John Marshall Bancorp, Inc. Reports Quarterly Earnings of $4.5 Million

John Marshall Bancorp, Inc. JMSB (the "Company"), parent company of John Marshall Bank (the "Bank"), reported its financial results for the three months ended March 31, 2020.

Chris Bergstrom, President and Chief Executive Officer, commented "John Marshall Bank is defined by our customers, employees and communities that we support. Directly or indirectly, COVID-19's impact on each has been heart wrenching. I am incredibly proud of how the 137 associates of John Marshall Bank are rising to the pandemic's challenge. We are leveraging our digital platform to provide critical banking services while doing all that we can to keep one another safe. John Marshall Bank entered this crisis from a position of strength; we have a well-capitalized, liquid balance sheet and exceptional asset quality. I believe we are well-situated to deliver sound financial solutions and help our constituents prevail."

"As an example of how we are helping our customers and communities, the Company has been very active in the Paycheck Protection Program ("PPP"), as created by the United States Treasury and administered by the Small Business Association. The PPP features a loan forgiveness provision that motivates small and mid-sized businesses to retain their employees and mitigate unemployment rates resulting from the Coronavirus outbreak. Since the program's inception on April 3, 2020, John Marshall Bank processed 610 applications, which resulted in approximately $140 million PPP loans to Virginia, Maryland and District of Columbia businesses. Approximately 80% of the loans are less than or equal to $350,000. Through these efforts we have supported hundreds of local businesses employing over 15,000 people, in aggregate."

Balance Sheet Preparedness

John Marshall Bancorp, Inc. maintains a conservative balance sheet that management believes makes the Company well-prepared for an adverse economic environment.

• Well-Capitalized
  • While the Company is exempt from the regulatory capital rules at the holding company level, both the Company and the Bank materially exceed the regulatory thresholds defining well-capitalized.
  • The Company has not conducted any share repurchases and does not anticipate doing so for the foreseeable future.
  • The Company's internal capital generation rate has improved as the Company's return on average equity approaches our asset growth rate.
• Liquidity
  • Cash and unencumbered securities equaled $210 million, or 13.0% of total assets as of March 31, 2020.
  • Exclusive of the PPP Lending Facility, the Company had $270 million of secured borrowing capacity available at March 31, 2020.
  • The Company had significant unsecured (correspondent borrowing lines and brokered deposits) funding capacity available as of March 31, 2020.
  • The Company is considering pledging all of its PPP loans to the Federal Reserve and utilizing the PPP Lending Facility.

• Outstanding Credit Quality
  • No non-performing assets and no loans 30 days or more past due as of March 31, 2020.
  • Cumulative net charge-offs during the Company's 14 year history are approximately $7.4 million, or about $500,000 per year; there were no charge-offs during the first quarter of 2020.
  • The Company has identified certain industries whose products/services may be difficult to fulfill in the current economic environment (hotels, restaurants and services that may prove difficult to perform under social distancing, like dental and non-essential medical services). These loans comprise $85.6 million, or 6.4% of the loan portfolio as of March 31, 2020.

Financial Results

• The Company reported net income of $4.50 million for the three months ended March 31, 2020, a 24.7% increase over the $3.61 million reported for the three months ended March 31, 2019. Net income was $4.47 million for the three months ended December 31, 2019. Diluted earnings per share was $0.33 for the three months ended March 31, 2020, a 22.2% increase over $0.27 per diluted share for the three months ended March 31, 2019. Diluted earnings per share was $0.33 for the three months ended December 31, 2019.

• Quarterly return on average assets ("ROAA") was 1.14% for the three months ended March 31, 2020, up from 1.04% for the three months ended March 31, 2019, or a 9.6% increase from a year ago, and equal to the 1.14% for the three months ended December 31, 2019. Quarterly return on average equity ("ROAE") was 10.87% for the three months ended March 31, 2020, relative to 10.09% for the three months ended March 31, 2019 and 11.05% for the three months ended December 31, 2019. The ROAE decrease from the fourth quarter of 2019 was a function of a higher provision for loan losses and the Company's larger equity base (from net income as well as unrealized gains on available-for-sale securities reflected in accumulated other comprehensive income), all in the first quarter of 2020.

