Trustmark(TRMK) - 2024 Q1 - Quarterly Report

Form 10-Q Filing Information Registrant Information This section details Trustmark Corporation's Form 10-Q filing information, including its SEC file number, trading symbol (TRMK), and common shares outstanding | Detail | Value | | :--- | :--- | | Filing Type | Quarterly Report on Form 10-Q | | Period Ended | March 31, 2024 | | Commission File Number | 000-03683 | | Registrant Name | Trustmark Corporation | | Trading Symbol | TRMK | | Exchange | Nasdaq Global Select Market | | Filer Status | Large accelerated filer | | Common Stock Outstanding (as of April 30, 2024) | 61,201,825 shares | Forward-Looking Statements This section clarifies that forward-looking statements involve risks and uncertainties, advising readers to consult the 'Risk Factors' section - Forward-looking statements discuss future expectations, operating and financial performance, and are subject to risks outlined in SEC filings. Actual results may vary significantly from expectations[6][8] Risk Factors This section details various risks, including Federal Reserve actions, economic conditions, credit quality, and regulatory changes, that could impact actual results - Key risks include Federal Reserve actions impacting interest rates, local/national economic conditions, housing/real estate market volatility, changes in nonperforming assets, unemployment, fair value measurement, bank failures, regulatory changes, competition, accounting standard changes, consumer habits, technological changes, cyber-attacks, and natural disasters[7] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents Trustmark Corporation's unaudited consolidated financial statements for Q1 2024, including balance sheets, income, comprehensive income, equity, and cash flow statements Consolidated Balance Sheets | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Assets | | | | Cash and due from banks | $606,261 | $975,543 | | Securities available for sale | $1,702,299 | $1,762,878 | | Securities held to maturity | $1,415,025 | $1,426,279 | | Loans held for investment (net) | $12,914,945 | $12,811,157 | | Total Assets | $18,376,612 | $18,722,189 | | Liabilities | | | | Total deposits | $15,338,557 | $15,569,763 | | Total Liabilities | $16,694,013 | $17,060,342 | | Shareholders' Equity | | | | Total Shareholders' Equity | $1,682,599 | $1,661,847 | | Total Liabilities and Shareholders' Equity | $18,376,612 | $18,722,189 | - Total Assets decreased by $345.577 million (1.84%) from December 31, 2023, to March 31, 2024, primarily driven by a decrease in Cash and due from banks and Total deposits[11] - Shareholders' Equity increased by $20.752 million (1.25%) from December 31, 2023, to March 31, 2024[11] Consolidated Statements of Income | Metric (in thousands, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total Interest Income | $229,840 | $198,900 | | Total Interest Expense | $97,010 | $61,305 | | Net Interest Income | $132,830 | $137,595 | | Provision for credit losses (PCL), LHFI | $7,708 | $3,244 | | Total Noninterest Income | $55,349 | $51,377 | | Total Noninterest Expense | $131,146 | $128,327 | | Net Income | $41,535 | $50,300 | | Basic EPS | $0.68 | $0.82 | | Diluted EPS | $0.68 | $0.82 | - Net Income decreased by $8.765 million (17.43%) year-over-year, primarily due to a significant increase in Total Interest Expense (+58.2%) and Provision for credit losses (+137.6%), partially offset by increases in Total Interest Income (+15.6%) and Total Noninterest Income (+7.7%)[13] Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $41,535 | $50,300 | | Other comprehensive income (loss), net of tax | $(7,431) | $33,022 | | Comprehensive income (loss) | $34,104 | $83,322 | - Comprehensive income (loss) significantly decreased by $49.218 million (59.07%) year-over-year, primarily driven by a shift from net unrealized gains to losses on available-for-sale securities and a substantial negative change in accumulated gain/loss on effective cash flow hedge derivatives in 2024[15] Consolidated Statements of Changes in Shareholders' Equity | Metric (in thousands) | Balance, January 1, 2024 | Balance, March 31, 2024 | | :-------------------- | :----------------------- | :---------------------- | | Common Stock Amount | $12,725 | $12,747 | | Capital Surplus | $159,688 | $160,521 | | Retained Earnings | $1,709,157 | $1,736,485 | | Accumulated Other Comprehensive Income (Loss) | $(219,723) | $(227,154) | | Total Shareholders' Equity | $1,661,847 | $1,682,599 | - Total Shareholders' Equity increased by $20.752 million from January 1, 2024, to March 31, 2024, primarily due to net income of $41.535 million, partially offset by common stock dividends paid of $14.207 million and other comprehensive loss of $7.431 million[18] Consolidated Statements of Cash Flows | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash from operating activities | $(58,543) | $2,559 | | Net cash from investing activities | $(51,309) | $(249,310) | | Net cash from financing activities | $(259,430) | $809,108 | | Net change in cash and cash equivalents | $(369,282) | $562,357 | | Cash and