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Trustmark
TRMK
#4319
Rank
A$3.60 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
A$61.31
Share price
0.81%
Change (1 day)
13.19%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Trustmark
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2024 Q3

Trustmark - 10-Q quarterly report FY2024 Q3


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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, 2024

or

☐

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

img234889527_0.jpg

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, 2024, there were 61,158,026 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 (SEC) could have an adverse effect on our business, results of operations or 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, actions by the Board of Governors of the Federal Reserve System (FRB) that impact the level of market interest rates, local, state, national and international economic and market conditions, 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, changes in the level of nonperforming assets and charge-offs, an increase in unemployment levels and slowdowns in economic growth, changes in our ability to measure the fair value of assets in our portfolio, changes in the level and/or volatility of market interest rates, the impacts related to or resulting from bank failures and other economic and industry volatility, including potential increased regulatory requirements, the demand for the products and services we offer, potential unexpected adverse outcomes in pending litigation matters, our ability to attract and retain 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, 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, 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, pandemics or other health crises, acts of war or terrorism, and other risks described in our filings with the SEC.

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.

 

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)

 

 

(Unaudited)

 

 

 

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

805,436

 

 

$

975,343

 

Federal funds sold and securities purchased under reverse repurchase agreements

 

 

10,000

 

 

 

—

 

Securities available for sale, at fair value (amortized cost: $1,691,555 - 2024
   $1,959,007-2023; allowance for credit losses (ACL): $0)

 

 

1,725,795

 

 

 

1,762,878

 

Securities held to maturity, net of ACL of $0
   (fair value: $1,316,167 - 2024; $1,355,504-2023)

 

 

1,358,358

 

 

 

1,426,279

 

Loans held for sale (LHFS)

 

 

216,454

 

 

 

184,812

 

Loans held for investment (LHFI)

 

 

13,100,111

 

 

 

12,950,524

 

Less ACL, LHFI

 

 

157,929

 

 

 

139,367

 

Net LHFI

 

 

12,942,182

 

 

 

12,811,157

 

Premises and equipment, net

 

 

236,151

 

 

 

232,229

 

Mortgage servicing rights (MSR)

 

 

125,853

 

 

 

131,870

 

Goodwill

 

 

334,605

 

 

 

334,605

 

Identifiable intangible assets, net

 

 

153

 

 

 

236

 

Other real estate, net

 

 

3,920

 

 

 

6,867

 

Operating lease right-of-use assets

 

 

36,034

 

 

 

35,711

 

Other assets

 

 

685,431

 

 

 

752,568

 

Assets of discontinued operations

 

 

—

 

 

 

67,634

 

Total Assets

 

$

18,480,372

 

 

$

18,722,189

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

3,142,792

 

 

$

3,197,620

 

Interest-bearing

 

 

12,098,143

 

 

 

12,372,143

 

Total deposits

 

 

15,240,935

 

 

 

15,569,763

 

Federal funds purchased and securities sold under repurchase agreements

 

 

365,643

 

 

 

405,745

 

Other borrowings

 

 

443,458

 

 

 

483,230

 

Subordinated notes

 

 

123,647

 

 

 

123,482

 

Junior subordinated debt securities

 

 

61,856

 

 

 

61,856

 

ACL on off-balance sheet credit exposures

 

 

28,890

 

 

 

34,057

 

Operating lease liabilities

 

 

39,689

 

 

 

39,097

 

Other liabilities

 

 

196,158

 

 

 

331,085

 

Liabilities of discontinued operations

 

 

—

 

 

 

12,027

 

Total Liabilities

 

 

16,500,276

 

 

 

17,060,342

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Common stock, no par value:

 

 

 

 

 

 

Authorized: 250,000,000 shares
Issued and outstanding: 61,206,606 shares - 2024; 61,071,173 shares - 2023

 

 

12,753

 

 

 

12,725

 

Capital surplus

 

 

163,156

 

 

 

159,688

 

Retained earnings

 

 

1,833,232

 

 

 

1,709,157

 

Accumulated other comprehensive income (loss), net of tax

 

 

(29,045

)

 

 

(219,723

)

Total Shareholders' Equity

 

 

1,980,096

 

 

 

1,661,847

 

Total Liabilities and Shareholders' Equity

 

$

18,480,372

 

 

$

18,722,189

 

 

See notes to consolidated financial statements.

3

 

Trustmark Corporation and Subsidiaries

Consolidated Statements of Income (Loss)

($ in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on LHFS & LHFI

 

$

217,128

 

 

$

203,236

 

 

$

636,315

 

 

$

568,318

 

Interest on securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

26,162

 

 

 

16,624

 

 

 

59,725

 

 

 

50,164

 

Tax exempt

 

 

—

 

 

 

46

 

 

 

4

 

 

 

173

 

Interest on federal funds sold and securities purchased under reverse
   repurchase agreements

 

 

9

 

 

 

3

 

 

 

12

 

 

 

78

 

Other interest income

 

 

8,293

 

 

 

8,613

 

 

 

24,527

 

 

 

27,217

 

Total Interest Income

 

 

251,592

 

 

 

228,522

 

 

 

720,583

 

 

 

645,950

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

86,043

 

 

 

69,797

 

 

 

253,440

 

 

 

165,104

 

Interest on federal funds purchased and securities sold under
   repurchase agreements

 

 

4,864

 

 

 

5,375

 

 

 

16,118

 

 

 

15,072

 

Other interest expense

 

 

5,971

 

 

 

14,713

 

 

 

22,452

 

 

 

49,638

 

Total Interest Expense

 

 

96,878

 

 

 

89,885

 

 

 

292,010

 

 

 

229,814

 

Net Interest Income

 

 

154,714

 

 

 

138,637

 

 

 

428,573

 

 

 

416,136

 

Provision for credit losses (PCL), LHFI

 

 

7,923

 

 

 

8,322

 

 

 

30,327

 

 

 

19,777

 

PCL, off-balance sheet credit exposures

 

 

(1,375

)

 

 

104

 

 

 

(5,167

)

 

 

(1,893

)

PCL, LHFI sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

8,633

 

 

 

—

 

Net Interest Income After PCL

 

 

148,166

 

 

 

130,211

 

 

 

394,780

 

 

 

398,252

 

Noninterest Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

11,272

 

 

 

11,074

 

 

 

33,154

 

 

 

32,105

 

Bank card and other fees

 

 

7,931

 

 

 

8,217

 

 

 

24,584

 

 

 

24,937

 

Mortgage banking, net

 

 

6,119

 

 

 

6,458

 

 

 

19,238

 

 

 

20,697

 

Wealth management

 

 

9,288

 

 

 

8,773

 

 

 

27,932

 

 

 

26,435

 

Other, net

 

 

2,952

 

 

 

2,399

 

 

 

13,515

 

 

 

7,654

 

Security gains (losses), net

 

 

—

 

 

 

—

 

 

 

(182,792

)

 

 

—

 

Total Noninterest Income (Loss)

 

 

37,562

 

 

 

36,921

 

 

 

(64,369

)

 

 

111,828

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

66,691

 

 

 

67,374

 

 

 

197,016

 

 

 

198,944

 

Services and fees

 

 

25,724

 

 

 

27,472

 

 

 

74,898

 

 

 

80,327

 

Net occupancy - premises

 

 

7,398

 

 

 

7,151

 

 

 

21,933

 

 

 

21,363

 

Equipment expense

 

 

6,141

 

 

 

6,755

 

 

 

18,707

 

 

 

19,387

 

Litigation settlement expense

 

 

—

 

 

 

6,500

 

 

 

—

 

 

 

6,500

 

Other expense

 

 

17,316

 

 

 

15,039

 

 

 

48,706

 

 

 

42,980

 

Total Noninterest Expense

 

 

123,270

 

 

 

130,291

 

 

 

361,260

 

 

 

369,501

 

Income (Loss) From Continuing Operations Before Income Taxes

 

 

62,458

 

 

 

36,841

 

 

 

(30,849

)

 

 

140,579

 

Income taxes from continuing operations

 

 

11,128

 

 

 

6,288

 

 

 

(19,747

)

 

 

21,177

 

Income (Loss) From Continuing Operations

 

 

51,330

 

 

 

30,553

 

 

 

(11,102

)

 

 

119,402

 

Income from discontinued operations before income taxes

 

 

—

 

 

 

4,649

 

 

 

237,152

 

 

 

13,337

 

Income taxes from discontinued operations

 

 

—

 

 

 

1,173

 

 

 

59,353

 

 

 

3,373

 

Income From Discontinued Operations

 

 

—

 

 

 

3,476

 

 

 

177,799

 

 

 

9,964

 

Net Income

 

$

51,330

 

 

$

34,029

 

 

$

166,697

 

 

$

129,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) Per Share (EPS)

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS from continuing operations

 

$

0.84

 

 

$

0.50

 

 

$

(0.18

)

 

$

1.96

 

Basic EPS from discontinued operations

 

 

—

 

 

 

0.06

 

 

 

2.91

 

 

 

0.16

 

Basic EPS (1)

 

 

0.84

 

 

 

0.56

 

 

 

2.72

 

 

 

2.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS from continuing operations

 

$

0.84

 

 

$

0.50

 

 

$

(0.18

)

 

$

1.95

 

Diluted EPS from discontinued operations

 

 

—

 

 

 

0.06

 

 

 

2.90

 

 

 

0.16

 

Diluted EPS (1)

 

 

0.84

 

 

 

0.56

 

 

 

2.72

 

 

 

2.11

 

 

(1) Due to rounding, earnings (loss) per share from continuing operations and discontinued operations may not sum to earnings per share from net income.

 

See notes to consolidated financial statements.

4

 

Trustmark Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

($ in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income per consolidated statements of income (loss)

 

$

51,330

 

 

$

34,029

 

 

$

166,697

 

 

$

129,366

 

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

 

 

41,919

 

 

 

(20,223

)

 

 

35,684

 

 

 

(11,816

)

Reclassification adjustment for net (gains) losses realized
   in net income

 

 

—

 

 

 

—

 

 

 

137,094

 

 

 

—

 

Change in net unrealized holding loss on securities
   transferred to held to maturity

 

 

2,766

 

 

 

3,000

 

 

 

8,265

 

 

 

8,849

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments for changes realized in net
   income:

 

 

 

 

 

 

 

 

 

 

 

 

Net change in prior service costs

 

 

21

 

 

 

21

 

 

 

62

 

 

 

62

 

Recognized net loss due to lump sum settlement

 

 

—

 

 

 

—

 

 

 

(10

)

 

 

19

 

Change in net actuarial loss

 

 

63

 

 

 

52

 

 

 

198

 

 

 

162

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Change in the accumulated gain (loss) on effective cash
   flow hedge derivatives

 

 

14,120

 

 

 

(8,504

)

 

 

(1,505

)

 

 

(18,427

)

Reclassification adjustment for (gain) loss realized in
   net income

 

 

3,623

 

 

 

3,470

 

 

 

10,890

 

 

 

8,666

 

Other comprehensive income (loss), net of tax

 

 

62,512

 

 

 

(22,184

)

 

 

190,678

 

 

 

(12,485

)

Comprehensive income (loss)

 

$

113,842

 

 

$

11,845

 

 

$

357,375

 

 

$

116,881

 

 

See notes to consolidated financial statements.

 

5

 

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

($ 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, 2024

 

 

61,071,173

 

 

$

12,725

 

 

$

159,688

 

 

$

1,709,157

 

 

$

(219,723

)

 

$

1,661,847

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41,535

 

 

 

—

 

 

 

41,535

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,431

)

 

 

(7,431

)

Common stock dividends paid
   ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,207

)

 

 

—

 

 

 

(14,207

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

107,193

 

 

 

22

 

 

 

(1,405

)

 

 

—

 

 

 

—

 

 

 

(1,383

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

2,238

 

 

 

—

 

 

 

—

 

 

 

2,238

 

Balance, March 31, 2024

 

 

61,178,366

 

 

 

12,747

 

 

 

160,521

 

 

 

1,736,485

 

 

 

(227,154

)

 

 

1,682,599

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

73,832

 

 

 

—

 

 

 

73,832

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

135,597

 

 

 

135,597

 

Common stock dividends paid
   ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,206

)

 

 

—

 

 

 

(14,206

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

27,603

 

 

 

6

 

 

 

(65

)

 

 

—

 

 

 

—

 

 

 

(59

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

1,378

 

 

 

—

 

 

 

—

 

 

 

1,378

 

Balance, June 30, 2024

 

 

61,205,969

 

 

 

12,753

 

 

 

161,834

 

 

 

1,796,111

 

 

 

(91,557

)

 

 

1,879,141

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

51,330

 

 

 

—

 

 

 

51,330

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

62,512

 

 

 

62,512

 

Common stock dividends paid ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,209

)

 

 

—

 

 

 

(14,209

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

637

 

 

 

—

 

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

(8

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

1,330

 

 

 

—

 

 

 

—

 

 

 

1,330

 

Balance, September 30, 2024

 

 

61,206,606

 

 

$

12,753

 

 

$

163,156

 

 

$

1,833,232

 

 

$

(29,045

)

 

$

1,980,096

 

 

See notes to consolidated financial statements.

6

 

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, 2023

 

 

60,977,686

 

 

$

12,705

 

 

$

154,645

 

 

$

1,600,321

 

 

$

(275,403

)

 

$

1,492,268

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,300

 

 

 

—

 

 

 

50,300

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

33,022

 

 

 

33,022

 

Common stock dividends paid
   ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,158

)

 

 

—

 

 

 

(14,158

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

70,830

 

 

 

15

 

 

 

(1,063

)

 

 

—

 

 

 

—

 

 

 

(1,048

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

1,715

 

 

 

—

 

 

 

—

 

 

 

1,715

 

Balance, March 31, 2023

 

 

61,048,516

 

 

 

12,720

 

 

 

155,297

 

 

 

1,636,463

 

 

 

(242,381

)

 

 

1,562,099

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

45,037

 

 

 

—

 

 

 

45,037

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(23,323

)

 

 

(23,323

)

Common stock dividends paid
   ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,161

)

 

 

—

 

 

 

(14,161

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

20,520

 

 

 

4

 

 

 

(26

)

 

 

—

 

 

 

—

 

 

 

(22

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

1,563

 

 

 

—

 

 

 

—

 

 

 

1,563

 

Balance, June 30, 2023

 

 

61,069,036

 

 

 

12,724

 

 

 

156,834

 

 

 

1,667,339

 

 

 

(265,704

)

 

 

1,571,193

 

Net income per consolidated statements
   of income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

34,029

 

 

 

—

 

 

 

34,029

 

Other comprehensive income (loss), net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(22,184

)

 

 

(22,184

)

Common stock dividends paid ($0.23 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,169

)

 

 

—

 

 

 

(14,169

)

Shares withheld to pay taxes, long-term
   incentive plan

 

 

1,059

 

 

 

—

 

 

 

(12

)

 

 

—

 

 

 

—

 

 

 

(12

)

Compensation expense, long-term
   incentive plan

 

 

—

 

 

 

—

 

 

 

1,494

 

 

 

—

 

 

 

—

 

 

 

1,494

 

Balance, September 30, 2023

 

 

61,070,095

 

 

$

12,724

 

 

$

158,316

 

 

$

1,687,199

 

 

$

(287,888

)

 

$

1,570,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

7

 

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

 

Nine Months Ended September 30,

 

 

2024

 

 

2023

 

Operating Activities

 

 

 

 

 

Net income per consolidated statements of income (loss)

$

166,697

 

 

$

129,366

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

PCL

 

33,793

 

 

 

17,884

 

Depreciation and amortization

 

28,405

 

 

 

26,129

 

Net amortization of securities

 

(4,684

)

 

 

4,590

 

Securities (gains) losses, net

 

182,792

 

 

 

—

 

Gains on sales of loans, net

 

(14,808

)

 

 

(10,923

)

Gain on disposition of business

 

(228,272

)

 

 

—

 

Compensation expense, long-term incentive plan

 

4,946

 

 

 

4,772

 

Deferred income tax provision

 

21,500

 

 

 

(470

)

Proceeds from sales of loans held for sale

 

858,895

 

 

 

903,938

 

Purchases and originations of loans held for sale

 

(864,682

)

 

 

(934,136

)

Originations of mortgage servicing rights

 

(9,419

)

 

 

(11,025

)

Earnings on bank-owned life insurance

 

(2,640

)

 

 

(3,868

)

Net change in other assets

 

(21,824

)

 

 

5,043

 

Net change in other liabilities

 

(113,944

)

 

 

9,922

 

Other operating activities, net

 

(19,089

)

 

 

(8,520

)

Net cash from operating activities

 

17,666

 

 

 

132,702

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Proceeds from maturities, prepayments and calls of securities held to maturity

 

89,686

 

 

 

79,680

 

Proceeds from maturities, prepayments and calls of securities available for sale

 

186,328

 

 

 

237,752

 

Proceeds from sales of securities available for sale

 

1,378,272

 

 

 

—

 

Purchases of securities held to maturity

 

(10,644

)

 

 

(11,843

)

Purchases of securities available for sale

 

(1,475,357

)

 

 

—

 

Net proceeds from bank-owned life insurance

 

(27

)

 

 

(27

)

Net change in federal funds sold and securities purchased
   under reverse repurchase agreements

 

(10,000

)

 

 

4,000

 

Net change in member bank stock

 

6,400

 

 

 

(3,358

)

Net change in LHFI

 

(223,867

)

 

 

(617,614

)

Proceeds from sale of 1-4 family mortgage loans

 

43,935

 

 

 

—

 

Purchases of premises and equipment

 

(19,530

)

 

 

(33,105

)

Proceeds from sales of premises and equipment

 

2,219

 

 

 

1,828

 

Proceeds from sales of other real estate

 

4,555

 

 

 

1,744

 

Purchases of software

 

(4,906

)

 

 

(7,544

)

Investments in tax credit and other partnerships

 

(12,807

)

 

 

(11,041

)

Proceeds from disposition of business, net

 

321,345

 

 

 

—

 

Other, net

 

200

 

 

 

—

 

Net cash from investing activities

 

275,802

 

 

 

(359,528

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Net change in deposits

 

(328,828

)

 

 

664,275

 

Net change in federal funds purchased and securities sold under repurchase agreements

 

(40,102

)

 

 

(127,532

)

Net change in short-term borrowings

 

(50,000

)

 

 

(250,000

)

Payments on long-term FHLB advances

 

(58

)

 

 

(15

)

Payments under finance lease obligations

 

(315

)

 

 

(627

)

Common stock dividends

 

(42,622

)

 

 

(42,488

)

Shares withheld to pay taxes, long-term incentive plan

 

(1,450

)

 

 

(1,082

)

Net cash from financing activities

 

(463,375

)

 

 

242,531

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(169,907

)

 

 

15,705

 

Cash and cash equivalents at beginning of period

 

975,343

 

 

 

734,587

 

Cash and cash equivalents at end of period

$

805,436

 

 

$

750,292

 

 

See notes to consolidated financial statements.

 

 

8

 

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 offices in Alabama, Florida, Georgia, 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 Annual Report on Form 10-K for its fiscal year ended December 31, 2023 (2023 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 2024 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.

 

Note 2 - Discontinued Operations

On May 31, 2024, Trustmark National Bank (TNB) completed the sale of its wholly owned subsidiary, Fisher Brown Bottrell Insurance, Inc. (FBBI), to Marsh & McLennan Agency LLC (MMA) for approximately $336.9 million in cash. The transaction resulted in a pre-tax net gain of $228.3 million. The gain, along with FBBI's historical financial results for periods prior to the sale, is reflected in Trustmark's consolidated financial statements as discontinued operations. The assets and liabilities of FBBI have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheet at December 31, 2023. FBBI's operating results have been presented as "Discontinued operations" within the accompanying consolidated statements of income (loss) and prior period amounts have been reclassified to conform with the current period presentation. Cash flows from both continuing and discontinued operations are included in the Consolidated Statements of Cash Flows.

9

 

The following table summarizes financial information related to FBBI which has been segregated from continuing operations and reported as discontinued operations for the periods presented ($ in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance commissions

 

$

—

 

 

$

15,303

 

 

$

27,728

 

 

$

44,372

 

Gain on sale of discontinued operations, net

 

 

—

 

 

 

—

 

 

 

228,272

 

 

 

—

 

Other, net

 

 

—

 

 

 

—

 

 

 

527

 

 

 

954

 

Total noninterest income

 

 

—

 

 

 

15,303

 

 

 

256,527

 

 

 

45,326

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

—

 

 

 

9,292

 

 

 

16,263

 

 

 

27,718

 

Services and fees

 

 

—

 

 

 

410

 

 

 

704

 

 

 

1,245

 

Net occupancy - premises

 

 

—

 

 

 

232

 

 

 

269

 

 

 

757

 

Equipment expense

 

 

—

 

 

 

61

 

 

 

93

 

 

 

238

 

Other expense

 

 

—

 

 

 

659

 

 

 

2,046

 

 

 

2,031

 

Total noninterest expense

 

 

—

 

 

 

10,654

 

 

 

19,375

 

 

 

31,989

 

Income from discontinued operations before income taxes

 

 

—

 

 

 

4,649

 

 

 

237,152

 

 

 

13,337

 

Income taxes from discontinued operations

 

 

—

 

 

 

1,173

 

 

 

59,353

 

 

 

3,373

 

Income from discontinued operations

 

$

—

 

 

$

3,476

 

 

$

177,799

 

 

$

9,964

 

 

The assets and liabilities of discontinued operations on the consolidated balance sheet at December 31, 2023 were as follows ($ in thousands):

 

 

December 31, 2023

 

Carrying amounts of assets included as part of discontinued operations:

 

 

 

Cash and due from banks

 

$

200

 

Premises and equipment, net

 

 

308

 

Goodwill

 

 

49,633

 

Identifiable intangible assets, net

 

 

2,729

 

Operating lease right-of-use assets

 

 

2,431

 

Other assets

 

 

12,333

 

Assets of discontinued operations

 

$

67,634

 

 

 

 

 

Carrying amounts of liabilities included as part of discontinued operations:

 

 

 

Operating lease liabilities

 

$

2,487

 

Other liabilities

 

 

9,540

 

Liabilities of discontinued operations

 

$

12,027

 

 

10

 

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

 

 

 

Securities Available for Sale

 

 

Securities Held to Maturity

 

September 30, 2024

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair
Value

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair
Value

 

U.S. Treasury securities

 

$

198,426

 

 

$

4,212

 

 

$

—

 

 

$

202,638

 

 

$

29,648

 

 

$

232

 

 

$

—

 

 

$

29,880

 

U.S. Government agency
   obligations

 

 

19,494

 

 

 

—

 

 

 

(159

)

 

 

19,335

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage pass-
   through securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by GNMA

 

 

27,787

 

 

 

15

 

 

 

(2,004

)

 

 

25,798

 

 

 

17,773

 

 

 

3

 

 

 

(407

)

 

 

17,369

 

Issued by FNMA and
   FHLMC

 

 

1,086,688

 

 

 

32,970

 

 

 

(14,348

)

 

 

1,105,310

 

 

 

436,177

 

 

 

2,104

 

 

 

(11,088

)

 

 

427,193

 

Other residential mortgage-
   backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by
   FNMA, FHLMC or
   GNMA

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

131,348

 

 

 

—

 

 

 

(6,179

)

 

 

125,169

 

Commercial mortgage-backed
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by
   FNMA, FHLMC or
   GNMA

 

 

359,160

 

 

 

14,326

 

 

 

(772

)

 

 

372,714

 

 

 

743,412

 

 

 

139

 

 

 

(26,995

)

 

 

716,556

 

Total

 

$

1,691,555

 

 

$

51,523

 

 

$

(17,283

)

 

$

1,725,795

 

 

$

1,358,358

 

 

$

2,478

 

 

$

(44,669

)

 

$

1,316,167

 

 

 

 

Securities Available for Sale

 

 

Securities Held to Maturity

 

December 31, 2023

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair
Value

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair
Value

 

U.S. Treasury Securities

 

$

396,179

 

 

$

—

 

 

$

(23,811

)

 

$

372,368

 

 

$

29,068

 

 

$

—

 

 

$

(26

)

 

$

29,042

 

U.S. Government agency
   obligations

 

 

6,207

 

 

 

1

 

 

 

(416

)

 

 

5,792

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Obligations of states and
   political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

340

 

 

 

—

 

 

 

—

 

 

 

340

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage pass-
   through securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by GNMA

 

 

25,744

 

 

 

4

 

 

 

(2,613

)

 

 

23,135

 

 

 

13,005

 

 

 

—

 

 

 

(497

)

 

 

12,508

 

Issued by FNMA and
   FHLMC

 

 

1,338,256

 

 

 

32

 

 

 

(161,490

)

 

 

1,176,798

 

 

 

469,593

 

 

 

—

 

 

 

(18,205

)

 

 

451,388

 

Other residential mortgage-
   backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by
   FNMA, FHLMC or
   GNMA

 

 

92,076

 

 

 

—

 

 

 

(6,002

)

 

 

86,074

 

 

 

154,466

 

 

 

—

 

 

 

(10,113

)

 

 

144,353

 

Commercial mortgage-backed
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by
   FNMA, FHLMC or
   GNMA

 

 

100,545

 

 

 

—

 

 

 

(1,834

)

 

 

98,711

 

 

 

759,807

 

 

 

51

 

 

 

(41,985

)

 

 

717,873

 

Total

 

$

1,959,007

 

 

$

37

 

 

$

(196,166

)

 

$

1,762,878

 

 

$

1,426,279

 

 

$

51

 

 

$

(70,826

)

 

$

1,355,504

 

During 2022, Trustmark reclassified a total of $766.0 million of securities available for sale to securities held to maturity. At the date of these transfers, the net unrealized holding loss on the available for sale securities totaled approximately $91.9 million ($68.9 million, net of tax).

The securities were transferred at fair value, which became the cost basis for the securities held to maturity. The net unrealized holding loss will be 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

11

 

of these transfers. At September 30, 2024, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled $49.3 million compared to $57.6 million at December 31, 2023.

ACL on Securities

Securities Available for Sale

Quarterly, Trustmark evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Trustmark performs further analysis. If Trustmark determines that a credit loss exists, the credit portion of the allowance is measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss recorded by Trustmark is limited to the amount by which the amortized cost exceeds the fair value. The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by Moody’s Investor Service (Moody’s).

At both September 30, 2024 and December 31, 2023, the results of the analysis did not identify any securities that warranted DCF analysis, and no credit loss was recognized on any of the securities available for sale.

Accrued interest receivable is excluded from the estimate of credit losses for securities available for sale. At September 30, 2024, accrued interest receivable totaled $5.1 million for securities available for sale compared to $3.7 million December 31, 2023 and was reported in other assets on the accompanying consolidated balance sheet.

Securities Held to Maturity

At September 30, 2024, Trustmark identified no securities held to maturity with the potential for credit loss exposure, compared to $340 thousand at December 31, 2023, which consisted of municipal securities. After applying appropriate analysis, the total amount of current expected credit losses was zero at September 30, 2024 and immaterial at December 31, 2023. No reserve was recorded at either September 30, 2024 or December 31, 2023.

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity. At September 30, 2024, accrued interest receivable totaled $2.5 million for securities held to maturity compared to $2.6 million at December 31, 2023 and was reported in other assets on the accompanying consolidated balance sheet.

At both September 30, 2024 and December 31, 2023, Trustmark had no securities held to maturity that were past due 30 days or more as to principal or interest payments. Trustmark had no securities held to maturity classified as nonaccrual at September 30, 2024 and December 31, 2023.

Trustmark monitors the credit quality of securities held to maturity on a monthly basis through credit ratings. The following table presents the amortized cost of Trustmark’s securities held to maturity by credit rating, as determined by Moody’s, at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Aaa

 

$

1,358,358

 

 

$

1,425,939

 

Not Rated (1)

 

 

—

 

 

 

340

 

Total

 

$

1,358,358

 

 

$

1,426,279

 

 

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

12

 

 

The tables below include securities with gross unrealized losses for which an allowance for credit losses has not been recorded segregated by length of impairment at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

September 30, 2024

 

Estimated
Fair Value

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Gross
Unrealized
Losses

 

U.S. Government agency obligations

 

$

19,335

 

 

$

(159

)

 

$

—

 

 

$

—

 

 

$

19,335

 

 

$

(159

)

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage pass-through
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by GNMA

 

 

11,089

 

 

 

(51

)

 

 

29,760

 

 

 

(2,360

)

 

 

40,849

 

 

 

(2,411

)

Issued by FNMA and FHLMC

 

 

18,133

 

 

 

(72

)

 

 

254,346

 

 

 

(25,364

)

 

 

272,479

 

 

 

(25,436

)

Other residential mortgage-backed
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by FNMA,
   FHLMC or GNMA

 

 

—

 

 

 

—

 

 

 

125,169

 

 

 

(6,179

)

 

 

125,169

 

 

 

(6,179

)

Commercial mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by FNMA,
   FHLMC or GNMA

 

 

—

 

 

 

—

 

 

 

792,767

 

 

 

(27,767

)

 

 

792,767

 

 

 

(27,767

)

Total

 

$

48,557

 

 

$

(282

)

 

$

1,202,042

 

 

$

(61,670

)

 

$

1,250,599

 

 

$

(61,952

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

$

29,042

 

 

$

(26

)

 

$

372,368

 

 

$

(23,811

)

 

$

401,410

 

 

$

(23,837

)

U.S. Government agency obligations

 

 

—

 

 

 

—

 

 

 

5,791

 

 

 

(416

)

 

 

5,791

 

 

 

(416

)

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage pass-through
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by GNMA

 

 

9,381

 

 

 

(172

)

 

 

25,967

 

 

 

(2,938

)

 

 

35,348

 

 

 

(3,110

)

Issued by FNMA and FHLMC

 

 

309,466

 

 

 

(3,274

)

 

 

1,311,865

 

 

 

(176,421

)

 

 

1,621,331

 

 

 

(179,695

)

Other residential mortgage-backed
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by FNMA,
   FHLMC or GNMA

 

 

—

 

 

 

—

 

 

 

230,368

 

 

 

(16,115

)

 

 

230,368

 

 

 

(16,115

)

Commercial mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued or guaranteed by FNMA,
   FHLMC or GNMA

 

 

1,656

 

 

 

(13

)

 

 

812,520

 

 

 

(43,806

)

 

 

814,176

 

 

 

(43,819

)

Total

 

$

349,545

 

 

$

(3,485

)

 

$

2,758,879

 

 

$

(263,507

)

 

$

3,108,424

 

 

$

(266,992

)

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. 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 at maturity.

Security Gains and Losses

Realized gains and losses are determined using the specific identification method and are included in noninterest income (loss) as security gains (losses), net. For the periods presented, gross realized losses as a result of calls and dispositions of securities, as well as any associated proceeds, are shown below ($ in thousands). There were no gross realized gains during the periods presented.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Available for Sale

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Proceeds from calls and sales of securities

 

$

—

 

 

$

—

 

 

$

1,378,272

 

 

$

—

 

Gross realized (losses)

 

 

—

 

 

 

—

 

 

 

(182,792

)

 

 

—

 

 

13

 

During the second quarter of 2024, Trustmark restructured its investment securities portfolio by selling $1.561 billion of available for sale securities with an average yield of 1.36%, which generated a loss of $182.8 million ($137.1 million, net of taxes) and was recorded to noninterest income (loss) in security gains (losses), net. Proceeds from the sale were used to purchase $1.378 billion of available for sale securities with an average yield of 4.85%.

Securities Pledged

Securities with a carrying value of $2.038 billion and $2.321 billion at September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, none 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, 2024, 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

 

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

Due in one year or less

 

$

42,751

 

 

$

42,962

 

 

$

—

 

 

$

—

 

Due after one year through five years

 

 

75,223

 

 

 

76,656

 

 

 

29,648

 

 

 

29,880

 

Due after five years through ten years

 

 

99,946

 

 

 

102,355

 

 

 

—

 

 

 

—

 

 

 

 

217,920

 

 

 

221,973

 

 

 

29,648

 

 

 

29,880

 

Mortgage-backed securities

 

 

1,473,635

 

 

 

1,503,822

 

 

 

1,328,710

 

 

 

1,286,287

 

Total

 

$

1,691,555

 

 

$

1,725,795

 

 

$

1,358,358

 

 

$

1,316,167

 

 

Note 4 – LHFI and ACL, LHFI

At September 30, 2024 and December 31, 2023, LHFI consisted of the following ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Loans secured by real estate:

 

 

 

 

 

 

Construction, land development and other land

 

$

614,787

 

 

$

642,886

 

Other secured by 1-4 family residential properties

 

 

647,843

 

 

 

622,397

 

Secured by nonfarm, nonresidential properties

 

 

3,582,552

 

 

 

3,489,434

 

Other real estate secured

 

 

1,475,798

 

 

 

1,312,551

 

Other loans secured by real estate:

 

 

 

 

 

 

Other construction

 

 

973,469

 

 

 

867,793

 

Secured by 1-4 family residential properties

 

 

2,247,163

 

 

 

2,282,318

 

Commercial and industrial loans

 

 

1,767,079

 

 

 

1,922,910

 

Consumer loans

 

 

152,611

 

 

 

165,734

 

State and other political subdivision loans

 

 

996,002

 

 

 

1,088,466

 

Other commercial loans and leases

 

 

642,807

 

 

 

556,035

 

LHFI

 

 

13,100,111

 

 

 

12,950,524

 

Less ACL

 

 

157,929

 

 

 

139,367

 

Net LHFI

 

$

12,942,182

 

 

$

12,811,157

 

 

Accrued interest receivable is not included in the amortized cost basis of Trustmark’s LHFI. At September 30, 2024 and December 31, 2023, accrued interest receivable for LHFI totaled $69.6 million and $71.0 million, respectively, with no related ACL and was reported in other assets on the accompanying consolidated balance sheet.

