John Marshall Bancorp, Inc. Reports Record Earnings, 22% Asset Growth and Improved Efficiency

John Marshall Bancorp, Inc. (OTCQB: JMSB) (the "Company"), parent company of John Marshall Bank (the "Bank") reported its financial results for the three and six months ended June 30, 2019.

Selected Highlights

• Record Quarterly and Year-to-Date Earnings - The Company reported net income of $3.8 million or $0.28 per diluted share for the three months ended June 30, 2019. This compares to $3.1 million or $0.23 per diluted share for the three months ended June 30, 2018. For the three months ended June 30, 2019, diluted earnings per share increased 21.7% when compared to the same period in 2018. The Company reported net income of $7.4 million or $0.54 per diluted share for the six months ended June 30, 2019. This compares to $6.3 million or $0.47 per diluted share for the six months ended June 30, 2018. Diluted earnings per share increased 14.9% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

• 3^rd Consecutive Quarter of Increased Returns - The Company's investment in personnel and locations during the first half of 2018 is producing increased returns. Annualized returns on average assets ("ROAA") and returns on average equity ("ROAE") have increased in each of the last three quarters. ROAA were 0.86%, 0.89%, 1.04% and 1.07% from the third quarter of 2018 to the second quarter of 2019, respectively. ROAE were 8.09%, 8.57%, 10.09%, and 10.19% from the third quarter of 2018 to the second quarter of 2019, respectively.

• Improved Efficiency - Revenues (net interest income and noninterest income) were 12.8% greater in the second quarter of 2019 relative to the second quarter of 2018. Noninterest expense grew only 2.0% when comparing the same periods. This positive operating leverage enabled the efficiency ratio to decrease from 64.4% from the second quarter of 2018 to 58.2% for the second quarter of 2019. Noninterest expense to average assets declined from 2.27% for the three months ended June 30, 2018 to 2.03% for the three months ended June 30, 2019.

• Strong Growth - Total assets exceeded $1.49 billion at June 30, 2019, an increase of $266.1 million or 21.7% since June 30, 2018. During the second quarter of 2019 assets increased $68.8 million, or 19.3% (annualized). Gross loans net of unearned income surpassed $1.24 billion at June 30, 2019. Gross loans net of unearned income increased $203.7 million or 19.6% since June 30, 2018. During the second quarter, gross loans net of unearned income grew $64.8 million or 22.1% (annualized). Total deposits topped $1.26 billion at June 30, 2019. Total deposits increased $288.9 million or 29.6% since June 30, 2018. During the second quarter, deposits grew $84.8 million or 28.9% (annualized).

• Continued Improvement in Funding Composition - Non-interest bearing deposits grew $45.2 million or 41.0% (annualized) during the first six months of 2019 and represented 21.2% of total deposits at June 30, 2019. Core customer funding grew $226.1 million or 25.0% since June 30, 2018. Wholesale funding represented 12.9% of total funding sources at June 30, 2019 compared to 13.8% at December 31, 2018 and 14.5% at June 30, 2018.

• Outstanding Asset Quality - Non-performing assets were 0.09% of total assets as June 30, 2019. The Company had no accruing loans 30 or more days past due and no real estate owned as of June 30, 2019. The Company experienced annualized net recoveries equal to 0.01% of average loans during the second quarter of 2019.

Chris Bergstrom, President and Chief Executive Officer, commented "Our talented team continues to work hard to enhance our products and services and enrich our customer experience. By leveraging our digital platform and managing costs, we delivered strong returns and above average growth. Risk management is central to all that we do. Our underwriting remains rigorous and our asset quality is strong. We have a liquid, well-capitalized balance sheet and believe we are well positioned for continued profitable growth."