cash equivalents at end of period | $606,261 | $1,297,144 | - Net cash from operating activities shifted from a positive inflow of $2.559 million in Q1 2023 to a negative outflow of $58.543 million in Q1 2024[24] - Net cash from financing activities saw a significant reversal, moving from an inflow of $809.108 million in Q1 2023 to an outflow of $259.430 million in Q1 2024, primarily due to a decrease in deposits and federal funds purchased[24] Notes to Consolidated Financial Statements This section provides detailed disclosures for consolidated financial statements, covering accounting policies, asset/liability categories, revenue, benefits, equity, fair value, and segment information Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation - Trustmark Corporation is a bank holding company providing financial services through subsidiaries in Alabama, Florida, Mississippi, Tennessee, and Texas[26] - The unaudited condensed consolidated financial statements conform to U.S. GAAP for interim information and SEC regulations, and should be read with the 2023 Annual Report[28] - Trustmark National Bank (TNB) announced an agreement to sell its wholly owned subsidiary, Fisher Brown Bottrell Insurance, Inc. (FBBI), for $345.0 million in cash, expected to close by Q2 2024. The estimated after-tax proceeds of $228.0 million will be used to reposition Trustmark's balance sheet[30] Note 2 – Securities Available for Sale and Held to Maturity | Securities Type (in thousands) | March 31, 2024 Amortized Cost | March 31, 2024 Estimated Fair Value | December 31, 2023 Amortized Cost | December 31, 2023 Estimated Fair Value | | :----------------------------- | :----------------------------- | :-------------------------------- | :----------------------------- | :-------------------------------- | | Available for Sale | | | | | | U.S. Treasury securities | $396,289 | $372,424 | $396,179 | $372,368 | | Mortgage-backed securities | $1,498,674 | $1,324,281 | $1,556,621 | $1,384,718 | | Total Available for Sale | $1,900,980 | $1,702,299 | $1,959,007 | $1,762,878 | | Held to Maturity | | | | | | U.S. Treasury securities | $29,261 | $28,746 | $29,068 | $29,042 | | Mortgage-backed securities | $1,385,424 | $1,303,928 | $1,396,866 | $1,333,734 | | Total Held to Maturity | $1,415,025 | $1,333,014 | $1,426,279 | $1,355,504 | - At March 31, 2024, total gross unrealized losses on securities available for sale were $198.709 million, and for securities held to maturity were $82.070 million, primarily due to increases in market interest rates[32][43] - No credit loss was recognized on available for sale securities at March 31, 2024, or December 31, 2023. For held to maturity securities, potential credit loss exposure was deemed immaterial, with no reserve recorded[37][39] Note 3 – LHFI and ACL, LHFI | Loan Category (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------- | :------------- | :---------------- | | Loans secured by real estate | $6,170,230 | $6,467,268 | | Other loans secured by real estate | $3,188,547 | $3,150,111 | | Commercial and industrial loans | $1,922,711 | $1,922,910 | | Consumer loans | $159,340 | $165,734 | | State and other political subdivision loans | $1,052,844 | $1,088,466 | | Other commercial loans and leases | $564,261 | $556,035 | | Total LHFI | $13,057,943 | $12,950,524 | | Less ACL, LHFI | $142,998 | $139,367 | | Net LHFI | $12,914,945 | $12,811,157 | - LHFI increased by $107.419 million (0.83%) from December 31, 2023, to March 31, 2024, primarily due to net growth in real estate secured LHFI, partially offset by a decline in state and other political subdivision LHFI[49][284] | ACL, LHFI (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $139,367 | $120,214 | | Net (charge-offs) recoveries | $(4,077) | $(1,219) | | PCL, LHFI | $7,708 | $3,244 | | Balance at end of period | $142,998 | $122,239 | - The ACL on LHFI increased by $3.631 million (2.61%) from December 31, 2023, to March 31, 2024, primarily due to changes in macroeconomic forecasts from the annual loss driver analysis, partially offset by updates to qualitative reserve factors[117][118][120][121] Note 4 – Mortgage Banking | MSR Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $131,870 | $129,677 | | Origination of servicing assets | $2,977 | $2,646 | | Change in fair value: Due to market changes | $5,123 | $(3,972) | | Change in fair value: Due to run-off | $(1,926) | $(1,145) | | Balance at end of period | $138,044 | $127,206 | - Mortgage Servicing Rights (MSR) fair value increased by $6.174 million (4.85%) from March 31, 2023, to March 31, 2024, primarily due to positive market changes in 2024 compared to negative changes in 2023[123] - Trustmark sold $258.3 million of residential mortgage loans in Q1 2024, generating $5.0 million in net gains, an increase from $213.8 million sold and $3.8 million in gains in Q1 2023[124] Note 5 – Other Real Estate | Other Real Estate (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $6,867 | $1,986 | | Additions | $2,228 | $300 | | Disposals | $(957) | $(542) | | (Write-downs) recoveries | $(518) | $(60) | | Balance at end of