14

 

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, 2024, Trustmark’s geographic loan distribution was concentrated primarily in its six key market regions: Alabama, Florida, Georgia, Mississippi, Tennessee and Texas. Accordingly, the ultimate collectability of a substantial portion of these loans is susceptible to changes in market conditions in these areas.

Nonaccrual and Past Due LHFI

No material interest income was recognized in the income statement on nonaccrual LHFI for each of the periods ended September 30, 2024 and 2023.

The following tables provide the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more still accruing interest at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

September 30, 2024

 

 

 

Nonaccrual With No ACL

 

 

Total Nonaccrual

 

 

Loans Past Due 90 Days or More Still Accruing

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

—

 

 

$

362

 

 

$

—

 

Other secured by 1-4 family residential properties

 

 

870

 

 

 

6,168

 

 

 

889

 

Secured by nonfarm, nonresidential properties

 

 

10,558

 

 

 

12,156

 

 

 

—

 

Other real estate secured

 

 

1,989

 

 

 

2,122

 

 

 

—

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

Other construction

 

 

—

 

 

 

60

 

 

 

—

 

Secured by 1-4 family residential properties

 

 

1,577

 

 

 

19,966

 

 

 

4,019

 

Commercial and industrial loans

 

 

23

 

 

 

31,710

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

243

 

 

 

444

 

Other commercial loans and leases

 

 

—

 

 

 

1,038

 

 

 

—

 

Total

 

$

15,017

 

 

$

73,825

 

 

$

5,352

 

 

 

 

December 31, 2023

 

 

 

Nonaccrual With No ACL

 

 

Total Nonaccrual

 

 

Loans Past Due 90 Days or More Still Accruing

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

2,020

 

 

$

2,642

 

 

$

—

 

Other secured by 1-4 family residential properties

 

 

946

 

 

 

6,518

 

 

 

1,238

 

Secured by nonfarm, nonresidential properties

 

 

20,812

 

 

 

23,061

 

 

 

54

 

Other real estate secured

 

 

—

 

 

 

158

 

 

 

106

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

Other construction

 

 

—

 

 

 

62

 

 

 

—

 

Secured by 1-4 family residential properties

 

 

3,235

 

 

 

43,815

 

 

 

3,740

 

Commercial and industrial loans

 

 

79

 

 

 

22,303

 

 

 

24

 

Consumer loans

 

 

—

 

 

 

243

 

 

 

628

 

Other commercial loans and leases

 

 

—

 

 

 

1,206

 

 

 

—

 

Total

 

$

27,092

 

 

$

100,008

 

 

$

5,790

 

 

15

 

The following tables provide an aging analysis of the amortized cost basis of past due LHFI (including nonaccrual LHFI) at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

September 30, 2024

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

249

 

 

$

213

 

 

$

188

 

 

$

650

 

 

$

614,137

 

 

$

614,787

 

Other secured by 1-4 family residential
   properties

 

 

6,054

 

 

 

2,588

 

 

 

3,748

 

 

 

12,390

 

 

 

635,453

 

 

 

647,843

 

Secured by nonfarm, nonresidential
   properties

 

 

2,137

 

 

 

3,917

 

 

 

793

 

 

 

6,847

 

 

 

3,575,705

 

 

 

3,582,552

 

Other real estate secured

 

 

518

 

 

 

—

 

 

 

28

 

 

 

546

 

 

 

1,475,252

 

 

 

1,475,798

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

60

 

 

 

—

 

 

 

—

 

 

 

60

 

 

 

973,409

 

 

 

973,469

 

Secured by 1-4 family residential properties

 

 

18,517

 

 

 

7,316

 

 

 

14,313

 

 

 

40,146

 

 

 

2,207,017

 

 

 

2,247,163

 

Commercial and industrial loans

 

 

4,221

 

 

 

421

 

 

 

9,391

 

 

 

14,033

 

 

 

1,753,046

 

 

 

1,767,079

 

Consumer loans

 

 

1,788

 

 

 

628

 

 

 

448

 

 

 

2,864

 

 

 

149,747

 

 

 

152,611

 

State and other political subdivision loans

 

 

44

 

 

 

—

 

 

 

—

 

 

 

44

 

 

 

995,958

 

 

 

996,002

 

Other commercial loans and leases

 

 

2,407

 

 

 

8

 

 

 

20

 

 

 

2,435

 

 

 

640,372

 

 

 

642,807

 

Total

 

$

35,995

 

 

$

15,091

 

 

$

28,929

 

 

$

80,015

 

 

$

13,020,096

 

 

$

13,100,111

 

 

 

 

December 31, 2023

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

93

 

 

$

507

 

 

$

2,362

 

 

$

2,962

 

 

$

639,924

 

 

$

642,886

 

Other secured by 1-4 family residential
   properties

 

 

4,493

 

 

 

1,687

 

 

 

2,716

 

 

 

8,896

 

 

 

613,501

 

 

 

622,397

 

Secured by nonfarm, nonresidential
   properties

 

 

1,531

 

 

 

1,063

 

 

 

727

 

 

 

3,321

 

 

 

3,486,113

 

 

 

3,489,434

 

Other real estate secured

 

 

126

 

 

 

—

 

 

 

207

 

 

 

333

 

 

 

1,312,218

 

 

 

1,312,551

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

62

 

 

 

—

 

 

 

—

 

 

 

62

 

 

 

867,731

 

 

 

867,793

 

Secured by 1-4 family residential properties

 

 

19,298

 

 

 

9,327

 

 

 

22,164

 

 

 

50,789

 

 

 

2,231,529

 

 

 

2,282,318

 

Commercial and industrial loans

 

 

11,881

 

 

 

484

 

 

 

499

 

 

 

12,864

 

 

 

1,910,046

 

 

 

1,922,910

 

Consumer loans

 

 

2,112

 

 

 

772

 

 

 

647

 

 

 

3,531

 

 

 

162,203

 

 

 

165,734

 

State and other political subdivision loans

 

 

152

 

 

 

—

 

 

 

—

 

 

 

152

 

 

 

1,088,314

 

 

 

1,088,466

 

Other commercial loans and leases

 

 

1,247

 

 

 

58

 

 

 

—

 

 

 

1,305

 

 

 

554,730

 

 

 

556,035

 

Total

 

$

40,995

 

 

$

13,898

 

 

$

29,322

 

 

$

84,215

 

 

$

12,866,309

 

 

$

12,950,524

 

 

Modified LHFI

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

16

 

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

 

 

Three Months Ended September 30, 2024

 

 

 

Payment Concession

 

 

Term Extension

 

 

Total

 

 

% of Total Class of Loan

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential properties

 

$

—

 

 

$

886

 

 

$

886

 

 

 

0.14

%

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

30

 

 

 

30

 

 

 

0.00

%

Commercial and industrial loans

 

 

6,207

 

 

 

—

 

 

 

6,207

 

 

 

0.35

%

Total

 

$

6,207

 

 

$

916

 

 

$

7,123

 

 

 

0.05

%

 

 

 

Three Months Ended September 30, 2023

 

 

 

Term Extension

 

 

% of Total Class of Loan

 

Loans secured by real estate:

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

96

 

 

 

0.02

%

Other loans secured by real estate:

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

346

 

 

 

0.02

%

Total

 

$

442

 

 

 

0.00

%

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Payment Concession

 

 

Term Extension

 

 

Total

 

 

% of Total Class of Loan

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

—

 

 

$

2,638

 

 

$

2,638

 

 

 

0.41

%

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

30

 

 

 

30

 

 

 

0.00

%

Commercial and industrial loans

 

 

6,207

 

 

 

—

 

 

 

6,207

 

 

 

0.35

%

Total

 

$

6,207

 

 

$

2,668

 

 

$

8,875

 

 

 

0.07

%

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Payment Concession

 

 

Term Extension

 

 

Total

 

 

% of Total Class of Loan

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

—

 

 

$

494

 

 

$

494

 

 

 

0.08

%

Secured by nonfarm, nonresidential
   properties

 

 

—

 

 

 

370

 

 

 

370

 

 

 

0.01

%

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

912

 

 

 

912

 

 

 

0.04

%

Commercial and industrial loans

 

 

255

 

 

 

—

 

 

 

255

 

 

 

0.01

%

Consumer loans

 

 

—

 

 

 

40

 

 

 

40

 

 

 

0.02

%

Other commercial loans and leases

 

 

116

 

 

 

31

 

 

 

147

 

 

 

0.03

%

Total

 

$

371

 

 

$

1,847

 

 

$

2,218

 

 

 

0.02

%

 

17

 

 

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

 

 

 

Three Months Ended September 30, 2024

 

 

Financial Effect

 

 

Payment Concessions

 

Term Extension

Loans secured by real estate:

 

 

 

 

Other secured by 1-4 family residential properties

 

 

 

Modified two loans and seven lines of credit to amortize over 24 month terms

Other loans secured by real estate:

 

 

 

 

Secured by 1-4 family residential properties

 

 

 

Modified one loan to amortize over 24 month term

Commercial and industrial loans

 

Thirty-four month principal payment deferral

 

 

 

 

 

Three Months Ended September 30, 2023

 

 

Financial Effect

 

 

Term Extension

Loans secured by real estate:

 

 

Other secured by 1-4 family residential properties

 

Modified lines of credit to amortize over 12 month and 24 month terms

Other loans secured by real estate:

 

 

Secured by 1-4 family residential properties

 

Extended amortization on loans with term adjusted by weighted-average 10.6 years

 

 

 

Nine Months Ended September 30, 2024

 

 

Financial Effect

 

 

Payment Concessions

 

Term Extension

Loans secured by real estate:

 

 

 

 

Other secured by 1-4 family residential properties

 

 

 

Modified three loans and twenty-seven lines to amortize over 24 month terms

Other loans secured by real estate:

 

 

 

 

Secured by 1-4 family residential properties

 

 

 

Modified one loan to amortize over 24 month term

Commercial and industrial loans

 

Thirty-four month principal payment deferral

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

Financial Effect

 

 

Payment Concessions

 

Term Extension

Loans secured by real estate:

 

 

 

 

Other secured by 1-4 family residential properties

 

 

 

Modified lines of credit to amortize over 12 month and 24 month terms

Secured by nonfarm, nonresidential properties

 

 

 

One loan renewed and extended maturity by six months

Other loans secured by real estate:

 

 

 

 

Secured by 1-4 family residential properties

 

 

 

Extended amortization with term adjusted by weighted-average 3.2 years

Commercial and industrial loans

 

Six month payment deferrals

 

 

Consumer loans

 

 

 

Bankruptcies extended amortization with term adjusted by weighted average 1.3 years reducing borrower payment

Other commercial loans and leases

 

Six month payment deferral

 

One loan renewed and extended maturity by seven months

 

18

 

 

Trustmark had no unused commitments on modified loans to borrowers experiencing financial difficulty at September 30, 2024.

During the nine months ended September 30, 2024 and 2023, payment defaults of LHFI that were modified within the twelve months prior to that default to borrowers experiencing financial difficulty were immaterial.

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

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

 

 

 

Three Months Ended September 30, 2024

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

886

 

 

$

886

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

30

 

 

 

30

 

Commercial and industrial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,207

 

 

 

6,207

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

7,123

 

 

$

7,123

 

 

 

 

Three Months Ended September 30, 2023

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

96

 

 

$

96

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

346

 

 

 

346

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

442

 

 

$

442

 

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

114

 

 

$

50

 

 

$

42

 

 

$

206

 

 

$

2,432

 

 

$

2,638

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

30

 

 

 

30

 

Commercial and industrial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,207

 

 

 

6,207

 

Total

 

$

114

 

 

$

50

 

 

$

42

 

 

$

206

 

 

$

8,669

 

 

$

8,875

 

 

19

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or More

 

 

Total Past Due

 

 

Current
Loans

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family residential
   properties

 

$

272

 

 

$

—

 

 

$

—

 

 

$

272

 

 

$

222

 

 

$

494

 

Secured by nonfarm, nonresidential
   properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

370

 

 

 

370

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential properties

 

 

170

 

 

 

—

 

 

 

—

 

 

 

170

 

 

 

742

 

 

 

912

 

Commercial and industrial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

255

 

 

 

255

 

Consumer loans

 

 

20

 

 

 

—

 

 

 

—

 

 

 

20

 

 

 

20

 

 

 

40

 

Other commercial loans and leases

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

147

 

 

 

147

 

Total

 

$

462

 

 

$

—

 

 

$

—

 

 

$

462

 

 

$

1,756

 

 

$

2,218

 

Collateral-Dependent Loans

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

 

Real Estate

 

 

Vehicles

 

 

Miscellaneous

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family
   residential properties

 

$

870

 

 

$

—

 

 

$

—

 

 

$

870

 

Secured by nonfarm, nonresidential
   properties

 

 

10,558

 

 

 

—

 

 

 

—

 

 

 

10,558

 

Other real estate secured

 

 

1,989

 

 

 

—

 

 

 

—

 

 

 

1,989

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential
   properties

 

 

1,577

 

 

 

—

 

 

 

—

 

 

 

1,577

 

Commercial and industrial loans

 

 

—

 

 

 

2,086

 

 

 

27,554

 

 

 

29,640

 

Other commercial loans and leases

 

 

—

 

 

 

—

 

 

 

906

 

 

 

906

 

Total

 

$

14,994

 

 

$

2,086

 

 

$

28,460

 

 

$

45,540

 

 

 

 

December 31, 2023

 

 

 

Real Estate

 

 

Vehicles

 

 

Miscellaneous

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

2,020

 

 

$

—

 

 

$

—

 

 

$

2,020

 

Other secured by 1-4 family
   residential properties

 

 

946

 

 

 

—

 

 

 

—

 

 

 

946

 

Secured by nonfarm, nonresidential
   properties

 

 

20,812

 

 

 

—

 

 

 

—

 

 

 

20,812

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family residential
   properties

 

 

3,235

 

 

 

—

 

 

 

—

 

 

 

3,235

 

Commercial and industrial loans

 

 

38

 

 

 

41

 

 

 

21,023

 

 

 

21,102

 

Other commercial loans and leases

 

 

—

 

 

 

—

 

 

 

967

 

 

 

967

 

Total

 

$

27,051

 

 

$

41

 

 

$

21,990

 

 

$

49,082

 

 

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

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

20

 

•
Other loans secured by real estate – Loans within these loan classes are secured by liens on real estate properties. There have been no significant changes to the collateral that secures these financial assets during the period.
•
Commercial and industrial loans – Loans within this loan class are primarily secured by inventory, accounts receivables, equipment and other non-real estate collateral. During the quarter, three relationships had decreases in collateral value that secures the credit. There have been no other significant changes to the collateral that secures these financial assets during the period.
•
State and other political subdivision loans – Loans within this loan class are secured by liens on real estate properties or other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.
•
Other commercial loans – Loans within this loan class are secured by non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

Credit Quality Indicators

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

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

•
Credit File Completeness and Financial Statement Exceptions – evaluates the quality and condition of credit files in terms of content and completeness and focuses on efforts to obtain and document sufficient information to determine the quality and status of credits. Also included is an evaluation of the systems/procedures used to ensure compliance with policy.
•
Underwriting – evaluates whether credits are adequately analyzed, appropriately structured and properly approved within loan policy requirements. A properly approved credit is approved by an adequate authority in a timely manner with all conditions of approval fulfilled. Total policy exceptions measure the level of underwriting and other policy exceptions within a portfolio segment.
•
Collateral Documentation – focuses on the adequacy of documentation to perfect Trustmark’s collateral position and substantiate collateral value. Collateral exceptions measure the level of documentation exceptions within a portfolio segment. Collateral exceptions occur when certain collateral documentation is either not present or not current.
•
Compliance with Law – focuses on underwriting, documentation, approval and reporting in compliance with banking laws and regulations. Primary emphasis is directed to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Regulation O requirements and regulations governing appraisals.

Commercial Credits

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

•
Risk Rate (RR) 1 through RR 6 – Grades one through six represent groups of loans that are not subject to criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risk measured by using a variety of credit risk criteria such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
•
Other Assets Especially Mentioned (Special Mention) (RR 7) – a loan that has a potential weakness that if not corrected will lead to a more severe rating. This rating is for credits that are currently protected but potentially weak because of an adverse feature or condition that if not corrected will lead to a further downgrade.

21

 

•
Substandard (RR 8) – a loan that has at least one identified weakness that is well defined. This rating is for credits where the primary sources of repayment are not viable at the time of evaluation or where either the capital or collateral is not adequate to support the loan and the secondary means of repayment do not provide a sufficient level of support to offset the identified weakness. Loss potential exists in the aggregate amount of substandard loans but does not necessarily exist in individual loans.
•
Doubtful (RR 9) – a loan with an identified weakness that does not have a valid secondary source of repayment. Generally, these credits have an impaired primary source of repayment and secondary sources are not sufficient to prevent a loss in the credit. The exact amount of the loss has not been determined at this time.
•
Loss (RR 10) – a loan or a portion of a loan that is deemed to be uncollectible.

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

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

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

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

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

 

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

Consumer Credits

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

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

22

 

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on analyses performed at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of September 30, 2024

 

Commercial LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land
   development and other
   land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

313,423

 

 

$

115,646

 

 

$

39,923

 

 

$

25,444

 

 

$

8,471

 

 

$

2,409

 

 

$

42,086

 

 

$

547,402

 

Special Mention - RR 7

 

 

2,575

 

 

 

989

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

553

 

 

 

4,117

 

Substandard - RR 8

 

 

5

 

 

 

65

 

 

 

64

 

 

 

—

 

 

 

17

 

 

 

—

 

 

 

165

 

 

 

316

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

316,003

 

 

 

116,700

 

 

 

39,987

 

 

 

25,444

 

 

 

8,488

 

 

 

2,409

 

 

 

42,804

 

 

 

551,835

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(24

)

 

 

—

 

 

 

(24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family
   residential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

23,695

 

 

$

25,412

 

 

$

23,921

 

 

$

25,271

 

 

$

12,086

 

 

$

3,804

 

 

$

7,859

 

 

$

122,048

 

Special Mention - RR 7

 

 

27

 

 

 

—

 

 

 

—

 

 

 

36

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

63

 

Substandard - RR 8

 

 

51

 

 

 

887

 

 

 

578

 

 

 

334

 

 

 

—

 

 

 

202

 

 

 

30

 

 

 

2,082

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

23,773

 

 

 

26,299

 

 

 

24,499

 

 

 

25,641

 

 

 

12,086

 

 

 

4,006

 

 

 

7,889

 

 

 

124,193

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(12

)

 

 

—

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by nonfarm,
   nonresidential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

498,807

 

 

$

416,459

 

 

$

936,901

 

 

$

475,161

 

 

$

481,754

 

 

$

420,554

 

 

$

101,623

 

 

$

3,331,259

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

55,301

 

 

 

—

 

 

 

32,937

 

 

 

3,400

 

 

 

—

 

 

 

91,638

 

Substandard - RR 8

 

 

8,664

 

 

 

6,847

 

 

 

34,486

 

 

 

28,222

 

 

 

23,510

 

 

 

57,905

 

 

 

—

 

 

 

159,634

 

Doubtful - RR 9

 

 

13

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8

 

 

 

—

 

 

 

21

 

Total

 

 

507,484

 

 

 

423,306

 

 

 

1,026,688

 

 

 

503,383

 

 

 

538,201

 

 

 

481,867

 

 

 

101,623

 

 

 

3,582,552

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,412

)

 

 

—

 

 

 

(16

)

 

 

—

 

 

 

(2,428

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

168,609

 

 

$

97,427

 

 

$

649,069

 

 

$

260,090

 

 

$

139,030

 

 

$

44,283

 

 

$

7,461

 

 

$

1,365,969

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

25,348

 

 

 

27,448

 

 

 

—

 

 

 

—

 

 

 

426

 

 

 

53,222

 

Substandard - RR 8

 

 

14,632

 

 

 

—

 

 

 

963

 

 

 

15,046

 

 

 

258

 

 

 

25,426

 

 

 

—

 

 

 

56,325

 

Doubtful - RR 9

 

 

42

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

42

 

Total

 

 

183,283

 

 

 

97,427

 

 

 

675,380

 

 

 

302,584

 

 

 

139,288

 

 

 

69,709

 

 

 

7,887

 

 

 

1,475,558

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

23

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of September 30, 2024

 

Commercial LHFI

 

Other loans secured by real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

90,334

 

 

$

421,500

 

 

$

305,414

 

 

$

54,232

 

 

$

—

 

 

$

—

 

 

$

29,914

 

 

$

901,394

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

43,443

 

 

 

9,393

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

52,836

 

Substandard - RR 8

 

 

60

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,179

 

 

 

—

 

 

 

—

 

 

 

19,239

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

90,394

 

 

 

421,500

 

 

 

348,857

 

 

 

63,625

 

 

 

19,179

 

 

 

—

 

 

 

29,914

 

 

 

973,469

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

(2,494

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,494

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial
   loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

383,881

 

 

$

380,031

 

 

$

265,702

 

 

$

102,706

 

 

$

52,400

 

 

$

45,251

 

 

$

406,087

 

 

$

1,636,058

 

Special Mention - RR 7

 

 

—

 

 

 

615

 

 

 

14,201

 

 

 

52

 

 

 

—

 

 

 

—

 

 

 

18,877

 

 

 

33,745

 

Substandard - RR 8

 

 

7,496

 

 

 

1,923

 

 

 

57,073

 

 

 

12,683

 

 

 

970

 

 

 

367

 

 

 

16,216

 

 

 

96,728

 

Doubtful - RR 9

 

 

227

 

 

 

—

 

 

 

173

 

 

 

145

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

548

 

Total

 

 

391,604

 

 

 

382,569

 

 

 

337,149

 

 

 

115,586

 

 

 

53,370

 

 

 

45,621

 

 

 

441,180

 

 

 

1,767,079

 

Current period gross
   charge-offs

 

 

(128

)

 

 

(85

)

 

 

(430

)

 

 

(461

)

 

 

(86

)

 

 

(3,111

)

 

 

(85

)

 

 

(4,386

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and other political
   subdivision loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

55,360

 

 

$

121,591

 

 

$

244,434

 

 

$

157,287

 

 

$

83,156

 

 

$

331,105

 

 

$

3,069

 

 

$

996,002

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard - RR 8

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

55,360

 

 

 

121,591

 

 

 

244,434

 

 

 

157,287

 

 

 

83,156

 

 

 

331,105

 

 

 

3,069

 

 

 

996,002

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other commercial loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

145,848

 

 

$

179,925

 

 

$

19,906

 

 

$

32,234

 

 

$

17,013

 

 

$

32,572

 

 

$

212,999

 

 

$

640,497

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

140

 

 

 

70

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

210

 

Substandard - RR 8

 

 

873

 

 

 

96

 

 

 

128

 

 

 

22

 

 

 

—

 

 

 

—

 

 

 

981

 

 

 

2,100

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

146,721

 

 

 

180,021

 

 

 

20,174

 

 

 

32,326

 

 

 

17,013

 

 

 

32,572

 

 

 

213,980

 

 

 

642,807

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

(28

)

 

 

—

 

 

 

—

 

 

 

(25

)

 

 

—

 

 

 

(53

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial
   LHFI

 

$

1,714,622

 

 

$

1,769,413

 

 

$

2,717,168

 

 

$

1,225,876

 

 

$

870,781

 

 

$

967,289

 

 

$

848,346

 

 

$

10,113,495

 

Total commercial LHFI
   gross charge-offs

 

$

(128

)

 

$

(85

)

 

$

(2,952

)

 

$

(2,873

)

 

$

(86

)

 

$

(3,188

)

 

$

(85

)

 

$

(9,397

)

 

24

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of September 30, 2024

 

Consumer LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land
   development and other
   land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

21,981

 

 

$

27,681

 

 

$

4,712

 

 

$

3,735

 

 

$

1,079

 

 

$

2,076

 

 

$

1,175

 

 

$

62,439

 

Past due 30-89 days

 

 

—

 

 

 

311

 

 

 

118

 

 

 

—

 

 

 

—

 

 

 

32

 

 

 

—

 

 

 

461

 

Past due 90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nonaccrual

 

 

—

 

 

 

—

 

 

 

23

 

 

 

4

 

 

 

—

 

 

 

25

 

 

 

—

 

 

 

52

 

Total

 

 

21,981

 

 

 

27,992

 

 

 

4,853

 

 

 

3,739

 

 

 

1,079

 

 

 

2,133

 

 

 

1,175

 

 

 

62,952

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(8

)

 

 

—

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family
   residential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

19,886

 

 

$

20,261

 

 

$

7,529

 

 

$

5,367

 

 

$

3,747

 

 

$

9,421

 

 

$

444,331

 

 

$

510,542

 

Past due 30-89 days

 

 

1,726

 

 

 

264

 

 

 

59

 

 

 

65

 

 

 

49

 

 

 

676

 

 

 

4,060

 

 

 

6,899

 

Past due 90 days or more

 

 

55

 

 

 

—

 

 

 

8

 

 

 

—

 

 

 

—

 

 

 

162

 

 

 

615

 

 

 

840

 

Nonaccrual

 

 

35

 

 

 

29

 

 

 

66

 

 

 

46

 

 

 

104

 

 

 

586

 

 

 

4,503

 

 

 

5,369

 

Total

 

 

21,702

 

 

 

20,554

 

 

 

7,662

 

 

 

5,478

 

 

 

3,900

 

 

 

10,845

 

 

 

453,509

 

 

 

523,650

 

Current period gross
   charge-offs

 

 

(28

)

 

 

(29

)

 

 

(206

)

 

 

(40

)

 

 

(14

)

 

 

(52

)

 

 

—

 

 

 

(369

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

136

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

70

 

 

$

34

 

 

$

—

 

 

$

240

 

Past due 30-89 days

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Past due 90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nonaccrual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

136

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

70

 

 

 

34

 

 

 

—

 

 

 

240

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

25

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of September 30, 2024

 

Consumer LHFI

 

Other loans secured by real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family
   residential properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

174,559

 

 

$

234,420

 

 

$

827,385

 

 

$

471,999

 

 

$

166,513

 

 

$

325,051

 

 

$

—

 

 

$

2,199,927

 

Past due 30-89 days

 

 

632

 

 

 

4,345

 

 

 

10,101

 

 

 

5,510

 

 

 

850

 

 

 

1,815

 

 

 

—

 

 

 

23,253

 

Past due 90 days or more

 

 

273

 

 

 

828

 

 

 

2,359

 

 

 

327

 

 

 

198

 

 

 

34

 

 

 

—

 

 

 

4,019

 

Nonaccrual

 

 

—

 

 

 

2,072

 

 

 

10,612

 

 

 

2,806

 

 

 

1,233

 

 

 

3,241

 

 

 

—

 

 

 

19,964

 

Total

 

 

175,464

 

 

 

241,665

 

 

 

850,457

 

 

 

480,642

 

 

 

168,794

 

 

 

330,141

 

 

 

—

 

 

 

2,247,163

 

Current period gross
   charge-offs

 

 

—

 

 

 

(143

)

 

 

(9,466

)

 

 

(106

)

 

 

(1

)

 

 

(107

)

 

 

—

 

 

 

(9,823

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

46,034

 

 

$

27,761

 

 

$

15,546

 

 

$

5,548

 

 

$

1,460

 

 

$

235

 

 

$

52,980

 

 

$

149,564

 

Past due 30-89 days

 

 

697

 

 

 

422

 

 

 

238

 

 

 

40

 

 

 

1

 

 

 

8

 

 

 

954

 

 

 

2,360

 

Past due 90 days or more

 

 

49

 

 

 

26

 

 

 

15

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

353

 

 

 

443

 

Nonaccrual

 

 

24

 

 

 

30

 

 

 

77

 

 

 

67

 

 

 

23

 

 

 

—

 

 

 

23

 

 

 

244

 

Total

 

 

46,804

 

 

 

28,239

 

 

 

15,876

 

 

 

5,655

 

 

 

1,484

 

 

 

243

 

 

 

54,310

 

 

 

152,611

 

Current period gross
   charge-offs

 

 

(4,413

)

 

 

(650

)

 

 

(373

)

 

 

(94

)

 

 

(88

)

 

 

—

 

 

 

(2,004

)

 

 

(7,622

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer LHFI

 

$

266,087

 

 

$

318,450

 

 

$

878,848

 

 

$

495,514

 

 

$

175,327

 

 

$

343,396

 

 

$

508,994

 

 

$

2,986,616

 

Total consumer LHFI
   gross charge-offs

 

$

(4,441

)

 

$

(822

)

 

$

(10,045

)

 

$

(240

)

 

$

(103

)

 

$

(167

)

 

$

(2,004

)

 

$

(17,822

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total LHFI

 

$

1,980,709

 

 

$

2,087,863

 

 

$

3,596,016

 

 

$

1,721,390

 

 

$

1,046,108

 

 

$

1,310,685

 

 

$

1,357,340

 

 

$

13,100,111

 

Total current period
   gross charge-offs

 

$

(4,569

)

 

$

(907

)

 

$

(12,997

)

 

$

(3,113

)

 

$

(189

)

 

$

(3,355

)

 

$

(2,089

)

 

$

(27,219

)

 

26

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2023

 

Commercial LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land
   development and other
   land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

359,813

 

 

$

98,742

 

 

$

35,095

 

 

$

10,591

 

 

$

2,036

 

 

$

1,961

 

 

$

52,351

 

 

$

560,589

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

360

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

360

 

Substandard - RR 8

 

 

606

 

 

 

336

 

 

 

1,512

 

 

 

19

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

2,494

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

24

 

 

 

—

 

 

 

24

 

Total

 

 

360,419

 

 

 

99,078

 

 

 

36,967

 

 

 

10,610

 

 

 

2,036

 

 

 

2,006

 

 

 

52,351

 

 

 

563,467

 

Current period gross
   charge-offs

 

 

—

 

 

 

(4

)

 

 

(10

)

 

 

—

 

 

 

(228

)

 

 

—

 

 

 

—

 

 

 

(242

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family
   residential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

33,072

 

 

$

30,760

 

 

$

29,159

 

 

$

14,309

 

 

$

8,084

 

 

$

2,822

 

 

$

10,077

 

 

$

128,283

 

Special Mention - RR 7

 

 

—

 

 

 

82

 

 

 

48

 

 

 

10

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

140

 

Substandard - RR 8

 

 

220

 

 

 

625

 

 

 

157

 

 

 

22

 

 

 

80

 

 

 

306

 

 

 

98

 

 

 

1,508

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

33,292

 

 

 

31,467

 

 

 

29,364

 

 

 

14,341

 

 

 

8,164

 

 

 

3,128

 

 

 

10,175

 

 

 

129,931

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

(24

)

 

 

—

 

 

 

—

 

 

 

(6

)

 

 

—

 

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by nonfarm,
   nonresidential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

501,327

 

 

$

919,519

 

 

$

526,412

 

 

$

596,240

 

 

$

323,687

 

 

$

369,250

 

 

$

129,142

 

 

$

3,365,577

 

Special Mention - RR 7

 

 

4,271

 

 

 

14,930

 

 

 

—

 

 

 

138

 

 

 

23,966

 

 

 

—

 

 

 

—

 

 

 

43,305

 

Substandard - RR 8

 

 

6,332

 

 

 

1,964

 

 

 

47,491

 

 

 

10,809

 

 

 

8,614

 

 

 

5,200

 

 

 

48

 

 

 

80,458

 

Doubtful - RR 9

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

53

 

 

 

13

 

 

 

—

 

 

 

87

 

Total

 

 

511,951

 

 

 

936,413

 

 

 

573,903

 

 

 

607,187

 

 

 

356,320

 

 

 

374,463

 

 

 

129,190

 

 

 

3,489,427

 

Current period gross
   charge-offs

 

 

—

 

 

 

(39

)

 

 

(82

)

 

 

—

 

 

 

(19

)

 

 

(138

)

 

 

—

 

 

 

(278

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

194,141

 

 

$

447,200

 

 

$

332,818

 

 

$

209,757

 

 

$

56,024

 

 

$

11,080

 

 

$

8,880

 

 

$

1,259,900

 

Special Mention - RR 7

 

 

126

 

 

 

2,076

 

 

 

—

 

 

 

—

 

 

 

35,881

 

 

 

—

 

 

 

—

 

 

 

38,083

 

Substandard - RR 8

 

 

—

 

 

 

14,064

 

 

 

—

 

 

 

290

 

 

 

—

 

 

 

39

 

 

 

—

 

 

 

14,393

 

Doubtful - RR 9

 

 

42

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

42

 

Total

 

 

194,309

 

 

 

463,340

 

 

 

332,818

 

 

 

210,047

 

 

 

91,905

 

 

 

11,119

 

 

 

8,880

 

 

 

1,312,418

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

27

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2023

 

Commercial LHFI

 

Other loans secured by real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

179,676

 

 

$

518,062

 

 

$

149,883

 

 

$

14,062

 

 

$

—

 

 

$

6

 

 

$

6,042

 

 

$

867,731

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard - RR 8

 

 

62

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

62

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

179,738

 

 

 

518,062

 

 

 

149,883

 

 

 

14,062

 

 

 

—

 

 

 

6

 

 

 

6,042

 

 

 

867,793

 