Balance Sheet Review

Assets

Total assets were $1.49 billion at June 30, 2019, $1.39 billion at December 31, 2018 and $1.23 billion at June 30, 2018. During the second quarter of 2019 assets increased $68.8 million, or 19.3% (annualized). Asset growth was $266.1 million, or 21.7%, from June 30, 2018 to June 30, 2019,

Loans

Gross loans were $1.24 billion at June 30, 2019, $1.16 billion at December 31, 2018 and $1.04 billion at June 30, 2018. During the second quarter, gross loans net of unearned income grew $64.8 million or 22.1% (annualized). Gross loans net of unearned income increased $203.7 million, or 19.6% from June 30, 2018 to June 30, 2019.

Investment Securities

The Company's portfolio of investments in debt securities was $106.7 million at June 30, 2019, $97.2 million at December 31, 2018 and $95.6 million at June 30, 2018. Year-over-year the investment portfolio growth, from June 30, 2018 to June 30, 2019, was $11.1 million, or 11.6%. The Company also had restricted securities totaling $6.3 million at June 30, 2019, $7.3 million at December 31, 2018 and $8.1 million at June 30, 2018. The reduction in restricted securities stems from decreased FHLB advances.

In April 2019, the entire held-to-maturity portfolio, totaling $31.9 million was transferred to available-for-sale. The Company's held-to-maturity portfolio was primarily comprised of municipal bonds. The Company elected to sell certain lower tax equivalent yield municipal bonds and reinvest the proceeds in higher yielding agency bonds with similar pre-payment protection features. The municipal bonds sold resulted in a net gain of $13 thousand.

Interest Bearing Deposits in Banks

Interest-bearing deposits in banks were $93.8 million at June 30, 2019, $93.7 million at December 31, 2018 and $54.6 million at June 30, 2018. The higher cash balances at June 30, 2019 continue to be a result of the recent deposit growth.

Deposits

Total deposits were $1.26 billion at June 30, 2019, $1.14 billion at December 31, 2018 and $974.4 million at June 30, 2018. During the second quarter, deposits grew $84.8 million or 28.9% (annualized). During the first six months, deposits grew $125.0 million, or 22.1% (annualized). Year-over-year deposit growth, from June 30, 2018 to June 30, 2019, was $288.9 million, or 29.6%. Core customer funding was $1.13 billion at June 30, 2019, $1.05 billion at December 31, 2018 and $906.0 million at June 30, 2018. Year-over-year core customer funding sources increased by $226.1 million, or 25.0%, from June 30, 2018 to June 30, 2019.

ICS deposits were $172.2 million at June 30, 2019, $135.1 million at December 31, 2018 and $81.1 million at June 30, 2018. Year-over-year, ICS deposits increased $91.2 million from June 30, 2018 to June 30, 2019. CDARS were $79.5 million at June 30, 2019, $112.2 million at December 31, 2018 and $98.1 million at June 30, 2018. Reciprocal deposit growth will fluctuate with customers' preferences to receive fixed (CDARS) or floating (ICS) yields.

QwickRate certificates of deposit were $19.8 million at June 30, 2019, $20.6 million at December 31, 2018 and $25.5 million at June 30, 2018. Year-over-year QwickRate certificates of deposit decreased $5.7 million from June 30, 2018 to June 30, 2019. Brokered deposits were $111.5 million at June 30, 2019, $68.2 million at December 31, 2018 and $43.0 million at June 30, 2018. Brokered deposits increased $68.5 million from June 30, 2018 to June 30, 2019. The increase in brokered deposits is mostly related to a migration from FHLB borrowings to brokered deposits as part of liquidity management.

Core customer funding was 85.2% of all funding sources as of June 30, 2019, as compared to 84.2% at December 31, 2018 and 83.2% as of June 30, 2018. Increasing core customer funding continues to be a key strategic initiative for the Company.

Borrowings

Total borrowings, consisting of Federal Home Loan Bank advances and Federal funds purchased, were $40.5 million at June 30, 2019, $83.5 million at December 31, 2018 and $89.5 million at June 30, 2018. Total borrowings decreased $49.0 million, or 54.7%, from June 30, 2018 to June 30, 2019. Federal Home Loan Bank advances were $40.5 million at June 30, 2019, $68.5 million at December 31, 2018 and $89.5 million at June 30, 2018.