period | $7,620 | $1,684 | | Gains (losses), net on sale | $(55) | $(77) | - Other real estate, net increased by $753 thousand (11.0%) from December 31, 2023, to March 31, 2024, primarily due to properties foreclosed in the Mississippi market region, partially offset by sales and write-downs[128][129][131] Note 6 – Leases | Lease Type (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Leases receivable | $202,112 | $161,319 | | Total net investment (Lessor) | $173,963 | $137,735 | | Finance lease right-of-use assets, net | $3,638 | $3,751 | | Operating lease right-of-use assets | $36,659 | $38,142 | | Finance lease liabilities | $4,234 | $4,334 | | Operating lease liabilities | $40,185 | $41,584 | - Trustmark's net investment in sales-type and direct financing leases (Lessor) increased by $36.228 million (26.3%) from December 31, 2023, to March 31, 2024[133] - Net lease cost for the three months ended March 31, 2024, was $1.678 million, a decrease of $0.347 million (17.1%) from the same period in 2023[134] Note 7 – Deposits | Deposit Type (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Noninterest-bearing demand | $3,039,652 | $3,197,620 | | Interest-bearing demand | $5,226,089 | $4,947,626 | | Savings | $3,750,392 | $4,047,853 | | Time | $3,322,424 | $3,376,664 | | Total | $15,338,557 | $15,569,763 | - Total deposits decreased by $231.206 million (1.49%) from December 31, 2023, to March 31, 2024. Noninterest-bearing deposits decreased by $157.968 million (4.94%), while interest-bearing deposits decreased by $73.238 million (0.59%)[135] Note 8 – Securities Sold Under Repurchase Agreements | Collateral Pledged (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Mortgage-backed securities | $39,722 | $29,126 | | Total securities sold under repurchase agreements | $39,722 | $29,126 | - Securities sold under repurchase agreements increased by $10.596 million (36.38%) from December 31, 2023, to March 31, 2024, primarily collateralized by mortgage-backed securities[136] Note 9 – Revenue from Contracts with Customers | Noninterest Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Service charges on deposit accounts | $10,958 | $10,336 | | Bank card and other fees | $7,428 | $7,803 | | Mortgage banking, net | $8,915 | $7,639 | | Insurance commissions | $15,464 | $14,305 | | Wealth management | $8,952 | $8,780 | | Other, net | $3,632 | $2,514 | | Total noninterest income | $55,349 | $51,377 | - Total noninterest income increased by $3.972 million (7.73%) year-over-year, with significant increases in Mortgage banking, net (+16.7%), Insurance commissions (+8.1%), and Other, net (+44.5%)[139] Note 10 – Defined Benefit and Other Postretirement Benefits | Net Periodic Benefit Cost (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Qualified Pension Plan | $48 | $85 | | Nonqualified Supplemental Retirement Plans | $611 | $642 | | Total Net Periodic Benefit Cost | $659 | $727 | - Net periodic benefit cost for the Qualified Pension Plan decreased by $37 thousand (43.5%) year-over-year, while for nonqualified supplemental retirement plans, it decreased by $31 thousand (4.8%)[141][145] Note 11 – Stock and Incentive Compensation | Compensation Expense (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Performance units | $462 | $278 | | Time-vested units | $1,776 | $1,437 | | Total compensation expense | $2,238 | $1,715 | - Total compensation expense for units under the Stock Plan increased by $523 thousand (30.5%) year-over-year, driven by increases in both performance units and time-vested units[150] - Performance units and time-based units are granted to executive and senior management, vesting over three years, with time-based units for directors vesting over one year. Both provide dividend privileges but no voting rights[147][148] Note 12 – Contingencies | Contingency (in thousands) | March 31, 2024 | March 31, 2023 | | :------------------------- | :------------- | :------------- | | Unused commitments to extend credit | $4,792,000 | $5,424,000 | | Maximum exposure for letters of credit | $139,500 | $137,300 | | ACL on off-balance sheet credit exposures | $33,865 | $34,596 | - Unused commitments to extend credit decreased by $632 million (11.65%) year-over-year, while maximum exposure for letters of credit increased by $2.2 million (1.6%)[152][153] - The ACL on off-balance sheet credit exposures decreased by $731 thousand (2.11%) year-over-year, primarily due to a decrease in unfunded commitments, partially offset by the implementation of a performance trends qualitative factor[156] Note 13 – Earnings Per Share (EPS) | EPS (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Basic shares | 61,128 | 61,011 | | Dilutive shares | 220 | 182 | | Diluted shares | 61,348 | 61,193 | | Basic EPS | $0.68 | $0.82 | | Diluted EPS | $0.68 | $0.82 | - Basic and Diluted EPS remained at $0.68 for Q1 2024, a decrease from $0.82 in Q1 2023, reflecting lower net income[161] Note 14 – Statements of Cash Flows | Transaction (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Interest expense paid on deposits and borrowings | $98,327 | $54,823 | | Noncash transfers from loans to other real estate | $2,228 | $300 | - Interest expense paid on deposits and borrowings increased significantly by $43.504 million (79.35%) year-over-year[162] Note 15 – Shareholders' Equity | Capital Ratio | Trustmark Corporation (March 31, 2024) | Trustmark National Bank (March 31, 2024) | | :------------------------------------ | :------------------------------------- | :------------------------------------ | | Common Equity Tier 1 Capital (to RWA) | 10.12% | 10.62% | | Tier 1 Capital (to RWA) | 10.51% | 10.62% | | Total Capital (to RWA) | 12.42% | 11.73% | | Tier 1 Leverage (to Average Assets) | 8.76% | 8.87% | - Trustmark Corporation and Trustmark National Bank exceeded all minimum regulatory capital standards and were considered well-capitalized at March 31, 2024[163] - A new stock repurchase program for $50.0 million was authorized effective January 1, 2024, through December 31, 2024; no shares have been repurchased under this program as of March 31, 2024[166] Note 16 – Fair Value | Financial Instrument (in thousands) | March 31, 2024 Fair Value | December 31, 2023 Fair Value | | :-------------------------------- | :------------------------ | :------------------------- | | Securities available for sale | $1,702,299 | $1,762,878 | | Loans held for sale (LHFS) | $172,937 | $184,812 | | Mortgage servicing rights (MSR) | $138,044 | $131,870 | | Other assets - derivatives | $16,953 | $23,316 | | Other liabilities - derivatives | $40,803 | $35,600 | - Trustmark uses independent pricing services and market-based data to determine fair values, with most inputs classified as Level 2. MSR and certain derivatives utilize Level 3 inputs[171][174][176][177] - Collateral-dependent LHFI, measured at fair value on a nonrecurring basis, totaled $42.9 million with a related ACL of $12.6 million at March 31, 2024, classified as Level 3[181] Note 17 – Derivative Financial Instruments | Derivative Type (in thousands) | March 31, 2024 Notional Value | December 31, 2023 Notional Value | | :----------------------------- | :---------------------------- | :----------------------------- | | Cash flow hedges (interest rate swaps/floors) | $1,225,000 | $1,125,000 | | Exchange-traded derivatives (MSR hedge) | $301,000 | $285,000 | | Commercial client interest rate swaps | $1,470,000 | $1,500,000 | - Trustmark's cash flow hedging program increased its aggregate notional value by $100 million (8.9%) year-over-year, aiming to stabilize interest income and manage interest rate exposure[190] - For Q1 2024, a net loss of $3.6 million (net of tax) from cash flow hedges was reclassified into interest and fees on LHFS and LHFI, compared to a $2.2 million loss in Q1 2023[191] Note 18 – Segment Information | Segment (in thousands) | Net Income (Q1 2024) | Net Income (Q1 2023) | Total Assets (March 31, 2024) | Total Assets (March 31, 2023) | | :--------------------- | :------------------- | :------------------- | :---------------------------- | :---------------------------- | | General Banking | $36,550 | $46,070 | $18,093,454 | $18,578,910 | | Wealth Management | $1,591 | $1,543 | $178,165 | $207,414 | | Insurance | $3,394 | $2,687 | $104,993 | $90,854 | | Consolidated | $41,535 | $50,300 | $18,376,612 | $18,877,178 | - General Banking net income decreased by $9.520 million (20.66%) year-over-year, primarily due to increased provision for credit losses and higher interest expense[206] - Insurance segment net income increased by $707 thousand (26.31%) year-over-year, driven by new business commission volume in commercial property and casualty[206] Note 19 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements - Trustmark adopted ASU 2023-07, 'Segment Reporting,' for annual disclosures effective January 1, 2024, and plans to adopt interim disclosure requirements effective January 1, 2025. This is not expected to materially impact financial statements[208] - Trustmark intends to adopt ASU 2023-09, 'Income Taxes,' effective January 1, 2025, which will require more disaggregated income tax disclosures. This is not expected to materially impact financial statements[209] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a comprehensive analysis of Trustmark's Q1 2024 financial condition and results, covering operations, economic developments, and capital and liquidity management Description of Business - Trustmark Corporation, headquartered in Jackson, Mississippi, is a bank holding company operating through Trustmark National Bank (TNB) and other subsidiaries[211] - Trustmark provides financial services across Alabama, Florida, Mississippi, Tennessee, and Texas, managed through General Banking, Wealth Management, and Insurance segments[212] Executive Overview - Trustmark reported Q1 2024 financial results reflecting continued growth in loans held for investment (LHFI), solid credit quality, and increased noninterest income, maintaining a solid capital position[213] - TNB agreed to sell its insurance subsidiary, Fisher Brown Bottrell Insurance, Inc. (FBBI), for $345.0 million in cash, with estimated after-tax proceeds of $228.0 million to