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John Marshall Bank Reports First Quarter Results

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April 29, 2016 12:58 PM EDT

RESTON, Va.--(BUSINESS WIRE)-- John Marshall Bank (OTCQB: JMSB) (the “Bank”) reported net income of $560 thousand for the three months ended March 31, 2016, a decrease of $1.5 million or 73.4%, as compared to net income of $2.1 million for the three months ended March 31, 2015. Net income per diluted share was $0.05 per share during the first three months of 2016, compared to $0.20 per diluted share during the same period in 2015. As of March 31, 2016, the Bank’s tangible book value per share was $10.99, up 7.5% compared to $10.22 as of March 31, 2015, as adjusted for the 6 for 5 stock split in the form of a 20% dividend paid July 1, 2015. The decrease in year-over-year earnings was attributable to an increased loan loss provision of $2.7 million for 2016 compared to $211 thousand in 2015.

As previously disclosed, the Bank incurred an impairment related to a $4.2 million lending relationship due to the unexpected termination of the borrower’s business in March. The lending relationship with the company is made up of three loans. Two of the loans, totaling $1.6 million, are well secured by real estate which is in the process of liquidation. No impairment is expected with respect to these two real estate secured loans. The remaining commercial loan, with a balance of $2.6 million, is secured by receivables, inventory, equipment and intangible assets. During the first quarter 2016, the Bank incurred a $1.9 million charge-off and recorded an additional specific reserve of $525 thousand related to this loan. The remaining outstanding recorded investment for this loan was $700 thousand at March 31, 2016.

“We are disappointed by the impact this had on our first quarter earnings, but are confident that this is an isolated incident that is not reflective of the Bank's overall strong credit quality, internal controls and sound loan underwriting practices,” said John Maxwell, Chairman and CEO of the Bank.

Return on average assets was 0.24% and return on average equity was 2.03% for the first quarter of 2016, compared to 1.08% and 8.43%, respectively, for the first quarter 2015.

The Bank’s capital ratios remain well above regulatory minimums for well capitalized banks. As of March 31, 2016, the Bank’s total risk-based capital ratio was 13.2%, compared to 13.9% at March 31, 2015.

Balance Sheet Review

At March 31, 2016, total assets were $941.2 million, an increase of $110.2 million, or 13.3% from total assets of $831.1 million at March 31, 2015. Gross loans increased $83.5 million, or 11.8%, to $794.0 million at March 31, 2016, compared to $710.5 million at March 31, 2015. Year-over-year net loan growth, from March 31, 2015 to March 31, 2016, was $82.3 million, or 11.7%. The Bank’s investment portfolio increased to $92.1 million at March 31, 2016, compared to $81.9 million at March 31, 2015. As of March 31, 2016, the Bank held $47.9 million of its investment portfolio as held-to-maturity, and $37.8 million as available-for-sale.

The Bank purchased $18.0 million of bank owned life insurance during the first quarter of 2016. Bank owned life insurance represents insurance policies on officers and directors of the Bank. The cash values of the policies are estimates using information provided by insurance carriers. These policies are carried at their cash surrender value, which approximates their fair value.

Total deposits were $738.1 million at March 31, 2016, representing an increase of $87.4 million, or 13.4%, compared to $650.7 million at March 31, 2015. Total borrowings, consisting of Federal Home Loan Bank advances and customer repurchase agreements, were $87.6 million at March 31, 2016, an increase of $15.5 million, or 21.6%, compared to $72.1 million at March 31, 2015.

QwickRate certificates of deposit decreased by $1.5 million year-over-year from $24.0 million at March 31, 2015 to $22.5 million at March 31, 2016. CDARs increased $5.7 million year-over-year. Brokered certificates of deposit increased by $1.3 million from March 31, 2015 to March 31, 2016 and customer repurchase agreements decreased by $1.4 million. Year-over-year Federal Home Loan Bank advances increased $17.0 million or 30.9%. Core customer funding sources increased by $86.2 million, or 13.8%, compared to March 31, 2015.

