John Marshall Bancorp, Inc. Reports 24.9% Annual Earnings Increase, 14.8% Quarterly Loan Growth Annualized and Superior Asset Quality

John Marshall Bancorp, Inc. (NASDAQ:JMSB) (the "Company"), parent company of John Marshall Bank (the "Bank"), reported its financial results for the three and twelve months ended December 31, 2022.

Fourth Quarter and Year-to-Date Highlights

• Record Earnings – The Company reported its sixteenth consecutive quarter of record earnings. Net income of $8.2 million for the fourth quarter of 2022 represented a $655 thousand or 8.7% increase over the $7.5 million reported for the fourth quarter of 2021. Earnings per diluted share for the three months ended December 31, 2022 were $0.58, a 7.4% increase over the $0.54 reported for the three months ended December 31, 2021. The Company reported record net income of $31.8 million for the year ended December 31, 2022, a $6.3 million or 24.9% increase over the $25.5 million reported for the same period of 2021. Earnings per diluted share for the year ended December 31, 2022 were $2.25, a 22.9% increase over the $1.83 reported for the same period of 2021.
• Robust Core Loan Growth – Excluding Paycheck Protection Program ("PPP") loans, gross loans net of unearned income ("Core Loans") grew $190.6 million or 11.9% from December 31, 2021 to December 31, 2022. Core Loans increased $64.4 million during the quarter ended December 31, 2022 or 14.8% annualized from September 30, 2022. The Company remains steadfast in adhering to our strict underwriting standards to maintain pristine asset quality.
• Consistently Strong Returns – Annualized Return on Average Assets ("ROAA") was 1.40% and annualized Return on Average Equity ("ROAE") was 15.65% for the three months ended December 31, 2022. ROAA and ROAE were 1.41% and 14.52%, respectively, for the three months ended December 31, 2021.
• Commitment to Cost Conscious Growth – Revenues (net interest income plus non-interest income) grew 16.8% annualized for the three months ended December 31, 2022 relative to the three months ended December 31, 2021. Over the same period, overhead decreased 11.9% annualized. The ratio of annualized non-interest expense to average assets was 1.27% for the fourth quarter of 2022 compared to 1.44% for the fourth quarter of 2021. The efficiency ratio for the fourth quarter of 2022 was 40.9% compared to 43.9% for the fourth quarter of 2021.
• No Non-performing Assets; No Loans More Than 30 Days Past Due – For the thirteenth consecutive quarter, the Company had no nonperforming loans, no other real estate owned, and no loans 30 days or more past due. There were no charge-offs during the quarter. 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, "2022 was a remarkable year for John Marshall. We registered our shares with the SEC, listed our stock on Nasdaq, gained inclusion in the Russell 2000 Index, refinanced our subordinated debt to a lower rate, paid our first cash dividend, broadened our customer service and fee income capabilities by implementing an interest rate swap program, decreased overhead, maintained our outstanding asset quality and delivered our fourth consecutive year of record earnings. On behalf of the Company, I want to express appreciation for our employees and customers who made these many strategic goals reality. Looking forward, each year holds its own set of challenges and early signs indicate that 2023 will be no different. As interest rates have risen, depositors have many investment alternatives from which to choose and, as a result, deposit costs are rising. Certain economic data seem to point to a recession, which could moderate loan growth and impact borrowers' ability to service their loans. Despite these potential hurdles, I remain confident in our people and our business model. We believe with our liquid, well-capitalized balance sheet, strong asset quality, robust underwriting and conservative culture that we are well prepared to manage for the potential challenges ahead."

Balance Sheet and Credit Quality

Total assets were $2.35 billion at December 31, 2022, $2.31 billion at September 30, 2022 and $2.15 billion at December 31, 2021. During the fourth quarter of 2022, assets increased $42.7 million or 7.4% annualized primarily due to an increase in loans. Asset growth from December 31, 2021 to December 31, 2022 was $198.9 million or 9.3%.

