Loans secured by real estate:
Construction, land development and other land	$	60,240	$	342	$	—	$	161	$	60,743	$	987,624	$	67,913	$	124	$	—	$	336	$	68,373	$	1,056,601
Secured by 1-4 family residential properties		1,516,691		7,874		1,809		16,374		1,542,748		1,675,311		1,675,455		9,872		569		13,229		1,699,125		1,825,492
Secured by nonfarm, nonresidential properties		78		—		—		—		78		2,193,823		60		—		—		—		60		2,220,914
Other real estate secured		403		—		—		—		403		517,956		929		—		—		—		929		543,820
Commercial and industrial loans		—		—		—		—		—		1,570,345		—		—		—		—		—		1,538,715
Consumer loans		169,146		2,396		242		134		171,918		171,918		179,802		2,153		288		205		182,448		182,448
State and other political subdivision loans		—		—		—		—		—		952,483		—		—		—		—		—		973,818
Other loans		5,926		—		—		—		5,926		500,507		5,278		—		—		—		5,278		494,060
Total	$	1,752,484	$	10,612	$	2,051	$	16,669	$	1,781,816	$	8,569,967	$	1,929,437	$	12,149	$	857	$	13,770	$	1,956,213	$	8,835,868

Past Due ~~Loans Held for Sale (LHFS)~~LHFS

LHFS past due 90 days or more totaled ~~$34.1~~$36.4 million and ~~$35.5~~$37.4 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 percent~~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 ~~2018~~2019 or ~~2017.~~2018.

Allowance for Loan Losses, LHFI

Trustmark’s allowance for loan loss methodology for commercial LHFI is based upon regulatory guidance from its primary regulator and GAAP. The methodology segregates the commercial purpose and commercial construction LHFI portfolios into ~~nine~~9 separate loan types (or pools) which have similar characteristics such as repayment, collateral and risk profiles. The nine basic loan pools are further segregated into Trustmark’s five key market regions, Alabama, Florida, Mississippi, Tennessee and Texas, to take into consideration the uniqueness of each market. A 10-point risk rating system is utilized for each separate loan pool to apply a reserve factor consisting of quantitative and qualitative components to determine the needed allowance by each loan type. As a result, there are 450 risk rate factors for commercial loan types. The nine separate pools are shown below:

Commercial Purpose LHFI

~~Real Estate – Owner-Occupied~~

•

Real Estate – owner-occupied

~~Real Estate – Non-Owner Occupied~~

•

Real Estate – non-owner occupied

~~Working Capital~~

•

Working capital

~~Non-Working Capital~~

•

Non-working capital

~~Land~~

•

Land

~~Lots and Development~~

•

Lots and development

~~Political Subdivisions~~

•

Political subdivisions

Commercial Construction LHFI

~~1 to 4 Family~~

•

1 to 4 family

~~Non-1 to 4 Family~~

•

Non-1 to 4 family

The quantitative factors of the allowance methodology reflect a twelve-quarter rolling average of net charge-offs by loan type within each key market region. This allows for a greater sensitivity to current trends, such as economic changes, as well as current loss profiles and creates a more accurate depiction of historical losses.

Qualitative factors used in the allowance methodology include the following:

~~National and regional economic trends and conditions~~

•

National and regional economic trends and conditions

~~Impact of recent performance trends~~

•

Impact of recent performance trends

~~Experience, ability and effectiveness of management~~

•

Experience, ability and effectiveness of management

~~Adherence to Trustmark’s loan policies, procedures and internal controls~~

•

Adherence to Trustmark’s loan policies, procedures and internal controls

~~Collateral, financial and underwriting exception trends~~

•

Collateral, financial and underwriting exception trends

•

Credit concentrations

~~Loan facility risk~~

•

Loan facility risk

~~Acquisitions~~

•

Acquisitions

~~Catastrophe~~

•

Catastrophe

Each qualitative factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk), other than the last two factors, which are applied on a dollar-for-dollar basis to ensure that the combination of such factors is proportional. The resulting ratings from the individual factors are weighted and summed to establish the weighted-average qualitative factor within each key market region.

The allowance for loan loss methodology segregates the consumer LHFI portfolio into homogeneous pools of loans that contain similar structure, repayment, collateral and risk profiles. These homogeneous pools of loans are shown below:

~~Residential Mortgage~~

•

Residential mortgage

~~Direct Consumer~~

•

Direct consumer

~~Junior Lien on 1-4 Family Residential Properties~~

•

Junior lien on 1-4 family residential properties

~~Credit Cards~~

•

Credit cards

~~Overdrafts~~

•

Overdrafts

The historical loss experience for these pools is determined by calculating a 12-quarter rolling average of net charge-offs, which is applied to each pool to establish the quantitative aspect of the methodology. Where, in Management’s estimation, the calculated loss experience does not fully cover the anticipated loss for a pool, an estimate is also applied to each pool to establish the qualitative aspect of the methodology, which represents the perceived risks across the loan portfolio at the current point in time. This qualitative methodology utilizes five separate factors made up of unique components that when weighted and combined produce an estimated level of reserve for each of the loan pools. The ~~five~~5 qualitative factors include the following:

~~Economic indicators~~

•

Economic indicators

~~Performance trends~~

•

Performance trends

~~Management experience~~

•

Management experience

~~Credit concentrations~~

•

Credit concentrations

~~Loan policy exceptions~~

•

Loan policy exceptions

The risk measure for each factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk) to ensure that the combination of such factors is proportional. The ~~determination of the risk measurement for each qualitative factor is done for all markets combined. The resulting estimated reserve factor is then applied to each pool.~~

~~The~~ resulting ratings from the individual factors are weighted and summed to establish the weighted-average qualitative factor of a specific loan portfolio. This weighted-average qualitative factor is then applied over the ~~five~~5 loan pools.

Trustmark’s loan policy dictates the guidelines to be followed in determining when a loan is charged off. Commercial purpose loans are charged off when a determination is made that the loan is uncollectible and continuance as a bankable asset is not warranted or an impairment evaluation indicates that a value adjustment is necessary. Consumer loans secured by 1-4 family residential real estate are generally charged off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Non-real estate consumer purpose loans, both secured and unsecured, are generally charged off in full during the month in which the loan becomes 120 days past due. Credit card loans are generally charged off in full when the loan becomes 180 days past due.

The following tables detail the balance in the allowance for loan losses, LHFI allocated to each loan type segmented by the impairment evaluation methodology used at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018						September 30, 2019
	Individually		Collectively		Total		Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	—	$	8,414	$	8,414	$	—	$	7,701	$	7,701
Secured by 1-4 family residential properties		43		9,265		9,308		29		8,415		8,444
Secured by nonfarm, nonresidential properties		78		24,781		24,859		228		24,974		25,202
Other real estate secured		—		2,949		2,949		—		3,554		3,554
Commercial and industrial loans		13,869		19,448		33,317		3,435		25,432		28,867
Consumer loans		—		3,394		3,394		—		3,312		3,312
State and other political subdivision loans		683		510		1,193		—		472		472
Other loans		1,076		4,364		5,440		685		4,989		5,674
Total allowance for loan losses, LHFI	$	15,749	$	73,125	$	88,874	$	4,377	$	78,849	$	83,226

	December 31, 2017						December 31, 2018
	Individually		Collectively		Total		Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	75	$	7,790	$	7,865	$	—	$	7,390	$	7,390
Secured by 1-4 family residential properties		1,331		9,543		10,874		39		8,602		8,641
Secured by nonfarm, nonresidential properties		165		23,263		23,428		413		21,963		22,376
Other real estate secured		—		2,790		2,790		—		3,450		3,450
Commercial and industrial loans		131		22,720		22,851		4,334		23,025		27,359
Consumer loans		—		3,470		3,470		—		2,890		2,890
State and other political subdivision loans		—		789		789		516		474		990
Other loans		41		4,625		4,666		1,052		5,142		6,194
Total allowance for loan losses, LHFI	$	1,743	$	74,990	$	76,733	$	6,354	$	72,936	$	79,290

The following tables detail LHFI by loan type related to each balance in the allowance for loan losses, LHFI segregated by the impairment evaluation methodology used at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018						September 30, 2019
	LHFI Evaluated for Impairment						LHFI Evaluated for Impairment
	Individually		Collectively		Total		Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	1,572	$	1,029,919	$	1,031,491	$	649	$	1,135,350	$	1,135,999
Secured by 1-4 family residential properties		3,740		1,797,289		1,801,029		5,124		1,815,331		1,820,455
Secured by nonfarm, nonresidential properties		3,370		2,290,919		2,294,289		6,416		2,435,892		2,442,308
Other real estate secured		—		453,687		453,687		69		668,598		668,667
Commercial and industrial loans		33,702		1,532,220		1,565,922		24,441		1,466,926		1,491,367
Consumer loans		3		182,706		182,709		23		176,871		176,894
State and other political subdivision loans		8,762		920,416		929,178		4,079		974,377		978,456
Other loans		1,306		487,419		488,725		915		508,607		509,522
Total	$	52,455	$	8,694,575	$	8,747,030	$	41,716	$	9,181,952	$	9,223,668

	December 31, 2017						December 31, 2018
	LHFI Evaluated for Impairment						LHFI Evaluated for Impairment
	Individually		Collectively		Total		Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land	$	1,405	$	986,219	$	987,624	$	1,552	$	1,055,049	$	1,056,601
Secured by 1-4 family residential properties		4,736		1,670,575		1,675,311		3,963		1,821,529		1,825,492
Secured by nonfarm, nonresidential properties		10,423		2,183,400		2,193,823		9,476		2,211,438		2,220,914
Other real estate secured		—		517,956		517,956		248		543,572		543,820
Commercial and industrial loans		31,799		1,538,546		1,570,345		30,717		1,507,998		1,538,715
Consumer loans		17		171,901		171,918		2		182,446		182,448
State and other political subdivision loans		—		952,483		952,483		8,595		965,223		973,818
Other loans		556		499,951		500,507		1,282		492,778		494,060
Total	$	48,936	$	8,521,031	$	8,569,967	$	55,835	$	8,780,033	$	8,835,868

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Balance at beginning of period	$	83,566		$	76,184		$	76,733		$	71,265		$	80,399		$	83,566		$	79,290		$	76,733
Transfers (1)		772			—			1,554			—			—			772			—			1,554
Loans charged-off		(7,017	)		(2,752	)		(12,980	)		(9,072	)		(2,892	)		(7,017	)		(9,862	)		(12,980	)
Recoveries		2,880			3,228			7,766			8,784			2,680			2,880			6,662			7,766
Net (charge-offs) recoveries		(4,137	)		476			(5,214	)		(288	)		(212	)		(4,137	)		(3,200	)		(5,214	)
Provision for loan losses, LHFI		8,673			3,672			15,801			9,355			3,039			8,673			7,136			15,801
Balance at end of period	$	88,874		$	80,332		$	88,874		$	80,332		$	83,226		$	88,874		$	83,226		$	88,874

(1)

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank ~~& Trust Company (Bay Bank)~~ merger, ~~on March 16, 2012,~~ which were transferred from acquired ~~impaired~~ loans to LHFI during the second quarter of 2018, and the remaining loans acquired in the Heritage ~~Banking Group (Heritage) acquisition on April 15, 2011~~ and ~~the~~ Reliance ~~merger on April 7, 2017,~~mergers, which were transferred from acquired ~~impaired~~ loans to LHFI during the third quarter of 2018.

The following tables detail changes in the allowance for loan losses, LHFI by loan type for the periods ~~ended September 30, 2018 and 2017~~presented ($ in thousands):

	2018														2019
	Balance January 1,		Transfers (1)		Charge-offs			Recoveries		Provision for Loan Losses			Balance September 30,		Balance January 1,		Charge-offs			Recoveries		Provision for Loan Losses			Balance September 30,
Loans secured by real estate:
Construction, land development and other land	$	7,865	$	584	$	(123	)	$	1,039	$	(951	)	$	8,414	$	7,390	$	(35	)	$	807	$	(461	)	$	7,701
Secured by 1-4 family residential properties		10,874		182		(1,435	)		439		(752	)		9,308		8,641		(310	)		530		(417	)		8,444
Secured by nonfarm, nonresidential properties		23,428		446		(1,117	)		120		1,982			24,859		22,376		(261	)		285		2,802			25,202
Other real estate secured		2,790		291		—			17		(149	)		2,949		3,450		—			22		82			3,554
Commercial and industrial loans		22,851		46		(4,658	)		2,285		12,793			33,317		27,359		(3,090	)		980		3,618			28,867
Consumer loans		3,470		5		(1,585	)		1,545		(41	)		3,394		2,890		(1,712	)		1,432		702			3,312
State and other political subdivision loans		789		—		—			—		404			1,193		990		—			—		(518	)		472
Other loans		4,666		—		(4,062	)		2,321		2,515			5,440		6,194		(4,454	)		2,606		1,328			5,674
Total allowance for loan losses, LHFI	$	76,733	$	1,554	$	(12,980	)	$	7,766	$	15,801		$	88,874	$	79,290	$	(9,862	)	$	6,662	$	7,136		$	83,226

	2018
	Balance January 1,		Transfers (1)		Charge-offs			Recoveries		Provision for Loan Losses			Balance September 30,
Loans secured by real estate:
Construction, land development and other land loans	$	7,865	$	584	$	(123	)	$	1,039	$	(951	)	$	8,414
Secured by 1-4 family residential properties		10,874		182		(1,435	)		439		(752	)		9,308
Secured by nonfarm, nonresidential properties		23,428		446		(1,117	)		120		1,982			24,859
Other real estate secured		2,790		291		—			17		(149	)		2,949
Commercial and industrial loans		22,851		46		(4,658	)		2,285		12,793			33,317
Consumer loans		3,470		5		(1,585	)		1,545		(41	)		3,394
State and other political subdivision loans		789		—		—			—		404			1,193
Other loans		4,666		—		(4,062	)		2,321		2,515			5,440
Total allowance for loan losses, LHFI	$	76,733	$	1,554	$	(12,980	)	$	7,766	$	15,801		$	88,874

(1)

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank merger, ~~on March 16, 2012,~~ which were transferred from acquired ~~impaired~~ loans to LHFI during the second quarter of 2018, and the remaining loans acquired in the Heritage ~~acquisition on April 15, 2011~~ and ~~the~~ Reliance ~~merger on April 7, 2017,~~mergers, which were transferred from acquired ~~impaired~~ loans to LHFI during the third quarter of 2018.

2017

Balance
January 1,

Charge-offs

Recoveries

Provision for
Loan Losses

Balance
September 30,

Loans secured by real estate:

Construction, land development and other land loans

$
9,085

$
(79
)

$
1,257

$
(1,615
)

$
8,648

Secured by 1-4 family residential properties

10,347

(753
)

1,429

(743
)

10,280

Secured by nonfarm, nonresidential properties

20,967

(50
)

289

7,542

28,748

Other real estate secured

2,263

—

31

1,111

3,405

Commercial and industrial loans

22,011

(2,624
)

1,813

(1,420
)

19,780

Consumer loans

3,241

(1,809
)

1,427

1,597

4,456

State and other political subdivision loans

859

—

—

(48
)

811

Other loans

2,492

(3,757
)

2,538

2,931

4,204

Total allowance for loan losses, LHFI

$
71,265

$
(9,072
)

$
8,784

$
9,355

$
80,332

Note 54 – Acquired Loans

Trustmark’s loss-share agreement with the ~~FDIC~~Federal Deposit Insurance Corporation (FDIC) covering the acquired covered loans secured by 1-4 family residential properties will expire in 2021.

Loans acquired in the Reliance merger completed on April 7, 2017 were evaluated using a fair value process to determine the degree of credit deterioration since origination and the collectibility of contractually required payments. Approximately $7.9 million of the loans acquired in the Reliance merger exhibited evidence of significant credit deterioration since origination and for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments. These loans were accounted for as acquired impaired loans under FASB ASC Topic 310-30.

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, acquired loans consisted of the following ($ in thousands):

	September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
Loans secured by real estate:
Construction, land development and other land	$	6,657		$	23,586		$	5,417	$	5,878
Secured by 1-4 family residential properties		25,274			61,751			18,437		22,556
Secured by nonfarm, nonresidential properties		66,865			114,694			40,930		47,979
Other real estate secured		8,507			16,746			6,887		8,253
Commercial and industrial loans		16,610			31,506			4,925		15,267
Consumer loans		1,514			2,600			593		1,356
Other loans		7,188			10,634			3,815		5,643
Acquired loans		132,615			261,517			81,004		106,932
Allowance for loan losses, acquired loans		(1,714	)		(4,079	)
Less allowance for loan losses, acquired loans								1,249		1,231
Net acquired loans	$	130,901		$	257,438		$	79,755	$	105,701

The following table presents changes in the net carrying value of the acquired loans for the periods presented ($ in thousands):

	Acquired Impaired			Acquired Not ASC 310-30 (1)			Acquired Impaired			Acquired Not ASC 310-30 (1)
Carrying value, net at January 1, 2017	$	218,107		$	42,743
Carrying value, net at January 1, 2018							$	179,570		$	77,868
Transfers ~~(2)~~(3)		—			(36,719	)		(26,497	)		(59,916	)
Additions (3)		7,899			109,548
Accretion to interest income		14,924			1,578			9,514			1,019
Payments received, net		(68,317	)		(39,208	)		(62,519	)		(16,234	)
Other (4)		(361	)		(74	)		(26	)		74
Change in allowance for loan losses, acquired loans		7,318			—			2,848			—
Carrying value, net at December 31, 2017		179,570			77,868
Transfers (5)(2)		(26,497	)		(43,922	)
Carrying value, net at December 31, 2018								102,890			2,811
Transfers (3)								—			(2,926	)
Accretion to interest income		7,870			782			4,290			115
Payments received, net		(50,940	)		(16,096	)		(27,439	)		—
Other (4)		(173	)		74			32			—
Change in allowance for loan losses, acquired loans		2,365			—			(18	)		—
Carrying value, net at September 30, 2018	$	112,195		$	18,706
Carrying value, net at September 30, 2019							$	79,755		$	—

(1)	“Acquired Not ASC 310-30” loans consist of loans that are not in scope for FASB ASC Topic 310-30.

(2)	During 2018, Trustmark transferred the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions from acquired impaired loans to LHFI.

(3)	“Acquired Not ASC 310-30”loans transferred to LHFI due to the discount on these loans being fully amortized.

~~(3)~~

~~Loans acquired in the Reliance merger on April 7, 2017.~~

(4)	Includes miscellaneous timing adjustments as well as acquired loan terminations through foreclosure, charge-off and other terminations.

~~(5)~~

During the second quarter of 2018, Trustmark transferred the remaining loans acquired in the Bay Bank merger on March 16, 2012 from acquired impaired loans to LHFI. During the third quarter of 2018, Trustmark transferred the remaining loans acquired in the Heritage acquisition on April 15, 2011 and the Reliance merger on April 7, 2017 from acquired impaired loans to LHFI.

Under FASB ASC Topic 310-30, the accretable yield is the excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. The following table presents changes in the accretable yield for the periods presented ($ in thousands):

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Accretable yield at beginning of period	$	(31,426	)	$	(38,918	)	$	(17,722	)	$	(31,426	)
Accretion to interest income		7,870			11,021			4,290			7,870
Additions due to acquisitions (1)		—			(784	)
Disposals, net		3,452			1,759			1,903			3,452
Transfers (2)		5,874			—
Reclassification from nonaccretable difference (3)		(4,204	)		(7,204	)
Transfers (1)								—			5,874
Reclassification from nonaccretable difference (2)								(3,596	)		(4,204	)
Accretable yield at end of period	$	(18,434	)	$	(34,126	)	$	(15,125	)	$	(18,434	)

(1)	~~Accretable yield on loans acquired from Reliance on April 7, 2017.~~

~~(2)~~

During ~~the second quarter of~~ 2018, Trustmark transferred the remaining loans acquired in the Bay Bank, ~~merger on March 16, 2012 from acquired impaired loans to LHFI. During the third quarter of 2018, Trustmark transferred the remaining loans acquired in the~~ Heritage ~~acquisition on April 15, 2011~~ and ~~the~~ Reliance ~~merger on April 7, 2017~~mergers from acquired impaired loans to LHFI.

~~(3)~~(2)

Reclassifications from nonaccretable difference are due to lower loss expectations and improvements in expected cash flows.

The following ~~tables present~~table presents the components of the allowance for loan losses on acquired loans for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Balance at beginning of period	$	3,046		$	7,423		$	4,079		$	11,397		$	1,398		$	3,046		$	1,231		$	4,079
Transfers (1)		(772	)		—			(1,554	)		—			—			(772	)		—			(1,554	)
Net (charge-offs) recoveries		(93	)		(2	)		(53	)		193			(9	)		(93	)		(26	)		(53	)
Provision for loan losses, acquired loans		(467	)		(1,653	)		(758	)		(5,822	)		(140	)		(467	)		44			(758	)
Balance at end of period	$	1,714		$	5,768		$	1,714		$	5,768		$	1,249		$	1,714		$	1,249		$	1,714

(1)

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank merger, which were transferred from acquired ~~impaired~~ loans to LHFI during the second quarter of 2018, and the remaining loans acquired in the Heritage acquisition and the Reliance merger, which were transferred from acquired impaired loans to LHFI during the third quarter of 2018.

As discussed in Note 43 - ~~Loans Held for Investment (LHFI)~~LHFI and Allowance for Loan Losses, LHFI, Trustmark has established a loan grading system that consists of ~~ten~~10 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 segregate the level of risk across the ten unique risk ratings. These credit quality measures are unique to commercial loans. Credit quality for consumer loans is based on individual credit scores, aging status of the loan and payment activity.

The tables below present the acquired loans by loan type and credit quality indicator at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018													September 30, 2019
			Commercial Loans													Commercial Loans
			Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal					Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land			$	5,541	$	25	$	296	$	68	$	5,930				$	4,633	$	—	$	196	$	—	$	4,829
Secured by 1-4 family residential properties				5,594		47		645		—		6,286					3,294		43		581		—		3,918
Secured by nonfarm, nonresidential properties				51,123		—		15,223		519		66,865					29,471		—		11,062		397		40,930
Other real estate secured				7,906		—		177		424		8,507					6,817		—		70		—		6,887
Commercial and industrial loans				7,366		—		6,832		2,412		16,610					3,269		—		—		1,656		4,925
Consumer loans				—		—		—		—		—					—		—		—		—		—
Other loans				4,536		—		2,652		—		7,188					2,526		—		1,289		—		3,815
Total acquired loans			$	82,066	$	72	$	25,825	$	3,423	$	111,386				$	50,010	$	43	$	13,198	$	2,053	$	65,304

	Consumer Loans													Consumer Loans
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual (1)		Subtotal		Total Acquired Loans			Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual (1)		Subtotal		Total Acquired Loans
Loans secured by real estate:
Construction, land development and other land	$	652	$	75	$	—	$	—	$	727	$	6,657		$	527	$	61	$	—	$	—	$	588	$	5,417
Secured by 1-4 family residential properties		17,676		1,044		268		—		18,988		25,274			13,648		491		380		—		14,519		18,437
Secured by nonfarm, nonresidential properties		—		—		—		—		—		66,865	��		—		—		—		—		—		40,930
Other real estate secured		—		—		—		—		—		8,507			—		—		—		—		—		6,887
Commercial and industrial loans		—		—		—		—		—		16,610			—		—		—		—		—		4,925
Consumer loans		1,473		41		—		—		1,514		1,514			577		16		—		—		593		593
Other loans		—		—		—		—		—		7,188			—		—		—		—		—		3,815
Total acquired loans	$	19,801	$	1,160	$	268	$	—	$	21,229	$	132,615		$	14,752	$	568	$	380	$	—	$	15,700	$	81,004

(1)	Acquired loans not accounted for under FASB ASC Topic 310-30.

	December 31, 2017												December 31, 2018
			Commercial Loans												Commercial Loans
			Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal				Pass - Categories 1-6		Special Mention - Category 7		Substandard - Category 8		Doubtful - Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land			$	17,150	$	234	$	4,690	$	264	$	22,338			$	4,923	$	26	$	278	$	—	$	5,227
Secured by 1-4 family residential properties				14,021		298		3,029		—		17,348				4,341		45		534		451		5,371
Secured by nonfarm, nonresidential properties				95,147		1,400		17,583		530		114,660				34,933		—		12,614		432		47,979
Other real estate secured				12,730		102		3,031		477		16,340				7,653		—		190		410		8,253
Commercial and industrial loans				22,157		15		7,585		1,749		31,506				6,560		—		6,942		1,765		15,267
Consumer loans				—		—		—		—		—				—		—		—		—		—
Other loans				5,874		18		4,742		—		10,634				4,027		—		1,616		—		5,643
Total acquired loans			$	167,079	$	2,067	$	40,660	$	3,020	$	212,826			$	62,437	$	71	$	22,174	$	3,058	$	87,740

	Consumer Loans												Consumer Loans
	Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual (1)		Subtotal		Total Acquired Loans		Current		Past Due 30-89 Days		Past Due 90 Days or More		Nonaccrual (1)		Subtotal		Total Acquired Loans
Loans secured by real estate:
Construction, land development and other land	$	1,188	$	46	$	14	$	—	$	1,248	$	23,586	$	642	$	5	$	4	$	—	$	651	$	5,878
Secured by 1-4 family residential properties		42,008		1,687		584		124		44,403		61,751		16,133		571		481		—		17,185		22,556
Secured by nonfarm, nonresidential properties		34		—		—		—		34		114,694		—		—		—		—		—		47,979
Other real estate secured		406		—		—		—		406		16,746		—		—		—		—		—		8,253
Commercial and industrial loans		—		—		—		—		—		31,506		—		—		—		—		—		15,267
Consumer loans		2,428		172		—		—		2,600		2,600		1,346		10		—		—		1,356		1,356
Other loans		—		—		—		—		—		10,634		—		—		—		—		—		5,643
Total acquired loans	$	46,064	$	1,905	$	598	$	124	$	48,691	$	261,517	$	18,121	$	586	$	485	$	—	$	19,192	$	106,932

(1)	Acquired loans not accounted for under FASB ASC Topic 310-30.

The following tables provide an aging analysis of contractually past due and nonaccrual acquired loans by loan type at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018														September 30, 2019
	Past Due														Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans		30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans
Loans secured by real estate:
Construction, land development and other land	$	103	$	—	$	25	$	128	$	—	$	6,529	$	6,657	$	89	$	—	$	41	$	130	$	—	$	5,287	$	5,417
Secured by 1-4 family residential properties		703		341		288		1,332		—		23,942		25,274		489		112		380		981		—		17,456		18,437
Secured by nonfarm, nonresidential properties		297		—		1,475		1,772		—		65,093		66,865		33		716		910		1,659		—		39,271		40,930
Other real estate secured		15		—		—		15		—		8,492		8,507		—		—		51		51		—		6,836		6,887
Commercial and industrial loans		—		—		607		607		—		16,003		16,610		—		—		—		—		—		4,925		4,925
Consumer loans		39		2		—		41		—		1,473		1,514		16		—		—		16		—		577		593
Other loans		—		—		—		—		—		7,188		7,188		—		—		1,280		1,280		—		2,535		3,815
Total acquired loans	$	1,157	$	343	$	2,395	$	3,895	$	—	$	128,720	$	132,615	$	627	$	828	$	2,662	$	4,117	$	—	$	76,887	$	81,004

(1)	Past due 90 days or more but still accruing interest.

(2)	Acquired loans not accounted for under FASB ASC Topic 310-30.

	December 31, 2017														December 31, 2018
	Past Due														Past Due
	30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans		30-59 Days		60-89 Days		90 Days or More (1)		Total		Nonaccrual (2)		Current Loans		Total Acquired Loans
Loans secured by real estate:
Construction, land development and other land	$	34	$	90	$	861	$	985	$	—	$	22,601	$	23,586	$	5	$	—	$	87	$	92	$	—	$	5,786	$	5,878
Secured by 1-4 family residential properties		1,691		614		654		2,959		302		58,490		61,751		664		108		481		1,253		—		21,303		22,556
Secured by nonfarm, nonresidential properties		467		73		898		1,438		—		113,256		114,694		206		—		978		1,184		—		46,795		47,979
Other real estate secured		132		—		—		132		—		16,614		16,746		2		14		—		16		—		8,237		8,253
Commercial and industrial loans		—		—		—		—		2		31,504		31,506		—		—		—		—		—		15,267		15,267
Consumer loans		16		156		—		172		—		2,428		2,600		1		9		—		10		—		1,346		1,356
Other loans		—		—		21		21		—		10,613		10,634		—		—		—		—		—		5,643		5,643
Total acquired loans	$	2,340	$	933	$	2,434	$	5,707	$	304	$	255,506	$	261,517	$	878	$	131	$	1,546	$	2,555	$	—	$	104,377	$	106,932

(1)	Past due 90 days or more but still accruing interest.

(2)	Acquired loans not accounted for under FASB ASC Topic 310-30.

Note 65 – Mortgage Banking

Mortgage Servicing Rights

The activity in the mortgage servicing rights (MSR) is detailed in the table below for the periods presented ($ in thousands):

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Balance at beginning of period	$	84,269		$	80,239		$	95,596		$	84,269
Origination of servicing assets		12,248			11,630			11,431			12,248
Change in fair value:
Due to market changes		13,879			(2,218	)		(25,126	)		13,879
Due to run-off		(9,022	)		(8,174	)		(8,885	)		(9,022	)
Balance at end of period	$	101,374		$	81,477		$	73,016		$	101,374

Trustmark determines the fair value of the MSR using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. Trustmark considers the conditional prepayment rate (CPR), which is an estimated loan prepayment rate that uses historical prepayment rates for previous loans similar to the loans being evaluated, and the discount rate in determining the fair value of the MSR. An increase in either the CPR or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in either assumption will result in an increase in the fair value of the MSR. At September 30, ~~2018,~~2019, the fair value of the MSR included an assumed average prepayment speed of ~~6.86~~13 CPR and an average discount rate of 10.04% compared to an assumed average prepayment speed of ~~9.25~~7 CPR and an average discount rate of ~~10.28%~~10.04% at September 30, ~~2017.~~2018.

Mortgage Loans Serviced/Sold

During the first nine months of ~~2018~~2019 and ~~2017,~~2018, Trustmark sold ~~$820.6~~$925.8 million and ~~$871.9~~$820.6 million, respectively, of residential mortgage loans. ~~Pretax gains~~Gains on these sales were recorded toas noninterest income in mortgage banking, net and totaled $17.6 million for the first nine months of 2019 compared to $16.4 million for the first nine months of ~~2018 compared to $13.6 million for the first nine months of 2017.~~2018. The table below details the mortgage loans sold and serviced for others at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Federal National Mortgage Association	$	4,174,961	$	4,128,614	$	4,295,468	$	4,204,336
Government National Mortgage Association		2,492,009		2,421,456		2,602,577		2,537,238
Federal Home Loan Mortgage Corporation		69,617		47,071		74,572		71,343
Other		22,804		26,864		19,913		21,957
Total mortgage loans sold and serviced for others	$	6,759,391	$	6,624,005	$	6,992,530	$	6,834,874

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Lending and Selling Representations and Warranties Framework updated in May 2014, which provides certain instances in which FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties, such as payment history and quality control review.

When a putback request is received, Trustmark evaluates the request and takes appropriate actions based on the nature of the request. Trustmark is required by FNMA and FHLMC to provide a response to putback requests within 60 days of the date of receipt. ~~Currently, putback requests primarily relate to 2009 through 2013 vintage mortgage loans.~~ The total mortgage loan servicing putback expenses are included in other expense.

Changes in the reserve for mortgage loan servicing putback expense for mortgage loans were as follows for the periods presented ($ in thousands):

	Nine Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2019			2018
Balance at beginning of period	$	1,000	$	1,130	$	1,000		$	1,000
Provision for putback expenses		—		164		—			—
Other (1)		—		706		(423	)		—
Balance at end of period	$	1,000	$	2,000	$	577		$	1,000

(1)	Includes fair value adjustments for loans transferred due to underwriting issues as well as adjustments based on Trustmark’s mortgage loan servicing putback reserve analysis.

There is inherent uncertainty in reasonably estimating the requirement for reserves against potential future mortgage loan servicing putback expenses. Future putback expenses are dependent on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties. Trustmark believes that it has appropriately reserved for potential mortgage loan servicing putback requests.

Note 76 – Other Real Estate

At September 30, ~~2018,~~2019, Trustmark’s geographic other real estate distribution was concentrated primarily in its five key market regions: Alabama, Florida, Mississippi, Tennessee and Texas. The ultimate recovery of a substantial portion of the carrying amount of other real estate is susceptible to changes in market conditions in these areas.

For the periods presented, changes and gains (losses), net on other real estate were as follows ($ in thousands):

Nine Months Ended September 30,

2018

2017

Balance at beginning of period

$
43,228

$
62,051

Additions (1)

10,368

7,481

Disposals

(15,264
)

(18,583
)
Write-downs

(1,857
)

(2,593
)
Balance at end of period

$
36,475

$
48,356

Gains (losses), net on the sale of other real estate included in
other real estate expense

$
1,226

$
1,722

~~(1)~~

~~Includes $475 thousand of other real estate acquired in the Reliance merger on April 7, 2017.~~

	Nine Months Ended September 30,
	2019			2018
Balance at beginning of period	$	34,668		$	43,228
Additions		5,684			10,368
Disposals		(6,574	)		(15,264	)
Write-downs		(1,804	)		(1,857	)
Balance at end of period	$	31,974		$	36,475

Gains (losses), net on the sale of other real estate included in other real estate expense	$	124		$	1,226

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, other real estate by type of property consisted of the following ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Construction, land development and other land properties	$	18,976	$	27,491	$	14,335	$	16,206
1-4 family residential properties		5,266		5,081		2,762		4,983
Nonfarm, nonresidential properties		12,050		10,468		14,717		13,296
Other real estate properties		183		188		160		183
Total other real estate	$	36,475	$	43,228	$	31,974	$	34,668

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, other real estate by geographic location consisted of the following ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Alabama	$	7,526	$	11,714	$	6,501	$	6,873
Florida		8,931		13,937		6,983		8,771
Mississippi (1)		18,191		14,260		17,646		17,255
Tennessee (2)		1,083		2,535		844		1,025
Texas		744		782		—		744
Total other real estate	$	36,475	$	43,228	$	31,974	$	34,668

(1)	Mississippi includes Central and Southern Mississippi ~~Regions~~Regions.

(2)	Tennessee includes Memphis, Tennessee and Northern Mississippi ~~Regions~~Regions.

At September 30, 2019 and December 31, 2018, the balance of other real estate included $2.8 million and $5.0 million, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At September 30, 2019 and December 31, 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $946 thousand and $1.1 million, respectively.

Note 7 – Leases

ASU 2016-02, “Leases (Topic 842),” became effective for Trustmark on January 1, 2019. Trustmark adopted FASB ASC Topic 842utilizing the modified-retrospective transition approach prescribed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”.Trustmark did not elect the package of practical expedients, which includes reassessing whether any expired or existing contracts are or contain leases, reassessing the lease classification and reassessing initial direct costs. Also, Trustmark did not elect to adopt the hindsight practical expedient therefore maintaining the lease terms previously determined under FASB ASC Topic 840, “Leases”. Trustmark made an accounting policy election to not recognize short-term leases (12 months or less) on the balance sheet. Trustmark accounts for the lease and nonlease components separately as such amounts are readily determinable.

Once Trustmark identifies and determines certain contracts are leases according to FASB ASC Topic 842, Trustmark classifies it as an operating or a finance lease and recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and the right-of-use asset is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received.

Trustmark’s finance leases consist of building and equipment leases. Trustmark recognizes interest expense based on the discount rate of the lease as interest expense in other interest expense and recognizes depreciation expense on a straight-line basis over the lease term as noninterest expense in net occupancy – premises for building leases and in equipment expense for equipment leases. Trustmark amortizes the right-of-use asset over the life of the lease term on a straight-line basis. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term. Trustmark records its finance lease right-of-use assets in premises and equipment, net and its finance lease liabilities in other borrowings.