Current period gross
   charge-offs

 

 

(61

)

 

 

—

 

 

 

(3,392

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,453

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial
   loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

497,730

 

 

$

474,737

 

 

$

158,659

 

 

$

80,646

 

 

$

31,876

 

 

$

44,972

 

 

$

537,527

 

 

$

1,826,147

 

Special Mention - RR 7

 

 

12,570

 

 

 

10,141

 

 

 

3,149

 

 

 

1,381

 

 

 

110

 

 

 

—

 

 

 

126

 

 

 

27,477

 

Substandard - RR 8

 

 

4,797

 

 

 

16,872

 

 

 

13,909

 

 

 

11,958

 

 

 

40

 

 

 

80

 

 

 

21,528

 

 

 

69,184

 

Doubtful - RR 9

 

 

6

 

 

 

58

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

25

 

 

 

12

 

 

 

102

 

Total

 

 

515,103

 

 

 

501,808

 

 

 

175,718

 

 

 

93,985

 

 

 

32,026

 

 

 

45,077

 

 

 

559,193

 

 

 

1,922,910

 

Current period gross
   charge-offs

 

 

(42

)

 

 

(1,071

)

 

 

(700

)

 

 

(138

)

 

 

(95

)

 

 

(108

)

 

 

(7

)

 

 

(2,161

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and other political
   subdivision loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

152,157

 

 

$

247,034

 

 

$

174,812

 

 

$

99,786

 

 

$

32,118

 

 

$

377,225

 

 

$

5,334

 

 

$

1,088,466

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard - RR 8

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

152,157

 

 

 

247,034

 

 

 

174,812

 

 

 

99,786

 

 

 

32,118

 

 

 

377,225

 

 

 

5,334

 

 

 

1,088,466

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other commercial loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass - RR 1 through RR 6

 

$

211,402

 

 

$

48,947

 

 

$

30,071

 

 

$

21,377

 

 

$

32,837

 

 

$

8,468

 

 

$

201,339

 

 

$

554,441

 

Special Mention - RR 7

 

 

—

 

 

 

—

 

 

 

—

 

 

 

208

 

 

 

—

 

 

 

—

 

 

 

20

 

 

 

228

 

Substandard - RR 8

 

 

106

 

 

 

211

 

 

 

42

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

987

 

 

 

1,346

 

Doubtful - RR 9

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20

 

 

 

—

 

 

 

20

 

Total

 

 

211,508

 

 

 

49,158

 

 

 

30,113

 

 

 

21,585

 

 

 

32,837

 

 

 

8,488

 

 

 

202,346

 

 

 

556,035

 

Current period gross
   charge-offs

 

 

(40

)

 

 

(248

)

 

 

—

 

 

 

(26

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(314

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial
   LHFI

 

$

2,158,477

 

 

$

2,846,360

 

 

$

1,503,578

 

 

$

1,071,603

 

 

$

555,406

 

 

$

821,512

 

 

$

973,511

 

 

$

9,930,447

 

Total commercial LHFI
   gross charge-offs

 

$

(143

)

 

$

(1,362

)

 

$

(4,208

)

 

$

(164

)

 

$

(342

)

 

$

(252

)

 

$

(7

)

 

$

(6,478

)

 

28

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2023

 

Consumer LHFI

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land
   development and other
   land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

44,912

 

 

$

23,110

 

 

$

5,973

 

 

$

1,203

 

 

$

1,082

 

 

$

1,864

 

 

$

653

 

 

$

78,797

 

Past due 30-89 days

 

 

—

 

 

 

250

 

 

 

—

 

 

 

—

 

 

 

30

 

 

 

191

 

 

 

—

 

 

 

471

 

Past due 90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nonaccrual

 

 

—

 

 

 

—

 

 

 

148

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

151

 

Total

 

 

44,912

 

 

 

23,360

 

 

 

6,121

 

 

 

1,203

 

 

 

1,112

 

 

 

2,058

 

 

 

653

 

 

 

79,419

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other secured by 1-4 family
   residential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

29,636

 

 

$

11,366

 

 

$

5,733

 

 

$

4,471

 

 

$

4,313

 

 

$

7,674

 

 

$

417,383

 

 

$

480,576

 

Past due 30-89 days

 

 

225

 

 

 

68

 

 

 

74

 

 

 

4

 

 

 

51

 

 

 

220

 

 

 

4,292

 

 

 

4,934

 

Past due 90 days or more

 

 

—

 

 

 

264

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41

 

 

 

934

 

 

 

1,239

 

Nonaccrual

 

 

8

 

 

 

76

 

 

 

48

 

 

 

8

 

 

 

—

 

 

 

616

 

 

 

4,961

 

 

 

5,717

 

Total

 

 

29,869

 

 

 

11,774

 

 

 

5,855

 

 

 

4,483

 

 

 

4,364

 

 

 

8,551

 

 

 

427,570

 

 

 

492,466

 

Current period gross
   charge-offs

 

 

—

 

 

 

(100

)

 

 

(9

)

 

 

(2

)

 

 

(10

)

 

 

(22

)

 

 

(147

)

 

 

(290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by nonfarm,
   nonresidential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

—

 

 

$

—

 

 

$

7

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

7

 

Past due 30-89 days

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Past due 90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nonaccrual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

 

—

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

—

 

 

$

—

 

 

$

—

 

 

$

78

 

 

$

—

 

 

$

55

 

 

$

—

 

 

$

133

 

Past due 30-89 days

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Past due 90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nonaccrual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

 

—

 

 

 

—

 

 

 

78

 

 

 

—

 

 

 

55

 

 

 

—

 

 

 

133

 

Current period gross
   charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

29

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2023

 

Consumer LHFI

 

Other loans secured by real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured by 1-4 family
   residential properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

258,800

 

 

$

878,893

 

 

$

516,324

 

 

$

180,272

 

 

$

98,552

 

 

$

277,664

 

 

$

—

 

 

$

2,210,505

 

Past due 30-89 days

 

 

3,370

 

 

 

11,293

 

 

 

5,513

 

 

 

2,121

 

 

 

298

 

 

 

1,664

 

 

 

—

 

 

 

24,259

 

Past due 90 days or more

 

 

376

 

 

 

1,219

 

 

 

1,208

 

 

 

682

 

 

 

—

 

 

 

255

 

 

 

—

 

 

 

3,740

 

Nonaccrual

 

 

678

 

 

 

15,586

 

 

 

11,452

 

 

 

4,884

 

 

 

1,848

 

 

 

9,366

 

 

 

—

 

 

 

43,814

 

Total

 

 

263,224

 

 

 

906,991

 

 

 

534,497

 

 

 

187,959

 

 

 

100,698

 

 

 

288,949

 

 

 

—

 

 

 

2,282,318

 

Current period gross
   charge-offs

 

 

(64

)

 

 

(930

)

 

 

(217

)

 

 

(104

)

 

 

—

 

 

 

(142

)

 

 

—

 

 

 

(1,457

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

59,496

 

 

$

32,767

 

 

$

10,698

 

 

$

2,604

 

 

$

917

 

 

$

294

 

 

$

55,321

 

 

$

162,097

 

Past due 30-89 days

 

 

1,274

 

 

 

475

 

 

 

134

 

 

 

34

 

 

 

5

 

 

 

5

 

 

 

839

 

 

 

2,766

 

Past due 90 days or more

 

 

64

 

 

 

44

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

516

 

 

 

628

 

Nonaccrual

 

 

44

 

 

 

65

 

 

 

84

 

 

 

26

 

 

 

—

 

 

 

—

 

 

 

24

 

 

 

243

 

Total

 

 

60,878

 

 

 

33,351

 

 

 

10,919

 

 

 

2,665

 

 

 

922

 

 

 

299

 

 

 

56,700

 

 

 

165,734

 

Current period gross
   charge-offs

 

 

(6,138

)

 

 

(559

)

 

 

(167

)

 

 

(43

)

 

 

(1

)

 

 

(1

)

 

 

(2,381

)

 

 

(9,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer LHFI

 

$

398,883

 

 

$

975,476

 

 

$

557,399

 

 

$

196,388

 

 

$

107,096

 

 

$

299,912

 

 

$

484,923

 

 

$

3,020,077

 

Total consumer LHFI
   gross charge-offs

 

$

(6,202

)

 

$

(1,589

)

 

$

(393

)

 

$

(149

)

 

$

(11

)

 

$

(165

)

 

$

(2,528

)

 

$

(11,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total LHFI

 

$

2,557,360

 

 

$

3,821,836

 

 

$

2,060,977

 

 

$

1,267,991

 

 

$

662,502

 

 

$

1,121,424

 

 

$

1,458,434

 

 

$

12,950,524

 

Total current period
   gross charge-offs

 

$

(6,345

)

 

$

(2,951

)

 

$

(4,601

)

 

$

(313

)

 

$

(353

)

 

$

(417

)

 

$

(2,535

)

 

$

(17,515

)

 

Past Due LHFS

LHFS past due 90 days or more totaled $63.7 million and $51.2 million at September 30, 2024 and December 31, 2023, respectively. LHFS past due 90 days or more are serviced loans eligible for repurchase, which are fully guaranteed by the Government National Mortgage Association (GNMA). GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings.

Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first nine months of 2024 or 2023.

ACL on LHFI

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

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

30

 

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

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

 

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

 

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

 

The state and other political subdivision LHFI and the other commercial LHFI and leases portfolio segments primarily consist of loans to non-depository financial institutions, such as mortgage companies, finance companies and other financial intermediaries, loans to state and political subdivisions, and loans to non-profit and charitable organizations. These loans are underwritten based on the specific nature or purpose of the loan and underlying collateral with special consideration given to the specific source of repayment for the loan. The lease segment primarily consists of commercial equipment finance leases. Trustmark’s credit underwriting process for equipment finance leases includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information and evaluation of underlying collateral to support the credit.

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

31

 

The following table provides a description of each of Trustmark’s portfolio segments, loan classes, loan pools and the ACL methodology and loss drivers at September 30, 2024:

Portfolio Segment

 

Loan Class

 

Loan Pool

 

Methodology

 

Loss Drivers

Loans secured by real estate

 

Construction, land
   development and other land

 

1-4 family residential
   construction

 

DCF

 

National HPI, National Unemployment

 

 

 

 

Lots and development

 

DCF

 

National HPI, National Unemployment

 

 

 

 

Unimproved land

 

DCF

 

National HPI, National Unemployment

 

 

 

 

All other consumer

 

DCF

 

National HPI, National Unemployment

 

 

Other secured by 1-4
   family residential properties

 

Consumer 1-4 family - 1st liens

 

DCF

 

National HPI, National Unemployment

 

 

 

 

All other consumer

 

DCF

 

National HPI, National Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National CRE Price Index

 

 

Secured by nonfarm,
   nonresidential properties

 

Nonowner-occupied -
   hotel/motel

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonowner-occupied - office

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonowner-occupied- Retail

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonowner-occupied - senior
   living/nursing homes

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonowner-occupied -
   all other

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National CRE Price Index

 

 

Other real estate secured

 

Nonresidential nonowner
   -occupied - apartments

 

DCF

 

National CRE Price Index, Southern Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National CRE Price Index

 

 

 

 

Nonowner-occupied -
   all other

 

DCF

 

National CRE Price Index, Southern Unemployment

Other loans secured by
   real estate

 

Other construction

 

Other construction

 

DCF

 

National CRE Price Index, National Unemployment, BBB 7-10 US CBI

 

 

Secured by 1-4 family
   residential properties

 

Trustmark mortgage

 

WARM

 

Southern Unemployment

 

 

 

32

 

Portfolio Segment

 

Loan Class

 

Loan Pool

 

Methodology

 

Loss Drivers

Commercial and
   industrial loans

 

Commercial and
   industrial loans

 

Commercial and industrial -
   non-working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Commercial and industrial -
   working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Equipment finance loans

 

WARM

 

Southern Unemployment, National GDP

 

 

 

 

Credit cards

 

WARM

 

Trustmark call report data

Consumer loans

 

Consumer loans

 

Credit cards

 

WARM

 

Trustmark call report data

 

 

 

 

Overdrafts

 

Loss Rate

 

Trustmark historical data

 

 

 

 

All other consumer

 

DCF

 

National HPI, National Unemployment

State and other political
   subdivision loans

 

State and other political
   subdivision loans

 

Obligations of state and
   political subdivisions

 

DCF

 

Moody's Bond Default Study

Other commercial loans and leases

 

Other commercial loans and leases

 

Other loans

 

DCF

 

BBB 7-10 US CBI, Southern Unemployment

 

 

 

 

Commercial and industrial -
   non-working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Commercial and industrial -
   working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Equipment finance leases

 

WARM

 

Southern Unemployment, National GDP

 

33

 

 

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

 

Portfolio Segment

 

Loan Class

 

Loan Pool

 

Methodology

 

Loss Drivers

Loans secured by real estate

 

Construction, land
   development and other land

 

1-4 family residential
   construction

 

DCF

 

Prime Rate, National GDP

 

 

 

 

Lots and development

 

DCF

 

Prime Rate, Southern Unemployment

 

 

 

 

Unimproved land

 

DCF

 

Prime Rate, Southern Unemployment

 

 

 

 

All other consumer

 

DCF

 

Southern Unemployment

 

 

Other secured by 1-4
   family residential
   properties

 

Consumer 1-4 family - 1st liens

 

DCF

 

Prime Rate, Southern Unemployment

 

 

 

 

All other consumer

 

DCF

 

Southern Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National GDP

 

 

Secured by nonfarm,
   nonresidential properties

 

Nonowner-occupied -
   hotel/motel

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonowner-occupied - office

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonowner-occupied- Retail

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonowner-occupied - senior
   living/nursing homes

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonowner-occupied -
   all other

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National GDP

 

 

Other real estate secured

 

Nonresidential nonowner
   -occupied - apartments

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

 

 

 

 

Nonresidential owner-occupied

 

DCF

 

Southern Unemployment, National GDP

 

 

 

 

Nonowner-occupied -
   all other

 

DCF

 

Southern Vacancy Rate, Southern Unemployment

Other loans secured by
   real estate

 

Other construction

 

Other construction

 

DCF

 

Prime Rate, National Unemployment

 

 

Secured by 1-4 family
   residential properties

 

Trustmark mortgage

 

WARM

 

Southern Unemployment

Commercial and
   industrial loans

 

Commercial and
   industrial loans

 

Commercial and industrial -
   non-working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Commercial and industrial -
   working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Equipment finance loans

 

WARM

 

Southern Unemployment, Southern GDP

 

 

 

 

Credit cards

 

WARM

 

Trustmark call report data

Consumer loans

 

Consumer loans

 

Credit cards

 

WARM

 

Trustmark call report data

 

 

 

 

Overdrafts

 

Loss Rate

 

Trustmark historical data

 

 

 

 

All other consumer

 

DCF

 

Southern Unemployment

State and other political
   subdivision loans

 

State and other political
   subdivision loans

 

Obligations of state and
   political subdivisions

 

DCF

 

Moody's Bond Default Study

Other commercial loans and leases

 

Other commercial loans and leases

 

Other loans

 

DCF

 

Prime Rate, Southern Unemployment

 

 

 

 

Commercial and industrial -
   non-working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Commercial and industrial -
   working capital

 

DCF

 

Trustmark historical data

 

 

 

 

Equipment finance leases

 

WARM

 

Southern Unemployment, Southern GDP

 

34

 


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

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

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

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

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

 

During the second quarter of 2024, Trustmark executed a sale on a portfolio of 1-4 family mortgage loans that were at least three payments delinquent and/or nonaccrual at the time of selection. As a result of this sale, a credit mark was established for a sub-pool of the loans in the sale. Due to the lack of historical experience and the use of industry data for this sub-pool, management elected to use the credit mark for reserving purposes on a go forward basis for this sub-pool that meets the same credit criteria of being three payments delinquent and/or nonaccrual. All loans of the sub-pool that meet the above credit criteria will be removed from the 1-4 family residential properties pool and placed into a separate pool with the credit mark reserve applied to the total balance.

 

Trustmark determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Trustmark uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans. The econometric models currently in production reflect segment or pool level sensitivities of PD to changes in macroeconomic variables. By measuring the relationship between defaults and changes in the economy, the quantitative reserve incorporates reasonable and supportable forecasts of future conditions that will affect the value of Trustmark’s assets, as required by FASB ASC Topic 326. Under stable forecasts, these linear regressions will reasonably predict a pool’s PD. However, due to the COVID-19 pandemic, the macroeconomic variables used for reasonable and supportable forecasting changed rapidly. At the macroeconomic levels experienced during the COVID-19 pandemic, it was not clear that the models in production would produce reasonably representative results since the models were originally estimated using data beginning in 2004 through 2019. During this period, a traditional, albeit severe, economic recession occurred. Thus, econometric models are sensitive to similar future levels of PD.

 

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), National Home Price Index (HPI),

35

 

National Commercial Real Estate (CRE) Price Index and the BBB 7-10 Year US Corporate Bond Index (CBI). The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1stand 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or LGD at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark’s historical loss experience and applied at a portfolio level.

Qualitative factors used in the ACL methodology include the following:

•
Lending policies and procedures
•
Economic conditions and concentrations of credit
•
Nature and volume of the portfolio
•
Performance trends
•
External factors

 

While all these factors are incorporated into the overall methodology, only four are currently considered active at September 30, 2024: (i) economic conditions and concentrations of credit, (ii) nature and volume of the portfolio, (iii) performance trends and (iv) external factors.

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

 

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

 

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

 

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

 

The external factors qualitative factor is Management’s best judgment on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (e.g., natural disasters, changes in legislation, impacts due to technology and pandemics). During the third quarter of 2024, Trustmark activated the External Factor – Credit Quality Review qualitative factor. This qualitative factor ensures reserve adequacy for collectively evaluated commercial loans that may not have been identified and downgraded timely for various reasons. This qualitative factor population is all commercial loans risk rated 1-5. These loans are then applied to the historical average of the Watch/Special Mention rated percentage. Then the balance of these loans are applied additional reserves based on the same reserve rates utilized in the performance trends qualitative factor for Watch/Special Mention rated loans. Then the Watch/Special Mention population is applied the historical Substandard rated percentage and then subsequently applied the Substandard reserve rate utilized in the performance trends qualitative factor as well. The historical Watch/Special Mention and Substandard rated percentage averages captures the weighted average life of the commercial loan portfolio.

36

 

Thus, Trustmark will allocate additional reserves to capture the proportion of potential Watch/Special Mention and Substandard rated credits that may not have been categorized as such at any given point in time through the life of the commercial loan portfolio.

The following tables disaggregate the ACL and the amortized cost basis of the loans by the measurement methodology used at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

 

ACL

 

 

LHFI

 

 

 

Individually Evaluated for Credit Loss

 

 

Collectively Evaluated for Credit Loss

 

 

Total

 

 

Individually Evaluated for Credit Loss

 

 

Collectively Evaluated for Credit Loss

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

—

 

 

$

6,121

 

 

$

6,121

 

 

$

—

 

 

 

614,787

 

 

$

614,787

 

Other secured by 1-4 family residential
   properties

 

 

—

 

 

 

10,729

 

 

 

10,729

 

 

 

870

 

 

 

646,973

 

 

 

647,843

 

Secured by nonfarm, nonresidential
   properties

 

 

—

 

 

 

36,287

 

 

 

36,287

 

 

 

10,558

 

 

 

3,571,994

 

 

 

3,582,552

 

Other real estate secured

 

 

—

 

 

 

13,071

 

 

 

13,071

 

 

 

1,989

 

 

 

1,473,809

 

 

 

1,475,798

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

—

 

 

 

13,841

 

 

 

13,841

 

 

 

—

 

 

 

973,469

 

 

 

973,469

 

Secured by 1-4 family residential
   properties

 

 

—

 

 

 

31,742

 

 

 

31,742

 

 

 

1,577

 

 

 

2,245,586

 

 

 

2,247,163

 

Commercial and industrial loans

 

 

16,390

 

 

 

16,155

 

 

 

32,545

 

 

 

29,640

 

 

 

1,737,439

 

 

 

1,767,079

 

Consumer loans

 

 

—

 

 

 

5,699

 

 

 

5,699

 

 

 

—

 

 

 

152,611

 

 

 

152,611

 

State and other political subdivision loans

 

 

—

 

 

 

1,166

 

 

 

1,166

 

 

 

—

 

 

 

996,002

 

 

 

996,002

 

Other commercial loans and leases

 

 

896

 

 

 

5,832

 

 

 

6,728

 

 

 

906

 

 

 

641,901

 

 

 

642,807

 

Total

 

$

17,286

 

 

$

140,643

 

 

$

157,929

 

 

$

45,540

 

 

$

13,054,571

 

 

$

13,100,111

 

 

 

 

December 31, 2023

 

 

 

ACL

 

 

LHFI

 

 

 

Individually Evaluated for Credit Loss

 

 

Collectively Evaluated for Credit Loss

 

 

Total

 

 

Individually Evaluated for Credit Loss

 

 

Collectively Evaluated for Credit Loss

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

—

 

 

$

17,192

 

 

$

17,192

 

 

$

2,020

 

 

$

640,866

 

 

$

642,886

 

Other secured by 1-4 family residential
   properties

 

 

—

 

 

 

12,942

 

 

 

12,942

 

 

 

946

 

 

 

621,451

 

 

 

622,397

 

Secured by nonfarm, nonresidential
   properties

 

 

—

 

 

 

24,043

 

 

 

24,043

 

 

 

20,812

 

 

 

3,468,622

 

 

 

3,489,434

 

Other real estate secured

 

 

—

 

 

 

4,488

 

 

 

4,488

 

 

 

—

 

 

 

1,312,551

 

 

 

1,312,551

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

—

 

 

 

5,758

 

 

 

5,758

 

 

 

—

 

 

 

867,793

 

 

 

867,793

 

Secured by 1-4 family residential
   properties

 

 

—

 

 

 

34,794

 

 

 

34,794

 

 

 

3,235

 

 

 

2,279,083

 

 

 

2,282,318

 

Commercial and industrial loans

 

 

11,436

 

 

 

15,202

 

 

 

26,638

 

 

 

21,102

 

 

 

1,901,808

 

 

 

1,922,910

 

Consumer loans

 

 

—

 

 

 

5,794

 

 

 

5,794

 

 

 

—

 

 

 

165,734

 

 

 

165,734

 

State and other political subdivision loans

 

 

—

 

 

 

646

 

 

 

646

 

 

 

—

 

 

 

1,088,466

 

 

 

1,088,466

 

Other commercial loans and leases

 

 

967

 

 

 

6,105

 

 

 

7,072

 

 

 

967

 

 

 

555,068

 

 

 

556,035

 

Total

 

$

12,403

 

 

$

126,964

 

 

$

139,367

 

 

$

49,082

 

 

$

12,901,442

 

 

$

12,950,524

 

 

37

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

154,685

 

 

$

129,298

 

 

$

139,367

 

 

$

120,214

 

Loans charged-off, sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

(8,633

)

 

 

—

 

Loans charged-off

 

 

(7,142

)

 

 

(7,496

)

 

 

(18,586

)

 

 

(13,265

)

Recoveries

 

 

2,463

 

 

 

3,907

 

 

 

6,821

 

 

 

7,305

 

Net (charge-offs) recoveries

 

 

(4,679

)

 

 

(3,589

)

 

 

(20,398

)

 

 

(5,960

)

PCL, LHFI

 

 

7,923

 

 

 

8,322

 

 

 

30,327

 

 

 

19,777

 

PCL, LHFI sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

8,633

 

 

 

—

 

Balance at end of period

 

$

157,929

 

 

$

134,031

 

 

$

157,929

 

 

$

134,031

 

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

 

 

Three Months Ended September 30, 2024

 

 

 

Balance at Beginning of Period

 

 

Charge-offs

 

 

Recoveries

 

 

PCL

 

 

Balance at
End of
Period

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

5,101

 

 

$

(8

)

 

$

614

 

 

$

414

 

 

$

6,121

 

Other secured by 1-4 family residential properties

 

 

10,373

 

 

 

(201

)

 

 

55

 

 

 

502

 

 

 

10,729

 

Secured by nonfarm, nonresidential properties

 

 

41,136

 

 

 

—

 

 

 

20

 

 

 

(4,869

)

 

 

36,287

 

Other real estate secured

 

 

12,037

 

 

 

—

 

 

 

—

 

 

 

1,034

 

 

 

13,071

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

13,897

 

 

 

—

 

 

 

69

 

 

 

(125

)

 

 

13,841

 

Secured by 1-4 family residential properties

 

 

30,647

 

 

 

(632

)

 

 

16

 

 

 

1,711

 

 

 

31,742

 

Commercial and industrial loans

 

 

28,735

 

 

 

(3,611

)

 

 

193

 

 

 

7,228

 

 

 

32,545

 

Consumer loans

 

 

5,645

 

 

 

(2,690

)

 

 

1,496

 

 

 

1,248

 

 

 

5,699

 

State and other political subdivision loans

 

 

625

 

 

 

—

 

 

 

—

 

 

 

541

 

 

 

1,166

 

Other commercial loans and leases

 

 

6,489

 

 

 

—

 

 

 

—

 

 

 

239

 

 

 

6,728

 

Total

 

$

154,685

 

 

$

(7,142

)

 

$

2,463

 

 

$

7,923

 

 

$

157,929

 

 

The PCL, LHFI for the commercial and industrial portfolio for the three months ended September 30, 2024 was primarily due to an increase in specific reserves on individually analyzed credits. The PCL, LHFI for all other portfolios for the three months ended September 30, 2024 was primarily due to net changes in the qualitative factors.

The negative PCL, LHFI for the secured by nonfarm, nonresidential properties portfolio for the three months ended September 30, 2024 was primarily due to changes in the macroeconomic forecast.

 

 

 

Three Months Ended September 30, 2023

 

 

 

Balance at Beginning of Period

 

 

Charge-offs

 

 

Recoveries

 

 

PCL

 

 

Balance at
End of
Period

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

15,343

 

 

$

(228

)

 

$

22

 

 

$

2,104

 

 

$

17,241

 

Other secured by 1-4 family residential properties

 

 

12,173

 

 

 

(110

)

 

 

43

 

 

 

457

 

 

 

12,563

 

Secured by nonfarm, nonresidential properties

 

 

20,376

 

 

 

(192

)

 

 

2,216

 

 

 

898

 

 

 

23,298

 

Other real estate secured

 

 

3,481

 

 

 

—

 

 

 

—

 

 

 

84

 

 

 

3,565

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

14,377

 

 

 

(3,453

)

 

 

15

 

 

 

(4,633

)

 

 

6,306

 

Secured by 1-4 family residential properties

 

 

28,555

 

 

 

(448

)

 

 

7

 

 

 

2,030

 

 

 

30,144

 

Commercial and industrial loans

 

 

23,170

 

 

 

(635

)

 

 

267

 

 

 

953

 

 

 

23,755

 

Consumer loans

 

 

5,540

 

 

 

(2,421

)

 

 

1,337

 

 

 

1,348

 

 

 

5,804

 

State and other political subdivision loans

 

 

676

 

 

 

—

 

 

 

—

 

 

 

(11

)

 

 

665

 

Other commercial loans and leases

 

 

5,607

 

 

 

(9

)

 

 

—

 

 

 

5,092

 

 

 

10,690

 

Total

 

$

129,298

 

 

$

(7,496

)

 

$

3,907

 

 

$

8,322

 

 

$

134,031

 

The increases in the PCL, LHFI for the three months ended September 30, 2023 were primarily attributable to an individually evaluated and reserved for nonaccrual loan, loan growth, the weakening macroeconomic forecasts and the net adjustment to the qualitative factors.

38

 

The PCL, LHFI for the other construction portfolio decreased $4.6 million during the three months ended September 30, 2023 primarily due to the transfer of a fully-reserved nonaccrual loan to other real estate, net.

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Balance at Beginning of Period

 

 

Charge-offs

 

 

Recoveries

 

 

PCL

 

 

Balance at
End of
Period

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

17,192

 

 

$

(32

)

 

$

622

 

 

$

(11,661

)

 

$

6,121

 

Other secured by 1-4 family residential properties

 

 

12,942

 

 

 

(381

)

 

 

568

 

 

 

(2,400

)

 

 

10,729

 

Secured by nonfarm, nonresidential properties

 

 

24,043

 

 

 

(2,428

)

 

 

46

 

 

 

14,626

 

 

 

36,287

 

Other real estate secured

 

 

4,488

 

 

 

—

 

 

 

—

 

 

 

8,583

 

 

 

13,071

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

5,758

 

 

 

(2,494

)

 

 

341

 

 

 

10,236

 

 

 

13,841

 

Secured by 1-4 family residential properties

 

 

34,794

 

 

 

(9,823

)

 

 

81

 

 

 

6,690

 

 

 

31,742

 

Commercial and industrial loans

 

 

26,638

 

 

 

(4,386

)

 

 

663

 

 

 

9,630

 

 

 

32,545

 

Consumer loans

 

 

5,794

 

 

 

(7,622

)

 

 

4,448

 

 

 

3,079

 

 

 

5,699

 

State and other political subdivision loans

 

 

646

 

 

 

—

 

 

 

—

 

 

 

520

 

 

 

1,166

 

Other commercial loans and leases

 

 

7,072

 

 

 

(53

)

 

 

52

 

 

 

(343

)

 

 

6,728

 

Total

 

$

139,367

 

 

$

(27,219

)

 

$

6,821

 

 

$

38,960

 

 

$

157,929

 

 

The PCL, LHFI for the secured by nonfarm, nonresidential properties, other construction and other real estate secured portfolios for the nine months ended September 30, 2024 was primarily due to changes in the macroeconomic forecast associated with these specific loss driver models as a result of the loss driver update, coupled with net adjustments to the qualitative factors due to credit migration and loan growth. The PCL, LHFI for the secured by 1-4 family residential properties portfolio for the nine months ended September 30, 2024 was primarily due to adjustments to the Nature and Volume of Portfolio qualitative factor, coupled with implementing the credit mark reserve as a result of the mortgage loan sale. The PCL, LHFI for the commercial and industrial portfolio for the nine months ended September 30, 2024 was primarily due to net adjustments to the qualitative factors due to credit migration coupled with an increase in specific reserves for individually analyzed credits.

 

The negative PCL, LHFI for the construction, land development and other land, other secured by 1-4 family residential properties, and other commercial loans and leases portfolios for the nine months ended September 30, 2024 was primarily due to changes in the macroeconomic forecast associated with these specific loss driver models as a result of the loss driver update for these loan portfolios.

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Balance at Beginning of Period

 

 

Charge-offs

 

 

Recoveries

 

 

PCL

 

 

Balance at
End of
Period

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

12,828

 

 

$

(242

)

 

$

94

 

 

$

4,561

 

 

$

17,241

 

Other secured by 1-4 family residential properties

 

 

12,374

 

 

 

(230

)

 

 

165

 

 

 

254

 

 

 

12,563

 

Secured by nonfarm, nonresidential properties

 

 

19,488

 

 

 

(278

)

 

 

2,322

 

 

 

1,766

 

 

 

23,298

 

Other real estate secured

 

 

4,743

 

 

 

—

 

 

 

5

 

 

 

(1,183

)

 

 

3,565

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

15,132

 

 

 

(3,453

)

 

 

63

 

 

 

(5,436

)

 

 

6,306

 

Secured by 1-4 family residential properties

 

 

21,185

 

 

 

(903

)

 

 

27

 

 

 

9,835

 

 

 

30,144

 

Commercial and industrial loans

 

 

23,140

 

 

 

(1,562

)

 

 

754

 

 

 

1,423

 

 

 

23,755

 

Consumer loans

 

 

5,792

 

 

 

(6,565

)

 

 

3,875

 

 

 

2,702

 

 

 

5,804

 

State and other political subdivision loans

 

 

885

 

 

 

—

 

 

 

—

 

 

 

(220

)

 

 

665

 

Other commercial loans and leases

 

 

4,647

 

 

 

(32

)

 

 

—

 

 

 

6,075

 

 

 

10,690

 

Total

 

$

120,214

 

 

$

(13,265

)

 

$

7,305

 

 

$

19,777

 

 

$

134,031

 

The increases in the PCL, LHFI for the nine months ended September 30, 2023 were primarily attributable to loan growth, extended maturities on the secured by 1-4 family residential properties resulting from lower prepayment speeds, the weakening macroeconomic forecast and net adjustments to the qualitative factors.

The PCL, LHFI for the other construction portfolio decreased $5.4 million during the nine months ended September 30, 2023 primarily due to the transfer of a fully-reserved nonaccrual loan to other real estate, net. The PCL, LHFI for the other real estate secured portfolio decreased $1.2 million during the nine months ended September 30, 2023 primarily due to reductions in the pandemic qualitative factor.

39

 

 

 

Note 5 – Mortgage Banking

MSR

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

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

131,870

 

 

$

129,677

 

Origination of servicing assets

 

 

9,419

 

 

 

11,025

 

Change in fair value:

 

 

 

 

 

 

Due to market changes

 

 

(6,909

)

 

 

8,735

 

Due to run-off

 

 

(8,527

)

 

 

(7,058

)

Balance at end of period

 

$

125,853

 

 

$

142,379

 

 

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, the float rate, which is the interest rate earned on escrow balances, and the discount rate as some of the primary assumptions used 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. An increase in the float rate will result in an increase in the fair value of the MSR, while a decrease in the float rate will result in a decrease in the fair value of the MSR. At September 30, 2024, the fair value of the MSR included an assumed average prepayment speed of 9 CPR and an average discount rate of 10.64% compared to an assumed average prepayment speed of 8 CPR and an average discount rate of 10.07% at September 30, 2023.

