TRUSTMARK CORP – 10-Q – 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, 2022, TNB had total assets of $17.188
billion, which represented approximately 99.99% 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
offices and 2,717 full-time equivalent associates (measured at September 30,
2022) located in the states of Alabama (includes the Georgia Loan Production
Office (LPO), which are collectively referred to herein as Trustmark's Alabama
market region), 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 Segment, Wealth Management Segment and Insurance 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 Annual Report on Form 10-K
for its fiscal year ended December 31, 2021 (2021 Annual Report).

Executive Overview

Trustmark has been committed to meeting the banking and financial needs of its
customers and communities for over 130 years, and remains focused on providing
support, advice and solutions to meet its customers' unique needs. Trustmark
produced strong financial results for the three and nine months ended September
30, 2022 reflected by significant growth in loans held for investment (LHFI) of
$641.2 million, or 5.9%, and $1.338 billion, or 13.1%, respectively, expansion
of the net interest margin, consistent performance from its fee businesses and
solid credit quality.

Trustmark is committed to managing the franchise for the long term, supporting
investments to promote profitable revenue growth, realigning delivery channels
to support changing customer preferences as well as reengineering and efficiency
opportunities to enhance long-term shareholder value. Trustmark's capital
position remained solid, reflecting the consistent profitability of its
diversified financial services businesses. Trustmark's Board of Directors
declared a quarterly cash dividend of $0.23 per share. The dividend is payable
December 15, 2022, to shareholders of record on December 1, 2022.

Recent Economic and Industry Developments

Economic activity continued to improve during the first nine months of 2022 as
COVID-19 cases declined across the United States and restrictions were lifted;
however, economic concerns remain as a result of the cumulative weight of
uncertainty regarding the long-term effectiveness of the COVID-19 vaccine and
the potential economic impact of recent geopolitical developments, such as
Russia's invasion of Ukraine and COVID-19 lockdowns in China. Inflation has
become elevated, reflecting supply and demand imbalances related to the
pandemic, supply chain issues, higher energy prices and broader price pressures.
Doubts surrounding the near-term direction of global markets and the potential
impact 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 economic conditions, and thus may have an impact upon
Trustmark's financial condition or results of operations.

Market interest rates have begun to rise during 2022 after an extended period at
historical lows. In March 2022, the FRB began raising the target federal funds
rate for the first time in three years and has continued with four additional
increases during the first nine months of 2022. The FRB raised the target
federal funds rate in July 2022 to a range of 2.25% to 2.50% and again in
September 2022 to a range

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of 3.00% to 3.25% and signaled the possibility of additional rate increases
throughout 2022. In addition, the FRB increased the interest that it pays on
reserves five times during the first nine months of 2022 from 0.10% to 3.15% as
of September 2022. The prolonged period of reduced interest rates has had and
may continue to have an adverse effect on net interest income and margins and
profitability for financial institutions, including Trustmark. Additionally, as
interest rates increase, so will competitive pressures on the deposit cost of
funds. It is not possible to predict the pace and magnitude of changes in
interest rates, or the impact rate changes will have on Trustmark's results of
operations.

In the October 2022 "Summary of Commentary on Current Economic Conditions by
Federal Reserve District," the twelve Federal Reserve Districts' reports
suggested that economic activity during the reporting period (covering the
period from August 29, 2022 through October 7, 2022) expanded at a modest pace;
however, conditions varied across industries and Federal Reserve Districts
(Districts). Reports by the twelve Districts noted the following during the
reporting period:

•

Retail spending was relatively flat, reflecting lower discretionary spending.
Auto dealers noted sustained sluggishness in sales stemming from limited
inventories, high vehicle prices and rising interest rates. Travel and tourist
activity rose strongly, boosted by continued strength in leisure activity and a
pickup in business travel. Manufacturing activity held steady or expanded in
most Districts in part due to easing supply chain disruptions, though there were
a few reports of output declines.

•

Rising mortgage rates and elevated housing prices further weakened single-family
starts and sales, but help buoy apartment leasing and rents, which generally
remained high. Commercial real estate slowed in both construction and sales amid
supply shortages and elevated construction and borrowing costs, and there were
scattered reports of declining property prices. Industrial leasing remained
robust, while office demand was tepid.

•

Bankers in most reporting Districts cited declines in loan volumes, partly a
result of shrinking residential real estate lending.

•

Energy activity expanded moderately, whereas agricultural reports were mixed, as
drought conditions and high input costs remained a challenge.