Trustmark’s operating leases primarily consist of building and land leases. Trustmark recognizes lease rent expense on a straight-line basis over the term of the lease contract and records it as noninterest expense in net occupancy – premises for building and land leases and in equipment expense for equipment leases. Trustmark’s amortization of the right-of-use asset is the difference between the straight-line lease expense and the interest expense recognized on the lease liability during the period. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term.

Trustmark’s leases typically have one or more renewal options included in the lease contract. Due to the nature of Trustmark’s leases, for leases with renewal options available, Trustmark considers the first renewal option as reasonably certain to renew and is therefore included in the measurement of the right-of-use assets and lease liabilities.

In order to calculate its right-of-use assets and lease liabilities, FASB ASC Topic 842 requires Trustmark to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, Trustmark is required to use its incremental borrowing rate, which is the rate of interest Trustmark would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Trustmark was able to determine the implicit interest rate for its equipment leases and used that rate as its discount rate. Since the implicit interest rate for most of its building and land leases were not readily determinable, Trustmark used its incremental borrowing rate.

Trustmark’s short-term leases primarily include automated teller machines. For short-term leases, Trustmark recognizes lease expense on a straight-line basis over the lease term. As previously stated, Trustmark has elected not to include short-term leases on its balance sheet.

The table below details the components of net lease cost for the periods presented ($ in thousands):

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Finance leases
Amortization of right-of-use assets	$	520		$	1,665
Interest on lease liabilities		75			236
Operating lease cost		1,303			3,892
Short-term lease cost		85			288
Variable lease cost		349			1,039
Sublease income		(81	)		(250	)
Net lease cost	$	2,251		$	6,870

The table below details the cash payments included in the measurement of lease liabilities during the period presented ($ in thousands):

	Nine Months Ended September 30, 2019
Finance leases
Operating cash flows included in other activities, net	$	779
Financing cash flows included in payments under finance lease obligations		1,509
Operating leases
Operating cash flows (fixed payments) included in other activities, net		3,759
Operating cash flows (liability reduction) included in other activities, net		2,850

The table below details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at September 30, 2019 ($ in thousands):

	September 30, 2019
Finance lease right-of-use assets, net of accumulated depreciation	$	9,823
Finance lease liabilities		9,975
Operating lease right-of-use assets		33,180
Operating lease liabilities		34,319

Weighted-average lease term
Finance leases	8.66 years
Operating leases	9.32 years

Weighted-average discount rate
Finance leases		2.99	%
Operating leases		3.57	%

At September 30, 2019, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):

	Finance Leases			Operating Leases
2019 (excluding the nine months ended September 30, 2019)	$	525		$	1,255
2020		1,970			5,019
2021		1,615			4,680
2022		1,556			4,215
2023		871			4,178
Thereafter		5,024			21,262
Total minimum lease payments		11,561			40,609
Less imputed interest		(1,586	)		(6,290	)
Lease liabilities	$	9,975		$	34,319

In accordance with the modified-retrospective transition approach for adopting FASB ASC Topic 842, Trustmark did not restate the prior period unaudited consolidated financial statements and all prior period amounts and disclosures are presented under FASB ASC Topic 840. At December 31, 2018, future minimum rental commitments under non-cancellable operating leases were as follows ($ in thousands):

2019	$	8,680
2020		8,063
2021		7,274
2022		6,680
2023		5,788
Thereafter		29,673
Total	$	66,158

Note 8 – Deposits

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, deposits consisted of the following ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Noninterest-bearing demand	$	2,786,539	$	2,978,074	$	3,064,127	$	2,937,594
Interest-bearing demand		2,739,245		2,432,814		3,004,977		2,633,259
Savings		3,538,125		3,408,183		3,493,535		3,905,659
Time		1,893,001		1,758,441		1,691,544		1,887,899
Total	$	10,956,910	$	10,577,512	$	11,254,183	$	11,364,411

Note 9 – Securities Sold Under Repurchase Agreements

Trustmark utilizes securities sold under repurchase agreements as a source of borrowing in connection with overnight repurchase agreements offered to commercial deposit customers by using its unencumbered investment securities as collateral. Trustmark accounts for its securities sold under repurchase agreements as secured borrowings in accordance with FASB ASC Topic 860-30, “Transfers and Servicing – Secured Borrowing and Collateral.” Securities sold under repurchase agreements are stated at the amount of cash received in connection with the transaction. Trustmark monitors collateral levels on a continual basis and may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under repurchase agreements were secured by securities with a carrying amount of ~~$167.1~~$111.4 million and ~~$200.9~~$163.3 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Trustmark’s repurchase agreements are transacted under master repurchase agreements that give Trustmark, in the event of default by the counterparty, the right of offset with the same counterparty. As of September 30, ~~2018,~~2019, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

September 30, 2018

December 31, 2017

Mortgage-backed securities

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

$
41,650

$
68,246

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC or GNMA

48,861

50,448

Total securities sold under repurchase agreements

$
90,511

$
118,694

	September 30, 2019		December 31, 2018
Mortgage-backed securities
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA	$	15,562	$	6,721
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		29,523		38,788
Total securities sold under repurchase agreements	$	45,085	$	45,509

Note 10 – Revenue from Contracts with Customers

~~Effective January 1, 2018,~~ Trustmark accounts for revenue from contracts with customers in accordance with FASB ASC Topic 606, “Revenue from Contracts with Customers,” which provides that revenue be recognized in a manner that depicts the transfer of goods or services to a customer in an amount that reflects the consideration Trustmark expects to be entitled to in exchange for those goods or services. Revenue from contracts with customers is recognized either over time in a manner that depicts Trustmark’s performance, or at a point in time when control of the goods or services are transferred to the customer. Trustmark’s noninterest income, excluding all of mortgage banking, net and securities gains (losses), net and portions of bank card and other fees and other income, are considered within the scope of FASB ASC Topic 606. Gains or losses on the sale of other real estate, which are included in Trustmark’s noninterest expense as other real estate expense, are also within the scope of FASB ASC Topic 606.

~~General Banking Division~~

~~Service Charges on Deposit Accounts~~

In general, deposit accounts represent contracts with customers with no fixed duration and can be terminated or modified by either party at any time without compensation to the other party. According to FASB ASC Topic 606, a contract that can be terminated by either party without compensation does not exist for periods beyond the then-current period. Therefore, deposit contracts are considered to renew day-to-day if not minute-to-minute.

Deposit contracts have a single continuous or stand-ready service obligation whereby Trustmark makes customer funds available for use by the customer as and when the customer chooses as well as other services such as statement rendering and online banking. The specific services provided vary based on the type of deposit account. These services are not individually distinct, but are distinct as a group, and therefore, constitute a single performance obligation which is satisfied over time and qualifies as a series of distinct service periods.

Trustmark receives a fixed service charge amount as consideration monthly for services rendered. The service charge amount varies based on the type of deposit account. Some of the service charge revenue is subject to refund provisions, which is variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of service charge revenue. Therefore, revenue is recognized at the time and in the amount the customer is charged. The service charge revenue is presented net of refunded amounts on Trustmark’s consolidated statements of income.

Services related to non-sufficient funds, overdrafts, excess account activity, stop payments, dormant accounts, etc. are considered optional purchases for a deposit contract because there is no performance obligation for Trustmark until the service is requested by the customer or the occurrence of a triggering event. Fees for these services are fixed amounts and are charged to the customer when the service is performed. Revenue is recognized at the time the customer is charged.

~~Bank Card and Other Fees~~

Revenue from contracts with customers in bank card and other fees includes income related to interchange fees and various other contracts which primarily consists of contracts with a single performance obligation that is satisfied at a point in time. Trustmark receives a fixed consideration amount once the performance obligation is completed for these contracts. Trustmark reports revenue from these contracts net of amounts refunded or due to a third party.

~~Interchange Fees~~

As both a debit and credit card issuer, Trustmark receives an interchange fee for every card transaction completed by its customers with a merchant. Trustmark receives two types of interchange fees: point-of-sale transactions in which the customer must enter the PIN associated with the card to complete the transaction (a debit card transaction), and signature transactions in which the signature of the customer is required to complete the transaction (a credit card transaction).

Trustmark, as the card issuing or settlement bank, has a contract (implied based on customary business practices) with the payment network in which Trustmark has a single continuous service obligation to make funds available for settlement of the card transaction. Trustmark’s service obligation is satisfied over time and qualifies as a series of distinct service periods. Trustmark receives interchange fees as consideration for services rendered in the amount established by the respective payment network. The interchange fees are established by the payment network based on the type of transaction and is posted on their website. Trustmark receives and records interchange fee revenue from the payment networks daily net of all fees and amounts due to the payment network.

~~Other Income~~

Revenue from contracts with customers in other income includes income related to cash management services and other contracts with a single performance obligation that is satisfied at a point in time. Trustmark receives a fixed consideration amount once the performance obligation is completed for these contracts. Trustmark reports revenue from these contracts net of amounts refunded or due to a third party.

~~Cash Management Services~~

Trustmark provides cash management services through the delivery of various products and services offered to its business and municipal customers including various departments of state, city and local governments, universities and other non-profit entities. Similar to the deposit account contracts, the cash management contracts primarily represent contracts with customers with no fixed duration and can be terminated or modified by either party at any time without compensation to the other party. Therefore, cash management contracts are generally considered to renew day-to-day if not minute-to-minute.

Cash management contracts have a single continuous or stand-ready service obligation whereby Trustmark makes a specific service or group of services available for use by the customer as and when the customer chooses. The specific services provided vary based on the type of account or product. These services are not individually distinct, but are distinct as a group, and therefore, constitute a single performance obligation which is satisfied over time and qualifies as a series of distinct service periods.

Trustmark receives a set service charge or maintenance fee amount as consideration monthly for services rendered. However, some of the fees are based on the number of transactions that occur (i.e. flat fee for a set number of transactions per month then an additional charge for each transaction after that) or the average daily account balance maintained by the customer during the month and a small amount of the cash management fee revenue is subject to refund provisions. These fees represent variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of cash management fee revenue. The cash management revenue is presented net of any refunded amounts on Trustmark’s consolidated statements of income.

Trustmark’s merchant services provider contracts directly with Trustmark business customers and provides Trustmark’s merchant customers card processing equipment and transaction processing services. Trustmark’s contract with the merchant services provider has a single-continuous service obligation to provide customer referrals for potential new accounts which is satisfied over time and qualifies as a series of distinct service periods. Trustmark receives a flat fee for each new account established and a percentage of the residual income related to transactions processed for Trustmark’s merchant customers each month as provided in the contract. Under the guidelines of FASB ASC Topic 606, the fee received for each new account and the profit sharing represent variable consideration. Revenue from merchant card services contracts is recognized monthly using a time-elapsed measure of progress. Trustmark has elected the ‘as-invoiced’ practical expedient permitted under FASB ASC Topic 606 for recognition of the merchant card services revenue.

~~Other Real Estate~~

Trustmark records a gain or loss from the sale of other real estate when control of the property transfers to the buyer. Trustmark records the gain or loss from the sale of other real estate in noninterest expense as other real estate expense. Other real estate sales for the three and nine months ended September 30, ~~2018~~2019 resulted in a net loss of $122 thousand and a net gain of $124 thousand, respectively, compared to net gains of $224 thousand and $1.2 ~~million, respectively, compared to $200 thousand and $1.7~~ million for the three and nine months ended September 30, ~~2017,~~2018, respectively.

In general, purchases of Trustmark’s other real estate property are not financed by Trustmark. Financing the purchase of other real estate is evaluated based upon the same lending policies and procedures as all other types of loans. Under FASB ASC Topic 610-20, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets,” when Trustmark finances the sale of its other real estate to a buyer, Trustmark is required to assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these two criteria are met, Trustmark derecognizes the other real estate asset and records a gain or loss on the sale once control of the property is transferred to the buyer.

~~Wealth Management Division~~

~~Trust Management~~

There are five categories of revenue included in trust management: personal trust and investments, retirement plan services, institutional custody, corporate trust and other. Each of these categories includes multiple types of contracts, service obligations and fee income. However, the majority of these contracts include a single service obligation that is satisfied over time, the customer is charged in arrears for services rendered and revenue is recognized when payment is received. In general, the time period between

when the service obligation is completed and when payment from the customer is received is less than 30 days. Revenue from trust management contracts is primarily related to monthly service periods and based on the prior month-end’s market value. Some trust management revenue is mandated by a court order, while other revenue consists of flat fees. Trust management revenue based on an account’s market value represents variable consideration under the guidelines of FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient allowed under FASB ASC Topic 606 to account for the trust management revenue.

~~Investment Services~~

Investment services includes both brokerage and annuity income. Trustmark has a contract with a third-party investment services company which contains a single continuous service obligation, to provide broker-dealer and advisory services to customers on behalf of the third-party, which is satisfied over time and qualifies as a series of distinct service periods. Trustmark serves as the agent between the third-party investment services company, the principle, and the customer. In accordance with the contract, Trustmark receives a monthly payment from the investment services company for commissions and advisory fees (asset management fees) earned on transactions completed in the prior month net of all charges and fees due to the investment services company. Trustmark recognizes revenue from the investment services company, net of the revenue sharing expense due to the investment services company, when the payments are received. Commissions vary from month-to-month based on the specific products and transactions completed. The advisory fees vary based on the average daily balance of the managed assets for the period. The commissions and advisory fees represent variable consideration under FASB ASC Topic 606. Trustmark has elected the ‘as-invoiced’ practical expedient allowed under FASB ASC Topic 606 to recognize revenue from the investment services company.

~~Insurance Division~~

Fisher Brown Bottrell Insurance, Inc. (FBBI), a wholly-owned subsidiary of TNB, operates as an insurance broker representing the policyholder and has no allegiance with any one insurance provider. FBBI serves as the agent between the insurance provider (either insurance carrier or broker), the principal, and the policy holder, the customer. FBBI has four general categories of insurance contracts: commercial, commercial installments, personal and employee benefits. FBBI’s insurance contracts contain a single performance obligation, policy placement, which is satisfied at a point in time. FBBI’s performance obligation is satisfied as of the policy effective date.

In addition to policy placement, FBBI provides various other periodic services to the policyholders for which no additional fee is charged. These additional services are not considered material to the overall contract. Trustmark has elected the immaterial promises practical expedient allowed under FASB ASC Topic 606, which allows Trustmark to not assess whether promised services are performance obligations if the promised services are immaterial in the context of the contract. Therefore, the immaterial additional services offered to policyholders are not considered a performance obligation and no amount of the contract transaction price is allocated to these services.

In general, the transaction price for the insurance contracts is an established commission amount agreed upon by FBBI and the insurance provider. The commission amount varies based on the insurance provider and the type of policy. There are a small number of insurance contracts which FBBI does not receive a commission, but charges a fee directly to the policyholder.

Most of the commissions from insurance contracts are subject to clawback provisions which require FBBI to refund a prorated amount of the commissions received as a result of policy cancellations or lapses. Commissions subject to clawback provisions are considered variable consideration under FASB ASC Topic 606. Trustmark believes the expected value method of estimating the commissions subject to clawback provisions would best predict the amount of commissions FBBI will be entitled to because of the large number of insurance contracts with similar characteristics and the number of possible outcomes. FBBI calculates a separate weighted-average percentage (returned commissions percentage) based on actual cancellations over the previous three years for commercial lines, bonds, and personal lines. FBBI applies the respective returned commissions percentage to the commission revenue earned related to insurance contracts within these three lines each month to calculate the estimated returned commissions amount, which represents the variable consideration subject to variable constraint. Revenue from insurance contracts is reported net of the variable consideration subject to variable constraint. FBBI performs an analysis of the returned commissions reserve quarterly and adjusts the reserve balance based on all available information including actual cancellations and the remaining term of the contract. The returned commissions percentage is updated annually.

Insurance Producers at FBBI earn commission as compensation for each policy they are responsible for placing. Commissions are not paid to Producers immediately at the policy effective date, can be subject to clawback provisions and can vary by Producer. Producers receive the commissions for which they are entitled at the end of the month following the month in which the policy became effective. Effective April 1, 2018, FBBI implemented a ‘pay when paid’ system. Under the ‘pay when paid’ system, Producers receive the commissions for which they are entitled at the end of the month following the month in which FBBI receives payment from the insurance provider or customer. Under FASB ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers,”

the commission paid to the Producers is an incremental cost of obtaining a contract, which should be capitalized and amortized in a manner consistent with the pattern of transfer of the service related to the contract acquisition asset. Insurance contracts have a term of one year or less; therefore, Trustmark has elected the cost of obtaining a contract practical expedient allowed under FASB ASC Subtopic 340-40, which allows FBBI to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the contract asset that FBBI otherwise would have recognized is one year or less. Commission expense is recorded as noninterest expense in salaries and employee benefits when paid to the Producers.

~~Commercial Insurance~~

Revenue from FBBI’s commercial insurance contracts (both agency billed and direct billed) consists of a set commission amount, which is subject to clawback provisions. Revenue from commercial insurance contracts is recognized on the policy effective date, and a corresponding commission receivable is recorded concurrent with the revenue until payment is received by FBBI. Effective April 1, 2018, FBBI utilizes a ‘pay when paid’ system to account for commercial insurance contracts. Under the ‘pay when paid’ system, an estimated commission amount is entered in the system when a commercial insurance contract is placed. FBBI records a top line receivable based on the estimated commission amount entered in the system each month, along with a corresponding amount recognized as revenue, and then adjusts the estimated receivable when the commissions are received from the insurance provider or customer.

~~Commercial Installment Insurance~~

Revenue from commercial installment insurance contracts consists of a set commission amount, which is not subject to clawback provisions, and is recognized in twelve equal monthly installments when invoiced by FBBI in the agency management system. FBBI has only a small number of commercial installment insurance contracts and these contracts all have a term of one year; therefore, recognizing the revenue from these contracts over twelve months is not materially different than recognizing the revenue in full at the policy effective date for any given period.

Effective April 1, 2018, as a result of implementing this ‘pay when paid’ system, as applied to insurance contracts, revenue from commercial installment contracts is recognized in the same manner as commercial insurance contracts.

~~Personal Insurance~~

Revenue from FBBI’s personal insurance contracts consists of a set commission amount, which is subject to clawback provisions, and is recognized when payment is received (generally 30-60 days after the policy effective date). Personal insurance contracts have a term of one year; therefore, recognizing the revenue from these contracts when payment is received is not materially different than recognizing the revenue at the policy effective date for any given period.

~~Employee Benefits Insurance~~

Revenue from FBBI’s employee benefits insurance contracts consists of a variable commission amount, which is not subject to clawback provisions, and is recognized when payment is received, typically on a monthly basis. Employee benefits insurance contracts have a set commission rate, but can vary from period to period based on changes in the number of employees covered by the policy (i.e. new hires and terminations). FBBI generally receives twelve monthly commission payments for these contracts with the initial payment being received approximately 60-90 days after the policy effective date. Under the guidelines of FASB ASC Topic 606, commissions from employee benefits insurance contracts represent fixed consideration because at contract inception (policy effective date) there is a set commission rate times a known number of covered employees. Changes in the number of covered employees are not known, nor can they be predicted, at contract inception. An increase or decrease in the number of covered employees after the policy effective date is considered a contract modification resulting from a change in scope and transaction price under FASB ASC Topic 606. This modification is treated as part of the existing contract because it does not add a distinct service. Employee benefits insurance contracts have a term of one year; therefore, recognizing the revenue from these contracts when payment is received is not materially different than recognizing the revenue at the policy effective date or the contract modification date for any given period.

~~Contingency Commission Insurance~~

In addition to the insurance contracts discussed above, FBBI has contracts with various insurance providers for which it receives contingency income based on volume of business and claims experience. FBBI is the principal and the insurance provider is the customer for these contingency commission insurance contracts. The contingency commission contracts have a single continuous or stand-ready service obligation whereby FBBI places policies with policyholders when acceptable to the insurance provider, which is satisfied over time. The contract term for these contingency commission contracts is one year. Revenue is recognized from the

contingency commission contracts monthly using a time-elapsed measure of progress. FBBI accrues throughout the current year the amount of contingency commission income it expects to receive in the following year adjusted for a degree of uncertainty. FBBI updates a detail by insurance provider with the contingency commission income received, which is then compared to the total amount that was expected to be received. If actual receipts are higher or lower than the amount accrued in the prior year, the monthly accrual for the current year is adjusted accordingly.

Under the guidelines of FASB ASC Topic 606, revenue from contingency commission insurance contracts represents variable consideration and should be estimated using one of the two allowable methods subject to the variable consideration constraint. FBBI believes the most likely amount method to be the most appropriate method for estimating the variable consideration as there are only a few possible outcomes for each contract.

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

	Three Months Ended September 30, 2018							Three Months Ended September 30, 2017 (1)						Three Months Ended September 30, 2019						Three Months Ended September 30, 2018 (1)
	Topic 606		Not Topic 606 (2)			Total		Topic 606		Not Topic 606 (2)		Total		Topic 606		Not Topic 606 (2)		Total		Topic 606		Not Topic 606 (2)			Total
General Banking Division
General Banking Segment
Service charges on deposit accounts	$	11,074	$	—		$	11,074	$	11,222	$	—	$	11,222	$	11,041	$	—	$	11,041	$	11,054	$	—		$	11,054
Bank card and other fees		6,503		937			7,440		7,104		23		7,127		6,959		1,383		8,342		6,498		936			7,434
Mortgage banking, net		—		8,647			8,647		—		4,425		4,425		—		8,171		8,171		—		8,647			8,647
Wealth management		70		—			70		64		—		64		92		—		92		70		—			70
Other, net		1,685		(359	)		1,326		1,495		2,223		3,718		1,791		138		1,929		1,670		(366	)		1,304
Security gains (losses), net		—		—			—		—		14		14
Total noninterest income	$	19,332	$	9,225		$	28,557	$	19,885	$	6,685	$	26,570	$	19,883	$	9,692	$	29,575	$	19,292	$	9,217		$	28,509

Wealth Management Division
Wealth Management Segment
Service charges on deposit accounts	$	1	$	—		$	1	$	1	$	—	$	1	$	24	$	—	$	24	$	21	$	—		$	21
Bank card and other fees		19		—			19		23		—		23		7		—		7		25		—			25
Wealth management		7,719		—			7,719		7,466		—		7,466		7,599		—		7,599		7,719		—			7,719
Other, net		1		29			30		—		22		22		23		32		55		18		34			52
Total noninterest income	$	7,740	$	29		$	7,769	$	7,490	$	22	$	7,512	$	7,653	$	32	$	7,685	$	7,783	$	34		$	7,817

Insurance Division
Insurance Segment
Insurance commissions	$	10,765	$	—		$	10,765	$	10,398	$	—	$	10,398	$	11,072	$	—	$	11,072	$	10,765	$	—		$	10,765
Other, net		2		—			2		—		—		—		5		—		5		2		—			2
Total noninterest income	$	10,767	$	—		$	10,767	$	10,398	$	—	$	10,398	$	11,077	$	—	$	11,077	$	10,767	$	—		$	10,767

Consolidated
Service charges on deposit accounts	$	11,075	$	—		$	11,075	$	11,223	$	—	$	11,223	$	11,065	$	—	$	11,065	$	11,075	$	—		$	11,075
Bank card and other fees		6,522		937			7,459		7,127		23		7,150		6,966		1,383		8,349		6,523		936			7,459
Mortgage banking, net		—		8,647			8,647		—		4,425		4,425		—		8,171		8,171		—		8,647			8,647
Insurance commissions		10,765		—			10,765		10,398		—		10,398		11,072		—		11,072		10,765		—			10,765
Wealth management		7,789		—			7,789		7,530		—		7,530		7,691		—		7,691		7,789		—			7,789
Other, net		1,688		(330	)		1,358		1,495		2,245		3,740		1,819		170		1,989		1,690		(332	)		1,358
Security gains (losses), net		—		—			—		—		14		14
Total noninterest income	$	37,839	$	9,254		$	47,093	$	37,773	$	6,707	$	44,480	$	38,613	$	9,724	$	48,337	$	37,842	$	9,251		$	47,093

(1)

During the first quarter of 2019, Trustmark ~~elected~~revised the ~~modified retrospective approach~~composition of ~~adoption; therefore,~~its operating segments by moving the Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for segment reporting purposes. The prior period ~~balances are~~amounts presented ~~under legacy GAAP and may not be comparable~~include reclassifications to conform to the current ~~year~~period presentation.

(2)

Noninterest income not in scope for FASB ASC Topic 606 includes customer derivatives revenue and miscellaneous credit card fee income within bank card and other fees; mortgage banking, net; amortization of tax credits, accretion of the FDIC indemnification asset, cash surrender value on various life insurance policies, earnings on Trustmark’s non-qualified deferred compensation plans, other partnership investments and rental income within other, net; and securitygains (losses), net.

	Nine Months Ended September 30, 2018						Nine Months Ended September 30, 2017 (1)						Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018 (1)
	Topic 606		Not Topic 606 (2)		Total		Topic 606		Not Topic 606 (2)		Total		Topic 606		Not Topic 606 (2)			Total		Topic 606		Not Topic 606 (2)		Total
General Banking Division
General Banking Segment
Service charges on deposit accounts	$	32,577	$	—	$	32,577	$	32,809	$	—	$	32,809	$	31,638	$	—		$	31,638	$	32,513	$	—	$	32,513
Bank card and other fees		19,865		1,227		21,092		20,777		208		20,985		20,986		2,508			23,494		19,848		1,227		21,075
Mortgage banking, net		—		28,958		28,958		—		23,618		23,618		—		21,908			21,908		—		28,958		28,958
Wealth management		210		—		210		210		—		210		280		—			280		210		—		210
Other, net		4,666		84		4,750		4,997		6,196		11,193		6,368		(392	)		5,976		4,620		68		4,688
Security gains (losses), net		—		—		—		—		15		15
Total noninterest income	$	57,318	$	30,269	$	87,587	$	58,793	$	30,037	$	88,830	$	59,272	$	24,024		$	83,296	$	57,191	$	30,253	$	87,444

Wealth Management Division
Wealth Management Segment
Service charges on deposit accounts	$	2	$	—	$	2	$	1	$	—	$	1	$	71	$	—		$	71	$	66	$	—	$	66
Bank card and other fees		63		—		63		35		—		35		50		—			50		80		—		80
Wealth management		22,624		—		22,624		22,407		—		22,407		22,636		—			22,636		22,624		—		22,624
Other, net		3		76		79		—		70		70		284		87			371		49		92		141
Total noninterest income	$	22,692	$	76	$	22,768	$	22,443	$	70	$	22,513	$	23,041	$	87		$	23,128	$	22,819	$	92	$	22,911

Insurance Division
Insurance Segment
Insurance commissions	$	30,919	$	—	$	30,919	$	29,355	$	—	$	29,355	$	33,032	$	—		$	33,032	$	30,919	$	—	$	30,919
Other, net		3		—		3		5		—		5		11		—			11		3		—		3
Total noninterest income	$	30,922	$	—	$	30,922	$	29,360	$	—	$	29,360	$	33,043	$	—		$	33,043	$	30,922	$	—	$	30,922

Consolidated
Service charges on deposit accounts	$	32,579	$	—	$	32,579	$	32,810	$	—	$	32,810	$	31,709	$	—		$	31,709	$	32,579	$	—	$	32,579
Bank card and other fees		19,928		1,227		21,155		20,812		208		21,020		21,036		2,508			23,544		19,928		1,227		21,155
Mortgage banking, net		—		28,958		28,958		—		23,618		23,618		—		21,908			21,908		—		28,958		28,958
Insurance commissions		30,919		—		30,919		29,355		—		29,355		33,032		—			33,032		30,919		—		30,919
Wealth management		22,834		—		22,834		22,617		—		22,617		22,916		—			22,916		22,834		—		22,834
Other, net		4,672		160		4,832		5,002		6,266		11,268		6,663		(305	)		6,358		4,672		160		4,832
Security gains (losses), net		—		—		—		—		15		15
Total noninterest income	$	110,932	$	30,345	$	141,277	$	110,596	$	30,107	$	140,703	$	115,356	$	24,111		$	139,467	$	110,932	$	30,345	$	141,277

(1)

(2)

Note 11 – Defined Benefit and Other Postretirement Benefits

Qualified Pension ~~Plans~~Plan

Trustmark ~~Capital Accumulation Plan~~

~~Trustmark maintained~~maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Capital Accumulation Plan (the Plan) in which substantially all associates who began employment prior to 2007 participated. The Plan provided for retirement benefits based on the length of credited service and final average compensation, as defined in the Plan, which vested upon three years of service. On July 26, 2016, the Board of Directors of Trustmark authorized the termination of the Plan, effective as of December 31, 2016. As a result of the termination of the Plan, each participant became fully vested in their accrued benefits under the Plan. Final distributions were completed during the second quarter of 2017.

~~Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions~~

To satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions and subsequently merged into the Plan (collectively, the Continuing Associates), on July 26, 2016, the Board of Directors of Trustmark also approved the spin-off of the portion of the Plan associated with the accrued benefits of the Continuing Associates into a new plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan)~~, effective as of December 30, 2016, immediately prior~~ to ~~the termination of the Plan.~~satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

The following table presents information regarding the net periodic benefit cost for the ~~Plan and the~~ Continuing Plan for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Service cost	$	69		$	64		$	208		$	190		$	53		$	69		$	159		$	208
Interest cost		83			102			249			1,394			90			83			270			249
Expected return on plan assets		(57	)		(51	)		(171	)		(267	)		(51	)		(57	)		(152	)		(171	)
Recognized net loss due to lump sum settlements		41			—			121			—			47			41			141			121
Recognized net loss due to defined benefit plan termination		—			—			—			17,644
Recognized net actuarial loss		143			142			428			1,272			92			143			278			428
Net periodic benefit cost	$	279		$	257		$	835		$	20,233		$	231		$	279		$	696		$	835

For the plan year ending December 31, ~~2018,~~2019, Trustmark’s minimum required contribution to the Continuing Plan is ~~expected to be $243~~$160 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout ~~2018~~2019 to determine any additional funding requirements by the plan’s measurement date, which is December 31.

Supplemental Retirement Plans

Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of small nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger date.

The following table presents information regarding the net periodic benefit cost for Trustmark’s nonqualified supplemental retirement plans for the periods presented ($ in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Service cost	$	29	$	36	$	87	$	106	$	27	$	29	$	82	$	87
Interest cost		457		514		1,409		1,589		502		457		1,544		1,409
Amortization of prior service cost		63		63		188		188		62		63		187		188
Recognized net actuarial loss		218		214		664		651		155		218		471		664
Net periodic benefit cost	$	767	$	827	$	2,348	$	2,534	$	746	$	767	$	2,284	$	2,348

Note 12 – Stock and Incentive Compensation ~~Plans~~

Trustmark has granted stock and incentive compensation awards subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of stock and incentive compensation awards are subject to the provisions of the Stock Plan, which is designed to provide flexibility to Trustmark regarding its ability to motivate, attract and retain the services of key associates and directors. The Stock Plan also allows Trustmark to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance units to key associates and directors.

Restricted Stock Grants

Performance Awards

Trustmark’s performance awards vest over three years and are granted to Trustmark’s executive and senior management teams. Performance awards granted vest based on performance goals of return on average tangible equity and total shareholder return. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date. These awards are recognized using the straight-line method over the requisite service period. These awards provide for achievement shares if performance measures exceed 100%. The restricted share agreement provides for voting rights and dividend privileges.

Time-Vested Awards

Trustmark’s time-vested awards vest over three years and are granted to members of Trustmark’s Board of Directors as well as Trustmark’s executive and senior management teams. Time-vested awards are valued utilizing the fair value of Trustmark’s stock at the grant date. These awards are recognized on the straight-line method over the requisite service period.

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

	Three Months Ended September 30, 2018					Three Months Ended September 30, 2019
	Performance Awards		Time-Vested Awards			Performance Awards		Time-Vested Awards
Nonvested shares, beginning of period		177,695		322,528			149,914		311,268
Granted		—		1,500			—		—
Released from restriction		—		(400	)		—		(3,571	)
Forfeited		—		(764	)		—		(3,608	)
Nonvested shares, end of period		177,695		322,864			149,914		304,089

	Nine Months Ended September 30, 2018						Nine Months Ended September 30, 2019
	Performance Awards			Time-Vested Awards			Performance Awards			Time-Vested Awards
Nonvested shares, beginning of period		213,516			320,357			177,695			321,870
Granted		51,174			118,325			50,862			113,673
Released from restriction		(55,351	)		(107,180	)		(61,347	)		(122,939	)
Forfeited		(31,644	)		(8,638	)		(17,296	)		(8,515	)
Nonvested shares, end of period		177,695			322,864			149,914			304,089

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Performance awards	$	435	$	435	$	725	$	959	$	481	$	435	$	1,043	$	725
Time-vested awards		723		641		2,297		2,291		791		723		2,510		2,297
Total compensation expense	$	1,158	$	1,076	$	3,022	$	3,250	$	1,272	$	1,158	$	3,553	$	3,022

Note 13 – Contingencies

Lending Related

Trustmark makes commitments to extend credit and issues standby and commercial letters of credit (letters of credit) in the normal course of business in order to fulfill the financing needs of its customers. The carrying amount of commitments to extend credit and letters of credit approximates the fair value of such financial instruments.

Commitments to extend credit are agreements to lend money to customers pursuant to certain specified conditions. Commitments generally have fixed expiration dates or other termination clauses. Because many of these commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contract amount of those instruments. Trustmark applies the same credit policies and standards as it does in the lending process when making these commitments. The collateral obtained is based upon the nature of the transaction and the assessed creditworthiness of the borrower. At September 30, ~~2018~~2019 and ~~2017,~~2018, Trustmark had unused commitments to extend credit of ~~$3.666~~$4.205 billion and ~~$3.143~~$3.666 billion, respectively.

Letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third-party. A financial standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument. A performance standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to perform some contractual, nonfinancial obligation. When issuing letters of credit, Trustmark uses the same policies regarding credit risk and collateral, which are followed in the lending process. At September 30, ~~2018~~2019 and ~~2017,~~2018, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was ~~$102.9~~$103.1 million and ~~$105.6~~$102.9 million, respectively. These amounts consist primarily of commitments with maturities of less than three years, which have an immaterial carrying value. Trustmark holds collateral to support standby letters of credit when deemed necessary. As of September 30, ~~2018~~2019 and ~~2017,~~2018, the fair value of collateral held was $28.7 million and $31.2 million, ~~and $30.2 million,~~ respectively.

Legal Proceedings

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in ~~three~~several lawsuits related to the collapse of the Stanford Financial Group. ~~The first is~~

On August 23, 2009, a purported class action complaint ~~that~~ was filed ~~on August 23, 2009~~ in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano (collectively, Class Plaintiffs), on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as ~~defendants.~~defendants (the Rotstain Complaint). The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees and other monies received by each defendant from entities controlled by R. Allen Stanford (collectively, the Stanford Financial Group) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud on the asserted grounds that defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme. Plaintiffs have demanded a jury trial. Plaintiffs did not quantify damages.

In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit. In August 2010, the court authorized and approved the formation of an Official Stanford Investors Committee (OSIC) to represent the interests of Stanford investors and, under certain circumstances, to file legal actions for the benefit of Stanford investors. In December 2011, the OSIC filed a motion to intervene in this action. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues. In December 2012, the court granted the OSIC’s motion to intervene, and the OSIC filed an Intervenor Complaint against one of the other defendant financial institutions. In February 2013, the OSIC filed a second Intervenor Complaint that asserts claims against TNB and the remaining defendant financial institutions. The OSIC seeks to recover: (i) alleged fraudulent transfers in the amount of the fees each of the defendants allegedly received from Stanford Financial Group, the profits each of the defendants allegedly made from Stanford Financial Group deposits, and other monies each of the defendants allegedly received from Stanford Financial Group; (ii) damages attributable to alleged conspiracies by each of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud and conversion on the asserted grounds that the defendants knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme; and (iii) punitive damages. The OSIC did not quantify damages.