Total shareholders’ equity was $110.2 million at March 31, 2016, an increase of $8.2 million, or 8.0%, compared to $102.0 million at March 31, 2015. Substantially all of the increase in shareholders’ equity over the past year is attributed to net income retained during the past twelve months. Total common shares outstanding increased from 9,979,753 at March 31, 2015 to 10,030,599 at March 31, 2016, as adjusted for the 6 for 5 stock split in the form of a 20% dividend paid July 1, 2015.

Income Statement Review

Net interest income

Net interest income, the Bank’s primary source of revenue, was $8.6 million for the three months ended March 31, 2016, up 8.1% from $8.0 million for the three months ended March 31, 2015. The net interest margin was 3.80% during the first quarter of 2016, compared to 4.18% during the first quarter of 2015. The decline in the net interest margin from year-over-year is primarily attributed to a decline in the Bank’s yield on earning assets to 4.46% during the first quarter of 2016 from 4.78% during the first quarter of 2015, which is substantially the result of a 24 basis point year-over-year decline in loan yields and a 10 basis point year-over-year decline in securities yields. Loan yields quarter-over-quarter declined 2 basis points from 4.96% to 4.94% and securities yields increased 2 basis points from 1.98% to 2.00%, from December 31, 2015 to March 31, 2016.

Notwithstanding the decline in the net interest margin over the past year, net interest income increased by 8.1% during the first quarter of 2016, compared to the first quarter of 2015, resulting primarily from a $140.5 million, or 18.1%, increase in average earning assets during the first quarter of 2016, compared to the first quarter of 2015.

Provision for loan losses

The Bank recognized a provision for loan losses of $2.7 million during the first three months of 2016, compared to a provision of $211 thousand during the first quarter of 2015. The Bank reported $1.9 million in net loan charge-offs during the first quarter of 2016 and no net charge-offs during the first quarter of 2015.

Noninterest income

The Bank’s primary source of noninterest income is service charges on deposit accounts. Loan fees are included in interest income on the loan portfolio and are not reported as noninterest income. For the three months ended March 31, 2016, the Bank reported total noninterest income of $195 thousand, compared to $140 thousand during the first quarter of 2015. The year-over-year increase of $55 thousand, or 39.3%, was attributable to $54 thousand in income related to bank owned life insurance that was purchased in the first quarter of 2016.

Noninterest expense

The largest component of the Bank’s noninterest expense is employee salaries and benefits. Salary and benefits expense increased by 5.7%, to $3.0 million, during the first quarter of 2016 compared to $2.9 million during the first quarter of 2015. All other operating expenses increased by 24.3%, or $433 thousand, to $2.2 million, during the first quarter of 2016, compared to $1.8 million during the first quarter of 2015.

The increase in other operating expense was associated to higher FDIC insurance related to growth, loan collection fees related to the non-performing loans mentioned above and one-time costs incurred related to the Bank’s core system conversion which took place in early April 2016.

Asset Quality Review

As of March 31, 2016, non-performing assets were 0.55% of total assets, up from 0.21% at March 31, 2015. The Bank’s allowance for loan losses covered non-performing loans by 1.5 times as of March 31, 2016, compared to 3.8 times as of March 31, 2015. The increase in non-performing assets is primarily related to the reclassification of two real estate loans totaling $1.6 million and a $700 thousand commercial loan to non-accrual status during the first quarter of 2016. These are the same three loans previously discussed.

As of March 31, 2016, there were $119 thousand in loans 30-89 days past due and still accruing interest. As of March 31, 2015 there were no loans 30-89 days past due and still accruing interest.

Troubled debt restructurings were $1.5 million at March 31, 2016, a decrease of $330 thousand, or 18.3%, from $1.8 million at March 31, 2015. All troubled debt restructurings were performing in accordance with modified terms as of March 31, 2016. There was no other real estate owned as of March 31, 2016.