Mortgage Loans Serviced/Sold

During the first nine months of 2024 and 2023, Trustmark sold $843.6 million and $893.0 million, respectively, of residential mortgage loans. Gains on these sales were recorded as noninterest income in mortgage banking, net and totaled $14.8 million for the first nine months of 2024 compared to $11.4 million for the first nine months of 2023.

The table below details the mortgage loans sold and serviced for others at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Federal National Mortgage Association

 

$

4,832,202

 

 

$

4,826,028

 

Government National Mortgage Association

 

 

3,644,092

 

 

 

3,510,983

 

Federal Home Loan Mortgage Corporation

 

 

183,520

 

 

 

112,352

 

Other

 

 

31,424

 

 

 

28,012

 

Total mortgage loans sold and serviced for others

 

$

8,691,238

 

 

$

8,477,375

 

 

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 Representations and Warranties Framework, 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. The total mortgage loan servicing putback expenses are included in other expense. At both September 30, 2024 and 2023, Trustmark had a reserve for mortgage loan servicing putback expenses of $500 thousand.

40

 

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 6 – Other Real Estate

At September 30, 2024, Trustmark’s geographic other real estate distribution was concentrated in its Alabama, Mississippi and Texas market regions. The ultimate recovery of a substantial portion of the carrying amount of other real estate is susceptible to changes in market conditions in this area.

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

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

6,867

 

 

$

1,986

 

Additions

 

 

4,703

 

 

 

5,434

 

Disposals

 

 

(5,609

)

 

 

(1,903

)

(Write-downs) recoveries

 

 

(2,041

)

 

 

(32

)

Balance at end of period

 

$

3,920

 

 

$

5,485

 

 

 

 

 

 

 

 

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

 

$

(1,054

)

 

$

(159

)

 

At September 30, 2024 and December 31, 2023, other real estate by type of property consisted of the following ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

1-4 family residential properties

 

$

1,629

 

 

$

1,977

 

Nonfarm, nonresidential properties

 

 

2,291

 

 

 

4,835

 

Other real estate properties

 

 

—

 

 

 

55

 

Total other real estate

 

$

3,920

 

 

$

6,867

 

 

At September 30, 2024 and December 31, 2023, other real estate by geographic location consisted of the following ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Alabama

 

$

170

 

 

$

1,397

 

Mississippi (1)

 

 

1,772

 

 

 

1,242

 

Texas

 

 

1,978

 

 

 

4,228

 

Total other real estate

 

$

3,920

 

 

$

6,867

 

(1)
Mississippi includes Central and Southern Mississippi Regions.
(2)
Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

At September 30, 2024, the balance of other real estate included $1.6 million of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property compared to $2.0 million at December 31, 2023. At September 30, 2024 and December 31, 2023, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $7.7 million and $6.4 million, respectively.

 

41

 

 

Note 7 – Leases

Lessor Arrangements

Trustmark leases certain types of machinery and equipment to its customers through sales-type and direct financing leases as part of its equipment financing portfolio. These leases generally have remaining lease terms of two to eight years, some of which include renewal options and/or options for the lessee to purchase the leased property near or at the end of the lease term. Trustmark recognized interest income from its sales-type and direct financing leases of $3.6 million and $9.1 million for the three and nine months ended September 30, 2024, respectively. Trustmark does not have any significant operating leases in which it is the lessor.

The table below summarizes the components of Trustmark's net investment in its sales-type and direct financing leases for the periods presented ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Leases receivable

 

$

285,239

 

 

$

161,319

 

Unearned income

 

 

(48,170

)

 

 

(29,011

)

Initial direct costs

 

 

2,455

 

 

 

1,326

 

Unguaranteed lease residual

 

 

8,209

 

 

 

4,101

 

Total net investment

 

$

247,733

 

 

$

137,735

 

The table below details the minimum future lease payments for Trustmark's leases receivable at September 30, 2024 ($ in thousands):

 

 

 

September 30, 2024

 

2024 (excluding the nine months ended September 30, 2024)

 

$

13,948

 

2025

 

 

49,378

 

2026

 

 

48,274

 

2027

 

 

60,828

 

2028

 

 

49,986

 

Thereafter

 

 

62,825

 

Lease receivable

 

$

285,239

 

Lessee Arrangements

For Trustmark's lessee arrangements, the leases of FBBI are included in discontinued operations, and as a result, have been excluded from the amounts below. Prior period amounts have been reclassified. The following table details the components of net lease cost for the periods presented ($ in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Finance leases:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

$

113

 

 

$

113

 

 

$

339

 

 

$

673

 

Interest on lease liabilities

 

 

37

 

 

 

41

 

 

 

113

 

 

 

124

 

Operating lease cost

 

 

1,344

 

 

 

1,258

 

 

 

3,756

 

 

 

3,566

 

Short-term lease cost

 

 

61

 

 

 

51

 

 

 

173

 

 

 

181

 

Variable lease cost

 

 

218

 

 

 

192

 

 

 

623

 

 

 

639

 

Sublease income

 

 

(58

)

 

 

(3

)

 

 

(63

)

 

 

(9

)

Net lease cost

 

$

1,715

 

 

$

1,652

 

 

$

4,941

 

 

$

5,174

 

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

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Finance leases:

 

 

 

 

 

 

Operating cash flows included in operating activities

 

$

113

 

 

$

124

 

Financing cash flows included in payments under finance lease obligations

 

 

315

 

 

 

627

 

Operating leases:

 

 

 

 

 

 

Operating cash flows (fixed payments) included in other operating activities, net

 

 

3,535

 

 

 

3,022

 

Operating cash flows (liability reduction) included in other operating activities, net

 

 

2,515

 

 

 

2,425

 

 

42

 

The following table details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Finance lease right-of-use assets, net of accumulated depreciation

 

$

3,412

 

 

$

3,751

 

Finance lease liabilities

 

 

4,019

 

 

 

4,334

 

Operating lease right-of-use assets

 

 

36,034

 

 

 

35,711

 

Operating lease liabilities

 

 

39,689

 

 

 

39,097

 

 

 

 

 

 

 

 

Weighted-average lease term:

 

 

 

 

 

 

Finance leases

 

7.60 years

 

 

8.34 years

 

Operating leases

 

9.50 years

 

 

10.28 years

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

Finance leases

 

 

3.61

%

 

 

3.61

%

Operating leases

 

 

3.72

%

 

 

3.67

%

 

At September 30, 2024, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):

 

 

 

Finance Leases

 

 

Operating Leases

 

2024 (excluding the nine months ended September 30, 2024)

 

$

145

 

 

$

1,312

 

2025

 

 

584

 

 

 

5,292

 

2026

 

 

589

 

 

 

5,169

 

2027

 

 

594

 

 

 

5,202

 

2028

 

 

599

 

 

 

4,831

 

Thereafter

 

 

2,086

 

 

 

25,922

 

Total minimum lease payments

 

 

4,597

 

 

 

47,728

 

Less imputed interest

 

 

(578

)

 

 

(8,039

)

Lease liabilities

 

$

4,019

 

 

$

39,689

 

 

Note 8 – Deposits

At September 30, 2024 and December 31, 2023, deposits consisted of the following ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Noninterest-bearing demand

 

$

3,142,792

 

 

$

3,197,620

 

Interest-bearing demand

 

 

5,423,462

 

 

 

4,947,626

 

Savings

 

 

3,335,686

 

 

 

4,047,853

 

Time

 

 

3,338,995

 

 

 

3,376,664

 

Total

 

$

15,240,935

 

 

$

15,569,763

 

 

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 Subtopic 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 $37.9 million and $61.6 million at September 30, 2024 and December 31, 2023, 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. At both September 30, 2024 and December 31, 2023, all repurchase agreements were short-term and consisted primarily of sweep repurchase arrangements, under which excess deposits are “swept” into

43

 

overnight repurchase agreements with Trustmark. The following table presents the securities sold under repurchase agreements by collateral pledged at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Mortgage-backed securities

 

 

 

 

 

 

Residential mortgage pass-through securities

 

 

 

 

 

 

Guaranteed by GNMA

 

$

1,885

 

 

$

—

 

Issued by FNMA and FHLMC

 

 

12,866

 

 

 

28,600

 

Other residential mortgage-backed securities

 

 

 

 

 

 

Issued or guaranteed by FNMA, FHLMC or GNMA

 

 

7,960

 

 

 

526

 

Commercial mortgage-backed securities

 

 

 

 

 

 

Issued or guaranteed by FNMA, FHLMC or GNMA

 

 

8,804

 

 

 

—

 

Total securities sold under repurchase agreements

 

$

31,515

 

 

$

29,126

 

 

Note 10 – Revenue from Contracts with Customers

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 (loss), excluding all of mortgage banking, net and security 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.

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, net. Other real estate sales for the three and nine months ended September 30, 2024 resulted in a net loss of $92 thousand and $1.1 million, respectively, compared to a net loss of $47 thousand and $159 thousand for the three and nine months ended September 30, 2023, respectively.

The Insurance Segment is included in discontinued operations for all periods presented in the accompanying consolidated balance sheets and the consolidated statements of income (loss). See Note 2 - Discontinued Operations for additional information about discontinued operations.

44

 

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

 

 

Three Months Ended September 30, 2024

 

 

Three Months Ended September 30, 2023

 

 

 

Topic 606

 

 

Not Topic
606 (1)

 

 

Total

 

 

Topic 606

 

 

Not Topic
606 (1)

 

 

Total

 

General Banking Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

11,250

 

 

$

—

 

 

$

11,250

 

 

$

11,052

 

 

$

—

 

 

$

11,052

 

Bank card and other fees

 

 

7,661

 

 

 

218

 

 

 

7,879

 

 

 

7,332

 

 

 

873

 

 

 

8,205

 

Mortgage banking, net

 

 

—

 

 

 

6,119

 

 

 

6,119

 

 

 

—

 

 

 

6,458

 

 

 

6,458

 

Wealth management

 

 

175

 

 

 

—

 

 

 

175

 

 

 

202

 

 

 

—

 

 

 

202

 

Other, net

 

 

3,136

 

 

 

(337

)

 

 

2,799

 

 

 

2,843

 

 

 

(579

)

 

 

2,264

 

Total noninterest income (loss)

 

$

22,222

 

 

$

6,000

 

 

$

28,222

 

 

$

21,429

 

 

$

6,752

 

 

$

28,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

22

 

 

$

—

 

 

$

22

 

 

$

22

 

 

$

—

 

 

$

22

 

Bank card and other fees

 

 

52

 

 

 

—

 

 

 

52

 

 

 

12

 

 

 

—

 

 

 

12

 

Wealth management

 

 

9,113

 

 

 

—

 

 

 

9,113

 

 

 

8,571

 

 

 

—

 

 

 

8,571

 

Other, net

 

 

59

 

 

 

94

 

 

 

153

 

 

 

41

 

 

 

94

 

 

 

135

 

Total noninterest income

 

$

9,246

 

 

$

94

 

 

$

9,340

 

 

$

8,646

 

 

$

94

 

 

$

8,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

11,272

 

 

$

—

 

 

$

11,272

 

 

$

11,074

 

 

$

—

 

 

$

11,074

 

Bank card and other fees

 

 

7,713

 

 

 

218

 

 

 

7,931

 

 

 

7,344

 

 

 

873

 

 

 

8,217

 

Mortgage banking, net

 

 

—

 

 

 

6,119

 

 

 

6,119

 

 

 

—

 

 

 

6,458

 

 

 

6,458

 

Wealth management

 

 

9,288

 

 

 

—

 

 

 

9,288

 

 

 

8,773

 

 

 

—

 

 

 

8,773

 

Other, net

 

 

3,195

 

 

 

(243

)

 

 

2,952

 

 

 

2,884

 

 

 

(485

)

 

 

2,399

 

Total noninterest income (loss)

 

$

31,468

 

 

$

6,094

 

 

$

37,562

 

 

$

30,075

 

 

$

6,846

 

 

$

36,921

 

(1)
Noninterest income (loss) 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, 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 security gains (losses), net.

45

 

 

 

 

Nine Months Ended September 30, 2024

 

 

Nine Months Ended September 30, 2023

 

 

 

Topic 606

 

 

Not Topic
606 (1)

 

 

Total

 

 

Topic 606

 

 

Not Topic
606 (1)

 

 

Total

 

General Banking Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

33,089

 

 

$

—

 

 

$

33,089

 

 

$

32,040

 

 

$

—

 

 

$

32,040

 

Bank card and other fees

 

 

23,281

 

 

 

1,176

 

 

 

24,457

 

 

 

23,011

 

 

 

1,890

 

 

 

24,901

 

Mortgage banking, net

 

 

—

 

 

 

19,238

 

 

 

19,238

 

 

 

—

 

 

 

20,697

 

 

 

20,697

 

Wealth management

 

 

538

 

 

 

—

 

 

 

538

 

 

 

650

 

 

 

—

 

 

 

650

 

Other, net

 

 

13,735

 

 

 

(641

)

 

 

13,094

 

 

 

8,763

 

 

 

(1,516

)

 

 

7,247

 

Security gains (losses), net

 

 

—

 

 

 

(182,792

)

 

 

(182,792

)

 

 

—

 

 

 

—

 

 

 

—

 

Total noninterest income (loss)

 

$

70,643

 

 

$

(163,019

)

 

$

(92,376

)

 

$

64,464

 

 

$

21,071

 

 

$

85,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

65

 

 

$

—

 

 

$

65

 

 

$

65

 

 

$

—

 

 

$

65

 

Bank card and other fees

 

 

127

 

 

 

—

 

 

 

127

 

 

 

36

 

 

 

—

 

 

 

36

 

Wealth management

 

 

27,394

 

 

 

—

 

 

 

27,394

 

 

 

25,785

 

 

 

—

 

 

 

25,785

 

Other, net

 

 

139

 

 

 

282

 

 

 

421

 

 

 

122

 

 

 

285

 

 

 

407

 

Total noninterest income

 

$

27,725

 

 

$

282

 

 

$

28,007

 

 

$

26,008

 

 

$

285

 

 

$

26,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

33,154

 

 

$

—

 

 

$

33,154

 

 

$

32,105

 

 

$

—

 

 

$

32,105

 

Bank card and other fees

 

 

23,408

 

 

 

1,176

 

 

 

24,584

 

 

 

23,047

 

 

 

1,890

 

 

 

24,937

 

Mortgage banking, net

 

 

—

 

 

 

19,238

 

 

 

19,238

 

 

 

—

 

 

 

20,697

 

 

 

20,697

 

Wealth management

 

 

27,932

 

 

 

—

 

 

 

27,932

 

 

 

26,435

 

 

 

—

 

 

 

26,435

 

Other, net

 

 

13,874

 

 

 

(359

)

 

 

13,515

 

 

 

8,885

 

 

 

(1,231

)

 

 

7,654

 

Security gains (losses), net

 

 

—

 

 

 

(182,792

)

 

 

(182,792

)

 

 

—

 

 

 

—

 

 

 

—

 

Total noninterest income (loss)

 

$

98,368

 

 

$

(162,737

)

 

$

(64,369

)

 

$

90,472

 

 

$

21,356

 

 

$

111,828

 

(1)
Noninterest income (loss) 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, 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 security gains (losses), net.

Note 11 – Defined Benefit and Other Postretirement Benefits

Qualified Pension Plan

Trustmark maintains a noncontributory tax-qualified defined benefit pension plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the Continuing Plan) to satisfy commitments made by Trustmark to associates covered through plans obtained in acquisitions.

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

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Service cost

 

$

10

 

 

$

13

 

 

$

30

 

 

$

39

 

Interest cost

 

 

62

 

 

 

73

 

 

 

185

 

 

 

219

 

Expected return on plan assets

 

 

(24

)

 

 

(27

)

 

 

(72

)

 

 

(80

)

Recognized net (gain) loss due to lump sum settlements

 

 

—

 

 

 

—

 

 

 

(13

)

 

 

25

 

Net periodic benefit cost

 

$

48

 

 

$

59

 

 

$

130

 

 

$

203

 

 

For the plan year ending December 31, 2024, Trustmark’s minimum required contribution to the Continuing Plan is $132 thousand; however, Management and the Board of Directors of Trustmark will monitor the Continuing Plan throughout 2024 to determine any additional funding requirements by the plan’s measurement date, which is December 31.

46

 

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 annual measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger 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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Service cost

 

$

11

 

 

$

17

 

 

$

33

 

 

$

51

 

Interest cost

 

 

457

 

 

 

497

 

 

 

1,393

 

 

 

1,515

 

Amortization of prior service cost

 

 

28

 

 

 

28

 

 

 

83

 

 

 

83

 

Recognized net actuarial loss

 

 

84

 

 

 

70

 

 

 

263

 

 

 

216

 

Net periodic benefit cost

 

$

580

 

 

$

612

 

 

$

1,772

 

 

$

1,865

 

 

Note 12 – Stock and Incentive Compensation

Trustmark has granted restricted stock units subject to the provisions of the Stock and Incentive Compensation Plan (the Stock Plan). Current outstanding and future grants of restricted stock units 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 Units

Trustmark’s performance units vest over three years and are granted to Trustmark’s executive and senior management teams. Performance units granted vest based on performance goals of return on average tangible equity and total shareholder return. Performance units are valued utilizing a Monte Carlo simulation model to estimate fair value of the units at the grant date. The Monte Carlo simulation was performed by an independent valuation consultant and requires the use of subjective modeling assumptions. These units are recognized using the straight-line method over the requisite service period. These units provide for achievement units if performance measures exceed 100%. The restricted stock agreement for these units provides for dividend privileges, but no voting rights.

Time-Based Units

Trustmark’s time-based units granted to Trustmark’s executive and senior management teams vest over three years. Trustmark’s time-based units granted to members of Trustmark’s Board of Directors vest over one year. Time-based units are valued utilizing the fair value of Trustmark’s stock at the grant date. These units are recognized on the straight-line method over the requisite service period. The restricted stock agreement for these units provides for dividend privileges, but no voting rights.

The following table summarizes the Stock Plan activity for the periods presented:

 

 

Three Months Ended September 30, 2024

 

 

 

Performance
Units

 

 

Time-Vested
Units

 

Nonvested units, beginning of period

 

 

208,045

 

 

 

376,022

 

Granted

 

 

—

 

 

 

1,500

 

Released from restriction

 

 

—

 

 

 

(900

)

Forfeited

 

 

—

 

 

 

(2,149

)

Nonvested units, end of period

 

 

208,045

 

 

 

374,473

 

 

47

 

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Performance
Units

 

 

Time-Vested
Units

 

Nonvested units, beginning of period

 

 

174,214

 

 

 

358,252

 

Granted

 

 

89,928

 

 

 

161,646

 

Released from restriction

 

 

(54,973

)

 

 

(134,166

)

Forfeited

 

 

(1,124

)

 

 

(11,259

)

Nonvested units, end of period

 

 

208,045

 

 

 

374,473

 

 

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

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Performance units

 

$

522

 

 

$

449

 

 

$

1,506

 

 

$

1,181

 

Time-vested units

 

 

808

 

 

 

1,045

 

 

 

3,440

 

 

 

3,591

 

Total compensation expense

 

$

1,330

 

 

$

1,494

 

 

$

4,946

 

 

$

4,772

 

 

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, 2024 and 2023, Trustmark had unused commitments to extend credit of $4.469 billion and $5.030 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, 2024 and 2023, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the customer for letters of credit was $127.5 million and $127.8 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, 2024 and 2023, the fair value of collateral held was $27.9 million and $32.0 million, respectively.

ACL on Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of September 30, 2024 and December 31, 2023.

 

During the first quarter of 2024, Management decided to implement a performance trends qualitative factor for unfunded commitments. The same assumptions are applied in this calculation that the funded balances utilize with the addition of using the funding rates on the unfunded commitments. The performance trends qualitative factor reserve is then added to the other calculated reserve to get a total reserve for off-balance sheet credit exposures.

 

During the third quarter of 2024, Management implemented the External Factor – Credit Quality Review qualitative factor for unfunded commitments. The same assumptions are applied in this calculation that the funded balances utilize with the addition of using the funding rates on the unfunded commitments. The Credit Quality Review qualitative factor reserve is then added to the other calculated reserve to get a total reserve for off-balance sheet credit exposures.

48

 

Changes in the ACL on off-balance sheet credit exposures were as follows for the periods presented ($ in thousands):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

30,265

 

 

$

34,841

 

 

$

34,057

 

 

$

36,838

 

PCL, off-balance sheet credit exposures

 

 

(1,375

)

 

 

104

 

 

 

(5,167

)

 

 

(1,893

)

Balance at end of period

 

$

28,890

 

 

$

34,945

 

 

$

28,890

 

 

$

34,945

 

 

Adjustments to the ACL on off-balance sheet credit exposures are recorded to PCL, off-balance sheet credit exposures. The decrease in the ACL on off-balance sheet credit exposures for the three months ended September 30, 2024 was primarily due to the decrease in required reserves as a result of a decrease in unfunded commitments coupled with the decrease in the quantitative reserve rates due to changes in the macroeconomic factors. The decreases were partially offset by an increase in required reserves as a result of implementing the External Factor - Credit Quality Review qualitative factor. The decrease in the ACL on off-balance sheet credit exposures for the nine months ended September 30, 2024 was primarily due to the decrease in required reserves as a result of a decrease in unfunded commitments partially offset by an increase in required reserves as a result of implementing the performance trend and External Factor - Credit Quality Review qualitative factors.

The increase in the ACL on off-balance sheet credit exposures for the three months ended September 30, 2023 was primarily due to the weakening macroeconomic forecasts as well as the net adjustment to the qualitative factors. The decrease in the ACL on off-balance sheet credit exposures for the nine months ended September 30, 2023 was primarily due to decreases in unfunded balances for the construction, land development and other land portfolio and other construction loan portfolio.

No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by Trustmark or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Legal Proceedings

TNB and its subsidiaries are parties to 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.

 

In accordance with FASB ASC Subtopic 450-20, “Loss Contingencies,” TNB will establish an accrued liability for any litigation matter if and when such matter presents loss contingencies that are both probable and reasonably estimable. At the present time, TNB believes, based on its evaluation and the advice of legal counsel, that a loss in any currently pending legal 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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic shares

 

 

61,207

 

 

 

61,070

 

 

 

61,177

 

 

 

61,048

 

Dilutive shares

 

 

241

 

 

 

193

 

 

 

216

 

 

 

171

 

Diluted shares

 

 

61,448

 

 

 

61,263

 

 

 

61,393

 

 

 

61,219

 

 

Weighted-average antidilutive stock awards are 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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Weighted-average antidilutive stock awards

 

 

—

 

 

 

23

 

 

 

—

 

 

 

75

 

 

49

 

Note 15 – Statements of Cash Flows

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

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Income taxes paid

 

$

19,887

 

 

$

34,898

 

Interest expense paid on deposits and borrowings

 

 

296,939

 

 

 

214,745

 

Noncash transfers from loans to other real estate

 

 

4,703

 

 

 

5,434

 

Operating right-of-use assets resulting from lease liabilities

 

 

1,831

 

 

 

7,092

 

 

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 2023 Annual Report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include a capital conservation buffer of 2.50%. Accumulated other comprehensive income (loss), net of tax, is not included in computing regulatory capital. Trustmark elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. As of September 30, 2024, 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, 2024. To be categorized in this manner, Trustmark and TNB maintained, as applicable, 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, 2024, which Management believes have affected Trustmark’s or TNB’s present classification.

50

 

The following table provides Trustmark’s and TNB’s actual regulatory capital amounts and ratios under regulatory capital standards in effect at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

Actual

 

 

 

 

 

 

 

 

 

Regulatory Capital

 

 

Minimum

 

 

To Be Well

 

 

 

Amount

 

 

Ratio

 

 

Requirement

 

 

Capitalized

 

At September 30, 2024:

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,694,769

 

 

 

11.30

%

 

 

7.00

%

 

n/a

 

Trustmark National Bank

 

 

1,800,019

 

 

 

12.00

%

 

 

7.00

%

 

 

6.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,754,769

 

 

 

11.70

%

 

 

8.50

%

 

n/a

 

Trustmark National Bank

 

 

1,800,019

 

 

 

12.00

%

 

 

8.50

%

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

2,057,073

 

 

 

13.71

%

 

 

10.50

%

 

n/a

 

Trustmark National Bank

 

 

1,978,676

 

 

 

13.19

%

 

 

10.50

%

 

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,754,769

 

 

 

9.65

%

 

 

4.00

%

 

n/a

 

Trustmark National Bank

 

 

1,800,019

 

 

 

9.90

%

 

 

4.00

%

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,521,665

 

 

 

10.04

%

 

 

7.00

%

 

n/a

 

Trustmark National Bank

 

 

1,602,327

 

 

 

10.58

%

 

 

7.00

%

 

 

6.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,581,665

 

 

 

10.44

%

 

 

8.50

%

 

n/a

 

Trustmark National Bank

 

 

1,602,327

 

 

 

10.58

%

 

 

8.50

%

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,862,246

 

 

 

12.29

%

 

 

10.50

%

 

n/a

 

Trustmark National Bank

 

 

1,759,426

 

 

 

11.61

%

 

 

10.50

%

 

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

Trustmark Corporation

 

$

1,581,665

 

 

 

8.62

%

 

 

4.00

%

 

n/a

 

Trustmark National Bank

 

 

1,602,327

 

 

 

8.75

%

 

 

4.00

%

 

 

5.00

%

 

Stock Repurchase Program

On December 6, 2022, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2023, under which $50.0 million of Trustmark’s outstanding shares could be acquired through December 31, 2023. No shares were repurchased under this stock repurchase program.

On December 5, 2023, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2024, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, 2024. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. During the first nine months of 2024, Trustmark did not repurchase any shares under this stock repurchase program.

51

 

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

The following table presents the net change in the components of accumulated other comprehensive income (loss) and the related tax effects allocated to each component for the periods presented ($ in thousands). The amortization of prior service cost, recognized net loss due to lump sum settlements and change in net actuarial loss are included in the computation of net periodic benefit cost (see Note 10 – 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 and other expense in the accompanying consolidated statements of income (loss). Reclassification adjustments related to the cash flow hedge derivatives are included in interest and fees on LHFS and LHFI in the accompanying consolidated statements of income (loss).

 

 

 

Three Months Ended September 30, 2024

 

 

Three Months Ended September 30, 2023

 

 

 

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

 

$

55,892

 

 

$

(13,973

)

 

$

41,919

 

 

$

(26,963

)

 

$

6,740

 

 

$

(20,223

)

Reclassification adjustment for net (gains) losses
   realized in net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Change in net unrealized holding loss on
   securities transferred to held to maturity

 

 

3,688

 

 

 

(922

)

 

 

2,766

 

 

 

4,000

 

 

 

(1,000

)

 

 

3,000

 

Total securities available for sale
   and transferred securities

 

 

59,580

 

 

 

(14,895

)

 

 

44,685

 

 

 

(22,963

)

 

 

5,740

 

 

 

(17,223

)

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments for changes
   realized in net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in prior service costs

 

 

28

 

 

 

(7

)

 

 

21

 

 

 

28

 

 

 

(7

)

 

 

21

 

Recognized net loss due to lump sum
   settlements

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Change in net actuarial loss

 

 

84

 

 

 

(21

)

 

 

63

 

 

 

70

 

 

 

(18

)

 

 

52

 

Total pension and other postretirement
   benefit plans

 

 

112

 

 

 

(28

)

 

 

84

 

 

 

98

 

 

 

(25

)

 

 

73

 

Cash flow hedge derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accumulated gain (loss) on effective
   cash flow hedge derivatives

 

 

18,826

 

 

 

(4,706

)

 

 

14,120

 

 

 

(11,338

)

 

 

2,834

 

 

 

(8,504

)

Reclassification adjustment for (gain) loss
   realized in net income

 

 

4,831

 

 

 

(1,208

)

 

 

3,623

 

 

 

4,627

 

 

 

(1,157

)

 

 

3,470

 

Total cash flow hedge derivatives

 

 

23,657

 

 

 

(5,914

)

 

 

17,743

 

 

 

(6,711

)

 

 

1,677

 

 

 

(5,034

)

Total other comprehensive income (loss)

 

$

83,349

 

 

$

(20,837

)

 

$

62,512

 

 

$

(29,576

)

 

$

7,392

 

 

$

(22,184

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

Nine Months Ended September 30, 2024

 

 

Nine Months Ended September 30, 2023

 

 

 

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

 

$

47,579

 

 

$

(11,895

)

 

$

35,684

 

 

$

(16,062

)

 

$

4,246

 

 

$

(11,816

)

Reclassification adjustment for net (gains) losses
   realized in net income

 

 

182,792

 

 

 

(45,698

)

 

 

137,094

 

 

 

—

 

 

 

—

 

 

 

—

 

Change in net unrealized holding loss on
   securities transferred to held to maturity

 

 

11,020

 

 

 

(2,755

)

 

 

8,265

 

 

 

11,799

 

 

 

(2,950

)

 

 

8,849

 

Total securities available for sale
   and transferred securities

 

 

241,391

 

 

 

(60,348

)

 

 

181,043

 

 

 

(4,263

)

 

 

1,296

 

 

 

(2,967

)

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments for changes
   realized in net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in prior service costs

 

 

83

 

 

 

(21

)

 

 

62

 

 

 

83

 

 

 

(21

)

 

 

62

 

Recognized net loss due to lump sum
   settlements

 

 

(13

)

 

 

3

 

 

 

(10

)

 

 

25

 

 

 

(6

)

 

 

19

 

Change in net actuarial loss

 

 

263

 

 

 

(65

)

 

 

198

 

 

 

216

 

 

 

(54

)

 

 

162

 

Total pension and other postretirement
   benefit plans

 

 

333

 

 

 

(83

)

 

 

250

 

 

 

324

 

 

 

(81

)

 

 

243

 

Cash flow hedge derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accumulated gain (loss) on effective
   cash flow hedge derivatives

 

 

(2,007

)

 

 

502

 

 

 

(1,505

)

 

 

(24,569

)

 

 

6,142

 

 

 

(18,427

)

Reclassification adjustment for (gain) loss
   realized in net income

 

 

14,520

 

 

 

(3,630

)

 

 

10,890

 

 

 

11,555

 

 

 

(2,889

)

 

 

8,666

 

Total cash flow hedge derivatives

 

 

12,513

 

 

 

(3,128

)

 

 

9,385

 

 

 

(13,014

)

 

 

3,253

 

 

 

(9,761

)

Total other comprehensive income (loss)

 

$

254,237

 

 

$

(63,559

)

 

$

190,678

 

 

$

(16,953

)

 

$

4,468

 

 

$

(12,485

)

The following table presents the changes in the balances of each component of accumulated other comprehensive income (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, 2024

$

(204,670

)

 

$

(6,075

)

 

$

(8,978

)

 

$

(219,723

)

Other comprehensive income (loss) before reclassification

 

43,949

 

 

 

—

 

 

 

(1,505

)

 

 

42,444

 

Amounts reclassified from accumulated other
   comprehensive income (loss)

 

137,094

 

 

 

250

 

 

 

10,890

 

 

 

148,234

 

Net other comprehensive income (loss)

 

181,043

 

 

 

250

 

 

 

9,385

 

 

 

190,678

 

Balance at September 30, 2024

$

(23,627

)

 

$

(5,825

)

 

$

407

 

 

$

(29,045

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

$

(254,442

)

 

$

(5,792

)

 

$

(15,169

)

 

$

(275,403

)

Other comprehensive income (loss) before reclassification

 

(2,967

)

 

 

—

 

 

 

(18,427

)

 

 

(21,394

)

Amounts reclassified from accumulated other
   comprehensive income (loss)

 

—

 

 

 

243

 

 

 

8,666

 

 

 

8,909

 

Net other comprehensive income (loss)

 

(2,967

)

 

 

243

 

 

 

(9,761

)

 

 

(12,485

)

Balance at September 30, 2023

$

(257,409

)

 

$

(5,549

)

 

$

(24,930

)

 

$

(287,888

)

 

53

 

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 marketplace.

Trustmark estimates the 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.

54

 

Financial Assets and Liabilities

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023, 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, 2024 and the year ended December 31, 2023.

