Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the consolidated financial condition and results of operations of the Company and its subsidiary should be read in conjunction with the consolidated financial statements and related notes presented in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not be indicative of results of operations or trends in operations for any future periods.
Use of Non-GAAP Financial Measures
This discussion and analysis contains financial information determined by methods other than in accordance with GAAP. Management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. Non-GAAP measures used in this report consist of tax-equivalent net interest income and net interest margin.
These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis.
Overview
John Marshall Bancorp, Inc. is a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of the Company are performed through its only subsidiary, John Marshall Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.
As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan credit losses to absorb lifetime losses on existing loans. The Bank establishes and maintains this allowance by recording a provision for loan credit losses against earnings. In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, merchant services fee income, swap fee income and gain on sale of the guaranteed portion of U.S. Small Business Administration (“SBA”) 7(a) loans.
Net income for the year ended December 31, 2025 was $21.2 million ($1.49 per diluted common share) compared to $17.1 million ($1.20 per diluted common share) for the year ended December 31, 2024, representing a 24.0% and 24.2% increase in net income and earnings per diluted common share, respectively. The increase during 2025 was driven by a $9.5 million increase in net interest income, which was partially offset by a $2.1 million increase in provision for credit losses and a $1.8 million increase in non-interest expense. The increase in net interest income was driven primarily by the decrease in
45
Table of Contents
rates of interest-bearing deposits coupled with increases in average balances and yields of the loan portfolio. The net interest margin for the twelve months ended December 31, 2025 was 2.68% as compared to 2.28% for the same period in the prior year. An improvement in net interest margin during the current year was attributable to management’s proactive approach in repricing deposits concurrently with each of the three federal funds rate cuts totaling 75 basis points since September 2025 through December 2025. Higher provision for credit losses during the twelve months ended December 31, 2025 was primarily a result of the growth in the loan portfolio and the related changes in the portfolio mix, coupled with the impact of the charge-off of the unguaranteed portion of one commercial business SBA 7(a) loan during the fourth quarter of 2025 and management’s assessment of the qualitative adjustments reflecting changing local economic conditions monitored throughout the year. An increase in non-interest expense during the current year as compared to the prior year was primarily attributable to an increase in salaries and employee benefits, which was mainly associated with the higher headcount within the Company and an increase in incentive compensation tied to the Company’s operating performance. The investments made to expand the headcount during the current year are expected to contribute to the future growth of the Company and subsequent increases in revenues. The increase in incentive compensation reflected the 24% year-over-year increase in net income and the fact that the Company’s operating performance for 2025 exceeded the budget and strategic plan.
The results for 2025 reflect the following:
46
Table of Contents
At December 31, 2025, the allowance for credit losses was $19.8 million or 1.00% of outstanding loans compared to $18.7 million or 1.00% of outstanding loans at the end of 2024. The increase in the allowance during the year compared to the previous year was primarily driven by the growth of the loan portfolio along with management’s adjustments of qualitative factors related to economy and loan portfolio concentrations. As of December 31, 2025, the Company had no non-accrual loans and no other real estate owned assets.
FHLB advances remained unchanged at $56.0 million as of December 31, 2025 compared to December 31, 2024. The three FHLB advances have a weighted average fixed interest rate of 3.99%. In addition to outstanding FHLB advances, total borrowings as of December 31, 2025 included subordinated debt totaling $24.9 million. The Company’s balance sheet remains highly liquid. The Company’s liquidity position, defined as the sum of cash, unencumbered securities and available secured borrowing capacity, totaled $827.0 million as of December 31, 2025 compared to $727.3 million as of December 31, 2024, respectively. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at December 31, 2025. At December 31, 2025, total cash and cash equivalents were $130.0 million, an increase of $7.5 million or 6.1% compared to December 31, 2024.
Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The ratio of common equity to assets increased to 12.2% at December 31, 2025, compared to 11.9% at December 31, 2024. At December 31, 2025, the Company had a total risk-based capital ratio of 16.3%, a common equity tier 1 risk-based capital ratio of 15.2%, a tier 1 risk-based capital ratio of 15.2%, and a tier 1 leverage ratio of 12.5%, all above the “well-capitalized” regulatory requirement levels.
47
Table of Contents
Selected Financial Data
The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of December 31, 2025 and 2024 and the selected income statement data for the years ended December 31, 2025 and 2024 have been derived from our audited consolidated financial statements included elsewhere in this Form 10-K and should be read in conjunction with the other information contained in this Form 10-K, including the information contained within this “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 – Financial Statements and Supplementary Data.”
