Executive Summary / Key Takeaways

• John Marshall Bancorp (NASDAQ: JMSB), a regional bank focused on the Washington, D.C. metropolitan area, demonstrated strong financial performance in Q1 2025, driven by significant net interest margin expansion.
• Net interest income increased 20% year-over-year on a tax-equivalent basis, with the net interest margin expanding to 2.58% from 2.11%, primarily due to higher loan yields and lower deposit costs.
• Asset quality remained robust with no nonperforming assets or loans as of March 31, 2025, and management maintains that the allowance for loan credit losses is adequate.
• The company is strategically investing in regional growth through key hires and expanding its small business lending capabilities, including the addition of the SBA Express program.
• JMSB maintains a solid liquidity position, supported by a stable deposit base and significant available borrowing capacity, and enhanced shareholder returns with a 20% increase in its annual cash dividend.

Setting the Scene: A Regional Focus in a Dynamic Market

John Marshall Bancorp, Inc., operating primarily through its subsidiary John Marshall Bank, is a community-oriented financial institution deeply rooted in the Washington, D.C. metropolitan area. Established with the Bank's charter in 2006 and the holding company formation in 2017, JMSB has built its business model around serving the banking needs of small to medium-sized businesses, their owners, employees, professional corporations, non-profits, and individuals within this specific geographic market. This focused approach allows the Bank to cultivate strong, relationship-based banking, leveraging local expertise and responsiveness that can differentiate it from larger, more geographically dispersed institutions.

The competitive landscape in the DC Metro area is diverse and intense, featuring large national banks like US Bancorp (USB), Bank of America (BAC), and Wells Fargo (WFC), major regional players such as PNC Financial Services (PNC), and an increasing presence of fintech companies. While larger competitors benefit from economies of scale, extensive branch networks, and significant technology budgets, JMSB competes by emphasizing personalized service, local decision-making, and tailored financial solutions. For instance, JMSB's localized approach to commercial real estate lending allows for bespoke terms and potentially faster approval processes compared to the more standardized procedures of national banks. However, this regional focus also means JMSB operates at a smaller scale, which can translate to higher operating costs per unit for certain services compared to the efficiencies achieved by its larger rivals.

JMSB's technological infrastructure supports its core banking operations, including online and mobile banking, treasury management services, and remote deposit capture. While specific, quantifiable performance metrics or unique technological differentiators are not extensively detailed, the company acknowledges investment in technology through increased furniture and equipment expenses and data processing costs. The strategic intent behind these investments and the services offered is to provide necessary digital capabilities to its customer base and remain competitive, although larger competitors often possess more advanced platforms with faster processing speeds and broader feature sets. The company also notes technological risks and cyber threats as factors that could impact its operations.

Financial Performance: Margin Expansion Takes Center Stage

John Marshall Bancorp delivered a notable improvement in profitability during the first quarter of 2025. Net income rose to $4.8 million, an increase of 14.4% compared to $4.2 million in the same period of 2024. This earnings growth was primarily fueled by a significant expansion in the net interest margin.

Net interest income, on a fully tax-equivalent basis, increased by $2.4 million, or 20.0%, reaching $14.1 million for the three months ended March 31, 2025. This substantial growth was a direct result of favorable shifts in both asset yields and funding costs. The net interest margin expanded considerably to 2.58% in Q1 2025, up from 2.11% in Q1 2024. This expansion was driven by a 21-basis point increase in the yield on the loan portfolio, which reached 5.39%, largely attributable to higher yields on the commercial real estate portfolio. Concurrently, interest expense decreased by $2.0 million, reflecting a reduction in deposit rates following decreases in benchmark interest rates that began in September 2024, as well as a decrease in borrowing volume.

While net interest income saw strong growth, non-interest income experienced a decrease of $313 thousand, falling to $505 thousand in the first quarter of 2025. This decline was primarily due to unfavorable mark-to-market adjustments on investments related to the nonqualified deferred compensation plan, decreased gains from the sale of SBA 7a loans due to lower activity, a reduction in swap fee income, and lower insurance commissions. Non-interest expenses increased by $324 thousand, or 4.1%, driven mainly by a 6.0% increase in salaries and employee benefits related to the hiring of additional personnel, including new business development officers. Investments in technology also contributed to increased furniture and equipment expenses and data processing costs, although these were partially offset by reduced occupancy costs from branch relocation.

Asset Quality and Loan Portfolio Dynamics

JMSB continues to demonstrate strong asset quality, a critical factor for a regional bank. As of March 31, 2025, the company reported no nonperforming assets or nonperforming loans. This represents an improvement from December 31, 2024, when the company had one loan totaling $9.98 million that was 90 days past due but still accruing interest, which subsequently paid off in full in January 2025.

The loan portfolio, net of unearned income, remained relatively stable at $1.87 billion as of March 31, 2025, compared to December 31, 2024. The composition saw some shifts, with funded construction and land development loans increasing by $8.3 million, while funded commercial loans decreased by $8.4 million. Real estate loans, including commercial, construction, and residential, continue to dominate the portfolio, representing over 97% of total gross loans.