•

Employment continued to rise at a modest to moderate pace in most Districts.
Several Districts reported a cooling in labor demand, with some noting
businesses were hesitant to add to payrolls amid increased concerns of an
economic downturn. Overall labor market conditions remained tight, though half
of Districts noted some easing of hiring and/or retention difficulties. Wage
growth remained widespread, though an easing was reported in several Districts.
Some businesses said elevated inflation and higher costs of living were pushing
wages up, coupled with upward pressure from labor market tightness. Contacts
expect wage growth to continue as higher pay remains essential for retaining
talent in the current environment.

•

Price growth remained elevated, though some easing was noted across several
Districts. Significant input price increases were reported in a variety of
industries, though some declines in commodity, fuel and freight costs were
noted. Growth in selling prices was mixed, with stronger increases reported by
some Districts and a moderation seen in others. Some contacts noted solid
pricing power over the past six weeks, while others said cost passthrough was
becoming more difficult as customers push back. Expectations were for price
increases to generally moderate.

•

Outlooks for future economic growth grew more pessimistic amidst growing
concerns about weakening demand.

Reports by the Federal Reserve's Sixth District, Atlanta (which includes
Trustmark's Alabama, Florida and Mississippi market regions), Eighth District,
St. Louis (which includes Trustmark's Tennessee market region), and Eleventh
District, Dallas (which includes Trustmark's Texas market region), noted similar
findings for the reporting period as those discussed above. The Federal
Reserve's Sixth District also reported that deposit growth declined and
institutions increased borrowing as a source of funding and additions to
securities portfolios slowed and unrealized losses increased. The Federal
Reserve's Sixth District also noted that conditions at financial institutions
were steady as loan growth improved, with consumer lending experiencing the
strongest growth among loan portfolios, and deposit balances were flat. The
Federal Reserve's Eleventh District also reported that energy activity continued
to expand as demand for oilfield services was high, but the industry was
constrained by equipment and labor shortages. The Federal Reserve's Eleventh
District also reported that outlooks for the energy sector were strong, with
contacts expecting oil and natural gas prices to remain high enough to prompt an
upward trend in energy activity for the foreseeable future.

Financial Highlights

Trustmark reported net income of $42.5 million, or basic and diluted earnings
per share (EPS) of $0.69, in the third quarter of 2022, compared to $21.2
million, or basic and diluted EPS of $0.34, in the third quarter of 2021.
Trustmark's reported performance during the quarter ended September 30, 2022
produced a return on average tangible equity of 13.90%, a return on average
assets of 0.98%, an average equity to average assets ratio of 9.32% and a
dividend payout ratio of 33.33%, compared to a return on average tangible equity
of 6.16%, a return on average assets of 0.49%, an average equity to average
assets ratio of 10.39% and a dividend payout ratio of 67.65% during the quarter
ended September 30, 2021.

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Trustmark report net income of $106.0 million, or basic and diluted EPS of $1.73
and $1.72, respectively, for the first nine months of 2022, compared to $121.1
million, or basic and diluted EPS of $1.92, for the same time period in 2021.
Trustmark's reported performance for the nine months ended September 30, 2022
produced a return on average tangible equity of 11.39%, a return on average
assets of 0.81%, an average equity to average assets ratio of 9.45% and a
dividend payout ratio of 39.88%, compared to a return on average tangible equity
of 11.84%, a return on average assets of 0.96%, an average equity to average
assets ratio of 10.47% and a dividend payout ratio of 35.94% for the nine months
ended September 30, 2021.

Total revenue, which is defined as net interest income plus noninterest income,
for the three and nine months ended September 30, 2022 was $188.7 million and
$508.1 million, respectively, an increase of $36.3 million, or 23.8%, and $16.9
million, or 3.4%, respectively, when compared to the same time periods in 2021.
The increase in total revenue for the three and nine months ended September 30,
2022 when compared to the same time periods in 2021, resulted from an increase
net interest income, primarily due to increases in interest and fees on loans
held for sale (LHFS) and LHFI and interest on securities, partially offset by a
decrease noninterest income, primarily due to a decline in mortgage banking,
net. These factors are discussed in further detail below.

