John Marshall Bancorp, Inc. (Nasdaq: JMSB) (the “Company”), parent company of John Marshall Bank (the “Bank”), today reported net income of $7.9 million ($0.56 per diluted common share) for the quarter ended June 30, 2022. The current quarter’s result compares to net income of $6.1 million ($0.44 per diluted common share) for the second quarter of 2021 and net income of $7.7 million ($0.55 per diluted common share) for the first quarter of 2022.

Second Quarter Highlights

• Fourteenth Consecutive Quarter of Record Earnings – The Company reported record net income of $7.9 million for the second quarter of 2022, a $1.8 million or 29.7% increase over the $6.1 million reported for the second quarter of 2021. Earnings per diluted share for the three months ended June 30, 2022 were $0.56, a 27.3% increase over the $0.44 reported for the three months ended June 30, 2021.
• Record Returns – Annualized Return on Average Assets (“ROAA”) was 1.41% and annualized Return on Average Equity (“ROAE”) was 15.28% for the three months ended June 30, 2022. ROAA and ROAE were 1.20% and 12.64%, respectively, for the three months ended June 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, the ROAA and ROAE represent Company records.
• Strong Loan Growth – Excluding Paycheck Protection Program (“PPP”) loans, gross loans net of unearned income (“Core Loans”) grew $204.1 million or 13.7% from June 30, 2021 to June 30, 2022. Core loans grew $68.8 million or 17.0% annualized from March 31, 2022 to June 30, 2022, representing the 3^rd best quarter of core loan production in the Company’s history.
• Overhead Discipline – The Company continues to actively manage costs while investing for future growth. The efficiency ratio for the second quarter of 2022 was 44.1% compared to 53.6% for the second quarter of 2021. The ratio of annualized non-interest expense to average assets was 1.38% for the second quarter of 2022 and 1.79% for the second quarter of 2021.
• Asset Quality Remains Pristine – For the eleventh 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 June 30, 2022. 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, “During the second quarter of 2022, the Company achieved a number of significant milestones – registering our stock with the Securities and Exchange Commission to provide shareholders with greater disclosure and transparency, listing on the Nasdaq to facilitate greater trading volume, paying a cash dividend to reward our shareholders and refinancing our subordinated debt to lower our interest expense and cost of capital. While working on these priorities, we were able to achieve our 3^rd best quarter of core loan growth. The PPP loan payoffs that we have not yet redeployed into loans were invested into liquid, cash flowing securities that we expect to convert into future loans and further increase our profitability. Our balance sheet remains well-capitalized with stellar asset quality, ample liquidity, and is primed for continued growth.”

Balance Sheet and Credit Quality

Total assets were $2.32 billion at June 30, 2022, $2.25 billion at March 31, 2022 and $2.07 billion at June 30, 2021. Asset growth from June 30, 2021 to June 30, 2022 was $250.5 million or 12.1%. During the second quarter of 2022, assets increased $66.8 million or 11.9% annualized. Asset growth was primarily comprised of loans and securities available for sale.

Total loans, net of unearned income, increased by 8.0% to $1.69 billion at June 30, 2022, compared to $1.57 billion at June 30, 2021. Excluding PPP loans, total loans, net of unearned income, at June 30, 2022 grew 13.7% to $1.69 billion as compared to $1.49 billion at June 30, 2021. The year-over-year increase in the loan portfolio is primarily attributable to growth in the investor real estate, residential mortgage, commercial owner-occupied real estate, and multi-family loan portfolios. At June 30, 2022, PPP loans, net of unearned income, totaled $216 thousand.

Total loans, net of unearned income, increased $61.4 million during the quarter ended June 30, 2022 or 15.1% annualized from $1.63 billion at March 31, 2022. Excluding PPP loans, total loans, net of unearned income, increased $68.8 million during the quarter ended June 30, 2022 or 17.0% annualized from March 31, 2022. The increase in loans was attributable to growth in the investor real estate, commercial owner-occupied, residential mortgage, and multi-family loan portfolios.

The Company’s portfolio of investments in fixed income securities was $467.4 million at June 30, 2022, $402.3 million at March 31, 2022, and $299.5 million at June 30, 2021. The increase in the fixed income securities portfolio was primarily driven by redeployment of PPP loan payoffs and deposit growth. All but $15.2 million of the fixed income portfolio is backed by the explicit or implicit guarantees of the United States Government or one of its agencies.

Total deposits were $2.04 billion at June 30, 2022, $1.98 billion at March 31, 2022 and $1.82 billion at June 30, 2021. Deposit growth was 12.6% during the past twelve months, as saving deposits grew 41.9%, interest-bearing demand deposits grew 25.6%, and non-interest bearing deposits grew 7.0%. Deposit growth was 8.6% during the past six months as interest-bearing demand deposits grew 16.5% and savings deposits grew 10.8%.

