John Marshall Bancorp, Inc. (OTCQB: JMSB) (the “Company”), parent company of John Marshall Bank (the “Bank”), reported its financial results for the three and twelve months ended December 31, 2021.

Selected Highlights

• Strong Growth – Year-over-year total assets increased 14.0% or $263.8 million to $2.15 billion at December 31, 2021. Excluding Paycheck Protection Program (“PPP”) loans, gross loans net of unearned income grew $150.7 million or 10.4% from December 31, 2020 to December 31, 2021. Total deposits grew $241.4 million or 14.7% from December 31, 2020 to December 31, 2021. Non-interest bearing demand deposits grew $126.3 million or 34.8% from December 31, 2020 to December 31, 2021. During the fourth quarter, the Company experienced record loan growth, net of unearned income and PPP.

• Record Returns – Return on Average Assets (ROAA) was 1.25% and Return on Average Equity (ROAE) was 12.90% for the twelve months ended December 31, 2021. Annualized ROAA was 1.41% and ROAE was 14.52% for the three months ended December 31, 2021. Excluding 2010, when the Company realized a significant, non-recurring income tax benefit from the removal of the valuation allowance on its deferred tax assets in Q2 of that year, these returns represent annual and quarterly records for the Company.

• Twelfth Consecutive Quarter of Record Earnings – The Company reported net income of $7.5 million for the three months ended December 31, 2021, a 57.1% increase over the $4.8 million reported for the three months ended December 31, 2020. The Company reported net income of $25.5 million for the twelve months ended December 31, 2021, a 37.4% increase over the $18.5 million reported for the twelve months ended December 31, 2020. Earnings per diluted share for the three months ended December 31, 2021 were $0.54, a 54.3% increase over the $0.35 reported for the three months ended December 31, 2020. Earnings per diluted share for the twelve months ended December 31, 2021 were $1.83, a 35.6% increase over the $1.35 reported for the twelve months ended December 31, 2020.

• Stable Net Interest Margin – On a linked quarterly basis, net interest margin, excluding PPP loans, increased 5 basis points from 3.19% for the quarter ended September 30, 2021 to 3.24% for the quarter ended December 31, 2021. The increase was due to a decrease in the average cost of interest-bearing deposits, as well as higher non-recurring fee income earned during the fourth quarter as a result of elevated payoff activity. Excluding the effect of this elevated payoff activity, net interest margin, excluding PPP loans, would have been 3.20%, or a 1 basis point increase from that reported for the quarter ended September 30, 2021.

• Increased Operating Leverage – Revenues, defined as the sum of net interest income and noninterest income, were $17.5 million or 8.6% greater in the fourth quarter of 2021 as compared to $16.1 million for the fourth quarter of 2020. This $1.4 million increase more than offset the increase in noninterest expense for the fourth quarter of 2021 of $239 thousand or 3.2% to $7.7 million, when compared to the $7.4 million for the fourth quarter of 2020. This continued improvement in operating leverage enabled the efficiency ratio to decrease from 46.2% for the three months ended December 31, 2020 to 43.9% for the three months ended December 31, 2021. Annualized noninterest expense to average assets declined from 1.59% for the three months ended December 31, 2020 to 1.44% for the three months ended December 31, 2021.

• Asset Quality Remains Pristine – For the ninth 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 December 31, 2021. During the twelve months ended December 31, 2021, the Company reported net charge-offs totaling $90 thousand compared to $43 thousand of net recoveries for the same period in 2020. Troubled debt restructurings were $549 thousand at December 31, 2021, a decrease of $55 thousand, from $604 thousand at December 31, 2020. The Company had no COVID-19 modifications as of December 31, 2021. The Company believes its allowance for loan losses is appropriate for the inherent risks and uncertainties associated with the portfolio.

Chris Bergstrom, President and Chief Executive Officer, commented, “John Marshall Bancorp, Inc. delivered its best earnings year ever in 2021. We produced record core returns by growing loans and deposits, staying vigilant on credit quality, increasing our non-interest income and exercising discipline with regard to overhead. We increased our momentum throughout 2021. The fourth quarter represented the best quarter of loan growth, ex-PPP, in the Company’s history and resulted in record core quarterly returns. We are well-positioned for 2022 with a strong capital position, excellent asset quality and a liquid balance sheet with ample capacity to convert cash and investments into loans.”

Balance Sheet Review

Assets

Total assets were $2.15 billion at December 31, 2021, $2.10 billion at September 30, 2021 and $1.89 billion at December 31, 2020. Asset growth from December 31, 2020 to December 31, 2021 was $263.8 million or 14.0%. During the fourth quarter of 2021, assets increased $53.8 million or 10.2% annualized.