Total loans, net of unearned income, increased by 7.4% to $1.79 billion at December 31, 2022, compared to $1.67 billion at December 31, 2021. The year-over-year increase in the loan portfolio was primarily attributable to growth in the investor real estate and residential mortgage portfolios.

Total loans, net of unearned income, increased $64.4 million during the quarter ended December 31, 2022 or 14.8% annualized from $1.73 billion at September 30, 2022. The increase in loans was primarily attributable to growth in the investor real estate, residential mortgage, and commercial owner-occupied real estate loan portfolios.

The Company's portfolio of investments in fixed income securities was $457.0 million at December 31, 2022, $467.1 million at September 30, 2022, and $344.8 million at December 31, 2021. All but $11.3 million of the fixed income portfolio is backed by the explicit or implicit guarantees of the United States Government or one of its agencies. Nearly 70% of the fixed income portfolio is invested in amortizing investments, which provides the Company with a source of steady cash flow to reinvest each month. For 2023, the Company anticipates primarily reinvesting fixed income cash flows into loans. At December 31, 2022, the fixed income portfolio had an estimated weighted average life of 4.5 years.

The Company's balance sheet remains highly liquid. In addition to deposits in banks and cash flows from fixed income securities, liquidity needs are also met with cash and cash equivalents and unencumbered securities classified as available-for-sale. Liquid assets totaled $335.8 million as of December 31, 2022 compared to $299.3 million at December 31, 2021. These amounts represented 14.3% and 16.8% of total assets as of December 31, 2022 and December 31, 2021, respectively. In addition, the Bank had secured borrowing capacity of $388 million at December 31, 2022.

Total deposits were $2.07 billion at December 31, 2022, $2.06 billion at September 30, 2022, and $1.88 billion at December 31, 2021. Deposit growth was 9.9% during the past twelve months, as time deposits grew 22.3% and interest-bearing demand deposits grew 9.2%.

Total borrowings, defined as federal funds purchased, Federal Home Loan Bank advances, and subordinated debt, increased by $25.5 million to $50.1 million at December 31, 2022 compared to $24.6 million at September 30, 2022. The increase during the quarter was due to $25.5 million in federal funds purchased. Federal Home Loan Bank advances decreased from $18.0 million at December 31, 2021 to zero at December 31, 2022 and were unchanged from September 30, 2022.

Shareholders' equity increased $4.3 million or 2.1% to $212.8 million at December 31, 2022 compared to $208.5 million at December 31, 2021, as a result of increases in retained earnings and additional paid-in capital, which were partially offset by the increase in the unrealized loss on our available-for-sale investment portfolio. Book value per share was $15.09 as of December 31, 2022 compared to $15.17 as of December 31, 2021. The year-over-year change in book value per share was primarily due to increased accumulated other comprehensive loss, increased share count from shareholder option exercises and restricted share award issuances, and cash dividends paid, partially offset by the Company's earnings over the previous twelve months. The increase in accumulated other comprehensive loss was primarily attributable to increases in unrealized losses on our available-for-sale investment portfolio due to market value changes as a result of rising interest rates. Book value per share, excluding accumulated other comprehensive loss (a non-GAAP financial measure which is defined in the tables below) was $17.13 at December 31, 2022 compared to $15.20 at December 31, 2021. The Bank's capital ratios remain well above regulatory thresholds for well-capitalized banks. As of December 31, 2022, the Bank's total risk-based capital ratio was 15.6%, compared to 15.3% at December 31, 2021.

The Company recorded no net charge-offs during the fourth quarter of 2022, the third quarter of 2022, and the fourth quarter of 2021. As of December 31, 2022, the Company had no non-accrual loans, no loans more than 30 days past due, and no other real estate owned assets.

