John Marshall Bancorp, Inc. (OTCQB: JMSB) (the “Company”), parent company of John Marshall Bank (the “Bank”), reported its financial results for the three and nine months ended September 30, 2021.

Selected Highlights

• Strong Growth – Year-over-year total assets increased 12.5% or $233.6 million to $2.10 billion at September 30, 2021. Gross loans net of unearned income and Paycheck Protection Program (“PPP”) loans grew $142.3 million or 10.3% from September 30, 2020 to September 30, 2021. Total deposits grew $215.4 million or 13.3% from September 30, 2020 to September 30, 2021. Non-interest bearing demand deposits grew 20.2% or $78.0 million from September 30, 2020 to September 30, 2021.

• Record Quarterly Returns – Annualized Return on Average Assets (ROAA) was 1.30% and Return on Average Equity (ROAE) was 13.35% for the three months ended September 30, 2021. Excluding the second quarter of 2010, when the Company realized a significant, non-recurring income tax benefit from the removal of the valuation allowance on its deferred tax assets, these returns represent quarterly records for the Company.

• Eleventh Consecutive Quarter of Record Earnings – The Company reported net income of $6.8 million for the three months ended September 30, 2021, a 45.0% increase over the $4.7 million reported for the three months ended September 30, 2020. The Company reported net income of $17.9 million for the nine months ended September 30, 2021, a 30.5% increase over the $13.7 million reported for the nine months ended September 30, 2020. Earnings per diluted share for the three months ended September 30, 2021 were $0.48, a 41.2% increase over the $0.34 reported for the three months ended September 30, 2020. Earnings per diluted share for the nine months ended September 30, 2021 were $1.29, a 29.0% increase over the $1.00 reported for the nine months ended September 30, 2020.

• Consistent Interest Rate Spread – Excluding the impact of PPP loans, the Company’s interest rate spread, defined as yield on earning assets less the cost of funds, has been consistent. Excluding PPP loans, the interest rate spread for the three months ended September 30, 2021 was 3.91% versus 3.99% for the three months ended June 30, 2021, 3.90% for the three months ended December 31, 2020 and 3.90% for the three months ended September 30, 2020. The interest rate spread for the three months ended June 30, 2021 was inflated by extraordinary payoff volume.

• Increased Operating Leverage – Revenues, defined as the sum of net interest income and noninterest income, were $16.5 million or 11.6% greater in the third quarter of 2021 as compared to $14.8 million for the third quarter of 2020. This $1.7 million increase more than offset the increase in noninterest expense for the third quarter of 2021 of $406 thousand or 5.6% to $7.6 million, when compared to the $7.2 million for the third quarter of 2020. This continued improvement in operating leverage enabled the efficiency ratio to decrease from 48.8% for the three months ended September 30, 2020 to 46.2% for the three months ended September 30, 2021. Noninterest expense to average assets declined from 1.60% for the three months ended September 30, 2020 to 1.46% for the three months ended September 30, 2021.

• Asset Quality Remains Pristine – For the eighth consecutive quarter, the Company had no non-performing loans, no loans 30 days or more past due, and no other real estate owned assets at quarter-end September 30, 2021. During the first nine months of 2021, the Company reported charge-offs totaling $90 thousand. There were no charge-offs during the same period in 2020. Troubled debt restructurings were $554 thousand at September 30, 2021, a decrease of $65 thousand, from $619 thousand at September 30, 2020. The Company had no COVID-19 modifications as of September 30, 2021. The Company believes its allowance for loan losses is appropriate for the inherent risks and uncertainties associated with the portfolio.

Chris Bergstrom, President and Chief Executive Officer, commented, “Despite the economic strains caused by the Delta variant, John Marshall continued to grow high-quality loans and core deposits to produce record earnings and returns during the 3^rd quarter. We have leveraged our investments in technology to become more efficient, and are evaluating additional such investments to further accelerate our growth. The Company continues to have a strong capital position, excellent asset quality and a liquid balance sheet. As the number of COVID-19 cases declines, we are seeing increased lending opportunities and believe that we are well-positioned for future growth.”

Balance Sheet Review

Assets

Total assets were $2.10 billion at September 30, 2021, $1.89 billion at December 31, 2020 and $1.86 billion at September 30, 2020. Year-over-year asset growth from September 30, 2020 to September 30, 2021 was $233.6 million or 12.5%. Year-to-date asset growth from December 31, 2020 to September 30, 2021 was $210.1 million or 14.9% annualized. During the third quarter of 2021, assets increased $29.6 million or 5.7% annualized.

