News Column

John Marshall Bank Reports Growth and Profitability

February 11, 2014

John Marshall Bank reported net income of $7.1 million for the year ended December 31, 2013, an increase of $2.1 million, or 41.4 percent, as compared to net income of $5.0 million reported for the year ended December 31, 2012.

In a release on February 6, the Company noted that net income per diluted share increased 31.8 percent during 2013 to $1.12 per share, compared to $0.85 per share during 2012. As of December 31, 2013, the Bank's tangible book value per share was $10.94, up 21.3 percent compared to $9.02 as of December 31, 2012.

For the fourth quarter of 2013, the Bank reported net income of $1.9 million, a 27.3 percent increase as compared to the same period in 2012. Net income per diluted share for the fourth quarter of $0.26 represented a 4.0 percent increase, compared to $0.25 per share during the same period in 2012. The Bank's fourth quarter results produced an annualized return of 1.17 percent on average assets and 10.03 percent on average equity, compared to 1.12 percent and 11.30 percent, respectively, for the same period a year ago. For the full year, the Bank produced a 1.18 percent return on average assets and 11.67 percent on average equity, compared to 1.03 percent and 9.97 percent, respectively during 2012.

As previously reported, in November 2013, the Bank completed an offering of 2.4 million shares of common stock at $13.50 per share, for net proceeds after offering costs of $30.9 million. The Bank's capital ratios strengthened significantly due to the offering and are well above regulatory minimums for well capitalized banks. As of December 31, 2013, the Bank's total risk-based capital ratio was 15.7 percent, compared 10.6 percent as of September 30, 2013.

The Bank opened its sixth full service branch on December 3, 2013 in Alexandria, Virginia, replacing a loan production office that had been operating in the Alexandria market since 2011. As of December 31, 2013, the Alexandria branch had $64.5 million in deposits and $111.8 million in loans.

At December 31, 2013, total assets were $662.5 million, an increase of $99.2 million, or 17.6 percent, from total assets of $563.4 million at December 31, 2012. Gross loans increased $74.8 million, or 15.0 percent, to $573.4 million at December 31, 2013, compared to $498.6 million at December 31, 2012. The Bank's investment portfolio increased to $55.2 million at December 31, 2013, compared to $43.1 million at December 31, 2012.

Total deposits were $514.9 million at December 31, 2013, representing an increase of 11.1 percent, or $51.6 million, compared to December 31, 2012. Total borrowings, consisting of Federal Home Loan Bank advances and customer repurchase agreements, were $52.3 million at December 31, 2013, an increase of 14.8 percent, or $6.7 million, compared to December 31, 2012.

Although total deposits declined slightly during the fourth quarter of 2013, this was due primarily to an intentional reduction of wholesale funding sources and a focus on core customer funding sources. During the fourth quarter certificates of deposit obtained through a deposit listing service provided by QwickRate, Inc. declined by $7.3 million. Brokered certificates of deposit declined by $1.1 million and Federal Home Loan Bank advances declined by $4 million. Core customer funding sources increased by $11.7 million during the fourth quarter, and by $62.1 million during 2013.

Total stockholder's equity was $90.7 million at December 31, 2013, an increase of $37.6 million, or 70.9 percent, compared to December 31, 2012. The increase in stockholders' equity was due to net income of $7.1 million during 2013, net proceeds of $30.9 million from the Bank's recent offering, and net proceeds from the exercise of 1,550 employee stock options during the year. Total common shares outstanding increased from 5,884,786 at December 31, 2012 to 8,286,336 at December 31, 2013.

Net interest income

Net interest income, the Bank's primary source of revenue, was $26.4 million for the year ended December 31, 2013, up 18.3 percent from $22.3 million for the year ended December 31, 2012. The net interest margin was 4.45 percent for the year ended December 31, 2013 as compared to 4.63 percent for the year ended December 31, 2012.

Net interest income was $6.9 million for the fourth quarter of 2013, compared to $6.2 million for the same period in 2012. The net interest margin declined from 4.66 percent during the fourth quarter of 2012 to 4.31 percent during the fourth quarter of 2013. The decline in the net interest margin is attributed to a decline in the Bank's yield on earning assets from 5.36 percent during the fourth quarter of 2012 to 4.94 percent during the fourth quarter of 2013.

Notwithstanding the decline in the net interest margin during 2013, net interest income increased by 18.3 percent, resulting from a $112.2 million, or 23.1 percent, increase in average earning assets during the year.

Provision for loan losses

The Bank recognized a provision for loan losses of $760 thousand for the year ended December 31, 2013, compared to provision of $2.1 million during 2012. The Bank's provision for loan losses was $211 thousand during the fourth quarter of 2013, compared to $540 thousand during the same period in 2012. The decline in the provision for loan losses was due primarily to a decline in non- performing and impaired loans, and a resulting decline in allocation of reserves to cover potential losses on impaired loans. Also contributing to the decline in the loan loss provision during 2013 was a decline in net loan charge-offs from $2.0 million in 2012 to $63 thousand in 2013.

Noninterest income

The Bank's primary source of noninterest income is service charges on deposit account. Loan fees are included in interest income on the loan portfolio and not reported as noninterest income. For the year ended December 31, 2013, the Bank reported total noninterest income of $371 thousand, compared to $257 thousand during the year ended December 31, 2012, an increase of 44.4 percent. For the three months ended December 31, 2013, the Bank's noninterest income was $104 thousand, compared to $75 thousand during the same period in 2012, an increase of 38.7 percent.

Noninterest expense

The largest component of the Bank's noninterest expense is employee salaries and benefits. Salary and benefits expense increased by 24.6 percent during 2013 to $8.8 million, compared to $7.0 million during 2012. All other operating expense increased by $472 thousand during 2013, from $5.7 million to $6.2 million, an increase of 8.3 percent.

For the three months ended December 31, 2013, salary and benefits expense increased 25.4 percent to $2.3 million, compared to $1.8 million for the same period in 2012. All other noninterest expenses totaled $1.5 million during the fourth quarter of 2013, unchanged the same period in 2012.

The increase in salary and benefits expense was due to additional staffing required to support the Bank's growth and branch expansion. The increase in other operating expenses was due primarily to increased occupancy expense associated with our Alexandria regional office, and increased data processing and technology related expenses associated with a growing customer base.

Asset quality remains exceptionally strong and is significantly better than the Bank's peers. As of December 31, 2013, non- performing assets were 0.04 percent of total assets, down from 0.12 percent at December 31, 2012. The Bank's allowance for loan losses covered non-performing loans by 21.4 times as of December 31, 2013, compared to 27.2 times as of December 31, 2012.

Although loans 30-89 days past due and still accruing interest increased by $1.7 million during the year, this was due to a matured $1.3 million commercial real estate loan that has since been restructured; and a $334 thousand residential mortgage troubled debt restructuring that was over 30-days past due at December 31, 2013, but has since been brought current. Both loans are well secured with no impairment. As of December 31, 2013 the Bank had total troubled debt restructurings of $1.8 million, compared to $2.1 million at December 31, 2012, $1.5 million of which was performing in accordance with modified terms.

John Marshall Bank is headquartered in Reston, Virginia and has six full-service branches located in Reston, Falls Church, Leesburg, Arlington, Alexandria and Rockville. The Bank also has a limited- service commercial branch located in Washington, DC.

More Information:

http://www.johnmarshallbank.com

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