Net interest income for the three and nine months ended September 30, 2022
totaled $136.1 million and $348.1 million, respectively, an increase of $37.8
million, or 38.5%, and $28.1 million, or 8.8%, respectively, when compared to
the same time periods in 2021. Interest income totaled $144.4 million and $365.3
million for the three and nine months ended September 30, 2022, respectively, an
increase of $40.7 million, or 39.2%, and $26.2 million, or 7.7%, respectively,
when compared to the same time periods in 2021, principally due to increases in
interest and fees on LHFS and LHFI primarily due to loan growth and rising
interest rates, interest on securities primarily due to securities purchased and
other interest income primarily due to an increase in the rate paid by the
Federal Reserve Bank of Atlanta (FRBA) on reserves, partially offset by a
decline in interest and fees on PPP loans, primarily due to PPP loans forgiven
by the U.S. Small Business Administration (SBA) as well as the PPP loans sold
during the second quarter of 2021. Interest expense totaled $8.3 million and
$17.2 million for the three and nine months ended September 30, 2022,
respectively, an increase of $2.8 million, or 51.9%, and a decrease of $1.9
million, or 10.0%, respectively, when compared to the same time periods in 2021.
The increase in interest expense for when the third quarter of 2022 is compared
to the same time period in 2021 was principally due to increases in interest on
deposits primarily due to rising interest rates and interest of federal funds
purchased and securities sold under repurchase agreements primarily due to an
increase in upstream federal funds purchased. The decrease in interest expense
when the first nine months of 2022 is compared to the same time period in 2021
was principally due to the decline in interest on deposits partially offset by
an increase in interest of federal funds purchased and securities sold under
repurchase agreements. The decrease in interest on deposits when the first nine
months of 2022 is compared to the same time period in 2021 was primarily a
result of lower interest rates and a decrease in the average balances of time
deposits. The increase in interest on federal funds purchased and securities
sold under repurchase agreements when the first nine months of 2022 is compared
to the same time period in 2021 was primarily due to an increase in upstream
federal funds purchased.

Noninterest income for the three months ended September 30, 2022 totaled $52.6
million, a decrease of $1.5 million, or 2.8%, when compared to the same time
period in 2021, primarily due to a decline in mortgage banking, net, partially
offset by increases in service charges on deposit accounts and insurance
commissions. Mortgage banking, net totaled $6.9 million for the three months
ended September 30, 2022, a decrease of $7.1 million, or 50.9%, when compared to
the same time period in 2021, principally due to a decline in the gain on sales
of loans, net. Service charges on deposit accounts totaled $11.3 million for the
third quarter of 2022, an increase of $2.4 million, or 27.0%, when compared to
the same time period in 2021 principally due to increases in the amount of
non-sufficient funds (NSF) and overdraft occurrences on consumer interest
checking accounts and service charges on consumer interest checking accounts.
Insurance commissions totaled $13.9 million for the three months ended September
30, 2022, an increase of $1.8 million, or 14.7%, when compared to the same time
period in 2021, principally due to growth in commissions from commercial
property and casualty business and other commission income.

Noninterest income for the nine months ended September 30, 2022 totaled $160.0
million, a decrease of $11.2 million, or 6.5%, when compared to the same time
period in 2021, principally due to a decline in mortgage banking, net, partially
offset by increases in service charges on deposit accounts, insurance
commissions, other income, net and bank card and other fees. Mortgage banking,
net totaled $24.9 million for the nine months ended September 30, 2022, a
decrease of $27.2 million, or 52.2%, when compared to the same time period in
2021, principally due to a decline in the gain on sales of loans, net. Service
charges on deposit accounts totaled $31.0 million for the first nine months of
2022, an increase of $7.1 million, or 29.8%, when compared to the same time
period in 2021 principally due to increases in the amount of NSF and overdraft
occurrences on consumer interest checking accounts and service charges on
consumer interest checking accounts. Insurance commissions totaled $41.7 million
for the nine months ended September 30, 2022, an increase of $4.9 million, or
13.3%, when compared to the same time period in 2021, principally due to growth
in commissions from commercial property and casualty business and other
commission income. Other income, net totaled $7.5 million for the first nine
months of 2022, an increase of $2.0 million, or 35.2%, when compared to the same
time period in 2021, principally due to gains on the sale of two closed bank
branch locations, increases in other miscellaneous income and cash management
service fees as well as a decrease in the amortization of investments in tax
credit partnerships, partially offset by a decline in the FDIC indemnification
asset final settlement completed during the second quarter of 2021. Bank card
and other fees totaled $27.9 million for the first nine months of 2022, an

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increase of $1.6 million, or 6.0%, when compared to the same time period in 2021
principally due to increases in customer derivatives revenue and interchange
income, partially offset by a decrease in ATM surcharge revenue.