Total borrowings, defined as Federal Home Loan Bank (“FHLB”) advances and subordinated debt, increased by 15.7% or $6.8 million to $49.6 million at June 30, 2022 compared to $42.8 million at March 31, 2022. The increase was primarily due to the Company’s June 2022 issuance of a 5.25% fixed-to-floating rate subordinated note (“2022 note”) due in 2032 in the principal amount of $25.0 million. On July 15, 2022, the Company used the proceeds from the issuance to redeem the 5.75% fixed-to-floating rate subordinated notes (“2017 notes”) due 2027. The increase in total borrowings was partially offset by an $18.0 million decrease in FHLB advances due to the call of the Company’s outstanding FHLB advances during the three months ended June 30, 2022.

Shareholders’ equity was $207.5 million at June 30, 2022, an increase of $12.3 million or 6.3% from June 30, 2021. This increase year-over-year was due to net income of $29.9 million and the exercise of stock options totaling $3.5 million, partially offset by reductions in accumulated other comprehensive income of $18.3 million and dividends paid of $2.8 million. Book value per share was $14.80 as of June 30, 2022 compared to $14.32 as of June 30, 2021. The change in book value per share year-over-year was due to earnings, partially offset by increases in unrealized losses on our available-for-sale investment portfolio as a result of rising interest rates, shareholder option exercises, restricted share award issuances, and dividends paid. The Bank’s capital ratios remain well above regulatory thresholds for well-capitalized banks. As of June 30, 2022, the Bank’s total risk-based capital ratio was 15.1%, compared to 15.0% at June 30, 2021.

The Company recorded no net charge-offs for the second quarter of 2022, as compared to net charge-offs of $1 thousand during the first quarter of 2022 and $90 thousand during the second quarter of 2021. As of June 30, 2022, the Company had no non-accrual loans, no loans 30 days or more past due and no other real estate owned assets.

At June 30, 2022, the allowance for loan losses was $20.0 million or 1.18% of outstanding loans, net of unearned income, compared to $20.0 million or 1.23% of outstanding loans, net of unearned income, at March 31, 2022. The decrease in the allowance to outstanding loans, net of unearned income, was primarily due to improvement in risk ratings and the net changes in other qualitative adjustments.

Income Statement Review

Quarterly Results

Net income for the second quarter of 2022 increased $1.8 million or 29.7% to $7.9 million compared to $6.1 million for the second quarter of 2021. Net income increased $208 thousand or 2.7% compared to $7.7 million for the first quarter of 2022.

Net interest income for the second quarter of 2022 increased $817 thousand or 5.5% compared to the second quarter of 2021, driven primarily by growth in the Company’s investment portfolio. The annualized net interest margin excluding the effects of accelerated amortization on the 2017 notes and interest expense on 2022 note (non-GAAP) for the second quarter of 2022 was 3.18% as compared to 3.31% for the same quarter of the prior year. The tax-equivalent yield on interest earning assets was 3.57% for the second quarter of 2022 compared to 3.75% for the same period in 2021. The year-over-year decrease in net interest margin and tax-equivalent yield on interest earning assets was primarily due to lower yields on the Company’s loan portfolio. The non-GAAP cost of interest-bearing liabilities was 0.56% for the second quarter of 2022 compared to 0.62% for the same quarter of the prior year. The decrease in the cost of interest-bearing liabilities was primarily due to a six basis point reduction in the cost of interest-bearing deposits as a result of the repricing of the Company’s time deposits. Refer to “Explanation of Non-GAAP Measures” and the “Reconciliation of Certain Non-GAAP Financial Measures” table for further details about financial measures used in this release that were determined by methods other than in accordance with United States generally accepted accounting principles (“GAAP”).

The Company did not record a provision for loan losses for the second quarter of 2022, compared to a $90 thousand provision for the second quarter of 2021. The provision recorded during the second quarter of 2021 related to a charge-off for a loan that the Bank sold as part of a portfolio management strategy.

Non-interest income decreased $308 thousand or 73.9% during the second quarter of 2022 compared to the second quarter of 2021. The decrease in non-interest income was primarily due to mark-to-market adjustments of $(339) thousand resulting from a reduction in value of investments related to the Company’s nonqualified deferred compensation plan. Excluding the impact of the mark-to-market adjustments, non-interest income increased $31 thousand or 8.9% primarily due to increases in service charges and fees on deposit accounts, interchange and other fee income, and insurance commissions.

Non-interest expense decreased $1.4 million or 15.3% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease in non-interest expense was primarily due to a decrease in salaries and employee benefits of $1.0 million or 18.0% driven primarily by a decrease in incentive compensation accruals. Incentive compensation accruals can fluctuate materially from quarter to quarter, based upon the Company’s financial performance and conditions measured against, among other evaluation criteria, our strategic plan and budget. At the end of each year, the ultimate determination of the incentive compensation is approved by the Board of Directors.