 

 

 

September 30, 2024

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

U.S. Treasury securities

 

$

202,638

 

 

$

202,638

 

 

$

—

 

 

$

—

 

U.S. Government agency obligations

 

 

19,335

 

 

 

—

 

 

 

19,335

 

 

 

—

 

Mortgage-backed securities

 

 

1,503,822

 

 

 

—

 

 

 

1,503,822

 

 

 

—

 

Securities available for sale

 

 

1,725,795

 

 

 

202,638

 

 

 

1,523,157

 

 

 

—

 

LHFS

 

 

216,454

 

 

 

—

 

 

 

216,454

 

 

 

—

 

MSR

 

 

125,853

 

 

 

—

 

 

 

—

 

 

 

125,853

 

Other assets

 

 

20,502

 

 

 

302

 

 

 

19,496

 

 

 

704

 

Other liabilities

 

 

28,306

 

 

 

336

 

 

 

27,970

 

 

 

—

 

 

 

 

December 31, 2023

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

U.S. Treasury securities

 

$

372,368

 

 

$

372,368

 

 

$

—

 

 

$

—

 

U.S. Government agency obligations

 

 

5,792

 

 

 

—

 

 

 

5,792

 

 

 

—

 

Mortgage-backed securities

 

 

1,384,718

 

 

 

—

 

 

 

1,384,718

 

 

 

—

 

Securities available for sale

 

 

1,762,878

 

 

 

372,368

 

 

 

1,390,510

 

 

 

—

 

LHFS

 

 

184,812

 

 

 

—

 

 

 

184,812

 

 

 

—

 

MSR

 

 

131,870

 

 

 

—

 

 

 

—

 

 

 

131,870

 

Other assets - derivatives

 

 

23,316

 

 

 

7,685

 

 

 

14,786

 

 

 

845

 

Other liabilities - derivatives

 

 

35,600

 

 

 

21

 

 

 

35,579

 

 

 

—

 

 

The changes in Level 3 assets measured at fair value on a recurring basis for the nine months ended September 30, 2024 and 2023 are summarized as follows ($ in thousands):

 

 

 

MSR

 

 

Other Assets -
Derivatives

 

Balance, January 1, 2024

 

$

131,870

 

 

$

845

 

Total net (loss) gain included in Mortgage banking, net (1)

 

 

(15,436

)

 

 

2,154

 

Additions

 

 

9,419

 

 

 

—

 

Sales

 

 

—

 

 

 

(2,295

)

Balance, September 30, 2024

 

$

125,853

 

 

$

704

 

 

 

 

 

 

 

 

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, 2024

 

$

(6,908

)

 

$

1,580

 

 

 

 

 

 

 

 

Balance, January 1, 2023

 

$

129,677

 

 

$

157

 

Total net (loss) gain included in Mortgage banking, net (1)

 

 

1,677

 

 

 

1,672

 

Additions

 

 

11,025

 

 

 

—

 

Sales

 

 

—

 

 

 

(1,632

)

Balance, September 30, 2023

 

$

142,379

 

 

$

197

 

 

 

 

 

 

 

 

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, 2023

 

$

8,734

 

 

$

559

 

 

(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.

55

 

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, 2024, which have been measured at fair value on a nonrecurring basis, include collateral-dependent LHFI. A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell. 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. At September 30, 2024, Trustmark had outstanding balances of $45.5 million with a related ACL of $17.3 million in collateral-dependent LHFI, compared to outstanding balances of $49.1 million with a related ACL of $12.4 million in collateral-dependent LHFI at December 31, 2023. The collateral-dependent LHFI are classified as Level 3 in the fair value hierarchy.

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 recorded at the fair value less cost to sell (estimated fair value) at the time of foreclosure. 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 $803 thousand were remeasured during the first nine months of 2024, requiring write-downs of $130 thousand to reach their current fair values compared to $765 thousand of foreclosed assets that were remeasured during the first nine months of 2023, requiring write-downs of $205 thousand.

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.

The carrying amounts and estimated fair values of financial instruments at September 30, 2024 and December 31, 2023, are as follows ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 Inputs:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

815,436

 

 

$

815,436

 

 

$

975,343

 

 

$

975,343

 

Securities held to maturity

 

 

1,358,358

 

 

 

1,316,167

 

 

 

1,426,279

 

 

 

1,355,504

 

Level 3 Inputs:

 

 

 

 

 

 

 

 

 

 

 

 

Net LHFI

 

 

12,942,182

 

 

 

13,025,566

 

 

 

12,811,157

 

 

 

12,762,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 Inputs:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

15,240,935

 

 

 

15,234,983

 

 

 

15,569,763

 

 

 

15,553,417

 

Federal funds purchased and securities sold under
   repurchase agreements

 

 

365,643

 

 

 

365,643

 

 

 

405,745

 

 

 

405,745

 

Other borrowings

 

 

443,458

 

 

 

443,458

 

 

 

483,230

 

 

 

483,226

 

Subordinated notes

 

 

123,647

 

 

 

119,063

 

 

 

123,482

 

 

 

108,125

 

Junior subordinated debt securities

 

 

61,856

 

 

 

48,248

 

 

 

61,856

 

 

 

48,856

 

 

56

 

 

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 as noninterest income (loss) in mortgage banking, net. The changes in the fair value of LHFS are largely offset by changes in the fair value of the derivative instruments. For the three and nine months ended September 30, 2024, a net gain of $480 thousand and a net loss of $1.2 million, respectively, were recorded as noninterest income (loss) in mortgage banking, net for changes in the fair value of LHFS accounted for under the fair value option, compared to net losses of $602 thousand and $841 thousand for the three and nine months ended September 30, 2023, respectively. Interest and fees on LHFS and LHFI for the three and nine months ended September 30, 2024 included $2.4 million and $6.3 million, respectively, of interest earned on LHFS accounted for under the fair value option, compared to $2.3 million and $5.9 million for the three and nine months ended September 30, 2023, 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 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 $89.4 million and $78.8 million at September 30, 2024 and December 31, 2023, 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 ACL, LHFI.

The following table provides information about the fair value and the contractual principal outstanding of LHFS accounted for under the fair value option at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Fair value of LHFS

 

$

127,015

 

 

$

105,974

 

LHFS contractual principal outstanding

 

 

125,041

 

 

 

102,994

 

Fair value less unpaid principal

 

$

1,974

 

 

$

2,980

 

 

Note 18 – Derivative Financial Instruments

Derivatives Designated as Hedging Instruments

Trustmark engages in a cash flow hedging program to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates fall below the purchased floor strike rate on the contract and payments of variable-rate amounts if interest rates fall below the sold floor strike rate on the contract. Trustmark uses such derivatives to hedge the variable cash flows associated with existing and anticipated variable-rate loan assets. At September 30, 2024, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $1.390 billion compared to $1.125 billion at December 31, 2023.

Trustmark records any gains or losses on these cash flow hedges in accumulated other comprehensive income (loss). Gains and losses on derivatives representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with Trustmark’s accounting policy election. The earnings recognition of excluded components included in interest and fees on LHFS and LHFI totaled $132 thousand and $341 thousand of amortization expense for the three and nine months ended September 30, 2024, respectively, compared to $13 thousand and $35 thousand of amortization expense for the three and nine months ended September 30, 2023, respectively. As interest payments are received on Trustmark's variable-rate assets, amounts reported in accumulated other comprehensive income (loss) are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income (loss) during the same period. During the next twelve months, Trustmark estimates that $5.8 million will be reclassified as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

57

 

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 was $296.5 million at September 30, 2024 compared to $285.0 million at December 31, 2023. Changes in the fair value of these exchange-traded derivative instruments are recorded as noninterest income (loss) 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 $2.5 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the impact was a net negative ineffectiveness of $8.1 million and $4.1 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 as noninterest income (loss) 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 $116.5 million at September 30, 2024, with a negative valuation adjustment of $144 thousand, compared to $109.5 million, with a negative valuation adjustment of $994 thousand, at December 31, 2023.

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 as noninterest income (loss) 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 $81.0 million at September 30, 2024, with a positive valuation adjustment of $704 thousand, compared to $61.9 million, with a positive valuation adjustment of $845 thousand, at December 31, 2023.

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 as noninterest income (loss) in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The offsetting interest rate swap transactions are either cleared through the Chicago Mercantile Exchange for clearable transactions or booked directly with institutional derivatives market participants for non-clearable transactions. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. At September 30, 2024, Trustmark had interest rate swaps with an aggregate notional amount of $1.721 billion related to this program, compared to $1.500 billion at December 31, 2023.

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.

At September 30, 2024, 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 totaled $2.0 million compared to $1.4 million at December 31, 2023. At September 30, 2024 and December 31, 2023, Trustmark had posted collateral of $2.9 million and $2.0 million, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, 2024, 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 September 30, 2024, Trustmark had entered into nine risk participation agreements as a beneficiary with aggregate notional amounts of $60.3 million compared to six risk participation agreements as a beneficiary with an aggregate notional amount of $40.1 million at December 31, 2023. At September 30, 2024, Trustmark had entered into thirty-six risk participation agreements as a guarantor with aggregate notional amounts of $286.2 million compared to thirty-five risk participation agreements as a guarantor with aggregate notional amounts of $304.7 million at December 31, 2023. The aggregate fair values of these risk participation agreements were immaterial at both September 30, 2024 and December 31, 2023.

58

 

Tabular Disclosures

The following tables disclose the fair value of derivative instruments in Trustmark’s consolidated balance sheets at September 30, 2024 and December 31, 2023 as well as the effect of these derivative instruments on Trustmark’s results of operations for the periods presented ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Derivatives in hedging relationships:

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

Interest rate swaps included in other assets (1)

 

$

3,766

 

 

$

1,182

 

Interest rate floors included in other assets

 

 

3,181

 

 

 

1,689

 

Interest rate swaps included in other liabilities (1)

 

 

50

 

 

 

267

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

Exchange traded purchased options included in other assets

 

$

33

 

 

$

180

 

OTC written options (rate locks) included in other assets

 

 

704

 

 

 

845

 

Futures contracts included in other assets

 

 

269

 

 

 

7,505

 

Interest rate swaps included in other assets (1)

 

 

12,536

 

 

 

11,910

 

Credit risk participation agreements included in other assets

 

 

13

 

 

 

5

 

Futures contracts included in other liabilities

 

 

16

 

 

 

—

 

Forward contracts included in other liabilities

 

 

144

 

 

 

994

 

Exchange traded written options included in other liabilities

 

 

320

 

 

 

21

 

Interest rate swaps included in other liabilities (1)

 

 

27,685

 

 

 

34,255

 

Credit risk participation agreements included in other liabilities

 

 

91

 

 

 

63

 

 

(1)
In accordance with GAAP, the variation margin collateral payments made or received for interest rate swaps that are centrally cleared are legally characterized as settled. As a result, the centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Derivatives in hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) reclassified from accumulated other
comprehensive income (loss) and recognized in
interest and fees on LHFS & LHFI

 

$

(4,831

)

 

$

(4,627

)

 

$

(14,520

)

 

$

(11,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) recognized in mortgage banking, net

 

$

7,655

 

 

$

(7,634

)

 

$

(478

)

 

$

(11,526

)

Amount of gain (loss) recognized in bank card and other fees

 

 

(93

)

 

 

381

 

 

 

(98

)

 

 

571

 

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Derivatives in cash flow hedging relationship

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) recognized in other comprehensive
   income (loss), net of tax

 

$

14,120

 

 

$

(8,504

)

 

$

(1,505

)

 

$

(18,427

)

 

59

 

 

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, 2024 and December 31, 2023 is presented in the following tables ($ in thousands):

 

Offsetting of Derivative Assets

 

 

As of September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Derivatives

 

$

19,483

 

 

$

—

 

 

$

19,483

 

 

$

(7,121

)

 

$

—

 

 

$

12,362

 

 

Offsetting of Derivative Liabilities

 

 

As of September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Derivatives

 

$

27,735

 

 

$

—

 

 

$

27,735

 

 

$

(7,121

)

 

$

(2,850

)

 

$

17,764

 

 

Offsetting of Derivative Assets

 

 

As of December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Derivatives

 

$

14,781

 

 

$

—

 

 

$

14,781

 

 

$

(4,339

)

 

$

—

 

 

$

10,442

 

 

Offsetting of Derivative Liabilities

 

 

As of December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Derivatives

 

$

34,522

 

 

$

—

 

 

$

34,522

 

 

$

(4,339

)

 

$

(2,040

)

 

$

28,143

 

 

Note 19 – Segment Information

Trustmark’s management reporting structure includes two segments: General Banking and Wealth Management. For a complete overview of Trustmark’s operating segments, see Note 20 – Segment Information included in Part II. Item 8. – Financial Statements and Supplementary Data, of Trustmark’s 2023 Annual Report.

The Insurance Segment is included in discontinued operations for all periods presented in the accompanying consolidated balance sheets and the consolidated statements of income (loss). See Note 2 - Discontinued Operations for additional information about discontinued operations.

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, which contains the management team responsible for determining TNB’s funding and interest rate risk strategies.

60

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

General Banking

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

153,189

 

 

$

137,143

 

 

$

424,236

 

 

$

411,674

 

Provision for credit losses

 

 

6,551

 

 

 

10,646

 

 

 

33,631

 

 

 

20,015

 

Noninterest income (loss)

 

 

28,222

 

 

 

28,181

 

 

 

(92,376

)

 

 

85,535

 

Noninterest expense

 

 

115,157

 

 

 

122,010

 

 

 

336,835

 

 

 

345,225

 

Income (loss) before income taxes

 

 

59,703

 

 

 

32,668

 

 

 

(38,606

)

 

 

131,969

 

Income taxes

 

 

10,445

 

 

 

5,245

 

 

 

(21,675

)

 

 

19,024

 

General banking income (loss)

 

$

49,258

 

 

$

27,423

 

 

$

(16,931

)

 

$

112,945

 

Selected Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

18,282,757

 

 

$

18,126,327

 

 

$

18,282,757

 

 

$

18,126,327

 

Depreciation and amortization

 

$

9,656

 

 

$

9,483

 

 

$

27,998

 

 

$

25,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

1,525

 

 

$

1,494

 

 

$

4,337

 

 

$

4,462

 

Provision for credit losses

 

 

(3

)

 

 

(2,220

)

 

 

162

 

 

 

(2,131

)

Noninterest income

 

 

9,340

 

 

 

8,740

 

 

 

28,007

 

 

 

26,293

 

Noninterest expense

 

 

8,113

 

 

 

8,281

 

 

 

24,425

 

 

 

24,276

 

Income before income taxes

 

 

2,755

 

 

 

4,173

 

 

 

7,757

 

 

 

8,610

 

Income taxes

 

 

683

 

 

 

1,043

 

 

 

1,928

 

 

 

2,153

 

Wealth management income

 

$

2,072

 

 

$

3,130

 

 

$

5,829

 

 

$

6,457

 

Selected Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

197,615

 

 

$

194,837

 

 

$

197,615

 

 

$

194,837

 

Depreciation and amortization

 

$

62

 

 

$

63

 

 

$

188

 

 

$

199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

154,714

 

 

$

138,637

 

 

$

428,573

 

 

$

416,136

 

Provision for credit losses

 

 

6,548

 

 

 

8,426

 

 

 

33,793

 

 

 

17,884

 

Noninterest income (loss)

 

 

37,562

 

 

 

36,921

 

 

 

(64,369

)

 

 

111,828

 

Noninterest expense

 

 

123,270

 

 

 

130,291

 

 

 

361,260

 

 

 

369,501

 

Income (loss) from continuing operations
   before income taxes

 

 

62,458

 

 

 

36,841

 

 

 

(30,849

)

 

 

140,579

 

Income taxes

 

 

11,128

 

 

 

6,288

 

 

 

(19,747

)

 

 

21,177

 

Consolidated income (loss) from
   continuing operations

 

$

51,330

 

 

$

30,553

 

 

$

(11,102

)

 

$

119,402

 

Selected Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

Total assets from continuing operations

 

$

18,480,372

 

 

$

18,321,164

 

 

$

18,480,372

 

 

$

18,321,164

 

Depreciation and amortization from
   continuing operations

 

$

9,718

 

 

$

9,546

 

 

$

28,186

 

 

$

25,695

 

 

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 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” Issued in November 2023, ASU 2023-07 is intended to improve disclosures about a public entity’s reportable segments and address requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. The amendments of ASU 2023-07 require a public entity to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss, and an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss. ASU 2023-07 also requires a public entity to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required under FASB

61

 

ASC Topic 280 in interim periods. The amendments of ASU 2023-07 clarify that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements. ASU 2023-07 requires a public entity to disclose the title and position of the CODM, together with an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition, ASU 2023-07 requires that a public entity with a single reportable segment provide all the disclosures required by the amendments of ASU 2023-07 and all existing segment disclosures in FASB ASC Topic 280. The amendments of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in ASU 2023-07 should be applied retrospectively to all periods presented on the financial statements. Upon implementation, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. Trustmark has adopted the amendments of ASU 2023-07 related to annual disclosure requirements effective January 1, 2024, and will present any newly required annual disclosures in its Annual Report on Form 10-K for the year ending December 31, 2024. Trustmark intends to adopt the amendments of ASU 2023-07 related to interim disclosure requirements effective January 1, 2025, and will present any newly required interim disclosures beginning with its Quarterly Report on Form 10-Q for the period ending March 31, 2025. Adoption of ASU 2023-07 is not expected to have a material impact to Trustmark’s consolidated financial statements or results of operations.

Pending Accounting Pronouncements

ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” Issued in December 2023, ASU 2023-09 is intended to improve the disclosures for income taxes to address requests from investors, lenders, creditors and other allocators of capital (collectively, "investors") that use the financial statements to make capital allocation decisions. During the FASB's 2021 agenda consultation process and other stakeholder outreach, investors highlighted that the current system of income tax disclosures does not provide enough information to understand the tax provision for an entity that operates in multiple jurisdictions. Investors currently rely on the rate reconciliation table and other disclosures, including total income taxes paid in the statement of cash flows, to evaluate income tax risks and opportunities. The amendments in ASU 2023-09 will require consistent categories and greater disaggregation of information in the rate reconciliation disclosure as well as disclosure of income taxes paid disaggregated by jurisdiction. The amendments of ASU 2023-09 are effective for annual periods beginning after December 15, 2024, and early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. Trustmark intends to adopt the amendments of ASU 2023-09 effective January 1, 2025, and will include the required disclosures in its Annual Report on Form 10-K for the year ending December 31, 2025. Trustmark is currently evaluating the changes to disclosures required by ASU 2023-09; however, adoption of ASU 2023-09 is not expected to have a material impact to Trustmark’s consolidated financial statements or results of operations.

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, 2024, TNB had total assets of $18.478 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 2,500 full-time equivalent associates (measured at September 30, 2024) 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), Georgia (primarily in Atlanta, which is referred to herein as Trustmark's Georgia 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 two operating segments: General Banking Segment and Wealth Management 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, 2023 (2023 Annual Report).

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Executive Overview

In addition to the significant non-routine transactions that were completed during the second quarter of 2024, Trustmark's financial results for the first nine months of 2024 reflected continued growth in loans held for investment (LHFI), an increase in noninterest income and disciplined expense management. Please see the section captioned "Non-GAAP Financial Measures" for additional information regarding the significant non-routine transactions. Trustmark's capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. These accomplishments are the result of focused efforts to enhance Trustmark's long-term performance and competitiveness. Trustmark continues to implement technology and streamline processes to enhance its ability to grow and serve customers. Trustmark is well-positioned to compete in changing economic conditions and create long-term value for its shareholders. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable December 15, 2024, to shareholders of record on December 1, 2024.

Recent Economic and Industry Developments

Economic activity improved slightly during the first nine months of 2024; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the potential economic impact of geopolitical developments, such as the conflicts in Ukraine and the Middle East, inflation, other economic and industry volatility, the 2024 election cycle in the United States, 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 began to rise during 2022 after an extended period at historical lows. Starting in March 2022, the FRB began raising the target federal funds rate for the first time in three years and continued with multiple increases throughout 2022 and the first half of 2023. The FRB maintained the target federal funds rate at a range of 5.25% to 5.50% from July 2023 through September 2024. In September 2024, the FRB lowered the target federal funds rate to a range of 4.75% to 5.00% based on its confidence that inflation was moving substantially toward 2.00% and that the risks to achieving the FRB's employment and inflation goals were roughly balanced. In addition, the FRB increased the interest that it pays on reserves multiple times during 2022 and the first half of 2023 from 0.10% to 5.40% as of July 2023. The FRB maintained the rate it pays on reserves at 5.40% from July 2023 through September 2024. In September 2024, the FRB lowered the rate is pays on reserves to 4.90%. Prior period rate increases increased the competitive pressures on the deposit cost of funds. While rate cuts potentially reduce those competitive pressures, they increase pressure on Trustmark's net interest margin, a key component to its financial results. While the FRB has suggested that further rate cuts may occur in the near term, it is not possible to predict the direction, pace or magnitude of further changes in interest rates, or the impact any such rate changes will have on Trustmark's results of operations.

In the October 2024 “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the twelve Federal Reserve Districts’ reports suggested that during the reporting period (covering the period from August 26, 2024 through October 11, 2024) economic activity was little changed. Reports by the twelve Federal Reserve Districts (Districts) noted the following during the reporting period:

•
Most Districts reported declining manufacturing activity. Activity in the banking sector was generally steady to up slightly and loan demand was mixed, with some Districts noting improvement in the outlook due to the recent decline in interest rates. Reports on consumer spending were mixed, with some Districts noting shifts in the composition of purchases, mostly towards less expensive alternatives.
•
The housing market activity was generally steady as inventory continued to expand in much of the nation and home values largely held steady or rose slightly. Uncertainty about the path of mortgage rates kept some buyers on the sidelines and the lack of affordable housing remained a persistent problem in many communities. Commercial real estate markets were generally flat.
•
The short-lived dockworkers strike caused only minor temporary disruptions. Hurricane damage impacted crops and prompted pauses in business activity and tourism in the Southeast. Agricultural activity was flat to down modestly, with some crop prices remaining unprofitably low. Energy activity was also unchanged or down modestly and lower energy prices compressed producers' margins. Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook.
•
Employment activity increased slightly during the reporting period, with more than half of the Districts reporting slight or modest growth and the remaining Districts reporting little or no change. Demand for workers eased somewhat and worker availability improved. However, contacts noted that it remained difficult to find workers with certain skills or for certain industries, such as technology, manufacturing and construction. Wages generally continued to rise at a modest to moderate pace. Contacts in multiple Districts pointed to a slowdown in the pace of wage increases as a result of improvements in worker

63

 

availability. Larger than usual pay increases were still reported for some workers, such as those in the skilled trades or in remote areas.
•
Inflation continued to moderate with selling prices reportedly increasing at a slight to modest pace in most Districts. Home prices edged up in many Districts, while rents were reported to be steady or down slightly. Many Districts noted increasing price sensitivity among consumers. Input prices generally rose moderately. Several industries noted more acute pressures from rising insurance and healthcare costs. Multiple Districts reported that input prices generally rose faster than selling prices, compressing firms profit margins.

Reports by the Federal Reserve’s Sixth District, Atlanta (which includes Trustmark’s Alabama, Florida, Georgia 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 noted that although loan growth was modest, financial institutions noted anticipating additional future loan demand in a lower rate environment and multifamily lending increased moderately as the demand for housing continued to exceed supply. The Federal Reserve’s Sixth District reported that deposits, including large time deposits, increased modestly, borrowings continued to decline as banks reduced reliance on more expensive sources of funding, and rising cash balances drove increasing cash-to-assets ratios at District institutions and across the industry broadly. The Federal Reserve’s Eighth District also noted that banks were able to adjust deposit rates downward without receiving much pushback from customers, past-due credit card payments increased but bankers' credit quality forecasts continued to be favorable and bankers reported positive moves in their capital and balance sheets due to favorable changes in bond values. The Federal Reserve’s Eleventh District reported that credit tightening continued and loan nonperformance rose but at a slower pace, there was a notable uptick in concern for the performance of office commercial real estate loans, and bankers reported working with borrowers to keep commercial real estate loans in good standing prior to maturity when they can be refinanced. The Federal Reserve’s Eleventh District also noted that despite increased concerns, bankers' outlooks turned sharply optimistic and contacts expect a significant improvement in loan demand and business activity six months from now, although they still anticipate continued deterioration in loan performance.

Financial Highlights

Trustmark reported net income of $51.3 million, or basic and diluted earnings per share (EPS) of $0.84, in the third quarter of 2024, compared to $34.0 million, or basic and diluted EPS of $0.56, in the third quarter of 2023. Trustmark’s reported performance during the quarter ended September 30, 2024 produced a return on average tangible equity of 12.86%, a return on average assets of 1.10%, an average equity to average assets ratio of 10.39% and a dividend payout ratio of 27.38%, compared to a return on average tangible equity of 11.32%, a return on average assets of 0.72%, an average equity to average assets ratio of 8.46% and a dividend payout ratio of 41.07% during the quarter ended September 30, 2023.

Trustmark reported net income of $166.7 million, or basic and diluted EPS of $2.72, for the nine months ended September 30, 2024, compared to $129.4 million, or basic and diluted EPS of $2.12 and $2.11, respectively, for the same time period in 2023. Trustmark's reported performance during the first nine months of 2024 produced a return on average tangible equity of 15.79%, a return on average assets of 1.19%, an average equity to average assets ratio of 9.52% and a dividend payout ratio of 25.37%, compared to return on average tangible equity of 14.77%, a return on average assets of 0.93%, an average equity to average assets ratio of 8.37% and a dividend payout ratio of 32.55% for the first nine months of 2023.

Trustmark completed the sale of FBBI during the second quarter of 2024. As such, financial results for the nine months ended September 30, 2024 and the three and nine months ended September 30, 2023, consist of both continuing and discontinued operations. The discontinued operations include the financial results of FBBI prior to the sale as well as the net gain on the sale in the second quarter. Trustmark reported net income from continuing operations of $51.3 million and a net loss from continuing operations of $11.1 million for the three and nine months ended September 30, 2024, respectively, compared to net income from continuing operations of $30.6 million and $119.4 million, respectively, for the same time periods in 2023. Trustmark's reported performance from continuing operations for the three and nine month ended September 30, 2024 produced a return on average tangible equity of 12.86% and -1.02%, respectively, and a return on average assets of 1.10% and -0.08%, respectively, compared to a return on average tangible equity of 9.72% and 13.03%, respectively, and a return on average assets of 0.65% and 0.86%, respectively, for the same time periods in 2023. The net loss from continuing operations for the nine months ended September 30, 2024 was principally due to the loss on the sale of available for sale securities during the second quarter of 2024.

Total revenue, which is defined as net interest income plus noninterest income (loss), for the three months ended September 30, 2024 was $192.3 million, an increase of $16.7 million, or 9.5%, when compared to the same time period in 2023, principally due to an increase in net interest income primarily resulting from increases in interest and fees from loans held for sale (LHFS) and LHFI and interest on securities as well as a decline in other interest expense, partially offset by an increase in interest expense on deposits. Total revenue for the nine months ended September 30, 2024 was $364.2 million, a decrease of $163.8 million, or 31.0%, when compared to the same

64

 

time period in 2023, reflecting a decline in noninterest income, primarily as a result of the loss on the sale of available for sale securities partially offset by an increase in other, net, and an increase in net interest income, primarily resulting from increases in interest and fees from LHFS and LHFI and interest on securities as well as a decline in other interest expense, partially offset by an increase in interest expense on deposits.

Net interest income for the three and nine months ended September 30, 2024 totaled $154.7 million and $428.6 million, respectively, an increase of $16.1 million, or 11.6%, and $12.4 million, or 3.0%, respectively, when compared to the same time periods in 2023, principally attributable to increases in interest and fees from LHFS and LHFI and interest on securities as well as a decline in other interest expense, partially offset by an increase in interest expense on deposits. Interest income totaled $251.6 million and $720.6 million for the three and nine months ended September 30, 2024, respectively, an increase of $23.1 million, or 10.1%, and $74.6 million, or 11.6%, respectively, when compared to the same time periods in 2023, principally due to increases in interest and fees on LHFS and LHFI, primarily as a result of the higher interest rate environment and loan growth, and interest on securities, primarily as a result of restructuring the securities portfolio during the second quarter of 2024. Interest expense totaled $96.9 million and $292.0 million for the three and nine months ended September 30, 2024, respectively, an increase of $7.0 million, or 7.8%, and $62.2 million, or 27.1%, respectively, when compared to the same time periods in 2023. The increase in interest expense when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023 was principally due to an increase in interest on deposits primarily due to rising interest rates, increased competition for deposits and higher average balances, partially offset by a decrease in other interest expense primarily due to a decrease in short-term Federal Home Loan Bank (FHLB) advances.

Noninterest income (loss) for the three and nine months ended September 30, 2024 totaled $37.6 million and a negative $64.4 million, respectively, an increase of $641 thousand, or 1.7%, and a decrease of $176.2 million, respectively, when compared to the same time periods in 2023. The decrease in noninterest income (loss) when the first nine months of 2024 is compared to the same time period in 2023 was primarily due to the $182.8 million loss on the sale of the available for sale securities during the second quarter of 2024, partially offset by an increase in other, net. Other, net totaled $13.5 million for the nine months ended September 30, 2024, an increase of $5.9 million, or 76.6%, when compared to the same time period in 2023, principally due to the $8.1 million Visa C shares fair value adjustment during the second quarter of 2024 as well as an increase in cash management service fees, partially offset by the $4.8 million noncredit-related loss on the sale of 1-4 family mortgage loans recorded during the second quarter of 2024.

Noninterest expense for the three and nine months ended September 30, 2024 totaled $123.3 million and $361.3 million, respectively, a decrease of $7.0 million, or 5.4%, and $8.2 million, or 2.2%, respectively, when compared to the same time periods in 2023. The decrease in noninterest expense for the three months ended September 30, 2024 was principally due to the $6.5 million litigation settlement expense recorded during the third quarter of 2023 as well as a decline in services and fees partially offset by an increase in other expense. The decrease in noninterest expense for the nine months ended September 30, 2024 was principally due to the $6.5 million litigation settlement expense recorded during the third quarter of 2023 as well as declines in services and fees and salaries and employee benefits partially offset by an increase in other expense. Services and fees for the three and nine months ended September 30, 2024 totaled $25.7 million and $74.9 million, respectively, a decrease of $1.7 million, or 6.4%, and $5.4 million, or 6.8%, respectively, when compared to the same time periods in 2023, principally due to declines in outside services and fees, primarily related to other services and fees and legal expense, communication expense, primarily related to telephone expense, and advertising expense, partially offset by an increase in data processing expenses related to software. Salaries and employee benefits totaled $197.0 million for the nine months ended September 30, 2024, a decrease of $1.9 million, or 1.0%, when compared to the same time period in 2023, principally due to declines in commissions related to mortgage production, other salaries expense and medical insurance expense, partially offset by an increase in salaries expense primarily due to general merit increases. Other expense totaled $17.3 million and $48.7 million for the three and nine months ended September 30, 2024, respectively, an increase of $2.3 million, or 15.1%, and $5.7 million, or 13.3%, respectively, when compared to the same time periods in 2023. The increase in other expense when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023 was principally due to increases in FDIC assessment expense, primarily due to an increase in the assessment rate, and other real estate expense, net, primarily attributable to a reserve for other real estate write-down recorded for one foreclosed property in the Texas market region which was under contract to be sold during the fourth quarter of 2024.

Trustmark’s total PCL on LHFI for the three months ended September 30, 2024 totaled $7.9 million, a decrease of $399 thousand, or 4.8%, when compared to the same time period in 2023. The PCL, LHFI for the three months ended September 30, 2024 primarily reflected increases in required reserves related to individually analyzed LHFI and the implementation of the External Factor-Credit Quality Review qualitative factor, partially offset by declines in required reserves resulting from the update of the macroeconomic forecasts and net changes in other qualitative reserve factors. During the third quarter of 2024, Trustmark activated the External Factor – Credit Quality Review qualitative factor to ensure reserve adequacy for collectively evaluated commercial loans that may not have been identified and downgraded timely for various reasons. Please see the section captioned “Allowance for Credit Losses: LHFI” for additional information regarding the External Factor-Credit Quality Review qualitative factor. The PCL, LHFI for the nine months ended September 30, 2024 totaled $39.0 million and included a $8.6 million PCL, LHFI sale of 1-4 family mortgage loans for the credit-related portion of the loss on the sale of the 1-4 family mortgage loans. The PCL, LHFI, excluding the PCL, LHFI sale of 1-4 family

65

 

mortgage loans, for the nine months ended September 30, 2024 totaled $30.3 million, compared to $19.8 million for the same time period in 2023. The PCL on LHFI, excluding the PCL, LHFI 1-4 family mortgage loans, for the nine months ended September 30, 2024 primarily reflected an increase in required reserves as a result of net adjustments to the qualitative factors due to credit migration, implementation of the External Factor-Credit Quality Review qualitative factor, and specific reserves for individually analyzed LHFI, partially offset by net changes in the macroeconomic forecast associated with specific loss driver models as a result of loss driver updates and net changes in other qualitative reserve factors.

The PCL on off-balance sheet credit exposures totaled a negative $1.4 million and a negative $5.2 million for the three and nine months ended September 30, 2024, respectively, compared to $104 thousand and a negative $1.9 million, respectively, for the same time periods in 2023. The release in PCL on off-balance sheet credit exposures for the three months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the External Factor-Credit Quality Review qualitative reserve factor. The release in PCL on off-balance sheet credit exposures for the nine months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the performance trend and the External Factor-Credit Quality Review qualitative reserve factors. 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, 2024, nonperforming assets totaled $77.7 million, a decrease of $29.1 million, or 27.3%, compared to December 31, 2023, reflecting declines in both nonaccrual LHFI and other real estate. Nonaccrual LHFI totaled $73.8 million at September 30, 2024, a decrease of $26.2 million, or 26.2%, relative to December 31, 2023, primarily as a result of the sale of 1-4 family mortgage loans during the second quarter of 2024 as well as the resolution of two large nonaccrual commercial credits in the Texas and Alabama market regions, partially offset by three large commercial credits placed on nonaccrual in the Alabama and Texas market regions. Other real estate, net totaled $3.9 million at September 30, 2024, a decrease of $2.9 million, or 42.9%, when compared to December 31, 2023, principally due to properties sold in the Mississippi and Alabama market regions and a reserve for other real estate write-downs recorded for a foreclosed property in the Texas market region which is under contract to be sold during the fourth quarter of 2024, partially offset by properties foreclosed in the Mississippi market region.