The Company had subordinated notes with a balance of $24.6 million at June 30, 2019, December 31, 2018 and June 30, 2018. The notes qualify as Tier 2 capital for the Company for regulatory purposes.

Shareholders' Equity and Capital Levels

Total shareholders' equity was $152.7 million at June 30, 2019, $142.0 million at December 31, 2018 and $135.0 million at June 30, 2018. Year-over-year shareholders' equity increased by $17.7 million, or 13.1%. Total common shares outstanding increased from 12,871,125, including 86,125 unvested shares, at June 30, 2018, to 13,077,090, including 50,889 unvested shares, at June 30, 2019. The year-over-year increase in shares outstanding was primarily from the exercise of stock options and issuance of restricted stock.

The Company's capital ratios remain well above regulatory minimums for well capitalized banks. As of June 30, 2019, the Company's total risk-based capital ratio was 13.6%, compared to 14.9% at June 30, 2018.

Income Statement Review

Net Interest Income

Net interest income, the Company's primary source of revenue, was $12.1 million for the three months ended June 30, 2019, up 12.5% from $10.8 million for the three months ended June 30, 2018. The net interest margin was 3.49% for the three months ended June 30, 2019 as compared to 3.52% for the three months ended June 30, 2018. Average net loans increased $184.8 million compared to the three months ended June 30, 2018, with a 26 basis point increase in yield. Average interest-bearing deposits in other banks declined $28.0 million compared to the three months ended June 30, 2018, with a 60 basis point increase in yield. The average cost of interest-bearing liabilities increased 59 basis points when comparing the quarter ended June 30, 2018 to the quarter ended June 30, 2019. Management continues to focus on increasing core transaction accounts to mitigate margin pressure.

For the six months ended June 30, 2019, net interest income was $23.7 million, up 11.8% from $21.2 million for the six months ended June 30, 2018. The net interest margin was 3.46% during the first six months of 2019, compared to 3.56% during the six months of 2018. Despite the decline in the net interest margin over the past year, net interest income increased by 11.8% during the first six months of 2019, compared to the first six months of 2018, resulting primarily from a $179.6 million, or 15.0%, increase in average earning assets during the first six months of 2019, compared to the first six months of 2018.

Provision for Loan Losses

The Company had a $384 thousand provision for loan losses for the three months ended June 30, 2019, compared to no provision for the same period in 2018. The Company had $23 thousand in net loan recoveries during the second quarter of 2019, compared to net loan charge-offs of $85 thousand in the second quarter of 2018.

During the six months ended June 30, 2019, the Company recognized a provision for loan losses of $605 thousand, compared to a provision of $190 during the first six months of 2018. The increase in provisions for both the three and six months ended June 30, 2019 is due to the growth in the loan portfolio. The Company reported $146 thousand in net loan charge-offs during the first six months of 2019, compared to $86 thousand in net loan charge-offs during the first six months of 2018. Net charge-offs to average loans was 0.02% (annualized) for both the first six months of 2018 and 2019.

Noninterest Income

The Company's noninterest income consists primarily of bank owned life insurance income and service charges on deposit accounts. The majority of loan fees are included in interest income on the loan portfolio and not reported as noninterest income.

For the three months ended June 30, 2019, the Company reported total noninterest income of $369 thousand, compared to $294 thousand during the three months ended June 30, 2018.

For the six months ended June 30, 2019, the Company reported total noninterest income of $676 thousand, compared to $628 thousand during the first six months of 2018, an increase of $48 thousand, or 7.6%.

The year-over-year increases for both the three and six months periods ended June 30, 2019 were attributable to an increase in service charges on deposit accounts of $37 thousand, or 31.9%, for the three months ended June 30, 2019 and $59 thousand, or 25.7% increase for the six months ended June 30, 2019 as compared to the same periods in the prior year. The increase in service charges on deposit accounts is mostly related to higher ATM and debit interchange fees collected. Noninterest income for the six month period 2019 included a $13 thousand net gain on sale of securities. The decline in other service charge fees is related to the fees collected on CDARs balances, which have declined year-over-year.