Loans

Gross loans were $1.60 billion at September 30, 2021, $1.56 billion at December 31, 2020 and $1.53 billion at September 30, 2020. Gross loans net of unearned income increased $69.7 million or 4.5% from September 30, 2020 to September 30, 2021. Excluding PPP loans, gross loans net of unearned income increased $142.3 million or 10.3% from September 30, 2020 to September 30, 2021. Gross loans net of unearned income grew $39.9 million or 3.4% annualized, during the nine months ended September 30, 2021 and increased $35.3 million or 8.9% annualized during the three months ended September 30, 2021.

Excluding the impact of PPP loans, gross loans net of unearned income grew $78.8 million, 7.3% annualized, during the nine months ended September 30, 2021 and increased $42.0 million or 11.2% annualized during the three months ended September 30, 2021.

Investment Securities

The Company’s portfolio of investments in fixed income securities was $342.1 million at September 30, 2021, $151.9 million at December 31, 2020 and $131.2 million at September 30, 2020. During the quarter ended September 30, 2021, the Company transferred $99.0 million in debt securities from available-for-sale to held-to-maturity and began classifying certain newly purchased debt securities as held-to-maturity, as it has the intent and ability to hold these securities to maturity. Year-over-year bond growth from September 30, 2020 to September 30, 2021 was $210.9 million or 160.7%. The year-over-year and year-to-date increase in fixed income securities was funded by primarily PPP loan payoffs and deposit growth.

Interest-Bearing Deposits in Banks

Interest-bearing deposits in banks were $110.5 million at September 30, 2021, $130.2 million at December 31, 2020 and $154.6 million at September 30, 2020. The Company expects to continue to reinvest these funds in higher yielding assets as opportunities and liquidity management allow.

Deposits

Total deposits were $1.84 billion at September 30, 2021, $1.64 billion at December 31, 2020 and $1.62 billion at September 30, 2020. Year-over-year deposit growth from September 30, 2020 to September 30, 2021 was $215.4 million or 13.3%. Deposits grew $197.4 million or 16.1% annualized during the nine months ended September 30, 2021 and $22.5 million or 4.9% annualized during the three months ended September 30, 2021. The slower third quarter annualized deposit growth resulted from a reduction in retail and wholesale time deposits, as discussed further below.

Non-interest bearing demand deposits were $463.9 million at September 30, 2021, $362.6 million at December 31, 2020 and $385.9 million at September 30, 2020. Year-over-year non-interest bearing demand deposit growth from September 30, 2020 to September 30, 2021 was $78.0 million or 20.2%. During the nine months ended September 30, 2021, non-interest bearing deposits grew $101.3 million or 37.4% annualized, and decreased $14.8 million or -12.3% annualized during the three months ended September 30, 2021. The decrease in non-interest bearing deposits during the three months ended September 30, 2021 was primarily the result of the distribution of proceeds from the sale of a customer’s business. Non-interest bearing demand deposits represented 25.2% of total deposits at September 30, 2021, 22.1% of total deposits at December 31, 2020 and 23.8% at September 30, 2020.

Core customer funding (which includes reciprocal IntraFi Demand®, IntraFi Money Market® and IntraFi CD® deposits maintained by customers) was $1.59 billion at September 30, 2021, $1.40 billion at December 31, 2020 and $1.43 billion at September 30, 2020. Year-over-year core customer funding sources increased by $162.5 million or 11.4% from September 30, 2020 to September 30, 2021. Non-maturing deposits were 64.7% of total deposits as of September 30, 2021, 60.3% as of December 31, 2020 and 61.4% as of September 30, 2020.

IntraFi CD® certificates of deposits (formerly known as Certificate of Deposit Account Registry Service [CDARS]) were $66.9 million at September 30, 2021, $39.7 million at December 31, 2020 and $36.9 million at September 30, 2020. Year-over-year, IntraFi® certificates of deposits increased $30.0 million from September 30, 2020 to September 30, 2021.