In July 2013, all defendants (including TNB) filed motions to dismiss the OSIC’s claims. In March 2015, the court entered an order authorizing the parties to conduct discovery regarding class certification, staying all other discovery and setting a deadline for the parties to complete briefing on class certification issues. In April 2015, the court granted in part and denied in part the defendants’ motions to dismiss the Class Plaintiffs’ claims and the OSIC’s claims. The court dismissed all of the Class Plaintiffs’ fraudulent transfer claims and dismissed certain of the OSIC’s claims. The court denied the motions by TNB and the other financial institution defendants to dismiss the OSIC’s constructive fraudulent transfer claims.

On June 23, 2015, the court allowed the Class Plaintiffs to file a Second Amended Class Action Complaint (SAC), which asserted new claims against TNB and certain of the other defendants for (i) aiding, abetting and participating in a fraudulent scheme, (ii) aiding, abetting and participating in violations of the Texas Securities Act, (iii) aiding, abetting and participating in breaches of fiduciary duty, (iv) aiding, abetting and participating in conversion and (v) conspiracy. On July 14, 2015, the defendants (including TNB) filed motions to dismiss the SAC and to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims against TNB and the other financial institutions that are defendants in the action. On July 27, 2016, the court denied the motion by TNB and the other financial institution defendants to dismiss the SAC and also denied the motion by TNB and the other financial institution defendants to reconsider the court’s prior denial to dismiss the OSIC’s constructive fraudulent transfer claims. On August 24, 2016, TNB filed its answer to the SAC. On October 20, 2017, the OSIC filed a motion seeking an order lifting the discovery stay and establishing a trial schedule. On November 4, 2016, the OSIC filed a First Amended Intervenor Complaint, which added claims for (i) aiding, abetting or participation in violations of the Texas Securities Act and (ii) aiding, abetting or participation in breach of fiduciary duty. On November 7, 2017, the court denied the ~~OSIC’s~~Class Plaintiffs’ motion seeking class certification and designation of class representatives and counsel, finding that common issues of fact did not predominate. The court granted the OSIC’s motion to lift the discovery stay that it had previously ordered.

~~The second~~On May 3, 2019, individual investors and entities filed motions to intervene in the action. On September 18, 2019, the court denied the motions to intervene. On October 14, 2019, certain of the proposed intervenors filed a notice of appeal.

seeks to recover the money lost by these individual plaintiffs as a result of the collapse of the Stanford Financial Group (in addition to other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which was denied on February 28, 2012. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues.

On April 11, 2016, Trustmark learned that a ~~third~~different Stanford-related lawsuit had been filed on that date in the Superior Court of Justice in Ontario, Canada, by The Toronto-Dominion Bank (“TD Bank”), naming TNB and three other financial institutions not affiliated with Trustmark as defendants. The complaint seeks a declaration specifying the degree to which each of TNB and the other defendants are liable in respect of any loss and damage for which TD Bank is found to be liable in a litigation commenced against TD Bank brought by the Joint Liquidators of Stanford International Bank Limited in the Superior Court of Justice, Commercial List in Ontario, Canada (the “Joint Liquidators’ Action”), as well as contribution and indemnity in respect of any judgment, interest and costs TD Bank is ordered to pay in the Joint Liquidators’ Action. To date, TNB has not been served in connection with this action.

On November 1, 2019, TNB was named as a defendant in a complaint filed by Paul Blaine Smith, Carolyn Bass Smith and other plaintiffs identified therein (the Smith Complaint). The Smith Complaint was filed in District Court, Harris County, Texas and named TNB and four other financial institutions and one individual, each of which are unaffiliated with Trustmark, as defendants. The Smith Complaint relates to the collapse of the Stanford Financial Group, as does the other pending litigation relating to Stanford summarized above. Plaintiffs in the Smith Complaint have demanded a jury trial.

Trustmark has only recently become aware of the Smith Complaint (which has not yet been served upon TNB). Trustmark and its counsel are carefully evaluating the Smith Complaint in the form that is publicly available, and will update the foregoing description to the extent that additional material facts are ascertained.

TNB’s relationship with the Stanford Financial Group began as a result of Trustmark’s acquisition of a Houston-based bank in August 2006, and consisted of correspondent banking and other traditional banking services in the ordinary course of business. All Stanford-related lawsuits are in pre-trial stages.

Trustmark and its subsidiaries are also parties to other lawsuits and other claims that arise in the ordinary course of business. Some of the lawsuits assert claims related to the lending, collection, servicing, investment, trust and other business activities, and some of the lawsuits allege substantial claims for damages.

All pending legal proceedings described above are being vigorously contested. In accordance with FASB ASC Topic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for litigation matters when those matters present loss contingencies that are both probable and reasonably estimable. At the present time, Trustmark believes, based on its evaluation and the advice of legal counsel, that a loss in any such proceeding is not probable and a reasonable estimate cannot reasonably be made.

Note 14 – Earnings Per Share (EPS)

The following table reflects weighted-average shares used to calculate basic and diluted EPS for the periods presented (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Basic shares		67,621		67,742		67,729		67,722		64,359		67,621		64,755		67,729
Dilutive shares		175		174		147		154		156		175		135		147
Diluted shares		67,796		67,916		67,876		67,876		64,515		67,796		64,890		67,876

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

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Weighted-average antidilutive stock awards

8

6

87

72

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Weighted-average antidilutive stock awards		7		8		85		87

Note 15 – Statements of Cash Flows

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

	Nine Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2019		2018
Income taxes paid	$	11,629	$	1,423	$	17,277	$	11,629
Interest expense paid on deposits and borrowings		46,506		28,266		64,881		46,506
Noncash transfers from loans to other real estate		10,368		7,006		5,684		10,368
Transfer of long-term FHLB advances to short-term		—		250,038
Assets acquired in business combination		—		196,265
Liabilities acquired in business combination		—		184,949
Finance right-of-use assets resulting from lease liabilities						9,823		—
Operating right-of-use assets resulting from lease liabilities						33,180		—

Note 16 – Shareholders’ Equity

Regulatory Capital

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of Trustmark’s ~~2017~~2018 Annual Report, ~~on Form 10-K,~~ which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include ~~the phased in~~a capital conservation buffer of ~~1.875%~~2.500% at September 30, ~~2018~~2019 and ~~1.250%~~1.875% at December 31, ~~2017.~~2018. Accumulated other comprehensive loss, net of tax, is not included in computing regulatory capital. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. As of September 30, ~~2018,~~2019, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at September 30, ~~2018.~~2019. To be categorized in this manner, Trustmark and TNB maintained minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios as set forth in the accompanying table, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since September 30, ~~2018,~~2019, which Management believes have affected Trustmark’s or TNB’s present classification.

The following table provides Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	Actual											Actual
	Regulatory Capital					Minimum			To Be Well			Regulatory Capital					Minimum			To Be Well
	Amount		Ratio			Requirement			Capitalized			Amount		Ratio			Requirement			Capitalized
At September 30, 2018:
At September 30, 2019:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,302,859		12.20	%		6.375	%	n/a			$	1,293,808		11.83	%		7.000	%	n/a
Trustmark National Bank		1,344,029		12.59	%		6.375	%		6.50	%		1,333,692		12.20	%		7.000	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,362,859		12.76	%		7.875	%	n/a			$	1,353,808		12.38	%		8.500	%	n/a
Trustmark National Bank		1,344,029		12.59	%		7.875	%		8.00	%		1,333,692		12.20	%		8.500	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,453,447		13.61	%		9.875	%	n/a			$	1,438,283		13.15	%		10.500	%	n/a
Trustmark National Bank		1,434,617		13.44	%		9.875	%		10.00	%		1,418,167		12.97	%		10.500	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,362,859		10.41	%		4.00	%	n/a			$	1,353,808		10.34	%		4.00	%	n/a
Trustmark National Bank		1,344,029		10.29	%		4.00	%		5.00	%		1,333,692		10.21	%		4.00	%		5.00	%

At December 31, 2017:
At December 31, 2018:
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,243,240		11.77	%		5.750	%	n/a			$	1,271,538		11.77	%		6.375	%	n/a
Trustmark National Bank		1,284,575		12.16	%		5.750	%		6.50	%		1,311,548		12.14	%		6.375	%		6.50	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,303,238		12.33	%		7.250	%	n/a			$	1,331,538		12.33	%		7.875	%	n/a
Trustmark National Bank		1,284,575		12.16	%		7.250	%		8.00	%		1,311,548		12.14	%		7.875	%		8.00	%

Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,384,050		13.10	%		9.250	%	n/a			$	1,412,059		13.07	%		9.875	%	n/a
Trustmark National Bank		1,365,387		12.93	%		9.250	%		10.00	%		1,392,069		12.89	%		9.875	%		10.00	%

Tier 1 Leverage (to Average Assets)
Trustmark Corporation	$	1,303,238		9.67	%		4.00	%	n/a			$	1,331,538		10.26	%		4.00	%	n/a
Trustmark National Bank		1,284,575		9.54	%		4.00	%		5.00	%		1,311,548		10.13	%		4.00	%		5.00	%

Stock Repurchase Program

On March 11, 2016, the Board of Directors of Trustmark authorized a stock repurchase program under which $100.0 million of Trustmark’s outstanding common stock may be acquired through March 31, 2019. Trustmark repurchased approximately 1.2 million shares of its common stock valued at $36.9 million during the three months ended March 31, 2019. Under this authority, Trustmark repurchased approximately 3.2 million shares valued at $100.0 million.

The Board of Directors of Trustmark authorized a new stock repurchase program effective April 1, 2019 under which $100.0 million of Trustmark’s outstanding common stock may be acquired through March 31, 2020. The adoption of this new stock repurchase program followed the receipt of non-objection from the FRB. The shares may be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under this authority, Trustmark repurchased approximately ~~243~~537 thousand shares of its common stock valued at ~~$7.9~~$17.5 million between April 1, 2019 and September 30, 2019.

Together, with the repurchases under the previous program, Trustmark purchased approximately 1.7 million shares of its common stock valued at $54.4 million during the nine months ended September 30, ~~2018,~~2019, compared to no243 thousand shares valued at $7.9 million repurchased during the nine months ended September 30, ~~2017.~~2018.

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

The following tables present the net change in the components of accumulated other comprehensive loss and the related tax effects allocated to each component for the periods presented ($ in thousands). ~~Reclassification adjustments related to securities available for sale are included in security gains (losses), net in the accompanying consolidated statements of income.~~ The amortization of prior service cost, recognized net loss due to lump sum settlements and change in net actuarial loss ~~and recognized net loss due to defined benefit plan termination on pension and other postretirement benefit plans~~ are included in the computation of net periodic benefit cost (see Note 11 – Defined Benefit and Other Postretirement Benefits for additional details). Reclassification adjustments related to pension and other postretirement benefit plans are included in salaries and employee benefits ~~defined benefit plan termination~~ and other expense in the accompanying consolidated statements of income. Reclassification adjustments related to the cash flow hedge derivative are included in other interest expense in the accompanying consolidated statements of income.

	Three Months Ended September 30, 2018									Three Months Ended September 30, 2017									Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount

Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising during the period	$	(9,660	)	$	2,414		$	(7,246	)	$	(535	)	$	204		$	(331	)	$	4,154		$	(1,038	)	$	3,116		$	(9,660	)	$	2,414		$	(7,246	)
Reclassification adjustment for net (gains) losses realized in net income		—			—			—			(14	)		6			(8	)
Change in net unrealized holding loss on securities transferred to held to maturity		973			(243	)		730			1,130			(432	)		698			849			(212	)		637			973			(243	)		730
Total securities available for sale and transferred securities		(8,687	)		2,171			(6,516	)		581			(222	)		359			5,003			(1,250	)		3,753			(8,687	)		2,171			(6,516	)
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		63			(16	)		47			63			(24	)		39			62			(16	)		46			63			(16	)		47
Recognized net loss due to lump sum settlements		41			(10	)		31			—			—			—			47			(13	)		34			41			(10	)		31
Change in net actuarial loss		361			(90	)		271			356			(137	)		219			247			(61	)		186			361			(90	)		271
Total pension and other postretirement benefit plans		465			(116	)		349			419			(161	)		258			356			(90	)		266			465			(116	)		349
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		52			(13	)		39			53			(20	)		33			19			(5	)		14			52			(13	)		39
Reclassification adjustment for (gain) loss realized in net income		(104	)		25			(79	)		55			(21	)		34			(101	)		26			(75	)		(104	)		25			(79	)
Total cash flow hedge derivatives		(52	)		12			(40	)		108			(41	)		67			(82	)		21			(61	)		(52	)		12			(40	)
Total other comprehensive income (loss)	$	(8,274	)	$	2,067		$	(6,207	)	$	1,108		$	(424	)	$	684		$	5,277		$	(1,319	)	$	3,958		$	(8,274	)	$	2,067		$	(6,207	)

	Nine Months Ended September 30, 2018									Nine Months Ended September 30, 2017									Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
Securities available for sale and transferred securities:
Net unrealized holding gains (losses) arising during the period	$	(46,974	)	$	11,743		$	(35,231	)	$	6,335		$	(2,423	)	$	3,912		$	43,057		$	(10,764	)	$	32,293		$	(46,974	)	$	11,743		$	(35,231	)
Reclassification adjustment for net (gains) losses realized in net income		—			—			—			(15	)		6			(9	)
Change in net unrealized holding loss on securities transferred to held to maturity		2,909			(727	)		2,182			3,551			(1,358	)		2,193			2,852			(713	)		2,139			2,909			(727	)		2,182
Total securities available for sale and transferred securities		(44,065	)		11,016			(33,049	)		9,871			(3,775	)		6,096			45,909			(11,477	)		34,432			(44,065	)		11,016			(33,049	)
Pension and other postretirement benefit plans:
Reclassification adjustments for changes realized in net income:
Net change in prior service costs		188			(48	)		140			188			(72	)		116			187			(47	)		140			188			(48	)		140
Recognized net loss due to lump sum settlements		121			(29	)		92			—			—			—			141			(36	)		105			121			(29	)		92
Change in net actuarial loss		1,092			(273	)		819			1,923			(736	)		1,187			749			(187	)		562			1,092			(273	)		819
Recognized net loss due to defined benefit plan termination		—			—			—			16,991			(6,499	)		10,492
Total pension and other postretirement benefit plans		1,401			(350	)		1,051			19,102			(7,307	)		11,795			1,077			(270	)		807			1,401			(350	)		1,051
Cash flow hedge derivatives:
Change in accumulated gain (loss) on effective cash flow hedge derivatives		611			(153	)		458			(99	)		38			(61	)		(145	)		36			(109	)		611			(153	)		458
Reclassification adjustment for (gain) loss realized in net income		(209	)		52			(157	)		232			(89	)		143			(413	)		104			(309	)		(209	)		52			(157	)
Total cash flow hedge derivatives		402			(101	)		301			133			(51	)		82			(558	)		140			(418	)		402			(101	)		301
Total other comprehensive income (loss)	$	(42,262	)	$	10,565		$	(31,697	)	$	29,106		$	(11,133	)	$	17,973		$	46,428		$	(11,607	)	$	34,821		$	(42,262	)	$	10,565		$	(31,697	)

The following table presents the changes in the balances of each component of accumulated other comprehensive loss for the periods presented ($ in thousands). All amounts are presented net of tax.

													Securities Available for Sale and Transferred Securities			Defined Benefit Pension Items			Cash Flow Hedge Derivatives			Total
Balance at January 1, 2019													$	(43,824	)	$	(12,324	)	$	469		$	(55,679	)
Other comprehensive income (loss) before reclassification														34,432			—			(109	)		34,323
Amounts reclassified from accumulated other comprehensive loss														—			807			(309	)		498
Net other comprehensive income (loss)														34,432			807			(418	)		34,821
Balance at September 30, 2019													$	(9,392	)	$	(11,517	)	$	51		$	(20,858	)
	Securities Available for Sale and Transferred Securities			Defined Benefit Pension Items			Cash Flow Hedge Derivatives			Total
Balance at January 1, 2018	$	(26,535	)	$	(13,468	)	$	278		$	(39,725	)	$	(26,535	)	$	(13,468	)	$	278		$	(39,725	)
Other comprehensive income (loss) before reclassification		(33,049	)		—			458			(32,591	)		(33,049	)		—			458			(32,591	)
Amounts reclassified from accumulated other comprehensive loss		—			1,051			(157	)		894			—			1,051			(157	)		894
Net other comprehensive income (loss)		(33,049	)		1,051			301			(31,697	)		(33,049	)		1,051			301			(31,697	)
Reclassification of certain income tax effects related to the change in the federal statutory income tax rate under the Tax Cuts and Jobs Act of 2017 (Tax Reform Act)		(5,694	)		(2,890	)		60			(8,524	)
Reclassification of certain income tax effects related to the change in the federal statutory income tax rate under the Tax Reform Act														(5,694	)		(2,890	)		60			(8,524	)
Balance at September 30, 2018	$	(65,278	)	$	(15,307	)	$	639		$	(79,946	)	$	(65,278	)	$	(15,307	)	$	639		$	(79,946	)

Balance at January 1, 2017	$	(20,800	)	$	(24,980	)	$	(18	)	$	(45,798	)
Other comprehensive income (loss) before reclassification		6,105			—			(61	)		6,044
Amounts reclassified from accumulated other comprehensive loss		(9	)		11,795			143			11,929
Net other comprehensive income (loss)		6,096			11,795			82			17,973
Balance at September 30, 2017	$	(14,704	)	$	(13,185	)	$	64		$	(27,825	)

Note 17 – Fair Value

Financial Instruments Measured at Fair Value

The methodologies Trustmark uses in determining the fair values are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected upon exchange of the position in an orderly transaction between market participants at the measurement date. The predominant portion of assets that are stated at fair value are of a nature that can be valued using prices or inputs that are readily observable through a variety of independent data providers. The providers selected by Trustmark for fair valuation data are widely recognized and accepted vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. Trustmark has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations for anomalies.

Trustmark utilizes an independent pricing service to advise it on the carrying value of the securities available for sale portfolio. As part of Trustmark’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, Trustmark investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. Trustmark has also reviewed and confirmed its determinations in thorough discussions with the pricing source regarding their methods of price discovery.

Mortgage loan commitments are valued based on the securities prices of similar collateral, term, rate and delivery for which the loan is eligible to deliver in place of the particular security. Trustmark acquires a broad array of mortgage security prices that are supplied by a market data vendor, which in turn accumulates prices from a broad list of securities dealers. Prices are processed through a mortgage pipeline management system that accumulates and segregates all loan commitment and forward-sale transactions according to the similarity of various characteristics (maturity, term, rate, and collateral). Prices are matched to those positions that are deemed to be an eligible substitute or offset (i.e., “deliverable”) for a corresponding security observed in the market place.

Trustmark estimates fair value of the MSR through the use of prevailing market participant assumptions and market participant valuation processes. This valuation is periodically tested and validated against other third-party firm valuations.

Trustmark obtains the fair value of interest rate swaps from a third-party pricing service that uses an industry standard discounted cash flow methodology. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its interest rate swap contracts for the effect of nonperformance risk, Trustmark has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the FASB’s fair value measurement guidance, Trustmark made an accounting policy election to measure the credit risk of these derivative financial instruments, which are subject to master netting agreements, on a net basis by counterparty portfolio.

Trustmark has determined that the majority of the inputs used to value its interest rate swaps offered to qualified commercial borrowers fall within Level 2 of the fair value hierarchy, while the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads. Trustmark has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and has determined that the credit valuation adjustment is not significant to the overall valuation of these derivatives. As a result, Trustmark classifies its interest rate swap valuations in Level 2 of the fair value hierarchy.

Trustmark also utilizes exchange-traded derivative instruments such as Treasury note futures contracts and option contracts to achieve a fair value return that offsets the changes in fair value of the MSR attributable to interest rates. Fair values of these derivative instruments are determined from quoted prices in active markets for identical assets therefore allowing them to be classified within Level 1 of the fair value hierarchy. In addition, Trustmark utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area which lack observable inputs for valuation purposes resulting in their inclusion in Level 3 of the fair value hierarchy.

At this time, Trustmark presents no fair values that are derived through internal modeling. Should positions requiring fair valuation arise that are not relevant to existing methodologies, Trustmark will make every reasonable effort to obtain market participant assumptions, or independent evaluation.

Financial Assets and Liabilities

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value ($ in thousands). There were no transfers between fair value levels for the nine months ended September 30, ~~2018~~2019 and the year ended December 31, ~~2017.~~2018.

	September 30, 2018									September 30, 2019
	Total		Level 1			Level 2		Level 3		Total		Level 1		Level 2		Level 3
U.S. Government agency obligations	$	32,371	$	—		$	32,371	$	—	$	24,697	$	—	$	24,697	$	—
Obligations of states and political subdivisions		57,264		—			57,264		—		35,001		—		35,001		—
Mortgage-backed securities		1,774,998		—			1,774,998		—		1,494,007		—		1,494,007		—
Securities available for sale		1,864,633		—			1,864,633		—		1,553,705		—		1,553,705		—
Loans held for sale		182,664		—			182,664		—		292,800		—		292,800		—
Mortgage servicing rights		101,374		—			—		101,374		73,016		—		—		73,016
Other assets - derivatives		3,287		(1,531	)		3,925		893		24,433		438		21,779		2,216
Other liabilities - derivatives		4,311		1,070			3,241		—		4,864		2,963		1,901		—

	December 31, 2017									December 31, 2018
	Total		Level 1			Level 2		Level 3		Total		Level 1		Level 2		Level 3
U.S. Government agency obligations	$	45,285	$	—		$	45,285	$	—	$	30,335	$	—	$	30,335	$	—
Obligations of states and political subdivisions		79,229		—			79,229		—		50,676		—		50,676		—
Mortgage-backed securities		2,114,121		—			2,114,121		—		1,730,802		—		1,730,802		—
Securities available for sale		2,238,635		—			2,238,635		—		1,811,813		—		1,811,813		—
Loans held for sale		180,512		—			180,512		—		153,799		—		153,799		—
Mortgage servicing rights		84,269		—			—		84,269		95,596		—		—		95,596
Other assets - derivatives		1,516		(1,013	)		1,629		900		12,347		5,006		6,154		1,187
Other liabilities - derivatives		2,678		616			2,062		—		4,213		66		4,147		—

The changes in Level 3 assets measured at fair value on a recurring basis for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 are summarized as follows ($ in thousands):

							MSR			Other Assets - Derivatives
Balance, January 1, 2019							$	95,596		$	1,187
Total net (loss) gain included in Mortgage banking, net (1)								(34,011	)		5,741
Additions								11,431			—
Sales								—			(4,712	)
Balance, September 30, 2019							$	73,016		$	2,216

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2019							$	(25,126	)	$	924
	MSR			Other Assets - Derivatives
Balance, January 1, 2018	$	84,269		$	900		$	84,269		$	900
Total net (loss) gain included in Mortgage banking, net (1)		4,857			3,345			4,857			3,345
Additions		12,248			—			12,248			—
Sales		—			(3,352	)		—			(3,352	)
Balance, September 30, 2018	$	101,374		$	893		$	101,374		$	893

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2018	$	13,879		$	247		$	13,879		$	247

Balance, January 1, 2017	$	80,239		$	1,001
Total net (loss) gain included in Mortgage banking, net (1)		(10,392	)		3,436
Additions		11,630			—
Sales		—			(3,431	)
Balance, September 30, 2017	$	81,477		$	1,006

The amount of total gains (losses) for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2017	$	(2,218	)	$	(1,483	)

(1)	Total net (loss) gain included in Mortgage banking, net relating to the MSR includes changes in fair value due to market changes and due to run-off.

Trustmark may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. Assets at September 30, ~~2018,~~2019, which have been measured at fair value on a nonrecurring basis, include impaired LHFI. Loans for which it is probable Trustmark will be unable to collect ~~the scheduled payments of principal or interest when~~all amounts due according to the contractual terms of the loan agreement are considered impaired. Specific allowances for impaired LHFI are based on comparisons of the recorded carrying values of the loans to the present value of the estimated cash flows of these loans at each loan’s original effective interest rate, the fair value of the collateral or the observable market prices of the loans. Impaired LHFI are primarily collateral dependent loans and are assessed using a fair value approach. Fair value estimates for collateral dependent loans are derived from appraised values based on the current market value or as-is value of the property being appraised, normally from recently received and reviewed appraisals. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Trustmark’s Appraisal Review Department to ensure they are acceptable. Appraised values are adjusted down for costs associated with asset disposal. At September 30, ~~2018,~~2019, Trustmark had outstanding balances of ~~$52.5~~$41.7 million with a related allowance of $4.4 million in impaired LHFI that were individually evaluated for impairment and written down to the fair value of the underlying collateral less cost to sell based on the fair value of the collateral or other unobservable input compared to ~~$48.9~~$55.8 million with a related allowance of $6.4 million at December 31, ~~2017.~~2018. These individually evaluated impaired LHFI are classified as Level 3 in the fair value hierarchy. Impaired LHFI are periodically reviewed and evaluated for additional impairment and adjusted accordingly based on the same factors identified above.

Nonfinancial Assets and Liabilities

Certain nonfinancial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

Other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is carried at the lower of cost or estimated fair value. Fair value is based on independent appraisals and other relevant factors. In the determination of fair value subsequent to foreclosure, Management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market.

Foreclosed assets of $12.0 million were remeasured during the first nine months of 2019, requiring write-downs of $1.4 million to reach their current fair values compared to $18.4 million of foreclosed assets that were remeasured during the first nine months of 2018, requiring write-downs of $1.9 ~~million to reach their current fair values compared to $22.0 million of foreclosed assets that were remeasured during the first nine months of 2017, requiring write-downs of $2.6~~ million.

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments can be found in Note 18 – Fair Value included in Item 8 of Trustmark’s Annual Report on Form 10-K for the year ended December 31, 2017.

The carrying amounts and estimated fair values of financial instruments at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, are as follows ($ in thousands):

	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Level 2 Inputs:
Cash and short-term investments	$	433,471	$	433,471	$	336,383	$	336,383	$	486,263	$	486,263	$	350,391	$	350,391
Securities held to maturity		943,883		907,317		1,056,486		1,046,247		785,422		794,685		909,643		889,733
Level 3 Inputs:
Net LHFI		8,658,156		8,560,091		8,493,234		8,507,469		9,140,442		9,217,088		8,756,578		8,757,817
Net acquired loans		130,901		130,901		257,438		257,438		79,755		79,755		105,701		105,701

Financial Liabilities:
Level 2 Inputs:
Deposits		10,956,910		10,953,348		10,577,512		10,577,858		11,254,183		11,259,381		11,364,411		11,365,203
Short-term liabilities		676,888		676,888		1,440,876		1,440,876
Long-term FHLB advances		896		831		946		946
Federal funds purchased and securities sold under repurchase agreements										376,712		376,712		50,471		50,471
Other borrowings										76,685		76,663		79,885		79,827
Junior subordinated debt securities		61,856		53,815		61,856		45,773		61,856		50,413		61,856		53,196

In cases where quoted market prices are not available, fair values are generally based on estimates using present value techniques. Trustmark’s premise in present value techniques is to represent the fair values on a basis of replacement value of the existing instrument given observed market rates on the measurement date. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates for those assets or liabilities cannot necessarily be substantiated by comparison to independent markets and, in many cases, may not be realizable in immediate settlement of the instruments. The estimated fair value of financial instruments with immediate and shorter-term maturities (generally 90 days or less) is assumed to be the same as the recorded book value. All nonfinancial instruments, by definition, have been excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of Trustmark.

~~On January 1, 2018, Trustmark adopted ASU 2016-01,~~ ~~“Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of the FASB Accounting Standards Codification)”~~, which required the use of the exit price notion when measuring the fair value of the LHFI portfolio. Please refer to Note 20 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements for more information.

Fair Value Option

Trustmark has elected to account for its mortgage LHFS under the fair value option, with interest income on these mortgage LHFS reported in interest and fees on LHFS and LHFI. The fair value of the mortgage LHFS is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan. The mortgage LHFS are actively managed and monitored and certain market risks of the loans may be mitigated through the use of derivatives. These derivative instruments are carried at fair value with changes in fair value recorded inas noninterest income in mortgage banking, net. The changes in the fair value of ~~the~~ LHFS are largely offset by changes in the fair value of the derivative instruments. For the three and nine months ended September 30, ~~2018,~~2019, a net loss of ~~$1.3 million~~$544 thousand and a net gain of ~~$416 thousand,~~$2.3 million, respectively, was recorded inas noninterest income in mortgage banking, net for changes in the fair value of ~~the~~ LHFS accounted for under the fair value option, compared to a net loss of ~~$202 thousand~~$1.3 million and a net gain of ~~$3.5 million~~$416 thousand for the three and nine months ended September 30, ~~2017,~~2018, respectively. Interest and fees on LHFS and LHFI for the three and nine months ended September 30, ~~2018~~2019 included ~~$1.5~~$1.7 million and ~~$3.8~~$4.1 million, respectively, of interest earned on ~~the~~ LHFS accounted for under the fair value option, compared to ~~$1.4~~$1.5 million and ~~$3.7~~$3.8 million for the three and nine months ended September 30, ~~2017,~~2018, respectively. Election of the fair value option allows Trustmark to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The fair value option election does not apply to ~~the~~ GNMA optional repurchase loans which do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option. GNMA optional repurchase loans totaled ~~$47.8~~$48.1 million and ~~$48.2~~$61.6 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and are included in LHFS on the accompanying consolidated balance sheets. For additional information regarding GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 3 – LHFI and Allowance for Loan Losses, LHFI.

The following table provides information about the fair value and the contractual principal outstanding of ~~the~~ LHFS accounted for under the fair value option as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Fair value of LHFS	$	134,874	$	132,300	$	244,703	$	92,235
LHFS contractual principal outstanding		134,598		129,347		238,562		89,056
Fair value less unpaid principal	$	276	$	2,953	$	6,141	$	3,179

Note 18 – Derivative Financial Instruments

Derivatives Designated as Hedging Instruments

On April 4, 2013, Trustmark entered into a forward interest rate swap contract on junior subordinated debentures with a total notional amount of $60.0 million. The interest rate swap contract was designated as a derivative instrument in a cash flow hedge under FASB ASC Topic 815, “Derivatives and Hedging,” with the objective of protecting the quarterly interest payments on Trustmark’s $60.0 million of junior subordinated debentures issued to Trustmark Preferred Capital Trust I throughout the five-year period beginning December 31, 2014 and ending December 31, 2019 from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate. Under the swap, which became effective on December 31, 2014, Trustmark will pay a fixed interest rate of 1.66% and receive a variable interest rate based on three-month LIBOR on a total notional amount of $60.0 million, with quarterly net settlements.

NoNaN ineffectiveness related to the interest rate swap designated as a cash flow hedge was recognized in the consolidated statements of income for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. The accumulated net after-tax gain related to the effective cash flow hedge included in accumulated other comprehensive loss totaled ~~$639~~$50 thousand at September 30, ~~2018~~2019 compared to a net after-tax gain of ~~$278~~$469 thousand at December 31, ~~2017.~~2018. Amounts reported in accumulated other comprehensive loss related to this derivative are reclassified to other interest expense as interest payments are made on Trustmark’s variable rate junior subordinated debentures. During the next ~~twelve~~three months, Trustmark estimates that ~~$644~~$67 thousand will be reclassified as a decrease to other interest expense.

Derivatives not Designated as Hedging Instruments

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in the fair value of the MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting. The total notional amount of these derivative instruments ~~were $252.0~~was $426.5 million at September 30, ~~2018~~2019 compared to ~~$349.0~~$318.0 million at December 31, ~~2017.~~2018. Changes in the fair value of these exchange-traded derivative instruments are recorded inas noninterest income in mortgage banking, net and are offset by changes in the fair value of the MSR. The impact of this strategy resulted in a net negative ineffectiveness of $3.7 million and a net positive ineffectiveness of $72 thousand ~~and a net negative ineffectiveness of $2.6 million~~ for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the impact was a net negative ineffectiveness of $8.5 million and a net positive ineffectiveness of $3.5 ~~million and $1.0~~ million, respectively.

As part of Trustmark’s risk management strategy in the mortgage banking area, derivative instruments such as forward sales contracts are utilized. Trustmark’s obligations under forward sales contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. Changes in the fair value of these derivative instruments are recorded inas noninterest income in mortgage banking, net and are offset by changes in the fair value of LHFS. Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$199.5~~$371.0 million at September 30, ~~2018,~~2019, with a ~~positive~~negative valuation adjustment of ~~$930~~$392 thousand, compared to ~~$182.1~~$132.0 million, with a negative valuation adjustment of ~~$237 thousand,~~$1.8 million, at December 31, ~~2017.~~2018.

Trustmark also utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area. Interest rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified time period. Changes in the fair value of these derivative instruments are recorded inas noninterest income in mortgage banking, net and are offset by the changes in the fair value of forward sales contracts. Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$102.9~~$183.2 million at September 30, ~~2018,~~2019, with a positive valuation adjustment of ~~$893 thousand,~~$2.2 million, compared to ~~$83.0~~$71.2 million, with a positive valuation adjustment of ~~$900 thousand,~~$1.2 million, as of December 31, ~~2017.~~2018.

Trustmark offers certain derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded inas noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. As of September 30, ~~2018,~~2019, Trustmark had interest rate swaps with an aggregate notional amount of ~~$410.2~~$854.0 million related to this program, compared to ~~$351.9~~$475.8 million as of December 31, ~~2017.~~2018.

Credit-risk-related Contingent Features

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

As of September 30, 2019 and December 31, 2018, ~~Trustmark had no~~the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements ~~compared to $80~~was $1.3 million and $75 thousand, ~~at December 31, 2017.~~respectively. As of September 30, ~~2018,~~2019, Trustmark had no posted collateral of $1.6 million against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, ~~2018,~~2019, it could have been required to settle its obligations under the agreements at the termination value.