John Marshall Bank is headquartered in Reston, Virginia and has five full-service branches located in Reston, Leesburg, Arlington, Alexandria and Rockville. The Bank also has a limited-service commercial branch located in Washington, DC. 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 Bank 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 Bank’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 Bank’s past results are not necessarily indicative of future performance.

 
John Marshall Bank
         
Balance Sheets
(In thousands)
 
% Change  

March 31,

December 31, March 31, Last Three Year Over

2016

2015 2015 Months Year
Assets (Unaudited) (Unaudited)
 
Cash and due from banks $ 5,306 $ 8,217 $ 10,047 -35.4 % -47.2 %
Interest-bearing deposits in banks 27,154 46,738 24,172 -41.9 % 12.3 %
Securities available-for-sale, at fair value 37,774 32,145 28,752 17.5 % 31.4 %
Securities held-to-maturity, fair value of $48,660
at 3/31/2016, $46,780 at 12/31/2015 and
$48,648 at 3/31/2015 47,943 46,479 47,646 3.1 % 0.6 %
Restricted securities, at cost 6,380 6,210 5,521 2.7 % 15.6 %
Loans, net of allowance for loan losses of $7,929 at
3/31/2016; $7,130 at 12/31/2015 and $6,717 at 3/31/2015 784,681 774,633 702,385 1.3 % 11.7 %
Bank premises and equipment, net 2,736 2,690 2,963 1.7 % -7.7 %
Accrued interest receivable 2,388 2,318 2,181 3.0 % 9.5 %
Bank owned life insurance 18,054 - - - - n/a n/a
Other assets   8,829     9,190     7,413   -3.9 % 19.1 %
 
Total assets $ 941,245   $ 928,620   $ 831,080   1.4 % 13.3 %
 
Liabilities and Shareholders' Equity
 
Liabilities
Deposits:
Non-interest bearing demand deposits $ 129,760 $ 136,361 $ 122,797 -4.8 % 5.7 %
Interest bearing demand deposits 236,083 235,313 222,324 0.3 % 6.2 %
Savings deposits 12,077 17,154 6,562 -29.6 % 84.0 %
Time deposits   360,146     342,025     298,988   5.3 % 20.5 %
Total deposits 738,066 730,853 650,671 1.0 % 13.4 %
Repurchase agreements 15,638 11,972 17,085 30.6 % -8.5 %
Federal Home Loan Bank advances 72,000 71,000 55,000 1.4 % 30.9 %
Accrued interest payable 132 109 123 21.1 % 7.3 %
Other liabilities   5,222     5,384     6,206   -3.0 % -15.9 %
Total liabilities   831,058     819,318     729,085   1.4 % 14.0 %
 
Shareholders' Equity
Preferred stock, par value $5 per share; authorized 1,000,000 shares;
none issued - - - - - - - - - -
Common stock, nonvoting, par value $5 per share; authorized
1,000,000 shares; none issued - - - - - - - - - -
Common stock, voting, par value $5 per share; authorized
20,000,000 shares; issued and outstanding, 10,030,599 shares
at 3/31/2016, 10,016,574 at 12/31/2015,
and 8,316,461 at 3/31/2015 50,153 50,083 41,582 0.1 % 20.6 %
Additional paid-in capital 31,443 31,313 39,126 0.4 % -19.6 %
Retained earnings 28,713 28,153 21,394 2.0 % 34.2 %
Accumulated other comprehensive loss   (122 )   (247 )   (107 ) 50.6 % -14.0 %
 
Total shareholders' equity   110,187     109,302     101,995   0.8 % 8.0 %
 
Total liabilities and shareholders' equity $ 941,245   $ 928,620   $ 831,080   1.4 % 13.3 %
 
 
John Marshall Bank
             
Statements of Income
For the Three Months Ended March 31, 2016 and 2015
(Dollar amounts in thousands, except per share data)
 