be used for balance sheet repositioning, expected to close by Q2 2024[214] - TNB tendered its 38.7 thousand Visa Class B-1 common shares in an exchange offer, which is expected to result in a realized gain upon acceptance in Q2 2024[215] Recent Economic and Industry Developments - Economic activity slightly improved in Q1 2024, but concerns persist due to geopolitical developments, inflation, higher energy prices, and the 2024 election cycle[216] - The Federal Reserve maintained the target federal funds rate at 5.25% to 5.50% and the interest rate on reserves at 5.40% since July 2023, leading to increased competitive pressures on deposit costs[217] - Bank lending was roughly flat, residential construction increased slightly, and home sales strengthened, while nonresidential construction was flat and commercial real estate leasing fell slightly[218] Financial Highlights | Metric | Q1 2024 | Q1 2023 | | :------------------------------------ | :------ | :------ | | Net Income (in millions) | $41.5 | $50.3 | | Basic and Diluted EPS | $0.68 | $0.82 | | Return on average tangible equity | 12.98% | 18.03% | | Return on average assets | 0.89% | 1.10% | | Total Revenue (in millions) | $188.2 | $189.0 | | Net Interest Income (in millions) | $132.8 | $137.6 | | Noninterest Income (in millions) | $55.3 | $51.4 | | Noninterest Expense (in millions) | $131.1 | $128.3 | | PCL, LHFI (in millions) | $7.7 | $3.2 | | Nonperforming assets (in millions) | $106.0 | $106.9 (Dec 31, 2023) | | LHFI (in billions) | $13.058 | $12.950 (Dec 31, 2023) | | Total Deposits (in billions) | $15.339 | $15.570 (Dec 31, 2023) | - Net income decreased by 17.4% year-over-year, with EPS falling from $0.82 to $0.68. Total revenue slightly decreased by 0.4%[219][220] - Net interest income decreased by 3.5% due to higher interest on deposits, while noninterest income increased by 7.7% driven by mortgage banking, insurance commissions, and other fees[221][222] - Nonperforming assets decreased by 0.8% from December 31, 2023, to March 31, 2024, primarily due to a decrease in nonaccrual LHFI[225] Selected Financial Data | Metric | March 31, 2024 | March 31, 2023 | | :------------------------------------ | :------------- | :------------- | | Total Assets (in thousands) | $18,376,612 | $18,877,178 | | Total Loans (LHFI + LHFS) (in thousands) | $13,230,880 | $12,673,121 | | Deposits (in thousands) | $15,338,557 | $14,783,661 | | Total Shareholders' Equity (in thousands) | $1,682,599 | $1,562,099 | | Return on average equity | 9.96% | 13.39% | | Net interest margin (FTE) | 3.21% | 3.39% | | Nonperforming assets / (LHFI + LHFS) plus other real estate | 0.80% | 0.58% | | ACL, LHFI / LHFI | 1.10% | 0.98% | | Common equity Tier 1 risk-based capital ratio | 10.12% | 9.76% | - Total assets decreased by $500.566 million (2.65%) year-over-year, while total loans increased by $557.759 million (4.40%)[235] - The net interest margin (FTE) decreased by 18 basis points year-over-year, from 3.39% to 3.21%[233] Non-GAAP Financial Measures - Trustmark uses non-GAAP tangible common equity measures to evaluate capital utilization and adequacy, reflecting capital available to withstand unexpected market conditions and for comparison with other organizations[236][237] | Metric | March 31, 2024 | March 31, 2023 | | :------------------------------------ | :------------- | :------------- | | Total average tangible equity (in thousands) | $1,289,364 | $1,136,068 | | Total tangible equity (in thousands) | $1,295,517 | $1,174,510 | | Total tangible assets (in thousands) | $17,989,530 | $18,489,589 | | Return on average tangible equity | 12.98% | 18.03% | | Tangible equity/tangible assets | 7.20% | 6.35% | | Tangible book value | $21.18 | $19.24 | - Tangible book value per share increased from $19.24 in Q1 2023 to $21.18 in Q1 2024[240] Results of Operations Net Interest Income | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net interest income-FTE | $136,195 | $141,072 | | Net interest margin-FTE | 3.21% | 3.39% | | Average interest-earning assets | $17,087,569 | $16,856,313 | | Yield on total earning assets | 5.49% | 4.87% | | Average interest-bearing liabilities | $13,376,350 | $12,584,882 | | Rate on total interest-bearing liabilities | 2.92% | 1.98% | - Net interest income (FTE) decreased by $4.9 million (3.5%) year-over-year, and the net interest margin (FTE) decreased by 18 basis points to 3.21%[243] - The decrease in net interest income was primarily due to a 58.2% increase in interest on deposits, partially offset by a 17.0% increase in interest and fees on LHFS and LHFI[243][245][247] Provision for Credit Losses | PCL (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | PCL, LHFI | $7,708 | $3,244 | | PCL, off-balance sheet credit exposures | $(192) | $(2,242) | - PCL on LHFI increased by $4.464 million (137.6%) year-over-year, primarily reflecting increased required reserves due to changes in macroeconomic forecasts from the annual loss driver analysis[250] - PCL on off-balance sheet credit exposures was a negative $192 thousand in Q1 2024, a decrease in negative provision of $2.050 million (91.4%) year-over-year, mainly due to decreased unfunded commitments partially offset by a new qualitative reserve factor[251] Noninterest Income | Noninterest Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Service charges on deposit accounts | $10,958 | $10,336 | $622 | 6.0% | | Bank card and other fees | $7,428 | $7,803 | $(375) | -4.8% | | Mortgage banking, net | $8,915 | $7,639 | $1,276 | 16.7% | | Insurance commissions | $15,464 | $14,305 | $1,159 | 8.1% | | Wealth management | $8,952 | $8,780 | $172 | 2.0% | | Other, net | $3,632 | $2,514 | $1,118 | 44.5% | | Total noninterest income | $55,349 | $51,377 | $3,972 | 7.7% | - Total noninterest income increased by $3.972 million (7.7%) year-over-year, primarily driven by increases in mortgage banking, net (+16.7%), insurance commissions (+8.1%), and other, net (+44.5%)[254] - Mortgage banking, net increased by $1.276 million, mainly due to higher gains on sales of loans, net, despite a 24.1% decrease in mortgage loan production[255][256] Noninterest Expense | Noninterest Expense (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Salaries and employee benefits | $75,458 | $74,056 | $1,402 | 1.9% | | Services and fees | $24,839 | $25,426 | $(587) | -2.3% | | Net occupancy - premises | $7,496 | $7,629 | $(133) | -1.7% | | Equipment expense | $6,385 | $6,405 | $(20) | -0.3% | | Other expense | $16,968 | $14,811 | $2,157 | 14.6% | | Total noninterest expense | $131,146 | $128,327 | $2,819 | 2.2% | - Total noninterest expense increased by $2.819 million (2.2%) year-over-year, primarily due to increases in other expense (+14.6%) and salaries and employee benefits (+1.9%)[258] - Other expense increased mainly due to a 90.3% rise in FDIC assessment expense, driven by an increased assessment rate[260] Results of Segment Operations | Segment (in thousands) | Net Income (Q1 2024) | Net Income (Q1 2023) | | :--------------------- | :------------------- | :------------------- | | General Banking | $36,550 | $46,070 | | Wealth Management | $1,591 | $1,543 | | Insurance | $3,394 | $2,687 | - General Banking net income decreased by $9.520 million (20.7%) year-over-year, primarily due to higher PCL and increased interest on deposits[263] - Insurance segment net income increased by $707 thousand (26.3%) year-over-year, driven by new business commission volume in commercial property and casualty[266] Income Taxes | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----- | :-------------------------------- | :-------------------------------- | | Income taxes (in thousands) | $7,982 | $9,343 | | Combined effective tax rate | 16.1% | 15.7% | - The combined effective tax rate increased slightly from 15.7% in Q1 2023 to 16.1% in Q1 2024, remaining below the statutory rate due to tax-exempt income and tax credit programs[268] Financial Condition Securities - Total investment securities decreased by $71.8 million (2.3%) during Q1 2024, primarily due to calls, maturities, and pay-downs of GSE guaranteed securities[272] | Securities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Available for sale | $1,702,299 | $1,762,878 | | Held to maturity | $1,415,025 | $1,426,279 | | Total Investment Securities | $3,117,324 | $3,189,157 | | Unrealized losses, net (AFS) | $198,700 | $196,100 | - The entire securities portfolio (100%) is invested in GSE-backed obligations and other Aaa-rated securities, reflecting a focus on asset quality[277] LHFS | LHFS (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------ | :------------- | :---------------- | | Residential mortgage loans | $95,200 | $106,000 | | GNMA optional repurchase loans | $77,700 | $78,800 | | Total LHFS | $172,900 | $184,800 | - LHFS decreased by $11.9 million (6.4%) from December 31, 2023, to March 31, 2024, with declines in both residential mortgage loans and GNMA optional repurchase loans[281] - Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during Q1 2024 or Q1 2023[282] LHFI | LHFI Category (in thousands) | March 31, 2024 Amount | March 31, 2024 % of Total | December 31, 2023 Amount | December 31, 2023 % of Total | | :--------------------------- | :-------------------- | :------------------------ | :----------------------- | :------------------------- | | Loans secured by real estate | $6,170,230 | 47.2% | $6,467,268 | 50.0% | | Other loans secured by real estate | $3,188,547 | 24.4% | $3,150,111 | 24.3% | | Commercial and industrial loans | $1,922,711 | 14.7% | $1,922,910 | 14.9% | | State and other political subdivision loans | $1,052,844 | 8.1% | $1,088,466 | 8.4% | | Total LHFI | $13,057,943 | 100.0% | $12,950,524 | 100.0% | - LHFI increased by $107.4 million (0.8%) from December 31, 2023, to March 31, 2024, driven by net growth in real estate secured LHFI, partially offset by a decline in state and other political subdivision LHFI[284] - LHFI secured by real estate increased by $141.4 million (1.5%) in Q1 2024, primarily due to growth in other real estate secured LHFI and other construction LHFI[285] Allowance for Credit Losses | ACL on LHFI (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $139,367 | $120,214 | | Provision