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At both September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Trustmark had entered into ~~two~~3 risk participation agreements as a beneficiary with an aggregate notional amount of ~~$13.2~~$37.8 million and ~~$13.7~~$23.1 million, respectively. Trustmark had entered into ~~seven~~10 risk participation agreements as a guarantor with an aggregate notional amount of ~~$40.3~~$80.4 million at September 30, ~~2018~~2019 compared to ~~six~~7 risk participation agreements as a guarantor with an aggregate notional amount of ~~$37.1~~$39.0 million at December 31, ~~2017.~~2018. The aggregate fair values of these risk participation agreements were immaterial at September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Tabular Disclosures

The following tables disclose the fair value of derivative instruments in Trustmark’s consolidated balance sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 as well as the effect of these derivative instruments on Trustmark’s results of operations for the periods presented ($ in thousands):

	September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
Derivatives in hedging relationships
Interest rate contracts:
Interest rate swaps included in other assets	$	852		$	451		$	67	$	625

Derivatives not designated as hedging instruments
Interest rate contracts:
Futures contracts included in other assets	$	(1,569	)	$	(1,088	)	$	—	$	4,445
Exchange traded purchased options included in other assets		38			75			438		561
OTC written options (rate locks) included in other assets		893			900			2,216		1,187
Interest rate swaps included in other assets		3,073			1,175			21,625		5,487
Credit risk participation agreements included in other assets		—			3			87		42
Futures contracts included in other liabilities								2,426		—
Forward contracts included in other liabilities		(930	)		237			392		1,773
Exchange traded written options included in other liabilities		1,070			616			537		66
Interest rate swaps included in other liabilities		4,170			1,819			1,436		2,369
Credit risk participation agreements included in other liabilities		1			6			73		5

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Derivatives in hedging relationships
Amount of gain (loss) reclassified from accumulated other comprehensive loss and recognized in other interest expense	$	104		$	(55	)	$	209		$	(232	)	$	101		$	104		$	413		$	209

Derivatives not designated as hedging instruments
Amount of gain (loss) recognized in mortgage banking, net	$	(1,302	)	$	(466	)	$	(9,243	)	$	688		$	6,191		$	(1,302	)	$	18,988		$	(9,243	)
Amount of gain (loss) recognized in bank card and other fees		(86	)		(10	)		(41	)		(63	)		(600	)		(86	)		(1,343	)		(41	)

The following table discloses the amount included in other comprehensive income (loss), net of tax, for derivative instruments designated as cash flow hedges for the periods presented ($ in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017			2019		2018		2019			2018
Derivatives in cash flow hedging relationship
Amount of gain (loss) recognized in other comprehensive income (loss), net of tax	$	39	$	33	$	458	$	(61	)	$	14	$	39	$	(109	)	$	458

Trustmark’s interest rate swap derivative instruments are subject to master netting agreements, and therefore, eligible for offsetting in the consolidated balance sheets. Trustmark has elected to not offset any derivative instruments in its consolidated balance sheets. Information about financial instruments that are eligible for offset in the consolidated balance sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 is presented in the following tables ($ in thousands):

Offsetting of Derivative Assets
As of September 30, 2018
As of September 30, 2019
							Gross Amounts Not Offset in the Statement of Financial Position														Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	3,925	$	—	$	3,925	$	(84	)	$	(950	)	$	2,891	$	21,692	$	—	$	21,692	$	(67	)	$	—	$	21,625

Offsetting of Derivative Liabilities
As of September 30, 2018
As of September 30, 2019
							Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted		Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted			Net Amount
Derivatives	$	4,170	$	—	$	4,170	$	(84	)	$	—	$	4,086	$	1,436	$	—	$	1,436	$	(67	)	$	(1,640	)	$	(271	)

Offsetting of Derivative Assets
As of December 31, 2017
As of December 31, 2018
							Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received		Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received			Net Amount
Derivatives	$	1,626	$	—	$	1,626	$	(311	)	$	—	$	1,315	$	6,112	$	—	$	6,112	$	(339	)	$	(620	)	$	5,153

Offsetting of Derivative Liabilities
As of December 31, 2017
As of December 31, 2018
							Gross Amounts Not Offset in the Statement of Financial Position														Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted		Net Amount
Derivatives	$	1,819	$	—	$	1,819	$	(311	)	$	(100	)	$	1,408	$	2,369	$	—	$	2,369	$	(339	)	$	—	$	2,030

Note 19 – Segment Information

Trustmark’s management reporting structure includes ~~three~~3 segments: General Banking, Wealth Management and Insurance. For a complete overview of Trustmark’s operating segments, see Note 2021 – Segment Information included in Part II. Item 8. – Financial Statements and Supplementary Data, of Trustmark’s ~~2017~~2018 Annual ~~Report on Form 10-K. There have been no significant changes in Trustmark’s~~Report. During the first quarter of 2019, Trustmark revised the composition of its operating segments ~~during~~by moving the ~~periods presented.~~Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for segment reporting purposes. The prior period amounts presented include reclassifications to conform to the current period presentation.

The accounting policies of each reportable segment are the same as those of Trustmark except for its internal allocations. Noninterest expenses for back-office operations support are allocated to segments based on estimated uses of those services. Trustmark measures the net interest income of its business segments with a process that assigns cost of funds or earnings credit on a matched-term basis. This process, called “funds transfer pricing”, charges an appropriate cost of funds to assets held by a business unit, or credits the business unit for potential earnings for carrying liabilities. The net of these charges and credits flows through to the General Banking ~~segment,~~Segment, which contains the management team responsible for determining TNB’s funding and interest rate risk strategies.

The following table discloses financial information by reportable segment for the periods presented ($ in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

General Banking

Net interest income

$
106,784

$
103,408

$
313,299

$
302,613

Provision for loan losses, net

8,206

2,019

15,043

3,533

Noninterest income

28,557

26,570

87,587

88,830

Noninterest expense

89,889

88,814

267,462

284,420

Income before income taxes

37,246

39,145

118,381

103,490

Income taxes

3,536

7,130

13,430

19,772

General banking net income

$
33,710

$
32,015

$
104,951

$
83,718

Selected Financial Information

Total assets

$
13,364,636

$
13,811,335

$
13,364,636

$
13,811,335

Depreciation and amortization

$
9,759

$
9,863

$
28,959

$
28,196

Wealth Management

Net interest income

$
134

$
434

$
771

$
718

Noninterest income

7,769

7,512

22,768

22,513

Noninterest expense

7,194

6,791

19,996

20,361

Income before income taxes

709

1,155

3,543

2,870

Income taxes

177

441

886

1,098

Wealth management net income

$
532

$
714

$
2,657

$
1,772

Selected Financial Information

Total assets

$
9,411

$
6,635

$
9,411

$
6,635

Depreciation and amortization

$
64

$
30

$
116

$
104

Insurance

Net interest income

$
65

$
70

$
170

$
175

Noninterest income

10,767

10,398

30,922

29,360

Noninterest expense

8,140

7,481

24,030

22,437

Income before income taxes

2,692

2,987

7,062

7,098

Income taxes

681

1,137

1,774

2,726

Insurance net income

$
2,011

$
1,850

$
5,288

$
4,372

Selected Financial Information

Total assets

$
65,765

$
66,685

$
65,765

$
66,685

Depreciation and amortization

$
155

$
159

$
437

$
481

Consolidated

Net interest income

$
106,983

$
103,912

$
314,240

$
303,506

Provision for loan losses, net

8,206

2,019

15,043

3,533

Noninterest income

47,093

44,480

141,277

140,703

Noninterest expense

105,223

103,086

311,488

327,218

Income before income taxes

40,647

43,287

128,986

113,458

Income taxes

4,394

8,708

16,090

23,596

Consolidated net income

$
36,253

$
34,579

$
112,896

$
89,862

Selected Financial Information

Total assets

$
13,439,812

$
13,884,655

$
13,439,812

$
13,884,655

Depreciation and amortization

$
9,978

$
10,052

$
29,512

$
28,781

~~Note 20 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements~~

~~Accounting Policies Recently Adopted~~

~~Except for the changes detailed below, Trustmark has consistently applied its accounting policies to all periods presented in the accompanying consolidated financial statements.~~

~~ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”~~ Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Reform Act, enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. As a result of the re-measurement of Trustmark’s deferred tax assets following the enactment of the Tax Reform Act, accumulated other comprehensive loss included $8.5 million of stranded tax effects at December 31, 2017. Trustmark early adopted the amendments of 2018-02 during the first quarter of 2018 and elected to reclassify the stranded tax effects from accumulated other comprehensive loss to retained earnings at the beginning of the period of adoption. The reclassification of the stranded tax effects resulted in an $8.5 million increase in accumulated other comprehensive loss, net of tax and a corresponding increase in retained earnings.

~~ASU 2017-07, “Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”~~ Issued in March 2017, ASU 2017-07 is designed to improve guidance related to the presentation of defined benefit costs in the income statement. In particular, ASU No. 2017-07 requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, then that line item or items must be appropriately described. However, if a separate line item or items are not used, then the line item(s) used in the income statement to present the other components of net benefit cost must be disclosed. Additionally, ASU 2017-07 allows only the service cost component to be eligible for capitalization, when applicable. The amendments of ASU 2017-07 must be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively, on or after the adoption date, for capitalization of the service cost component in assets. Management evaluated the amendments of this ASU and determined that the amendments of ASU 2017-07 would require a reclassification of the net periodic benefit cost, with the exception of the service cost component, from salaries and employee benefits to other expense on the consolidated statements of income for each period presented, which is not considered material to Trustmark’s consolidated financial statements. Trustmark adopted the amendments of ASU 2017-07 effective January 1, 2018. Trustmark elected the available practical expedient which allows Trustmark to use the amounts disclosed in its pension and other postretirement benefits footnote for the prior comparative periods for applying the retrospective presentation requirements. As a result of the adoption of ASU 2017-07, Trustmark reclassified $885 thousand and $2.7 million of the net periodic benefit cost from salaries and employee benefits to other expense in the accompanying consolidated statements of income for the three and nine months ended September 30, 2018, respectively, compared to $966 thousand and $4.8 million for the three and nine months ended September 30, 2017, respectively.

ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of the FASB Accounting Standards Codification).” Issued in January 2016, ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with improved decision-making information. The amendments of ASU 2016-01 include: (i) requiring equity investments, except those accounted for under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value with changes in fair value recognized in net income; (ii) requiring a qualitative assessment to identify impairment of equity investments without readily determinable fair values; (iii) eliminating the requirement to disclose the method and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (iv) requiring the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requiring an entity that has elected the fair value option

to measure the fair value of a liability to present separately in other comprehensive income the portion of the change in the fair value resulting from a change in the instrument-specific credit risk; (vi) requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The amendments of ASU 2016-01 became effective for Trustmark on January 1, 2018. Trustmark’s investments in member bank stock, which are equity securities that do not have readily determinable fair values, are not within the scope of ASU 2016-01. See Note 1 – Significant Accounting Policies, “Federal Home Loan Bank (FHLB) and Federal Reserve Bank of Atlanta Stock” included in Item 8 of Trustmark’s 2017 Annual Report on Form 10-K for information regarding Trustmark’s investment in member bank stock. Adoption of the amendments of ASU 2016-01 resulted in changes to Trustmark’s fair value related disclosures, specifically amendments (iii) which eliminated the requirement to disclose the method and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet and (iv) which required the use of the exit price notion when measuring the fair value of the LHFI portfolio. Changes to Trustmark’s fair value related disclosures are presented in Note 17 – Fair Value of this report. The adoption of ASU 2016-01 did not have a material impact on Trustmark’s consolidated financial statements.

~~ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).”~~ Issued in May 2014, ASU 2014-09 will add FASB ASC Topic 606, “Revenue from Contracts with Customers,” and will supersede revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” as well as certain cost guidance in FASB ASC Topic 605-35, “Revenue Recognition – Construction-Type and Production-Type Contracts.” ASU 2014-09 provides a framework for revenue recognition that replaces the existing industry and transaction specific requirements under the existing standards. ASU 2014-09 requires an entity to apply a five-step model to determine when to recognize revenue and at what amount. The model specifies that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at the amount in which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity’s performance, or at a point in time, when control of the goods or services are transferred to the customer. ASU 2014-09 provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. In addition, the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement in ASU 2014-09. The amendments of ASU 2014-09 may be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If the transition method of application is elected, the entity should also provide the additional disclosures in reporting periods that include the date of initial application of (1) the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and (2) an explanation of the reasons for significant changes. The amendments of ASU 2014-09 and all subsequently issued ASUs, which provided additional guidance and clarifications to various aspects of FASB ASC Topic 606, became effective for Trustmark on January 1, 2018. Trustmark elected to adopt these amendments using the modified retrospective method (cumulative effect method) of application for only those contracts not completed as of the date of adoption; therefore, comparative information has not been adjusted and continues to be reported under legacy GAAP. Trustmark’s contracts with customers are primarily for a term of one year or less and substantially all of Trustmark’s contracts were completed as of January 1, 2018. Management determined that approximately 23% of the revenues earned by Trustmark are within the scope of ASU 2014-09, and, for most of the revenue streams within the scope of ASU 2014-09, the amendments do not change the timing or amount of revenue recognized. No cumulative adjustment was recorded as a result of the adoption of ASU 2014-09. Disclosures required by the amendments of ASU 2014-09 are presented in Note 10 – Revenue from Contracts with Customers of this report. The adoption of ASU 2014-09 did not have a material impact on Trustmark’s consolidated financial statements. Changes in Trustmark’s accounting policies as a result of adopting the amendments of ASU 2014-09 included the following:

~~Bank Card and Other Fees~~

Previously, Trustmark recognized interchange fee revenue from point of sale transactions in full as noninterest income in bank card and other fees and recorded a separate expense as noninterest expense in other expense for the amounts payable to the payment network. Under the guidelines of FASB ASC Topic 606, Trustmark records the amounts payable to the payment network for point of sale transactions as noninterest income in bank card and other fees and, therefore, reports revenue from interchange fee contracts net of the considered for which Trustmark is not entitled.

~~Insurance Commissions~~

Commissions subject to clawback provisions are considered variable consideration subject to variable constraint under FASB ASC Topic 606. Previously, FBBI recognized revenue from insurance contracts in full when the commissions were invoiced or received and recorded a negative commission amount at the time the commissions were paid back to the insurance provider as a result of a

policy cancellation or lapse. No allowance for doubtful accounts was previously recorded related to the commission revenue subject to clawback provisions. As a result of the adoption of FASB ASC Topic 606, FBBI calculates a separate weighted-average percentage (returned commissions percentage) based on actual cancellations over the previous three years for commercial lines, bonds, and personal lines. FBBI applies the respective returned commissions percentage to the commission revenue earned related to insurance contracts within these three lines each month to calculate the estimated returned commissions amount, which represents the variable consideration subject to variable constraint. Revenue from insurance contracts is reported net of the estimated returned commissions amount (contra-revenue) and a corresponding liability is recorded in other liabilities. FBBI performs an analysis of the returned commissions reserve quarterly and adjusts the reserve balance based on all available information including actual cancellations and the remaining term of the contract. The returned commissions percentage is updated annually.

		Three Months Ended September 30,							Nine Months Ended September 30,
		2019				2018			2019		2018
General Banking
Net interest income		$	107,540			$	105,935		$	318,008	$	310,620
Provision for loan losses, net			2,895				8,212			7,179		15,054
Noninterest income			29,575				28,509			83,296		87,444
Noninterest expense			93,709				89,288			275,052		265,699
Income before income taxes			40,511				36,944			119,073		117,311
Income taxes			4,432				3,460			14,033		13,162
General banking net income		$	36,079			$	33,484		$	105,040	$	104,149

Selected Financial Information
Total assets		$	13,421,295			$	13,269,567		$	13,421,295	$	13,269,567
Depreciation and amortization		$	10,255			$	9,758		$	28,987	$	28,955

Wealth Management	A portion of the revenue received by Trustmark from investment services and trust tax contracts are payable to third-parties for related services rendered and represents consideration for which Trustmark is not entitled under FASB ASC Topic 606. Previously, Trustmark recognized revenue from investment services and trust tax contracts in full as noninterest income in wealth management and recorded a separate expense for services rendered related to these contracts as noninterest expense in other expense. Under FASB ASC Topic 606, Trustmark records expenses for services rendered related to these contracts as noninterest income in wealth management (contra-revenue) and, as a result, revenue from wealth management contracts is reported net of the amount for which Trustmark is not entitled.	~~Pending Accounting Pronouncements~~	ASU 2018-15, “Intangibles-Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Issued in August 2018, ASU 2018-15 aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments of ASU 2018-15 require an entity to follow the guidance in FASB ASC Subtopic 350-40, “Intangibles-Goodwill and Other-Internal-Use Software,” in order to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments of ASU 2018-15 also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (i.e. the noncancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the entity is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the entity is reasonably certain not to exercise the option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor). ASU 2018-15 also requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement, and to classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Trustmark does not currently have any material amount of implementation costs related to hosting arrangements that are service contracts and is not expected to have a material impact to Trustmark’s consolidated financial statements; however, Management will continue to evaluate the impact of this ASU on future hosting arrangements as well as Trustmark’s consolidated financial statements through its effective date.	~~ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.”~~ Issued in August 2018, ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 remove certain disclosure requirements that are no longer considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. T~~he amendments of ASU 2018-14 become effective for fiscal years beginning after December 15, 2020. Trustmark plans to adopt these amendments during the first quarter of 2021.~~ Management is currently assessing all the potential impacts of the amendments in ASU 2018-14 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2018-14 is not expected to have a material impact on Trustmark’s consolidated financial statements.	~~ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.”~~ Issued in August 2018, the amendments in this ASU remove disclosure requirements in FASB ASC Topic 820 related to (1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for non-public entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU also modifies disclosure requirements such that (1) in place of a rollforward for Level 3 fair	value measurements, a non-public entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date that restrictions from redemption might lapse, only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) it is clear that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additionally, this ASU adds disclosure requirements for public entities about (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments of ASU 2018-13 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Trustmark plans to adopt ASU 2018-13 during the first quarter of 2020. Management is currently assessing all the potential impacts of the amendments in ASU 2018-13 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2018-13 is not expected to have a material impact on Trustmark’s consolidated financial statements.	~~ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”~~ Issued in August 2017, ASU 2017-12 aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in ASU 2017-12 aim to better align an entity’s risk management activities and financial reporting for hedging relationships by expanding and refining hedge accounting for both non-financial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in ASU 2017-12 (i) permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and
Net interest rate risk; (ii) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (iii) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (iv) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-country basis spread from the assessment of hedge effectiveness. The amendments of ASU 2017-12 also include targeted improvements intended to simplify the application of hedge accounting. The amendments of ASU 2017-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. All transition requirements and elections must be applied to all hedging relationships existing at the date of adoption. Trustmark plans to adopt ASU 2017-12 during the first quarter of 2019 using the required modified retrospective transition method. Trustmark will recognize the cumulative effect of the change, if any, in the beginning balance of each affected component of equity as of January 1, 2019. Management is currently assessing all the potential impacts of the amendments in ASU 2017-12 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2017-12 is not expected to have a material impact on Trustmark’s consolidated financial statements.income	~~ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ Issued in March 2017, ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in ASU 2017-08 require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. Notably, the amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. Securities within the scope of ASU 2017-08 are purchased debt securities that have explicit, noncontingent call features that are callable at fixed prices and on preset dates. The amendments of ASU 2017-08 become effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Trustmark plans to adopt these amendments during the first quarter of 2019. As of September 30, 2018, Trustmark’s total unamortized premium for purchased debt securities within the scope of ASU 2017-08 was immaterial. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements through its effective date; however, the adoption of ASU 2017-08 is not expected to have a material impact on Trustmark’s consolidated financial statements.	~~ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”~~ Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 is effective prospectively for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. Based on Trustmark’s annual goodwill impairment test performed as of October 1, 2017, the fair value of its reporting units exceeded$	the carrying value and, therefore, the related goodwill was not impaired. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements through its effective date; however, the adoption of ASU 2017-04 is not expected to have a material impact on Trustmark’s consolidated financial statements.854	~~ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”~~ Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Additionally, the amendments of ASU 2016-13 require that credit losses on available for sale debt securities be presented as an allowance rather than as a write-down. The amendments of ASU 2016-13 are effective for interim and annual periods beginning after December 15, 2019. Earlier application is permitted for interim and annual periods beginning after December 15, 2018. Trustmark has established a Current Expected Credit Loss (CECL) Steering Committee and a CECL Working Group which include the appropriate members of Management to evaluate the impact this ASU will have on Trustmark’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing the amendments in this ASU as well as any resources needed to implement the amendments. Trustmark intends to adopt the amendments of ASU 2016-13 during the first quarter of 2020. Trustmark selected a third-party vendor to provide allowance		$	983		$	2,808	$	3,450
Provision for loan ~~loss software as well as advisory services in developing a new methodology that would be compliant with amendments of ASU 2016-13,~~losses, net			4				(6	)		1		(11	)
Noninterest income			7,685				7,817			23,128		22,911
Noninterest expense			5,191				7,795			19,346		21,759
Income before income taxes			3,344				1,011			6,589		4,613
Income taxes			836				253			1,643		1,154
Wealth management net income		$	2,508			$	758		$	4,946	$	3,459

Selected Financial Information
Total assets		$	90,405			$	104,480		$	90,405	$	104,480
Depreciation and ~~is working with the approved third-party vendor to develop the CECL model~~amortization		$	66			$	65		$	202	$	120

Insurance
Net interest income		$	72			$	65		$	182	$	170
Noninterest income			11,077				10,767			33,043		30,922
Noninterest expense			7,953				8,140			24,577		24,030
Income before income taxes			3,196				2,692			8,648		7,062
Income taxes			748				681			2,120		1,774
Insurance net income		$	2,448			$	2,011		$	6,528	$	5,288

Selected Financial Information
Total assets		$	73,086			$	65,765		$	73,086	$	65,765
Depreciation and ~~evaluate the impact to Trustmark. Trustmark is working with the third-party vendor on developing various modeling techniques~~amortization		$	141			$	155		$	396	$	437

Consolidated
Net interest income		$	108,466			$	106,983		$	320,998	$	314,240
Provision for loan losses, net			2,899				8,206			7,180		15,043
Noninterest income			48,337				47,093			139,467		141,277
Noninterest expense			106,853				105,223			318,975		311,488
Income before income taxes			47,051				40,647			134,310		128,986
Income taxes			6,016				4,394			17,796		16,090
Consolidated net income		$	41,035			$	36,253		$	116,514	$	112,896

Selected Financial Information
Total assets		$	13,584,786			$	13,439,812		$	13,584,786	$	13,439,812
Depreciation and methodologies, which Management will review to determine the most appropriate model for Trustmark. Trustmark is on schedule to fully comply with all CECL requirements within its internally established timeframe for implementation. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements through its effective date.amortization	~~ASU 2016-02, “Leases (Topic 842).”~~ Issued in February 2016, ASU 2016-02 was issued by the FASB to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. The amendments of ASU 2016-02 are effective for interim and annual periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842: Leases,” which provides corrections or improvements to a number of areas within Topic 842 and has the same transition guidance and effective date as ASU 2016-02. The FASB also issued ASU 2018-11, “Leases (Topic 842)-Targeted Improvements”, in July 2018, which provides entities with an additional and optional transition method to adopt the new lease standard and, for lessors only, a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. The amendments in ASU 2018-11 allow an entity the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as opposed to at the beginning of the earliest period presented in the financial statements. The amendments of ASU 2018-11 have the same effective date as ASU 2016-02. Trustmark plans to adopt the amendments of ASU 2016-02 beginning in the first quarter of 2019. At adoption, Trustmark will recognize a lease asset and a corresponding lease liability on its consolidated balance sheet for its total lease obligation measured on a discounted basis. As of December 31, 2017, all leases in which Trustmark was the lessee were classified as operating leases and the total outstanding lease obligation was $67.9 million, or 0.5% of total assets. Management is currently evaluating these lease obligations as potential lease assets and liabilities as defined by ASU 2016-02. Trustmark does not anticipant any material impact to its consolidated statements of income as a result of the adoption of this ASU. Trustmark has an immaterial amount of leases in which it is the lessor. Based on Management’s evaluation to date, Trustmark does not expect the amendments of ASU 2016-02 to have any material impact to these leases or the related income. Trustmark has obtained a third-party software application which will provide lease contract maintenance and lease accounting under the guidelines of FASB ASC Topic 842. Management is currently in the process of loading all existing lease contracts into the software application. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements; however, the adoption of ASU 2016-02 is not expected to have a material impact on Trustmark’s consolidated financial statements.	$	10,462			$	9,978		$	29,585	$	29,512

Note 20 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements

Accounting Policies Recently Adopted

Except for the changes detailed below, Trustmark has consistently applied its accounting policies to all periods presented in the accompanying consolidated financial statements.

ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” Issued in August 2017, ASU 2017-12 aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in ASU 2017-12 aim to better align an entity’s risk management activities and financial reporting for hedging relationships by expanding and refining hedge accounting for both non-financial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in ASU 2017-12 (i) permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk; (ii) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (iii) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (iv) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-country basis spread from the assessment of hedge effectiveness. The amendments of ASU 2017-12 also include targeted improvements intended to simplify the application of hedge accounting. All transition requirements and elections must be applied to all hedging relationships existing at the date of adoption. The amendments of ASU 2017-12 became effective for Trustmark on January 1, 2019. ASU 2017-12 did not have any impact to Trustmark’s existing hedging relationships at adoption; therefore, the adoption of ASU 2017-12 did not have a material impact on Trustmark’s consolidated financial statements.

ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” Issued in March 2017, ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in ASU 2017-08 require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. Notably, the amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. Securities within the scope of ASU 2017-08 are purchased debt securities that have explicit, noncontingent call features that are callable at fixed prices and on preset dates. The amendments of ASU 2017-08 became effective for Trustmark on January 1, 2019. Trustmark’s total unamortized premium for purchased debt securities within the scope of ASU 2017-08 is immaterial; therefore, the adoption of ASU 2017-08 did not have a material impact on Trustmark’s consolidated financial statements.

ASU 2016-02, “Leases (Topic 842).” Issued in February 2016, ASU 2016-02 was issued by the FASB to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842: Leases,” which provides corrections or improvements to a number of areas within FASB ASC Topic 842 and has the same transition guidance and effective date as ASU 2016-02. The FASB also issued ASU 2018-11, “Leases (Topic 842)-Targeted Improvements”, in July 2018, which provides entities with an additional and optional transition method to adopt the new lease standard and, for lessors only, a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. The amendments in ASU 2018-11 allow an entity the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as opposed to at the beginning of the earliest period presented in the financial statements. The amendments of ASU 2018-11 have the same effective date as ASU 2016-02. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which provides targeted improvements and clarification to guidance with FASB ASC Topic 842 specific to lessors. The amendments of ASU 2018-20 have the same effective date as ASU 2016-02 and may be applied either retrospectively or prospectively to all new and existing leases. Trustmark has an immaterial amount of leases in which it is the lessor and adoption of ASU 2016-02 did not have a material impact to these leases or the related income. Trustmark obtained a third-party software application which will provide lease contract maintenance and lease accounting under the guidelines of FASB ASC Topic 842. All existing lease contracts, with the exception of short-term leases, were loaded into the software application and reviewed by Management. The amendments of ASU 2016-02 and subsequently issued ASUs, which provided additional guidance and clarifications to various aspects of FASB ASC Topic 842, became effective for Trustmark on January 1, 2019. Trustmark adopted the amendments in this ASU using the optional transition method allowable under ASU 2018-11, and was not required to recognize any cumulative-effect adjustment to the opening

balance of retained earnings. During the first quarter of 2019, Trustmark recorded operating lease right-of-use assets and operating lease liabilities of $33.9 million and $34.9 million, respectively, in its consolidation balance sheet. Additionally, Trustmark recorded finance lease right-of-use assets, net of accumulated depreciation, of $11.2 million in premises and equipment, net and finance lease liabilities of $11.2 million in other borrowings. Trustmark’s total lease right-of-use assets, net represented approximately 0.3% of its total assets as of March 31, 2019; therefore, the adoption of ASU 2016-02 did not have a material impact on Trustmark’s consolidated financial statements. Disclosures required by the amendments of ASU 2016-02 are included in Note 7 – Leases of this report.

Pending Accounting Pronouncements

ASU 2018-15, “Intangibles-Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Issued in August 2018, ASU 2018-15 aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments of ASU 2018-15 require an entity to follow the guidance in FASB ASC Subtopic 350-40, “Intangibles-Goodwill and Other-Internal-Use Software,” in order to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments of ASU 2018-15 also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (i.e. the noncancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the entity is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the entity is reasonably certain not to exercise the option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor). ASU 2018-15 also requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement, and to classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Trustmark does not currently have any material amount of implementation costs related to hosting arrangements that are service contracts and is not expected to have a material impact to Trustmark’s consolidated financial statements; however, Management will continue to evaluate the impact of this ASU on future hosting arrangements as well as Trustmark’s consolidated financial statements through its effective date.

ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” Issued in August 2018, ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 remove certain disclosure requirements that are no longer considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. The amendments of ASU 2018-14 become effective for fiscal years beginning after December 15, 2020. Trustmark plans to adopt these amendments during the first quarter of 2021. Management is currently assessing all the potential impacts of the amendments in ASU 2018-14 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2018-14 is not expected to have a material impact on Trustmark’s consolidated financial statements.

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” Issued in August 2018, the amendments in this ASU remove disclosure requirements in FASB ASC Topic 820 related to (1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for non-public entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU also modifies disclosure requirements such that (1) in place of a rollforward for Level 3 fair value measurements, a non-public entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date that restrictions from redemption might lapse, only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) it is clear that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additionally, this ASU adds disclosure requirements for public entities about (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments of ASU 2018-13 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Trustmark plans to adopt ASU 2018-13 during the first quarter of 2020. Management is currently assessing all the potential impacts of the amendments in ASU 2018-13 on Trustmark’s consolidated financial statements; however, the adoption of ASU 2018-13 is not expected to have a material impact on Trustmark’s consolidated financial statements.

ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 is effective prospectively for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. Based on Trustmark’s annual goodwill impairment test performed as of October 1, 2018, the fair value of its reporting units exceeded the carrying value and, therefore, the related goodwill was not impaired. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements through its effective date; however, the adoption of ASU 2017-04 is not expected to have a material impact on Trustmark’s consolidated financial statements.

ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Additionally, the amendments of ASU 2016-13 require that credit losses on available for sale debt securities be presented as an allowance rather than as a write-down. The amendments of ASU 2016-13 are effective for interim and annual periods beginning after December 15, 2019. Earlier application is permitted for interim and annual periods beginning after December 15, 2018. Trustmark has established a cross-functional Current Expected Credit Loss (CECL) Steering Committee, a CECL Solution Development Working Group and a CECL Working Group which include the appropriate members of Management to evaluate the impact this ASU, and all subsequent ASUs issued by FASB to provide clarification related to this Topic, will have on Trustmark’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing the amendments in these ASUs as well as any resources needed to implement the amendments. Trustmark plans to adopt the amendments of ASU 2016-13, and all subsequently issued ASUs, during the first quarter of 2020. Trustmark selected a third-party vendor to provide allowance for loan loss software as well as advisory services in developing a new methodology that would be compliant with amendments of ASU 2016-13, and is working with the approved third-party vendor to develop the CECL model and evaluate the impact to Trustmark. During 2019, Trustmark is focused on model validations as well as development of process and related controls. Trustmark is on schedule to fully comply with all CECL requirements within its internally established timeframe for implementation. Management will continue to evaluate the impact this ASU will have on Trustmark’s consolidated financial statements through its effective date.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following provides a narrative discussion and analysis of Trustmark Corporation’s (Trustmark) financial condition and results of operations. This discussion should be read in conjunction with the unaudited consolidated financial statements and the supplemental financial data included in Part I. Item 1. – Financial Statements of this report.

Description of Business

Trustmark, a Mississippi business corporation incorporated in 1968, is a bank holding company headquartered in Jackson, Mississippi. Trustmark’s principal subsidiary is Trustmark National Bank (TNB), initially chartered by the State of Mississippi in 1889. At September 30, ~~2018,~~2019, TNB had total assets of ~~$13.437~~$13.583 billion, which represented approximately 99.98% of the consolidated assets of Trustmark.

Through TNB and its other subsidiaries, Trustmark operates as a financial services organization providing banking and other financial solutions through ~~198~~193 offices and ~~2,889~~2,835 full-time equivalent associates (measured at September 30, ~~2018)~~2019) located in the states of Alabama, Florida (primarily in the northwest or “Panhandle” region of that state, which is referred to herein as Trustmark’s Florida market), Mississippi, Tennessee (in the Memphis and Northern Mississippi regions, which are collectively referred to herein as Trustmark’s Tennessee market), and Texas (primarily in Houston, which is referred to herein as Trustmark’s Texas market). Trustmark’s operations are managed along three operating segments: General Banking ~~Division,~~Segment, Wealth Management ~~Division~~Segment and Insurance ~~Division.~~Segment. For a complete overview of Trustmark’s business, see the section captioned “The Corporation” included in Part I. Item 1. – Business of Trustmark’s ~~2017~~2018 Annual ~~Report on Form 10-K.~~Report.

Executive Overview

During the first nine months of 2019, Trustmark continued to ~~achieve~~focus on its strategic initiatives of profitably growing each of its financial services businesses, optimizing its balance sheet, deploying capital through stock repurchases and maintaining disciplined expense management. Trustmark achieved solid financial results with total revenue of ~~$154.1~~$156.8 million and ~~$455.5~~$460.5 million for the three and nine months ended September 30, ~~2018, an increase of 3.8% and 2.5%, respectively, when compared to the same time periods in 2017.~~2019, respectively. Trustmark continued to ~~focus on its strategic initiatives~~maintain and expand customer relationships as reflected by growth in the LHFI portfolio of ~~balance sheet optimization, capital deployment through additional share repurchases and disciplined expense management.~~$387.8 million, or 4.4%, during the first nine months of 2019. Credit quality remained strong and continued to be an important contributor to Trustmark’s financial success. Trustmark is committed to managing the franchise for the long term, supporting investments to ~~support~~promote profitable revenue growth, realigning delivery channels to support changing customer preferences as well as reengineering and efficiency opportunities to enhance long-term shareholder value. Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable December 15, ~~2018,~~2019, to shareholders of record on December 1, ~~2018.~~

Recent Economic and Industry Developments

The economy continued to show moderate signs of improvement during the first nine months of ~~2018;~~2019; however, economic concerns remain as a result of the cumulative weight of volatility in crude oil prices and uncertain growth prospects in ~~Russia and other~~ emerging markets, combined with uncertainty regarding the ~~impact of further tightening of the~~potential monetary policy changes by the ~~Board of Governors of the Federal Reserve System (FRB),~~FRB, the consequences of the decision of the United Kingdom to exit the European Union, ~~and~~ the potential impact on the economy of the current United States presidential administration’s ~~policies.~~policies and United States trade relations, particularly with China. Doubts surrounding the near-term direction of global markets, and the potential impact of these trends on the United States economy, are expected to persist for the near term. While Trustmark’s customer base is wholly domestic, international economic conditions affect domestic conditions, and thus may have an impact upon Trustmark’s financial condition or results of operations.

In the ~~September 2018~~October 2019 “Summary of Commentary on Current Economic Conditions by Federal Reserve ~~Districts,~~District,” the twelve Federal Reserve Districts’ reports suggested national economic activity ~~continued to expand~~expanded at a ~~moderate~~slight to modest pace during the reporting period. Reports by the twelve Federal Reserve Districts noted ~~consumer~~retail sales increased modestly, while light vehicle sales were generally robust, tourism and travel-related spending ~~grew~~increased modestly, nonresidential construction increased at a slightly slower yet modest pace, ~~tourism and transportation activities expanded, moderate growth in~~leasing activity advanced at a slow but steady rate, manufacturing activity ~~growth~~continued to edge downward, a moderate rise in ~~lending~~loan volumes, nonfinancial services activity increased solidly, and ~~modest~~agricultural conditions continued to ~~moderate growth in employment~~deteriorate due to adverse weather, weak commodity prices and ~~wages.~~trade disruptions. Reports by the twelve Federal Reserve Districts also suggested that various sectors, including manufacturing, agriculture and transportation, have concerns regarding the impact of newly imposed and proposed tariffs, higher input prices (e.g. fuel, freight,

~~construction materials and metals) and supply disruptions and~~noted employment rose slightly with moderate gains in wages in most districts; however, tight labor ~~markets; however, businesses remained optimistic regarding~~markets continue to restrain the ~~near-term outlook.~~rate of growth and place pressures on wages, particularly for skilled workers and lower skilled workers in the retail and hospitality industries. Reports by the twelve Federal Reserve Districts noted the rate of price inflation was modest and increases in input costs, particularly for items subject to new tariffs. The Federal Reserve’s Sixth District, Atlanta (which includes Trustmark’s Alabama, Florida and Mississippi market regions), reported that economic activity expanded at a ~~moderate~~modest pace, ~~with optimistic outlooks for steady growth in the near-term,~~ labor markets remained tight and wage ~~growth remained steady, retail~~pressures increased particularly for lower-skilled positions, auto sales improved ~~nonresidential construction~~for trucks and SUVs, residential real estate activity improved as lower mortgage rates increased demand for housing and commercial real estate activity was ~~flat while residential construction~~stable, manufacturing activity increased and ~~manufacturing~~banking activity ~~improved.~~was steady. The Federal Reserve’s Sixth District also reported that the overall outlook among businesses was that economic activity would continue to expand at a similar pace for the remainder of 2019. The Federal Reserve’s Eighth District, St. Louis (which includes Trustmark’s Tennessee market region), reported that economic conditions improved slightly, labor markets remained tight ~~with modest~~and moderate growth in wages, price pressures increased modestly, consumer spending ~~improved~~activity increased slightly, ~~modest improvements~~slight declines in manufacturing activity, residential construction activity increased slightly, while commercial construction activity was mixed, loan volumes increased, though at a slightly slower pace, and ~~banking~~modest declines in agricultural conditions ~~remained stable with little change in loan demand.~~due to adverse weather conditions. The Federal Reserve’s Eleventh District, Dallas (which includes Trustmark’s Texas market region), reported economic activity ~~expanded~~continued to expand at a ~~solid~~moderate pace, noting ~~increased~~growth continued in nonfinancial services and manufacturing activity ~~improvements in~~and retail sales strengthened slightly, while drilling activity continued to decline, loan demand accelerated, home sales continued to increase, solid growth in employment despite tight labor markets and ~~broad-based expansion in the nonfinancial services sectors.~~wage pressures retreated slightly to more average levels. The Federal

Reserve’s Eleventh District also reported that outlooks were mixed with increased ~~demand for loans, with stronger growth seen in commercial~~uncertainty due to growing concerns related to trade tensions, the political climate, recession concerns and residential real estate loans and commercial and industrial loans, increased loan pricing and higher deposit volumes; however, while outlooks remained optimistic, concerns regarding regulatory compliance, tariffs and flattening of the yield curve were noted.weaker global growth.