Three Months Ended
March 31,
  2016   2015 % Change  
(Unaudited) (Unaudited)
Interest and Dividend Income
Interest and fees on loans $ 9,659 $ 8,755 10.3 %
Interest on investment securities, taxable 322 295 9.2 %
Interest on investment securities, tax-exempt 33 26 26.9 %
Dividends 79 55 43.6 %
Interest on deposits in banks   53   9 488.9 %
Total interest and dividend income   10,146   9,140 11.0 %
 
Interest Expense
Deposits 1,318 1,015 29.9 %
Federal Home Loan Bank advances 168 117 43.6 %
Other short-term borrowings   15   14 7.1 %
Total interest expense   1,501   1,146 31.0 %
 
Net interest income 8,645 7,994 8.1 %
 
Provision for loan losses   2,735   211 1196.2 %
 
Net interest income after provision for loan losses   5,910   7,783 -24.1 %
 
Noninterest Income
Service charges on deposit accounts 122 118 3.4 %
Bank owned life insurance 54 - - n/a
Other service charges and fees   19   22 -13.6 %
Total noninterest income   195   140 39.3 %
 
Noninterest Expenses
Salaries and employee benefits 3,044 2,880 5.7 %
Occupancy expense of premises 419 440 -4.8 %
Furniture and equipment expenses 332 258 28.7 %
Other operating expenses   1,464   1,084 35.1 %
Total noninterest expenses   5,259   4,662 12.8 %
 
Income before income taxes 846 3,261 -74.1 %
 
Income tax expense   286   1,154 -75.2 %
 
Net income $ 560 $ 2,107 -73.4 %
 
Earnings Per Share
Basic $ 0.06 $ 0.21 -71.4 %
Diluted $ 0.05 $ 0.20 -75.0 %
 
 
John Marshall Bank
               
Loan, Deposit and Borrowing Detail (Unaudited)
(Dollar amounts in thousands)
 
March 31, 2016 December 31, 2015 March 31, 2015 Percentage Change
Loans $ Amount % of Total $ Amount % of Total $ Amount % of Total Last 3 Mos Last 12 Mos
Mortgage loans on real estate
Commercial $ 457,784 57.6 % $ 441,309 56.3 % $ 402,734 56.7 % 3.7 % 13.7 %
Construction and land development 157,102 19.8 % 150,786 19.3 % 138,745 19.5 % 4.2 % 13.2 %
Residential   95,136   12.0 %   95,496   12.2 %   84,333   11.9 % -0.4 % 12.8 %
Total mortgage loans on real estate $ 710,022 89.4 % $ 687,592 87.8 % $ 625,812 88.1 % 3.3 % 13.5 %
Commercial loans 82,709 10.4 % 94,371 12.0 % 83,631 11.8 % -12.4 % -1.1 %
Consumer loans   1,259   0.2 %   1,203   0.2 %   1,034   0.1 % 4.7 % 21.8 %
Total loans $ 793,990 100.0 % $ 783,166 100.0 % $ 710,477 100.0 % 1.4 % 11.8 %
Less: Allowance for loan losses (7,929 ) (7,130 ) (6,717 )
Net deferred loan fees   (1,380 )   (1,402 )   (1,375 )
Net loans $ 784,681   $ 774,633   $ 702,385  
 