At December 31, 2022, the allowance for loan losses was $20.2 million or 1.13% of outstanding loans, net of unearned income, compared to $20.0 million or 1.20% of outstanding loans, net of unearned income, at September 30, 2022. The decrease in the allowance as a percentage of outstanding loans, net of unearned income, was primarily due to changes in the loan portfolio's composition as well as net changes in qualitative adjustments. As of December 31, 2022, the Company continued to account for its allowance using an incurred loss model. Beginning on January 1, 2023, and in all subsequent periods, the Company will determine its allowance using the current expected credit losses standard (ASC 326).

Income Statement Review

Quarterly Results

Net income for the fourth quarter of 2022 increased $655 thousand or 8.7% to $8.2 million compared to $7.5 million for the fourth quarter of 2021.

Net interest income for the fourth quarter of 2022 increased $536 thousand or 3.2% compared to the fourth quarter of 2021, driven primarily by higher yields on interest-earning assets and growth in the Company's loan and investment portfolios. The yield on interest earning assets was 4.10% for the fourth quarter of 2022 compared to 3.56% for the same period in 2021. The increase in yield on interest earning assets was primarily due to higher yields on the Company's loan and investment portfolios and deposits in banks as a result of increases in interest rates during the year. The cost of interest-bearing liabilities was 1.53% for the fourth quarter of 2022 compared to 0.48% for the same quarter of the prior year. The increase in the cost of interest-bearing liabilities was primarily due to a 1.08% increase in the cost of interest-bearing deposits as a result of the repricing of the Company's time deposits coupled with an increase in rates offered on money market, NOW, and savings deposit accounts during the year. The annualized net interest margin for the fourth quarter of 2022 was 3.05% as compared to 3.23% for the same quarter of the prior year. The decrease in net interest margin was primarily due to the increase in cost of interest-bearing deposits, which was partially offset by an increase in yields on the Company's loan and investment portfolios.

The Company recorded a $175 thousand provision for loan losses for the fourth quarter of 2022, compared to a $325 thousand provision for the fourth quarter of 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 increased $205 thousand or 40.0% during the fourth quarter of 2022 compared to the fourth quarter of 2021. The increase in non-interest income was primarily due to swap fee income of $127 thousand recognized during the quarter on the Company's first back-to-back loan interest rate swap ("swap"). The Company enters into swaps with commercial loan customers to provide a facility for customers to mitigate the fluctuations in the variable rate on the respective loans. These swaps are matched in exact offsetting terms to swaps that the Company enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities in the Consolidated Balance Sheet. The increase in non-interest income was also attributable to mark-to-market adjustments of $35 thousand resulting from an increase in value of investments related to the Company's nonqualified deferred compensation plan, and increases in services charges and fees on deposit accounts. The increase was partially offset by modest decreases in insurance commissions and bank owned life insurance ("BOLI") income.

Non-interest expense decreased $230 thousand or 3.0% for the three months ended December 31, 2022 compared to the three months ended December 31, 2021. The decrease in non-interest expense was primarily due to decreases in salaries and employee benefits expense, occupancy expense, furniture and equipment expense, marketing expense, and a release in unfunded commitment reserves during the quarter. The decrease in salaries and employee benefits was driven by a decrease in incentive and deferred compensation expense when compared to the prior year quarter due to changes in staffing. Two of the Company's former senior executive vice presidents became advisors to the Chief Executive Officer effective June 1, 2022. The decrease in occupancy expense of premises was due to a decrease in office rent as a result of the renegotiation of certain leases. The decrease in furniture and equipment expense was due to lower depreciation expense on fixed assets. The decrease in marketing expense was primarily due to lower marketing vendor related expenses incurred. The release in unfunded commitment reserves was primarily due to a decrease in unfunded commitment balances year-over-year as a result of credit line utilization. The decrease in non-interest expense was partially offset by increases in data processing fees and professional service fees. The increase in data processing fees was due to new investments in technology solutions to support our operations. The Company regularly evaluates technology and invests in applications enabling greater efficiencies or customer experience. The increase in professional service fees was due to expenses incurred in conjunction with the back-to-back loan interest rate swap, as well as increased vendor services supporting our public company reporting requirements that did not exist in the prior year.