~~During September 2018, the~~The FRB ~~increased~~lowered the target range for the federal funds rate ~~for~~twice during the third ~~time~~quarter of 2019 and announced a third rate cut in ~~2018 as anticipated. The FRB also continues to reduce~~October of 2019. Interest rates remain within a low range that, when combined with the ~~size~~extended period of ~~its balance sheet. It is not possible to predict the impact, if any, on market~~historically low interest rates ~~(or on markets generally) of efforts by the FRB to~~in recent years, continue ~~to reduce the size of its balance sheet. Notwithstanding recent increases in the target rate for federal funds by the FRB, interest rates remain in a historically low range, and this continues~~ to place pressure on net interest margins for Trustmark (as well as its competitors). ~~The FRB has indicated that it intends to continue to raise~~Any further declines in interest rates ~~in 2018. Further~~will place additional competitive pressure on net interest margins. Conversely, increases in interest rates will place competitive pressures on the deposit cost of funds. It is not possible to predict the pace and magnitude of ~~rising~~changes to interest rates, or the impact ~~rising rates~~rate changes will have on Trustmark’s results of operations.

Financial Highlights

Trustmark reported net income of $41.0 million, or basic and diluted EPS of $0.64, in the third quarter of 2019, compared to $36.3 million, or basic and diluted ~~earnings per share (EPS)~~EPS of $0.54, in the third quarter of 2018, compared to $34.6 million, or basic and diluted EPS of $0.51, in the third quarter of 2017. The increase in net income when the third quarter of 2018 is compared to the same time period in 2017 was principally due to the increase in total revenue and a decrease in income taxes, primarily due to the decrease in the statutory corporate tax rate as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), which were largely offset by increases in the total provision for loan losses, net and noninterest expense. These factors are discussed in greater detail below.2018. Trustmark’s reported performance during the quarter ended September 30, ~~2018~~2019 produced a return on average tangible equity of 13.31%, a return on average assets of 1.21%, an average equity to average assets ratio of 12.14% and a dividend payout ratio of 35.94%, compared to a return on average tangible equity of 12.26%, a return on average assets of 1.07%, an average equity to average assets ratio of 11.86% and a dividend payout ratio of 42.59%~~, compared to a return on average tangible equity of 11.95%, a return on average assets of 0.99%, an average equity to average assets ratio of 11.36% and a dividend payout ratio of 45.10%~~ during the quarter ended September 30, ~~2017.~~2018.

Trustmark reported net income of $116.5 million, or basic and diluted EPS of $1.80, for the first nine months of 2019, compared to $112.9 million, or basic and diluted EPS of $1.67, for the first nine months of 2018, compared to $89.9 million, or basic and diluted EPS of $1.33 and $1.32, respectively, for the first nine months of 2017. The increase in net income when the first nine months of 2018 is compared to the same time period in 2017 was principally due to the decrease in noninterest expense, primarily due to non-routine expenses related to the defined benefit pension plan termination and the Reliance merger incurred during the second quarter of 2017, an increase in total revenue and a decrease in income taxes, partially offset by an increase in the total provision for loan losses, net. These factors are discussed in greater detail below.2018. Trustmark’s reported performance during the ~~first~~ nine months ended September 30, 2019 produced a return on average tangible equity of ~~2018 produced~~13.01%, a return on average assets of 1.15%, an average equity to average assets ratio of 11.92% and a dividend payout ratio of 38.33%, compared to a return on average tangible equity of 13.02%, a return on average assets of 1.12%, an average equity to average assets ratio of 11.72% and a dividend payout ratio of 41.32%~~, compared to a return on average tangible equity of 10.68%, a return on average assets of 0.88%, an average equity to average assets ratio of 11.37% and a dividend payout ratio of 51.88% during~~ for the ~~first~~ nine months ~~of 2017.~~ended September 30, 2018.

Total revenue, which is defined as net interest income plus noninterest income, for the three and nine months ended September 30, ~~2018~~2019 was ~~$154.1~~$156.8 million and ~~$455.5~~$460.5 million, respectively, an increase of ~~$5.7~~$2.7 million, or ~~3.8%~~1.8%, and ~~$11.3~~$4.9 million, or ~~2.5%~~1.1%, respectively, when compared to the same time periods in ~~2017.~~2018. The increase in total revenue for the three months ended September 30, 2019 when compared to the same time period in 2018, resulted from increases in both net interest income and noninterest income. The increase in total revenue for the first nine months of 2019 compared to the first nine months of 2018 resulted from an increase in net interest income partially offset by a decline in noninterest income. These factors are discussed in further detail below.

Net interest income for the three and nine months ended September 30, 2019 totaled $108.5 million and $321.0 million, respectively, an increase of $1.5 million, or 1.4%, and $6.8 million, or 2.2%, respectively, when compared to the same time periods in 2018, ~~was~~ principally ~~the result of increases~~due to an increase in interest and fees on LHFS and LHFI and ~~mortgage banking, net~~declines in interest on federal funds purchased and ~~a decrease in~~securities sold under repurchase agreements and other interest expense, ~~partially~~which were largely offset by an increase in interest on deposits and declines in interest and fees on securities and ~~other noninterest income.~~

acquired loans. Interest and fees on LHFS and LHFI for the three and nine months ended September 30, ~~2018~~2019 increased ~~$13.9~~$10.3 million, or ~~15.6%~~10.0%, and ~~$37.9~~$40.5 million, or ~~14.9%~~13.9%, respectively, when compared to the same time periods in ~~2017,~~2018, primarily due to an increase in interest on LHFI as a result of growth in the LHFI portfolio as well as higher yields on LHFI. LHFI totaled ~~$8.747~~$9.224 billion at September 30, ~~2018,~~2019, an increase of ~~$339.7~~$476.6 million, or ~~4.0%~~5.4%, when compared to September 30, ~~2017,~~2018, principally due to net growth in loans secured by real estate in Trustmark’s Alabama, Texas, Mississippi and Florida market regions. ~~Mortgage banking, net for~~Interest on federal funds purchased and securities sold under repurchase agreements declined $801 thousand, or 59.4%, and $2.3 million, or 71.9%, respectively, when the three and nine months ended September 30, ~~2018 increased $4.2 million, or 95.4%, and $5.3 million, or 22.6%, respectively,~~2019 are compared to the same time periods in ~~2017, principally~~2018, primarily due to ~~increases in~~Trustmark’s reduction of its funding from external sources at the ~~net~~

~~positive hedge ineffectiveness and gain~~end of 2018. See the section captioned “Borrowings” for further discussion on ~~sales of loans, net.~~funding from external sources. Other interest expense for the three and nine months ended September 30, ~~2018~~2019 decreased ~~$3.1~~$637 thousand, or 43.4%, and $4.1 million, or ~~67.5%, and $4.2 million, or 39.2%~~62.2%, respectively, when compared to the same time periods in ~~2017,~~2018, principally due to a decline in interest on Federal Home Loan Bank (FHLB) advances as a result of ~~the decrease in the amount~~prepayments and maturities of all remaining outstanding short-term FHLB advances with the FHLB of ~~Dallas.~~ Dallas during 2018.

Interest expense on deposits for the three and nine months ended September 30, ~~2018~~2019 increased ~~$8.6~~$5.4 million, or 36.2%, and ~~$21.2~~$24.9 million, or 67.9%, respectively, when compared to the same time periods in ~~2017,~~2018. The increase in interest expense on deposits when the third quarter of 2019 is compared to the same time period in 2018 was principally due to rising interest rates in general, accompanied by increases in average balances of ~~all categories~~interest-bearing demand deposit accounts partially offset by declines in average balances of savings and time deposits. The increase in interest expense on deposits when the first nine months of 2019 is compared to the same time period in 2018 was principally due to rising interest rates in general, accompanied by increases in average balances of interest-bearing demand deposit accounts and time deposits. Interest on total securities for the three and nine months ended September 30, ~~2018~~2019 declined ~~$3.3~~$3.1 million, or ~~16.5%~~18.8%, and ~~$7.9~~$9.2 million, or ~~13.1%~~17.7%, respectively, when compared to the same time periods in ~~2017,~~2018, primarily as a result of the run-off of maturing investment securities. ~~Other noninterest~~Interest and fees on acquired loans for the three

months ended September 30, 2019 decreased $1.7 million, or 42.7%, when compared to the same time period in 2018, principally due to declines in accretion income and recoveries from settlement of debt from loans acquired in the BancTrust merger as well as declines in deferred fee amortization and other interest and fees related to loans acquired in the Reliance merger as a result of pay-offs and pay-downs of these loans. Interest and fees on acquired loans for the nine months ended September 30, 2019 decreased $7.7 million, or 55.2%, when compared to the same time period in 2018, principally due to declines in accretion income and recoveries from settlement of debt from loans acquired in the BancTrust, Bay Bank, Heritage and Reliance acquisitions as well as declines in deferred fee amortization and other interest and fees related to loans acquired in the Reliance merger, as a result of pay-offs and pay-downs of these loans and the acquired loans transferred to LHFI during 2018.

Noninterest income for the three and nine months ended September 30, ~~2018 decreased $2.4~~2019 totaled $48.3 million and $139.5 million, respectively, an increase of $1.2 million, or ~~63.7%~~2.6%, and ~~$6.4~~a decline of $1.8 million, or ~~57.1%~~1.3%, respectively, when compared to the same time periods in ~~2017, principally~~2018. The increase in noninterest income for the third quarter of 2019 when compared to the same time period in 2018 was primarily due to ~~$2.7 million of~~increases in bank card and other fees (principally due to increases in income from customer derivatives, interchange income and automated teller machine (ATM) surcharges) and other income, net (principally due to nontaxable proceeds related to ~~bank-owned~~Trustmark’s bank owned life insurance received during the third quarter of ~~2017~~2019 as well as an increase in cash management service fees and ~~$4.9 million~~a decrease in amortization of tax credit partnerships). The decrease in noninterest income when the first nine months of 2019 is compared to the same time period in 2018 was primarily due to a decline in mortgage banking, net (principally due to the negative net hedge ineffectiveness partially offset by increases in the mortgage loan valuation adjustment and gain on sales of loans, net), partially offset by increases in bank card and other fees (principally due to increases in income from customer derivatives, interchange income and ATM surcharges), insurance commissions (principally due to improvements in commission income across all lines of business) and other income, net (principally due to increases in the net gain on sales of premises and equipment and cash management services fee income and a decrease in amortization of tax credit partnerships, partially offset by nontaxable proceeds related to Trustmark’s bank owned life insurance ~~acquired in a previous acquisition~~ received during the second quarter of ~~2017.~~2018).

Noninterest expense for the three and nine months ended September 30, 2019 totaled $106.9 million and $319.0 million, respectively, an increase of $1.6 million, or 1.5%, and $7.5 million, or 2.4%, respectively, when compared to the same time periods in 2018. The increase in noninterest expense for the three months ended September 30, 2019 when compared to the same time period in 2018 was principally due to increases in services and fees and salaries and employee benefits, partially offset by a decrease in other expense. The increase in noninterest expense for the nine months ended September 30, 2019 when compared to the same time period in 2018 was principally due to increases in salaries and employee benefits and services and fees, partially offset by decreases in FDIC assessment expense and other expense. Salaries and employee benefits increased $1.6 million, or 2.7%, when the three months ended September 30, 2019 is compared to the same time period in 2018, primarily due to increases in commission expense related to improvements in mortgage originations and salaries expense related to general merit increases. Salaries and employee benefits increased $6.1 million, or 3.4%, when the nine months ended September 30, 2019 is compared to the same time period in 2018, primarily due to general merit increases, higher commission expense related to improvements in mortgage originations and the insurance lines of business, increases in insurance expense related to Trustmark’s health plans and higher stock compensation expense. Services and fees increased $2.4 million, or 14.8%, and $5.3 million, or 11.0%, respectively, when the three and nine months ended September 30, 2019 are compared to the same time periods in 2018, principally due to increases in data processing expenses related to software, professional fees and advertising expenses. Other expense decreased $908 thousand, or 7.8%, and $971 thousand, or 2.7%, respectively, when the three and nine months ended September 30, 2019 are compared to the same time periods in 2018, primarily due to insurance settlement proceeds received in the third quarter of 2019 related to a legal case settled during 2018, partially offset by an increase in charitable contributions related to the Mississippi Children’s Promise Act. FDIC assessment expense decreased $2.5 million, or 33.7%, when the nine months ended September 30, 2019 is compared to the same time period in 2018, principally due to the lower regular assessment base and elimination of the additional surcharge of 4.5 cents per $100 of assessment base during the third quarter of 2018.

Trustmark’s provision for loan losses, LHFI for the three and nine months ended September 30, ~~2018~~2019 totaled $3.0 million and $7.1 million, respectively, a decrease of $5.6 million, or 65.0%, and $8.7 million, ~~and $15.8 million, respectively, an increase of $5.0 million and $6.4 million,~~or 54.8%, respectively, when compared to the provision for loan losses, LHFI for the three and nine months ended September 30, ~~2017.~~2018. Please see the section captioned “Provision for Loan Losses, ~~LHFI,”~~LHFI” for additional information regarding the provision for loan losses, LHFI. The provision for loan losses, acquired loans for the three and nine months ended September 30, 2018 totaled a negative $467 thousand and $758 thousand, respectively, a decrease of $1.2 million, or 71.7%, and $5.1 million, or 87.0%, respectively, when compared to a negative provision of $1.7 million and $5.8 million for the three and nine months ended September 30, 2017, respectively. Please see the section captioned “Provision for Loan Losses, Acquired Loans,” for additional information regarding the provision for loan losses, acquired loans. In total, the provision for loan losses, net was $8.2 million and $15.0 million for the three and nine months ended September 30, 2018, respectively, an increase of $6.2 million and $11.5 million, respectively, when compared to the same time periods in 2017.

Noninterest expense for the three and nine months ended September 30, 2018 totaled $105.2 million and $311.5 million, respectively, an increase of $2.1 million, or 2.1%, and a decrease of $15.7 million, or 4.8%, respectively, when compared to the same time periods in 2017. The increase in noninterest expense for the three months ended September 30, 2018 when compared to the same time period in 2017 was principally due to increases in salaries and employee benefits and services and fees partially offset by a decrease in other expense. The decrease in noninterest expense when the first nine months of 2018 is compared to the same time period in 2017 was principally due to non-routine transaction expenses incurred during the second quarter of 2017 as well as a decline in other expense partially offset by increases in salaries and employee benefits and services and fees. During the second quarter of 2017, Trustmark incurred non-routine transaction expenses of $17.6 million related to the termination of the defined benefit pension plan and $3.2 million related to the completion of the Reliance merger.

At September 30, ~~2018,~~2019, nonperforming assets, excluding acquired loans, totaled ~~$104.3~~$91.0 million, a decrease of ~~$6.5~~$5.3 million, or ~~5.9%~~5.5%, compared to December 31, ~~2017, primarily due to the decline~~2018, reflecting declines in both nonaccrual LHFI and other real estate. Nonaccrual LHFI totaled ~~$67.8~~$59.0 million at September 30, ~~2018, representing an increase~~2019, a decrease of ~~$261 thousand,~~$2.6 million, or ~~0.4%~~4.2%, relative to December 31, ~~2017. Other real estate declined $6.8 million, or 15.6%, during the first nine months of~~ 2018, primarily due to a reduction and charge-off of one large commercial nonaccrual credit in the Mississippi market region, for which reserves were previously established, foreclosure of one large nonaccrual healthcare credit in the Mississippi market region and reduction of two large commercial nonaccrual credits in the Mississippi and Texas market regions, which were largely offset by a large commercial credit in the Mississippi market region that was placed on nonaccrual during the third quarter of 2019. Other real estate totaled $32.0 million at September 30, 2019, a decline of $2.7 million, or 7.8%, compared to December 31, 2018, as a result of properties sold ~~in Trustmark’s Florida, Mississippi, Alabama~~ and ~~Tennessee~~write-

downs on foreclosed properties across all five market regions, partially offset by new properties foreclosed in the Mississippi, Alabama and ~~Florida~~Tennessee market regions.

LHFI totaled ~~$8.747~~$9.224 billion at September 30, ~~2018,~~2019, an increase of ~~$177.1~~$387.8 million, or ~~2.1%~~4.4%, compared to December 31, ~~2017.~~2018. The increase in LHFI during the first nine months of ~~2018~~2019 was primarily due to net growth in loans secured by real estate across all five market regions, partially offset by declines in commercial and industrial loans in Trustmark’s ~~Mississippi, Alabama~~Tennessee and ~~Florida~~Mississippi market regions. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

Both classified and criticized LHFI balances remained at low levels and continued to reflect strong credit quality during the first nine months of 2018. As of September 30, 2018, classified LHFI balances decreased $68.2 million, or 32.2%, while criticized LHFI balances decreased $75.7 million, or 29.8%, when compared to balances at December 31, 2017. All of the credits have been reserved for appropriately.

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

Total deposits were ~~$10.957~~$11.254 billion at September 30, ~~2018, an increase~~2019, a decrease of ~~$379.4~~$110.2 million, or ~~3.6%~~1.0%, compared to December 31, ~~2017.~~2018. During the first nine months of ~~2018,~~2019, noninterest-bearing deposits ~~decreased $191.5~~increased $126.5 million, or ~~6.4%, as a result of declines in all categories of noninterest-bearing deposit accounts, while interest-bearing deposits increased $570.9 million, or 7.5%~~4.3%, primarily due to growth in ~~public and commercial interest checking accounts,~~ commercial and ~~consumer money market~~public noninterest-bearing deposit accounts, ~~and~~partially offset by a decline in consumer ~~and public certificates of deposits, reflecting increases in interest rates in general.~~

Trustmark uses short-term borrowings to fund growth of earning assets in excess of deposits growth. Short-term borrowings totaled $676.9 million at September 30, 2018, a decrease of $764.0 million, or 53.0%, when compared to December 31, 2017. The decrease in short-term borrowings duringnoninterest-bearing deposit accounts. During the first nine months of ~~2018 was~~2019, interest-bearing deposits decreased $236.8 million, or 2.8%, primarily due to ~~a $775.0 million decrease~~declines in ~~the outstanding balance of short-term FHLB advances, as maturing short-term advances with the FHLB of Dallas were not replaced due to changes~~public and consumer interest checking accounts, time deposit accounts and savings accounts, partially offset by growth in ~~Trustmark’s funding needs.~~consumer and commercial money market deposit accounts.

Recent Legislative and Regulatory Developments

In ~~April 2018,~~June 2019, the federal banking agencies issued a notice of proposed rulemaking to revise their regulatory capital rules to address the Current Expected Credit Losses (CECL) accounting standard, and provide an option to phase in the day-one regulatory capital effects of the adoption of the CECL accounting standard over three years. Under the proposed rules, an institution that is required to adopt the CECL accounting standard beginning the first quarter of 2020, such as Trustmark, would be able to make a one-time election to phase in the effects of the accounting standard on its regulatory capital calculations, such that the effects of adopting the CECL accounting standard on regulatory capital would be fully phased in as of the first quarter of 2023. For additional information regarding Trustmark’s implementation of the CECL accounting standard, see the section captioned “Pending Accounting Pronouncements – ~~ASU 2016-13,~~Consumer Financial ~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” included in Note 20 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements in Part I. Item 1. – Financial Statements of this report.~~

~~During April 2016, the Department of Labor (DOL)~~Protection Bureau (CFPB) issued a final rule ~~related~~ to ~~fiduciary standards that apply~~delay parts of the CFPB’s 2017 final rule addressing certain covered short-term loans, longer-term balloon-payment loans and longer-term loans with certain costs and features. The June 2019 final rule delays from the third quarter of 2019 to the ~~provision~~fourth quarter of ~~advice~~2020 the compliance date of the 2017 final rule’s requirements for a lender to ~~clients with respect~~determine a consumer’s ability to repay a covered loan and report covered loans to registered information systems. In February 2019, the ~~investing~~CFPB issued a proposal that would rescind such requirements. Based on TNB’s current credit portfolio, any covered loans made by TNB are considered exempt “accommodation loans” under the CFPB’s 2017 final rule, and accordingly, Trustmark does not expect that the 2017 final rule, the June 2019 final rule, or the February 2019 proposal will have a material impact on its operations.

In July 2019, the Office of ~~certain~~the Comptroller of ~~their retirement accounts.~~the Currency, the FRB, and the FDIC issued a final rule intended to simplify aspects of the regulatory capital rules for banking organizations, such as Trustmark and TNB, that are not advanced approaches banking organizations. The final rule ~~expanded~~includes amendments to the ~~definition~~capital treatment of a fiduciary under the Employee Retirement Income Security Act of 1974, as amended. Under the rule, those who provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners would generally either avoid payments that create conflicts of interest or satisfy an exemption from these requirements issued by the DOL, subject tomortgage servicing assets, certain exemptions. The DOL repeatedly extended the rule’s applicability date. Before the rule became fully applicable, the United States Court of Appeals for the Fifth Circuit, which covers Mississippi, Texas and Louisiana, vacated the fiduciary rule in its entirety, and the DOL did not appeal the decision.

~~However, on April 18, 2018, the SEC proposed a rule concerning the standards of conduct for financial professionals. The SEC’s proposed rule would require broker-dealers to act~~deferred tax assets, investments in the ~~best interest~~capital instruments of ~~their retail customers when recommending securities~~unconsolidated financial institutions, and minority interests. These amendments will be effective as of April 1, 2020. Management does not expect these amendments to ~~provide additional disclosure about~~have a material effect on Trustmark’s or TNB’s regulatory capital ratios. Additionally, the scope and terms of the relationship. The proposed rule would clarify the fiduciary duty that an investment advisor owes to its clients and would specify that investment advisors have an affirmative duty of utmost good faith and full and fair disclosure of all material facts to their investors. It is not clear when or if a final rule ~~or guidance will be adopted and how~~revises the ~~comments received might alter the provisions now in the proposals. Management is engaged in a review of the potential impact the SEC’s proposed~~FRB’s regulatory capital rule ~~may have on the results of operations or financial condition of Trustmark or TNB.~~

On May 24, 2018, the president signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) into law. The EGRRCPA increases the thresholds for application of certain enhanced prudential standards that the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) had applied to ~~institutions of Trustmark’s size. Under the EGRRCPA, the Dodd-Frank Act Stress Test (DFAST) company-run stress test requirement applies to~~allow bank holding companies ~~and banks with $250 billion~~to redeem common stock without obtaining prior regulatory approval unless otherwise required by law or ~~more in total consolidated assets, rather than those with $10 billion or more in total consolidated assets~~regulation. This revision became effective as ~~was the case under the Dodd-Frank Act. The EGRRCPA also increases the threshold for application~~ of the Dodd-Frank Act’s risk committee requirement for publicly-traded bank holding companies, from $10 billion to $50 billion in total consolidated assets. Additionally, the EGRRCPA amends the federal banking agencies’ regulatory capital rules to narrow the definition of high volatility commercial real estate (HVCRE) loans, which receive a higher risk weighting than other commercial real estate loans under risk-based capital requirements. Each of these changes has already taken effect for institutions of Trustmark’s and TNB’s size. October 1, 2019.

In ~~light of Trustmark’s total consolidated assets, Management does not believe that the EGRRCPA will have an impact on Trustmark’s results of operations or financial condition.~~

~~In June 2018,~~October 2019, five federal financial agencies ~~released a proposal that would~~finalized revisions to the Volcker Rule to simplify and tailor compliance requirements relating to ~~regulations implementing section 13 of~~ the ~~Bank Holding Company Act, known as~~rule. The revisions replace the ~~“Volcker Rule.” The~~ Volcker Rule generally prohibits insured depository institutions and their affiliates from engaging in proprietary trading or investing in or maintaining certain relationships with certain investment funds. The proposal would replaceRule’s compliance program requirements for a banking entity with

trading assets and liabilities of less than $1 billion, including Trustmark and TNB, with a rebuttable presumption of the entity’s compliance with the ~~Volcker Rule,~~rule, and ~~would~~ simplify compliance requirements associated with exempt market making, underwriting and risk-mitigating hedging activities for such an entity. The ~~proposal would~~revisions also change the “short-term intent” prong of the Volcker Rule’s definition of “trading account” by replacing the ~~definition’s prong addressing~~prong’s presumption that financial instruments held for fewer than 60 days are for the ~~“purpose” of a trade~~trading account with a new ~~prong~~presumption that ~~is based on~~financial instruments held for 60 days or more are not for the ~~accounting treatment~~trading account. Finally, the revisions adopt an exclusion for customer-driven swaps and matched swaps from the proprietary trading restrictions of ~~a position.~~the Volcker Rule. Management is reviewing the potential impact of the ~~proposal~~revisions on Trustmark and TNB. The revisions will be effective on January 1, 2020, with a compliance date of January 1, 2021, but banking organizations may voluntarily comply with the revisions earlier than the compliance date.

For additional information regarding legislation and regulation applicable to Trustmark, see the section captioned “Supervision and Regulation” included in Part I. Item 1. – Business of Trustmark’s ~~2017~~2018 Annual ~~Report on Form 10-K.~~Report.

Selected Financial Data

The following tables present financial data derived from Trustmark’s consolidated financial statements as of and for the periods presented ($ in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Consolidated Statements of Income
Total interest income	$	124,770		$	116,114		$	360,676		$	332,796		$	130,228		$	124,770		$	385,855		$	360,676
Total interest expense		17,787			12,202			46,436			29,290			21,762			17,787			64,857			46,436
Net interest income		106,983			103,912			314,240			303,506			108,466			106,983			320,998			314,240
Provision for loan losses, LHFI		8,673			3,672			15,801			9,355			3,039			8,673			7,136			15,801
Provision for loan losses, acquired loans		(467	)		(1,653	)		(758	)		(5,822	)		(140	)		(467	)		44			(758	)
Noninterest income		47,093			44,480			141,277			140,703			48,337			47,093			139,467			141,277
Noninterest expense		105,223			103,086			311,488			327,218			106,853			105,223			318,975			311,488
Income before income taxes		40,647			43,287			128,986			113,458			47,051			40,647			134,310			128,986
Income taxes		4,394			8,708			16,090			23,596			6,016			4,394			17,796			16,090
Net Income	$	36,253		$	34,579		$	112,896		$	89,862		$	41,035		$	36,253		$	116,514		$	112,896

Total Revenue (1)	$	154,076		$	148,392		$	455,517		$	444,209		$	156,803		$	154,076		$	460,465		$	455,517

Per Share Data
Basic earnings per share	$	0.54		$	0.51		$	1.67		$	1.33		$	0.64		$	0.54		$	1.80		$	1.67
Diluted earnings per share		0.54			0.51			1.67			1.32			0.64			0.54			1.80			1.67
Cash dividends per share		0.23			0.23			0.69			0.69			0.23			0.23			0.69			0.69

Performance Ratios
Return on average equity		9.00	%		8.69	%		9.53	%		7.73	%		9.96	%		9.00	%		9.67	%		9.53	%
Return on average tangible equity		12.26	%		11.95	%		13.02	%		10.68	%		13.31	%		12.26	%		13.01	%		13.02	%
Return on average assets		1.07	%		0.99	%		1.12	%		0.88	%		1.21	%		1.07	%		1.15	%		1.12	%
Average equity/average assets		11.86	%		11.36	%		11.72	%		11.37	%		12.14	%		11.86	%		11.92	%		11.72	%
Net interest margin (fully taxable equivalent)		3.59	%		3.47	%		3.54	%		3.48	%		3.66	%		3.59	%		3.64	%		3.54	%
Dividend payout ratio		42.59	%		45.10	%		41.32	%		51.88	%		35.94	%		42.59	%		38.33	%		41.32	%

Credit Quality Ratios (2)
Net charge-offs (recoveries)/average loans		0.18	%		-0.02	%		0.08	%		—			0.01	%		0.18	%		0.05	%		0.08	%
Provision for loan losses/average loans		0.39	%		0.17	%		0.24	%		0.15	%		0.13	%		0.39	%		0.10	%		0.24	%
Nonperforming loans/total loans (incl LHFS)		0.76	%		0.80	%								0.62	%		0.76	%
Nonperforming assets/total loans (incl LHFS) plus other real estate		1.16	%		1.36	%								0.95	%		1.16	%
Allowance for loan losses/total loans (excl LHFS)		1.02	%		0.96	%								0.90	%		1.02	%

September 30,

2018

2017

Consolidated Balance Sheets

Total assets

$
13,439,812

$
13,884,655

Securities

2,808,516

3,471,372

Total loans (including LHFS and acquired loans)

9,062,309

8,895,255

Deposits

10,956,910

10,231,742

Total shareholders' equity

1,599,604

1,582,535

Stock Performance

Market value - close

$
33.65

$
33.12

Book value

23.66

23.36

Tangible book value

17.86

17.49

Capital Ratios

Total equity/total assets

11.90
%

11.40
%
Tangible equity/tangible assets

9.26
%

8.79
%
Tangible equity/risk-weighted assets

11.31
%

11.29
%
Tier 1 leverage ratio

10.41
%

9.61
%
Common equity tier 1 risk-based capital ratio

12.20
%

11.80
%
Tier 1 risk-based capital ratio

12.76
%

12.37
%
Total risk-based capital ratio

13.61
%

13.19
%

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

(2)	Excludes acquired ~~loans~~loans.

September 30,	2019			2018
Consolidated Balance Sheets
Total assets	$	13,584,786		$	13,439,812
Securities		2,339,127			2,808,516
Total loans (incl LHFS and acquired loans)		9,597,472			9,062,309
Deposits		11,254,183			10,956,910
Total shareholders' equity		1,645,362			1,599,604

Stock Performance
Market value - close	$	34.11		$	33.65
Book value		25.60			23.66
Tangible book value		19.57			17.86

Capital Ratios
Total equity/total assets		12.11	%		11.90	%
Tangible equity/tangible assets		9.53	%		9.26	%
Tangible equity/risk-weighted assets		11.50	%		11.31	%
Tier 1 leverage ratio		10.34	%		10.41	%
Common equity tier 1 risk-based capital ratio		11.83	%		12.20	%
Tier 1 risk-based capital ratio		12.38	%		12.76	%
Total risk-based capital ratio		13.15	%		13.61	%

Non-GAAP Financial Measures

In addition to capital ratios defined by U.S. generally accepted accounting principles (GAAP) and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations. In Management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other ~~tangible~~intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety and not to rely on any single financial measure.

The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP for the periods presented ($ in thousands, except per share data):

		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2018			2017			2018			2017				2019			2018			2019			2018
TANGIBLE EQUITY
AVERAGE BALANCES
Total shareholders' equity		$	1,597,588		$	1,577,867		$	1,584,095		$	1,554,566			$	1,634,646		$	1,597,588		$	1,610,356		$	1,584,095
Less: Goodwill			(379,627	)		(379,627	)		(379,627	)		(374,707	)			(379,627	)		(379,627	)		(379,627	)		(379,627	)
Identifiable intangible assets			(13,083	)		(18,714	)		(14,405	)		(19,454	)			(8,706	)		(13,083	)		(9,660	)		(14,405	)
Total average tangible equity		$	1,204,878		$	1,179,526		$	1,190,063		$	1,160,405			$	1,246,313		$	1,204,878		$	1,221,069		$	1,190,063

PERIOD END BALANCES
Total shareholders' equity		$	1,599,604		$	1,582,535									$	1,645,362		$	1,599,604
Less: Goodwill			(379,627	)		(379,627	)									(379,627	)		(379,627	)
Identifiable intangible assets			(12,391	)		(17,883	)									(8,345	)		(12,391	)
Total tangible equity	(a)	$	1,207,586		$	1,185,025								(a)	$	1,257,390		$	1,207,586

TANGIBLE ASSETS
Total assets		$	13,439,812		$	13,884,655									$	13,584,786		$	13,439,812
Less: Goodwill			(379,627	)		(379,627	)									(379,627	)		(379,627	)
Identifiable intangible assets			(12,391	)		(17,883	)									(8,345	)		(12,391	)
Total tangible assets	(b)	$	13,047,794		$	13,487,145								(b)	$	13,196,814		$	13,047,794
Risk-weighted assets	(c)	$	10,681,621		$	10,498,582								(c)	$	10,935,018		$	10,681,621

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION	NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION													NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income		$	36,253		$	34,579		$	112,896		$	89,862			$	41,035		$	36,253		$	116,514		$	112,896
Plus: Intangible amortization net of tax			965			950			2,979			2,870				766			965			2,336			2,979
Net income adjusted for intangible amortization		$	37,218		$	35,529		$	115,875		$	92,732			$	41,801		$	37,218		$	118,850		$	115,875
Period end shares outstanding	(d)		67,621,369			67,742,135								(d)		64,262,779			67,621,369

TANGIBLE EQUITY MEASUREMENTS
Return on average tangible equity (1)			12.26	%		11.95	%		13.02	%		10.68	%			13.31	%		12.26	%		13.01	%		13.02	%
Tangible equity/tangible assets	(a)/(b)		9.26	%		8.79	%							(a)/(b)		9.53	%		9.26	%
Tangible equity/risk-weighted assets	(a)/(c)		11.31	%		11.29	%							(a)/(c)		11.50	%		11.31	%
Tangible book value	(a)/(d)*1,000	$	17.86		$	17.49								(a)/(d)*1,000	$	19.57		$	17.86

COMMON EQUITY TIER 1 CAPITAL (CET1)
Total shareholders' equity		$	1,599,604		$	1,582,535									$	1,645,362		$	1,599,604
AOCI-related adjustments			79,946			27,825										20,858			79,946
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs)			(365,823	)		(359,841	)									(365,741	)		(365,823	)
Other adjustments and deductions for CET1 (2)			(10,868	)		(11,359	)									(6,671	)		(10,868	)
CET1 capital	(e)		1,302,859			1,239,160								(e)		1,293,808			1,302,859
Additional tier 1 capital instruments plus related surplus			60,000			60,000										60,000			60,000
Less: additional tier 1 capital deductions			—			(471	)
Additional tier 1 capital			60,000			59,529
Tier 1 Capital		$	1,362,859		$	1,298,689									$	1,353,808		$	1,362,859

Common equity tier 1 risk-based capital ratio	(e)/(c)		12.20	%		11.80	%							(e)/(c)		11.83	%		12.20	%

(1)	Calculated using annualized net income adjusted for intangible amortization divided by total average tangible ~~equity~~equity.

(2)	Includes other intangible assets, net of DTLs, disallowed deferred tax assets, threshold deductions and transition adjustments, as ~~applicable~~applicable.

~~Significant Non-Routine Transactions~~

Trustmark discloses certain non-GAAP financial measures, including net income adjusted for significant non-routine transactions, because Management uses these measures for business planning purposes, including to manage Trustmark’s business against internal projected results of operations and to measure Trustmark’s performance. Trustmark views net income adjusted for significant non-routine transactions as a measure of its core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. This non-GAAP measure also provides another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the consolidated financial statements by excluding potential differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety, and not to rely on any single financial measure.