LHFI totaled $13.100 billion at September 30, 2024, an increase of $149.6 million, or 1.2%, compared to December 31, 2023. The increase in LHFI during the first nine months of 2024 was primarily due to net growth in LHFI secured by real estate and other commercial loans and leases partially offset by declines in commercial and industrial LHFI and state and other political subdivision LHFI. For additional information regarding changes in LHFI and comparative balances by loan category, see the section captioned “LHFI.”

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

Total deposits were $15.241 billion at September 30, 2024, a decrease of $328.8 million, or 2.1%, compared to December 31, 2023. During the first nine months of 2024, noninterest-bearing deposits decreased $54.8 million, or 1.7%, principally due to declines in consumer noninterest-bearing demand deposit accounts. Interest-bearing deposits decreased $274.0 million, or 2.2%, during the first nine months of 2024, primarily due to declines in public and consumer interest checking accounts, consumer savings accounts and brokered certificates of deposits (CDs), partially offset by growth in commercial interest checking accounts and commercial and consumer money market deposit accounts (MMDA) and CDs.

Federal funds purchased and securities sold under repurchase agreements totaled $365.6 million at September 30, 2024, a decrease of $40.1 million, or 9.9%, compared to December 31, 2023, principally due to a decrease in upstream federal funds purchased. Other borrowings totaled $443.5 million at September 30, 2024, a decrease of $39.8 million, or 8.2%, compared to December 31, 2023, principally due to a decline in outstanding short-term FHLB advances with the FHLB of Dallas.

Recent Legislative and Regulatory Developments

On September 17, 2024, the FDIC finalized changes to its Statement of Policy on Bank Merger Transactions (Policy Statement), which outlines factors that the FDIC will consider when evaluating a proposed bank merger transaction. Also on September 17, 2024, the United States Department of Justice (DOJ) withdrew its 1995 Bank Merger Guidelines and announced that it will instead evaluate the competitive impact of bank mergers using its 2023 Merger Guidelines that the DOJ applies to mergers in all industries. Compared to the 1995 Bank Merger Guidelines, the 2023 Merger Guidelines set forth more stringent concentration limits and add several largely qualitative bases on which the DOJ may challenge a merger. While the effect of these changes for particular transactions remains

66

 

unclear, both the Policy Statement and the change in the DOJ’s bank merger antitrust policy may make it more difficult and/or costly for banks to obtain regulatory approval for an acquisition or otherwise result in more onerous conditions to obtain approval for an acquisition.

On July 30, 2024, the FDIC issued a proposed rule that would revise the FDIC’s regulations governing the classification and treatment of brokered deposits. The proposal would, among other changes, broaden the definition of deposit broker to include agents that place or facilitate the placement of third-party deposits at only one insured depository institution and agents that receive a fee or other remuneration in exchange for the placement of deposits. In addition, the proposal would narrow the exception to the definition of deposit broker for agents whose primary purpose is not the placement of funds with depository institutions. While Trustmark is evaluating the potential impact of the proposed rule, if the rule is finalized as proposed, Trustmark may be required to classify a greater amount of its deposits obtained with the involvement of third parties as brokered deposits. An increase in the amount of brokered deposits on Trustmark’s balance sheet could, among other consequences, increase Trustmark’s deposit insurance assessment costs.

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 2023 Annual Report.

67

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Consolidated Statements of Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

$

251,592

 

 

$

228,522

 

 

$

720,583

 

 

$

645,950

 

Total interest expense

 

 

96,878

 

 

 

89,885

 

 

 

292,010

 

 

 

229,814

 

Net interest income

 

 

154,714

 

 

 

138,637

 

 

 

428,573

 

 

 

416,136

 

PCL, LHFI

 

 

7,923

 

 

 

8,322

 

 

 

30,327

 

 

 

19,777

 

PCL, LHFI sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

8,633

 

 

 

—

 

PCL, off-balance sheet credit exposures

 

 

(1,375

)

 

 

104

 

 

 

(5,167

)

 

 

(1,893

)

Noninterest income (loss)

 

 

37,562

 

 

 

36,921

 

 

 

(64,369

)

 

 

111,828

 

Noninterest expense

 

 

123,270

 

 

 

130,291

 

 

 

361,260

 

 

 

369,501

 

Income (loss) from continuing operations before income taxes

 

 

62,458

 

 

 

36,841

 

 

 

(30,849

)

 

 

140,579

 

Income taxes from continuing operations

 

 

11,128

 

 

 

6,288

 

 

 

(19,747

)

 

 

21,177

 

Income (loss) from continuing operations

 

 

51,330

 

 

 

30,553

 

 

 

(11,102

)

 

 

119,402

 

Income from discontinued operations before income taxes

 

 

—

 

 

 

4,649

 

 

 

237,152

 

 

 

13,337

 

Income taxes from discontinued operations

 

 

—

 

 

 

1,173

 

 

 

59,353

 

 

 

3,373

 

Income from discontinued operations

 

 

—

 

 

 

3,476

 

 

 

177,799

 

 

 

9,964

 

Net income

 

$

51,330

 

 

$

34,029

 

 

$

166,697

 

 

$

129,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue (1)

 

$

192,276

 

 

$

175,558

 

 

$

364,204

 

 

$

527,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data (2)

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share (EPS) from continuing operations

 

$

0.84

 

 

$

0.50

 

 

$

(0.18

)

 

$

1.96

 

Basic EPS from discontinued operations

 

$

—

 

 

$

0.06

 

 

$

2.91

 

 

$

0.16

 

Basic EPS - total

 

$

0.84

 

 

$

0.56

 

 

$

2.72

 

 

$

2.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS from continuing operations

 

$

0.84

 

 

$

0.50

 

 

$

(0.18

)

 

$

1.95

 

Diluted EPS from discontinued operations

 

$

—

 

 

$

0.06

 

 

$

2.90

 

 

$

0.16

 

Diluted EPS - total

 

$

0.84

 

 

$

0.56

 

 

$

2.72

 

 

$

2.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.23

 

 

$

0.23

 

 

$

0.69

 

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Return on average equity

 

 

10.62

%

 

 

8.53

%

 

 

12.54

%

 

 

11.07

%

Return on average equity from continuing operations

 

 

10.62

%

 

 

7.66

%

 

 

-0.83

%

 

 

10.22

%

Return on average tangible equity

 

 

12.86

%

 

 

11.32

%

 

 

15.79

%

 

 

14.77

%

Return on average tangible equity from continuing operations

 

 

12.86

%

 

 

9.72

%

 

 

-1.02

%

 

 

13.03

%

Return on average assets

 

 

1.10

%

 

 

0.72

%

 

 

1.19

%

 

 

0.93

%

Return on average assets from continuing operations

 

 

1.10

%

 

 

0.65

%

 

 

-0.08

%

 

 

0.86

%

Average equity / average assets

 

 

10.39

%

 

 

8.46

%

 

 

9.52

%

 

 

8.37

%

Net interest margin (fully taxable equivalent)

 

 

3.69

%

 

 

3.29

%

 

 

3.43

%

 

 

3.34

%

Dividend payout ratio

 

 

27.38

%

 

 

41.07

%

 

 

25.37

%

 

 

32.55

%

Dividend payout ratio from continuing operations

 

 

27.38

%

 

 

46.00

%

 

 

-383.33

%

 

 

35.20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs (recoveries) (excl sale of 1-4 family mortgage
   loans) / average loans

 

 

0.14

%

 

 

0.11

%

 

 

0.12

%

 

 

0.06

%

PCL, LHFI (excl PCL, LHFI sale of 1-4 family mortgage
   loans) / average loans

 

 

0.24

%

 

 

0.26

%

 

 

0.30

%

 

 

0.21

%

Nonaccrual LHFI / (LHFI + LHFS)

 

 

0.55

%

 

 

0.70

%

 

 

 

 

 

 

Nonperforming assets / (LHFI + LHFS) plus other real estate

 

 

0.58

%

 

 

0.74

%

 

 

 

 

 

 

ACL, LHFI / LHFI

 

 

1.21

%

 

 

1.05

%

 

 

 

 

 

 

(1)
Consistent with Trustmark’s audited annual financial statements, total revenue is defined as net interest income plus noninterest income (loss).
(2)
Due to rounding, EPS from continuing operations and discontinued operations may not sum to EPS from net income.

68

 

 

 

 

September 30,

 

 

 

2024

 

 

2023

 

Consolidated Balance Sheets

 

 

 

 

 

 

Total assets

 

$

18,480,372

 

 

$

18,390,839

 

Securities

 

 

3,084,153

 

 

 

3,204,461

 

Total loans (LHFI + LHFS)

 

 

13,316,565

 

 

 

12,979,503

 

Deposits

 

 

15,240,935

 

 

 

15,101,923

 

Total shareholders' equity

 

 

1,980,096

 

 

 

1,570,351

 

 

 

 

 

 

 

 

Stock Performance

 

 

 

 

 

 

Market value - close

 

$

31.82

 

 

$

21.73

 

Book value

 

 

32.35

 

 

 

25.71

 

Tangible book value

 

 

26.88

 

 

 

20.23

 

 

 

 

 

 

 

 

Capital Ratios

 

 

 

 

 

 

Total equity / total assets

 

 

10.71

%

 

 

8.54

%

Tangible equity / tangible assets

 

 

9.07

%

 

 

6.84

%

Tangible equity / risk-weighted assets

 

 

10.97

%

 

 

8.16

%

Tier 1 leverage ratio

 

 

9.65

%

 

 

8.49

%

Common equity Tier 1 risk-based capital ratio

 

 

11.30

%

 

 

9.89

%

Tier 1 risk-based capital ratio

 

 

11.70

%

 

 

10.29

%

Total risk-based capital ratio

 

 

13.71

%

 

 

12.11

%

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's common equity Tier 1 capital includes common stock, capital surplus and retained earnings, and is reduced by goodwill and other intangible assets, net of associated net deferred tax liabilities as well as disallowed deferred tax assets and threshold deductions as applicable.

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

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculation methods may not be comparable with those of 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.

69

 

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,

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

TANGIBLE EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

AVERAGE BALANCES

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders' equity

 

 

$

1,923,248

 

 

$

1,582,885

 

 

$

1,776,291

 

 

$

1,562,551

 

Less: Goodwill

 

 

 

(334,605

)

 

 

(334,605

)

 

 

(334,605

)

 

 

(334,605

)

 Identifiable intangible assets

 

 

 

(168

)

 

 

(287

)

 

 

(196

)

 

 

(349

)

Total average tangible equity

 

 

$

1,588,475

 

 

$

1,247,993

 

 

$

1,441,490

 

 

$

1,227,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERIOD END BALANCES

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders' equity

 

 

$

1,980,096

 

 

$

1,570,351

 

 

 

 

 

 

 

Less: Goodwill

 

 

 

(334,605

)

 

 

(334,605

)

 

 

 

 

 

 

 Identifiable intangible assets

 

 

 

(153

)

 

 

(269

)

 

 

 

 

 

 

Total tangible equity

(a)

 

$

1,645,338

 

 

$

1,235,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TANGIBLE ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

$

18,480,372

 

 

$

18,390,839

 

 

 

 

 

 

 

Less: Goodwill

 

 

 

(334,605

)

 

 

(334,605

)

 

 

 

 

 

 

 Identifiable intangible assets

 

 

 

(153

)

 

 

(269

)

 

 

 

 

 

 

Total tangible assets

(b)

 

$

18,145,614

 

 

$

18,055,965

 

 

 

 

 

 

 

Risk-weighted assets

(c)

 

$

15,004,024

 

 

$

15,143,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

 

$

51,330

 

 

$

30,553

 

 

$

(11,102

)

 

$

119,402

 

Plus: Intangible amortization net of tax from
   continuing operations

 

 

 

21

 

 

 

25

 

 

 

61

 

 

 

192

 

Net income (loss) from continuing operations adjusted for
   intangible amortization

 

 

$

51,351

 

 

$

30,578

 

 

$

(11,041

)

 

$

119,594

 

Period end shares outstanding

(d)

 

 

61,206,606

 

 

 

61,070,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TANGIBLE EQUITY MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average tangible equity from
   continuing operations (1)

 

 

 

12.86

%

 

 

9.72

%

 

 

-1.02

%

 

 

13.03

%

Tangible equity/tangible assets

(a)/(b)

 

 

9.07

%

 

 

6.84

%

 

 

 

 

 

 

Tangible equity/risk-weighted assets

(a)/(c)

 

 

10.97

%

 

 

8.16

%

 

 

 

 

 

 

Tangible book value

(a)/(d)*1,000

 

$

26.88

 

 

$

20.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMON EQUITY TIER 1 CAPITAL (CET1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders' equity

 

 

$

1,980,096

 

 

$

1,570,351

 

 

 

 

 

 

 

CECL transitional adjustment

 

 

 

6,500

 

 

 

13,000

 

 

 

 

 

 

 

AOCI-related adjustments

 

 

 

29,045

 

 

 

287,888

 

 

 

 

 

 

 

CET1 adjustments and deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill net of associated deferred tax liabilities (DTLs)

 

 

 

(320,757

)

 

 

(370,219

)

 

 

 

 

 

 

Other adjustments and deductions for CET1 (2)

 

 

 

(115

)

 

 

(2,803

)

 

 

 

 

 

 

CET1 capital

(e)

 

 

1,694,769

 

 

 

1,498,217

 

 

 

 

 

 

 

Additional Tier 1 capital instruments plus related surplus

 

 

 

60,000

 

 

 

60,000

 

 

 

 

 

 

 

Tier 1 capital

 

 

$

1,754,769

 

 

$

1,558,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 risk-based capital ratio

(e)/(c)

 

 

11.30

%

 

 

9.89

%

 

 

 

 

 

 

(1)
Calculated using annualized net income (loss) from continuing operations adjusted for intangible amortization divided by total average tangible equity.
(2)
Includes other intangible assets, net of DTLs, disallowed deferred tax assets and threshold deductions, as applicable.

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 these as measures of its core operating business, which exclude the impact of the items detailed below, as these items are generally not operational in nature. These non-GAAP financial measures also provide 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.

Trustmark completed the following significant non-routine transactions during the second quarter of 2024, which are included in the financial results for the nine months ended September 30, 2024:

70

 

•
On May 31, 2024, TNB closed the sale of its wholly owned subsidiary, Fisher Brown Bottrell Insurance, Inc., (FBBI) to Marsh & McLennan Agency LLC, consistent with the terms as previously announced on April 23, 2024. Trustmark recognized a net gain on the sale of $228.3 million ($171.2 million, net of taxes) in income from discontinued operations. The operations of FBBI prior to the sale are included in income from discontinued operations for the current and prior periods.
•
Trustmark restructured its investment securities portfolio by selling $1.561 billion of available for sale securities with an average yield of 1.36%, which generated a loss of $182.8 million ($137.1 million, net of taxes) and was recorded to noninterest income (loss) in security gains (losses), net. Trustmark also purchased $1.378 billion of available for sale securities with an average yield of 4.85%.
•
Trustmark sold a portfolio of 1-4 family mortgage loans that were at least three payments delinquent and/or nonaccrual at the time of selection totaling $56.2 million, which resulted in a loss of $13.4 million ($10.1 million, net of taxes). The portion of the loss related to credit totaled $8.6 million ($6.5 million, net of taxes) and was recorded as adjustments to charge-offs and the provision for credit losses (PCL). The noncredit-related portion of the loss totaled $4.8 million ($3.6 million, net of taxes) and was recorded to noninterest income (loss) in other, net.
•
On April 8, 2024, Visa commenced an initial exchange offer expiring on May 3, 2024, for any and all outstanding shares of Visa Class B-1 common stock (Visa B-1 shares). Holders participating in the exchange offer would receive a combination of Visa Class B-2 common stock (Visa B-2 shares) and Visa Class C common stock (Visa C shares) in exchange for Visa B-1 shares that were validly tendered and accepted for exchange by Visa. TNB tendered its 38.7 thousand Visa B-1 shares, which were accepted by Visa. In exchange for each Visa B-1 share that was validly tendered and accepted for exchange by Visa, TNB received 50.0% of a newly issued Visa B-2 share and newly issued Visa C shares equivalent in value to 50.0% of a Visa B-1 share. The Visa C shares that were received by TNB were recognized at fair value, which resulted in a gain of $8.1 million ($6.0 million, net of taxes) and was recorded to noninterest income (loss) in other, net during the second quarter of 2024. During the third quarter of 2024, TNB sold all of the Visa C shares for approximately the same carrying value as of June 30, 2024. The Visa B-2 shares were recorded at their nominal carrying value.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net Income (loss) from continuing operations (GAAP)

 

$

51,330

 

 

$

30,553

 

 

$

(11,102

)

 

$

119,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant non-routine transactions (net of taxes):

 

 

 

 

 

 

 

 

 

 

 

 

PCL, LHFI sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

6,475

 

 

 

—

 

Loss on sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

3,598

 

 

 

—

 

Visa C shares fair value adjustment

 

 

—

 

 

 

—

 

 

 

(6,042

)

 

 

—

 

Security gains (losses), net

 

 

—

 

 

 

—

 

 

 

137,094

 

 

 

—

 

Litigation settlement expense

 

 

—

 

 

 

4,875

 

 

 

—

 

 

 

4,875

 

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

 

$

51,330

 

 

$

35,428

 

 

$

130,023

 

 

$

124,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS from adjusted continuing operations

 

$

0.84

 

 

$

0.58

 

 

$

2.12

 

 

$

2.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Ratios - Reported (GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

Return on average equity from continuing operations

 

 

10.62

%

 

 

7.66

%

 

 

-0.83

%

 

 

10.22

%

Return on average tangible equity from continuing operations

 

 

12.86

%

 

 

9.72

%

 

 

-1.02

%

 

 

13.03

%

Return on average assets from continuing operations

 

 

1.10

%

 

 

0.65

%

 

 

-0.08

%

 

 

0.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Ratios - Adjusted (Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

Return on average equity from adjusted continuing operations

 

 

10.62

%

 

 

8.87

%

 

 

9.40

%

 

 

10.63

%

Return on average tangible equity from adjusted continuing
   operations

 

 

12.86

%

 

 

11.25

%

 

 

11.49

%

 

 

13.55

%

Return on average assets from adjusted continuing operations

 

 

1.10

%

 

 

0.75

%

 

 

0.93

%

 

 

0.89

%

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

71

 

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 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 LHFS and LHFI balances were immaterial.

Net interest income-FTE for the three months ended September 30, 2024, increased $16.1 million, or 11.3%, when compared to the same time period in 2023 principally due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable as well as a decline in other interest expense, partially offset by an increase in interest on deposits. Net interest income-FTE for the nine months ended September 30, 2024 increased $12.3 million, or 2.9%, when compared with the same time period in 2023 principally due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable as well as a decline in other interest expense, partially offset by an increase in interest on deposits and a decline in other interest income. The net interest margin-FTE for the three and nine months ended September 30, 2024 increased 40 basis points to 3.69% and 9 basis points to 3.43%, respectively, when compared to the same time periods in 2023, principally due to increases in the yields on the LHFS and LHFI portfolios and the securities portfolio, primarily due to the restructuring of the available for sale securities portfolio during the second quarter of 2024, partially offset by an increase in the cost of interest-bearing deposits.

Average interest-earning assets for the three months ended September 30, 2024 was $17.016 billion compared to $17.110 billion for the same time period in 2023, a decline of $94.9 million, or 0.6%, principally due to a decline in average total securities and average other earning assets partially offset by an increase in average loans (LHFS and LHFI). Average interest-earning assets for the nine months ended September 30, 2024 was $17.097 billion compared to $17.076 billion for the same time period in 2023, an increase of $21.5 million, or 0.1%, principally due to an increase in average loans (LHFS and LHFI) largely offset by a decline in average total securities and average other earning assets. Average loans (LHFS and LHFI) increased $452.7 million, or 3.5%, and $555.3 million, or 4.4%, when the three and nine months ended September 30, 2024, respectively, are compared to the same time periods in 2023, principally due to an increase in the average balance of the LHFI portfolio of $442.0 million, or 3.5%, and $538.1 million, or 4.3%, respectively. The increase in the LHFI portfolio when the balances at September 30, 2024 are compared to September 30, 2023 was principally due to net growth in LHFI secured by real estate and other commercial loans and leases partially offset by declines in commercial and industrial loans and state and other political subdivision loans. Average total securities declined $472.6 million, or 13.5%, and $374.9 million, or 10.4%, respectively, when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023, principally due to available for sale securities sold net of available for sale securities purchased as part of the restructuring of the available for sale securities portfolio during the second quarter of 2024 as well as calls, maturities and pay-downs of the loans underlying GSE guaranteed securities. Average other earning assets decreased $75.4 million, or 11.0%, and $157.2 million, or 21.0%, respectively, when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023, primarily due to decreases in reserves held at the FRBA and investments in FHLB stock.

Interest income-FTE for the three and nine months ended September 30, 2024 totaled $254.9 million and $730.6 million, respectively, an increase of $23.1 million, or 10.0%, and $74.4 million, or 11.3%, respectively, while the yield on total earning assets increased to 5.96% and 5.71%, respectively, compared to 5.38% and 5.14%, respectively, for the same time periods in 2023. The increase in interest income-FTE for the three months ended September 30, 2024 was primarily due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable. The increase in interest income-FTE for the nine months ended September 30, 2024 was primarily due to increases in interest and fees on LHFS and LHFI-FTE and interest on securities-taxable partially offset by a decline in other interest income. During the three and nine months ended September 30, 2024, interest and fees on LHFS and LHFI-FTE increased $13.9 million, or 6.7%, and $67.9 million, or 11.7%, respectively, while the yield on LHFS and LHFI increased 21 basis points to 6.55% and 43 basis points to 6.50%, respectively, when compared to the same time periods in 2023, primarily due to the higher interest rate environment as well as the increase in the average balance of LHFI. Interest on securities-taxable increased $9.5 million, or 57.4%, and $9.6 million, or 19.1%, respectively, when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023, while the yield on securities-taxable increased to 3.44% and 2.48%, respectively, compared to 1.89% and 1.87%, respectively, principally due to the restructuring of the available for sale securities portfolio during the second quarter of 2024. During the nine months ended September 30, 2024, other interest income declined $2.7 million, or 9.9%, while the yield on other earning assets increased 68 basis points to 5.55% when compared to the same time period in 2023, principally due to a decline in interest earned on reserves held at the FRBA.

Average interest-bearing liabilities for the three months ended September 30, 2024 totaled $13.088 billion compared to $13.105 billion for the same time period in 2023, a decrease of $17.2 million, or 0.1%, principally due to declines in average other borrowings and average federal funds purchased and securities sold under repurchase agreements largely offset by growth in average interest-bearing

72

 

deposits. Average interest-bearing liabilities for the nine months ended September 30, 2024 totaled $13.280 billion compared to $12.914 billion for the same time period in 2023, an increase of $365.6 million, or 2.8%, principally due to growth in interest-bearing deposits partially offset by a decline in average other borrowings. Average interest-bearing deposits for the three and nine months ended September 30, 2024 increased $594.4 million, or 5.1%, and $1.038 billion, or 9.3%, respectively, when compared to the same time periods in 2023, reflecting growth in average time deposits and average interest-bearing demand deposits, partially offset by declines in average savings deposits. Average federal funds purchased and securities sold under repurchase agreements for the three months ended September 30, 2024 decreased $39.1 million, or 9.4%, when compared to the same time period in 2023, principally due to a decline in upstream federal funds purchased. Average other borrowings for the three and nine months ended September 30, 2024 decreased $572.5 million, or 52.2%, and $671.4 million, or 51.6%, respectively, when compared to the same time periods in 2023, principally due to the decrease in outstanding short-term FHLB advances with the FHLB of Dallas as a result of changes in funding needs.

Interest expense for the three and nine months ended September 30, 2024 totaled $96.9 million and $292.0 million, respectively, an increase of $7.0 million, or 7.8%, and $62.2 million, or 27.1%, respectively, when compared with the same time periods in 2023, while the rate on total interest-bearing liabilities increased 22 basis points and 56 basis points, respectively, to 2.94%, principally due to an increase in interest on deposits partially offset by a decline in other interest expense. Interest on deposits for the three and nine months ended September 30, 2024 increased $16.2 million, or 23.3%, and $88.3 million, or 53.5%, respectively, while the rate on interest-bearing deposits increased 42 basis points to 2.81% and 80 basis points to 2.77%, respectively, when compared to the same time periods in 2023, primarily due to higher interest rates, reflecting the increased competitive pressures on deposits, and increases in average balances of time deposits and MMDA accounts. Other interest expense for the three and nine months ended September 30, 2024 decreased $8.7 million, or 59.4%, and $27.2 million, or 54.8%, respectively, while the rate on other borrowings decreased 79 basis points to 4.53% and 35 basis points to 4.75%, respectively, when compared to the same time periods in 2023, primarily due to the decrease in outstanding short-term FHLB advances with the FHLB of Dallas.

73

 

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

 

 

Three Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average
Balance

 

 

Interest

 

 

Yield/
Rate

 

 

Average
Balance

 

 

Interest

 

 

Yield/
Rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds sold and securities
   purchased under reverse repurchase
   agreements

 

$

653

 

 

$

9

 

 

 

5.48

%

 

$

230

 

 

$

3

 

 

 

5.17

%

Securities - taxable

 

 

3,027,942

 

 

 

26,162

 

 

 

3.44

%

 

 

3,494,901

 

 

 

16,624

 

 

 

1.89

%

Securities - nontaxable

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,686

 

 

 

58

 

 

 

4.05

%

Loans (LHFS and LHFI)

 

 

13,379,658

 

 

 

220,433

 

 

 

6.55

%

 

 

12,926,942

 

 

 

206,523

 

 

 

6.34

%

Other earning assets

 

 

607,275

 

 

 

8,293

 

 

 

5.43

%

 

 

682,644

 

 

 

8,613

 

 

 

5.01

%

Total interest-earning assets

 

 

17,015,528

 

 

 

254,897

 

 

 

5.96

%

 

 

17,110,403

 

 

 

231,821

 

 

 

5.38

%

Other assets

 

 

1,646,241

 

 

 

 

 

 

 

 

 

1,721,310

 

 

 

 

 

 

 

ACL, LHFI

 

 

(154,476

)

 

 

 

 

 

 

 

 

(127,915

)

 

 

 

 

 

 

Total assets

 

$

18,507,293

 

 

 

 

 

 

 

 

$

18,703,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

12,187,523

 

 

 

86,043

 

 

 

2.81

%

 

$

11,593,096

 

 

 

69,797

 

 

 

2.39

%

Federal funds purchased and
   securities sold under repurchase
   agreements

 

 

375,559

 

 

 

4,864

 

 

 

5.15

%

 

 

414,696

 

 

 

5,375

 

 

 

5.14

%

Other borrowings

 

 

524,884

 

 

 

5,971

 

 

 

4.53

%

 

 

1,097,398

 

 

 

14,713

 

 

 

5.32

%

Total interest-bearing liabilities

 

 

13,087,966

 

 

 

96,878

 

 

 

2.94

%

 

 

13,105,190

 

 

 

89,885

 

 

 

2.72

%

Noninterest-bearing demand deposits

 

 

3,221,516

 

 

 

 

 

 

 

 

 

3,429,815

 

 

 

 

 

 

 

Other liabilities

 

 

274,563

 

 

 

 

 

 

 

 

 

585,908

 

 

 

 

 

 

 

Shareholders' equity

 

 

1,923,248

 

 

 

 

 

 

 

 

 

1,582,885

 

 

 

 

 

 

 

Total liabilities and
   shareholders' equity

 

$

18,507,293

 

 

 

 

 

 

 

 

$

18,703,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

 

158,019

 

 

 

3.69

%

 

 

 

 

 

141,936

 

 

 

3.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less tax equivalent adjustment

 

 

 

 

 

3,305

 

 

 

 

 

 

 

 

 

3,299

 

 

 

 

Net interest margin per
   consolidated statements
   of income (loss)

 

 

 

 

$

154,714

 

 

 

 

 

 

 

 

$

138,637

 

 

 

 

 

74

 

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Balance

 

 

Interest

 

 

Yield/
Rate

 

 

Average
Balance

 

 

Interest

 

 

Yield/
Rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds sold and securities
   purchased under reverse repurchase
   agreements

 

$

294

 

 

$

12

 

 

 

5.45

%

 

$

1,953

 

 

$

78

 

 

 

5.34

%

Securities - taxable

 

 

3,219,800

 

 

 

59,725

 

 

 

2.48

%

 

 

3,587,670

 

 

 

50,164

 

 

 

1.87

%

Securities - nontaxable

 

 

150

 

 

 

5

 

 

 

4.45

%

 

 

7,161

 

 

 

219

 

 

 

4.09

%

Loans (LHFS and LHFI)

 

 

13,286,538

 

 

 

646,288

 

 

 

6.50

%

 

 

12,731,268

 

 

 

578,431

 

 

 

6.07

%

Other earning assets

 

 

590,433

 

 

 

24,527

 

 

 

5.55

%

 

 

747,627

 

 

 

27,217

 

 

 

4.87

%

Total interest-earning assets

 

 

17,097,215

 

 

 

730,557

 

 

 

5.71

%

 

 

17,075,679

 

 

 

656,109

 

 

 

5.14

%

Other assets

 

 

1,705,473

 

 

 

 

 

 

 

 

 

1,707,608

 

 

 

 

 

 

 

ACL, LHFI

 

 

(145,510

)

 

 

 

 

 

 

 

 

(123,313

)

 

 

 

 

 

 

Total assets

 

$

18,657,178

 

 

 

 

 

 

 

 

$

18,659,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

12,236,259

 

 

 

253,440

 

 

 

2.77

%

 

$

11,198,409

 

 

 

165,104

 

 

 

1.97

%

Federal funds purchased and
   securities sold under repurchase
   agreements

 

 

412,679

 

 

 

16,118

 

 

 

5.22

%

 

 

413,608

 

 

 

15,072

 

 

 

4.87

%

Other borrowings

 

 

630,766

 

 

 

22,452

 

 

 

4.75

%

 

 

1,302,133

 

 

 

49,638

 

 

 

5.10

%

Total interest-bearing liabilities

 

 

13,279,704

 

 

 

292,010

 

 

 

2.94

%

 

 

12,914,150

 

 

 

229,814

 

 

 

2.38

%

Noninterest-bearing demand deposits

 

 

3,175,371

 

 

 

 

 

 

 

 

 

3,611,592

 

 

 

 

 

 

 

Other liabilities

 

 

425,812

 

 

 

 

 

 

 

 

 

571,681

 

 

 

 

 

 

 

Shareholders' equity

 

 

1,776,291

 

 

 

 

 

 

 

 

 

1,562,551

 

 

 

 

 

 

 

Total liabilities and
   shareholders' equity

 

$

18,657,178

 

 

 

 

 

 

 

 

$

18,659,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

 

438,547

 

 

 

3.43

%

 

 

 

 

 

426,295

 

 

 

3.34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less tax equivalent adjustment

 

 

 

 

 

9,974

 

 

 

 

 

 

 

 

 

10,159

 

 

 

 

Net interest margin per
   consolidated statements
   of income (loss)

 

 

 

 

$

428,573

 

 

 

 

 

 

 

 

$

416,136

 

 

 

 

Provision for Credit Losses

The PCL, LHFI is the amount necessary to maintain the ACL for LHFI at the amount of expected credit losses inherent within the LHFI portfolio. The amount of PCL and the related ACL for LHFI are based on Trustmark’s ACL methodology. The PCL, LHFI, excluding the PCL, LHFI sale of 1-4 family mortgage loans, totaled $7.9 million and $30.3 million for the three and nine months ended September 30, 2024, respectively, compared to $8.3 million and $19.8 million, respectively, for the same time periods in 2023. The PCL on LHFI, excluding the PCL, LHFI sale of 1-4 family mortgage loans, for the three months ended September 30, 2024 primarily reflected increases in required reserves related to individually analyzed LHFI and the implementation of the External Factor-Credit Quality Review qualitative factor, partially offset by declines in required reserves resulting from the update of the macroeconomic forecasts and net changes in other qualitative reserve factors. The PCL on LHFI, excluding the PCL, LHFI 1-4 family mortgage loans, for the nine months ended September 30, 2024 primarily reflected an increase in required reserves as a result of net adjustments to the qualitative factors due to credit migration, implementation of the External Factor-Credit Quality Review qualitative factor, and specific reserves for individually analyzed LHFI, partially offset by net changes in the macroeconomic forecast associated with specific loss driver models as a result of loss driver updates and net changes in other qualitative reserve factors.

FASB ASC Topic 326 requires Trustmark to estimate expected credit losses for off-balance sheet credit exposures which are not unconditionally cancellable by Trustmark. Trustmark maintains a separate ACL for off-balance sheet credit exposures, including unfunded commitments and letters of credit. Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. The PCL, off-balance sheet credit exposures totaled a negative $1.4 million and a negative $5.2

75

 

million for the three and nine months ended September 30, 2024, respectively, compared to $104 thousand and a negative $1.9 million, respectively, for the same time periods in 2023. The release in PCL on off-balance sheet credit exposures for the three months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the External Factor-Credit Quality Review qualitative reserve factor. The release in PCL on off-balance sheet credit exposures for the nine months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the performance trend and the External Factor-Credit Quality Review qualitative reserve factors.

