John Marshall Bancorp, Inc. Reports Annualized Net Interest Income Increases 27.5%, Balance Sheet Well-Positioned for 2025 Growth

John Marshall Bancorp, Inc. (NASDAQ:JMSB) (the "Company"), parent company of John Marshall Bank (the "Bank"), reported net income of $4.8 million ($0.33 per diluted common share) for the quarter ended December 31, 2024, compared to net income of $4.2 million ($0.30 per diluted common share) for the quarter ended September 30, 2024 and net income of $4.5 million ($0.32 per diluted common share) for the quarter ended December 31, 2023.

Selected Highlights

• Significant Increase in Net Interest Income and Margin – For the three months ended December 31, 2024, the Company reported net interest income of $14.1 million, a $912 thousand or 27.5% annualized increase over the $13.2 million reported for the three months ended September 30, 2024. Net interest margin for the three months ended December 31, 2024 was 2.52%, a 22 basis points improvement when compared to the 2.30% net interest margin for the three months ended September 30, 2024 and a 40 basis points improvement when compared to the 2.12% net interest margin for the three months ended December 31, 2023. Net income increased 12.8% or 50.8% annualized when compared to the three months ended September 30, 2024.

• Earnings Accelerating – Pre-tax pre-provision earnings (Non-GAAP) for the three months ended December 31, 2024 was $6.4 million, representing an increase of $1.3 million or 25.6% when compared to the three months ended December 31, 2023. The Federal Reserve initiated a series of fed funds rate reductions commencing mid-September 2024. Reported net income was $4.8 million for the three months ended December 31, 2024 compared to $4.2 million for the three months ended September 30, 2024 and $4.5 million for the three months ended December 31, 2023. 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 GAAP.

• Loan Growth – The Company's loan portfolio grew $29.6 million or 6.4% annualized during the fourth quarter 2024. The strength in the Company's loan pipeline continued during the fourth quarter with $118.6 million in new loan commitments, which represented a $52.5 million or 79.4% increase compared to the same period in 2023. New loan commitments represent loans closed, but not necessarily fully funded.

• Excellent Asset Quality – As of December 31, 2024, the Company had no non-accrual loans and no other real estate owned assets ("OREO"). The Company had one loan that was 90 days past due and still accruing interest as of December 31, 2024. The loan paid off, in full, on January 7, 2025. As of the date of this release, the Bank had no non-performing loans, OREO or loans 30 or more days past due. Based upon our loan trial balance as of the date of this earnings release, the Company expects that there will be no loans 30 or more days past due as of January 31, 2025.

• Robust Capitalization – Each of the Bank's regulatory capital ratios remained well in excess of the well-capitalized thresholds as of December 31, 2024.

• Growing Book Value per Share – Book value per share increased from $17.07 as of September 30, 2024 to $17.28 as of December 31, 2024. For 2024, book value per share increased $1.03 or 6.3% from $16.25 as of December 31, 2023 to $17.28 as of December 31, 2024. When factoring in the $0.25 cash dividend per share paid in July 2024, the book value per share return was 7.9%.

Chris Bergstrom, President and Chief Executive Officer, commented, "In the fourth quarter, we continued to make excellent progress, increasing our net interest margin by 22 basis points. We increased loan balances $29.6 million in the fourth quarter. Our unfunded loan commitments continued to grow during the fourth quarter, and we expect these will be a significant component of our 2025 growth as the loans fund. Our capital levels are strong and well in excess of regulatory requirements for well-capitalized banks. Our balance sheet and the Company are well-positioned to pursue growth in 2025. As always, I want to thank our hardworking associates for their inspired efforts in advancing the interests of our customers and the Company."

Balance Sheet, Liquidity and Credit Quality

Total assets were $2.23 billion at December 31, 2024, $2.27 billion at September 30, 2024, and $2.24 billion at December 31, 2023. Total assets have decreased $39.4 million or 1.7% since September 30, 2024 and decreased $7.6 million or 0.3% since December 31, 2023.

