John Marshall Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. John Marshall Bancorp is a Virginia bank holding company whose subsidiary, John Marshall Bank, primarily serves the Washington, D.C. metropolitan area. Financial amounts below are in U.S. dollars; unless stated otherwise, dollar figures are in millions.
Key financial results
| Metric | Q1 2022 | Comparable / prior period |
|---|---|---|
| Net interest income | $17.9 | $16.3 in Q1 2021 |
| Provision for loan losses | $0 | $2.4 in Q1 2021 |
| Non-interest income | $0.4 | $0.5 in Q1 2021 |
| Non-interest expense | $8.8 | $7.9 in Q1 2021 |
| Net income | $7.7 | $5.1 in Q1 2021 |
| Diluted earnings per share | $0.55 | $0.37 in Q1 2021 |
| Tax-equivalent net interest margin | 3.34% | 3.44% in Q1 2021 |
| Efficiency ratio | 47.9% | 47.1% in Q1 2021 |
| Return on average assets / equity | 1.40% / 14.76% | 1.05% / 10.89% in Q1 2021 |
Financial position, cash flow and capital
- At March 31, 2022, total assets were $2.25 billion, up 4.7% from year-end 2021. Deposits were $1.98 billion, up 5.4%; net loans were $1.61 billion, down from $1.65 billion; and shareholders’ equity was $204.9 million, down 1.7%.
- Cash and cash equivalents totaled $182.4 million, compared with $105.8 million at December 31, 2021. Q1 operating cash flow was $9.6 million; investing activities used $36.5 million; and financing activities provided $103.4 million, primarily from deposit growth and option exercises.
- Liquid assets were $422.5 million, or 18.8% of total assets, versus $299.3 million, or 16.8%, at year-end. Additional reported borrowing capacity included $354.8 million at the FHLB, $33.6 million at the Federal Reserve discount window, and $105 million in correspondent-bank lines; none of the latter facilities had been drawn at quarter-end.
- Total debt was $42.8 million: $18.0 million of FHLB advances and $24.8 million of subordinated debt. The $25 million subordinated notes carried a 5.75% fixed rate and became callable in July 2022. The filing says the company intended, subject to market conditions, to refinance them; the floating-rate terms described in the filing reference LIBOR.
- The Bank reported a 15.4% total risk-based capital ratio, 14.2% Tier 1 and common equity Tier 1 ratios, and a 10.8% leverage ratio, and was categorized as well capitalized. The company itself is not subject to consolidated regulatory capital requirements under the small bank holding company policy.
Material changes and operating trends
- Net income rose 51.2% year over year. Management attributed the improvement mainly to higher net interest income from balance-sheet growth and lower funding costs, and to no loan-loss provision in Q1 2022 versus $2.4 million a year earlier.
- Net interest income increased 10.0% on a tax-equivalent basis. Average interest-earning assets grew, while the cost of interest-bearing liabilities declined to 0.49% from 0.74%. The margin nevertheless narrowed, primarily because of lower yields on investment securities.
- Non-interest expense rose 11.3%, chiefly because salaries and benefits increased $1.0 million, largely reflecting incentive compensation tied to company performance. Non-interest income declined 10.8%, including a negative mark-to-market adjustment on deferred-compensation-related investments; excluding that and the prior-year securities gain, management reported underlying non-interest income growth.
- Gross loans fell 2.1% from year-end, primarily as PPP loans were paid off. PPP balances declined from $69.6 million to $7.8 million; excluding PPP loans, gross loans grew 1.6% from year-end.
- Available-for-sale securities experienced a substantial unrealized loss as market interest rates rose. Q1 other comprehensive loss was $10.5 million, and accumulated other comprehensive loss reached $10.9 million. Management attributed the securities losses to rate changes, said it did not intend or expect to be required to sell the securities before recovery, and recorded no other-than-temporary impairment.
- The board declared a one-time special cash dividend of $0.20 per share on March 16, payable May 24, 2022 to shareholders of record May 10. The dividend payable was $2.8 million at quarter-end.
Outlook, risks and contingencies
- The filing provides no formal earnings or financial guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management said the allowance for loan losses was adequate, but future provision adjustments may be needed if economic assumptions, borrower conditions, collateral values, or local and national conditions worsen. The allowance was $20.0 million, or 1.23% of gross loans; there were no nonperforming assets, past-due loans, or nonaccrual loans at quarter-end. The filing reports $542,000 of impaired residential loans and approximately $542,000–$543,000 of TDRs, which were performing under modified terms.
- The company was preparing to adopt CECL on January 1, 2023. It expected the change to increase the allowance for credit losses but had not quantified the impact; it intended to elect the regulatory capital transition relief.
- Management identifies interest-rate and securities-market changes, inflation, the war in Ukraine, COVID-19 effects, economic and real-estate deterioration, geographic concentration in the Washington, D.C. area, liquidity and credit risks, and regulatory changes among the factors that could affect results. The investment portfolio’s weighted-average remaining life rose to about 5.0 years from 4.5 years at year-end.
- Deposits included $217.8 million of brokered deposits; estimated uninsured deposits were $1.07 billion. Off-balance-sheet commitments included $275.4 million to extend credit and $14.0 million of standby letters of credit; management did not anticipate material losses from these instruments.
- The filing notes that $18 million of FHLB advances were subsequently called during Q2 2022. It reports no material legal proceedings and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether the planned July 2022 subordinated-debt refinancing occurred, and its final pricing and benchmark terms.
- Subsequent effects of rising rates on securities values, accumulated other comprehensive loss, net interest margin, and liquidity needs.
- The realized impact and timing of CECL adoption, including effects on reserves, earnings, and regulatory capital.
- Deposit stability and funding costs, including uninsured and brokered deposit levels, as well as the extent to which deposit growth persists.
- Whether loan quality and the allowance remain appropriate as PPP repayments, economic conditions, inflation, and regional real-estate trends evolve.
- That the declared special dividend was paid as scheduled and its effect on capital and future distributions.