Loans

Excluding PPP loans, gross loans net of unearned income increased $150.7 million or 10.4% from December 31, 2020 to December 31, 2021. Excluding PPP loans, gross loans net of unearned income increased $70.1 million, 18.2% annualized, during the three months ended December 31, 2021.

Gross loans net of unearned income were $1.67 billion at December 31, 2021, $1.60 billion at September 30, 2021 and $1.56 billion at December 31, 2020. Gross loans net of unearned income increased $103.9 million or 6.7% from December 31, 2020 to December 31, 2021. Gross loans net of unearned income grew $64.1 million or 15.9% annualized, during the three months ended December 31, 2021.

Investment Securities

The Company’s portfolio of investments in fixed income securities was $344.8 million at December 31, 2021, $342.1 million at September 30, 2021 and $151.9 million at December 31, 2020. Bond growth from December 31, 2020 to December 31, 2021 was $192.9 million or 127.0%. The increase in fixed income securities was funded primarily by PPP loan payoffs and deposit growth.

Interest-Bearing Deposits in Banks

Interest-bearing deposits in banks were $102.9 million at December 31, 2021, $110.5 million at September 30, 2021 and $130.2 million at December 31, 2020. The Company expects to continue to redeploy these funds in higher yielding assets as opportunities and liquidity management allow.

Deposits

Total deposits were $1.88 billion at December 31, 2021, $1.84 billion at September 30, 2021 and $1.64 billion at December 31, 2020. Deposit growth from December 31, 2020 to December 31, 2021 was $241.4 million or 14.7%. Deposits grew $44.0 million or 9.5% annualized during the three months ended December 31, 2021.

Non-interest bearing demand deposits were $488.8 million at December 31, 2021, $463.9 million at September 30, 2021 and $362.6 million at December 31, 2020. Non-interest bearing demand deposit growth from December 31, 2020 to December 31, 2021 was $126.3 million or 34.8%. During the three months ended December 31, 2021, non-interest bearing deposits grew $25.0 million or 21.4% annualized. Non-interest bearing demand deposits represented 26.0% of total deposits at December 31, 2021 and 22.1% of total deposits at December 31, 2020.

Core customer funding, which includes non-interest bearing demand deposits, NOW accounts, money market accounts, savings accounts, certificates of deposit, and IntraFi® certificates of deposit, was $1.64 billion at December 31, 2021, $1.59 billion at September 30, 2021 and $1.40 billion at December 31, 2020. Core customer funding sources increased by $235.9 million or 16.8% from December 31, 2020 to December 31, 2021. Non-maturing deposits were 65.0% of total deposits as of December 31, 2021, 64.7% as of September 30, 2021 and 60.3% as of December 31, 2020.

Core certificates of deposits, which includes certificates of deposit and IntraFi® certificates of deposit, were $414.6 million at December 31, 2021, $404.1 at September 30, 2021 and $414.1 million at December 31, 2020. Core certificates of deposits increased $466 thousand or 0.1% from December 31, 2020 to December 31, 2021.

Wholesale Funding Sources

Wholesale funding, consisting of QwickRate® and brokered deposits, fed funds purchased and Federal Home Loan Bank of Atlanta (“FHLB”) advances, grew $1.6 million or 0.6% from $259.3 million at December 31, 2020 to $260.9 million at December 31, 2021. Management continues to selectively utilize wholesale funding in order to realize lower funding costs and achieve certain asset/liability management objectives.

FHLB advances were $18.0 million at both December 31, 2021 and September 30, 2021 and $22.0 million at December 31, 2020. FHLB advances decreased $4.0 million or 18.2% from December 31, 2020 to December 31, 2021. Management continues to retire FHLB advances as they mature to increase contingent funding sources. As of December 31, 2021, the Bank had approximately $316 million remaining in secured borrowing capacity with the FHLB, an increase of $52 million over the $264 million of FHLB secured borrowing capacity as of December 31, 2020.

Subordinated Debt

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

Shareholders’ Equity and Capital Levels

Total shareholders’ equity was $208.5 million at December 31, 2021, $202.2 million at September 30, 2021 and $186.1 million at December 31, 2020. Year-over-year shareholders’ equity increased by $22.4 million or 12.0%. Accumulated other comprehensive income declined from $3.8 million at December 31, 2020 to a loss of $0.4 million at December 31, 2021. This change was primarily due to an increase in market yields on the Company’s available-for-sale bond portfolio, as bond prices and yields vary inversely.

Total common shares outstanding increased from 13,606,558, including 74,000 shares relating to unvested stock awards, at December 31, 2020, to 13,745,598, including 75,826 shares relating to unvested stock awards, at December 31, 2021. The year-over-year increase in shares outstanding was the result of exercises of share options and additional grants of unvested stock awards.