Noninterest Expense

For the three months ended June 30, 2019, noninterest expense increased 2.0%, to $7.3 million, compared to $7.1 million for the same period in 2018. Salary and employee benefit expense was $4.6 million during the three months ended June 30, 2019, relatively unchanged compared to the three months ended June 30, 2018. Occupancy expense increased 18.9%, or $90 thousand and furniture and equipment increased 7.7% or $25 thousand when comparing the three months ended June 30, 2019 to the same period in 2018. Other operating expense increased by 1.2%, or $21 thousand when comparing the three months ended June 30, 2019 to the same period in 2018.

For the six months ended June 30, 2019, noninterest expense increased 5.1% to $14.3 million, compared to $13.6 million for the same period in 2018. For the six months ended June 30, 2019 and June 30, 2018, salaries and employee benefits expense increased 5.4%, or $468 thousand. Occupancy expense increased 12.1%, or $119 thousand and furniture and equipment increased 9.3%, or $58 thousand when comparing the six months ended June 30, 2019 to the same period in 2018. Other operating expense increased by 1.4%, or $45 thousand, during the six months ended June 30, 2019, compared to the same period in 2018.

The increase in salaries and benefits for the six month period ended June 30, 2019 was primarily attributable to increased employee count year-over-year, including staff for our branches in Woodbridge, Virginia and Tysons Corner, Virginia. In addition to the staff needed at our new locations, over the past year we hired key executives, loan and business development officers as well as support staff in our operations office. The increase in occupancy and furniture and equipment expenses for both the three and six month periods was mostly related to additional rent and furniture expenses related to the new locations listed above.

Asset Quality

As of June 30, 2019, non-performing assets were 0.09% of total assets, compared to 0.06% at June 30, 2018. As of June 30, 2019, non-accrual loans totaled $1.4 million, up $1.0 million from $390 thousand as of June 30, 2018. During the first quarter of 2019, loans totaling $1.4 million were added to non-accrual loans, which include three loans to one borrower, all of which are well secured. There were no accruing loans 30 or more days past due as of June 30, 2019.

At June 30, 2018, other real estate owned had a balance of $379 thousand. In February 2019, the other real estate owned was sold for $379 thousand. The Company had no other real estate owned as of June 30, 2019.

Troubled debt restructurings were $2.3 million at June 30, 2019, an increase of $1.8 million, compared to $488 thousand at June 30, 2018. During the first quarter of 2019, four loans totaling $1.6 million were added as troubled debt restructurings. There were $922 thousand of the troubled debt restructurings that were performing in accordance with their modified terms as of June 30, 2019. The $1.4 million troubled debt restructurings that were not performing in accordance with their modified terms are the non-performing loans mentioned above.

About John Marshall Bancorp, Inc.

John Marshall Bancorp, Inc. is the bank holding company for John Marshall Bank. John Marshall Bank is headquartered in Reston, Virginia and has eight full-service banking centers located in Reston, Leesburg, Arlington Alexandria, Tysons Corner and Woodbridge, Virginia; Rockville, Maryland; Washington, DC and one loan production office in Arlington, Virginia. Further information on the Bank can be obtained by visiting its website at www.johnmarshallbank.com.

This press release contains forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as "may," "will," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "should," and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company's past results are not necessarily indicative of future performance.

(1) Non-performing assets consist of non-accrual loans, loans 90 day or more past due and still accruing interest, and other real estate owned. Does not include troubled debt restructurings ("TDRs") which were accruing interest at the date indicated.

(1) Includes ICS and CDARS(r), which are all reciprocal deposits maintained by customers.

(2) Consists of QwickRate(r) certificates of deposit, brokered deposits and Federal Home Loan Bank advances

(3) Subordinated debt obligation qualifies as Tier 2 capital.