Noninterest expense for the three and nine months ended September 30, 2022
totaled $126.7 million and $372.0 million, respectively, a decrease of $2.9
million, or 2.2%, and an increase of $2.2 million, or 0.6%, respectively, when
compared to the same time periods in 2021. The decrease in noninterest expense
for the third quarter of 2022 was principally due to declines in other expense
and salaries and employee benefits, partially offset by an increase in services
and fees. The increase in noninterest expense for the first nine months of 2022
was principally due to an increase in services and fees and net
occupancy-premises partially offset by declines in other expense and salaries
and employee benefits. Services and fees totaled $25.8 million and $74.8 million
for the three and nine months ended September 30, 2022, respectively, an
increase of $3.5 million, or 15.6%, and $8.2 million, or 12.4%, respectively,
when compared to the same time periods in 2021, primarily due to increases in
other services and fees, software licenses and outsourcing fees related to
transaction processing. Net occupancy-premises totaled $21.4 million for the
first nine months of 2022, an increase of $1.1 million, or 5.6%, principally due
to increases in depreciation expense related to building improvements, rental
expense, and landscaping expenses as well as a decline in building rental
income, partially offset by declines in janitorial expenses. Salaries and
employee benefits totaled $72.7 million and $214.0 million for the three and
nine months ended September 30, 2022, respectively, a decrease of $1.9 million,
or 2.6%, and $1.9 million, or 0.9%, respectively, when compared to the same time
periods in 2021, principally due to the $5.6 million of nonroutine salaries and
employee benefits expense related to the voluntary early retirement program
completed during the third quarter of 2021. Excluding these nonroutine expenses,
salaries and employee benefits increased $3.7 million, or 5.4%, and $3.7
million, or 1.8%, for the three and nine months ended September 30, 2022,
respectively, principally due to increases in salaries expense primarily due to
general merit increases as well as employees added related to the new Georgia
LPO, management performance incentives, and other salaries expense. Other
expense totaled $14.7 million and $43.7 million for the three and nine months
ended September 30, 2022, respectively, a decrease of $5.1 million, or 25.9%,
and $5.7 million, or 11.6%, respectively, when compared to the same time periods
in 2021, principally due to the $5.0 million regulatory settlement expense
incurred during the third quarter of 2021.

Trustmark's provision for credit losses (PCL) on LHFI for the three and nine
months ended September 30, 2022 totaled $12.9 million and $14.8 million,
respectively, an increase of $15.4 million and $31.8 million, respectively, when
compared to the same time periods in 2021. The PCL on LHFI for the third quarter
of 2022 was primarily driven by specific reserves for individually analyzed
credits, a less positive outlook in the macroeconomic forecasts and an increase
in reserves related to loan growth. The PCL on LHFI for the first nine months of
2022 primarily reflected an increase in required reserves as a result of loan
growth and specific reserves on individually analyzed LHFI. The PCL on
off-balance sheet credit exposures totaled a negative $1.3 million and a
negative $4.0 million for the three and nine months ended September 30, 2022,
respectively, an increase of $277 thousand, or 26.4%, and a decrease of $1.9
million, or 32.1%, respectively, when compared to the same time periods in 2021.
The negative PCL on off-balance sheet credit exposures for the third quarter of
2022 was primarily driven by a decline in required reserves as a result of
changes in the total reserve rate used in the calculation of the allowance for
credit losses (ACL) on off-balance sheet credit exposures, partially offset by
an increase in required reserves as a result of an increase in unfunded
balances. The negative PCL on off-balance sheet credit exposures for the first
nine months of 2022 primarily reflected a decline in required reserves as a
result of changes in the total reserve rate used in the calculation of the ACL
on off-balance sheet credit exposures. Please see the section captioned
"Provision for Credit Losses" for additional information regarding the PCL on
LHFI and off-balance sheet credit exposures.

At September 30, 2022, nonperforming assets totaled $70.9 million, an increase
of $3.6 million, or 5.4%, compared to December 31, 2021, as a result of an
increase in nonaccrual loans partially offset by a decline in other real estate.
Nonaccrual LHFI totaled $67.9 million at September 30, 2022, an increase of $5.2
million, or 8.3%, relative to December 31, 2021, primarily due to one large
commercial credit placed on nonaccrual status in each of the Alabama and Texas
market regions, partially offset by reductions and pay-offs of nonaccrual loans
in the Alabama and Texas market regions and a commercial credit that returned to
accrual status in the Tennessee market region. Other real estate totaled $3.0
million at September 30, 2022, a decline of $1.6 million, or 34.8%, compared to
December 31, 2021, principally due to properties sold in the Mississippi market
region.

LHFI totaled $11.586 billion at September 30, 2022, an increase of $1.338
billion, or 13.1%, compared to December 31, 2021. The increase in LHFI during
the first nine months of 2022 was primarily due to net growth in LHFI secured by
real estate primarily in the Mississippi, Alabama and Texas market regions as
well as growth in commercial and industrial LHFI in the Mississippi and Alabama
market regions partially offset by a decline in commercial and industrial LHFI
in the Tennessee market region. For additional information regarding changes in
LHFI and comparative balances by loan category, see the section captioned
"LHFI."