Total loans, net of unearned income, increased $12.2 million or 0.7% to $1.87 billion at December 31, 2024, compared to $1.86 billion at December 31, 2023 and increased $29.6 million during the quarter ended December 31, 2024 or 6.4% annualized from $1.84 billion at September 30, 2024. The increase in loans was primarily attributable to growth in the investor real estate loan portfolio, partially offset by a decrease in the commercial owner-occupied real estate and construction & development loan portfolios. Refer to the Loan, Deposit and Borrowing table for further information.

The carrying value of the Company's fixed income securities portfolio was $222.3 million at December 31, 2024, $237.5 million at September 30, 2024 and $265.5 million at December 31, 2023. The decrease in carrying value of the Company's fixed income securities portfolio since December 31, 2023 was attributable to amortization of the portfolio. As of December 31, 2024, 95.5% of our bond portfolio carried the implied guarantee of the United States government or one of its agencies. At December 31, 2024, 62% of the fixed income portfolio was invested in amortizing bonds, which provides the Company with a source of steady cash flow. At December 31, 2024, the fixed income portfolio had an estimated weighted average life of 4.2 years. The available-for-sale portfolio comprised approximately 61% of the fixed income securities portfolio and had a weighted average life of 3.1 years at December 31, 2024. The held-to-maturity portfolio comprised approximately 39% of the fixed income securities portfolio and had a weighted average life of 6.0 years at December 31, 2024. The Company did not purchase or sell any fixed income securities during the three and twelve month periods ended December 31, 2024.

The Company's balance sheet remains highly liquid. The Company's liquidity position, defined as the sum of cash, unencumbered securities and available secured borrowing capacity, totaled $727.3 million as of December 31, 2024 compared to $639.0 million as of December 31, 2023 and represented 37.5% and 28.5% of total assets, respectively. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at December 31, 2024.

Total deposits were $1.89 billion at December 31, 2024, $1.94 billion at September 30, 2024 and $1.91 billion at December 31, 2023. During the quarter, total deposits decreased $43.7 million or 2.3% when compared to September 30, 2024. Deposits decreased $14.2 million or 0.7% when compared to December 31, 2023. The Bank reduced costlier deposits (certificates of deposit, Qwickrate CDs, IntraFi CDs, and brokered CDs) by $125.5 million since December 31, 2023. As further detailed in the tables included in this release, core funding sources have increased $39.2 million and wholesale funding sources have decreased $61.3 million since December 31, 2023. As of December 31, 2024, the Company had $659.2 million of deposits that were not insured or not collateralized compared to $634.1 million at December 31, 2023.

On September 3, 2024, the Company paid off its $77.0 million Bank Term Funding Program ("BTFP") advance and concurrently secured three Federal Home Loan Bank ("FHLB") advances totaling $56.0 million. The FHLB advances have a weighted average fixed interest rate of 4.01% compared to 4.76% for the retired BTFP advance. Total borrowings as of December 31, 2024 consisted of subordinated debt totaling $24.8 million and the FHLB advances.

Shareholders' equity increased $16.7 million or 7.3% to $246.6 million at December 31, 2024 compared to $229.9 million at December 31, 2023. Book value per share was $17.28 as of December 31, 2024 compared to $16.25 as of December 31, 2023, an increase of 6.3%. The year-over-year change in book value per share was primarily due to the Company's earnings over the previous twelve months and a decrease in accumulated other comprehensive loss. This increase was partially offset by increased cash dividends paid and increased share count from shareholder option exercises and restricted share award issuances. The decrease in accumulated other comprehensive loss was attributable to decreases in unrealized losses on our available-for-sale investment portfolio due to market value increases.

The Bank's capital ratios remained well above regulatory thresholds for well-capitalized banks. As of December 31, 2024, the Bank's total risk-based capital ratio was 16.2%, compared to 15.7% at December 31, 2023. As outlined below, the Bank would continue to remain well above regulatory thresholds for well-capitalized banks at December 31, 2024 in the hypothetical scenario where the entire bond portfolio was sold at fair market value and any losses realized (Non-GAAP). 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 GAAP.