In total, time deposits, which includes retail customer, QwickRate, IntraFi and brokered certificates of deposit accounts, decreased $21.4 million or -12.7% annualized from June 30, 2021 to September 30, 2021 and decreased $3.5 million or -0.7% annualized from December 31, 2020 to September 30, 2021. Certificates of deposit with retail customers were $337.2 million at September 30, 2021, $374.4 million at December 31, 2020 and $398.5 million at September 30, 2020. Year-over-year certificates of deposit with retail customers decreased $61.3 million from September 30, 2020 to September 30, 2021. QwickRate® certificates of deposit were $29.0 million at September 30, 2021 and $29.8 million at both December 31, 2020 and September 30, 2020. Year-over-year QwickRate® certificates of deposit decreased $783 thousand from September 30, 2020 to September 30, 2021. Brokered deposits were $214.8 million at September 30, 2021, $207.6 million at December 31, 2020 and $161.1 million at September 30, 2020. Brokered deposits decreased $5.6 million from June 30, 2021 to September 30, 2021. Management continues to selectively utilize wholesale funding in order to realize lower funding costs and achieve certain asset/liability management objectives.

Borrowings

Borrowings, consisting of Federal Home Loan Bank of Atlanta (“FHLB”) advances were $18.0 million at September 30, 2021 and $22.0 million at both December 31, 2020 and September 30, 2020. FHLB advances decreased $4.0 million or 18.2% from September 30, 2020 to September 30, 2021 and from December 31, 2020 to September 30, 2021. Management continues to retire FHLB advances as they mature to increase contingent funding sources. As of September 30, 2021, the Bank had approximately $289 million remaining in secured borrowing capacity with the FHLB, an increase of $34 million over the $255 million of FHLB secured borrowing capacity as of September 30, 2020.

The Company had subordinated notes with a balance of $24.7 million at September 30, 2021, December 31, 2020 and September 30, 2020. The notes are callable, in whole or part, at the Company’s option commencing July 2022.

Shareholders’ Equity and Capital Levels

Total shareholders’ equity was $202.2 million at September 30, 2021, $186.1 million at December 31, 2020 and $181.4 million at September 30, 2020. Year-over-year shareholders’ equity increased by $20.8 million or 11.5%. Accumulated other comprehensive income declined from $4.1 million at September 30, 2020 to $1.4 million at September 30, 2021. An increase in market yields for investments has reduced the Company’s unrealized gains in its bond portfolio, as bond prices and yields vary inversely.

Total common shares outstanding increased from 13,573,601, including 46,483 shares relating to unvested stock awards, at September 30, 2020, to 13,644,985, including 60,575 shares relating to unvested stock awards, at September 30, 2021. The year-over-year increase in shares outstanding was the result of exercises of share options and additional grants of unvested stock awards.

The Bank’s capital ratios remain well above regulatory minimums for well-capitalized banks. As of September 30, 2021, the Bank’s total risk-based capital ratio was 15.2%, compared to 14.6% at September 30, 2020.

Asset Quality

As of September 30, 2021, for the eighth consecutive quarter, the Company had no non-accrual loans, no loans 30 days or more past due and no other real estate owned assets.

Troubled debt restructurings were $554 thousand at September 30, 2021, a decrease of $65 thousand, from $619 thousand at September 30, 2020. All troubled debt restructurings were performing in accordance with their modified terms as of September 30, 2021 and September 30, 2020.

The Company did not have any loans with COVID-19 loan modifications as of September 30, 2021.

Income Statement Review

Net Interest Income

Net interest income was $16.2 million for the three months ended September 30, 2021, an increase of $1.7 million or 12.1% from $14.4 million for the three months ended September 30, 2020. The net interest margin was 3.15% for the three months ended September 30, 2021 as compared to 3.26% for the three months ended September 30, 2020.

Average loans net of unearned income increased $59.6 million or 3.9% compared to the three months ended September 30, 2020, with a 27 basis point decline in yield. Average securities increased $189.8 million or 140.3% compared to the three months ended September 30, 2020, with an 81 basis point decline in yield. Average interest-bearing deposits in other banks increased $29.7 million or 28.8% compared to the three months ended September 30, 2020, with a 2 basis point increase in yield. The average yield on interest-earning assets decreased 54 basis points from 4.05% for the three months ended September 30, 2020 to 3.51% for the three months ended September 30, 2021, primarily due to the decline in rates since the end of the first quarter of 2020.

The average cost of interest-bearing liabilities declined 60 basis points or 52.9% from 1.14% for the three months ended September 30, 2020 to 0.54% for the three months ended September 30, 2021. The average cost of interest-bearing deposits decreased 60 basis points when comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2021. The average cost of other borrowed funds decreased 31 basis points when comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2021. The declines in funding costs were also primarily due to the decline in rates since the end of the first quarter of 2020.

