John Marshall Bancorp, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. The company is a Virginia bank holding company whose subsidiary primarily serves the Washington, D.C. metropolitan area. Balance-sheet comparisons are with December 31, 2023 unless noted.
Key financial and operating metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Total interest and dividend income | $26.9 million | $23.5 million in Q1 2023 |
| Net interest income | $11.7 million | $14.5 million in Q1 2023 |
| Tax-equivalent net interest margin | 2.11% | 2.57% in Q1 2023 |
| Net income; diluted EPS | $4.2 million; $0.30 | $6.3 million; $0.44 in Q1 2023 |
| Non-interest income / expense | $0.8 million / $7.9 million | $0.6 million / $7.8 million in Q1 2023 |
| Cash and cash equivalents | $153.0 million | $99.0 million at December 31, 2023 |
| Total assets | $2.25 billion | $2.24 billion at December 31, 2023 |
| Loans, net; total deposits | $1.81 billion; $1.90 billion | $1.84 billion; $1.91 billion at December 31, 2023 |
| Borrowings | $101.7 million, including $77.0 million BTFP advance and $24.7 million subordinated debt | $88.7 million at December 31, 2023, including $54.0 million Federal Reserve borrowing and $10.0 million federal funds purchased |
| Shareholders’ equity; book value per share | $234.6 million; $16.51 | $229.9 million; $16.25 at December 31, 2023 |
| Operating cash flow | $0.2 million provided | $6.0 million provided in Q1 2023 |
Q1 investing activities provided $45.7 million, primarily reflecting loan paydowns and securities maturities. Financing activities provided $8.1 million, including $23.0 million in additional Federal Reserve borrowing, partly offset by deposit outflows and repayment of federal funds purchased. Cash and cash equivalents increased $54.0 million during the quarter.
Material changes versus comparable periods
- Net income fell about 33% year over year and diluted EPS declined from $0.44 to $0.30. The principal pressure was net interest income, down 18.9% on a tax-equivalent basis as funding costs rose faster than asset yields.
- Interest expense rose to $15.2 million from $9.0 million. The average cost of interest-bearing liabilities increased to 3.81% from 2.25%; the average loan yield rose to 5.18% from 4.69%.
- Loans declined $34.1 million from year-end, including a $29.4 million reduction in construction and land development loans. Deposits declined $5.6 million; interest-bearing demand deposits increased $36.6 million while time deposits and wholesale deposits declined.
- Non-interest income increased $252,000, partly because Q1 2023 included a $202,000 securities-sale loss and $100,000 of bank-owned life insurance income. Q1 2024 included a $133,000 gain on sale of government-guaranteed loans; the company had surrendered its BOLI policies in July 2023.
- Non-interest expense rose 2.0%, including $138,000 in professional fees and director costs related to a strategic opportunity that did not materialize.
- Available-for-sale securities had $16.2 million of gross unrealized losses at March 31, 2024; held-to-maturity securities had $16.7 million of unrealized losses versus amortized cost. The company reported no securities credit-loss allowance.
Outlook, risks and unusual items
- The filing provides no quantified earnings, growth, margin or other forward guidance. Management states that interim results are not necessarily indicative of full-year results.
- Management attributed the margin decline to deposit repricing and higher rates paid on deposit accounts, partly offset by higher loan and bank-deposit yields. It used a $77.0 million BTFP advance at a fixed 4.76% rate, maturing in January 2025, to refinance a prior advance and obtain additional funding.
- Management described asset quality as strong: no nonperforming assets, nonaccrual loans, loans past due 30 days or more, or loan charge-offs were reported at quarter-end. The allowance for loan credit losses was $18.7 million, or 1.02% of gross loans net of unearned income; management considers it adequate but notes estimates could change.
- Liquidity was reported at $788.7 million, or 125.7% of uninsured, non-collateralized deposits. Available capacity included $452.8 million at the FHLB, $111.9 million at the Federal Reserve discount window, and $110.0 million in correspondent-bank federal funds lines. Management cautions that market or contingent events could impair access to funding or liquidity.
- Uninsured deposits were estimated at $796.4 million; deposits neither insured nor collateralized represented 33% of total deposits. Brokered deposits totaled $306.1 million. These funding and deposit-retention exposures remain relevant alongside the company’s concentration in the Washington, D.C. area and real-estate lending.
- Commercial real-estate loans were 62.8% of gross loans; construction and land development loans were another 8.3%. The filing identifies economic deterioration, lower real-estate values, interest-rate changes, liquidity, credit quality, regulatory and cyber risks among factors that could affect results. No material changes to the prior annual report’s risk factors were reported.
- The Bank was categorized as well capitalized. At March 31, its total risk-based capital ratio was 16.1%, common equity Tier 1 ratio 15.1%, and leverage ratio 11.8%. The board declared an annual cash dividend of $0.25 per share on April 24, payable July 8, 2024.
- No material legal proceedings were reported; management said disclosure controls were effective and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether deposit pricing and funding mix stabilize sufficiently to arrest further net interest margin and earnings pressure.
- Deposit retention, uninsured and brokered-deposit levels, and continued availability and cost of wholesale borrowing.
- Credit trends in commercial real estate and construction lending, and the assumptions supporting the loan and unfunded-commitment allowances.
- Potential liquidity or capital effects if securities are sold or borrowing capacity becomes less available; compare amortized cost with fair value for both securities portfolios.
- Whether loan growth, non-interest income and expenses develop as expected; the filing gives no numerical forward outlook.