The Bank’s capital ratios remain well above regulatory thresholds for well-capitalized banks. As of December 31, 2021, the Bank’s total risk-based capital ratio was 15.3%, compared to 14.6% at December 31, 2020.

Asset Quality

As of December 31, 2021, for the ninth consecutive quarter, the Company had no non-accrual loans, no loans 30 days or more past due and no other real estate owned assets.

Troubled debt restructurings were $549 thousand at December 31, 2021, a decrease of $55 thousand, from $604 thousand at December 31, 2020. All troubled debt restructurings were performing in accordance with their modified terms as of December 31, 2021 and December 31, 2020.

The Company did not have any loans with COVID-19 loan modifications as of December 31, 2021.

Income Statement Review

Net Interest Income

Net interest income was $17.0 million for the three months ended December 31, 2021, an increase of $1.3 million or 8.0% from $15.7 million for the three months ended December 31, 2020. The net interest margin was 3.22% for the three months ended December 31, 2021 as compared to 3.43% for the three months ended December 31, 2020.

Average loans net of unearned income increased $87.9 million or 5.7% compared to the three months ended December 31, 2020, with a 39 basis point decline in yield. Average securities increased $209.1 million or 142.4% compared to the three months ended December 31, 2020, with a 65 basis point decline in yield. Average interest-bearing deposits in other banks decreased $30.4 million or 22.5% compared to the three months ended December 31, 2020, with a 5 basis point increase in yield. The average yield on interest-earning assets decreased 52 basis points from 4.07% for the three months ended December 31, 2020 to 3.55% for the three months ended December 31, 2021, primarily due to the decline in rates in 2021 coupled with a change in asset and funding composition.

The average cost of interest-bearing liabilities declined 44 basis points or 47.6% from 0.92% for the three months ended December 31, 2020 to 0.48% for the three months ended December 31, 2021. The average cost of interest-bearing deposits decreased 44 basis points when comparing the quarter ended December 31, 2020 to the quarter ended December 31, 2021. The average cost of other borrowed funds decreased 13 basis points when comparing the quarter ended December 31, 2020 to the quarter ended December 31, 2021. The declines in funding costs were also primarily due to the decline in rates in 2021 and the repricing of existing certificates of deposit.

Net interest margin, excluding PPP loans, was 3.24% for the three months ended December 31, 2021 and 3.34% for the same period in 2020. The yield on interest-earning assets would have been 3.58% and the yield on loans would have been 4.30% for the three months ended December 31, 2021, if PPP loans were excluded.

Net interest income was $65.9 million for the twelve months ended December 31, 2021, an increase of $9.1 million or 16.0% from $56.8 million for the twelve months ended December 31, 2020. The net interest margin was 3.27% for the twelve months ended December 31, 2021 as compared to 3.32% for the twelve months ended December 31, 2020.

Average loans net of unearned income increased $134.1 million or 9.2% compared to the twelve months ended December 31, 2020, with a 35 basis point decline in yield. Average securities increased $140.7 million or 101.0% compared to the twelve months ended December 31, 2020, with a 77 basis point decline in yield. Average interest-bearing deposits in other banks increased $26.7 million or 24.6% compared to the twelve months ended December 31, 2020, with a 24 basis point decline in yield. The average yield on interest-earning assets decreased 55 basis points from 4.23% for the twelve months ended December 31, 2020 to 3.68% for the twelve months ended December 31, 2021, primarily due to the decline in rates in 2021.

The average cost of interest-bearing liabilities declined 71 basis points or 54.4% from 1.30% for the twelve months ended December 31, 2020 to 0.59% for the twelve months ended December 31, 2021. The average cost of interest-bearing deposits decreased 71 basis points when comparing the twelve months ended December 31, 2020 to same period in 2021. The average cost of other borrowed funds decreased 52 basis points when comparing the twelve months ended December 31, 2020 to the same period in 2021. The declines in funding costs were also primarily due to the decline in rates in 2021 and the repricing of existing certificates of deposit.

Net interest margin, excluding PPP loans, was 3.25% for the twelve months ended December 31, 2021 compared to 3.33% for the twelve months ended December 31, 2020. The yield on interest-earning assets would have been 3.68% and the yield on loans would have been 4.38% for the twelve months ended December 31, 2021, if PPP loans were excluded.

Provision for Loan Losses

The Company recorded a $325 thousand provision for loan losses for the three months ended December 31, 2021, compared to $2.6 million for the same period in 2020. There were no charge-offs during the fourth quarter of 2021 or 2020.

The Company had a $3.1 million provision for loan losses for the twelve months ended December 31, 2021, compared to $6.2 million for the same period in 2020. The Company had $90 thousand in charge-offs during the twelve months ended 2021 and $43 thousand in net loan recoveries during the twelve months ended 2020.