For the three months ended December 31, 2022, annualized non-interest expense to average assets was 1.27% compared to 1.44% for the three months ended December 31, 2021. The decrease was primarily due to lower salaries and employee benefit expense coupled with continued cost consciousness.

For the three months ended December 31, 2022, the annualized efficiency ratio was 40.9% compared to 43.9% for the three months ended December 31, 2021. The decrease was primarily due to increases in net interest income and non-interest income as well as a decrease in non-interest expense.

Year-to-Date Results

Net income for the year ended December 31, 2022 increased $6.3 million or 24.9% to $31.8 million compared to $25.5 million for the year ended December 31, 2021. The results for the year ended December 31, 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 year ended December 31, 2022 increased $4.5 million or 6.8% compared to the year ended December 31, 2021 and was driven primarily by growth in the Company's loan and investment portfolios. The yield on interest earning assets was 3.77% for the year ended December 31, 2022 compared to 3.69% for the same period in 2021. The increase in yield on interest earning assets was primarily due to an increase in interest rates during the year. The cost of interest-bearing liabilities was 0.89% for the year ended December 31, 2022 compared to 0.59% for the same period of the prior year. The increase in the cost of interest-bearing liabilities was primarily due to increases in the cost of interest-bearing deposits as a result of an increase in rates offered on time, savings, money market, and NOW deposit accounts during the second half of 2022. Net interest margin for the year ended December 31, 2022 was 3.16% as compared to 3.29% for the same period of the prior year. The decrease in net interest margin was primarily due to increases in the cost of interest-bearing deposits and accelerated recognition of prior debt issuance costs associated with the refinancing of the subordinated debt, which was partially offset by an increase in yield on all interest-earning assets.

The Company recorded a $175 thousand provision for loan losses for the year ended December 31, 2022, compared to a $3.1 million provision for the year ended December 31, 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 $28 thousand or 1.6% during the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease in non-interest income was primarily due to mark-to-market adjustments of $(548) thousand resulting from a reduction in value of investments related to the Company's nonqualified deferred compensation plan. The decrease in non-interest income was partially offset by a non-recurring BOLI related benefit claim realized and interest rate swap fee income recognized, as well as increases in insurance commissions and interchange and other fee income due to higher production and increased customer activity, respectively. During the year ended December 31, 2021, the Company also realized a $10 thousand gain on a called security. Excluding the impacts of the gain on the called security, mark-to-market adjustments, and BOLI related benefit claim, non-interest income increased $373 thousand or 24.6%.

Non-interest expense decreased $388 thousand or 1.2% during the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease in non-interest expense was primarily due to non-recurring legal and professional fees incurred in 2021, as well as decreases in marketing expense, FDIC insurance fees, and salaries and benefit expense. The decrease in marketing expense was primarily due to lower marketing vendor related expenses. The decrease in FDIC insurance fees was primarily due to lower insurance premiums. The decrease in salaries and benefit expense was primarily due to lower accruals related to deferred compensation and employer health insurance fees. The decrease in non-interest expense was partially offset by increases in state franchise taxes as a result of an increase in the Bank's equity year-over-year and data processing fees due to new investments in technology solutions to support our operations.

For the year ended December 31, 2022, non-interest expense to average assets was 1.40% compared to 1.58% for the year ended December 31, 2021. The decrease was primarily due to non-recurring legal and professional fees incurred in 2021 as well as decreases in marketing expense and FDIC insurance premiums.

For the year ended December 31, 2022, the efficiency ratio was 44.2% compared to 47.7% for the year ended December 31, 2021. The decrease was primarily due to the increase in net interest income coupled with a decrease in non-interest expense. The decrease was partially offset by a modest decrease in non-interest income.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. The Bank is a $2.35 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.