As of December 31, 2024, the Company had no non-accrual loans and no OREO. The Company experienced net recoveries of $2 thousand during the twelve months ended December 31, 2024. The Company had one loan that was 90 days past due and still accruing interest as of December 31, 2024. The loan paid off, in full, on January 7, 2025. As of the date of this release, the Bank had no non-performing loans, OREO or loans 30 or more days past due. Based upon our loan trial balance as of the date of this earnings release, the Company expects that there will be no loans 30 or more days past due as of January 31, 2025.

At December 31, 2024, the allowance for loan credit losses was $18.7 million or 1.00% of outstanding loans, net of unearned income, compared to $19.5 million or 1.05% of outstanding loans, net of unearned income, at December 31, 2023. The decrease in the allowance as a percentage of outstanding loans, net of unearned income, resulted from changes in the Company's loss driver analysis and assumptions, changes in the composition of the loan portfolio, improved economic forecasts used in the quantitative portion of the model and considerations of qualitative factors combined with the continued strong credit performance of our loan portfolio segments.

At December 31, 2024, the allowance for credit losses on unfunded loan commitments was $1.1 million compared to $0.6 million at December 31, 2023. The increase in the allowance for credit losses on unfunded loan commitments was primarily the result of increases in unfunded loan commitments.

The Company did not have an allowance for credit losses on held-to-maturity securities as of December 31, 2024 or December 31, 2023. As of December 31, 2024, 93.4% of our held-to-maturity portfolio carried the implied guarantee of the United States Government or one of its agencies.

The Company's owner occupied and non-owner occupied CRE portfolios continue to be of sound credit quality. The following table provides a detailed breakout of the two aforementioned segments as of December 31, 2024, demonstrating their strong debt-service-coverage and loan-to-value ratios.

Income Statement Review

Quarterly Results

The Company reported net income of $4.8 million for the fourth quarter of 2024, an increase of $274 thousand or 6.1% when compared to the fourth quarter of 2023.

Net interest income for the fourth quarter of 2024 increased $2.0 million or 17.0% compared to the fourth quarter of 2023, driven primarily by the increase in yield on interest-earning assets, the increase in non-interest bearing deposit balances, and the decrease in interest-bearing deposit balances. The annualized net interest margin and tax-equivalent net interest margin (Non-GAAP) for the three months ended December 31, 2024 were both 2.52%, as compared to 2.11% and 2.12%, respectively, for the same period in the prior year. The increase in net interest margin was primarily due to the increase in yields on the Company's interest-earning assets coupled with a decrease in cost of interest-bearing liabilities.

The yield on interest earning assets was 5.01% for the fourth quarter of 2024 compared to 4.68% for the same period in 2023. The increase in yield on interest earning assets was primarily due to higher yields on the Company's loan portfolio as a result of repricing of assets subsequent to the fourth quarter of 2023 and certain prepayment penalties. The cost of interest-bearing liabilities was 3.62% for the fourth quarter of 2024 compared to 3.64% for the same quarter in the prior year. The decrease in the cost of interest-bearing liabilities was primarily due to the decrease in the cost of interest-bearing deposits.

The Company recorded a $298 thousand provision for credit losses for the fourth quarter of 2024 compared to a release of provision for credit losses of $781 thousand for the fourth quarter of 2023. The provision for credit losses during the fourth quarter of 2024 was primarily a result of growth in the loan portfolio of $29.6 million during the quarter.

Non-interest income was $281 thousand for the fourth quarter of 2024 compared to $624 thousand for the fourth quarter of 2023. The decrease in non-interest income of $343 thousand was primarily attributable to a decrease of $267 thousand due to unfavorable mark-to-market adjustments on investments related to the Company's nonqualified deferred compensation plan ("NQDC") and a $70 thousand decrease in gains recorded on the sale of the guaranteed portion of SBA 7(a) loans due to decreased sale activity.