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

Noninterest Income (Loss)

The following table provides the comparative components of noninterest income (loss) for the periods presented ($ in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Service charges on deposit
   accounts

 

$

11,272

 

 

$

11,074

 

 

$

198

 

 

 

1.8

%

 

$

33,154

 

 

$

32,105

 

 

$

1,049

 

 

 

3.3

%

Bank card and other fees

 

 

7,931

 

 

 

8,217

 

 

 

(286

)

 

 

-3.5

%

 

 

24,584

 

 

 

24,937

 

 

 

(353

)

 

 

-1.4

%

Mortgage banking, net

 

 

6,119

 

 

 

6,458

 

 

 

(339

)

 

 

-5.2

%

 

 

19,238

 

 

 

20,697

 

 

 

(1,459

)

 

 

-7.0

%

Wealth management

 

 

9,288

 

 

 

8,773

 

 

 

515

 

 

 

5.9

%

 

 

27,932

 

 

 

26,435

 

 

 

1,497

 

 

 

5.7

%

Other, net

 

 

2,952

 

 

 

2,399

 

 

 

553

 

 

 

23.1

%

 

 

13,515

 

 

 

7,654

 

 

 

5,861

 

 

 

76.6

%

Security gains (losses), net

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(182,792

)

 

 

—

 

 

 

(182,792

)

 

 

-100.0

%

Total noninterest income
   (loss)

 

$

37,562

 

 

$

36,921

 

 

$

641

 

 

 

1.7

%

 

$

(64,369

)

 

$

111,828

 

 

$

(176,197

)

 

n/m

 

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

Changes in various components of noninterest income (loss) are discussed in further detail below. For analysis of Trustmark’s wealth management income, please see the section captioned “Results of Segment Operations.”

Mortgage Banking, Net

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Mortgage servicing income, net

 

$

7,127

 

 

$

6,916

 

 

$

211

 

 

 

3.1

%

 

$

21,054

 

 

$

20,465

 

 

$

589

 

 

 

2.9

%

Change in fair value-MSR from
   runoff

 

 

(3,154

)

 

 

(3,203

)

 

 

49

 

 

 

1.5

%

 

 

(8,527

)

 

 

(7,058

)

 

 

(1,469

)

 

 

-20.8

%

Gain on sales of loans, net

 

 

4,648

 

 

 

3,748

 

 

 

900

 

 

 

24.0

%

 

 

14,808

 

 

 

11,432

 

 

 

3,376

 

 

 

29.5

%

Mortgage banking income
   before net hedge
   ineffectiveness

 

 

8,621

 

 

 

7,461

 

 

 

1,160

 

 

 

15.5

%

 

 

27,335

 

 

 

24,839

 

 

 

2,496

 

 

 

10.0

%

Change in fair value-MSR from
   market changes

 

 

(10,406

)

 

 

6,809

 

 

 

(17,215

)

 

n/m

 

 

 

(6,909

)

 

 

8,735

 

 

 

(15,644

)

 

n/m

 

Change in fair value of
   derivatives

 

 

7,904

 

 

 

(7,812

)

 

 

15,716

 

 

n/m

 

 

 

(1,188

)

 

 

(12,877

)

 

 

11,689

 

 

 

90.8

%

Net hedge ineffectiveness

 

 

(2,502

)

 

 

(1,003

)

 

 

(1,499

)

 

n/m

 

 

 

(8,097

)

 

 

(4,142

)

 

 

(3,955

)

 

 

-95.5

%

Mortgage banking, net

 

$

6,119

 

 

$

6,458

 

 

$

(339

)

 

 

-5.2

%

 

$

19,238

 

 

$

20,697

 

 

$

(1,459

)

 

 

-7.0

%

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

The decrease in mortgage banking, net for the three months ended September 30, 2024 when compared to the same time period in 2023 was principally due to an increase in the net negative hedge ineffectiveness, partially offset by an increase in the gain on sales of loans, net. The decrease in mortgage banking, net for the nine months ended September 30, 2024 when compared to the same time period in 2023 was principally due to increases in the net negative hedge ineffectiveness and the run-off of the MSR, partially offset by an increase in the gain on sales of loans, net. Mortgage loan production for the three and nine months ended September 30, 2024 was $392.1 million and $1.046 billion, respectively, an increase of $2.2 million, or 0.6%, and a decrease of $136.7 million, or 11.6%, respectively, when

76

 

compared to the same time periods in 2023. Loans serviced for others totaled $8.691 billion at September 30, 2024, compared with $8.403 billion at September 30, 2023, an increase of $287.9 million, or 3.4%.

Representing a significant component of mortgage banking income is the gain on sales of loans, net. The increase in the gain on sales of loans, net when the three months ended September 30, 2024 is compared to the same time period in 2023, was primarily the result of higher profit margins in secondary marketing activities and an increase in the mortgage valuation adjustment, partially offset by a decline in the volume of loans sold. The increase in the gain on sales of loans, net when the nine months ended September 30, 2024 is compared to the same time period in 2023, was primarily the result of higher profit margins in secondary marketing activities partially offset by declines in the mortgage valuation adjustment and the volume of loans sold. Loan sales totaled $288.5 million and $843.6 million for the three and nine months ended September 30, 2024, respectively, a decrease of $55.2 million, or 16.1%, and $49.4 million, or 5.5%, respectively, when compared with the same time periods in 2023.

Other, Net

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Partnership amortization for
   tax credit purposes

 

$

(1,977

)

 

$

(1,995

)

 

$

18

 

 

 

0.9

%

 

$

(5,635

)

 

$

(5,975

)

 

$

340

 

 

 

5.7

%

Increase in life insurance cash
   surrender value

 

 

1,883

 

 

 

1,784

 

 

 

99

 

 

 

5.5

%

 

 

5,587

 

 

 

5,193

 

 

 

394

 

 

 

7.6

%

Loss on sale of 1-4 family
   mortgage loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,798

)

 

 

—

 

 

 

(4,798

)

 

 

-100.0

%

Visa C shares fair value
   adjustment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,056

 

 

 

—

 

 

 

8,056

 

 

 

100.0

%

Other miscellaneous income

 

 

3,046

 

 

 

2,610

 

 

 

436

 

 

 

16.7

%

 

 

10,305

 

 

 

8,436

 

 

 

1,869

 

 

 

22.2

%

Total other, net

 

$

2,952

 

 

$

2,399

 

 

$

553

 

 

 

23.1

%

 

$

13,515

 

 

$

7,654

 

 

$

5,861

 

 

 

76.6

%

The increase in other, net when the nine months ended September 30, 2024 is compared to the same time period in 2023, was principally due to the $8.1 million Visa C shares fair value adjustment during the second quarter of 2024 as well as an increase in cash management service fees, partially offset by the $4.8 million noncredit-related loss on the sale of 1-4 family mortgage loans recorded during the second quarter of 2024.

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,

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

66,691

 

 

$

67,374

 

 

$

(683

)

 

 

-1.0

%

 

$

197,016

 

 

$

198,944

 

 

$

(1,928

)

 

 

-1.0

%

Services and fees

 

 

25,724

 

 

 

27,472

 

 

 

(1,748

)

 

 

-6.4

%

 

 

74,898

 

 

 

80,327

 

 

 

(5,429

)

 

 

-6.8

%

Net occupancy-premises

 

 

7,398

 

 

 

7,151

 

 

 

247

 

 

 

3.5

%

 

 

21,933

 

 

 

21,363

 

 

 

570

 

 

 

2.7

%

Equipment expense

 

 

6,141

 

 

 

6,755

 

 

 

(614

)

 

 

-9.1

%

 

 

18,707

 

 

 

19,387

 

 

 

(680

)

 

 

-3.5

%

Litigation settlement expense

 

 

—

 

 

 

6,500

 

 

 

(6,500

)

 

 

-100.0

%

 

 

—

 

 

 

6,500

 

 

 

(6,500

)

 

 

-100.0

%

Other expense

 

 

17,316

 

 

 

15,039

 

 

 

2,277

 

 

 

15.1

%

 

 

48,706

 

 

 

42,980

 

 

 

5,726

 

 

 

13.3

%

Total noninterest expense

 

$

123,270

 

 

$

130,291

 

 

$

(7,021

)

 

 

-5.4

%

 

$

361,260

 

 

$

369,501

 

 

$

(8,241

)

 

 

-2.2

%

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.

Salaries and Employee Benefits

The decrease in salaries and employee benefits when the nine months ended September 30, 2024 is compared to the same time period in 2023 was principally due to declines in commissions related to mortgage production, other salaries expense and medical insurance expense, partially offset by an increase in salaries expense primarily due to general merit increases.

77

 

Services and Fees

The decreases in services and fees when the three and nine months ended September 30, 2024 are compared to the same time periods in 2023 were principally due to declines in outside services and fees, primarily related to other professional fees and legal expense, communication expense, primarily related to telephone expense, and advertising expense, partially offset by an increase in data processing expenses related to software.

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,

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Loan expense

 

$

2,824

 

 

$

3,130

 

 

$

(306

)

 

 

-9.8

%

 

$

8,659

 

 

$

8,734

 

 

$

(75

)

 

 

-0.9

%

Amortization of intangibles

 

 

28

 

 

 

34

 

 

 

(6

)

 

 

-17.6

%

 

 

83

 

 

 

257

 

 

 

(174

)

 

 

-67.7

%

FDIC assessment expense

 

 

5,071

 

 

 

3,765

 

 

 

1,306

 

 

 

34.7

%

 

 

14,396

 

 

 

8,685

 

 

 

5,711

 

 

 

65.8

%

Other real estate expense, net

 

 

2,452

 

 

 

(40

)

 

 

2,492

 

 

n/m

 

 

 

3,450

 

 

 

303

 

 

 

3,147

 

 

n/m

 

Other miscellaneous expense

 

 

6,941

 

 

 

8,150

 

 

 

(1,209

)

 

 

-14.8

%

 

 

22,118

 

 

 

25,001

 

 

 

(2,883

)

 

 

-11.5

%

Total other expense

 

$

17,316

 

 

$

15,039

 

 

$

2,277

 

 

 

15.1

%

 

$

48,706

 

 

$

42,980

 

 

$

5,726

 

 

 

13.3

%

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

The increase in other expense when the three and nine months ended September 30, 2024 is compared to the same time period in 2023 was principally due to increases in FDIC assessment expense, primarily due to an increase in the assessment rate, and other real estate expense, net, primarily attributable to a reserve for other real estate write-down recorded for one foreclosed property in the Texas market region which was under contract to be sold during the fourth quarter of 2024. The increase in FDIC assessment rate was principally due to increases in the overall assessment rate and the 2-basis point increase in the initial base assessment rate by the FDIC during the second quarter of 2023 as part of the FDIC's final rule to restore the DIF to required levels.

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. The Insurance Segment is included in discontinued operations for all periods presented in the accompanying consolidated balance sheets and the consolidated statements of income (loss). For additional information about discontinued operations, please see Note 2 - Discontinued Operations included in Part I. Item 1. – Financial Statements of this report. The following discusses changes in the results of operations of each reportable segment for the nine months ended September 30, 2024 and 2023.

General Banking

Net interest income for the General Banking Segment increased $12.6 million, or 3.1%, when the nine months ended September 30, 2024 is compared with the same time period in 2023. The increase in net interest income was principally due to increases in interest and fees on LHFS and LHFI and interest on securities as well as a decline in other interest expense, primarily due to a decline in FHLB advances with the FHLB of Dallas, partially offset by an increase in interest on deposits and a decline in other interest income, primarily due to a decline in reserves held at the FRBA. The PCL (LHFI and off-balance sheet credit exposures) for the General Banking Segment for the nine months ended September 30, 2024 totaled $33.6 million compared to a PCL of $20.0 million for the same time period in 2023, an increase of $13.6 million, or 68.0%. Excluding the $8.6 million PCL, LHFI sale of 1-4 family mortgage loans, the PCL for the General Banking Segment totaled $25.0 million for the first nine months of 2024, an increase of $5.0 million, or 24.9%. For more information on these net interest income and PCL items, please see the sections captioned “Financial Highlights” and “Results of Operations.”

Noninterest income (loss) for the General Banking Segment decreased $177.9 million when the first nine months of 2024 is compared to the same time period in 2023, primarily due to the net loss on the sale of available for sale securities, the noncredit-related loss on the sale of 1-4 family mortgage loans and a decrease in mortgage banking, net, partially offset by the gain on the conversion of Visa Class B-1 shares to Visa Class C shares and increases in cash management service fees and nonsufficient fund (NSF) and overdraft fees. Noninterest income (loss) for the General Banking Segment includes service charges on deposit accounts; wealth management; bank card and other fees; mortgage banking, net; other, net and security gains (losses), net. For more information on these noninterest income items, please see the analysis included in the section captioned “Noninterest Income (Loss).”

78

 

Noninterest expense for the General Banking Segment decreased $8.4 million, or 2.4%, when the first nine months of 2024 is compared with the same time period in 2023, principally due to litigation settlement expense recorded in the third quarter of 2023 as well as declines in outside services and fees, salaries and employee benefits, advertising expenses and communications expense, partially offset by increases in FDIC assessment expense, other real estate expense and data processing charges related to software. For more information on these noninterest expense items, please see the analysis included in the section captioned “Noninterest Expense.”

Wealth Management

Net income for the Wealth Management Segment for the first nine months of 2024 decreased $628 thousand, or 9.7%, when compared to the same time period in 2023, primarily due to an increase in the PCL partially offset by an increase in noninterest income. The PCL for the nine months ended September 30, 2024 totaled $162 thousand compared to a negative PCL of $2.1 million for the same period in 2023, an increase of $2.3 million. Noninterest income for the Wealth Management Segment, which primarily includes income related to investment management, trust and brokerage services, increased $1.7 million, or 6.5%, when the first nine months of 2024 is compared to the same time period in 2023, primarily due to an increase in income from brokerage and investment services. Noninterest expense for the Wealth Management Segment increased $149 thousand, or 0.6%, when the first nine months of 2024 is compared to the same time period in 2023, principally due to an increase in salaries and employee benefits expense, primarily related to broker commissions and trust incentives, partially offset by a decrease in business process outsourcing expense.

At September 30, 2024 and 2023, Trustmark held assets under management and administration of $9.425 billion and $8.235 billion, respectively, and brokerage assets of $2.742 billion and $2.431 billion, respectively.

Income Taxes

For the three and nine months ended September 30, 2024, Trustmark’s combined effective tax rate from continuing operations was 17.8% and 64.0%, respectively, compared to 17.1% and 15.1%, respectively, for the same time periods in 2023. The increase in the effective tax rate from continuing operations for the nine months ended September 30, 2024 was principally due to the significant non-routine transactions that occurred during the second quarter of 2024. Excluding the significant non-routine transactions, Trustmark’s combined effective tax rate from continuing operations for the nine months ended September 30, 2024 was 17.4%. Trustmark’s effective tax rate continues to be less than the statutory rate primarily due to various tax-exempt income items and its utilization of income tax credit programs. Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low-income housing tax credits or historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

Financial Condition

Earning assets serve as the primary revenue streams for Trustmark and are comprised of securities, loans, federal funds sold, securities sold under reverse repurchase agreements and other earning assets. Average earning assets totaled $17.097 billion, or 91.6% of total average assets, for the nine months ended September 30, 2024, compared to $17.076 billion, or 91.5% of total average assets, for the nine months ended September 30, 2023, an increase of $21.5 million, or 0.1%.

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 4.7 years at September 30, 2024 compared to 4.5 years at December 31, 2023. The increase in the weighted-average life of the portfolio was principally due to the restructuring of the available for sale securities portfolio during the second quarter of 2024.

When compared to December 31, 2023, total investment securities decreased by $105.0 million, or 3.3%, during the first nine months of 2024. This decrease resulted primarily from available for sale securities sold net of available for sale securities purchased as part of the restructuring of the available for sale securities portfolio during the second quarter of 2024 as well as calls, maturities and pay-downs of the loans underlying GSE guaranteed securities, partially offset by improvements in the fair market value of the available for sale securities and available for sale securities purchased during the third quarter of 2024. Trustmark sold $1.561 billion of available for sale securities generating a loss of $182.8 million during the first nine months of 2024, compared to no securities sold during the first nine months of 2023.

During 2022, Trustmark reclassified approximately $766.0 million of securities available for sale to securities held to maturity to mitigate the potential adverse impact of a rising interest rate environment on the fair value of the available for sale securities and the related impact on tangible common equity. At the date of these transfers, the net unrealized holding loss on the available for sale

79

 

securities totaled approximately $91.9 million ($68.9 million net of tax). The resulting net unrealized holding losses are being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

At September 30, 2024, the net unamortized, unrealized loss on all transferred securities included in accumulated other comprehensive income (loss) (AOCI) in the accompanying consolidated balance sheets totaled $49.3 million compared to $57.6 million at December 31, 2023.

Available for sale securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in AOCI, a separate component of shareholders’ equity. At September 30, 2024, available for sale securities totaled $1.726 billion, which represented 56.0% of the securities portfolio, compared to $1.763 billion, or 55.3% of total securities, at December 31, 2023. At September 30, 2024, unrealized gains, net on available for sale securities totaled $34.2 million compared to unrealized losses, net of $196.1 million at December 31, 2023. At September 30, 2024, available for sale securities consisted of U.S. Treasury securities, direct obligations of government agencies and GSE guaranteed mortgage-related securities.

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, 2024, held to maturity securities totaled $1.358 billion, which represented 44.0% of the total securities portfolio, compared to $1.426 billion, or 44.7% of total securities, at December 31, 2023.

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of 100.0% of the portfolio in U.S. Treasury securities, direct obligations of government agencies, 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 and FRBA, Trustmark does not hold any other equity investment in a GSE or other governmental entity.

As of September 30, 2024, Trustmark did not hold securities of any one issuer with a carrying value exceeding 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 tables present Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating, as determined by Moody’s, at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

Aaa

 

$

1,691,555

 

 

 

100.0

%

 

$

1,725,795

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Aaa

 

$

1,358,358

 

 

 

100.0

%

 

$

1,316,167

 

 

 

100.0

%

 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

Aaa

 

$

1,959,007

 

 

 

100.0

%

 

$

1,762,878

 

 

 

100.0

%

Total securities available for sale

 

$

1,959,007

 

 

 

100.0

%

 

$

1,762,878

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Aaa

 

$

1,425,939

 

 

 

100.0

%

 

$

1,355,164

 

 

 

100.0

%

Not rated (1)

 

 

340

 

 

 

—

 

 

 

340

 

 

 

—

 

Total securities held to maturity

 

$

1,426,279

 

 

 

100.0

%

 

$

1,355,504

 

 

 

100.0

%

 

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

The table above presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security.

80

 

LHFS

At September 30, 2024, LHFS totaled $216.5 million, consisting of $127.0 million of residential real estate mortgage loans in the process of being sold to third parties and $89.4 million of GNMA optional repurchase loans. At December 31, 2023, LHFS totaled $184.8 million, consisting of $106.0 million of residential real estate mortgage loans in the process of being sold to third parties and $78.8 million of 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 2024 or 2023.

For additional information regarding the GNMA optional repurchase loans, please see the section captioned “Past Due LHFS” included in Note 4 – LHFI and Allowance for Credit Losses, LHFI of Part I. Item 1. – Financial Statements of this report.

LHFI

At September 30, 2024 and December 31, 2023, LHFI consisted of the following ($ in thousands):

 

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

614,787

 

 

 

4.7

%

 

$

642,886

 

 

 

5.0

%

Other secured by 1-4 family residential properties

 

 

647,843

 

 

 

4.9

%

 

 

622,397

 

 

 

4.8

%

Secured by nonfarm, nonresidential properties

 

 

3,582,552

 

 

 

27.3

%

 

 

3,489,434

 

 

 

26.9

%

Other real estate secured

 

 

1,475,798

 

 

 

11.3

%

 

 

1,312,551

 

 

 

10.1

%

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

973,469

 

 

 

7.4

%

 

 

867,793

 

 

 

6.7

%

Secured by 1-4 family residential properties

 

 

2,247,163

 

 

 

17.2

%

 

 

2,282,318

 

 

 

17.6

%

Commercial and industrial loans

 

 

1,767,079

 

 

 

13.5

%

 

 

1,922,910

 

 

 

14.9

%

Consumer loans

 

 

152,611

 

 

 

1.2

%

 

 

165,734

 

 

 

1.3

%

State and other political subdivision loans

 

 

996,002

 

 

 

7.6

%

 

 

1,088,466

 

 

 

8.4

%

Other commercial loans and leases

 

 

642,807

 

 

 

4.9

%

 

 

556,035

 

 

 

4.3

%

LHFI

 

$

13,100,111

 

 

 

100.0

%

 

$

12,950,524

 

 

 

100.0

%

 

LHFI increased $149.6 million, or 1.2%, compared to December 31, 2023. The increase in LHFI during the first nine months of 2024 was primarily due to net growth in LHFI secured by real estate and other commercial loans and leases partially offset by declines in commercial and industrial LHFI and state and other political subdivision LHFI.

LHFI secured by real estate increased $324.2 million, or 3.5%, during the first nine months of 2024, reflecting net growth in other real estate secured LHFI, other construction LHFI, LHFI secured by nonfarm, nonresidential properties (NFNR), and other LHFI secured by 1-4 family residential properties, partially offset by net declines in construction, land development and other land LHFI and LHFI secured by 1-4 family residential properties. Other real estate secured LHFI increased $163.2 million, or 12.4%, during the first nine months of 2024, primarily due to other construction loans that moved to LHFI secured by multi-family residential properties in the Alabama, Texas and Mississippi market regions. Excluding other construction loan reclassifications, other real estate secured LHFI decreased $175.5 million, or 13.4%, during the first nine months of 2024 principally due to declines in LHFI secured by multi-family residential properties in the Alabama and Mississippi market regions. Other construction loans increased $105.7 million, or 12.2%, during the first nine months of 2024 primarily due to new construction loans in the Alabama, Mississippi, Texas, Georgia and Florida market regions 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 2024, $729.0 million loans were moved from other construction to other loan categories, including $338.8 million to multi-family residential loans, $362.9 million to nonowner-occupied loans and $27.3 million to owner-occupied loans. Excluding all reclassifications between loan categories, growth in other construction loans across all six market regions totaled $811.7 million, or 93.5%, during the first nine months of 2024. NFNR LHFI increased $93.1 million, or 2.7%, during the first nine months of 2024 principally due to other construction loans that moved to NFNR LHFI in the Mississippi, Alabama, Texas and Georgia market regions. Excluding other construction loan reclassifications, NFNR LHFI decreased $297.0 million, or 8.5%, during the first nine months of 2024 principally due to declines in nonowner-occupied loans and owner-occupied loans in the Mississippi, Texas, Tennessee and Florida market regions. Other LHFI secured by 1-4 family residential properties increased $25.4 million, or 4.1%, during the first nine months of 2024, principally due to growth in the Mississippi, Florida, Texas and Alabama market regions. LHFI secured by construction, land development and other land decreased $28.1 million, or 4.4%, during the first nine months of 2024 primarily due to declines in land development loans in the Alabama and Mississippi market regions, partially offset by growth in the

81

 

1-4 family construction loans in the Alabama and Tennessee market regions. LHFI secured by 1-4 family residential properties decreased $35.2 million, or 1.5%, during the first nine months of 2024 primarily in the Mississippi market region as a result of the sale of 1-4 family mortgage loans during the second quarter of 2024. Trustmark's LHFI secured by 1-4 family residential properties are primarily included in the Mississippi market region because these loans are centrally analyzed and approved as part of the mortgage line of business which is located in Jackson, Mississippi.

Other commercial loans and leases increased $86.8 million, or 15.6%, during the first nine months of 2024, principally due to increases in equipment finance leases in the Georgia market region and other commercial loans in the Tennessee market region, partially offset by declines in other commercial loans in the Mississippi market region. Trustmark's commercial leases are included in the Georgia market region because these leases are centrally analyzed and approved as part of the Equipment Finance line of business which is located in Atlanta, Georgia. Commercial and industrial LHFI declined $155.8 million, or 8.1%, during the first nine months of 2024 reflecting declines in the Tennessee, Mississippi, Texas and Florida market regions, partially offset by growth in the Georgia and Alabama market regions. State and other political subdivision LHFI declined $92.5 million, or 8.5%, during the first nine months of 2024, reflecting declines in the Mississippi, Texas, Georgia and Tennessee market regions.

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

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Home equity loans

 

$

75,662

 

 

$

58,176

 

Home equity lines of credit

 

 

456,535

 

 

 

430,933

 

Percentage of loans and lines for which Trustmark holds first lien

 

 

47.5

%

 

 

47.8

%

Percentage of loans and lines for which Trustmark does not hold first lien

 

 

52.5

%

 

 

52.2

%

 

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 generally higher than that of term loans. The ACL on LHFI is also reflective of the increased risk related to second liens through application of a greater loss factor to this portion of the portfolio.

Trustmark’s variable rate LHFI are based primarily on various prime and SOFR interest rate bases. The following tables provide information regarding the interest rate terms of Trustmark’s LHFI as of September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

 

September 30, 2024

 

 

 

Fixed

 

 

Variable

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

148,500

 

 

$

466,287

 

 

$

614,787

 

Other secured by 1- 4 family residential properties

 

 

187,052

 

 

 

460,791

 

 

 

647,843

 

Secured by nonfarm, nonresidential properties

 

 

1,316,983

 

 

 

2,265,569

 

 

 

3,582,552

 

Other real estate secured

 

 

151,363

 

 

 

1,324,435

 

 

 

1,475,798

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

Other construction

 

 

17,903

 

 

 

955,566

 

 

 

973,469

 

Secured by 1- 4 family residential properties

 

 

1,264,352

 

 

 

982,811

 

 

 

2,247,163

 

Commercial and industrial loans

 

 

767,997

 

 

 

999,082

 

 

 

1,767,079

 

Consumer loans

 

 

126,431

 

 

 

26,180

 

 

 

152,611

 

State and other political subdivision loans

 

 

932,952

 

 

 

63,050

 

 

 

996,002

 

Other commercial loans and leases

 

 

401,082

 

 

 

241,725

 

 

 

642,807

 

LHFI

 

$

5,314,615

 

 

$

7,785,496

 

 

$

13,100,111

 

 

82

 

 

 

December 31, 2023

 

 

 

Fixed

 

 

Variable

 

 

Total

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

Construction, land development and other land

 

$

158,143

 

 

$

484,743

 

 

$

642,886

 

Other secured by 1- 4 family residential properties

 

 

180,665

 

 

 

441,732

 

 

 

622,397

 

Secured by nonfarm, nonresidential properties

 

 

1,487,255

 

 

 

2,002,179

 

 

 

3,489,434

 

Other real estate secured

 

 

147,111

 

 

 

1,165,440

 

 

 

1,312,551

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

Other construction

 

 

10,240

 

 

 

857,553

 

 

 

867,793

 

Secured by 1- 4 family residential properties

 

 

1,374,499

 

 

 

907,819

 

 

 

2,282,318

 

Commercial and industrial loans

 

 

756,812

 

 

 

1,166,098

 

 

 

1,922,910

 

Consumer loans

 

 

137,424

 

 

 

28,310

 

 

 

165,734

 

State and other political subdivision loans

 

 

1,022,092

 

 

 

66,374

 

 

 

1,088,466

 

Other commercial loans and leases

 

 

300,094

 

 

 

255,941

 

 

 

556,035

 

LHFI

 

$

5,574,335

 

 

$

7,376,189

 

 

$

12,950,524

 

 

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 equipment finance loans and leases. Loans secured by 1-4 family residential properties and credit cards 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 equipment finance loans and leases are included in the Georgia market region because they centrally analyzed and approved as part of the Equipment Finance line of business which is located in Atlanta, Georgia.

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The following table presents the LHFI composition by region at September 30, 2024 and reflects each region’s diversified mix of loans ($ in thousands):

 

 

September 30, 2024

 

LHFI Composition by Region

 

Total

 

 

Alabama

 

 

Florida

 

 

Georgia

 

 

Mississippi

 

 

Tennessee

 

 

Texas

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land development and
   other land

 

$

614,787

 

 

$

269,747

 

 

$

27,722

 

 

$

10,943

 

 

$

157,118

 

 

$

46,408

 

 

$

102,849

 

Other secured by 1-4 family residential
   properties

 

 

647,843

 

 

 

153,482

 

 

 

61,195

 

 

 

—

 

 

 

316,597

 

 

 

80,570

 

 

 

35,999

 

Secured by nonfarm, nonresidential
   properties

 

 

3,582,552

 

 

 

1,036,006

 

 

 

217,973

 

 

 

31,530

 

 

 

1,539,462

 

 

 

130,662

 

 

 

626,919

 

Other real estate secured

 

 

1,475,798

 

 

 

663,949

 

 

 

1,676

 

 

 

—

 

 

 

392,700

 

 

 

6,734

 

 

 

410,739

 

Other loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other construction

 

 

973,469

 

 

 

440,904

 

 

 

9,622

 

 

 

80,532

 

 

 

162,622

 

 

 

223

 

 

 

279,566

 

Secured by 1-4 family residential
   properties

 

 

2,247,163

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,243,921

 

 

 

3,242

 

 

 

—

 

Commercial and industrial loans

 

 

1,767,079

 

 

 

480,202

 

 

 

21,296

 

 

 

227,285

 

 

 

715,590

 

 

 

126,659

 

 

 

196,047

 

Consumer loans

 

 

152,611

 

 

 

21,229

 

 

 

7,021

 

 

 

—

 

 

 

96,798

 

 

 

15,842

 

 

 

11,721

 

State and other political subdivision loans

 

 

996,002

 

 

 

68,625

 

 

 

51,084

 

 

 

—

 

 

 

754,461

 

 

 

21,546

 

 

 

100,286

 

Other commercial loans and leases

 

 

642,807

 

 

 

58,633

 

 

 

7,537

 

 

 

246,819

 

 

 

184,313

 

 

 

75,359

 

 

 

70,146

 

LHFI

 

$

13,100,111

 

 

$

3,192,777

 

 

$

405,126

 

 

$

597,109

 

 

$

6,563,582

 

 

$

507,245

 

 

$

1,834,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, Land Development and Other Land Loans by Region

 

Lots

 

$

63,307

 

 

$

27,502

 

 

$

6,389

 

 

$

94

 

 

$

17,031

 

 

$

5,075

 

 

$

7,216

 

Development

 

 

110,649

 

 

 

56,110

 

 

 

814

 

 

 

—

 

 

 

22,290

 

 

 

11,624

 

 

 

19,811

 

Unimproved land

 

 

104,664

 

 

 

19,611

 

 

 

11,073

 

 

 

—

 

 

 

24,471

 

 

 

10,334

 

 

 

39,175

 

1-4 family construction

 

 

336,167

 

 

 

166,524

 

 

 

9,446

 

 

 

10,849

 

 

 

93,326

 

 

 

19,375

 

 

 

36,647

 

Construction, land development and
   other land loans

 

$

614,787

 

 

$

269,747

 

 

$

27,722

 

 

$

10,943

 

 

$

157,118

 

 

$

46,408

 

 

$

102,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Secured by Nonfarm, Nonresidential Properties by Region

 

Nonowner-occupied:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

315,491

 

 

$

107,378

 

 

$

22,723

 

 

$

—

 

 

$

90,634

 

 

$

16,686

 

 

$

78,070

 

Office

 

 

261,461

 

 

 

93,106

 

 

 

19,243

 

 

 

—

 

 

 

94,694

 

 

 

1,356

 

 

 

53,062

 

Hotel/motel

 

 

293,191

 

 

 

146,399

 

 

 

44,719

 

 

 

—

 

 

 

77,521

 

 

 

24,552

 

 

 

—

 

Mini-storage

 

 

142,671

 

 

 

37,227

 

 

 

1,513

 

 

 

—

 

 

 

91,490

 

 

 

627

 

 

 

11,814

 

Industrial

 

 

501,354

 

 

 

111,559

 

 

 

18,191

 

 

 

31,530

 

 

 

197,056

 

 

 

2,863

 

 

 

140,155

 

Health care

 

 

132,564

 

 

 

104,276

 

 

 

676

 

 

 

—

 

 

 

25,053

 

 

 

326

 

 

 

2,233

 

Convenience stores

 

 

23,905

 

 

 

2,733

 

 

 

406

 

 

 

—

 

 

 

12,806

 

 

 

218

 

 

 

7,742

 

Nursing homes/senior living

 

 

518,548

 

 

 

225,893

 

 

 

—

 

 

 

—

 

 

 

192,350

 

 

 

4,367

 

 

 

95,938

 

Other

 

 

107,798

 

 

 

28,608

 

 

 

8,472

 

 

 

—

 

 

 

54,468

 

 

 

7,725

 

 

 

8,525

 

Total nonowner-occupied loans

 

 

2,296,983

 

 

 

857,179

 

 

 

115,943

 

 

 

31,530

 

 

 

836,072

 

 

 

58,720

 

 

 

397,539

 

Owner-occupied:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

 

151,558

 

 

 

48,134

 

 

 

34,417

 

 

 

—

 

 

 

39,883

 

 

 

10,964

 

 

 

18,160

 

Churches

 

 

52,167

 

 

 

12,018

 

 

 

3,930

 

 

 

—

 

 

 

30,456

 

 

 

3,353

 

 

 

2,410

 

Industrial warehouses

 

 

165,033

 

 

 

11,393

 

 

 

4,685

 

 

 

—

 

 

 

48,050

 

 

 

14,534

 

 

 

86,371

 

Health care

 

 

121,272

 

 

 

10,444

 

 

 

8,337

 

 

 

—

 

 

 

83,182

 

 

 

2,215

 

 

 

17,094

 

Convenience stores

 

 

129,000

 

 

 

11,273

 

 

 

27,122

 

 

 

—

 

 

 

54,959

 

 

 

—

 

 

 

35,646

 

Retail

 

 

71,290

 

 

 

8,662

 

 

 

13,158

 

 

 

—

 

 

 

32,947

 

 

 

8,230

 

 

 

8,293

 

Restaurants

 

 

52,968

 

 

 

3,634

 

 

 

2,809

 

 

 

—

 

 

 

25,841

 

 

 

16,402

 

 

 

4,282

 

Auto dealerships

 

 

41,606

 

 

 

4,514

 

 

 

180

 

 

 

—

 

 

 

21,571

 

 

 

15,341

 

 

 

—

 

Nursing homes/senior living

 

 

380,774

 

 

 

57,076

 

 

 

—

 

 

 

—

 

 

 

297,634

 

 

 

—

 

 

 

26,064

 

Other

 

 

119,901

 

 

 

11,679

 

 

 

7,392

 

 

 

—

 

 

 

68,867

 

 

 

903

 

 

 

31,060

 

Total owner-occupied loans

 

 

1,285,569

 

 

 

178,827

 

 

 

102,030

 

 

 

—

 

 

 

703,390

 

 

 

71,942

 

 

 

229,380

 

Loans secured by nonfarm,
   nonresidential properties

 

$

3,582,552

 

 

$

1,036,006

 

 

$

217,973

 

 

$

31,530

 

 

$

1,539,462

 

 

$

130,662

 

 

$

626,919

 

Allowance for Credit Losses

LHFI

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

84

 

estimate of expected losses inherent within Trustmark’s existing LHFI portfolio. The ACL on LHFI is adjusted through the PCL, LHFI and reduced by the charge off of loan amounts, net of recoveries.