The following table presents adjustments to net income and selected financial ratios as reported in accordance with GAAP resulting from significant non-routine transactions occurring during the periods presented ($ in thousands, except per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Amount

Diluted EPS

Amount

Diluted EPS

Amount

Diluted EPS

Amount

Diluted EPS

Net Income (GAAP)

$
36,253

$
0.535

$
34,579

$
0.509

$
112,896

$
1.668

$
89,862

$
1.324

Significant non-routine transactions (net of taxes):

Defined benefit plan termination

—

—

—

—

—

—

10,895

0.161

Reliance merger transaction expenses

—

—

—

—

—

—

1,999

0.029

Non-taxable gain on acquired life insurance
proceeds

—

—

—

—

—

—

(4,894
)

(0.072
)
Net Income adjusted for significant
non-routine transactions (Non-GAAP)

$
36,253

$
0.535

$
34,579

$
0.509

$
112,896

$
1.668

$
97,862

$
1.442

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Reported (GAAP)

Adjusted
(Non-GAAP)

Return on average equity

9.00
%

n/a

8.69
%

n/a

9.53
%

n/a

7.73
%

8.42
%
Return on average tangible equity

12.26
%

n/a

11.95
%

n/a

13.02
%

n/a

10.68
%

11.61
%
Return on average assets

1.07
%

n/a

0.99
%

n/a

1.12
%

n/a

0.88
%

0.96
%

~~n/a – not applicable~~

Results of Operations

Net Interest Income

Net interest income is the principal component of Trustmark’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The net interest margin is computed by dividing fully taxable equivalent (FTE) net interest income by average interest-earning assets and measures how effectively Trustmark utilizes its interest-earning assets in relationship to the interest cost of funding them. The accompanying ~~Yield/Rate Analysis Tables~~yield/rate analysis tables show the average balances for all assets and liabilities of Trustmark and the interest income or expense associated with earning assets and interest-bearing liabilities. The yields and rates have been computed based upon interest income and expense adjusted to a FTE basis using the federal statutory corporate tax rate in effect for each of the

periods shown. Loans on nonaccrual have been included in the average loan balances, and interest collected prior to these loans having been placed on nonaccrual has been included in interest income. Loan fees included in interest associated with the average loan balances were immaterial.

Net interest income-FTE for the three and nine months ended September 30, ~~2018~~2019 increased ~~$1.2~~$1.6 million, or ~~1.1%~~1.4%, and ~~$5.6~~$6.9 million, or ~~1.8%~~2.1%, respectively, when compared with the same time periods in ~~2017.~~2018. The net interest margin for the three and nine months ended September 30, ~~2018~~2019 increased ~~12 and 6~~7 basis points to ~~3.59%~~3.66% and ~~3.54%~~10 basis points to 3.64%, respectively, when compared to the same time periods in ~~2017.~~2018. The increase in the net interest margin for the three and nine months ended September 30, ~~2018~~2019 was principally due to growth in the yield on the LHFI and LHFS portfolios, run-off of maturing investment securities and a favorable funding mix, partially offset by higher costs of interest-bearing ~~deposits and a decrease in the fully tax equivalent adjustment as a result of the lower corporate tax rate due to the enactment of the Tax Reform Act.~~deposits. The net interest margin excluding acquired loans, which equals the reported net interest income-FTE excluding interest and fees on acquired loans, as a percentage of average earning assets excluding

average acquired loans, was 3.61% and 3.60% for the three and nine months ended September 30, ~~2018 increased~~2019, respectively, an increase of 11 and 16 ~~and 8~~ basis points, ~~to 3.50% and 3.44%,~~ respectively, when compared to the same time periods in ~~2017,~~2018, due to the factors discussed above.

Average interest-earning assets for the first nine months of ~~2018~~2019 were ~~$12.236~~$12.139 billion compared to ~~$12.221~~$12.236 billion for the same time period in ~~2017, an increase~~2018, a decrease of ~~$14.6~~$96.4 million, or ~~0.1%~~0.8%. The ~~growth~~decline in average earning assets during the first nine months of ~~2018~~2019 was primarily due to ~~increases~~decreases in average total securities of $547.1 million, or 17.7%, and average acquired loans of $104.7 million, or 53.1%, which were partially offset by an increase in average loans (LHFS and LHFI) of ~~$431.4~~$494.6 million, or 5.2%, and average other earning assets of $115.9 million, which were largely offset by decreases in average total securities of $439.7 million, or 12.5% and average acquired loans of $91.2 million, or 31.6%5.7%. The increase in average loans (LHFS and LHFI) was primarily attributable to the $339.7 million, or 4.0%, increase in the LHFI portfolio when balances at September 30, 2018 are compared to balances at September 30, 2017. This increase was principally due to net growth in loans secured by real estate in Trustmark’s Alabama, Mississippi and Florida market regions. The increase in average other earning assets when the first nine months of 2018 is compared to the same time period in 2017 was primarily due to growth in interest-bearing deposits due from depository institutions. The decrease in average total securities was primarily due to calls, maturities and pay-downs of the underlying loans of government-sponsored enterprise (GSE) guaranteed ~~securities as well as declines in the fair market value of the securities available for sale.~~securities. The decrease in average acquired loans when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017~~2018 was primarily due to acquired loans that were transferred to LHFI during 2018 as well as pay-downs and pay-offs of the acquired loans. The increase in average loans ~~as well as acquired~~(LHFS and LHFI) was primarily attributable to the $476.6 million, or 5.4%, increase in the LHFI portfolio when balances at September 30, 2019 are compared to balances at September 30, 2018. This increase was principally due to net growth in loans ~~that were transferred to LHFI.~~secured by real estate in Trustmark’s Alabama, Mississippi, Texas and Florida market regions.

During the first nine months of ~~2018,~~2019, interest and fees on LHFS and LHFI-FTE increased ~~$33.5~~$40.7 million, or ~~12.5%~~13.6%, when compared to the same time period in ~~2017,~~2018, due principally to the growth in the LHFI portfolio, while the yield on loans (LHFS and LHFI) increased 3034 basis points to ~~4.59%~~4.93% as a result of increases in interest rates ~~during~~for the ~~period.~~respective periods. During the first nine months of ~~2018,~~2019, interest on total securities-FTE decreased ~~$8.6~~$9.4 million, or ~~14.1%~~17.7%, while the yield on total securities was unchanged at 2.28% when compared to the same time period in ~~2017,~~2018, primarily due to the run off of maturing investment securities. ~~The~~Interest on acquired loans declined $7.7 million, or 55.2%, and the yield on ~~total securities for~~acquired loans declined 44 basis points to 9.00% when the first nine months of ~~2018 decreased 5 basis points to 2.28%~~2019 is compared to the same time period in ~~2017.~~2018, primarily due to the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions which were transferred from acquired impaired loans to LHFI during 2018 and a decrease in accretion income and recovery from settlement of debt from loans acquired in the BancTrust merger as a result of pay-offs and pay-downs of these loans. As a result of these factors, interest income-FTE increased ~~$22.7~~$25.3 million, or ~~6.5%~~6.8%, while the yield on total earning assets increased 31 basis points to 4.36% when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017, while the yield on total earning assets increased 25 basis points to 4.05%.~~2018.

Average interest-bearing liabilities for the first nine months of ~~2018~~2019 totaled ~~$8.839~~$8.793 billion compared to ~~$8.914~~$8.839 billion for the same time period in ~~2017,~~2018, a decrease of ~~$75.3~~$46.2 million, or ~~0.8%~~0.5%. The decrease in average interest-bearing liabilities represented declines in average other borrowings and average federal funds purchased and securities sold under repurchase agreements which were ~~mostly~~largely offset by an increase in average interest-bearing deposits. Average other borrowings decreased ~~$827.6~~$310.9 million, or ~~64.5%~~68.1%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, primarily reflecting a decrease in the balance of outstanding short-term FHLB advances obtained from the FHLB of Dallas. Average federal funds purchased and securities sold under repurchase agreements for the first nine months of ~~2018~~2019 declined ~~$198.2~~$233.4 million, or ~~37.8%~~71.6%, when compared to the same time period in ~~2017,~~2018, primarily due to a decrease in upstream federal funds purchased as a result of ~~increases~~the reduction of Trustmark’s external funding needs during 2018 due to deposit growth out-pacing growth in ~~interest rates~~LHFI and ~~changes in funding needs.~~the run-off of maturing investment securities. Average interest-bearing deposits for the first nine months of ~~2018~~2019 increased ~~$950.5~~$498.0 million, or ~~13.4%~~6.2%, when compared to the same time period in ~~2017,~~2018, as a result of growth in ~~all categories of~~ average interest-bearing demand deposits and time deposits primarily due to increases in interest rates in general.

Total interest expense for the first nine months of ~~2018~~2019 increased ~~$17.1~~$18.4 million, or ~~58.5%~~39.7%, while the rate on total interest-bearing liabilities increased 29 basis points to 0.99% when compared with the same time period in ~~2017 due primarily to~~2018, reflecting an increase in interest on deposits, in conjunction with increasing interest rates in general, partially offset by a ~~decline~~declines in other interest ~~expense.~~expense and interest on federal funds purchased and securities sold under repurchase agreements. Interest on deposits increased ~~$21.2~~$24.9 million, or 67.9%, while the rate on interest-bearing deposits increased 3235 basis points to ~~0.61%~~0.96% when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, primarily due to increases in average balances ~~of all categories~~ of interest-bearing deposits and rising interest rates in general. Other interest expense decreased ~~$4.2~~$4.1 million, or ~~39.2%~~62.2%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, primarily due to the decline in the balance of outstanding short-term FHLB advances with the FHLB of Dallas, while the rate on other borrowings increased 8036 basis points to ~~1.93%~~2.29% reflecting an increase in rates. ~~As a result of these factors, the overall yield~~Interest on ~~interest-bearing liabilities increased 26 basis points to 0.70%~~federal funds purchased and securities sold under repurchase agreements decreased $2.3 million, or 71.9%, when the first nine months of ~~2018~~2019 is compared ~~with~~to the ~~first nine months of 2017.~~same time period in 2018, while the rate on federal funds purchased and securities sold under repurchase agreements decreased 2 basis points to 1.32% reflecting the decline in upstream federal funds purchased.

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

	Three Months Ended September 30,																Three Months Ended September 30,
	2018								2017								2019								2018

	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	477		$	3		2.50	%	$	3,582		$	14		1.55	%	$	3,662		$	23		2.49	%	$	477		$	3		2.50	%
Securities - taxable		2,871,101			16,186		2.24	%		3,436,509			19,291		2.23	%		2,348,901			13,184		2.23	%		2,871,101			16,186		2.24	%
Securities - nontaxable		71,072			656		3.66	%		100,823			1,104		4.34	%		51,184			485		3.76	%		71,072			656		3.66	%
Loans (LHFS and LHFI)		8,907,588			105,993		4.72	%		8,532,523			93,703		4.36	%		9,436,287			116,432		4.90	%		8,907,588			105,993		4.72	%
Acquired loans		147,811			4,033		10.82	%		299,221			6,625		8.78	%		82,641			2,309		11.08	%		147,811			4,033		10.82	%
Other earning assets		189,471			1,050		2.20	%		84,320			355		1.67	%		176,163			1,044		2.35	%		189,471			1,050		2.20	%
Total interest-earning assets		12,187,520			127,921		4.16	%		12,456,978			121,092		3.86	%		12,098,838			133,477		4.38	%		12,187,520			127,921		4.16	%
Cash and due from banks		330,949								312,409
Other assets		1,035,327								1,202,766								1,447,977								1,366,276
Allowance for loan losses, net		(86,496	)							(85,363	)							(83,756	)							(86,496	)
Total Assets	$	13,467,300							$	13,886,790							$	13,463,059							$	13,467,300

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	8,177,057			14,972		0.73	%	$	7,213,070			6,381		0.35	%	$	8,407,244			20,385		0.96	%	$	8,177,057			14,972		0.73	%
Federal funds purchased and securities sold under repurchase agreements		347,489			1,348		1.54	%		547,863			1,301		0.94	%		142,064			547		1.53	%		347,489			1,348		1.54	%
Other borrowings		249,052			1,467		2.34	%		1,398,302			4,520		1.28	%		140,260			830		2.35	%		249,052			1,467		2.34	%
Total interest-bearing liabilities		8,773,598			17,787		0.80	%		9,159,235			12,202		0.53	%		8,689,568			21,762		0.99	%		8,773,598			17,787		0.80	%
Noninterest-bearing demand deposits		2,894,061								3,003,763								2,932,754								2,894,061
Other liabilities		202,053								145,925								206,091								202,053
Shareholders' equity		1,597,588								1,577,867								1,634,646								1,597,588
Total Liabilities and Shareholders' Equity	$	13,467,300							$	13,886,790							$	13,463,059							$	13,467,300
Net Interest Margin					110,134		3.59	%					108,890		3.47	%					111,715		3.66	%					110,134		3.59	%

Less tax equivalent adjustment					3,151								4,978								3,249								3,151

Net Interest Margin per Consolidated Statements of Income				$	106,983							$	103,912							$	108,466							$	106,983

	Nine Months Ended September 30,																Nine Months Ended September 30,
	2018								2017								2019								2018
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	673		$	10		1.99	%	$	2,399		$	26		1.45	%	$	12,678		$	239		2.52	%	$	673		$	10		1.99	%
Securities - taxable		3,008,755			50,586		2.25	%		3,418,925			57,865		2.26	%		2,482,893			41,765		2.25	%		3,008,755			50,586		2.25	%
Securities - nontaxable		80,644			2,213		3.67	%		110,215			3,582		4.35	%		59,456			1,682		3.78	%		80,644			2,213		3.67	%
Loans (LHFS and LHFI)		8,751,665			300,466		4.59	%		8,320,255			266,979		4.29	%		9,246,298			341,195		4.93	%		8,751,665			300,466		4.59	%
Acquired loans		197,352			13,932		9.44	%		288,599			18,077		8.37	%		92,645			6,235		9.00	%		197,352			13,932		9.44	%
Other earning assets		196,470			3,038		2.07	%		80,553			993		1.65	%		245,173			4,467		2.44	%		196,470			3,038		2.07	%
Total interest-earning assets		12,235,559			370,245		4.05	%		12,220,946			347,522		3.80	%		12,139,143			395,583		4.36	%		12,235,559			370,245		4.05	%
Cash and due from banks		328,868								310,313
Other assets		1,036,091								1,222,619								1,454,350								1,364,959
Allowance for loan losses, net		(85,054	)							(84,036	)							(82,665	)							(85,054	)
Total Assets	$	13,515,464							$	13,669,842							$	13,510,828							$	13,515,464

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	8,056,505			36,602		0.61	%	$	7,106,046			15,433		0.29	%	$	8,554,488			61,455		0.96	%	$	8,056,505			36,602		0.61	%
Federal funds purchased and securities sold under repurchase agreements		326,129			3,260		1.34	%		524,295			3,036		0.77	%		92,771			916		1.32	%		326,129			3,260		1.34	%
Other borrowings		456,189			6,574		1.93	%		1,283,756			10,821		1.13	%		145,331			2,486		2.29	%		456,189			6,574		1.93	%
Total interest-bearing liabilities		8,838,823			46,436		0.70	%		8,914,097			29,290		0.44	%		8,792,590			64,857		0.99	%		8,838,823			46,436		0.70	%
Noninterest-bearing demand deposits		2,902,100								3,040,672								2,885,478								2,902,100
Other liabilities		190,446								160,507								222,404								190,446
Shareholders' equity		1,584,095								1,554,566								1,610,356								1,584,095
Total Liabilities and Shareholders' Equity	$	13,515,464							$	13,669,842							$	13,510,828							$	13,515,464

Net Interest Margin					323,809		3.54	%					318,232		3.48	%					330,726		3.64	%					323,809		3.54	%

Less tax equivalent adjustment					9,569								14,726								9,728								9,569

Net Interest Margin per Consolidated Statements of Income				$	314,240							$	303,506							$	320,998							$	314,240

Provision for Loan Losses, LHFI

The provision for loan losses, LHFI is determined by Management as the amount necessary to adjust the allowance for loan losses, LHFI to a level, which, in Management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses, LHFI reflects loan quality trends, including the levels of and trends related to nonaccrual LHFI, past due LHFI, potential problem LHFI, criticized LHFI, net charge-offs or recoveries and growth in the LHFI portfolio among other factors. Accordingly, the amount of the provision reflects the necessary increases or decreases in the allowance for loan losses, LHFI related to adjustments for specific loans or loan pools as a result of growth in the portfolio and evaluation of current impairment analyses, actions taken with respect to risk ratings on loans and other adjustments resulting from changes in qualitative factors. The provision for loan losses, LHFI totaled ~~$8.7~~$3.0 million and ~~$15.8~~$7.1 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, ~~an increase~~a decrease of ~~$5.0~~$5.6 million, or 65.0%, and ~~$6.4~~$8.7 million, or 54.8%, respectively, when compared to the same time periods in ~~2017.~~2018. The ~~increase~~decrease in the provision for loan losses, LHFI when the three ~~and nine~~ months ended September 30, ~~2018 are~~2019 is compared to the same time ~~periods~~period in ~~2017~~2018 was primarily due to ~~increases~~a decrease in the amount of provision expense related to new and existing impaired LHFI and a decline in net charge-offs, partially offset by ~~declines~~an increase in provision expense related to loan growth. The decrease in the provision for loan losses, LHFI when the nine months ended September 30, 2019 is compared to the same time period in 2018 was primarily due to a decrease in the amount of provision expense related to new and existing impaired LHFI partially offset by increases in provision expense related to loan growth and changes in qualitative and quantitative reserve ~~factors and loan growth as well as the specific reserves recorded during the third quarter of 2017 related to Hurricane Harvey.~~factors. See the section captioned “Allowance for Loan Losses, LHFI” for further analysis of the provision for loan losses, LHFI.

Provision for Loan Losses, Acquired Loans

The provision for loan losses, acquired loans is recognized subsequent to acquisition to the extent it is probable that Trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition, considering both the timing and amount of those expected cash flows. Provisions may be required when actual losses of unpaid principal incurred exceed previous loss expectations to date, or future cash flows previously expected to be collectible are no longer probable of collection. The provision for loan losses, acquired loans is reflected as a valuation allowance netted against the carrying value of the acquired loans accounted for under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.”

The ~~negative~~ provision for loan losses, acquired loans ~~declined $1.2 million, or 71.7%,~~increased $327 thousand and ~~$5.1 million, or 87.0%,~~$802 thousand, respectively, when the three and nine months ended September 30, ~~2018~~2019 are compared to the same time periods in ~~2017, principally~~2018. The increase in the provision for loan losses, acquired loans when the third quarter of 2019 is compared to the third quarter of 2018 was primarily due to an increase in the provision expense related to the loans acquired in the BancTrust merger due to changes in expectations based on the periodic re-estimations performed during the respective ~~periods~~periods. The increase in the provision for loan losses, acquired loans when the first nine months of 2019 is compared to the same time period in 2018 was principally due to an increase in provision expense related to loans acquired in the BancTrust merger, partially offset by the remaining loans acquired in the Bay Bank, Heritage and Reliance acquisitions that were transferred from acquired impaired loans ~~that were transferred~~ to LHFI during ~~the second and third quarters of~~ 2018.

The following table presents the provision for loan losses, acquired loans, by acquisition for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019		2018
BancTrust	$	(467	)	$	(1,400	)	$	(1,169	)	$	(4,386	)	$	(140	)	$	(467	)	$	44	$	(1,169	)
Bay Bank		—			(273	)		377			(1,350	)		—			—			—		377
Heritage		—			20			61			(86	)		—			—			—		61
Reliance		—			—			(27	)		—			—			—			—		(27	)
Total provision for loan losses, acquired loans	$	(467	)	$	(1,653	)	$	(758	)	$	(5,822	)	$	(140	)	$	(467	)	$	44	$	(758	)

Noninterest Income

Noninterest income represented ~~30.6%~~30.8% and ~~31.0%~~30.3% of total revenue, before securities gains (losses), net, for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared to ~~30.0%~~30.6% and ~~31.7%~~31.0% for the three and nine months ended September 30, ~~2017,~~2018, respectively. The following table provides the comparative components of noninterest income for the periods presented ($ in thousands):

	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended September 30,										Nine Months Ended September 30,
	2018		2017		$ Change			% Change			2018		2017		$ Change			% Change			2019		2018		$ Change			% Change			2019		2018		$ Change			% Change
Service charges on deposit accounts	$	11,075	$	11,223	$	(148	)		-1.3	%	$	32,579	$	32,810	$	(231	)		-0.7	%	$	11,065	$	11,075	$	(10	)		-0.1	%	$	31,709	$	32,579	$	(870	)		-2.7	%
Bank card and other fees		7,459		7,150		309			4.3	%		21,155		21,020		135			0.6	%		8,349		7,459		890			11.9	%		23,544		21,155		2,389			11.3	%
Mortgage banking, net		8,647		4,425		4,222			95.4	%		28,958		23,618		5,340			22.6	%		8,171		8,647		(476	)		-5.5	%		21,908		28,958		(7,050	)		-24.3	%
Insurance commissions		10,765		10,398		367			3.5	%		30,919		29,355		1,564			5.3	%		11,072		10,765		307			2.9	%		33,032		30,919		2,113			6.8	%
Wealth management		7,789		7,530		259			3.4	%		22,834		22,617		217			1.0	%		7,691		7,789		(98	)		-1.3	%		22,916		22,834		82			0.4	%
Other, net		1,358		3,740		(2,382	)		-63.7	%		4,832		11,268		(6,436	)		-57.1	%		1,989		1,358		631			46.5	%		6,358		4,832		1,526			31.6	%
Total noninterest income before securities gains (losses), net		47,093		44,466		2,627			5.9	%		141,277		140,688		589			0.4	%
Security gains (losses), net		—		14		(14	)		-100.0	%		—		15		(15	)		-100.0	%
Total noninterest income	$	47,093	$	44,480	$	2,613			5.9	%	$	141,277	$	140,703	$	574			0.4	%	$	48,337	$	47,093	$	1,244			2.6	%	$	139,467	$	141,277	$	(1,810	)		-1.3	%

Changes in various components of noninterest income are discussed in further detail below. For analysis of Trustmark’s insurance commissions and wealth management income, please see the section captioned “Results of Segment ~~Operations” of this report.~~Operations.”

Bank Card and Other Fees

The increase in bank card and other fees for the three and nine months ended September 30, 2019 compared to the same time periods in 2018 was principally due to increases in income from customer derivatives, interchange income and ATM surcharges.

Mortgage Banking, Net

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

	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended September 30,												Nine Months Ended September 30,
	2018			2017			$ Change			% Change			2018			2017			$ Change			% Change			2019			2018			$ Change			% Change			2019			2018			$ Change			% Change
Mortgage servicing income, net	$	5,428		$	5,295		$	133			2.5	%	$	16,518		$	16,192		$	326			2.0	%	$	5,688		$	5,428		$	260			4.8	%	$	17,029		$	16,518		$	511			3.1	%
Change in fair value-MSR from runoff		(3,181	)		(2,892	)		(289	)		-10.0	%		(9,022	)		(8,175	)		(847	)		-10.4	%		(3,569	)		(3,181	)		(388	)		-12.2	%		(8,885	)		(9,022	)		137			1.5	%
Gain on sales of loans, net		6,411			5,083			1,328			26.1	%		16,410			13,634			2,776			20.4	%		8,458			6,411			2,047			31.9	%		17,556			16,410			1,146			7.0	%
Other, net		(83	)		(450	)		367			81.6	%		1,577			951			626			65.8	%		1,341			(83	)		1,424		n/m				4,756			1,577			3,179		n/m
Mortgage banking income before hedge ineffectiveness		8,575			7,036			1,539			21.9	%		25,483			22,602			2,881			12.7	%
Mortgage banking income before net hedge ineffectiveness																										11,918			8,575			3,343			39.0	%		30,456			25,483			4,973			19.5	%
Change in fair value-MSR from market changes		2,615			(2,393	)		5,008		n/m				13,879			(2,218	)		16,097		n/m				(8,054	)		2,615			(10,669	)	n/m				(25,126	)		13,879			(39,005	)	n/m
Change in fair value of derivatives		(2,543	)		(218	)		(2,325	)	n/m				(10,404	)		3,234			(13,638	)	n/m				4,307			(2,543	)		6,850		n/m				16,578			(10,404	)		26,982		n/m
Net positive (negative) hedge ineffectiveness		72			(2,611	)		2,683		n/m				3,475			1,016			2,459		n/m
Net hedge ineffectiveness																										(3,747	)		72			(3,819	)	n/m				(8,548	)		3,475			(12,023	)	n/m
Mortgage banking, net	$	8,647		$	4,425		$	4,222			95.4	%	$	28,958		$	23,618		$	5,340			22.6	%	$	8,171		$	8,647		$	(476	)		-5.5	%	$	21,908		$	28,958		$	(7,050	)		-24.3	%

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

The ~~increase~~decrease in mortgage banking, net for the three and nine months ended September 30, ~~2018~~2019 when compared to the same time periods in ~~2017~~2018 was principally due to the negative net hedge ineffectiveness partially offset by increases in the ~~net positive hedge ineffectiveness~~mortgage loan valuation adjustment and gain on sales of loans, net. ~~Mortgage loan production~~The net negative hedge ineffectiveness for the nine months ended September 30, ~~2018~~2019 was ~~$1.097~~primarily the result of lower interest rates and increased market volatility. Mortgage loan production for the three and nine months ended September 30, 2019 was $566.2 million and $1.264 billion, respectively, an increase of ~~$79.7~~$168.5 million, or ~~7.8%~~42.4%, and $166.3 million, or 15.2%, respectively, when compared to the same time ~~period~~periods in ~~2017.~~2018. Loans serviced for others totaled $6.993 billion at September 30, 2019, compared with $6.759 billion at September 30, 2018, ~~compared with $6.541 billion at September 30, 2017,~~ an increase of ~~$218.0~~$233.1 million, or ~~3.3%~~3.4%.

Representing a significant component of mortgage banking income is gain on the sales of loans, net. The increase in the gain on sales of loans, net for the third quarter of 2019 when compared to the same time period in 2018, was primarily due to increases in the volume of loans sold. The increase in the gain on sales of loans, net when the ~~three and~~ nine months ended September 30, ~~2018 are~~2019 is compared to the same time ~~periods~~period in ~~2017,~~2018, was primarily the result of ~~higher~~an increase in the volume of loans sold partially offset by lower profit margins in secondary marketing activities. Loan sales totaled ~~$304.9~~$437.7 million and ~~$820.6~~$925.8 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, ~~a decrease~~an increase of ~~$10.3~~$132.7 million, or ~~3.3%~~43.5%, and ~~$51.3~~$105.2 million, or ~~5.9%~~12.8%, ~~respectively,~~ when compared with the same time periods in ~~2017.~~2018.

Other Income, Net

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

	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended September 30,											Nine Months Ended September 30,
	2018			2017			$ Change			% Change			2018			2017			$ Change			% Change			2019			2018			$ Change		% Change			2019			2018			$ Change		% Change
Partnership amortization for tax credit purposes	$	(2,202	)	$	(2,521	)	$	319			12.7	%	$	(6,606	)	$	(7,082	)	$	476			6.7	%	$	(1,994	)	$	(2,202	)	$	208		9.4	%	$	(6,014	)	$	(6,606	)	$	592		9.0	%
Increase in life insurance cash surrender value		1,805			1,813			(8	)		-0.4	%		5,313			5,309			4			0.1	%		1,814			1,805			9		0.5	%		5,400			5,313			87		1.6	%
Other miscellaneous income		1,755			4,448			(2,693	)		-60.5	%		6,125			13,041			(6,916	)		-53.0	%		2,169			1,755			414		23.6	%		6,972			6,125			847		13.8	%
Total other, net	$	1,358		$	3,740		$	(2,382	)		-63.7	%	$	4,832		$	11,268		$	(6,436	)		-57.1	%	$	1,989		$	1,358		$	631		46.5	%	$	6,358		$	4,832		$	1,526		31.6	%

The ~~decrease~~increase in other income, net when the three and nine months ended September 30, ~~2018~~2019 are compared to the same time periods in ~~2017~~2018, was principally due to increases in other miscellaneous income and a decrease in amortization of tax credit partnerships. The increase in other miscellaneous income when the three months ended September 30, 2019 is compared to the same time period in 2018 was primarily due to ~~a decrease in other miscellaneous income principally due to $2.7 million of~~ nontaxable proceeds related to Trustmark’s ~~bank-owned~~bank owned life insurance received during the third quarter of ~~2017 and $4.9 million of nontaxable proceeds related to life insurance acquired~~2019 as well as an increase in ~~a previous acquisition received during the second quarter of 2017. Excluding the nontaxable life insurance proceeds,~~cash management service fees. The increase in other miscellaneous income ~~increased $43.7 thousand, or 2.6%,~~ when the ~~three~~nine months ended September 30, ~~2018~~2019 is compared to the same time period in ~~2017~~2018 was primarily due to increases in the net gain on sales of premises and ~~decreased $519 thousand, or 9.6%, when~~equipment and cash management services fee income, partially offset by nontaxable proceeds related to Trustmark’s bank owned life insurance received during the ~~first nine months~~second quarter of ~~2018 is compared to the same time period in 2017.~~2018.

Noninterest Expense

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

	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended September 30,											Nine Months Ended September 30,
	2018			2017			$ Change			% Change			2018			2017			$ Change			% Change			2019		2018			$ Change			% Change			2019			2018			$ Change			% Change
Salaries and employee benefits	$	60,847		$	57,871		$	2,976			5.1	%	$	179,297		$	170,445		$	8,852			5.2	%	$	62,495	$	60,847		$	1,648			2.7	%	$	185,398		$	179,297		$	6,101			3.4	%
Defined benefit plan termination charge		—			—			—			—			—			17,644			(17,644	)		-100.0	%
Services and fees		16,404			15,133			1,271			8.4	%		48,472			45,474			2,998			6.6	%		18,838		16,404			2,434			14.8	%		53,815			48,472			5,343			11.0	%
Net occupancy-premises		6,910			6,702			208			3.1	%		19,962			19,150			812			4.2	%		6,831		6,910			(79	)		-1.1	%		19,688			19,962			(274	)		-1.4	%
Equipment expense		6,200			6,297			(97	)		-1.5	%		18,501			18,457			44			0.2	%		5,971		6,200			(229	)		-3.7	%		17,853			18,501			(648	)		-3.5	%
Other real estate expense:
Write-downs		892			432			460		n/m				1,857			2,593			(736	)		-28.4	%		137		892			(755	)		-84.6	%		1,804			1,857			(53	)		-2.9	%
Net (gain) loss on sale		(224	)		(200	)		(24	)	��	-12.0	%		(1,226	)		(1,722	)		496			28.8	%		122		(224	)		346		n/m				(124	)		(1,226	)		1,102			89.9	%
Carrying costs		500			632			(132	)		-20.9	%		1,310			2,135			(825	)		-38.6	%		272		500			(228	)		-45.6	%		735			1,310			(575	)		-43.9	%
Total other real estate expense, net		1,168			864			304			35.2	%		1,941			3,006			(1,065	)		-35.4	%		531		1,168			(637	)		-54.5	%		2,415			1,941			474			24.4	%
FDIC assessment expense		1,999			2,816			(817	)		-29.0	%		7,532			8,142			(610	)		-7.5	%		1,400		1,999			(599	)		-30.0	%		4,994			7,532			(2,538	)		-33.7	%
Other expense		11,695			13,403			(1,708	)		-12.7	%		35,783			44,900			(9,117	)		-20.3	%		10,787		11,695			(908	)		-7.8	%		34,812			35,783			(971	)		-2.7	%
Total noninterest expense	$	105,223		$	103,086		$	2,137			2.1	%	$	311,488		$	327,218		$	(15,730	)		-4.8	%	$	106,853	$	105,223		$	1,630			1.5	%	$	318,975		$	311,488		$	7,487			2.4	%

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

Changes in the various components of noninterest expense are discussed in further detail below. Management considers disciplined expense management a key area of focus in the support of improving shareholder value. Noninterest expense for the nine months ended September 30, 2017 included a one-time defined benefit pension plan termination charge of $17.6 million and $3.2 million of one-time expenses related to the completion of the Reliance merger (included in other expense). Excluding these non-routine transactions, noninterest expense for the nine months ended September 30, 2018 increased $5.2 million, or 1.7%, when compared to the same time period in 2017.

Salaries and Employee Benefits

The increase in salaries and employee benefits when the three months ended September 30, 2019 is compared to the same time period in 2018, was primarily due to increases in commission expense related to improvements in mortgage originations and salaries expense related to general merit increases. The increase in salaries and employee benefits when the nine months ended September 30, ~~2018 are~~2019 is compared to the same time ~~periods~~period in ~~2017~~2018, was ~~principally~~primarily due to ~~increases in salaries and incentive compensation as a result of~~ general merit increases, ~~and~~ higher commission expense ~~as a result of~~related to improvements in mortgage originations and the insurance line of business, increases in insurance expense related to Trustmark’s health plans and mortgage origination lines of business. Trustmark adopted FASB Accounting Standard Update (ASU) 2017-07, “Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” effective January 1, 2018. As a result of adopting ASU 2017-07, Trustmark was required to reclassify $966 thousand and $4.8 million of net periodic benefit cost, excluding the service cost component, from salaries and employee benefits to other expense for the three and nine months ended September 30, 2017, respectively.higher stock compensation expense.

Services and Fees

The increase in services and fees when the three and nine months ended September 30, ~~2018~~2019 are compared to the same time periods in ~~2017~~2018, was primarily the result of investments in new data processing software designed to improve efficiency and customer ~~experience.~~experience and increases in professional fees and advertising expense.

~~Other Real Estate~~FDIC Assessment Expense

The decrease in ~~other real estate~~the FDIC assessment expense ~~for~~when the nine months ended September 30, ~~2018 when~~2019 is compared to the same time period in ~~2017~~2018 was principally due to ~~declines in write-downs~~the lower regular assessment base and elimination of ~~other real estate and real estate tax and foreclosure expenses. Please see~~ the ~~section captioned “Other Real Estate” for~~ additional ~~information regarding other real estate expense.~~surcharge of 4.5 cents per $100 of assessment base during the third quarter of 2018.

Other Expense

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

	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended September 30,										Nine Months Ended September 30,
	2018		2017		$ Change			% Change			2018		2017		$ Change			% Change			2019		2018		$ Change			% Change			2019		2018		$ Change			% Change
Loan expense	$	2,824	$	3,013	$	(189	)		-6.3	%	$	8,661	$	8,632	$	29			0.3	%	$	2,886	$	2,824	$	62			2.2	%	$	8,586	$	8,661	$	(75	)		-0.9	%
Amortization of intangibles		1,286		1,539		(253	)		-16.4	%		3,969		4,647		(678	)		-14.6	%		1,021		1,286		(265	)		-20.6	%		3,114		3,969		(855	)		-21.5	%
Defined benefit plans non-service cost reclass from salaries and employee benefits		885		966		(81	)		-8.4	%		2,655		4,754		(2,099	)		-44.2	%
Other miscellaneous expense		6,700		7,885		(1,185	)		-15.0	%		20,498		26,867		(6,369	)		-23.7	%		6,880		7,585		(705	)		-9.3	%		23,112		23,153		(41	)		-0.2	%
Total other expense	$	11,695	$	13,403	$	(1,708	)		-12.7	%	$	35,783	$	44,900	$	(9,117	)		-20.3	%	$	10,787	$	11,695	$	(908	)		-7.8	%	$	34,812	$	35,783	$	(971	)		-2.7	%

The decrease in other expense ~~for~~when the three and nine months ended September 30, ~~2018 when~~2019 are compared to the same time ~~period~~periods in ~~2017~~2018, was primarily due to ~~declines~~insurance settlement proceeds received in ~~various miscellaneous expenses. The decrease~~the third quarter of 2019 related to a legal case settled during 2018, partially offset by an increase in ~~other expense for the first nine months of 2018 when compared to the first nine months of 2017 was principally due to the $3.2 million of one-time expenses~~charitable contributions related to the completion of the Reliance merger (included in other miscellaneous expense) incurred during the second quarter of 2017 as well as declines in various miscellaneous expenses and a decrease in defined benefit plan expense principally due to the termination of the Trustmark Capital Accumulation Plan (the Plan).Mississippi Children’s Promise Act.