Non-interest expense increased $391 thousand or 5.2% during the fourth quarter of 2024 compared to the fourth quarter of 2023. The increase was primarily due to increases in salary and employee benefit expense and other expense, partially offset by lower occupancy expense. The increase was also attributable to franchise tax fees, professional fees, marketing fees and data processing expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume-based activity. The decrease in occupancy expense was due to renegotiating an office lease. The Company continues to analyze cost savings opportunities on existing leases and material contracts.

For the three months ended December 31, 2024, annualized non-interest expense to average assets was 1.41% compared to 1.31% for the three months ended December 31 2023. The increase was primarily due to lower average assets when comparing the two periods.

For the three months ended December 31, 2024, the annualized efficiency ratio was 55.4% compared to 59.7% for the three months ended December 31, 2023. The decrease was primarily due to an increase in net interest income.

Year-End Results

The Company reported net income of $17.1 million for the twelve months ended December 31, 2024, an increase of $12.0 million when compared to net income of $5.2 million for the twelve months ended December 31, 2023. This increase was primarily attributable to the previously disclosed restructuring of the Company's securities portfolio and surrender of bank owned life insurance ("BOLI") in July 2023, which resulted in a non-recurring, after tax loss of $14.6 million (the "Restructuring"). Core net income (Non-GAAP), which excludes the impact of the Restructuring, was $19.8 million for the twelve months ended December 31, 2023.

Net interest income for the twelve months ended December 31, 2024 increased $0.6 million or 1.1% compared to the same period of 2023, driven primarily by the increase in yield of interest-bearing assets outpacing the increase in cost on interest-earning liabilities. The yield on interest earning assets was 4.92% for the twelve months ended December 31, 2024 compared to 4.41% for the same period in 2023. The increase in yield on interest earning assets was primarily due to higher yields on the Company's loans and interest-bearing deposits in banks as a result of elevated interest rates and repricing of assets subsequent to the fourth quarter of 2023. The cost of interest-bearing liabilities was 3.78% for the twelve months ended December 31, 2024 compared to 3.08% for the twelve months ended December 31, 2023. The increase in the cost of interest-bearing liabilities was primarily due to a 71 basis points 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 since the fourth quarter of 2023. The annualized net interest margin and tax-equivalent net interest margin (Non-GAAP) for the twelve month ended December 31, 2024 were both 2.28%, as compared to 2.20% and 2.21%, respectively, for the same period in the prior year. The increase in net interest margin was primarily due to the increase in yields on the Company's interest-earning assets outpacing the increase in cost of interest-bearing deposits.

The Company recorded a $0.4 million release of provision for credit losses for the twelve months ended December 31, 2024 compared to $3.3 million release of provision for credit losses for the twelve months ended December 31, 2023. The release of provision for credit losses during the twelve months ended December 31, 2024 was primarily a result of changes in the composition and volume of the loan portfolio, improved economic forecasts used in the quantitative portion of the model and considerations of qualitative factors combined with the continued strong credit performance of our loan portfolio segments.

Non-interest income was $2.3 million for the twelve months ended December 31, 2024 compared to a loss of $14.9 million for the twelve months ended December 31, 2023. Core non-interest income (Non-GAAP), defined as reported non-interest income excluding the impact of the Restructuring, was $2.2 million for the twelve months ended December 31, 2023.

Non-interest expense increased $994 thousand or 3.2% during the twelve months ended December 31, 2024 compared to the same period in 2023. As previously disclosed, the increase was primarily due to the non-recurring $322 thousand reversal of a litigation reserve during the third quarter of 2023 and non-recurring expenses totaling $138 thousand incurred during the first quarter of 2024. The first quarter 2024 non-recurring expenses were incurred in connection with a strategic opportunity that was explored and ultimately did not materialize. Excluding the effects of the $322 thousand reversal in 2023 and non-recurring expenses totaling $138 thousand incurred during 2024, adjusted non-interest expense increased $535 thousand or 1.6% during the twelve months ended December 31, 2024 when compared to the twelve months ended December 31, 2023. The increase was also due to increases in professional fees and data processing expense, partially offset by lower salaries and employee benefit expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume based activity. The decrease in salaries and employee benefits was due to lower incentive accruals and higher direct loan origination costs when compared to the same period of the prior year, partially offset by higher deferred compensation expense as a result of mark-to-market fluctuations on the Company's NQDC.