Net interest margin, excluding PPP loans, was 3.19% for the three months ended September 30, 2021 and 3.32% for the same period in 2020. The yield on interest-earning assets would have been 3.57% and the yield on loans would have been 4.31% for the three months ended September 30, 2021, if PPP loans were excluded.

Net interest income was $48.9 million for the nine months ended September 30, 2021, an increase of $7.8 million or 19.0% from $41.1 million for the nine months ended September 30, 2020. The net interest margin was 3.29% for the nine months ended September 30, 2021 as compared to 3.28% for the nine months ended September 30, 2020.

Average loans net of unearned income increased $149.5 million or 10.4% compared to the nine months ended September 30, 2020, with a 34 basis point decline in yield. Average securities increased $117.7 million or 86% compared to the nine months ended September 30, 2020, with an 80 basis point decline in yield. Average interest-bearing deposits in other banks increased $45.9 million or 46.0% compared to the nine months ended September 30, 2020, with a 37 basis point decline in yield. The average yield on interest-earning assets decreased 56 basis points from 4.29% for the nine months ended September 30, 2020 to 3.73% for the nine months ended September 30, 2021, primarily due to the decline in rates since the end of the first quarter of 2020.

The average cost of interest-bearing liabilities declined 81 basis points or 56.2% from 1.44% for the nine months ended September 30, 2020 to 0.63% for the nine months ended September 30, 2021. The average cost of interest-bearing deposits decreased 81 basis points when comparing the nine months ended September 30, 2020 to same period in 2021. The average cost of other borrowed funds decreased 59 basis points when comparing the nine months ended September 30, 2020 to the same period in 2021. The declines in funding costs were also primarily due to the decline in rates since the end of the first quarter of 2020.

Net interest margin, excluding PPP loans, was 3.25% for the nine months ended September 30, 2021 compared to 3.28% for the nine months ended September 30, 2020. The yield on interest-earning assets would have been 3.71% and the yield on loans would have been 4.41% for the nine months ended September 30, 2021, if PPP loans were excluded.

On a linked quarterly basis, net interest margin, excluding PPP loans, decreased 13 basis points from 3.32% for the quarter ended June 30, 2021 to 3.19% for the quarter ended September 30, 2021. The decrease was due to higher fee income reported during the second quarter as a result of the elevated payoff activity within the commercial and construction and development loan portfolios that did not occur at the same volume this quarter. For the three months ended September 30, 2021, the average yield on interest-earning assets, excluding PPP loans, was 3.57% and average yield on loans, excluding PPP loans, was 4.31%, a decrease of 21 and 16 basis points, respectively, when compared to the three months ended June 30, 2021. The average cost of interest-bearing deposits decreased 8 basis points from 0.52% for the three months ended June 30, 2021 to 0.44% for the three months ended September 30, 2021. The average cost of other borrowed funds increased 1 basis point from 0.67% for the three months ended June 30, 2021 to 0.68% for the three months ended September 30, 2021.

Provision for Loan Losses

The Company had a $325 thousand provision for loan losses for the three months ended September 30, 2021, compared to $1.7 million for the same period in 2020. There were no charge-offs during the third quarter of 2021 or 2020.

The Company had a $2.8 million provision for loan losses for the nine months ended September 30, 2021, compared to $3.6 million for the same period in 2020. The Company had $90 thousand in charge-offs during the nine months ended 2021 and $43 thousand in net loan recoveries during the first nine months of 2020.

The allowance for loan losses as a percentage of total loans increased from 0.94% at September 30, 2020 to 1.23% at September 30, 2021. The allowance for loan losses increased $5.3 million or 36.5% from September 30, 2020 to September 30, 2021. The allowance for loan losses as a percentage of total loans (excluding PPP loans) increased from 1.04% at September 30, 2020 to 1.29% at September 30, 2021. The Company does not have a reserve on PPP loan balances, as they are 100% guaranteed by the U.S. Small Business Administration.

The Company continues to monitor and evaluate additional information as it becomes available concerning COVID-19 and a number of economic performance metrics, including those related to the overall economy as well as specific industry sectors. The Company believes the allowance for loan losses was adequate to absorb probable losses inherent in the loan portfolio as of September 30, 2021. The continued evolution of COVID-19 and the intensity of its socioeconomic effects, which are inherently uncertain, may positively or negatively impact the level of the allowance and provision in future periods.

