News Details

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.

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

Source: John Marshall Bank