Business context and reporting period
John Marshall Bancorp, Inc. filed this audited Form 10-K for the fiscal year ended December 31, 2023. The company is a bank holding company for John Marshall Bank, serving businesses, professionals, nonprofits and individuals primarily in the Washington, D.C. metropolitan area. It reported eight full-service branches and $2.24 billion in assets at year-end.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets | $2.243 billion | $2.348 billion |
| Gross loans, net of unearned income | $1.855 billion | $1.785 billion |
| Deposits | $1.907 billion | $2.068 billion |
| Net interest income | $50.5 million | $70.4 million |
| Net income (GAAP) | $5.2 million | $31.8 million |
| Diluted earnings per share | $0.36 | $2.25 |
| Net interest margin, tax-equivalent | 2.22% | 3.16% |
| Return on average assets / equity | 0.22% / 2.32% | 1.40% / 15.18% |
- Interest and dividend income rose 19.8% to $100.8 million, but interest expense increased to $50.3 million from $13.6 million as deposit and borrowing costs repriced upward. The resulting decline in net interest income reflected funding costs rising faster than asset yields.
- Management’s non-GAAP core net income was $19.8 million, versus $31.8 million in 2022; core diluted EPS was $1.39. These measures exclude the after-tax securities-sale loss and BOLI surrender-related taxes and penalty.
- Net cash provided by operating activities was $18.0 million, compared with $33.2 million in 2022. Investing activities provided $144.8 million, largely reflecting securities-sale proceeds and BOLI surrender proceeds; financing activities used $125.4 million, including deposit outflows and dividends. Cash and cash equivalents ended the year at $99.0 million.
- Shareholders’ equity was $229.9 million, up 8.0%, and book value per share rose to $16.25 from $15.09. The Bank’s total risk-based capital ratio was 15.7%, and its leverage ratio was 11.6%; it was classified as well capitalized.
- Year-end borrowings included a $54 million Federal Reserve Bank Term Funding Program advance at 4.80% and $24.7 million of subordinated debt. The Bank also had $10 million of federal funds purchased outstanding.
- Management reported total liquidity of $638.9 million, including cash, unencumbered securities and available secured borrowing capacity, plus $100 million of available unsecured federal funds lines. Liquidity represented 101% of uninsured, non-collateralized deposits.
Material changes versus the prior year
- In July 2023, the company sold available-for-sale securities with $173.2 million in par value and surrendered $21.4 million of BOLI policies. The actions generated a $17.3 million pre-tax securities loss and $1.1 million of BOLI-related tax and penalty expense; the combined after-tax impact was $14.6 million. The company said the restructuring was intended to improve future balance-sheet positioning.
- Deposits declined $161.1 million, or 7.8%, while loans grew $70.5 million, or 3.9%. Non-interest-bearing deposits fell $65.3 million. The company reduced wholesale deposits by $65.6 million from March 31, 2023.
- Available-for-sale securities fell to $170.0 million from $357.6 million. At year-end, unrealized losses on that portfolio were $15.7 million pre-tax; held-to-maturity securities had $16.0 million of unrealized losses. Management reported no credit impairment on either portfolio and said it did not expect to sell securities for liquidity needs.
- The company adopted CECL on January 1, 2023, recording a $2.3 million after-tax reduction to retained earnings. The loan allowance ended the year at $19.5 million, or 1.05% of loans, compared with $20.2 million, or 1.13%, in 2022; the 2023 income statement included a $3.3 million recovery of credit-loss provision.
- Accumulated other comprehensive loss improved to $12.3 million from $28.7 million, contributing to the increase in equity. The company declared a $0.22-per-share dividend and had repurchased no shares under its authorized buyback program as of year-end.
Outlook, commentary, risks and contingencies
- The filing provides no specific earnings, margin, growth or other numerical guidance. Management intends to pursue disciplined loan and deposit growth, hire experienced commercial bankers, consider selective market expansion and acquisitions, and maintain credit quality. It noted that net interest income and margin will depend on rates and the balance-sheet mix.
- Credit indicators were strong at year-end: no nonperforming assets, nonaccrual loans, loans 30 or more days past due, or other real estate owned; net charge-offs were negligible. However, 59.7% of loans were originated during the prior three years, and real-estate-related loans represented 98% of the portfolio. Commercial real estate was 342.8% of risk-based capital, although growth in that portfolio over the prior 36 months was 19.3%.
- Funding risks include depositor and wholesale-funding concentration: the 10 largest depositor relationships represented 16.8% of deposits, brokered deposits 17.0%, and reciprocal deposits 14.7%. Deposits that were uninsured or not collateralized represented 33% of total deposits. Higher rates, deposit withdrawals or limited access to wholesale funding could pressure liquidity and margins.
- Other key risks include continued rate volatility and securities-value changes; real-estate market weakness, especially commercial real estate; the seasoning and performance of recent loans; competition for deposits and borrowers; cyber and third-party operational risks; and regulatory changes. The filing notes no material legal proceedings and no significant cybersecurity compromise or material financial loss to date.
- The financial statements received an unqualified audit opinion. The company’s disclosure controls were deemed effective, but the filing did not include management’s internal-control assessment or an auditor attestation, citing its transition-period exemption as a newly public company/emerging growth company.
Most important facts for investors to verify
- Whether deposit balances and mix stabilize, including uninsured, brokered and reciprocal funding, and whether reported borrowing capacity remains accessible under stress.
- Whether the securities restructuring improves future net interest income enough to offset its realized loss, and how the remaining unrealized losses and low portfolio yields evolve.
- Whether net interest margin recovers as deposit costs, loan repricing and market rates change.
- Whether the large commercial-real-estate exposure and recently originated loans remain sound as properties refinance and the portfolio seasons; assess allowance assumptions and credit trends.
- How the CECL adoption and ongoing provision estimates affect reserves, earnings and capital, and when the company will provide a management assessment and auditor attestation of internal controls.