• Core customer deposits grew $45.7 million, or 15.8% annualized, since December 31, 2019 and represented 84.1% of all funding sources at March 31, 2020. Wholesale funding decreased $12.0 million, or 22.2% annualized, since December 31, 2019. Wholesale funding represented 14.2% of total funding sources at March 31, 2020.

• The Company continues to increase operating leverage by growing revenues (Net interest income + Noninterest income) faster than overhead. Revenues for the three months ended March 31, 2020 were $13.1 million, or 10.0% greater than the $11.9 million for the three months ended March 31, 2019. Noninterest expense for the first quarter of 2020 was $7.1 million, or 1.5% greater than the $7.0 million for the first quarter of 2019. The efficiency ratio for the first quarter of 2020 was 54.6% versus 59.2% for the first quarter of 2019 and 54.4% for the fourth quarter of 2019. Annualized noninterest expense relative to average assets was 1.81%, 1.80% and 2.03% for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

Balance Sheet Review

Assets

Total assets were $1.62 billion at March 31, 2020, $1.58 billion at December 31, 2019 and $1.43 billion at March 31, 2019. During the first quarter of 2020 assets increased $41.2 million, or 2.6%. Year-over-year asset growth, from March 31, 2019 to March 31, 2020, was $197.6 million, or 13.9%.

Loans

Gross loans net of unearned income were $1.34 billion at March 31, 2020, $1.33 billion at December 31, 2019 and $1.18 billion at March 31, 2019. During the first quarter of 2020 gross loans net of unearned income grew $11.3 million, or 0.9%. Year-over-year gross loans net of unearned income increased $159.5 million, or 13.5% from March 31, 2019 to March 31, 2020. Despite strong loan originations during the first quarter of 2020, an unprecedented level of loan payoffs and paydowns totaling $120.2 million offset most of the production growth during the first quarter of 2020.

Investment Securities

The Company's portfolio of investments in debt securities was $139.4 million at March 31, 2020, $122.7 million at December 31, 2019 and $104.2 million at March 31, 2019. During the first quarter of 2020 fixed income investments increased $16.7 million, or 13.6%. Year-over-year bond growth from March 31, 2019 to March 31, 2020 was $35.2 million, or 33.8%.

Interest-Bearing Deposits in Banks

Interest-bearing deposits in banks were $101.7 million at March 31, 2020, $87.0 million at December 31, 2019 and $96.4 million at March 31, 2019. The higher cash balances at March 31, 2020 were the result of the recent deposit growth. These funds will continue to be deployed into higher earning assets.

Deposits

Total deposits were $1.38 billion at March 31, 2020, $1.31 billion at December 31, 2019 and $1.18 billion at March 31, 2019. During the first quarter of 2020 deposits grew $70.7 million, or 5.4%. Year-over-year deposit growth, from March 31, 2019 to March 31, 2020, was $200.9 million, or 17.0%.

Core customer funding was $1.21 billion at March 31, 2020, $1.17 billion at December 31, 2019 and $1.10 billion at March 31, 2019. During the first quarter of 2020 core customer funding increased $45.8 million, or 3.9%. Year-over-year core customer funding sources increased by $115.8 million, or 10.6%, from March 31, 2019 to March 31, 2020. Core customer funding was 84.1% of all funding sources as of March 31, 2020, as compared to 82.8% at December 31, 2019 and 86.6% as of March 31, 2019.

Insured Cash Sweep ("ICS") deposits were $211.5 million at March 31, 2020, $187.4 million at December 31, 2019 and $154.6 million at March 31, 2019. During the first quarter of 2020 ICS deposits grew $24.1 million, or 12.8%. Year-over-year, ICS deposits increased $56.9 million, or 36.8% from March 31, 2019 to March 31, 2020. Certificate of Deposit Account Registry Service ("CDARS") were $57.4 million at March 31, 2020, $50.9 million at December 31, 2019 and $91.0 million at March 31, 2019.