Results of Segment Operations

For a description of the methodologies used to measure financial performance and financial information by reportable segment, please see Note 19 – Segment Information included in Part I. Item 1. – Financial Statements of this report. During the first quarter of 2019, Trustmark revised the composition of its operating segments by moving the Private Banking Group from the General Banking Segment to the Wealth Management Segment as a result of a change in supervision of this group for segment reporting purposes. The prior period amounts include reclassifications to conform to the current period presentation. The following discusses changes in the results of operations of each reportable segment for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

General Banking

Net interest income for the General Banking ~~Division~~Segment increased ~~$10.7~~$7.4 million, or ~~3.5%~~2.4%, when the nine months ended September 30, ~~2018~~2019 is compared with the same time period in ~~2017.~~2018. The increase in net interest income was ~~primarily~~principally due to increases in interest and fees on LHFS and LHFI and ~~a decrease~~other interest income and declines in interest on federal funds purchased and securities sold under repurchase agreements and other interest expense, ~~partially~~which were largely offset by an increase in interest on deposits and declines in interest and fees on securities and ~~interest and fees on~~ acquired loans. The provision for loan losses, net for the nine months ended September 30, ~~2018~~2019 totaled ~~$15.0~~$7.2 million compared to ~~$3.5~~$15.1 million for the same period in ~~2017, an increase~~2018, a decrease of ~~$11.5 million.~~$7.9 million, or 52.3%. For more information on these net interest income items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income for the General Banking ~~Division~~Segment decreased ~~$1.2~~$4.1 million, or 1.4%, during the first nine months of 2018 compared to the same time period in 2017, primarily due to $2.7 million of nontaxable proceeds related to Trustmark’s bank-owned life insurance received during the third quarter of 2017 and $4.9 million of nontaxable proceeds related to life insurance acquired in a previous acquisition received during the second quarter of 2017. Excluding these nontaxable proceeds, noninterest income for the General Banking Division increased $5.2 million, or 6.3%4.7%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017.~~2018, primarily due to the decrease in mortgage banking, net, principally due to the negative net hedge ineffectiveness partially offset by increases in the mortgage loan valuation adjustment and gain on sales of loans, net; partially offset by increases in bank card and other fees, principally related to increases in income from customer derivatives, interchange income and ATM surcharges; and other income, net, principally due to increases in the net gain on sales of premises and equipment and cash management services fee income and a decrease in amortization of tax credit partnerships, partially offset by life insurance proceeds received during the second quarter of 2018. Noninterest income for the General Banking ~~Division~~Segment represented ~~21.8%~~20.8% of total revenue for this segment for the first nine months of ~~2018~~2019 as opposed to ~~22.7%~~22.0% for the same time period in ~~2017.~~2018. Noninterest income for the General Banking ~~Division~~Segment includes service charges on deposit accounts; bank card and other fees; mortgage banking, net; other income, net and securities gains (losses), net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income.”

Noninterest expense for the General Banking ~~Division decreased $17.0~~Segment increased $9.4 million, or ~~6.0%~~3.5%, ~~during~~when the first nine months of ~~2018~~2019 is compared with the same time period in 2017, principally due to a one-time defined benefit pension plan termination charge of $17.6 million and $3.2 million of one-time expenses related to the completion of the Reliance merger incurred during the second quarter of 2017. Excluding these non-routine expenses, noninterest expense for the General Banking Division for the first nine months of 2018, ~~increased $3.9 million, or 1.5%, when compared to the same time period in 2017,~~ principally due to increases in salaries and employee benefits, primarily as a result of general merit increases, ~~and~~ higher mortgage origination commission expense, higher medical insurance contributions and increased stock compensation expense; services and fees, primarily related to data processing software, ~~expenses, partially offset by declines in~~professional fees and advertising expenses; and other expense, primarily due to ~~declines~~an increase in ~~various miscellaneous expenses and a decrease in defined benefit plan expense principally due~~charitable contributions related to the ~~termination of~~Mississippi Children’s Promise Act; partially offset by the ~~Plan, and other real estate~~decline in FDIC assessment expense, primarily due to ~~declines in write-downs~~the lower regular assessment base and elimination of ~~other real estate and real estate tax and foreclosure expenses.~~the additional surcharge. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

~~During~~Net income for the Wealth Management Segment for the first nine months of ~~2018, net income for the Wealth Management Division~~2019 increased ~~$885 thousand,~~$1.5 million, or ~~49.9%~~43.0%, when compared to the same time period in ~~2017.~~2018. Net interest income for the Wealth Management Segment totaled $2.8 million for the first nine months of 2019, a decrease of $642 thousand, or 18.6%, when compared to the same time period in 2018, primarily due to an increase in interest expense on deposit accounts. Noninterest income, which primarily includes income related to investment management, trust and brokerage services, ~~increase $255~~increased $217 thousand, or ~~1.1%~~0.9%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, primarily due to increases in ~~commissions~~other miscellaneous income and ~~fees~~income from ~~investment~~annuity services. Noninterest expense for the Wealth Management ~~Division~~Segment decreased ~~$365 thousand,~~$2.4 million, or ~~1.8%~~11.1%, ~~during~~when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, principally due to a decrease in ~~other miscellaneous expense partially offset by increases~~professional fees as well as insurance settlement proceeds received in ~~data processing expense~~the third quarter of 2019 related to ~~software and salaries and employee benefits resulting from improvements in retail brokerage activity.~~a legal case settled during 2018.

At September 30, ~~2018~~2019 and ~~2017,~~2018, Trustmark held assets under management and administration of ~~$10.920~~$11.908 billion and ~~$10.406~~$10.920 billion, respectively, and brokerage assets of $1.918 billion and $1.867 billion, ~~and $1.744 billion,~~ respectively.

Insurance

Net income for the Insurance ~~Division during~~Segment for the first nine months of ~~2018~~2019 increased ~~$916 thousand,~~$1.2 million, or ~~21.0%~~23.4%, when compared to the same time period in ~~2017.~~2018. Noninterest income for the Insurance ~~Division,~~Segment, which is predominately composed of insurance commissions, increased ~~$1.6~~$2.1 million, or ~~5.3%~~6.9%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017. The increase in insurance commissions during the first nine months of~~ 2018, ~~when compared to the same time period in 2017 was~~ primarily due to new business commission volume ~~primarily in property and casualty coverage.~~across all lines of business. Noninterest expense for the Insurance ~~Division~~Segment increased ~~$1.6 million,~~$547 thousand, or ~~7.1%~~2.3%, when the first nine months of ~~2018~~2019 is compared to the same time period in ~~2017,~~2018, primarily due to higher salaries expense resulting from modest general merit increases and higher commission expense due to improvements in business volumes.

Income Taxes

For the three and nine months ended September 30, ~~2018,~~2019, Trustmark’s combined effective tax rate was 12.8% and 13.2%, respectively, compared to 10.8% and 12.5%~~, compared to 20.1% and 20.8%~~ for the same time periods in ~~2017. The decrease in the effective tax rate for the three and nine months ended September 30,~~ 2018, ~~compared to the same time periods in 2017, was primarily due to the enactment of the Tax Reform Act.~~respectively. Trustmark’s effective tax rate continues to be less than the statutory rate primarily due to various tax-exempt income items and its utilization of income tax credit programs. Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis ~~(i.e.~~(i.e., new market tax credits, low income housing tax credits or historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

Financial Condition

Earning assets serve as the primary revenue streams for Trustmark and are comprised of securities, loans, federal funds sold and other earning assets. Average earning assets totaled $12.139 billion, or 89.8% of total average assets, for the nine months ended September 30, 2019, compared to $12.236 billion, or 90.5% of total average assets, for the nine months ended September 30, 2018, ~~compared to $12.221 billion, or 89.4%~~a decrease of ~~total average assets, for the nine months ended September 30, 2017, an increase of $14.6~~$96.4 million, or ~~0.1%~~0.8%.

Securities

The securities portfolio is utilized by Management to manage interest rate risk, generate interest income, provide liquidity and use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering duration, composition and/or balance of the portfolio. The weighted-average life of the portfolio was ~~3.9~~3.4 years at September 30, ~~2018~~2019 compared to 3.8 years at December 31, ~~2017.~~2018.

When compared with December 31, ~~2017,~~2018, total investment securities decreased by ~~$486.6~~$382.3 million, or ~~14.8%~~14.0%, during the first nine months of ~~2018.~~2019. This decrease resulted primarily from calls, maturities and pay-downs of the loans underlying GSE guaranteed securities, ~~as well as a net decline~~partially offset by an increase in the fair market value of the securities available for sale. Trustmark sold no securities during the first nine months of ~~2018, compared to $27.7 million of securities sold during the first nine months of 2017, which generated a net gain of $15 thousand.~~2019 or 2018.

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale to securities held to maturity to mitigate the potential adverse impact of a rising interest rate environment on the fair value of the available for sale securities and the related impact on tangible common equity. The resulting net unrealized holding loss is being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. At September 30, ~~2018,~~2019, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss, net of tax, (AOCL) in the accompanying consolidated balance sheets totaled ~~$16.6~~$12.9 million ($~~12.4~~9.6 million net of tax) compared to ~~$19.5~~$15.7 million ($~~12.0~~11.8 million net of tax) at December 31, ~~2017.~~2018.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCL, a separate component of shareholders’ equity. At September 30, ~~2018,~~2019, available for sale securities totaled ~~$1.865~~$1.554 billion, which represented 66.4% of the securities portfolio, compared to ~~$2.239~~$1.812 billion, or ~~67.9%~~66.6%, at December 31, ~~2017.~~2018. At September 30, ~~2018,~~2019, unrealized ~~losses,~~gains, net on available for sale securities totaled ~~$70.5 million~~$341 thousand compared to ~~$23.5~~unrealized losses, net of $42.7 million at December 31, ~~2017.~~2018. At September 30, ~~2018,~~2019, available for sale securities consisted of obligations of states and political subdivisions, GSE guaranteed mortgage-related securities and direct obligations of government agencies and GSEs.

Held to maturity securities are carried at amortized cost and represent those securities that Trustmark both intends and has the ability to hold to maturity. At September 30, ~~2018,~~2019, held to maturity securities totaled ~~$943.9~~$785.4 million, ~~and~~which represented 33.6% of the total securities portfolio, compared with ~~$1.056 billion,~~$909.6 million, or ~~32.1%~~33.4%, at December 31, ~~2017.~~2018.

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of ~~approximately 96%~~97.1% of the portfolio in GSE-backed obligations and other Aaa-rated securities as determined by Moody’s Investors Services (Moody’s). None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the FHLB of Dallas, FHLB of Atlanta and Federal Reserve Bank of Atlanta, Trustmark does not hold any other equity investment in a GSE.

As of September 30, ~~2018,~~2019, Trustmark did not hold securities of any one issuer with a carrying value exceeding ~~ten percent~~10% of total shareholders’ equity, other than certain GSEs which are exempt from inclusion. Management continues to closely monitor the credit quality as well as the ratings of the debt and mortgage-backed securities issued by the GSEs and held in Trustmark’s securities portfolio.

The following table presents Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating, as determined by Moody’s, at September 30, ~~2018~~2019 ($ in thousands):

	September 30, 2018										September 30, 2019
	Amortized Cost					Estimated Fair Value					Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%			Amount		%			Amount		%
Securities Available for Sale
Aaa	$	1,877,974		97.1	%	$	1,807,368		96.9	%	$	1,518,902		97.8	%	$	1,518,703		97.7	%
Aa1 to Aa3		42,275		2.2	%		42,402		2.3	%		24,685		1.6	%		24,760		1.6	%
A1 to A3		520		—			519		—			200		—			200		—
Baa1 to Baa3		208		—			202		—			1,086		0.1	%		1,103		0.1	%
Not Rated (1)		14,125		0.7	%		14,142		0.8	%		8,491		0.5	%		8,939		0.6	%
Total securities available for sale	$	1,935,102		100.0	%	$	1,864,633		100.0	%	$	1,553,364		100.0	%	$	1,553,705		100.0	%

Securities Held to Maturity
Aaa	$	901,260		95.5	%	$	864,678		95.3	%	$	753,616		96.0	%	$	762,498		96.0	%
Aa1 to Aa3		33,657		3.6	%		33,638		3.7	%		26,251		3.3	%		26,480		3.3	%
Baa1 to Baa3		403		—			403		—
Not Rated (1)		8,563		0.9	%		8,598		1.0	%		5,555		0.7	%		5,707		0.7	%
Total securities held to maturity	$	943,883		100.0	%	$	907,317		100.0	%	$	785,422		100.0	%	$	794,685		100.0	%

(1)	Not rated issues primarily consist of Mississippi municipal general ~~obligations~~obligations.

The table above presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security. At September 30, ~~2018,~~2019, approximately ~~96.9%~~97.7% of the available for sale securities, measured at the estimated fair value, and ~~95.5%~~96.0% of the held to maturity securities, measured at amortized cost, were rated Aaa.

LHFS

At September 30, ~~2018,~~2019, LHFS totaled ~~$182.7~~$292.8 million, consisting of ~~$134.9~~$244.7 million of residential real estate mortgage loans in the process of being sold to third parties and ~~$47.8~~$48.1 million of ~~Government National Mortgage Association (GNMA)~~GNMA optional repurchase loans. At December 31, ~~2017,~~2018, LHFS totaled ~~$180.5~~$153.8 million, consisting of ~~$132.3~~$92.2 million of residential real estate mortgage loans in the process of being sold to third parties and ~~$48.2~~$61.6 million of GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first nine months of ~~2018~~2019 or ~~2017.~~2018.

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due ~~Loans Held for Sale (LHFS)”~~LHFS” included in Note 43 – ~~Loans Held for Investment (LHFI)~~LHFI and Allowance for Loan Losses, LHFI of Part I. Item 1. – Financial Statements of this report.

LHFI

The table below shows the carrying value of the LHFI portfolio by loan type at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018					December 31, 2017					September 30, 2019					December 31, 2018
	Amount		%			Amount		%			Amount		%			Amount		%
Loans secured by real estate:
Construction, land development and other land	$	1,031,491		11.8	%	$	987,624		11.5	%	$	1,135,999		12.3	%	$	1,056,601		12.0	%
Secured by 1-4 family residential properties		1,801,029		20.6	%		1,675,311		19.6	%		1,820,455		19.7	%		1,825,492		20.7	%
Secured by nonfarm, nonresidential properties		2,294,289		26.2	%		2,193,823		25.6	%		2,442,308		26.5	%		2,220,914		25.1	%
Other real estate secured		453,687		5.2	%		517,956		6.1	%		668,667		7.3	%		543,820		6.1	%
Commercial and industrial loans		1,565,922		17.9	%		1,570,345		18.3	%		1,491,367		16.2	%		1,538,715		17.4	%
Consumer loans		182,709		2.1	%		171,918		2.0	%		176,894		1.9	%		182,448		2.1	%
State and other political subdivision loans		929,178		10.6	%		952,483		11.1	%		978,456		10.6	%		973,818		11.0	%
Other loans		488,725		5.6	%		500,507		5.8	%		509,522		5.5	%		494,060		5.6	%
LHFI	$	8,747,030		100.0	%	$	8,569,967		100.0	%	$	9,223,668		100.0	%	$	8,835,868		100.0	%

LHFI increased ~~$177.1~~$387.8 million, or ~~2.1%~~4.4%, compared to December 31, ~~2017.~~2018. The increase in LHFI during the first nine months of ~~2018~~2019 was primarily due to net growth in loans secured by real estate across all five market regions, partially offset by declines in commercial and industrial loans in Trustmark’s ~~Mississippi, Alabama~~Tennessee and ~~Florida~~Mississippi market regions.

LHFI secured by real estate increased ~~$205.8~~$420.6 million, or ~~3.8%~~7.4%, during the first nine months of ~~2018 representing~~2019 primarily due to net growth in ~~LHFI secured by 1-4 family residential properties,~~ LHFI secured by nonfarm, nonresidential properties (NFNR LHFI), LHFI secured by other real estate and construction, land development and other land ~~loans partially offset by declines in~~loans. NFNR LHFI ~~secured by other real estate. LHFI secured by 1-4 family residential properties~~ increased ~~$125.7~~$221.4 million, or ~~7.5%~~10.0%, during the first nine months of ~~2018, primarily due to growth in mortgage loans in the Mississippi, Alabama and Florida market regions. NFNR LHFI increased $100.5 million, or 4.6%, during the first nine months of 2018,~~2019, principally due to movement from the other construction loans category. Excluding other construction loan reclassifications, the NFNR LHFI portfolio declined ~~$108.0~~$127.8 million, or ~~4.9%~~5.8%, during the first nine months of ~~2018~~2019 primarily due to declines ~~in owner occupied loans in the Mississippi, Tennessee and Texas market regions and non-owner occupied loans in the Texas, Mississippi and Florida market regions, partially offset by growth~~ in non-owner occupied loans in the Mississippi, Alabama, Texas and ~~Tennessee~~Florida market regions and owner occupied loans in the Texas, Mississippi, Tennessee and Florida market regions. LHFI secured by other real estate increased $124.8 million, or 23.0%, during the first nine months of 2019, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Texas, Alabama, Mississippi and ~~Alabama~~Florida market regions. LHFI secured by construction, land development and other land increased ~~$43.9~~$79.4 million, or ~~4.4%~~7.5%, during the first nine months of ~~2018~~2019 primarily due to new loans in the other construction and 1-4 family construction ~~and development~~ categories, partially offset by other construction loans moved to other loan categories upon the completion of the related construction project. During the first nine months of ~~2018, $330.0~~2019, $564.5 million loans were moved from other construction to other loan categories, including ~~$162.8~~$271.1 million to non-owner occupied loans, ~~$47.0~~$78.1 million to owner occupied loans, and ~~$120.2~~$215.2 million to multi-family residential loans. Excluding all reclassifications between loan categories, growth in other construction loans across all five market regions totaled ~~$334.6~~$605.7 million during the first nine months of ~~2018.~~2019.

Commercial and industrial LHFI ~~secured by other real estate declined $64.3~~decreased $47.3 million, or ~~12.4%~~3.1%, during the first nine months of ~~2018,~~2019 primarily due to declines in ~~LHFI secured by multi-family residential properties in~~ the Tennessee and Mississippi ~~Alabama and Texas~~ market ~~regions.~~

regions as a result of credits that were paid down or paid off during the third quarter of 2019. Trustmark’s exposure to the energy sector is primarily included in the commercial and industrial loan portfolio in Trustmark’s Mississippi and Texas market regions. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, energy-related LHFI had outstanding balances of ~~approximately $183.8~~$132.5 million and ~~$226.5~~$172.1 million, respectively, which represented ~~approximately 2.1%~~1.4% of Trustmark’s total LHFI portfolio at September 30, ~~2018~~2019 compared to ~~approximately 2.6%~~2.0% of the total LHFI portfolio at December 31, ~~2017.~~2018. Trustmark has no loan exposure where the source of repayment, or the underlying security of such exposure, is tied to the realization of value from

energy reserves. Should oil prices fall below current levels for a prolonged period of time, there is potential for downgrades to occur. Management will continue to monitor this exposure.

The following table provides information regarding Trustmark’s home equity loans and home equity lines of credit which are included in the LHFI secured by 1-4 family residential properties for the periods presented ($ in thousands):

	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Home equity loans	$	50,994		$	47,032		$	54,396		$	54,778
Home equity lines of credit		399,175			407,627			388,850			393,134
Percentage of loans and lines for which Trustmark holds first lien		59.9	%		60.7	%		59.8	%		59.8	%
Percentage of loans and lines for which Trustmark does not hold first lien		40.1	%		39.3	%		40.2	%		40.2	%

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

The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands). Trustmark’s variable rate LHFI are based primarily on various prime and LIBOR interest rate bases.

	September 30, 2018						September 30, 2019
	Fixed		Variable		Total		Fixed		Variable		Total
Loans secured by real estate:
Construction, land development and other land	$	227,026	$	804,465	$	1,031,491	$	175,955	$	960,044	$	1,135,999
Secured by 1- 4 family residential properties		1,037,935		763,094		1,801,029		982,490		837,965		1,820,455
Secured by nonfarm, nonresidential properties		1,414,322		879,967		2,294,289		1,465,361		976,947		2,442,308
Other real estate secured		169,606		284,081		453,687		222,242		446,425		668,667
Commercial and industrial loans		535,925		1,029,997		1,565,922		658,654		832,713		1,491,367
Consumer loans		164,069		18,640		182,709		156,585		20,309		176,894
State and other political subdivision loans		850,908		78,270		929,178		934,486		43,970		978,456
Other loans		178,715		310,010		488,725		261,009		248,513		509,522
LHFI	$	4,578,506	$	4,168,524	$	8,747,030	$	4,856,782	$	4,366,886	$	9,223,668

	December 31, 2017						December 31, 2018
	Fixed		Variable		Total		Fixed		Variable		Total
Loans secured by real estate:
Construction, land development and other land	$	253,744	$	733,880	$	987,624	$	306,590	$	750,011	$	1,056,601
Secured by 1- 4 family residential properties		1,632,853		42,458		1,675,311		1,051,290		774,202		1,825,492
Secured by nonfarm, nonresidential properties		1,385,217		808,606		2,193,823		1,490,035		730,879		2,220,914
Other real estate secured		153,851		364,105		517,956		197,549		346,271		543,820
Commercial and industrial loans		522,613		1,047,732		1,570,345		821,343		717,372		1,538,715
Consumer loans		151,685		20,233		171,918		162,940		19,508		182,448
State and other political subdivision loans		863,262		89,221		952,483		907,685		66,133		973,818
Other loans		238,315		262,192		500,507		265,277		228,783		494,060
LHFI	$	5,201,540	$	3,368,427	$	8,569,967	$	5,202,709	$	3,633,159	$	8,835,868

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

The following table presents the LHFI composition by region at September 30, ~~2018~~2019 and reflects aeach region’s diversified mix of loans ~~by region~~ ($ in thousands):

		September 30, 2018													September 30, 2019
LHFI Composition by Region		Total		Alabama		Florida		Mississippi		Tennessee		Texas			Total		Alabama		Florida		Mississippi		Tennessee		Texas
Loans secured by real estate:
Construction, land development and other land		$	1,031,491	$	335,338	$	79,432	$	333,614	$	19,974	$	263,133		$	1,135,999	$	392,477	$	66,158	$	333,988	$	26,091	$	317,285
Secured by 1-4 family residential properties			1,801,029		113,369		48,527		1,539,417		86,379		13,337			1,820,455		121,831		38,897		1,562,384		82,598		14,745
Secured by nonfarm, nonresidential properties			2,294,289		517,795		222,194		913,676		157,188		483,436			2,442,308		659,792		240,514		913,696		154,075		474,231
Other real estate secured			453,687		70,306		11,603		215,792		11,070		144,916			668,667		190,140		28,558		265,986		10,081		173,902
Commercial and industrial loans			1,565,922		197,278		17,065		783,217		378,433		189,929			1,491,367		213,605		22,804		768,433		309,075		177,450
Consumer loans			182,709		23,823		5,473		130,527		20,095		2,791			176,894		24,232		7,220		124,288		18,577		2,577
State and other political subdivision loans			929,178		87,807		42,144		586,996		28,355		183,876			978,456		106,533		40,628		608,661		27,691		194,943
Other loans			488,725		77,492		16,291		318,691		38,273		37,978			509,522		78,614		17,333		311,756		59,367		42,452
LHFI		$	8,747,030	$	1,423,208	$	442,729	$	4,821,930	$	739,767	$	1,319,396		$	9,223,668	$	1,787,224	$	462,112	$	4,889,192	$	687,555	$	1,397,585

Construction, Land Development and Other Land Loans by Region	Construction, Land Development and Other Land Loans by Region													Construction, Land Development and Other Land Loans by Region
Lots		$	62,886	$	14,899	$	19,168	$	23,758	$	1,508	$	3,553		$	63,792	$	17,389	$	13,804	$	23,876	$	1,955	$	6,768
Development			58,520		7,621		7,663		29,243		680		13,313			65,661		10,008		7,148		27,030		4,666		16,809
Unimproved land			88,965		13,869		15,305		28,918		13,297		17,576			104,624		21,497		15,442		34,692		12,880		20,113
1-4 family construction			211,270		81,997		12,567		82,019		2,024		32,663			244,493		110,665		18,765		83,839		2,729		28,495
Other construction			609,850		216,952		24,729		169,676		2,465		196,028			657,429		232,918		10,999		164,551		3,861		245,100
Construction, land development and other land loans		$	1,031,491	$	335,338	$	79,432	$	333,614	$	19,974	$	263,133		$	1,135,999	$	392,477	$	66,158	$	333,988	$	26,091	$	317,285

Loans Secured by Nonfarm, Nonresidential Properties by Region	Loans Secured by Nonfarm, Nonresidential Properties by Region													Loans Secured by Nonfarm, Nonresidential Properties by Region
Non-owner occupied:
Retail		$	391,342	$	139,168	$	54,539	$	100,954	$	24,585	$	72,096		$	403,515	$	172,009	$	47,835	$	97,741	$	23,734	$	62,196
Office			142,098		70,872		21,027		—		7,988		42,211			238,781		60,140		17,465		61,779		7,839		91,558
Nursing homes/senior living			205,700		33,075		—		166,435		6,190		—
Hotel/motel			255,710		74,450		51,916		53,097		34,156		42,091			306,027		110,834		90,205		53,726		40,188		11,074
Mini-storage			121,764		12,665		6,198		36,264		615		66,022			103,819		11,587		3,225		41,274		569		47,164
Industrial			102,793		20,577		7,081		17,630		2,259		55,246			181,466		88,938		6,290		27,012		2,254		56,972
Health care			52,464		22,594		748		26,310		—		2,812			52,598		11,199		3,267		34,321		—		3,811
Convenience stores			31,322		2,766		116		17,028		764		10,648			22,339		3,189		—		8,481		657		10,012
Other			149,606		5,297		8,530		87,415		22,425		25,939			54,467		4,314		6,679		10,125		5,965		27,384
Total non-owner occupied loans			1,452,799		381,464		150,155		505,133		98,982		317,065			1,363,012		462,210		174,966		334,459		81,206		310,171
Owner-occupied:
Office			164,111		29,926		28,039		60,073		6,588		39,485			143,386		35,961		26,856		50,830		5,336		24,403
Churches			92,797		19,036		6,656		45,949		16,262		4,894			102,277		22,837		6,454		43,770		14,321		14,895
Industrial warehouses			140,636		11,390		3,337		54,987		14,559		56,363			145,760		11,818		3,420		65,102		12,483		52,937
Health care			109,006		21,652		6,465		63,265		2,827		14,797			124,138		18,622		7,453		82,350		2,568		13,145
Convenience stores			115,278		14,613		12,956		63,379		1,229		23,101			106,546		13,072		7,159		63,830		908		21,577
Retail			86,833		24,035		7,746		33,231		3,686		18,135			70,423		16,398		7,422		25,770		4,379		16,454
Restaurants			35,360		2,712		1,529		27,224		1,832		2,063			54,942		3,897		1,339		31,144		16,698		1,864
Auto dealerships			31,240		8,480		149		13,600		9,011		—			29,944		7,657		305		13,512		8,470		—
Nursing homes/senior living																216,863		62,871		—		148,061		5,931		—
Other			66,229		4,487		5,162		46,835		2,212		7,533			85,017		4,449		5,140		54,868		1,775		18,785
Total owner-occupied loans			841,490		136,331		72,039		408,543		58,206		166,371			1,079,296		197,582		65,548		579,237		72,869		164,060
Loans secured by nonfarm, nonresidential properties		$	2,294,289	$	517,795	$	222,194	$	913,676	$	157,188	$	483,436		$	2,442,308	$	659,792	$	240,514	$	913,696	$	154,075	$	474,231

Allowance for Loan Losses, LHFI

Trustmark’s allowance for loan loss methodology is based on guidance provided in SEC Staff Accounting Bulletin (SAB) No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as other regulatory guidance. Trustmark’s allowance has been developed using different factors to estimate losses based upon specific evaluation of identified individual LHFI considered impaired, estimated identified losses on various pools of LHFI and/or groups of risk rated LHFI with common risk

characteristics and other external and internal factors of estimated probable losses based on other facts and circumstances. The level of Trustmark’s allowance reflects Management’s continuing evaluation of specific credit risks, loan loss experience, current loan portfolio growth, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. For a complete description of Trustmark’s allowance for loan loss methodology and the quantitative and qualitative factors included in the valuation allowance, please see Note 43 – ~~Loans Held for Investment (LHFI)~~LHFI and Allowance for Loan Losses, LHFI included in Part I. Item 1. – Financial Statements of this report.

At September 30, ~~2018,~~2019, the allowance for loan losses, LHFI, was ~~$88.9~~$83.2 million, an increase of ~~$12.1~~$3.9 million, or ~~15.8%~~5.0%, when compared with December 31, ~~2017.~~2018. The increase in the allowance for loan loss during the first nine months of ~~2018~~2019 was principally due to an increase in ~~specific~~ reserves required related to changes in quantitative and qualitative reserve factors for ~~new and existing impaired~~commercial LHFI. Total allowance coverage of nonperforming LHFI, excluding specifically reviewed impaired LHFI, increased to ~~339.79%~~357.15% at September 30, ~~2018,~~2019, compared to ~~320.84%~~350.77% at December 31, ~~2017~~2018 principally due to ~~the decrease~~an increase in ~~the nonperforming LHFI, excluding specifically reviewed impaired LHFI, partially offset by a decrease in the~~ allowance for loan losses, ~~LHFI,~~ excluding specific reserves for impaired LHFI. Allocation of Trustmark’s ~~$88.9~~$83.2 million allowance for loan losses, LHFI, represented ~~1.13%~~0.98% of commercial LHFI and ~~0.63%~~0.61% of consumer and home mortgage LHFI, resulting in an allowance to total LHFI of ~~1.02%~~0.90% as of September 30, ~~2018.~~2019. This compares with an allowance to total LHFI of 0.90% at December 31, ~~2017,~~2018, which was allocated to commercial LHFI at ~~0.95%~~0.99% and to consumer and mortgage LHFI at ~~0.68%~~0.57%.

The following tables present changes in the allowance for loan losses, LHFI by geographic market region for the periods presented ($ in thousands):

	Three Months Ended September 30, 2019
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	80,399		$	12,860		$	3,052		$	39,644		$	8,608		$	16,235
LHFI charged-off		(2,892	)		(436	)		(61	)		(1,697	)		(673	)		(25	)
Recoveries		2,680			107			197			2,088			190			98
Net (charge-offs) recoveries		(212	)		(329	)		136			391			(483	)		73
Provision for loan losses, LHFI		3,039			561			(154	)		1,528			2,175			(1,071	)
Balance at end of period	$	83,226		$	13,092		$	3,034		$	41,563		$	10,300		$	15,237

	Three Months Ended September 30, 2018
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	83,566		$	11,329		$	3,009		$	47,848		$	5,062		$	16,318
Transfers (1)		772			—			—			772			—			—
LHFI charged-off		(7,017	)		(301	)		(48	)		(6,380	)		(247	)		(41	)
Recoveries		2,880			103			634			1,703			343			97
Net (charge-offs) recoveries		(4,137	)		(198	)		586			(4,677	)		96			56
Provision for loan losses, LHFI		8,673			593			(431	)		(1,630	)		8,100			2,041
Balance at end of period	$	88,874		$	11,724		$	3,164		$	42,313		$	13,258		$	18,415

	Three Months Ended September 30, 2017																		Nine Months Ended September 30, 2019
	Total			Alabama			Florida			Mississippi			Tennessee			Texas			Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	76,184		$	9,206		$	3,056		$	45,312		$	6,102		$	12,508		$	79,290		$	11,175		$	3,242		$	40,592		$	8,422		$	15,859
LHFI charged-off		(2,752	)		(400	)		(102	)		(1,954	)		(281	)		(15	)		(9,862	)		(1,043	)		(229	)		(7,308	)		(1,079	)		(203	)
Recoveries		3,228			86			898			1,965			196			83			6,662			421			722			4,662			502			355
Net (charge-offs) recoveries		476			(314	)		796			11			(85	)		68			(3,200	)		(622	)		493			(2,646	)		(577	)		152
Provision for loan losses, LHFI		3,672			1,218			(744	)		1,860			(72	)		1,410			7,136			2,539			(701	)		3,617			2,455			(774	)
Balance at end of period	$	80,332		$	10,110		$	3,108		$	47,183		$	5,945		$	13,986		$	83,226		$	13,092		$	3,034		$	41,563		$	10,300		$	15,237

	Nine Months Ended September 30, 2018
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	76,733		$	10,473		$	2,819		$	44,388		$	5,427		$	13,626
Transfers (2)		1,554			—			782			772			—			—
LHFI charged-off		(12,980	)		(722	)		(136	)		(11,233	)		(803	)		(86	)
Recoveries		7,766			328			1,804			4,584			720			330
Net (charge-offs) recoveries		(5,214	)		(394	)		1,668			(6,649	)		(83	)		244
Provision for loan losses, LHFI		15,801			1,645			(2,105	)		3,802			7,914			4,545
Balance at end of period	$	88,874		$	11,724		$	3,164		$	42,313		$	13,258		$	18,415

Nine Months Ended September 30, 2017

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
71,265

$
7,188

$
2,900

$
43,010

$
5,801

$
12,366

LHFI charged-off

(9,072
)

(706
)

(288
)

(7,064
)

(908
)

(106
)
Recoveries

8,784

355

2,212

5,283

594

340

Net (charge-offs) recoveries

(288
)

(351
)

1,924

(1,781
)

(314
)

234

Provision for loan losses, LHFI

9,355

3,273

(1,716
)

5,954

458

1,386

Balance at end of period

$
80,332

$
10,110

$
3,108

$
47,183

$
5,945

$
13,986

(1)

The allowance for loan losses balance related to the remaining loans acquired in the Heritage ~~acquisition on April 15, 2011~~ and ~~the~~ Reliance ~~merger on April 7, 2017,~~mergers, which were ~~reclassified~~transferred from acquired impaired loans to LHFI ~~during~~in the third quarter of 2018.

(2)

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank, ~~merger on March 16, 2012,~~Heritage and Reliance mergers, which were ~~reclassified~~transferred from acquired impaired loans to LHFI ~~during the second quarter of 2018, and the remaining loans acquired~~ in ~~the Heritage acquisition on April 15, 2011 and the Reliance merger on April 7, 2017, which were reclassified from acquired impaired loans to LHFI during the third quarter of~~ 2018.

Charge-offs exceeded recoveries for the three and nine months ended September 30, ~~2018 resulting in net charge-offs of $4.1 million~~2019 and ~~$5.2 million, respectively, compared to net recoveries of $476 thousand and net charge-offs of $288 thousand for the same time periods in 2017. The increase in net~~2018. Net charge-offs for the three ~~and nine~~ months ended September 30, ~~2018~~2019 declined $3.9 million, or 94.9%, when compared to the same time ~~periods~~period in ~~2017 was~~2018, primarily ~~the result of two~~due to a large ~~substandard~~ commercial ~~credits~~credit in the Mississippi market region that ~~were~~was charged off during the third quarter of 2018. Net charge-offs for the nine months ended September 30, 2019 decreased $2.0 million, or 38.6%, when compared to the same time period in 2018, principally due to one large commercial credit in the Mississippi market region that was charged off during the third quarter of 2018, partially offset by a decline in recoveries of amounts previously charged off in the Florida market region.