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

During the second quarter of 2024, Trustmark executed a sale on a portfolio of 1-4 family mortgage loans that were at least three payments delinquent and/or nonaccrual at the time of selection. As a result of this sale, a credit mark was established for a sub-pool of the loans in the sale. Due to the lack of historical experience and the use of industry data for this sub-pool, management elected to use the credit mark for reserving purposes on a go forward basis for this sub-pool that meet the same credit criteria of being three payments delinquent and/or nonaccrual. All loans of the sub-pool that meet the above credit criteria will be removed from the 1-4 family residential properties pool and placed into a separate pool with the credit mark reserve applied to the total balance.

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

In order to prevent the econometric models from extrapolating beyond reasonable boundaries of their input variables, Trustmark chose to establish an upper and lower limit process when applying the periodic forecasts. In this way, Management will not rely upon unobserved and untested relationships in the setting of the quantitative reserve. This approach applies to all input variables, including: Southern Unemployment, National Unemployment, National Gross Domestic Product (GDP), National Home Price Index (HPI), National Commercial Real Estate (CRE) Price Index and the BBB 7-10 Year US Corporate Bond Index. The upper and lower limits are based on the distribution of the macroeconomic variable by selecting extreme percentiles at the upper and lower limits of the distribution, the 1st and 99th percentiles, respectively. These upper and lower limits are then used to calculate the PD for the forecast time period in which the forecasted values are outside of the upper and lower limit range. Due to multiple periods having a PD or loss given default (LGD) at or near zero as a result of the improving macroeconomic forecasts, Management implemented PD and LGD floors to account for the risk associated with each portfolio. The PD and LGD floors are based on Trustmark's historical loss experience and applied at a portfolio level.

The external factors qualitative factor is Management’s best judgment on the loan or pool level impact of all factors that affect the portfolio that are not accounted for using any other part of the ACL methodology (i.e., natural disasters, changes in legislation, impacts due to technology and pandemics). During the third quarter of 2024, Trustmark activated the External Factor – Credit Quality Review qualitative factor. This qualitative factor ensures reserve adequacy for collectively evaluated commercial loans that may not have been identified and downgraded timely for various reasons. This qualitative factor population is all commercial loans risk rated 1-5. These loans are then applied to the historical average of the Watch/Special Mention rated percentage. Then the balance of these loans are applied additional reserves based on the same reserve rates utilized in the performance trends qualitative factor for Watch/Special Mention rated loans. Then the Watch/Special Mention population is applied the historical Substandard rated percentage and then subsequently applied the Substandard reserve rate utilized in the performance trends qualitative factor as well. The historical Watch/Special Mention and Substandard rated percentage averages captures the weighted-average life of the commercial loan portfolio. Thus, Trustmark will allocate additional reserves to capture the proportion of potential Watch/Special Mention and Substandard rated credits that may not have been categorized as such at any given point in time through the life of the commercial loan portfolio.

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

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

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

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

For a complete description of Trustmark’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see Note 4 – LHFI and Allowance for Credit Losses, LHFI included in Part I. Item 1. – Financial Statements of this report.

At September 30, 2024, the ACL on LHFI was $157.9 million, an increase of $18.6 million, or 13.3%, when compared with December 31, 2023. The increase in the ACL during the first nine months of 2024 was principally due to net adjustments to the qualitative factors due to credit migration, implementation of the External Factor-Credit Quality Review qualitative factor, and an increase in specific reserves on individually analyzed LHFI, partially offset by net changes in the macroeconomic forecast associated with specific loss driver models as a result of loss driver updates and net changes in other qualitative reserve factors. Allocation of Trustmark’s $157.9 million ACL on LHFI, represented 1.08% of commercial LHFI and 1.64% of consumer and home mortgage LHFI, resulting in an ACL to total LHFI of 1.21% as of September 30, 2024. This compares with an ACL to total LHFI of 1.08% at December 31, 2023, which was allocated to commercial LHFI at 0.85% and to consumer and mortgage LHFI at 1.81%.

The following table presents changes in the ACL on LHFI for the periods presented ($ in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

154,685

 

 

$

129,298

 

 

$

139,367

 

 

$

120,214

 

PCL, LHFI

 

 

7,923

 

 

 

8,322

 

 

 

30,327

 

 

 

19,777

 

PCL, LHFI sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

8,633

 

 

 

—

 

Charge-offs

 

 

(7,142

)

 

 

(7,496

)

 

 

(18,586

)

 

 

(13,265

)

Charge-offs, sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

(8,633

)

 

 

—

 

Recoveries

 

 

2,463

 

 

 

3,907

 

 

 

6,821

 

 

 

7,305

 

Net (charge-offs) recoveries

 

 

(4,679

)

 

 

(3,589

)

 

 

(20,398

)

 

 

(5,960

)

Balance at end of period

 

$

157,929

 

 

$

134,031

 

 

$

157,929

 

 

$

134,031

 

The increase in net charge-offs when the three months ended September 30, 2024 is compared to the same time period in 2023 was principally due to an increase in gross charge-offs in the Alabama market region, primarily related to one large nonaccrual commercial credit, and a decline in recoveries in the Tennessee market region, partially offset by a decrease in gross charge-offs in the Texas market region. The increase in net charge-offs when the nine months ended September 30, 2024, is compared to the same time period in 2023 was principally due to the charge-offs related to the sale of 1-4 family mortgage loans during the second quarter of 2024 and an increase in gross charge-offs in the Alabama and Texas market regions, primarily related to two large nonaccrual commercial credits, as well as a decline in recoveries in the Tennessee market region.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Alabama

 

$

(3,098

)

 

$

(165

)

 

$

(3,380

)

 

$

(574

)

Florida

 

 

595

 

 

 

21

 

 

 

876

 

 

 

(50

)

Mississippi

 

 

(1,881

)

 

 

(1,867

)

 

 

(3,849

)

 

 

(3,404

)

Tennessee

 

 

(296

)

 

 

2,127

 

 

 

(597

)

 

 

1,837

 

Texas

 

 

1

 

 

 

(3,705

)

 

 

(4,815

)

 

 

(3,769

)

Net (charge-offs) recoveries, excluding sale of
   1-4 mortgage loans

 

 

(4,679

)

 

 

(3,589

)

 

 

(11,765

)

 

 

(5,960

)

Mississippi - sale of 1-4 family mortgage loans

 

 

—

 

 

 

—

 

 

 

(8,633

)

 

 

—

 

Total net (charge-offs) recoveries

 

$

(4,679

)

 

$

(3,589

)

 

$

(20,398

)

 

$

(5,960

)

The PCL, LHFI, excluding the PCL, LHFI 1-4 family mortgage loans, for the three and nine months ended September 30, 2024 totaled 0.24% and 0.30%, respectively, of average loans (LHFS and LHFI) compared to 0.26% and 0.21%, respectively, of average loans (LHFS and LHFI) for the same time periods in 2023. The PCL on LHFI, excluding the PCL, LHFI sale of 1-4 family mortgage loans, for the three months ended September 30, 2024 primarily reflected increases in required reserves related to individually analyzed LHFI and the implementation of the External Factor-Credit Quality Review qualitative factor, partially offset by declines in required reserves resulting from the update of the macroeconomic forecasts and net changes in other qualitative reserve factors. The PCL on LHFI, excluding the PCL, LHFI 1-4 family mortgage loans, for the nine months ended September 30, 2024 primarily reflected an increase in required reserves as a result of net adjustments to the qualitative factors due to credit migration, implementation of the External Factor-Credit Quality Review qualitative factor, and specific reserves for individually analyzed LHFI, partially offset by net changes in the macroeconomic forecast associated with specific loss driver models as a result of loss driver updates and net changes in other qualitative reserve factors.

Off-Balance Sheet Credit Exposures

Trustmark maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which is included on the accompanying consolidated balance sheets. Expected credit losses for off-balance sheet credit exposures are estimated by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by Trustmark. Trustmark calculates a loan pool level unfunded amount for the period. Trustmark calculates an expected funding rate each period which is applied to each pool’s unfunded commitment balances to ensure that reserves will be applied to each pool based upon balances expected to be funded based upon historical levels. Additionally, a reserve rate is applied to the unfunded commitment balance, which incorporates both quantitative and a majority of the qualitative aspects of the current period’s expected credit loss rate. The reserve rate that is applied excludes the reserve impact of the performance trends qualitative factor. During the first quarter of 2024, Management decided to implement a performance trends qualitative factor for unfunded commitments. Additionally, during the third quarter of 2024, Management implemented the External Factor – Credit Quality Review qualitative factor for unfunded commitments. The same assumptions are applied in these calculations that the funded balances utilize with the addition of using the funding rates on the unfunded commitments. The performance trends qualitative factor reserve and the External Factor – Credit Quality Review qualitative factor reserve are then added to the other calculated reserve to get a total reserve for off-balance sheet credit exposures. See the section captioned “ACL on Off-Balance Sheet Credit Exposures” in Note 13 – Contingencies included in Part I. Item 1. – Financial Statements of this report for complete description of Trustmark’s ACL methodology on off-balance sheet credit exposures.

Adjustments to the ACL on off-balance sheet credit exposures are recorded to the PCL, off-balance sheet credit exposures. At September 30, 2024, the ACL on off-balance sheet credit exposures totaled $28.9 million compared to $34.1 million at December 31, 2023, a decrease of $5.2 million, or 15.2%. The PCL, off-balance sheet credit exposures totaled a negative $1.4 million and a negative $5.2 million for the three and nine months ended September 30, 2024, respectively, compared to $104 thousand and a negative $1.9 million, respectively, for the same time periods in 2023. The release in PCL on off-balance sheet credit exposures for the three months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the External Factor-Credit Quality Review qualitative reserve factor. The release in PCL on off-balance sheet credit exposures for the nine months ended September 30, 2024, primarily reflected a decrease in required reserves as a result of a decrease in unfunded commitments and changes in the total reserve rate, partially offset by an increase in required reserves as a result of implementing the performance trend and the External Factor-Credit Quality Review qualitative reserve factors.

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Nonperforming Assets

The table below provides the components of nonperforming assets by geographic market region at September 30, 2024 and December 31, 2023 ($ in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Nonaccrual LHFI

 

 

 

 

 

 

Alabama

 

$

25,835

 

 

$

23,271

 

Florida

 

 

111

 

 

 

170

 

Mississippi

 

 

31,536

 

 

 

54,615

 

Tennessee

 

 

3,180

 

 

 

1,802

 

Texas

 

 

13,163

 

 

 

20,150

 

Total nonaccrual LHFI

 

 

73,825

 

 

 

100,008

 

Other real estate

 

 

 

 

 

 

Alabama

 

 

170

 

 

 

1,397

 

Mississippi

 

 

1,772

 

 

 

1,242

 

Texas

 

 

1,978

 

 

 

4,228

 

Total other real estate

 

 

3,920

 

 

 

6,867

 

Total nonperforming assets

 

$

77,745

 

 

$

106,875

 

 

 

 

 

 

 

 

Nonperforming assets/total loans (LHFS and LHFI) and ORE

 

 

0.58

%

 

 

0.81

%

 

 

 

 

 

 

 

Loans past due 90 days or more

 

 

 

 

 

 

LHFI

 

$

5,352

 

 

$

5,790

 

 

 

 

 

 

 

 

LHFS - Guaranteed GNMA serviced loans (1)

 

$

63,703

 

 

$

51,243

 

 

(1)
No obligation to 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, 2024, nonaccrual LHFI totaled $73.8 million, or 0.55% of total LHFS and LHFI, reflecting a decrease of $26.2 million, or 26.2%, relative to December 31, 2023. The decrease in nonaccrual LHFI during the first nine months of 2024 was primarily as a result of the sale of 1-4 family mortgage loans during the second quarter of 2024 as well as the resolution of two large nonaccrual commercial credits in the Texas and Alabama market regions, partially offset by three large commercial credits placed on nonaccrual in the Alabama and Texas market regions.

For additional information regarding nonaccrual LHFI, see the section captioned “Nonaccrual and Past Due LHFI” included in Note 4 – LHFI and Allowance for Credit Losses, LHFI in Part I. Item 1. – Financial Statements of this report.

Other Real Estate

Other real estate at September 30, 2024 decreased $2.9 million, or 42.9%, when compared with December 31, 2023. The decrease in other real estate was principally due to properties sold in the Mississippi and Alabama market regions and a reserve for other real estate write-downs recorded for a foreclosed property in the Texas market region which is under contract to be sold during the fourth quarter of 2024, partially offset by properties foreclosed in the Mississippi market region. During the first nine months of 2024, Trustmark foreclosed and subsequently sold properties totaling $3.0 million in the Mississippi market region, $2.1 million of which was sold as part of the sale of 1-4 family mortgage loans during the second quarter of 2024.

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

 

 

 

Three Months Ended September 30, 2024

 

 

 

Total

 

 

Alabama

 

 

Florida

 

 

Mississippi

 

 

Tennessee

 

 

Texas

 

Balance at beginning of period

 

$

6,586

 

 

$

485

 

 

$

—

 

 

$

1,787

 

 

$

86

 

 

$

4,228

 

Additions

 

 

575

 

 

 

—

 

 

 

—

 

 

 

575

 

 

 

—

 

 

 

—

 

Disposals

 

 

(914

)

 

 

(315

)

 

 

—

 

 

 

(513

)

 

 

(86

)

 

 

—

 

(Write-downs) recoveries

 

 

(2,327

)

 

 

—

 

 

 

—

 

 

 

(77

)

 

 

—

 

 

 

(2,250

)

Balance at end of period

 

$

3,920

 

 

$

170

 

 

$

—

 

 

$

1,772

 

 

$

—

 

 

$

1,978

 

 

 

 

Three Months Ended September 30, 2023

 

 

 

Total

 

 

Alabama

 

 

Florida

 

 

Mississippi

 

 

Tennessee

 

 

Texas

 

Balance at beginning of period

 

$

1,137

 

 

$

—

 

 

$

—

 

 

$

1,137

 

 

$

—

 

 

$

—

 

Additions

 

 

4,864

 

 

 

179

 

 

 

—

 

 

 

457

 

 

 

—

 

 

 

4,228

 

Disposals

 

 

(637

)

 

 

—

 

 

 

—

 

 

 

(637

)

 

 

—

 

 

 

—

 

(Write-downs) recoveries

 

 

121

 

 

 

136

 

 

 

—

 

 

 

(15

)

 

 

—

 

 

 

—

 

Balance at end of period

 

$

5,485

 

 

$

315

 

 

$

—

 

 

$

942

 

 

$

—

 

 

$

4,228

 

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Total

 

 

Alabama

 

 

Florida

 

 

Mississippi

 

 

Tennessee

 

 

Texas

 

Balance at beginning of period

 

$

6,867

 

 

$

1,397

 

 

$

—

 

 

$

1,242

 

 

$

—

 

 

$

4,228

 

Additions

 

 

4,703

 

 

 

92

 

 

 

—

 

 

 

4,577

 

 

 

34

 

 

 

—

 

Disposals

 

 

(5,609

)

 

 

(1,475

)

 

 

(71

)

 

 

(3,977

)

 

 

(86

)

 

 

—

 

(Write-downs) recoveries

 

 

(2,041

)

 

 

156

 

 

 

—

 

 

 

1

 

 

 

52

 

 

 

(2,250

)

Adjustments

 

 

—

 

 

 

—

 

 

 

71

 

 

 

(71

)

 

 

—

 

 

 

—

 

Balance at end of period

 

$

3,920

 

 

$

170

 

 

$

—

 

 

$

1,772

 

 

$

—

 

 

$

1,978

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Total

 

 

Alabama

 

 

Florida

 

 

Mississippi

 

 

Tennessee

 

 

Texas

 

Balance at beginning of period

 

$

1,986

 

 

$

194

 

 

$

—

 

 

$

1,769

 

 

$

23

 

 

$

—

 

Additions

 

 

5,434

 

 

 

179

 

 

 

—

 

 

 

797

 

 

 

230

 

 

 

4,228

 

Disposals

 

 

(1,903

)

 

 

(194

)

 

 

—

 

 

 

(1,456

)

 

 

(253

)

 

 

—

 

(Write-downs) recoveries

 

 

(32

)

 

 

136

 

 

 

—

 

 

 

(168

)

 

 

—

 

 

 

—

 

Balance at end of period

 

$

5,485

 

 

$

315

 

 

$

—

 

 

$

942

 

 

$

—

 

 

$

4,228

 

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 increased $2.0 million when the first nine months of 2024 is compared to the same time period in 2023, primarily due to reserve for other real estate write-downs for a foreclosed property in the Texas market region which was under contract to be sold during the fourth quarter of 2024.

For additional information regarding other real estate, please see Note 6 – Other Real Estate included in Part I. Item 1. – Financial Statements of this report.

Deposits

Trustmark’s deposits are its primary source of funding and primarily consist of core deposits from the communities Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, MMDA, CDs and individual retirement accounts. Total deposits were $15.241 billion at September 30, 2024 compared to $15.570 billion at December 31, 2023, a decrease of $328.8 million, or 2.1%. During the first nine months of 2024, noninterest-bearing deposits decreased $54.8 million, or 1.7%, principally due to declines in consumer noninterest-bearing demand deposit accounts. Interest-bearing deposits decreased $274.0 million, or 2.2%, during the first nine months of 2024, primarily due to declines in public and consumer interest checking accounts, consumer savings accounts and brokered CDs, partially offset by growth in commercial interest checking accounts and commercial and consumer MMDA and CDs.

At September 30, 2024, Trustmark's total uninsured deposits were $5.402 billion, or 35.4% of total deposits, compared to $5.601 billion, or 36.0% of total deposits, at December 31, 2023.

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Borrowings

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

Federal funds purchased and securities sold under repurchase agreements totaled $365.6 million at September 30, 2024 compared to $405.7 million at December 31, 2023, a decrease of $40.1 million, or 9.9%, principally due to a decrease in upstream federal funds purchased. At September 30, 2024 and December 31, 2023, $40.6 million and $35.7 million, respectively, represented customer related transactions, such as commercial sweep repurchase balances. Trustmark had $325.0 million of upstream federal funds purchased at September 30, 2024 compared to $370.0 million at December 31, 2023.

Other borrowings totaled $443.5 million at September 30, 2024, a decrease of $39.8 million, or 8.2%, when compared with $483.2 million at December 31, 2023, principally due to a decline in outstanding short-term FHLB advances with the FHLB of Dallas.

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.

Capital Resources and Liquidity

Trustmark places a significant emphasis on the maintenance of a strong capital position, which promotes investor confidence, provides access to funding sources under favorable terms and enhances Trustmark’s ability to capitalize on business growth and acquisition opportunities. Higher levels of liquidity, however, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher expenses for extended liability maturities. Trustmark manages capital based upon risks and growth opportunities as well as regulatory requirements. 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.

At September 30, 2024, Trustmark’s total shareholders’ equity was $1.980 billion, an increase of $318.2 million, or 19.2%, when compared to December 31, 2023. During the first nine months of 2024, shareholders’ equity increased primarily as a result of a $172.8 million positive net change in the fair market value of securities available for sale, principally due to the restructuring of the available for sale securities portfolio during the second quarter of 2024, as well as net income of $166.7 million, partially offset by common stock dividends of $42.6 million.

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 2023 Annual Report, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark’s and TNB’s minimum risk-based capital requirements include a capital conservation buffer of 2.5%. AOCI is not included in computing regulatory capital. Trustmark elected the five-year phase-in transition period (through December 31, 2024) related to adopting FASB ASU 2016-13 for regulatory capital purposes. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Trustmark and TNB and limit Trustmark’s and TNB’s ability to pay dividends. At September 30, 2024, 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, 2024. 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, 2024 which Management believes have affected Trustmark’s or TNB’s present classification.

90

 

In 2020, Trustmark enhanced its capital structure with the issuance of $125.0 million of subordinated notes. At September 30, 2024, the carrying amount of the subordinated notes was $123.6 million compared to $123.5 million at December 31, 2023. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. For regulatory capital purposes, the subordinated notes qualified as Tier 2 capital for Trustmark at September 30, 2024 and December 31, 2023. Trustmark may utilize the full carrying value of the subordinated notes as Tier 2 capital until December 1, 2025 (five years prior to maturity). Beginning December 1, 2025, the subordinated notes will phase out of Tier 2 capital 20.0% each year until maturity.

In 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital at September 30, 2024 and December 31, 2023. 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 Wall Street Reform and Consumer Protection 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, 2024 and December 31, 2023.

Dividends on Common Stock

Dividends per common share for the nine months ended September 30, 2024 and 2023 were $0.69. Trustmark’s indicated dividend for 2024 is $0.92 per common share, which is the same as dividends per common share declared in 2023.

Stock Repurchase Program

From time to time, Trustmark's Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow Trustmark to proactively manage its capital position and return excess capital to shareholders. Shares purchased also provide Trustmark with shares of common stock necessary to satisfy obligations related to stock compensation awards.

On December 6, 2022, the Board of Directors of Trustmark authorized a stock repurchase program, effective January 1, 2023, under which $50.0 million of Trustmark's outstanding common stock could be acquired through December 31, 2023. No shares were repurchased under this authority.

On December 5, 2023, the Board of Directors of Trustmark authorized a new stock repurchase program, effective January 1, 2024, under which $50.0 million of Trustmark's outstanding common stock may be acquired through December 31, 2024. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions. No shares were repurchased under this authority during the first nine months of 2024.

Liquidity

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

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

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

91

 

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled $15.412 billion for the first nine months of 2024 and represented approximately 82.6% of average liabilities and shareholders’ equity, compared to average deposits of $14.810 billion, which represented 79.4% of average liabilities and shareholders’ equity for the first nine months of 2023. For more information on average interest-bearing deposits, please see the analysis included in the section captioned “Net Interest Income.”

Trustmark had $540.0 million held in an interest-bearing account at the FRBA at September 30, 2024, compared to $712.0 million held at December 31, 2023.

Trustmark utilizes brokered deposits to supplement other wholesale funding sources. At both September 30, 2024 and December 31, 2023, brokered sweep MMDA deposits totaled $10.6 million. In addition, Trustmark had $399.9 million of brokered CDs at September 30, 2024 compared to $578.8 million at December 31, 2023.

At September 30, 2024, Trustmark had $325.0 million of upstream federal funds purchased compared to $370.0 million of upstream federal funds purchased at December 31, 2023. Trustmark maintains adequate federal funds lines to provide sufficient short-term liquidity.

Trustmark maintains a relationship with the FHLB of Dallas, which provided $350.0 million of outstanding short-term and no long-term advances at September 30, 2024, compared to $400.0 million of outstanding short-term and no long-term advances at December 31, 2023. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances or letters of credit with the FHLB of Dallas by $4.052 billion at September 30, 2024.

In addition, at September 30, 2024, Trustmark had no short-term or long-term FHLB advances outstanding with the FHLB of Atlanta compared to no short-term and $58 thousand in long-term FHLB advances at December 31, 2023, which were acquired in the BancTrust merger in 2013. Trustmark had 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, 2024, Trustmark had approximately $1.043 billion available in unencumbered Treasury and agency securities compared to $842.0 million in unencumbered Treasury and agency securities at December 31, 2023.

Another borrowing source is the Discount Window. At September 30, 2024, Trustmark had approximately $1.191 billion available in collateral capacity at the Discount Window primarily from pledges of commercial and industrial LHFI, compared with $1.374 billion at December 31, 2023.

During 2020, Trustmark issued $125.0 million aggregate principal amount of its 3.625% fixed-to-floating rate subordinated notes. At September 30, 2024, the carrying amount of the subordinated notes was $123.6 million compared to $123.5 million at December 31, 2023. The subordinated notes mature December 1, 2030 and are redeemable at Trustmark’s option under certain circumstances. The subordinated notes are unsecured obligations and are subordinated in right of payment to all of Trustmark’s existing and future senior indebtedness, whether secured or unsecured. The subordinated notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including TNB.

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

The Board of Directors of Trustmark currently has the authority to issue up to 20.0 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At September 30, 2024, Trustmark had no shares of preferred stock issued and outstanding.

Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions. As of September 30, 2024, Management is not aware of any events that are reasonably likely to have a material adverse effect on Trustmark's liquidity, capital resources or operations. In addition, Management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on Trustmark.

In the ordinary course of business, Trustmark has entered into contractual obligations and has made other commitments to make future payments. Please refer to the accompanying notes to the consolidated financial statements included in Part I. Item 1. – Financial Statements of this report and Trustmark's 2023 Annual Report for the expected timing of such payments as of September 30, 2024 and December 31, 2023. There have been no material changes in Trustmark's contractual obligations since year-end.

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Asset/Liability Management

Overview

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

Following the LIBOR cessation date of June 30, 2023, the nationwide process for replacing LIBOR in financial contracts that mature thereafter and that do not provide for an effective means to replace LIBOR upon its cessation took effect pursuant to the Adjustable Interest Rate (LIBOR) Act. For contracts in which a party has the discretion to identify a replacement rate, the Adjustable Interest Rate (LIBOR) Act also provides a safe harbor to parties if they choose the SOFR-based benchmark replacement rate to be identified by the FRB. Trustmark had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR. As of September 30, 2024, all of Trustmark’s LIBOR exposure was remediated or in the process of being remediated. The transition from LIBOR could create costs and additional risk. Trustmark cannot predict what the ultimate impact of the transition from LIBOR will be; however, Trustmark has implemented various measures to manage the transition and mitigate risks. For additional information regarding the transition from LIBOR and Trustmark’s management of this transition, please see the respective risk factor included in Part I. Item 1A. – Risk Factors, of Trustmark’s 2023 Annual Report.

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

Derivatives

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

Derivatives Designated as Hedging Instruments

Trustmark engages in a cash flow hedging program to add stability to interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for Trustmark making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates fall below the purchased floor strike rate on the contract and payments of variable rate amounts if interest rates fall below the sold floor strike rate on the contract. Trustmark uses such derivatives to hedge the variable cash flows associated with existing and anticipated variable-rate loan assets. At September 30, 2024, the aggregate notional value of Trustmark's interest rate swaps and floor spreads designated as cash flow hedges totaled $1.390 billion compared to $1.125 billion at December 31, 2023.

Trustmark records any gains or losses on these cash flow hedges in AOCI. Gains and losses on derivatives representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with Trustmark’s accounting policy election. The earnings recognition of excluded components included in interest and fees on LHFS and LHFI totaled $132 thousand and $341 thousand of amortization expense for the three and nine months ended September 30, 2024, respectively, compared to $13 thousand and $35 thousand of amortization expense for the three and nine months ended September 30, 2023, respectively. As interest payments are received on Trustmark's variable-rate assets, amounts reported in AOCI are reclassified into interest and fees on LHFS and LHFI in the accompanying consolidated statements of income during the same period. For the three and nine months ended September 30, 2024, Trustmark reclassified a loss, net of tax, of $3.6 million and $10.9 million, respectively, into interest and fees on LHFS and LHFI, compared to $3.5 million and $8.7 million for the same time periods in 2023, respectively. During the next twelve months, Trustmark estimates that $5.8 million will be reclassified

93

 

as a reduction to interest and fees on LHFS and LHFI. This amount could differ due to changes in interest rates, hedge de-designations or the addition of other hedges.

Derivatives Not Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking business, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Trustmark’s obligations under forward contracts consist of commitments to deliver mortgage loans, originated and/or purchased, in the secondary market at a future date. The gross notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled $197.5 million at September 30, 2024, with a positive valuation adjustment of $560 thousand, compared to $171.4 million, with a negative valuation adjustment of $150 thousand at December 31, 2023.

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 MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under GAAP. The total notional amount of these derivative instruments was $296.5 million at September 30, 2024 compared to $285.0 million at December 31, 2023. These exchange-traded derivative instruments are accounted for at fair value with changes in the fair value recorded as noninterest income (loss) 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 $2.5 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the impact was a net negative ineffectiveness of $8.1 million and $4.1 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 as noninterest income in bank card and other fees. Because these derivatives have mirror-image contractual terms, in addition to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset. The Chicago Mercantile Exchange rules legally characterize variation margin collateral payments made or received for centrally cleared interest rate swaps as settlements rather than collateral. As a result, centrally cleared interest rate swaps included in other assets and other liabilities are presented on a net basis in the accompanying consolidated balance sheets. As of September 30, 2024, Trustmark had interest rate swaps with an aggregate notional amount of $1.721 billion related to this program, compared to $1.500 billion as of December 31, 2023.

Credit-Risk-Related Contingent Features

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

At September 30, 2024, 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 totaled $2.0 million compared to $1.4 million at December 31, 2023. At September 30, 2024 and December 31, 2023, Trustmark had posted collateral of $2.9 million and $2.0 million, respectively, against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, 2024, 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 September 30, 2024, Trustmark had entered into nine risk participation agreements as a beneficiary with an aggregate notional amount of $60.3 million compared to six risk participation agreements as a beneficiary with an aggregate notional amount of $40.1 million at December 31, 2023. At September 30, 2024, Trustmark had entered into thirty-six risk participation agreements as a guarantor with an aggregate notional amount of $286.2 million compared to thirty-five risk participation agreements as a guarantor with an aggregate notional amount of $304.7 million at December 31, 2023. The aggregate fair values of these risk participation agreements were immaterial at both September 30, 2024 and December 31, 2023.

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

Based on the results of the simulation models using static balances, the table below summarizes the effect various one-year interest rate shift scenarios would have on net interest income compared to a base case, flat scenario at September 30, 2024 and 2023.

 

 

 

Estimated % Change
in Net Interest Income

 

Change in Interest Rates

 

2024

 

 

2023

 

+200 basis points

 

 

2.2

%

 

 

2.0

%

+100 basis points

 

 

1.0

%

 

 

1.0

%

-100 basis points

 

 

-1.4

%

 

 

-1.2

%

-200 basis points

 

 

-3.5

%

 

 

-2.8

%

 

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

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

The following table summarizes the effect that various interest rate shifts would have on net portfolio value at September 30, 2024 and 2023.

 

 

 

Estimated % Change
in Net Portfolio Value

 

Change in Interest Rates

 

2024

 

 

2023

 

+200 basis points

 

 

-0.9

%

 

 

-2.7

%

+100 basis points

 

 

-0.1

%

 

 

-1.2

%

 

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

95

 

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, 2024, the MSR fair value was $125.9 million, compared to $142.4 million at September 30, 2023. 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, 2024, would be a decline in fair value of approximately $4.7 million and $4.9 million, respectively, compared to a decline in fair value of approximately $5.0 million and $6.0 million, respectively, at September 30, 2023. 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 2023 Annual Report. There have been no significant changes in Trustmark’s critical accounting policies during the first nine months of 2024.

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

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

96

 

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, Trustmark believes, based on its evaluation and the advice of legal counsel, 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. Trustmark 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 2023 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 5, 2023, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2024, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, 2024. The repurchase program, which is subject to market conditions and management discretion, will be implemented through open market repurchases or privately negotiated transactions.

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, 2024 ($ 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, 2024 to July 31, 2024

 

 

—

 

 

$

—

 

 

 

—

 

 

$

50,000

 

August 1, 2024 to August 31, 2024

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,000

 

September 1, 2024 to September 30, 2024

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,000

 

Total

 

 

—

 

 

 

 

 

 

—

 

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 30, 2024, none of Trustmark’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Trustmark’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

97

 

ITEM 6. EXHIBITS

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

 

EXHIBIT INDEX

 

 

 

10-as

 

Exhibit 3 Company Contribution in Respect of the Year Ending December 31, 2024 to the Trustmark Corporation Deferred Compensation Plan. *

 

 

 

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).

 

* - Denotes management contract.

 

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

98

 

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/ Duane A. Dewey

 

BY:

 

/s/ Thomas C. Owens

 

Duane A. Dewey

 

 

Thomas C. Owens

 

President and Chief Executive Officer

 

 

Treasurer and Principal Financial Officer

 

 

 

 

 

 

 

 

DATE:

 

November 5, 2024

 

DATE:

 

November 5, 2024

 

99

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