 
March 31, 2016 December 31, 2015 March 31, 2015 Percentage Change
Deposits $ Amount % of Total $ Amount % of Total $ Amount % of Total Last 3 Mos Last 12 Mos
Noninterest-bearing demand deposits $ 129,760 17.6 % $ 136,361 18.7 % $ 122,797 18.9 % -4.8 % 5.7 %
Interest-bearing demand deposits:
NOW accounts 20,436 2.8 % 23,496 3.2 % 17,350 2.7 % -13.0 % 17.8 %
Money market accounts 215,647 29.2 % 211,817 29.0 % 204,974 31.5 % 1.8 % 5.2 %
Savings accounts 12,077 1.6 % 17,154 2.3 % 6,562 1.0 % -29.6 % 84.1 %
Certificates of deposit
$250,000 or more 156,109 30.1 % 137,381 27.4 % 117,732 25.7 % 10.8 % 32.8 %
Less than $250,000 97,175 4.2 % 94,164 4.3 % 79,918 4.7 % 0.1 % 2.8 %
QwickRate® Certificates of deposit 22,579 3.1 % 25,018 3.4 % 24,043 3.7 % -9.7 % -6.1 %
CDARS® 62,766 8.5 % 62,943 8.6 % 57,036 8.8 % -0.3 % 10.0 %
Brokered deposits   21,517   2.9 %   22,519   3.1 %   20,259   3.1 % -4.4 % 6.2 %
Total deposits $ 738,066   100.0 % $ 730,853   100.0 % $ 650,671   100.0 % 1.0 % 13.4 %
 
Borrowings
Customer repurchase agreements $ 15,638 17.8 % $ 11,972 14.4 % $ 17,085 23.7 % 30.6 % -8.5 %
Federal Home Loan Bank advances   72,000   82.2 %   71,000   85.6 %   55,000   76.3 % 1.4 % 30.9 %
Total borrowings $ 87,638   100.0 % $ 82,972   100.0 % $ 72,085   100.0 % 5.6 % 21.6 %
 
Total deposits and borrowings $ 825,704   $ 813,825   $ 722,756   1.5 % 14.2 %
 
Core customer funding sources (1) $ 709,608 85.9 % $ 695,288 85.4 % $ 623,454 86.3 % 2.1 % 13.8 %
Wholesale funding sources (2)   116,096   14.1 %   118,537   14.6 %   99,302   13.7 % -2.1 % 16.9 %
Total funding sources $ 825,704   100.0 % $ 813,825   100.0 % $ 722,756   100.0 % 1.5 % 14.2 %
 
(1)   Includes CDARS(r), which are all reciprocal deposits maintained by Bank customers, and repurchase agreements, which represent sweep accounts tied to customer operating accounts.
(2) Consists of QwickRate(r) certificates of deposit, brokered deposits and Federal Home Loan Bank advances
 
John Marshall Bank
Average Balance Sheets, Interest and Rates (Unaudited)
(Dollar amounts in thousands)
               
3 Months Ended March 31, 2016 3 Months Ended December 31, 2015 3 Months Ended March 31, 2015
Interest Average Interest Average Interest Average
Average Income- Yields Average Income- Yields Average Income- Yields
Balance Expense /Rates Balance Expense /Rates Balance Expense /Rates
Assets
Securities $ 87,230 $ 434 2.00% $ 86,130 $ 429 1.98% $ 72,751 $ 376 2.10%
Loans, net of unearned income 786,727 9,659 4.94% 775,132 9,684 4.96% 685,876 8,755 5.18%
Interest-bearing deposits in other banks   41,340   53 0.52%   29,288   29 0.39%   16,122   9 0.23%
Total interest-earning assets $ 915,297 $ 10,146 4.46% $ 890,550 $ 10,142 4.52% $ 774,749 $ 9,140 4.78%
Other assets   19,217   13,826   16,589
Total assets $ 934,514 $ 904,376 $ 791,338
Liabilities & Shareholders' equity
Interest-bearing deposits
NOW accounts $ 21,301 $ 16 0.30% $ 16,500 $ 12 0.29% $ 13,866 $ 9 0.27%
Money market accounts 211,399 282 0.54% 206,162 279 0.54% 192,392 251 0.53%
Savings accounts 14,915 20 0.54% 9,043 10 0.44% 7,328 6 0.34%
Time deposits   357,151   1,000 1.13%   338,159   953 1.12%   292,329   749 1.04%
Total interest-bearing deposits $ 604,766 $ 1,318 0.88% $ 569,864 $ 1,254 0.87% $ 505,915 $ 1,015 0.81%
Securities sold under agreement to
repurchase and federal funds purchased $ 13,955 $ 15 0.43% $ 12,391 $ 12 0.38% $ 13,280 $ 14 0.43%
Other borrowed funds   67,603   168 1.00%   77,511   175 0.90%   48,711   117 0.97%
Total interest-bearing liabilities $ 686,324 $ 1,501 0.88% $ 659,766 $ 1,441 0.87% $ 567,906 $ 1,146 0.82%
Demand deposits and other liabilities   137,066   135,884   122,079
Total liabilities $ 823,390 $ 795,650 $ 689,985
Shareholders' equity   111,124   108,726   101,353
Total liabilities and shareholders' equity $ 934,514 $ 904,376 $ 791,338
Interest rate spread 3.58% 3.65% 3.96%
Net interest income and margin $ 8,645 3.80% $ 8,701 3.88% $ 7,994 4.18%
 