For the three months ended June 30, 2022, annualized non-interest expense to average assets was 1.38% compared to 1.79% for the three months ended June 30, 2021. The decrease was primarily due to lower incentive compensation accruals and non-recurring legal and professional fees incurred in 2021, coupled with continued cost consciousness.

For the three months ended June 30, 2022, the annualized efficiency ratio was 44.1% compared to 53.6% for the three months ended June 30, 2021. The decrease was primarily due to the increase in net interest income coupled with a decrease in incentive compensation accruals.

Year-to-Date Results

Net income for the six months ended June 30, 2022 increased $4.4 million or 39.5% to $15.6 million compared to $11.2 million for the six months ended June 30, 2021. The results for the six months ended June 30, 2022 reflect a combination of the impact of an increase in net interest income, a decrease in provision for loan loss expense, and a decrease in non-interest expense, which were partially offset by a decrease in non-interest income.

Net interest income for the six months ended June 30, 2022 increased $2.5 million or 7.5% compared to the six months ended June 30, 2021 and was driven primarily by growth in the Company’s loan and investment portfolios. The annualized non-GAAP net interest margin for the six months ended June 30, 2022 was 3.26% as compared to 3.37% for the same period of the prior year. The tax-equivalent yield on interest earning assets for the six months ended June 30, 2022 was 3.62% compared to 3.86% for the same period in the prior year. The year-over-year decrease in net interest margin and tax-equivalent yield on interest earning assets was primarily due to a lower yield on fixed rate investments and lower yields on the Company’s loan portfolio. The non-GAAP cost of interest-bearing liabilities was 0.51% for the six months ended June 30, 2022 compared to 0.68% for the same period of the prior year. The decrease in the cost of interest-bearing liabilities was primarily due to a 16 basis point reduction in the cost of interest-bearing deposits as a result of the repricing of the Company’s time deposits.

The Company did not record a provision for loan losses for the six months ended June 30, 2022, compared to a $2.5 million provision for the six months ended June 30, 2021. The decrease in the provision for loan losses as compared to the same period in 2021 primarily reflects changes in the Company’s evaluation of environmental factors impacting the Company’s loan portfolio during 2022. During 2021, the environmental or qualitative factor allocations within the allowance for loan losses were adjusted to account for the risks to certain industry subgroups and portfolio segments within our portfolio as a result of the continuing COVID-19 pandemic. The decrease in the provision for loan losses primarily reflects an estimated decrease in uncertainty as it relates to the estimated impact of the COVID-19 pandemic on the Company’s loan portfolio and the broader economy.

Non-interest income decreased $358 thousand or 40.6% during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in non-interest income was primarily due to mark-to-market adjustments of $(490) thousand resulting from a reduction in value of investments related to the Company’s nonqualified deferred compensation plan. Additionally, during the six months ended June 30, 2021, the Company realized a $10 thousand gain on the call of a security. Excluding the impacts of the mark-to-market adjustments and gain on call, non-interest income increased $142 thousand or 18.4% primarily due to increases in insurance commissions, service charges and fees on deposit accounts, and interchange and other fee income.

Non-interest expense decreased $493 thousand or 2.9% during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in non-interest expense was primarily due to non-recurring legal and professional fees incurred in 2021 and decreases in FDIC insurance fees due to lower insurance premiums. These decreases were partially offset by an increase in state franchise taxes as a result of an increase in the Bank’s equity year-over-year.

For the six months ended June 30, 2022, annualized non-interest expense to average assets was 1.49% compared to 1.72% for the six months ended June 30, 2021. The decrease was primarily due to non-recurring legal and professional fees incurred in 2021, coupled with continued cost consciousness.

For the six months ended June 30, 2022, the annualized efficiency ratio was 46.1% compared to 50.4% for the six months ended June 30, 2021. The decrease was primarily due to the increase in net interest income coupled with a decrease in other expenses. The increase was partially offset by a decrease in non-interest income.

Explanation of Non-GAAP Financial Measures

This release contains financial information and performance measures determined by methods other than in accordance with GAAP. Management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. Non-GAAP measures used in this release consist of the following:

• Cost of interest-bearing liabilities that excludes the effects of accelerated amortization of debt costs associated with the Company’s 2017 notes and interest expense associated with the Company’s 2022 note. On July 15, 2022, the Company used the proceeds from the 2022 note to redeem the 2017 notes.
• Net interest margin that excludes the effects of accelerated amortization of debt costs associated with the Company’s 2017 notes, and interest expense associated with the Company’s 2022 note.

These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Please refer to the Reconciliation of Certain Non-GAAP Financial Measures table for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. The Bank is a $2.32 billion bank 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 D.C. Metro area. The Bank 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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that 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.