The allowance for loan credit losses stood at $18.8 million, or 1.01% of outstanding loans, as of March 31, 2025, a slight increase from 1.00% at December 31, 2024. The company recorded a $170 thousand provision for credit losses in Q1 2025, contrasting with a $776 thousand recovery in Q1 2024. This provision was attributed to changes in loss driver analysis, portfolio composition (specifically the growth in construction loans), and qualitative factors, despite the continued strong credit performance observed. Management believes the current allowance is adequate to cover expected lifetime credit losses inherent in the portfolio.

Funding, Liquidity, and Capital Strength

A stable deposit base remains the primary source of funding and liquidity for John Marshall Bancorp. Total deposits increased by $29.8 million, or 1.6%, reaching $1.92 billion as of March 31, 2025. Non-interest bearing demand deposits saw a modest increase, representing 22.8% of total deposits. Core deposits, which the company emphasizes for growth, constituted 84.8% of total deposits.

Uninsured deposits, defined as deposits exceeding $250,000, were estimated at $819.1 million as of March 31, 2025, representing 37.0% of total deposits not insured or collateralized. This level of uninsured deposits is a factor to monitor, although a portion ($167.8 million) consists of collateralized public fund deposits.

Beyond its deposit base, JMSB maintains significant supplemental liquidity resources. As of March 31, 2025, the company had $401.0 million in available borrowing capacity with the Federal Home Loan Bank (FHLB) and approximately $107.1 million available at the Federal Reserve discount window. Additionally, $110.0 million in federal funds lines of credit with correspondent banks were available. Total liquidity, encompassing cash, unencumbered securities, and available secured borrowing capacity, amounted to a robust $786.9 million.

The company's capital position remains strong, with the Bank categorized as well capitalized under regulatory standards as of March 31, 2025. Shareholders' equity increased by $6.3 million, or 2.6%, to $253.0 million, primarily driven by net income and a decrease in accumulated other comprehensive loss due to lower interest rates. Book value per share increased to $17.72. The company also demonstrated a commitment to shareholder returns by increasing its annual cash dividend by 20% to $0.30 per share and continuing its stock repurchase program, under which it repurchased 2,639 shares in Q1 2025.

Strategic Initiatives and Outlook

John Marshall Bancorp's strategic focus remains centered on driving growth within its core DC Metro market, particularly within the small to medium-sized business segment. Recent initiatives underscore this commitment. The company has expanded its commercial team with key hires, including a Senior Vice President and Director of Business Banking and a Commercial Team Lead in Prince William County. These hires are intended to bolster the Bank's business banking platform and regional presence, specifically targeting commercial businesses and trade contractors.

A significant part of this strategy involves enhancing support for small businesses through its partnership with the U.S. Small Business Administration (SBA). The recent addition of the SBA Express product suite is designed to provide quicker access to funds and simplify the application process for small businesses, leveraging the SBA 7(a) program's guarantee feature. These operational expansions and strategic hires signal the company's intent to capture additional market share and drive loan growth in its target segments.

While specific quantitative forward-looking guidance figures are not provided, the strategic actions taken, coupled with the strong Q1 2025 performance driven by margin expansion and asset quality, suggest a focus on leveraging the current interest rate environment and maintaining credit discipline to drive future profitability. The proposed 2025 Stock Incentive Plan, pending shareholder approval, also indicates a commitment to attracting and retaining talent to support long-term growth objectives.

Risks and Challenges

Despite the positive recent performance, John Marshall Bancorp faces inherent risks common to the banking industry and specific to its market and operations. Concentration risk in the Washington, D.C. metropolitan area makes the company susceptible to adverse changes in the local economic, political, and environmental conditions, including potential reductions in U.S. Government spending.

Credit risk remains a key consideration, particularly concerning the adequacy of the allowance for loan credit losses. While asset quality is currently strong, changes in economic conditions or the circumstances of specific borrowers could necessitate future adjustments to the provision for credit losses. Interest rate risk could impact net interest margin if the rate environment shifts unfavorably, although the recent repricing dynamics have been beneficial. Liquidity risk, while currently well-managed with ample borrowing capacity, could be affected by unexpected deposit outflows or disruptions in funding markets.

Increased competition from other financial institutions and fintech companies poses a challenge to loan and deposit growth and could pressure margins. Technological risks, including cyber threats, are also a constant concern requiring ongoing investment and vigilance. Regulatory changes and compliance requirements could impact operations and capital requirements.

Conclusion

John Marshall Bancorp's first quarter 2025 results highlight a compelling narrative of a focused regional bank successfully capitalizing on the current economic environment. The significant expansion in net interest margin, driven by effective management of asset yields and funding costs, underscores the company's operational strength. Coupled with consistently strong asset quality, this performance provides a solid foundation.

The strategic initiatives, particularly the expansion of the commercial team and enhanced SBA lending programs, demonstrate a clear path for future growth within its targeted DC Metro market. While facing competitive pressures from larger, more technologically advanced institutions, JMSB's emphasis on relationship banking and local expertise provides a valuable differentiator. For investors, JMSB presents a well-capitalized regional bank with improving profitability metrics and a clear strategy for growth, balanced against the inherent risks of a concentrated market and the need for continued investment in technology to remain competitive. The recent increase in the annual dividend further signals management's confidence and commitment to shareholder returns.