Certificates of deposits were $378.0 million at March 31, 2020, $383.5 million at December 31, 2019 and $329.5 million at March 31, 2019. QwickRate certificates of deposit were $20.0 million at March 31, 2020, $18.0 million at December 31, 2019 and $19.6 million at March 31, 2019. Brokered deposits were $148.1 million at March 31, 2020, $125.1 million at December 31, 2019 and $63.4 million at March 31, 2019. Brokered deposits increased $84.7 million from March 31, 2019 to March 31, 2020. The increase in brokered funds was related to the pay down of Federal Home Loan Bank of Atlanta ("FHLB") advances.

Borrowings

Total borrowings, consisting of FHLB advances and Federal funds purchased, were $37.0 million at March 31, 2020, $74.0 million at December 31, 2019 and $61.5 million at March 31, 2019. During the first quarter of 2020 borrowings declined $37.0 million, or 50.0%. Total borrowings decreased $24.5 million, or 39.8%, from March 31, 2019 to March 31, 2020. In order to manage cost of funds and preserve borrowing capacity, FHLB advances were paid down and replaced with brokered deposits.

Wholesale funding, which includes QwickRate certificates, brokered deposits, Federal funds purchased and FHLB borrowings, was $205.1 million at March 31, 2020, $217.1 million at December 31, 2019 and $144.6 million at March 31, 2019. Wholesale funding decreased $12.0 million during the first three months of 2020. Year-over-year, wholesale funding increased $60.6 million from March 31, 2019 to March 31, 2020.

The Company had subordinated notes with balances of $24.6 million at March 31, 2020, December 31, 2019 and March 31, 2019. The notes qualify as Tier 2 capital for the Company for regulatory purposes.

Shareholders' Equity and Capital Levels

Total shareholders' equity was $170.8 million at March 31, 2020, $162.0 million at December 31, 2019 and $147.2 million at March 31, 2019. Year-over-year shareholders' equity increased by $23.5 million, or 16.0%. Total common shares outstanding increased from 13,034,794, including 59,604 unvested shares, at March 31, 2019, to 13,445,479, including 55,908 unvested shares, at March 31, 2020. The year-over-year increase in shares outstanding was primarily from the exercise of stock options.

The Company's capital ratios remain well above regulatory thresholds for well capitalized banks. As of March 31, 2020, the Company's total risk-based capital ratio was 14.1%, compared to 14.0% at March 31, 2019.

Income Statement Review

Net Interest Income

Net interest income, the Company's primary source of revenue, was $12.8 million for the three months ended March 31, 2020, up 10.8% from $11.6 million for the three months ended March 31, 2019. The net interest margin was 3.33% for the three months ended March 31, 2020 as compared to 3.43% for the three months ended March 31, 2019. Average net loans increased $155.4 million compared to the three months ended March 31, 2019, with a 19 basis point decrease in yield. Average securities increased $29.6 million, or 27.6%, compared to the three months ended March 31, 2019, with a 9 basis point decline in yield. Average interest-bearing deposits in other banks declined $3.0 million compared to the three months ended March 31, 2019, with a 115 basis point decrease in yield. The average cost of interest-bearing liabilities declined 13 basis points when comparing the three months ended March 31, 2019 to the three months ended March 31, 2020. During the first quarter of 2020, the Federal Reserve made a 50 basis point rate cut on March 3, 2020 and an additional 100 basis point rate cut on March 15, 2020 which adversely impacted the earning asset yield.

On a linked quarterly basis, net interest margin increased 2 basis points to 3.33% for the three months ended March 31, 2020, with the yield on earning assets declining from 4.68% for the three months ended December 31, 2019, to 4.62% for the three months ended March 31, 2020. The average cost of interest-bearing liabilities declined 11 basis points from 1.88% for the three months ended December 31, 2019, compared to 1.77% for the three months ended March 31, 2020.