for credit losses, LHFI | $7,708 | $3,244 | | Net (charge-offs) recoveries | $(4,077) | $(1,219) | | Balance at end of period | $142,998 | $122,239 | | ACL to total LHFI | 1.10% | 0.98% | - The ACL on LHFI increased by $3.6 million (2.6%) in Q1 2024, primarily due to changes in macroeconomic forecasts from the annual loss driver analysis, partially offset by updates to qualitative reserve factors[304] - Net charge-offs increased significantly from $(1.219) million in Q1 2023 to $(4.077) million in Q1 2024, driven by higher gross charge-offs across all market regions[305] Off-Balance Sheet Credit Exposures | ACL on Off-Balance Sheet (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Balance at end of period | $33,865 | $34,057 | | PCL, off-balance sheet credit exposures (Q1 2024) | $(192) | $(2,242) (Q1 2023) | - The ACL on off-balance sheet credit exposures decreased by $192 thousand (0.6%) in Q1 2024, primarily due to a decrease in unfunded commitments, partially offset by the implementation of a performance trends qualitative factor[308] Nonperforming Assets | Nonperforming Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | Nonaccrual LHFI | $98,351 | $100,008 | | Other real estate | $7,620 | $6,867 | | Total nonperforming assets | $105,971 | $106,875 | | Nonperforming assets/total loans and ORE | 0.80% | 0.81% | | LHFS - Guaranteed GNMA serviced loans past due 90+ days | $56,530 | $51,243 | - Total nonperforming assets decreased by $904 thousand (0.8%) from December 31, 2023, to March 31, 2024, primarily due to a decrease in nonaccrual LHFI[225][309] - Nonaccrual LHFI decreased by $1.7 million (1.7%) in Q1 2024, mainly due to the resolution of a large commercial credit in Texas, partially offset by new nonaccruals and increased mortgage nonaccruals[311] Deposits | Deposit Type (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Noninterest-bearing deposits | $3,039,652 | $3,197,620 | | Interest-bearing deposits | $12,298,905 | $12,372,143 | | Total deposits | $15,338,557 | $15,569,763 | | Total uninsured deposits | $5,531,000 | $5,601,000 | - Total deposits decreased by $231.2 million (1.5%) in Q1 2024. Noninterest-bearing deposits declined by $158.0 million (4.9%) as customers migrated to higher-yielding products[318] - Total uninsured deposits were $5.531 billion (36.1% of total deposits) at March 31, 2024, a slight decrease from $5.601 billion (36.0%) at December 31, 2023[319] Borrowings | Borrowing Type (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Federal funds purchased and securities sold under repurchase agreements | $393,215 | $405,745 | | Other borrowings | $482,027 | $483,230 | | Upstream federal funds purchased | $345,000 | $370,000 | - Federal funds purchased and securities sold under repurchase agreements decreased by $12.5 million (3.1%) in Q1 2024, primarily due to a decrease in upstream federal funds purchased[321] - Other borrowings decreased by $1.2 million (0.2%) in Q1 2024, mainly due to a decline in GNMA loans eligible for repurchase[322] Legal Environment - Trustmark is involved in lawsuits arising in the ordinary course of business, but currently believes that a loss in any pending legal proceeding is not probable or reasonably estimable[323] Off-Balance Sheet Arrangements - Information on off-balance sheet arrangements is detailed under 'Lending Related' in Note 12 – Contingencies[324] Capital Resources and Liquidity Regulatory Capital - Trustmark and TNB exceeded all minimum risk-based capital and leverage capital requirements at March 31, 2024, and were considered well-capitalized[327] - Subordinated notes ($123.5 million) qualify as Tier 2 capital, and trust preferred securities ($60.0 million) qualify as Tier 1 capital, contributing to Trustmark's strong capital structure[328][329] Dividends on Common Stock - Dividends per common share remained $0.23 for Q1 2024 and Q1 2023, with an indicated annual dividend of $0.92 per share for 2024, consistent with 2023[331] Stock Repurchase Program - A new $50.0 million stock repurchase program was authorized for 2024, but no shares were repurchased under this or the prior 2023 program as of March 31, 2024[333][334] Liquidity - Trustmark maintains strong liquidity through its deposit base, investment portfolio, and access to external funding sources like federal funds lines, FHLB advances, and brokered deposits[335][336] - At March 31, 2024, Trustmark had $4.065 billion in available FHLB borrowing capacity, $799.0 million in unencumbered U.S. Treasury and agency securities, and $1.412 billion in collateral capacity at the Federal Reserve Discount Window[341][343][344] - Average deposits were $15.420 billion for Q1 2024, representing 82.6% of average liabilities and shareholders' equity[338] Asset/Liability Management Overview - Trustmark's primary market risk is interest rate risk, managed through policies to monitor and limit exposure to changes in market interest rates, affecting net interest income variability[350] - All LIBOR exposure was remediated or in the process of remediation as of March 31, 2024, following the LIBOR cessation date of June 