Noninterest Income

The Company’s recurring sources of noninterest income consist primarily of bank owned life insurance income, service charges on deposit accounts and insurance commissions. Generally speaking, loan fees are included in interest income on the loan portfolio and not reported as noninterest income.

For the three months ended September 30, 2021, the Company reported total noninterest income of $325 thousand compared to $357 thousand for the same period in 2020. The decrease in noninterest income was primarily due to a market adjustments on the Company’s equity securities and bank owned life insurance income.

For the nine months ended September 30, 2021, the Company reported total noninterest income of $1.21 million compared to $1.24 million for the nine months ended September 30, 2020. The decrease in noninterest income was primarily due to a decrease in gains on sales of securities. Excluding gains from the sale of securities, the Company experienced an increase of $266 thousand during the nine months ended September 30, 2021 when compared to the same period in 2020. These increases were primarily attributable to increases in insurance commissions as a result of higher production and related incentives, an increase in other income as a result of a loan commitment fee received for a loan that did not close, and increases due to service charges on deposits.

Noninterest Expense

For the three months ended September 30, 2021, noninterest expense increased 5.6% to $7.6 million relative to the same period in 2020. Salaries and employee benefits expense was $5.0 million during the three months ended September 30, 2021, up $274 thousand or 5.8% when compared to $4.7 million during the three months ended September 30, 2020. Other operating expense increased by 5.0% or $86 thousand when comparing the three months ended September 30, 2021 to the same period in 2020.

For the nine months ended September 30, 2021, noninterest expense increased 13.2% to $24.6 million relative to the same period in 2020. For the nine months ended September 30, 2021, salaries and employee benefits expense increased 14.8% or $2.0 million compared to the nine months ended September 30, 2020. Other operating expense increased by 18.2% or $980 thousand, during the nine months ended September 30, 2021, compared to the same period in 2020.

For both the three and nine months ended September 30, 2021, the increase in salaries and employee benefits was primarily related to increases in headcount within the Bank and incentive compensation tied to performance. The headcount increases are investments in the Bank’s future growth. As in the past, management expects these staffing additions will lead to subsequent increases in revenues. Incentive compensation expense accruals can fluctuate significantly from quarter to quarter, based upon the Company’s financial performance and condition measured against, among other evaluation criteria, our strategic plan and budget. The increase in other operating expense for the three and nine months ended September 30, 2021 when compared to the same periods in 2020 was primarily due to increases in legal expenses (including contemplated registration of the Company’s shares with the Securities and Exchange Commission), consulting expenses, marketing expenses, state bank franchise taxes, and expense associated with higher Federal Deposit Insurance Corporation deposit insurance that correlates directly to the Bank’s increase of insured deposit balances.

For the three months ended September 30, 2021, annualized noninterest expense to average assets was 1.46% compared to 1.60% for the three months ended September 30, 2020. For the nine months ended September 30, 2021, annualized noninterest expense to average assets was 1.63% compared to 1.70% for the nine months ended September 30, 2020. The Company believes its ratio of noninterest expense to average assets compares favorably to peers.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. John Marshall Bank (JMB) is one of the largest community banks headquartered in Reston, Virginia with eight full-service branches located in Alexandria, Arlington, Loudoun, Prince William, Reston, and Tysons, Virginia, as well as Rockville, Maryland, and Washington, D.C. with one loan production office in Arlington, Virginia. The Bank is dedicated to providing exceptional value, personalized service and convenience to local businesses and professionals in the Washington DC Metro area. JMB offers a comprehensive line of sophisticated banking products and services that rival those of the largest banks along with experienced staff to help achieve customers’ financial goals. Dedicated Relationship Managers serve as direct points-of-contact, providing subject matter expertise in a variety of niche industries including Charter and Private Schools, Government Contractors, Health Services, Nonprofits and Associations, Professional Services, Property Management Companies, and Title Companies. Learn more at www.johnmarshallbank.com.

In addition to historical information, this press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions or expressions of confidence. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to the following: changes in interest rates, general economic conditions, public health crises (such as the governmental, social and economic effects of COVID-19), levels of unemployment in the Bank’s lending area, real estate market values in the Bank’s lending area, future natural disasters, the level of prepayments on loans and mortgage-backed securities, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, accounting principles and guidelines, and other conditions which by their nature are not susceptible to accurate forecast, and are subject to significant uncertainty. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.