For the twelve months ended December 31, 2024, annualized non-interest expense to average assets was 1.41% compared to 1.33% for the twelve months ended December 31, 2023. The increase was primarily due to higher reported non-interest expense of $994 thousand and lower average assets when comparing the two periods.

For the twelve months ended December 31, 2024, the annualized efficiency ratio was 59.7% compared to 86.7% for the twelve months ended December 31, 2023. The decrease was primarily due to the previously disclosed Restructuring in July 2023. The annualized core efficiency ratio (Non-GAAP) was 59.7% for the twelve months ended December 31, 2024, compared to 58.5% for the twelve months ended December 31, 2023. The increase in core efficiency ratio was primarily due to a decrease in net interest income.

Explanation of Non-GAAP Financial Measures

This release contains financial information 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 and the impact of non-recurring expenses and unrealized losses in the Company's bond portfolio on the Bank's regulatory capital ratios. 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:

• Tax-equivalent net interest margin reflects adjustments for differences in tax treatment of interest income sources;
• Adjusted Bank regulatory capital ratios in the hypothetical scenario where the entire bond portfolio was sold at fair market value and any losses realized;
• Pre-tax, pre-provision earnings excludes income tax expense and the provision for (recovery of) credit losses; and
• Core non-interest income, income before taxes, income tax expense, net income, earnings per share (basic and diluted), return on average assets (annualized), return on average equity (annualized), non-interest income as a percentage of average assets (annualized) and efficiency ratio excluding the impact of losses recognized in July 2023 on the sale of available-for-sale securities and taxes paid on the early surrender of BOLI policies in the Restructuring.

These disclosures should not be viewed as a substitute for, or more important than, 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 and Average Balance Sheets, Interest and Rates tables for the respective periods 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 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. The Bank is dedicated to providing exceptional value, personalized service and convenience to local businesses and professionals in the Washington, D.C. Metropolitan 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.

Cautionary Note Regarding Forward-Looking Statements

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. Our 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 the Bank include, but are not limited to, the following: the concentration of our business in the Washington, D.C. metropolitan area and the effect of changes in the economic, political and environmental conditions on this market; adequacy of our allowance for loan credit losses; allowance for unfunded commitments credit losses, and allowance for credit losses associated with our held-to-maturity and available-for-sale securities portfolios; deterioration of our asset quality; future performance of our loan portfolio with respect to recently originated loans; the level of prepayments on loans and mortgage-backed securities; liquidity, interest rate and operational risks associated with our business; changes in our financial condition or results of operations that reduce capital; our ability to maintain existing deposit relationships or attract new deposit relationships; changes in consumer spending, borrowing and savings habits; inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments; changes in the 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; additional risks related to new lines of business, products, product enhancements or services; increased competition with other financial institutions and fintech companies; adverse changes in the securities markets; changes in the financial condition or future prospects of issuers of securities that we own; our ability to maintain an effective risk management framework; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements; compliance with legislative or regulatory requirements; results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for credit losses or to write-down assets or take similar actions; potential claims, damages, and fines related to litigation or government actions; the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting; geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, negatively impacting business and economic conditions in the U.S. and abroad; the effects of weather-related or natural disasters, which may negatively affect our operations and/or our loan portfolio and increase our cost of conducting business; public health events (such as the COVID-19 pandemic) and governmental and societal responses thereto; technological risks and developments, and cyber threats, attacks, or events; the additional requirements of being a public company; changes in accounting policies and practices; our ability to successfully capitalize on growth opportunities; our ability to retain key employees; deteriorating economic conditions, either nationally or in our market area, including higher unemployment and lower real estate values; implications of our status as a smaller reporting company and as an emerging growth company; and other factors discussed in the Company's reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission. 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.