The provision for loan losses, LHFI represents the change in the estimated loan losses determined utilizing Trustmark’s allowance for loan loss methodology net of charge-offs and recoveries of LHFI charged against net income. The provision for loan losses, LHFI, for the three and nine months ended September 30, ~~2018~~2019 totaled ~~0.39%~~0.13% and ~~0.24%~~0.10% of average loans (LHFS and LHFI), respectively, compared ~~with 0.17%~~to 0.39% and ~~0.15%~~0.24% of average loans (LHFS and LHFI), respectively, for the same time periods in ~~2017.~~2018. The ~~increase~~decrease in the provision for loan losses, LHFI when the three ~~and nine~~ months ended September 30, ~~2018 are~~2019 is compared to the same time ~~periods~~period in ~~2017~~2018 was primarily due to ~~increases~~a decrease in the amount of provision expense related to new and existing impaired LHFI and a decline in net charge-offs, partially offset by ~~declines~~an increase in provision expense related to loan growth. The decrease in the provision for loan losses, LHFI when the nine months ended September 30, 2019 is compared to the same time period in 2018 was primarily due to a decrease in the amount of provision expense related to new and existing impaired LHFI partially offset by increases in provision expense related to loan growth and changes in qualitative and quantitative reserve ~~factors and loan growth as well as the specific reserves recorded during the third quarter of 2017 related to Hurricane Harvey.~~factors.

Nonperforming Assets, Excluding Acquired Loans

The table below provides the components of nonperforming assets, excluding acquired loans, by geographic market region at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 ($ in thousands):

	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Nonaccrual LHFI
Alabama	$	3,953		$	3,083		$	2,936		$	3,361
Florida		1,180			3,034			311			1,175
Mississippi		41,351			49,129			43,895			44,331
Tennessee		13,195			4,436			10,193			8,696
Texas		8,157			7,893			1,695			4,061
Total nonaccrual LHFI		67,836			67,575			59,030			61,624
Other real estate
Alabama		7,526			11,714			6,501			6,873
Florida		8,931			13,937			6,983			8,771
Mississippi		18,191			14,260			17,646			17,255
Tennessee		1,083			2,535			844			1,025
Texas		744			782			—			744
Total other real estate		36,475			43,228			31,974			34,668
Total nonperforming assets	$	104,311		$	110,803		$	91,004		$	96,292

Nonperforming assets/total loans (LHFI and LHFS) and ORE		1.16	%		1.26	%		0.95	%		1.07	%

Loans past due 90 days or more
LHFI	$	726		$	2,171		$	878		$	856

LHFS - Guaranteed GNMA serviced loans (1)	$	34,115		$	35,544		$	36,445		$	37,384

(1)	No obligation to ~~repurchase~~repurchase.

See the previous discussion of LHFS for more information on Trustmark’s serviced GNMA loans eligible for repurchase and the impact of Trustmark’s repurchases of delinquent mortgage loans under the GNMA optional repurchase program.

Nonaccrual LHFI

At September 30, ~~2018,~~2019, nonaccrual LHFI totaled ~~$67.8~~$59.0 million, or ~~0.76%~~0.62% of total LHFS and LHFI, reflecting ~~an increase~~a decrease of ~~$261 thousand~~$2.6 million, or 0.03% of total LHFS and LHFI, relative to December 31, ~~2017.~~2018. The ~~slight increase~~decrease in nonaccrual LHFI during the first nine months of ~~2018~~2019 was ~~principally~~primarily due to a reduction and charge-off of one large commercial nonaccrual credit in the Mississippi market region, for which reserves were previously established, foreclosure of one large nonaccrual healthcare ~~related~~credit in the Mississippi market region and reduction of two large commercial nonaccrual credits in the Mississippi and Texas market regions, which were largely offset by a large commercial credit in the Mississippi market region and one shared national credit in the limited-service restaurant industry in the Tennessee market region moving to nonaccrual status, which were substantially offset by payments, foreclosure, and charge-offsthat was placed on nonaccrual ~~loans, primarily related to two nonaccrual commercial credits in~~during the ~~Mississippi market region and one nonaccrual commercial credit in the Florida market region.~~ third quarter of 2019.

As of September 30, ~~2018,~~2019, nonaccrual energy-related LHFI totaled ~~$13.1~~$11.0 million and represented ~~7.1%~~8.3% of Trustmark’s total energy-related portfolio, compared to ~~$22.0~~$12.0 million, or ~~9.7%~~7.0% of Trustmark’s total energy-related portfolio, as of December 31, ~~2017.~~2018. For additional information regarding nonaccrual LHFI, see the section captioned “Nonaccrual and Past Due LHFI” included in Note 43 – ~~Loans Held for Investment (LHFI)~~LHFI and Allowance for Loan Losses, LHFI in Part I. Item 1. – Financial Statements of this report.

Other Real Estate

Other real estate at September 30, ~~2018~~2019 decreased ~~$6.8~~$2.7 million, or ~~15.6%~~7.8%, when compared with December 31, ~~2017.~~2018. The decrease in other real estate was ~~primarily due to~~a result of properties sold ~~in Trustmark’s Florida, Mississippi, Alabama~~ and ~~Tennessee~~write-downs on foreclosed properties across all five market regions, partially offset by new properties foreclosed in the Mississippi, Alabama and ~~Florida~~Tennessee market regions.

As of September 30, 2018, Trustmark had no covered other real estate. The remaining loss-share agreement with the Federal Deposit Insurance Corporation (FDIC), which covers loans secured by 1-4 family residential properties, will expire in 2021. Should a loan covered by the remaining loss-share agreement be foreclosed, the related property will be classified as covered other real estate.

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

	Three Months Ended September 30, 2019
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	31,243		$	6,451		$	7,826		$	15,511		$	815		$	640
Additions		3,583			—			—			3,509			74			—
Disposals		(2,715	)		(117	)		(843	)		(1,029	)		—			(726	)
Write-downs		(137	)		167			—			(345	)		(45	)		86
Balance at end of period	$	31,974		$	6,501		$	6,983		$	17,646		$	844		$	—

	Three Months Ended September 30, 2018
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	39,667		$	8,290		$	9,789		$	19,358		$	1,486		$	744
Additions		3,284			161			1,967			774			382			—
Disposals		(5,584	)		(938	)		(2,825	)		(1,064	)		(757	)		—
Write-downs		(892	)		13			—			(877	)		(28	)		—
Balance at end of period	$	36,475		$	7,526		$	8,931		$	18,191		$	1,083		$	744

	Three Months Ended September 30, 2017																	Nine Months Ended September 30, 2019
	Total			Alabama			Florida			Mississippi			Tennessee			Texas		Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	49,958		$	13,301		$	17,377		$	14,377		$	3,363		$	1,540	$	34,668		$	6,873		$	8,771		$	17,255		$	1,025		$	744
Additions		2,983			167			—			2,690			126			—		5,684			569			—			5,000			115			—
Disposals		(4,153	)		(626	)		(1,172	)		(1,583	)		(772	)		—		(6,574	)		(726	)		(1,517	)		(3,375	)		(230	)		(726	)
Write-downs		(432	)		(116	)		(105	)		(165	)		(46	)		—		(1,804	)		(215	)		(271	)		(1,234	)		(66	)		(18	)
Balance at end of period	$	48,356		$	12,726		$	16,100		$	15,319		$	2,671		$	1,540	$	31,974		$	6,501		$	6,983		$	17,646		$	844		$	—

	Nine Months Ended September 30, 2018
	Total			Alabama			Florida			Mississippi			Tennessee			Texas
Balance at beginning of period	$	43,228		$	11,714		$	13,937		$	14,260		$	2,535		$	782
Additions		10,368			380			2,740			6,866			382			—
Disposals		(15,264	)		(2,894	)		(7,690	)		(2,935	)		(1,745	)		—
Write-downs		(1,857	)		(620	)		(56	)		(1,054	)		(89	)		(38	)
Adjustments		—			(1,054	)		—			1,054			—			—
Balance at end of period	$	36,475		$	7,526		$	8,931		$	18,191		$	1,083		$	744

Nine Months Ended September 30, 2017

Total

Alabama

Florida

Mississippi

Tennessee

Texas

Balance at beginning of period

$
62,051

$
15,989

$
22,582

$
15,646

$
6,183

$
1,651

Additions (1)

7,481

838

344

4,784

732

783

Disposals

(18,583
)

(3,160
)

(5,702
)

(4,496
)

(4,331
)

(894
)
Write-downs

(2,593
)

(941
)

(1,124
)

(615
)

87

—

Balance at end of period

$
48,356

$
12,726

$
16,100

$
15,319

$
2,671

$
1,540

~~(1)~~

~~Includes $475 thousand of other real estate acquired in the Reliance merger on April 7, 2017.~~

Other real estate is revalued on an annual basis or more often if market conditions necessitate. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged against the reserve for other real estate write-downs or net income in other real estate expense, if a reserve does not exist. Write-downs of other real estate decreased ~~$736~~$53 thousand, or ~~28.4%~~2.9%, when the first nine

months of ~~2018~~2019 is compared to the same time period in ~~2017, primarily due to a $1.1 million decrease~~2018, as the decline in write-downs ofon other real estate ~~properties in the Florida market region reflecting the~~was mostly offset by an increase in the amount of ~~properties sold in this market region~~reserves for ~~the respective periods.~~other real estate write-downs.

For additional information regarding other real estate, ~~including covered other real estate,~~please see Note 76 – Other Real Estate included in Part I. Item 1. – Financial Statements of this report.

Acquired Loans

Trustmark’s loss-share agreement with the FDIC covering the acquired covered loans secured by 1-4 family residential properties will expire in 2021.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, acquired loans consisted of the following ($ in thousands):

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Loans secured by real estate:
Construction, land development and other land	$	6,657	$	23,586	$	5,417	$	5,878
Secured by 1-4 family residential properties		25,274		61,751		18,437		22,556
Secured by nonfarm, nonresidential properties		66,865		114,694		40,930		47,979
Other real estate secured		8,507		16,746		6,887		8,253
Commercial and industrial loans		16,610		31,506		4,925		15,267
Consumer loans		1,514		2,600		593		1,356
Other loans		7,188		10,634		3,815		5,643
Acquired loans		132,615		261,517		81,004		106,932
Less allowance for loan losses, acquired loans		1,714		4,079		1,249		1,231
Net acquired loans	$	130,901	$	257,438	$	79,755	$	105,701

During the first nine months of ~~2018,~~2019, acquired loans decreased ~~$128.9~~$25.9 million, or ~~49.3%~~24.2%, compared to balances at December 31, ~~2017,~~2018, primarily due to pay-downs and pay-offs of these acquired loans and acquired loans that were transferred to LHFI. Based on the most recent re-estimation of expected cash flows, Trustmark anticipates that acquired loan balances, excluding any settlement of debt, will decline approximately $20.0 million to $30.0 million during the fourth quarter of 2018. Trustmark also expects the yield on the acquired loans, excluding any recoveries, to be approximately 6.5% to 7.5% for the fourth quarter of 2018.loans. As the balances in the acquired loan portfolio continue to run-off, Trustmark expects that the income benefit provided by this portfolio will also decline.

For additional information regarding acquired loans, including changes in the net carrying value, see Note 54 – Acquired Loans included in Part I. Item 1. – Financial Statements of this report.

Deposits

Trustmark’s deposits are its primary source of funding and consist of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. Total deposits were ~~$10.957~~$11.254 billion at September 30, ~~2018~~2019 compared to ~~$10.578~~$11.364 billion at December 31, ~~2017, an increase~~2018, a decrease of ~~$379.4~~$110.2 million, or ~~3.6%~~1.0%. During the first nine months of ~~2018,~~2019, noninterest-bearing deposits ~~decreased $191.5~~increased $126.5 million, or ~~6.4%, as a result of declines in all categories of noninterest-bearing deposit accounts, while interest-bearing deposits increased $570.9 million, or 7.5%~~4.3%, primarily due to growth in commercial and public noninterest-bearing deposit accounts, partially offset by a decline in consumer noninterest-bearing deposit accounts. During the first nine months of 2019, interest-bearing deposits decreased $236.8 million, or 2.8%, primarily due to declines in public and ~~commercial~~consumer interest checking accounts, ~~commercial~~time deposit accounts and savings accounts, partially offset by growth in consumer and commercial money market deposit ~~accounts and consumer and public certificates of deposits, reflecting increases in interest rates in general.~~accounts.

~~Short-term~~ Borrowings

Trustmark uses short-term borrowings, such as federal funds purchased, securities sold under repurchase agreements and short-term FHLB advances, to fund growth of earning assets in excess of deposit growth. Short-term borrowings consist primarily of federal funds purchased, securities sold under repurchase agreements, short-term FHLB advances and GNMA optional repurchase loans. Short-term borrowings totaled $676.9 million at September 30,During 2018, a decrease of $764.0 million, or 53.0%, when compared with $1.441 billion at December 31, 2017, primarily due to decrease in the outstanding balance of short-term FHLB advances, as maturing short-term advances with the FHLB of Dallas were not replacedTrustmark reduced its funding needs from external sources as a result of ~~increases in interest rates and changes in Trustmark’s funding needs which resulted from increased liquidity due to~~ growth in deposits out-pacing growth in LHFI and ~~securities run-off. Other short-term borrowings decreased $781.0 million, or 80.4%,~~Management’s decision during the ~~first nine months~~fourth quarter of ~~2018, primarily due~~2017 to suspend reinvestment of security cash flows and allow the ~~maturity~~run-off of ~~$400.0 million in short-term FHLB advances and prepayment~~maturing investment securities. See the section captioned “Liquidity” for further discussion of ~~$375.0 million short-term advance with~~ the ~~FHLB~~components of ~~Dallas.~~ Trustmark’s excess funding capacity.

Federal funds purchased and securities sold under repurchase agreements totaled ~~$486.9~~$376.7 million at September 30, ~~2018~~2019 compared to ~~$469.8~~$50.5 million at December 31, ~~2017,~~2018, an increase of ~~$17.0 million, or 3.6%.~~$326.2 million. Of these amounts ~~$95.9~~$51.7 million and ~~$139.8~~$50.5 million, respectively, represented customer related transactions, such as commercial sweep repurchase balances. Excluding customer related transactions, federal funds purchased totaled ~~$391.0~~$325.0 million at September 30, ~~2018, an~~2019, compared to none at December 31, 2018. The increase in the upstream federal funds purchased during the first nine months of ~~$61.0~~2019, was primarily due to a seasonal decline in public deposits.

Other borrowings totaled $76.7 million at September 30, 2019, a decrease of $3.2 million, or ~~18.5%~~4.0%, when compared with ~~$330.0~~$79.9 million at December 31, ~~2017.~~2018, primarily due to a decline in GNMA optional repurchase loans, which was mostly offset by the addition of building and equipment finance lease liabilities resulting from the adoption of FASB ASU 2016-02, “Leases (Topic 842).” GNMA optional repurchase loans totaled $48.1 million at September 30, 2019, a decrease of $13.5 million, or 21.9%, compared to December 31, 2018. See the section captioned “LHFS” for more information on Trustmark’s serviced GNMA loans eligible for repurchase.

Legal Environment

Information required in this section is set forth under the heading “Legal Proceedings” of Note 13 – Contingencies included in Part I. Item 1. – Financial Statements of this report.

Off-Balance Sheet Arrangements

Information required in this section is set forth under the heading “Lending Related” of Note 13 – Contingencies included in Part I. Item 1. – Financial Statements of this report.

Contractual Obligations

Payments due from Trustmark under specified long-term and certain other binding contractual obligations were scheduled in ~~our~~Trustmark’s 2018 Annual ~~Report on Form 10-K for the year ended December 31, 2017.~~Report. The most significant obligations, other than obligations under deposit contracts and short-term borrowings, were for operating leases for banking facilities. There have been no material changes in Trustmark’s contractual obligations since year-end.

Capital Resources

At September 30, ~~2018,~~2019, Trustmark’s total shareholders’ equity was ~~$1.600~~$1.645 billion, an increase of ~~$27.9~~$53.9 million, or ~~1.8%~~3.4%, when compared to December 31, ~~2017.~~2018. During the first nine months of ~~2018,~~2019, shareholders’ equity increased primarily as a result of net income of ~~$112.9 million, partially offset by common stock dividends of $47.0~~$116.5 million and ~~a decrease~~improvements in the fair market value of securities available for sale, ~~of $35.2 million,~~ net of ~~tax.~~tax, of $32.3 million, partially offset by common stock repurchases of $54.4 million and common stock dividends of $44.9 million. Trustmark utilizes a capital model in order to provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities and protect the balance sheet against sudden adverse market conditions, while maintaining an attractive return on equity to shareholders.

Regulatory Capital

Trustmark and TNB are subject to minimum risk-based capital and leverage capital requirements, as described in the section captioned “Capital Adequacy” included in Part I. Item 1. – Business of Trustmark’s ~~2017~~2018 Annual Report, ~~on Form 10-K,~~ which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include ~~the phased in~~a capital conservation buffer of ~~1.875%~~2.500% at September 30, ~~2018~~2019 and ~~1.250%~~1.875% at December 31, ~~2017.~~2018. AOCL is not included in computing regulatory capital. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. As of September 30, ~~2018,~~2019, Trustmark and TNB exceeded all applicable minimum capital standards. In addition, Trustmark and TNB met applicable regulatory guidelines to be considered well-capitalized at September 30, ~~2018.~~2019. To be categorized in this manner, Trustmark and TNB maintained minimum common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios, and were not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by their primary federal regulators to meet and maintain a specific capital level for any capital measures. There are no significant conditions or events that have occurred since September 30, ~~2018,~~2019, which Management believes have affected Trustmark’s or TNB’s present classification.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities currently qualify as Tier 1 capital. Trustmark intends to continue to utilize $60.0 million in trust preferred securities issued by Trustmark Preferred Capital Trust I (the Trust) as Tier 1 capital up to the regulatory limit, as permitted by the grandfather provision in the Dodd-Frank Act and the Basel III Final Rule.

Refer to the section captioned “Regulatory Capital” included in Note 16 – Shareholders’ Equity in Part I. Item 1. – Financial Statements of this report for an illustration of Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Dividends on Common Stock

Dividends per common share for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were $0.69. Trustmark’s indicated dividend for ~~2018~~2019 is $0.92 per common share, which is the same as dividends per common share in ~~2017.~~2018.

Stock Repurchase Program

During the first quarter of 2019, Trustmark repurchased approximately 1.2 million shares valued at $36.9 million completing its $100.0 million stock repurchase program authorized by the Board of Directors of Trustmark on March 11, 2016, prior to its expiration on March 31, 2019. Under this authority, Trustmark repurchased approximately 3.2 million shares valued at $100.0 million.

Following receipt of non-objection from the FRB, the Board of Directors of Trustmark authorized a new stock repurchase program effective April 1, 2019, under which $100.0 million of Trustmark’s outstanding common shares may be acquired through March 31, 2020. The shares may be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under this authority, Trustmark repurchased approximately 537 thousand shares of its outstanding common stock valued at $17.5 million between April 1, 2019 and September 30, 2019.

Together, with repurchases under the previous program, Trustmark repurchased approximately 1.7 million shares of its common stock valued at $54.4 million during the nine months ended September 30, 2019.

Liquidity

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

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

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled to ~~$10.959~~$11.440 billion for the first nine months of ~~2018~~2019 and represented approximately ~~81.1%~~84.7% of average liabilities and shareholders’ equity, compared to average deposits of ~~$10.147~~$10.959 billion, which represented ~~74.2%~~81.1% of average liabilities and shareholders’ equity for the first nine months of ~~2017.~~2018.

Trustmark utilizes a limited amount of brokered deposits to supplement other wholesale funding sources. At September 30, ~~2018,~~2019, brokered sweep Money Market Deposit Account (MMDA) deposits totaled ~~$15.2~~$16.9 million compared to ~~$38.6~~$23.9 million at December 31, ~~2017.~~2018. At both September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Trustmark had no outstanding brokered CDs.

At September 30, ~~2018,~~2019, Trustmark had ~~$391.0~~$325.0 million inof upstream federal funds purchased, compared to ~~$330.0 million~~none at December 31, ~~2017.~~2018. The increase in the upstream federal funds purchased during the first nine months of 2019, was primarily due to a seasonal decline in public deposits. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided ~~$125.0 million of~~no outstanding short-term ~~advances and no outstanding~~or long-term advances at September 30, ~~2018, compared to $900.0 million of outstanding short-term advances~~2019 and ~~no outstanding long-term advances at~~ December 31, ~~2017.~~2018. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances with the FHLB of Dallas by ~~$2.614~~$3.055 billion at September 30, ~~2018.~~2019.

In addition, at September 30, ~~2018,~~2019, Trustmark had ~~$896~~$828 thousand in long-term FHLB advances outstanding with the FHLB of Atlanta, which were acquired in the BancTrust merger, compared to ~~$958~~$879 thousand at December 31, ~~2017.~~2018. Trustmark has non-member status and thus no additional borrowing capacity with the FHLB of Atlanta.

Additionally, Trustmark has the ability to leverage its unencumbered investment securities as collateral. At September 30, ~~2018,~~2019, Trustmark had approximately ~~$613.3~~$429.0 million available in unencumbered agency securities compared to ~~$1.299 billion~~$496.2 million at December

31, ~~2017.~~2018. The decrease was primarily due to Management’s decision to suspend reinvestment of security cash flows during the fourth quarter of 2017, ~~as well as increased~~partially offset by a seasonal decrease in the collateral requirements ~~due to the increase in~~for public deposits.

Another borrowing source is the Discount Window. At September 30, ~~2018,~~2019, Trustmark had approximately ~~$1.070 billion~~$979.2 million available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with ~~$1.042~~$1.012 billion at December 31, ~~2017.~~2018.

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

The Board of Directors of Trustmark currently has the authority to issue up to 20.0 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At September 30, ~~2018,~~2019, Trustmark had no shares of preferred stock issued and outstanding.

Liquidity position and strategy are reviewed regularly by Management and continuously adjusted in relationship to Trustmark’s overall strategy. Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions.

Asset/Liability Management

Overview

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

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

Derivatives

Trustmark uses financial derivatives for management of interest rate risk. Management’s Asset/Liability Committee, in its oversight role for the management of interest rate risk, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives employed by Trustmark are interest rate lock commitments, forward contracts (both futures contracts and options on futures contracts), interest rate swaps, interest rate caps and interest rate floors. As a general matter, the values of these instruments are designed to be inversely related to the values of the assets that they hedge (i.e., if the value of the hedged asset falls, the value of the related hedge rises). In addition, Trustmark has entered into derivatives contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge interest rate, currency or other exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the derivatives markets may increase the cost to Trustmark to administer derivatives programs.

On April 4, 2013, Trustmark entered into a forward interest rate swap contract on junior subordinated debentures with a total notional amount of $60.0 million. The interest rate swap contract was designated as a derivative instrument in a cash flow hedge under FASB ASC Topic 815, with the objective of protecting the quarterly interest payments on Trustmark’s $60.0 million of junior subordinated debentures issued to the Trust throughout the five-year period beginning December 31, 2014 and ending December 31, 2019 from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate. Under the swap, which became effective on December 31, 2014, Trustmark pays a fixed interest rate of 1.66% per annum and receives a variable interest rate based on three-month LIBOR on a total notional amount of $60.0 million, with quarterly net settlements.

No ineffectiveness related to the interest rate swap designated as a cash flow hedge was recognized in the consolidated statements of income during the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. The accumulated net after-tax gain related to the effective cash flow hedge included in AOCL totaled ~~$639~~$50 thousand at September 30, ~~2018~~2019 compared to a net after-tax gain of ~~$278~~$469 thousand at

December 31, ~~2017.~~2018. Amounts reported in AOCL related to this derivative are reclassified to other interest expense as interest payments are made on Trustmark’s variable rate junior subordinated debentures. During the next ~~twelve~~three months, Trustmark estimates that ~~$644~~$67 thousand will be reclassified as a decrease to other interest expense.

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward

contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled ~~$302.3~~$554.2 million at September 30, ~~2018,~~2019, with a positive valuation adjustment of $1.8 million, compared to ~~$265.0~~$203.2 million, with a ~~positive~~negative valuation adjustment of ~~$663~~$586 thousand at December 31, ~~2017.~~2018.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that economically hedges changes in fair value of the ~~mortgage servicing rights (MSR)~~MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments ~~were $252.0~~was $426.5 million at September 30, ~~2018~~2019 compared to ~~$349.0~~$318.0 million at December 31, ~~2017.~~2018. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded inas noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $3.7 million and a net positive ineffectiveness of $72 thousand ~~and a net negative ineffectiveness of $2.6 million~~ for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the impact was a net negative ineffectiveness of $8.5 million and a net positive ineffectiveness of $3.5 ~~million and $1.0~~ million, respectively.

Trustmark offers certain interest rate derivatives products directly to qualified commercial lending clients seeking to manage their interest rate risk under loans they have entered into with TNB. Trustmark economically hedges interest rate swap transactions executed with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivatives transactions executed as part of this program are not designated as qualifying hedging relationships under GAAP and are, therefore, carried on Trustmark’s financial statements at fair value with the change in fair value recorded inas noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. As of September 30, ~~2018,~~2019, Trustmark had interest rate swaps with an aggregate notional amount of ~~$410.2~~$854.0 million related to this program, compared to ~~$351.9~~$475.8 million as of December 31, ~~2017.~~2018.

As of September 30, ~~2018, Trustmark had no~~2019, the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.3 million compared to ~~$80~~$75 thousand at December 31, ~~2017.~~2018. As of September 30, ~~2018,~~2019, Trustmark had no posted collateral of $1.6 million against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, ~~2018,~~2019, it could have been required to settle its obligations under the agreements at the termination value (which is expected to approximate fair market value).

Credit risk participation agreements arise when Trustmark contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At both September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Trustmark had entered into ~~two~~three risk participation agreements as a beneficiary with an aggregate notional amount of ~~$13.2~~$37.8 million and ~~$13.7~~$23.1 million, respectively. At September 30, ~~2018,~~2019, Trustmark had entered into ten risk participation agreements as a guarantor with an aggregate notional amount of $80.4 million, compared to seven risk participation agreements as a guarantor with an aggregate notional amount of ~~$40.3 million, compared to six risk participation agreements as a guarantor with an aggregate notional amount of $37.1~~$39.0 million at December 31, ~~2017.~~2018. The aggregate fair values of these risk participation agreements were immaterial at September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Trustmark’s participation in the derivatives markets is subject to increased federal regulation of these markets. Trustmark believes that it may continue to use financial derivatives to manage interest rate risk and also to offer derivatives products to certain qualified commercial lending clients in compliance with the Volcker Rule. However, the increased federal regulation of the derivatives markets

has increased the cost to Trustmark of administering its derivatives programs. Some of these costs (particularly compliance costs related to the Volcker Rule and other federal regulations) are expected to recur in the future.

Market/Interest Rate Risk Management

The primary purpose in managing interest rate risk is to invest capital effectively and preserve the value created by the core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies

designed to maximize net interest income performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

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

Based on the results of the simulation models using static balances, the table below summarizes the effect various one-year interest rate shift scenarios would have on net interest income compared to a base case, flat scenario at September 30, ~~2018~~2019 and ~~2017.~~2018. At September 30, ~~2018~~2019 and ~~2017,~~2018, the impact of a 200 basis point drop scenario was not calculated due to the low interest rate environment.

	Estimated % Change in Net Interest Income						Estimated % Change in Net Interest Income
Change in Interest Rates	2018			2017			2019			2018
+200 basis points		-0.8	%		-2.4	%		6.7	%		-0.8	%
+100 basis points		-0.4	%		-1.4	%		3.4	%		-0.4	%
-100 basis points		-1.7	%		-5.3	%		-4.8	%		-1.7	%

As shown in the table above, the interest rate shocks for the first nine months of 2018 illustrate little change in net interest income in rising rate scenarios while displaying modest exposure to a falling rate environment. The exposure to falling rates is primarily due to a downward repricing of various earning assets with minimal contribution from liabilities given the already low cost of deposits in the base scenario. Management cannot provide any assurance about the actual effect of changes in interest rates on net interest income. The estimates provided do not include the effects of possible strategic changes in the balances of various assets and liabilities throughout ~~2018~~2019 or additional actions Trustmark could undertake in response to changes in interest rates. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

Another component of interest rate risk management is measuring the economic value-at-risk for a given change in market interest rates. The economic value-at-risk may indicate risks associated with longer-term balance sheet items that may not affect net interest income at risk over shorter time periods. Trustmark uses computer-modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The economic value of equity (EVE), also known as net portfolio value, is defined as the difference between the present value of asset cash flows and the present value of liability cash flows. The resulting change in EVE in different market rate environments, from the base case scenario, is the amount of EVE at risk from those rate environments. The following table summarizes the effect that various interest rate shifts would have on net portfolio value at September 30, ~~2018~~2019 and ~~2017.~~2018. At September 30, ~~2018~~2019 and ~~2017,~~2018, the impact of a 200 basis point drop scenario was not calculated due to the ~~historically~~ low interest rate environment.

	Estimated % Change in Net Portfolio Value						Estimated % Change in Net Portfolio Value
Change in Interest Rates	2018			2017			2019			2018
+200 basis points		0.7	%		4.5	%		8.0	%		0.7	%
+100 basis points		0.7	%		3.4	%		4.8	%		0.7	%
-100 basis points		-4.2	%		-10.2	%		-8.6	%		-4.2	%

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

return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change.

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

At September 30, ~~2018,~~2019, the MSR fair value was ~~$101.4~~$73.0 million, compared to ~~$81.5~~$101.4 million at September 30, ~~2017.~~2018. The impact on the MSR fair value of a 10% adverse change in prepayment speed or a 100 basis point increase in discount rate at September 30, ~~2018,~~2019, would be a decline in fair value of approximately $3.4 million and $2.3 million, respectively, compared to a decline in fair value of approximately $3.0 million and $4.2 million, respectively, ~~compared to a decline in fair value of approximately $3.1 million and $3.0 million, respectively,~~ at September 30, ~~2017.~~2018. Changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts.

Critical Accounting Policies

For an overview of Trustmark’s critical accounting policies, see the section captioned “Critical Accounting Policies” included in Part II. Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Trustmark’s ~~2017~~2018 Annual ~~Report on Form 10-K.~~Report. There have been no significant changes in Trustmark’s critical accounting policies during the first nine months of ~~2018.~~2019.

For additional information regarding Trustmark’s basis of presentation and accounting policies, see Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation included in Part I. Item 1. – Financial Statements of this report.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

For a complete list of recently adopted and pending accounting policies and the impact on Trustmark, see Note 20 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements included in Part I. Item 1. – Financial Statements of this report.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the discussion of Market/Interest Rate Risk Management found in Management’s Discussion and Analysis.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by Trustmark’s Management, with the participation of its Chief Executive Officer and Treasurer and Principal Financial Officer (Principal Financial Officer), of the effectiveness of Trustmark’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Principal Financial Officer concluded that Trustmark’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There has been no change in Trustmark’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Trustmark’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in ~~three~~several lawsuits related to the collapse of the Stanford Financial Group. ~~The first is~~

individual, each of which are unaffiliated with Trustmark, as ~~defendants.~~defendants (the Rotstain Complaint). The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees and other monies received by each defendant from entities controlled by R. Allen Stanford (collectively, the Stanford Financial Group) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud on the asserted grounds that defendants

knew or should have known the Stanford Financial Group was conducting an illegal and fraudulent scheme. Plaintiffs have demanded a jury trial. Plaintiffs did not quantify damages.

On December 14, 2009, a different Stanford-related lawsuit was filed ~~on December 14, 2009~~ in the District Court of Ascension Parish, Louisiana, individually by Harold Jackson, Paul Blaine and Carolyn Bass Smith, Christine Nichols, and Ronald and Ramona Hebert naming TNB (misnamed as Trust National Bank) and other individuals and entities not affiliated with Trustmark as defendants. The complaint seeks to recover the money lost by these individual plaintiffs as a result of the collapse of the Stanford Financial Group (in addition to other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which was denied on February 28,

2012. In September 2012, the district court referred the case to a magistrate judge for hearing and determination of certain pretrial issues.

All pending legal proceedings described above are being vigorously contested. In accordance with FASB Accounting Standards Codification (ASC) Topic 450-20, “Loss Contingencies,” Trustmark will establish an accrued liability for litigation matters when those matters present loss contingencies that are both probable and reasonably estimable. At the present time, Management believes, based on the advice of legal counsel and Management’s evaluation, that a loss in any such proceeding is not probable and reasonably estimable. All matters will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. In view of the inherent difficulty of predicting the outcome of legal proceedings, Trustmark cannot predict the eventual outcomes of the currently pending matters or the timing of their ultimate resolution. Management currently believes, however, based upon the advice of legal counsel and Management’s evaluation and after taking into account its current insurance coverage, that the legal proceedings currently pending should not have a material adverse effect on Trustmark’s consolidated financial condition.

ITEM 1A.

RISK FACTORS

There has been no material change in the risk factors previously disclosed in Trustmark’s 2018 Annual ~~Report on Form 10-K for its fiscal year ended December 31, 2017.~~Report.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~On March 11, 2016,~~Following receipt of non-objection from the FRB, the Board of Directors of Trustmark authorized a new stock repurchase program effective April 1, 2019, under which ~~up to~~ $100.0 million of Trustmark’s outstanding common shares may be acquired through March 31, ~~2019.~~2020. The shares may be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. The following table provides information with respect to purchases by Trustmark or made on behalf of Trustmark of its common stock during the three months ended September 30, ~~2018~~2019 ($ in thousands, except per share amounts):

Period

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plan

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan at the End of the Period

July 1, 2018 to July 31, 2018

—

$
—

—

$
91,378

August 1, 2018 to August 31, 2018

—

—

—

91,378

September 1, 2018 to September 30, 2018

—

—

—

91,378

Total

—

—

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan at the End of the Period
July 1, 2019 to July 31, 2019		—	$	—		—	$	86,992
August 1, 2019 to August 31, 2019		71,600		32.79		71,600		84,644
September 1, 2019 to September 30, 2019		66,969		32.35		66,969		82,478
Total		138,569				138,569

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

~~None~~None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not ~~applicable~~applicable.

ITEM 5.

OTHER INFORMATION

~~None~~None.

ITEM 6.

EXHIBITS

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

EXHIBIT INDEX


31-a		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31-b		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32-a		Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32-b		Certification by Principal Financial Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Inline XBRL Interactive Data.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

All other exhibits are omitted, as they are inapplicable or not required by the related instructions.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TRUSTMARK CORPORATION

BY:	/s/ Gerard R. Host	BY:	/s/ Louis E. Greer
	Gerard R. Host		Louis E. Greer
	President and Chief Executive Officer		Treasurer, Principal Financial Officer and
			Principal Accounting Officer

DATE:	November ~~6, 2018~~7, 2019	DATE:	November ~~6, 2018~~7, 2019

9388

	2018			2017
Balance, January 1,	$	1,571,701		$	1,520,208
Net income per consolidated statements of income		112,896			89,862
Other comprehensive income (loss), net of tax		(31,697	)		17,973
Common stock dividends paid		(47,014	)		(47,099	)
Shares withheld to pay taxes, long-term incentive plan		(1,427	)		(1,659	)
Repurchase and retirement of common stock		(7,877	)		—
Compensation expense, long-term incentive plan		3,022			3,250
Balance, September 30,	$	1,599,604		$	1,582,535

Assets:
Cash and due from banks	$	5,013
Federal funds sold and securities purchased under reverse repurchase agreements		6,900
Securities		54,843
Acquired loans		117,447
Premises and equipment, net		3,700
Identifiable intangible assets		1,850
Other real estate		475
Other assets		6,037
Total assets		196,265

Liabilities:
Deposits		166,158
Other borrowings		17,469
Other liabilities		1,322
Total liabilities		184,949

Net identifiable assets acquired at fair value		11,316
Goodwill		13,471
Total consideration paid	$	24,787

	Three Months Ended September 30,					Nine Months Ended September 30,
Available for Sale	2018		2017			2018		2017
Proceeds from calls and sales of securities	$	—	$	1,273		$	—	$	27,682
Gross realized gains		—		15			—		16
Gross realized (losses)		—		(1	)		—		(1	)