Provision for Loan Losses

The Company had a $419 thousand provision for loan losses for the three months ended March 31, 2020, compared to a provision of $221 thousand for the same period in 2019. The Company had no loan charge-offs during the first quarter of 2020, compared to net loan charge-offs of $169 thousand in the first quarter of 2019. The increase in the Company's provision for loan losses during the first quarter of 2020 as compared to the corresponding period in the prior year was primarily related to our consideration of COVID-19 and its impact on the qualitative factors included in the allowance estimate. The provision increased the allowance for loan losses as a percentage of total loans from 0.81% at December 31, 2019 to 0.84% at March 31, 2020. Management will continue to evaluate the adequacy of its allowance for loan losses as more economic data becomes available and as changes within the Company's portfolio are known. The effects of the pandemic may require the Company to fund additional increases in the allowance for loan losses in future periods.

The Company continues to calculate its allowance for loan losses and determine the related provisions using an incurred loss model. Based on the November 2019 amendment of the current expected credit losses ("CECL") standard, the Company does not anticipate implementing CECL until January 2023.

Noninterest Income

The Company's noninterest income consists primarily of bank owned life insurance income and service charges on deposit accounts. The majority of loan fees are included in interest income on the loan portfolio and not reported as noninterest income.

For the three months ended March 31, 2020, the Company reported total noninterest income of $244 thousand, compared to $307 thousand during the three months ended March 31, 2019. The decrease in noninterest income was primarily attributed to the mark-to-market adjustments of $(96) thousand made to equity securities during the first quarter of 2020. Noninterest income for the three months ended March 31, 2020 included a $12 thousand net gain on sale of securities. Other operating income for the three months ended March 31, 2020, included a $28 thousand increase in insurance commissions as compared to the three months ended March 31, 2019.

Noninterest Expense

For the three months ended March 31, 2020, noninterest expense increased 1.5%, to $7.1 million, compared to $7.0 million for the same period in 2019. Salaries and employee benefit expense was $4.5 million during the three months ended March 31, 2020, down $124 thousand, or 2.7%, when compared to $4.6 million during the three months ended March 31, 2019. Occupancy expense decreased 9.8%, or $53 thousand and furniture and equipment increased $34 thousand, or 10.1% when comparing the three months ended March 31, 2020 to the same period in 2019. Occupancy expense declined in the first quarter of 2020 due to the renegotiation of leases at the end of the fourth quarter in 2019. Other operating expense increased by $250 thousand, or 16.1%, when comparing the three months ended March 31, 2020 to the same period in 2019. The majority of the increase in other operating expenses is related to higher FDIC insurance expense and franchise taxes.

Asset Quality

The Company had no non-accrual loans, no loans 30 days or more past due and no other real estate owned for the second consecutive quarter as of March 31, 2020. As of March 31, 2019, non-accrual loans totaled $1.4 million. Non-performing assets were 0.00% of total assets at March 31, 2020 compared to 0.10% of total assets at March 31, 2019. The Company had no other real estate owned as of March 31, 2020 and 2019.

Troubled debt restructurings ("TDR") were $647 thousand at March 31, 2020, a 72.4% decline from $2.3 million at March 31, 2019. All troubled debt restructurings were performing in accordance with their modified terms as of March 31, 2020. There were $935 thousand of the troubled debt restructurings that were performing in accordance with their modified terms as of March 31, 2019. There were no new TDRs during the first quarter of 2020.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. John Marshall Bank is headquartered in Reston, Virginia with eight full-service branches located in Alexandria, Arlington, Loudoun, Prince William, Reston, Rockville, Tysons, and Washington, D.C. and one loan production office in Arlington, Virginia. The Company is dedicated to providing an exceptional customer experience and value to local businesses, business owners and consumers in the Washington D.C. Metro area. The Bank offers a comprehensive line of sophisticated banking products, services and a digital platform that rival those of the largest banks. Dedicated relationship managers serving as direct point-of-contact along with an experienced staff help achieve customer's financial goals. 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 the novel coronavirus), 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.

(1) Non-performing assets consist of non-accrual loans, loans 90 day or more past due and still accruing interest, and other real estate owned. Does not include troubled debt restructurings which were accruing interest at the date indicated.

(1) Includes ICS and CDARS(r), which are all reciprocal deposits maintained by customers.

(2) Consists of QwickRate(r) certificates of deposit, brokered deposits, federal funds purchased and Federal Home Loan Bank advances.

(3) Subordinated debt obligation qualifies as Tier 2 capital.

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