Securities Available for Sale and Held to Maturity

6 Months Ended

Jun. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Securities Available for Sale and Held to Maturity

Note 2 – 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 June 30, 2022 and December 31, 2021 ($ in thousands):

	Securities Available for Sale									Securities Held to Maturity
June 30, 2022	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	$	448,403	$	—	$	(28,707	)	$	419,696	$	—	$	—	$	—		$	—
U.S. Government agency    obligations		12,439		—		(492	)		11,947		—		—		—			—
Obligations of states and political    subdivisions		5,102		77		—			5,179		5,320		20		(2	)		5,338
Mortgage-backed securities
Residential mortgage pass-    through securities
Guaranteed by GNMA		34,534		41		(2,335	)		32,240		4,624		6		(179	)		4,451
Issued by FNMA and    FHLMC		2,068,850		8		(180,312	)		1,888,546		185,554		—		(11,152	)		174,402
Other residential mortgage-    backed securities
Issued or guaranteed by    FNMA, FHLMC or    GNMA		148,843		1		(4,686	)		144,158		210,479		6		(6,217	)		204,268
Commercial mortgage-backed    securities
Issued or guaranteed by    FNMA, FHLMC or    GNMA		143,805		57		(1,264	)		142,598		731,777		436		(18,213	)		714,000
Total	$	2,861,976	$	184	$	(217,796	)	$	2,644,364	$	1,137,754	$	468	$	(35,763	)	$	1,102,459

	Securities Available for Sale									Securities Held to Maturity
December 31, 2021	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	$	349,562	$	16	$	(4,938	)	$	344,640	$	—	$	—	$	—		$	—
U.S. Government agency    obligations		14,044		20		(337	)		13,727		—		—		—			—
Obligations of states and political    subdivisions		5,134		580		—			5,714		7,328		64		(3	)		7,389
Mortgage-backed securities
Residential mortgage pass-    through securities
Guaranteed by GNMA		38,942		665		(34	)		39,573		5,005		187		(3	)		5,189
Issued by FNMA and    FHLMC		2,230,498		8,945		(21,014	)		2,218,429		43,444		962		—			44,406
Other residential mortgage-    backed securities
Issued or guaranteed by    FNMA, FHLMC or    GNMA		193,908		2,879		(97	)		196,690		241,934		9,015		(31	)		250,918
Commercial mortgage-backed    securities
Issued or guaranteed by    FNMA, FHLMC or    GNMA		424,201		404		(4,501	)		420,104		44,826		783		—			45,609
Total	$	3,256,289	$	13,509	$	(30,921	)	$	3,238,877	$	342,537	$	11,011	$	(37	)	$	353,511

During 2013, Trustmark reclassified $1.099 billion of securities available for sale to securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). During the second quarter of 2022, Trustmark reclassified $343.1 million of securities available for sale to securities held to maturity. At the date of this transfer, the net unrealized holding loss on the available for sale securities totaled approximately $34.8 million ($26.1 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 is amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of either transfer. At June 30, 2022, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled approximately $39.5 million ($29.7 million, net of tax) compared to approximately $6.3 million ($4.7 million, net of tax) at December 31, 2021.

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 June 30, 2022 and December 31, 2021, the results of the analysis did not identify any securities that violate the credit loss triggers; therefore, no DCF analysis was performed 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 June 30, 2022, accrued interest receivable totaled $4.8 million for securities available for sale compared to $5.1 million at December 31, 2021 and was reported in other assets on the accompanying consolidated balance sheet.

Securities Held to Maturity

At June 30, 2022 and December 31, 2021, $5.3 million and $7.3 million, respectively, of securities had a potential for credit loss exposure and all consisted of municipal securities. After applying appropriate probability of default (PD) and loss given default (LGD)

assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at June 30, 2022 and December 31, 2021.

Accrued interest receivable is excluded from the estimate of credit losses for securities held to maturity. At June 30, 2022 accrued interest receivable totaled $2.1 million for securities held to maturity compared to $670 thousand at December 31, 2021 and was reported in other assets on the accompanying consolidated balance sheet.

At both June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021 ($ in thousands):

	June 30, 2022		December 31, 2021
Aaa	$	1,132,434	$	335,208
Aa1 to Aa3		3,004		5,007
Not Rated (1)		2,316		2,322
Total	$	1,137,754	$	342,537

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

The tables below include securities with gross unrealized losses for which an allowance for credit losses has not been recorded and segregated by length of impairment at June 30, 2022 and December 31, 2021 ($ in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2022	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities	$	419,696	$	(28,707	)	$	—	$	—		$	419,696	$	(28,707	)
U.S. Government agency obligations		3,794		(210	)		7,911		(282	)		11,705		(492	)
Obligations of states and political subdivisions		—		—			3,669		(2	)		3,669		(2	)
Mortgage-backed securities
Residential mortgage pass-through    securities
Guaranteed by GNMA		34,004		(2,372	)		1,024		(142	)		35,028		(2,514	)
Issued by FNMA and FHLMC		1,538,004		(130,441	)		524,112		(61,023	)		2,062,116		(191,464	)
Other residential mortgage-backed    securities
Issued or guaranteed by FNMA,    FHLMC or GNMA		345,035		(10,891	)		784		(12	)		345,819		(10,903	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA,    FHLMC or GNMA		755,011		(19,108	)		23,890		(369	)		778,901		(19,477	)
Total	$	3,095,544	$	(191,729	)	$	561,390	$	(61,830	)	$	3,656,934	$	(253,559	)
December 31, 2021
U.S. Treasury Securities	$	315,123	$	(4,938	)	$	—	$	—		$	315,123	$	(4,938	)
U.S. Government agency obligations		1,312		(5	)		8,619		(332	)		9,931		(337	)
Obligations of states and political subdivisions		3,006		(1	)		667		(2	)		3,673		(3	)
Mortgage-backed securities
Residential mortgage pass-through    securities
Guaranteed by GNMA		6,040		(37	)		—		—			6,040		(37	)
Issued by FNMA and FHLMC		1,734,921		(19,980	)		55,303		(1,034	)		1,790,224		(21,014	)
Other residential mortgage-backed    securities
Issued or guaranteed by FNMA,    FHLMC or GNMA		19,038		(99	)		2,647		(29	)		21,685		(128	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA,    FHLMC or GNMA		344,025		(4,492	)		639		(9	)		344,664		(4,501	)
Total	$	2,423,465	$	(29,552	)	$	67,875	$	(1,406	)	$	2,491,340	$	(30,958	)

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

During the six months ended June 30, 2022 and 2021, there were no gross realized gains or losses as a result of calls and dispositions of securities. Realized gains and losses are determined using the specific identification method and are included in noninterest income as security gains (losses), net.

Securities Pledged

Securities with a carrying value of $2.546 billion and $2.831 billion at June 30, 2022 and December 31, 2021, respectively, were pledged to collateralize public deposits and securities sold under repurchase agreements and for other purposes as permitted by law. At both June 30, 2022 and December 31, 2021, 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 June 30, 2022, 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	$	21,066	$	21,057	$	4,135	$	4,137
Due after one year through five years		336,659		317,550		1,185		1,201
Due after five years through ten years		98,549		88,969		—		—
Due after ten years		9,670		9,246		—		—
		465,944		436,822		5,320		5,338
Mortgage-backed securities		2,396,032		2,207,542		1,132,434		1,097,121
Total	$	2,861,976	$	2,644,364	$	1,137,754	$	1,102,459