30, 2023[351] Derivatives - Trustmark uses financial derivatives (e.g., interest rate swaps, futures, options) to manage interest rate risk and hedge variable cash flows from loan assets, with an aggregate notional value of $1.225 billion for cash flow hedges at March 31, 2024[355][356] - Derivatives not designated as hedging instruments, such as interest rate lock commitments and forward sales contracts, are used in mortgage banking to manage risk, with a gross notional amount of $217.0 million at March 31, 2024[358] - Trustmark also offers interest rate derivatives to commercial lending clients, economically hedging these transactions with offsetting swaps, with an aggregate notional amount of $1.470 billion at March 31, 2024[362] Market/Interest Rate Risk Management | Change in Interest Rates | Estimated % Change in Net Interest Income (2024) | Estimated % Change in Net Interest Income (2023) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | +200 basis points | 1.4% | 3.5% | | +100 basis points | 0.7% | 1.7% | | -100 basis points | -0.8% | -1.8% | | -200 basis points | -2.3% | -4.8% | - Trustmark uses financial simulation models to measure interest rate exposure, showing that a +200 basis point shift in interest rates would increase net interest income by 1.4% in 2024, while a -200 basis point shift would decrease it by 2.3%[368][370] | Change in Interest Rates | Estimated % Change in Net Portfolio Value (2024) | Estimated % Change in Net Portfolio Value (2023) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | +200 basis points | -1.9% | -1.7% | | +100 basis points | -0.7% | -0.6% | - The MSR fair value was $138.0 million at March 31, 2024. A 10% adverse change in prepayment speed or a 100 basis point increase in discount rate would result in an approximate $5.0 million and $5.7 million decline in fair value, respectively[375] Critical Accounting Policies - There have been no significant changes in Trustmark's critical accounting policies during the first three months of 2024[376] Accounting Policies Recently Adopted and Pending Accounting Pronouncements - Trustmark adopted ASU 2023-07 on segment reporting for annual disclosures effective January 1, 2024, and plans to adopt interim disclosures effective January 1, 2025. It also plans to adopt ASU 2023-09 on income tax disclosures effective January 1, 2025. Neither is expected to have a material impact on financial statements[378] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section refers to the 'Market/Interest Rate Risk Management' discussion for market risk disclosures - Quantitative and qualitative disclosures about market risk are included in the 'Market/Interest Rate Risk Management' section of Management's Discussion and Analysis[379] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - Trustmark's disclosure controls and procedures were deemed effective as of March 31, 2024, by management, including the CEO and Principal Financial Officer[380] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[381] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Trustmark is involved in ordinary course lawsuits, but management believes a loss is not probable or reasonably estimable, with no material adverse effect expected - Trustmark is party to lawsuits in the ordinary course of business, but management believes a loss in any pending legal proceeding is not probable or reasonably estimable[382][383] - Legal proceedings are not expected to have a material adverse effect on Trustmark's consolidated financial condition[383] ITEM 1A. RISK FACTORS This section confirms no material changes to risk factors previously disclosed in Trustmark's 2023 Annual Report - No material change in risk factors previously disclosed in Trustmark's 2023 Annual Report[384] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS A $50.0 million stock repurchase program was authorized for 2024, but no shares were repurchased as of March 31, 2024 - A $50.0 million stock repurchase program was authorized for 2024, but no shares were purchased during Q1 2024[385][386] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred[387] ITEM 4. MINE SAFETY DISCLOSURES This section clarifies that mine safety disclosures are not applicable to Trustmark Corporation - Mine safety disclosures are not applicable[388] ITEM 5. OTHER INFORMATION This section reports no Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers in Q1 2024 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during Q1 2024[389] ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including compensation plans, employment agreements, and Sarbanes-Oxley Act certifications - Exhibits include stock and incentive compensation plan agreements, an employment agreement amendment, and Sarbanes-Oxley Act certifications[394] SIGNATURES This section contains the official signatures of Trustmark Corporation's President and CEO, and Treasurer and Principal Financial Officer, certifying the report filing - The report is duly signed by Duane A. Dewey (President and CEO) and Thomas C. Owens (Treasurer and Principal Financial Officer) on May 7, 2024[398]