11.3% Annualized Loan Growth Supported By Strong Balance Sheet

John Marshall Bancorp, Inc. (NASDAQ:JMSB) (the "Company"), parent company of John Marshall Bank (the "Bank"), reported its financial results for the three and nine months ended September 30, 2023.

Selected Highlights

Strong Loan Growth – Loans, net of unearned income, grew $95.0 million or 5.5% from September 30, 2022 to September 30, 2023. Loans, net of unearned income, grew $50.3 million or 11.3% annualized from June 30, 2023 to September 30, 2023. The Company's loan pipeline headed into the fourth quarter of 2023 continues to be strong as we are seeing increased lending opportunities that meet our underwriting standards and, in many cases, fewer competitors for those loans as some market participants have scaled back lending efforts.
Pristine Asset Quality – For the sixteenth 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 continues to adhere to strict underwriting standards and proactively manages the portfolio.
Well Capitalized – Each of the Bank's regulatory capital ratios is well in excess of the regulatory threshold to be considered well capitalized. The Bank's equity to assets and total risk-based capital ratios were 10.6% and 15.7%, respectively, as of September 30, 2023.
Continued Strength in CRE Loan Portfolio – The Company's loan portfolio remains a source of strength. As of September 30, 2023, the Company's commercial real estate ("CRE") non-owner occupied and owner-occupied portfolios had a weighted average loan-to-values of 50.2% and 55.1%, respectively, and weighted average debt service coverage ratios of 2.1x and 3.5x, respectively.
Decreased Wholesale Deposits – The Company reduced wholesale deposits (i.e., Brokered and QwickRate CDs) by $58.7 million or 16.3% during the three months ended September 30, 2023. Year-to-date, the Company reduced wholesale deposits by $73.7 million or 19.7%. As outlined in the deposit detail table included in this release, wholesale deposits have declined in each of the past two quarters by a total of $95.4 million.
Increased Core Deposits – During the quarter, the Company grew non-interest bearing demand deposits by $3.9 million or 3.6% annualized. Non-interest bearing deposits as a percentage of total deposits increased from 21.2% at June 30, 2023 to 22.1% as of September 30, 2023. Non-maturing deposits increased $16.5 million during the three months ended September 30, 2023, representing 5.7% annualized growth. Core customer funding sources, as defined in the deposit detail table included with this release, increased from 80.3% as of June 30, 2023 to 82.6% as of September 30, 2023.
Stabilizing Net Interest Margin – Net interest margin was 2.08% for the three months ended September 30, 2023 compared to 2.10% for the three months ended June 30, 2023 and 3.10% for the three months ended September 30, 2022. The Company realized the initial benefits of the July 2023 balance sheet restructuring disclosed in the Company's earnings release and Form 10-Q for the second quarter of 2023 (the "Restructuring"). We continue to redeploy the Restructuring proceeds into higher yielding, high-quality earning assets and pay down higher cost funding sources. As a result of the Restructuring, strong loan growth and reduction of wholesale deposits, net interest margin progressively improved throughout the quarter and ended the month of September at 2.13%.

Chris Bergstrom, President and Chief Executive Officer, commented, "By selling low yielding assets through the Restructuring, we increased the flexibility and earnings horsepower of our balance sheet. Part of the proceeds from the Restructuring were redeployed into the loan growth anticipated in last quarter's earnings release and enabled us to enhance our earning asset yield. Part of the Restructuring proceeds were utilized to pay down higher cost wholesale funding, which we expect will slow the rate of increase on our cost of funds. Part of the proceeds are awaiting redeployment, but are earning a higher yield than they were prior to the Restructuring. We anticipate putting these funds to work in the fourth quarter, as our loan pipeline remains strong. In addition, we are encouraged by our core non-maturing deposit growth and improved funding mix during the quarter. Our balance sheet remains strong. We continue to have excellent asset quality and robust liquidity. While the quarter's reported results reflect the non-recurring impact of the Restructuring, core operating performance of the Company remains strong and we have enhanced our ability to drive earnings growth."

Balance Sheet, Liquidity and Credit Quality

Total assets were $2.30 billion at September 30, 2023, $2.36 billion at June 30, 2023 and $2.31 billion at September 30, 2022. As discussed in more detail below, the Company reduced wholesale deposits by $58.7 million during the quarter.

Total loans, net of unearned income, increased $95.0 million or 5.5% to $1.82 billion at September 30, 2023, compared to $1.73 billion at September 30, 2022 and $50.3 million during the quarter ended September 30, 2023 or 11.3% annualized from $1.77 billion at June 30, 2023. The increase in loans during both comparative periods was primarily attributable to growth in the residential mortgage and commercial investor real estate loan portfolios.

