Trustmark(TRMK) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details Trustmark Corporation's unaudited financial statements, management's analysis, market risk, and internal controls Financial Statements This section presents Trustmark Corporation's unaudited condensed consolidated financial statements and detailed notes for the period ended September 30, 2023 Consolidated Financial Statements Trustmark's total assets grew to $18.39 billion as of September 30, 2023, from $18.02 billion at year-end 2022, driven by a 5.0% increase in net loans held for investment, while total deposits increased by 4.6% to $15.10 billion Consolidated Balance Sheet Highlights ($ in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $18,390,839 | $18,015,478 | | Net Loans Held for Investment (LHFI) | $12,676,228 | $12,083,825 | | Total Deposits | $15,101,923 | $14,437,648 | | Total Liabilities | $16,820,488 | $16,523,210 | | Total Shareholders' Equity | $1,570,351 | $1,492,268 | Consolidated Income Statement Highlights ($ in thousands) | Account | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Interest Income | $416,136 | $348,125 | | Provision for Credit Losses, LHFI | $19,777 | $14,775 | | Noninterest Income | $157,154 | $159,974 | | Noninterest Expense | $401,490 | $371,984 | | Net Income | $129,366 | $105,950 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on Trustmark's accounting policies and financial components, including securities, loans, ACL methodology, legal contingencies, derivatives, and segment performance - The financial statements are prepared in conformity with U.S. GAAP for interim information and should be read with the 2022 Annual Report on Form 10-K[29] - Management makes estimates and assumptions that affect reported amounts; actual results could differ[30] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Trustmark's financial performance, covering loan and deposit growth, net interest income, credit quality, and a $6.5 million litigation settlement - Q3 2023 results reflected solid growth in loans held for investment (LHFI) and deposits, stable net interest income, and continued credit quality strength[223] - A $6.5 million litigation settlement expense related to Adams/Madison Timber was recognized in Q3 2023[223] - The Board of Directors declared a quarterly cash dividend of $0.23 per share, payable December 15, 2023[224] Results of Operations For the nine months ended September 30, 2023, total revenue increased 12.8% to $573.3 million, driven by a 19.5% rise in net interest income to $416.1 million, while noninterest income decreased slightly by 1.8% to $157.2 million, and noninterest expense rose 7.9% to $401.5 million due to a $6.5 million litigation settlement Key Performance Metrics (Nine Months Ended Sep 30, $ in Millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Interest Income-FTE | $426.3M | $357.0M | | Net Interest Margin-FTE | 3.34% | 3.00% | | Noninterest Income | $157.2M | $160.0M | | Noninterest Expense | $401.5M | $372.0M | | Net Income | $129.4M | $106.0M | - The provision for credit losses on LHFI for the nine months of 2023 was $19.8 million, an increase from $14.8 million in the prior year, reflecting loan growth and a weakening macroeconomic forecast[276] - Noninterest expense for the nine months of 2023 included a $6.5 million litigation settlement expense; excluding this, noninterest expense increased 6.2% YoY[239] Financial Condition As of September 30, 2023, total assets were $18.39 billion, with loans held for investment (LHFI) growing 5.0% to $12.81 billion, while nonperforming assets increased to $96.4 million, and deposits grew 4.6% to $15.10 billion with a shift towards interest-bearing accounts - LHFI increased by $606.2 million (5.0%) since Dec 31, 2022, primarily from net growth in loans secured by real estate[315] - Nonperforming assets rose to $96.4 million at Q3 2023 from $68.0 million at year-end 2022, mainly due to an increase in nonaccrual LHFI[242][339] - Deposits increased by $664.3 million (4.6%) since year-end 2022, with a shift from noninterest-bearing deposits (-$773.6 million) to interest-bearing deposits (+$1.44 billion), including $727.3 million in new brokered CDs[346] - The allowance for credit losses (ACL) on LHFI stood at $134.0 million, or 1.05% of total LHFI, up from 0.99% at year-end 2022[333] Capital Resources and Liquidity Trustmark maintained a strong capital position with all regulatory capital ratios exceeding 'well-capitalized' standards, including a Common Equity Tier 1 (CET1) ratio of 9.89%, and robust liquidity supported by a strong deposit base and $3.60 billion in additional FHLB borrowing capacity Regulatory Capital Ratios (Trustmark Corporation) | Ratio | Sep 30, 2023 | Minimum Requirement | | :--- | :--- | :--- | | Common Equity Tier 1 | 9.89% | 7.00% | | Tier 1 Capital | 10.29% | 8.50% | | Total Capital | 12.11% | 10.50% | | Tier 1 Leverage | 8.49% | 4.00% | - Trustmark had access to $3.60 billion in additional FHLB advances and $1.38 billion in Discount Window capacity as of September 30, 2023[371][374] - No shares were repurchased during the first nine months of 2023 under the $50.0 million stock repurchase program authorized for 2023[363] Asset/Liability Management Trustmark actively manages interest rate risk using financial simulation models and derivatives, including a $1.0 billion notional cash flow hedging program, with Mortgage Servicing Rights (MSR) valued at $142.4 million Estimated Change in Net Interest Income (1-Year Horizon) | Rate Change | Estimated % Change | | :--- | :--- | | +200 bps | 2.0% | | +100 bps | 1.0% | | -100 bps | -1.2% | | -200 bps | -2.8% | - Trustmark initiated a cash flow hedging program with an aggregate notional value of $1.0 billion as of September 30, 2023, to manage exposure to interest rate movements[386] - The fair value of Mortgage Servicing Rights (MSR) was $142.4 million; a 10% adverse change in prepayment speed would decrease fair value by approximately $5.0 million[403] Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Market/Interest Rate Risk Management' discussion within the Management's Discussion and Analysis (MD&A) for information on the company's market risk exposures - Information required by this item is included in the discussion of Market/Interest Rate Risk Management found in the MD&A section[407] Controls and Procedures Management, including the CEO and Principal Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the third quarter - Based on an evaluation as of the end of the reporting period, the CEO and Principal Financial Officer concluded that Trustmark's disclosure controls and procedures were effective[408] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[409] PART II. OTHER INFORMATION This section provides additional information on Trustmark's legal proceedings, risk factors, equity security sales, and other relevant disclosures Legal Proceedings Trustmark's subsidiary, TNB, has reached settlement agreements in two major litigations: a $100.0 million settlement for the Stanford Financial Group litigation and a $6.5 million settlement for the Adams/Madison Timber litigation, both pending final court approval - Trustmark recognized a $100.0 million litigation settlement expense in Q4 2022 related to the Stanford Financial Group litigation[173] - Trustmark recognized a $6.5 million litigation settlement expense in Q3 2023 related to the Adams/Madison Timber litigation[173] - For other pending legal proceedings, Trustmark believes a loss is not probable and a reasonable estimate cannot be made at this time[173][411] Risk Factors There have been no material changes to the risk factors previously disclosed in Trustmark's 2022 Annual Report on Form 10-K - There has been no material change in the risk factors previously disclosed in Trustmark's 2022 Annual Report[412] Unregistered Sales of Equity Securities and Use of Proceeds Trustmark has a stock repurchase program authorizing the acquisition of up to $50.0 million of its common stock through December 31, 2023, with no shares repurchased during the third quarter of 2023 - A stock repurchase program for up to $50.0 million is effective through December 31, 2023[413] - No shares of common stock were repurchased by the company during the three months ended September 30, 2023[414] Other Information During the third quarter of 2023, none of Trustmark's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or any non-Rule 10b5-1 trading arrangement - During Q3 2023, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements[417]