The allowance for loan losses as a percentage of total loans increased from 1.09% at December 31, 2020 to 1.20% at December 31, 2021. The allowance for loan losses increased $3.0 million or 17.7% from December 31, 2020 to December 31, 2021. The allowance for loan losses as a percentage of total loans (excluding PPP loans) increased from 1.17% at December 31, 2020 to 1.26% at December 31, 2021. The Company does not have a reserve on PPP loan balances, as they are 100% guaranteed by the U.S. Small Business Administration.

The Company continues to monitor and evaluate additional information as it becomes available concerning COVID-19 and a number of economic performance metrics, including those related to the overall economy as well as specific industry sectors. The Company believes the allowance for loan losses was adequate to absorb probable losses inherent in the loan portfolio as of December 31, 2021. The continued evolution of COVID-19 and the intensity of its socioeconomic effects, which are inherently uncertain, may positively or negatively impact the level of the allowance and provision in future periods.

Noninterest Income

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

For the three months ended December 31, 2021, the Company reported total noninterest income of $513 thousand compared to $374 thousand for the same period in 2020 resulting in a 37.2% increase.

For the twelve months ended December 31, 2021, the Company reported total noninterest income of $1.72 million compared to $1.61 million for the twelve months ended December 31, 2020 resulting in a 6.6% increase. Excluding the $10 thousand and $309 thousand gains on securities recorded in 2021 and 2020, respectively, noninterest income increased 31.1% year-over-year.

For both the three and twelve months ended December 31, 2021, the increase in noninterest income was primarily due to an increase in insurance commissions as a result of higher production and related incentives and increases in service charges on deposits primarily associated with account analysis and ATM fees. These increases were partially offset by a decrease in bank owned life insurance income.

Noninterest Expense

For the three months ended December 31, 2021, noninterest expense increased 3.2% to $7.7 million relative to the same period in 2020. Salaries and employee benefits expense was $4.8 million during the three months ended December 31, 2021, up $229 thousand or 5.0% when compared to $4.5 million during the three months ended December 31, 2020. Occupancy expense decreased 2.8% or $14 thousand and furniture and equipment expense decreased 1.6% or $6 thousand when comparing the three months ended December 31, 2021 to the same period in 2020. Other operating expense increased by 1.5% or $30 thousand when comparing the three months ended December 31, 2021 to the same period in 2020.

For the twelve months ended December 31, 2021, noninterest expense increased 10.6% to $32.3 million relative to the same period in 2020. For the twelve months ended December 31, 2021, salaries and employee benefits expense increased 12.4% or $2.2 million compared to the twelve months ended December 31, 2020. Occupancy expense increased 1.8% or $35 thousand and furniture and equipment expense decreased 11.7% or $190 thousand when comparing the twelve months ended December 31, 2021 to the same period in 2020. Other operating expense increased by 13.6% or $1.0 million, during the twelve months ended December 31, 2021, compared to the same period in 2020.

For both the three and twelve months ended December 31, 2021, the increase in salaries and employee benefits was primarily related to merit based compensation adjustments and incentive compensation tied to performance. Incentive compensation expense can fluctuate from quarter to quarter, based upon the Company’s financial performance and conditions measured against, among other evaluation criteria, our strategic plan and budget.

The decrease in furniture and equipment expense for the twelve months ended December 31, 2021 when compared to the same period in 2020 was primarily due to the lower equipment maintenance expense and renegotiation of certain equipment contracts.

The increase in other operating expense for the twelve months ended December 31, 2021 when compared to the same period in 2020 was primarily due to increases in legal expenses (including contemplated registration of the Company’s shares with the Securities and Exchange Commission), consulting expenses, marketing expenses, state bank franchise taxes, and expense associated with higher Federal Deposit Insurance Corporation deposit insurance that correlates directly to the Bank’s increase of insured deposit balances.

For the three months ended December 31, 2021, annualized noninterest expense to average assets was 1.44% compared to 1.59% for the three months ended December 31, 2020. For the twelve months ended December 31, 2021, annualized noninterest expense to average assets was 1.58% compared to 1.67% for the twelve months ended December 31, 2020. The Company believes its ratio of noninterest expense to average assets compares favorably to peers.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. John Marshall Bank (“JMB” or the “Bank”) is a $2.15 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. JMB offers a comprehensive line of sophisticated banking products and services that rival those of the largest banks along with experienced staff to help achieve customers’ financial goals. Dedicated Relationship Managers serve as direct points-of-contact, providing subject matter expertise in a variety of niche industries including Charter and Private Schools, Government Contractors, Health Services, Nonprofits and Associations, Professional Services, Property Management Companies, and Title Companies. Learn more at www.johnmarshallbank.com.

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