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

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Total deposits were $14.425 billion at September 30, 2022, a decrease of $662.0
million, or 4.4%, compared to December 31, 2021. During the first nine months of
2022, noninterest-bearing deposits decreased $412.3 million, or 8.6%, reflecting
declines in consumer and public demand deposit accounts (DDAs) partially offset
by an increase in commercial DDAs. Interest-bearing deposits decreased $249.7
million, or 2.4%, during the first nine months of 2022, primarily due to
declines in public and commercial interest checking accounts, commercial money
market deposit accounts (MMDAs), and all categories of certificates of deposits,
partially offset by growth in consumer interest checking accounts and consumer
savings accounts.

Federal funds purchased and securities sold under repurchase agreements totaled
$544.1 million at September 30, 2022, an increase of $305.5 million compared to
December 31, 2022, principally due to an increase in upstream federal funds
purchased. Other borrowings totaled $223.2 million at September 30, 2022, an
increase of $132.1 million compared to December 31, 2021, principally due to
$150.0 million of short-term Federal Home Loan Bank (FHLB) advances obtained
from the FHLB of Dallas. The increases in the upstream federal funds purchased
and short-term FHLB advance as funding sources are due to Trustmark's deployment
of its excess cash to purchase investment securities and the subsequent
continued strong loan growth. In addition, as the FRB has begun to tighten
monetary policy, competition for deposits has also increased.

Recent Legislative and Regulatory Developments

On October 17, 2022, the Federal Deposit Insurance Corporation (FDIC) issued a
final rule to increase initial base deposit insurance assessment rates for
insured depository institutions by 2 basis points, beginning with the first
quarterly assessment period of 2023. The assessment rate schedules under this
final rule will remain in effect unless and until the reserve ratio of the
Deposit Insurance Fund meets or exceeds 2 percent. Under this final rule, TNB's
FDIC insurance costs will increase; however, the additional expense is not
expected to be material to Trustmark's financial condition or results of
operations.

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 2021 Annual Report.

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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          Nine Months Ended September
                                                  September 30,                        30,
                                              2022             2021           2022             2021
Consolidated Statements of Income
Total interest income                      $  144,423       $  103,741     $  365,320       $  339,138
Total interest expense                          8,318            5,475         17,195           19,113
Net interest income                           136,105           98,266        348,125          320,025
Provision for credit losses (PCL), LHFI        12,919           (2,492 )       14,775          (16,984 )
PCL, off-balance sheet credit exposures        (1,326 )         (1,049 )       (4,000 )         (5,888 )
Noninterest income                             52,606           54,149        159,974          171,143
Noninterest expense                           126,698          129,600        371,984          369,827
Income before income taxes                     50,420           26,356        125,340          144,213
Income taxes                                    7,965            5,156         19,390           23,070
Net Income                                 $   42,455       $   21,200     $  105,950       $  121,143

Total Revenue (1)                          $  188,711       $  152,415     $  508,099       $  491,168

Per Share Data
Basic EPS                                  $     0.69       $     0.34     $     1.73       $     1.92
Diluted EPS                                      0.69             0.34           1.72             1.92
Cash dividends per share                         0.23             0.23           0.69             0.69

Performance Ratios
Return on average equity                        10.48 %           4.72 %         8.62 %           9.13 %
Return on average tangible equity               13.90 %           6.16 %        11.39 %          11.84 %
Return on average assets                         0.98 %           0.49 %         0.81 %           0.96 %
Average equity / average assets                  9.32 %          10.39 %         9.45 %          10.47 %
Net interest margin (fully taxable
equivalent)                                      3.50 %           2.57 %         3.00 %           2.84 %
Dividend payout ratio                           33.33 %          67.65 %    

39.88 % 35.94 %

Credit Quality Ratios (2)
Net charge-offs (recoveries) / average
loans                                            0.03 %          -0.10 %        -0.01 %          -0.05 %
PCL, LHFI / average loans                        0.45 %          -0.10 %         0.18 %          -0.22 %
Nonaccrual LHFI / (LHFI + LHFS)                  0.58 %           0.63 %

Nonperforming assets / (LHFI + LHFS)

  plus other real estate                         0.60 %           0.69 %
ACL, LHFI / LHFI                                 0.99 %           1.02 %


(1)
Consistent with Trustmark's audited annual financial statements, total revenue
is defined as net interest income plus noninterest income.
(2)
Excludes PPP loans.

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