 
John Marshall Bank
Financial Highlights (Unaudited)
(Dollar amounts in thousands, except per share data)
   
At or For the Quarter Ended
March 31
  2016     2015  
Per share Data and Shares Outstanding (1)
Earnings per share - basic $ 0.06 $ 0.21
Earnings per share - diluted $ 0.05 $ 0.20
Tangible book value per share $ 10.99 $ 10.22
Weighted average common shares (basic) 10,026,765 9,975,250
Weighted average common shares (diluted) 10,544,156 10,445,831
Common shares outstanding at end of period 10,030,599 9,979,753
 
Performance Ratios
Return on average assets (annualized) 0.24 % 1.08 %
Return on average equity (annualized) 2.03 % 8.43 %
Yield on earning assets (annualized) 4.46 % 4.78 %
Cost of interest bearing liabilities (annualized) 0.88 % 0.82 %
Net interest spread 3.58 % 3.97 %
Net interest margin 3.80 % 4.18 %
Noninterest income as a percentage of average assets (annualized) 0.08 % 0.07 %
Noninterest expense to average assets (annualized) 2.26 % 2.39 %
Efficiency ratio 59.5 % 57.3 %
 
Asset Quality
Loans 30-89 days past due and accruing interest $ 119 $ -
Non-performing assets (2) $ 5,154 $ 1,756
Non-performing assets to total assets 0.55 % 0.21 %
Allowance for loan losses to total loans 1.00 % 0.95 %
Allowance for loan losses to non-performing loans 1.5 3.8
Net loan chargeoffs $ 1,935 $ -
Net charge-offs to average loans (annualized) 0.99 % 0.00 %
Troubled debt restructurings (total) $ 1,471 $ 1,801
Performing in accordance with modified terms $ 1,471 $ 1,801
Not performing in accordance with modified terms $ - $ -
Other real estate owned $ - $ -
 
Regulatory Capital Ratios
Total risk-based capital ratio 13.2 % 13.9 %
Tier 1 risk-based capital ratio 12.3 % 13.0 %
Leverage ratio 11.8 % 12.8 %
Common equity tier 1 ratio 12.3 % 13.0 %
 
Other Information
Effective income tax rate 33.8 % 35.4 %
Tangible equity / tangible assets 11.7 % 12.3 %
Average tangible equity / average tangible assets 11.9 % 12.8 %
Number of full time equivalent employees 108 98
# Full service branch offices 5 5
# Loan production offices and limited service branches 1 1
(1)   Shares and per share amounts for all periods have been adjusted to reflect a 6 for 5 stock split in the form of a 20% stock dividend paid July 1, 2015.
(2) Non-performing assets consist of non-accrual loans, loans 90 day or more past due and still accruing interest, and foreclosed properties. Does not include troubled debt restructurings ("TDRs") which were accruing interest at the date indicated.

John Marshall Bank
John R. Maxwell, 703-584-0840

Source: John Marshall Bank


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