John Marshall Bancorp, Inc. — Q1 2023 Form 10-Q
Business context and period. The Virginia bank holding company, operating primarily in the Washington, D.C. metropolitan area through John Marshall Bank, reports the three months ended March 31, 2023. Financial statements are unaudited.
Financial results and position
Amounts below are in millions of dollars except per-share data and ratios.
| Metric | Q1 2023 / March 31, 2023 | Comparable / prior date |
|---|---|---|
| Interest and dividend income | $23.5 | $19.7 in Q1 2022 |
| Net interest income | $14.5 | $17.9 in Q1 2022 |
| Net interest margin, tax-equivalent | 2.57% | 3.34% in Q1 2022 |
| Net income / diluted EPS | $6.3 / $0.44 | $7.7 / $0.55 in Q1 2022 |
| Return on average assets / equity | 1.10% / 11.83% | 1.40% / 14.76% in Q1 2022 |
| Efficiency ratio | 51.7% | 47.9% in Q1 2022 |
| Operating cash flow | $6.0 | $9.6 in Q1 2022 |
| Total assets | $2,351.3 | $2,348.2 at December 31, 2022 |
| Gross loans | $1,767.3 | $1,785.4 at December 31, 2022 |
| Deposits | $2,088.6 | $2,067.7 at December 31, 2022 |
| Shareholders’ equity | $220.8 | $212.8 at December 31, 2022 |
| Cash and cash equivalents | $103.4 | $61.6 at December 31, 2022 |
Interest expense rose to $9.0 million from $1.8 million, chiefly reflecting higher deposit rates and time-deposit repricing. The company recorded a $0.774 million recovery of credit-loss provision; after that recovery, net interest income was $15.2 million. Non-interest income was $0.6 million and non-interest expense was $7.8 million.
Quarterly cash flows were $6.0 million provided by operations, $40.0 million provided by investing activities, and $4.3 million used in financing activities. Cash and cash equivalents increased $41.8 million during the quarter.
At quarter-end, the allowance for loan credit losses was $21.6 million, or 1.22% of gross loans; the filing reports no nonperforming assets, nonaccrual loans, or loans past due. Subordinated debt was $24.6 million; there were no federal funds purchased or FHLB advances outstanding. The Bank’s regulatory capital ratios included 16.1% total risk-based capital, 14.9% common equity Tier 1, and an 11.5% leverage ratio; it was categorized as well capitalized.
Material changes versus comparable periods
- Net income declined 17.9% year over year, and diluted EPS fell from $0.55 to $0.44. Net interest income decreased 19.2% as liability costs rose faster than asset yields; the tax-equivalent net interest margin fell 77 basis points.
- Average interest-bearing liability cost increased to 2.25% from 0.49%. Loan yield increased to 4.69% from 4.56%, but that improvement did not offset funding-cost increases.
- Non-interest expense declined 11.6%, largely from lower incentive compensation and professional fees, partly offset by higher FDIC insurance, state franchise tax, and director costs.
- Compared with December 31, 2022, deposits rose $20.9 million, while loans and available-for-sale securities declined $18.2 million and $17.4 million, respectively. Cash at banks rose $40.3 million; federal funds purchased fell $25.5 million to zero.
- Accumulated other comprehensive loss improved to $25.2 million from $28.7 million during the quarter, primarily reflecting higher fair values of available-for-sale securities. The portfolio still had $32.2 million of gross unrealized losses at March 31.
Outlook, commentary, risks and unusual items
- No specific earnings, revenue, or margin guidance is provided. Management says it maintains disciplined underwriting and considers its liquidity position strong, while noting that adverse market or economic conditions could materially affect liquidity.
- Liquidity totaled $852.6 million under the company’s definition. Available capacity included $423.1 million of FHLB borrowing, $28.0 million at the Federal Reserve discount window, and $110.0 million of correspondent-bank federal funds lines; none of these lines was drawn at quarter-end. The company was approved for the Bank Term Funding Program but had not elected to participate.
- Total deposits included $378.8 million of brokered deposits. Estimated uninsured deposits were $916.1 million; the filing says uninsured deposits and deposits not otherwise collateralized represented 36% of total deposits. Core deposits were $1.69 billion, or 81.1% of deposits.
- On January 1, 2023, the company adopted CECL, reducing retained earnings by $2.3 million after tax. It recorded a $1.0 million allowance for unfunded commitments at quarter-end. CECL estimates rely on assumptions and forecasts, and management identifies allowance adequacy as a significant estimate.
- The company sold $12.0 million par value of available-for-sale securities, recording a $0.202 million pretax loss. It said the sale was intended to manage interest-rate risk, permit reinvestment at higher yields, and reduce exposure to municipalities.
- Principal risks cited include Washington-area economic concentration, deposit retention and funding costs, liquidity and interest-rate risk, credit quality and allowance estimates, securities-market changes, competition, regulation, operational and cyber risks, and economic deterioration. The filing reports no material change to the risk factors in the 2022 Form 10-K and no material legal proceedings.
Important facts for investors to verify
- Whether deposit pricing and funding mix continue to pressure net interest margin and earnings.
- Trends in uninsured, brokered, and time deposits, and the availability and terms of contingent borrowing sources.
- Loan performance and the adequacy of CECL allowances, including the impact of economic forecasts and unfunded commitments.
- Interest-rate exposure and potential realization of securities losses, including the rationale and consequences of securities sales.
- Capital and liquidity resilience under stress, alongside the company’s stated well-capitalized status and available borrowing capacity.