The carrying value of the Company's fixed income securities portfolio was $265.4 million at September 30, 2023, $422.7 million at June 30, 2023 and $467.1 million at September 30, 2022. The reduction in the portfolio resulted from the Restructuring, which was previously disclosed in our July 21, 2023 earnings release. As of September 30, 2023, 96.2% of our bond portfolio was covered by the implied guarantee of the United States government or one of its agencies. At September 30, 2023, nearly 67% of the fixed income portfolio was invested in amortizing bonds, which provides the Company with a source of steady cash flow. At September 30, 2023, the fixed income portfolio had an estimated weighted average life of 4.5 years. The available-for-sale portfolio comprised approximately 66% of the fixed income securities portfolio and had a weighted average life of 3.2 years at September 30, 2023. The held-to-maturity portfolio comprised approximately 34% of the fixed income securities portfolio and had a weighted average life of 7.0 years at September 30, 2023. The Company did not purchase any fixed income securities during the three or nine month periods ended September 30, 2023.

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 $742.5 million as of September 30, 2023 compared to $839.4 million as of June 30, 2023 and represented 32.3% and 35.5% of total assets, respectively. Wholesale deposits, defined as brokered and QwickRate certificates of deposit, decreased $58.7 million or 16.3% from $359.1 million at June 30, 2023 to $300.5 million at September 30, 2023. As discussed above, the Company also funded $50.3 million of net loan growth during the quarter ended September 30, 2023.


	Liquidity Trends
		September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
*(Dollars in thousands)*		Amount	% of Assets			Amount	% of Assets			Amount	% of Assets			Amount	% of Assets			Amount	% of Assets
Cash	$	192,656	8.4	%	$	129,551	5.5	%	$	103,359	4.4	%	$	61,599	2.6	%	$	74,756	3.2	%
Unencumbered Securities		80,267	3.5	%		233,695	9.9	%		298,194	12.7	%		313,618	13.4	%		345,987	15.0	%
Available Secured Borrowing Capacity		469,524	20.4	%		476,144	20.1	%		451,008	19.2	%		388,257	16.5	%		401,828	17.4	%
Total Liquidity	$	742,447	32.3	%	$	839,390	35.5	%	$	852,561	36.3	%	$	763,474	32.5	%	$	822,571	35.6	%

If the Company were to avail itself of additional Bank Term Funding Program ("BTFP") funding, we estimate an incremental increase in our liquidity position of approximately $13.4 million, increasing our potential liquidity to $755.8 million as of September 30, 2023. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at September 30, 2023.

Total deposits were $1.98 billion at September 30, 2023, $2.05 billion at June 30, 2023 and $2.06 billion at September 30, 2022. Total deposits decreased $64.7 million or 3.2% when compared to June 30, 2023. The decrease was primarily due to a managed reduction in costlier wholesale deposits of $58.7 million or 16.3% during the quarter. NOW deposits increased $34.3 million or 11.0% to partially offset the decrease in wholesale deposits. As of September 30, 2023, the Company had $614.0 million of deposits that were not insured or not collateralized by securities compared to $697.0 million at June 30, 2023. Deposits that were not insured or not collateralized by securities represented only 31.0% of total deposits at September 30, 2023 compared to 34.1% at June 30, 2023.

The Company obtained a $54.0 million advance from the BTFP on May 15, 2023 to secure lower funding costs relative to wholesale deposits. The BTFP advance has a term of one year, bears interest at a fixed rate of 4.80% and can be prepaid without penalty prior to maturity. Total borrowings as of September 30, 2023 consisted of subordinated debt totaling $24.7 million and the BTFP advance totaling $54.0 million. The Company did not have any FHLB advances or federal funds purchased outstanding as of September 30, 2023.

Shareholders' equity increased $18.4 million or 9.1% to $220.6 million at September 30, 2023 compared to $202.2 million at September 30, 2022. Book value per share was $15.61 as of September 30, 2023 compared to $14.37 as of September 30, 2022. The year-over-year change in book value per share was primarily due to the Company's earnings over the previous twelve months and decrease in accumulated other comprehensive loss, partially offset by increased share count from shareholder option exercises and restricted share award issuances and dividends paid. The decrease in accumulated other comprehensive loss was primarily attributable to the sale of certain available-for-sale investment securities in the July 2023 Restructuring. Book value per share was $15.50 as of June 30, 2023.

The Bank's capital ratios at September 30, 2023 improved when compared to September 30, 2022 and remained well above regulatory thresholds for well-capitalized banks. As of September 30, 2023, the Bank's total risk-based capital ratio was 15.7%, compared to 15.4% at September 30, 2022 (GAAP). As outlined below, the Bank would continue to remain well above regulatory thresholds for well-capitalized banks at September 30, 2023 in the hypothetical scenario where the entire bond portfolio was sold at fair market value and the 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.

Bank Regulatory Capital Ratios (As Reported)

John Marshall Bancorp, Inc. Reports Third Quarter 2023 Results