As of or for the Twelve Months Ended
Balance Sheet Data:
Allowance for loan credit losses 19,805 18,715
Asset Quality Data:
Allowance for loan credit losses to nonperforming assets 18.3 x 1.9 x
Non-performing assets to total assets 0.05 % 0.45 %
Non-performing loans to total loans 0.05 % 0.53 %
Capital Ratios (Bank level):
Equity-to-total assets ratio 12.2 % 11.9 %
Total risk-based capital ratio 16.3 % 16.2 %
Tier 1 risk-based capital ratio 15.2 % 15.2 %
Common equity tier 1 ratio 15.2 % 15.2 %
Income Statement Data:
Provision for (recovery of) credit losses 1,688 (370)
Per Share Data and Shares Outstanding:
Earnings per share, basic $ 1.49 $ 1.20
Earnings per share, diluted $ 1.49 $ 1.20
Book value per share $ 18.69 $ 17.28
Performance Ratios:
Return on average assets(1) 0.93 % 0.76 %
Return on average equity (2) 8.26 % 7.16 %
Net interest margin 2.68 % 2.28 %
Non-interest expense to average assets(3) 1.48 % 1.41 %
48
Table of Contents
(1) ROAA is calculated by dividing net income by year-to-date average assets.
(2) ROAE is calculated by dividing net income by year-to-date average equity.
Critical Accounting Policies and Estimates
The Company’s accounting and reporting policies conform to GAAP, as well as general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.
The following is a discussion of a critical accounting policy and significant estimate that require us to make complex and subjective judgments. Additional information about this policy can be found in Note 1 of our consolidated financial statements included in Item 8 of this Form 10-K.
Allowance for Loan Credit Losses
The allowance for loan credit losses represents an amount which, in management's judgment, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The allowance for loan credit losses is measured and recorded upon the initial recognition of a financial asset. The allowance for loan credit losses is reduced by charge-offs, net of recoveries of previous charge-offs, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statements of Income.
The Company utilizes a discounted cash flow model to estimate its current expected credit losses. For the purposes of calculating its quantitative reserves, the Company has segmented its loan portfolio based on loans which share similar risk characteristics. Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of economic variables, such as unemployment rates, home price indices, and/or gross domestic product, to adjust its loss rates over a reasonable and supportable forecast period of one year. A straight-line reversion technique is used for the following four quarters, at which time the Company reverts to historical averages. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider qualitative factors, including but not limited to: variability in the economic forecast, changes in volume and severity of adversely classified loans, changes in concentrations of loan portfolio, changes in the nature and volume of the loan segments, factors related to credit administration, and other idiosyncratic risks not embedded in the data used in the model.
Loans that do not share similar risk characteristics are evaluated on an individual basis. The Company designates individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk and loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit loss model (“CECL,”) for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
Accounting Pronouncements Adopted During the Current Year
For further information regarding accounting pronouncements adopted during the current year, refer to Note 1— Nature of Business and Summary of Significant Accounting Policy in the Notes to the Consolidated Financial Statements.
49
Table of Contents
Pending Accounting Pronouncements
Refer to Note 1— Nature of Business and Summary of Significant Accounting Policy in the Notes to the Consolidated Financial Statements for more details regarding pending accounting pronouncements.
Results of Operations – Years Ended December 31, 2025 and December 31, 2024
Net Interest Income and Net Interest Margin
Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings, and is the Company’s primary revenue source. Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings. The Company’s interest-earning assets include loans, investment securities and interest-bearing deposits in other banks, while our interest-bearing liabilities include interest-bearing deposits and borrowings. Net interest margin represents the difference between interest received and interest paid as a percentage of average total interest-earning assets. Management seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through management’s asset and liability management policies. Interest rate risk is managed by monitoring the pricing, maturity, and repricing options of all classes of interest-earning assets and interest-bearing liabilities. Management expects net interest income and net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of the Company’s interest-earning assets and interest-bearing liabilities.
50
Table of Contents
The following table presents the average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the years ended December 31, 2025 and 2024.
Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities
For the Year Ended For the Year Ended
Assets:
Securities:
Loans, net of unearned income(2):
Total non-interest earning assets 13,288 15,630
Liabilities & Shareholders’ Equity:
Interest-bearing deposits:
Federal funds purchased 46 2 4.35 % 28 2 7.14 %
Federal Reserve Bank borrowings — — N/M 51,314 2,451 4.78 %
Other liabilities 17,322 17,261
Shareholders’ equity $ 256,907 $ 239,081
Less: tax-equivalent adjustment 160 159
Interest income/earnings assets 5.01 % 4.91 %
Interest expense/earning assets 2.33 % 2.63 %
Net interest margin 2.68 % 2.28 %
Interest expense/earning assets 2.33 % 2.63 %
(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.
(2) The Company did not have any loans on non-accrual as of December 31, 2025 or December 31, 2024.
(3) Tax-equivalent net interest margin adjusts for differences in tax treatment of interest income sources. The entire tax-equivalent adjustment is attributable to interest income on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the tax-equivalent components.
51
Table of Contents
Net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets. Net interest income, on a tax equivalent basis, is a financial measure that the Company believes provides a more accurate picture of the interest margin for comparative purposes. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure.
Tax-Equivalent Net Interest Income
Year ended
December 31,
(Dollars in thousands) 2025 2024
GAAP Financial Measurements:
Interest Income - Securities and Other Interest-Earning Assets 10,606 13,801
Interest Expense - Borrowings 3,666 4,594
Total Net Interest Income (GAAP) $ 60,564 $ 51,047
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans 151 150
Add: Tax Benefit on Tax-Exempt Interest Income - Securities 9 9
Total Tax Benefit on Tax-Exempt Interest Income (1) $ 160 $ 159
Tax-Equivalent Net Interest Income (Non-GAAP) $ 60,724 $ 51,206
(1) Tax benefit was calculated using the federal statutory tax rate of 21%.
Net interest income increased $9.5 million or 18.6% on a fully tax-equivalent basis for the year ended December 31, 2025. The net interest margin for the year ended December 31, 2025 was 2.68% as compared to 2.28% for the same period in the prior year. These increases in net interest income and net interest margin were driven primarily by the decrease in rates of interest-bearing deposits coupled with increases in average balances and yields of the loan portfolio.
The cost of interest-bearing liabilities was 3.37% for the year ended December 31, 2025 compared to 3.78% for the year ended December 31, 2024. The decrease in the cost of interest-bearing liabilities was primarily due to a 40 basis points decrease in the cost of interest-bearing deposits as a result of the repricing of the Company’s time deposits coupled with a decrease in rates offered on money market, interest-bearing demand deposits and savings deposit accounts since the fourth quarter of 2024.
The yield on interest-earning assets was 5.01% for the twelve months ended December 31, 2025 compared to 4.91% for the same period in 2024. The increase in yield on interest-earning assets was primarily due to a 13 basis point increase in loan yield and an eight basis point increase in securities yield, as a result of higher prevailing interest rates as assets repriced subsequent to the fourth quarter of 2024. Average loans increased $73.1 million between the twelve months ended December 31, 2025 and 2024, which was primarily attributable to origination volume in the construction & development and residential mortgage loan portfolios subsequent to December 31, 2024. These positive contributing factors to the year-over-year increase in the net interest margin were partially offset by lower yields and average balances of interest-bearing deposits in other banks.
The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column
52
Table of Contents
represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to volume.
Rate/Volume Analysis
For the Year Ended December 31,
Increase
(Decrease) Due to
(Dollars in thousands) Volume Rate Total Increase (Decrease)
Interest-earning Assets:
Securities:
Tax-exempt(1) — — —
Loans, net of unearned income:
Tax-exempt(1) (39) 43 4
Total loans, net of unearned income(2) $ 3,980 $ 2,340 $ 6,320
Interest-bearing deposits in other banks $ (1,146) $ (1,648) $ (2,794)
Total interest-earning assets $ 2,231 $ 894 $ 3,125
Interest-bearing Liabilities:
Interest-bearing deposits:
Total interest-bearing deposits $ 247 $ (5,712) $ (5,465)
Federal funds purchased — — —
Subordinated debt 5 (5) —
Federal Reserve Bank borrowings (2,451) — (2,451)
Federal Home Loan Bank advances 1,523 — 1,523
Total interest-bearing liabilities $ (676) $ (5,717) $ (6,393)
(2)The Company did not have any loans on non-accrual as of December 31, 2025 or December 31, 2024.
Interest Income
Interest income increased by $3.1 million or 2.8% to $113.4 million on a fully tax-equivalent basis for the year ended December 31, 2025 compared to $110.3 million for the year ended December 31, 2024, driven by an increase in volume and rates on interest-earning assets. The increase in rates and volume on interest-earning assets was primarily attributable to the Company’s loan portfolio, which was partially offset by the decrease in rate and volume of interest-bearing deposits in other banks.
Fully tax-equivalent interest income on loans increased by approximately $6.3 million or 6.6% primarily as a result of higher volume and rates. Average loans increased approximately $73.1 million, primarily attributable to growth in the construction & development and residential loan portfolios, while loan yields increased 13 basis points between the years ended December 31, 2025 and December 31, 2024.
Interest income on interest-bearing deposits with other banks decreased by approximately $2.8 million or 32.2% primarily as a result of lower rates and volume. Average balances declined approximately $26.5 million, mainly due to fundings of
53
Table of Contents
the new loan originations, while yields decreased 101 basis points as a result of three fed funds rate cuts totaling 75 basis points since December 31, 2024.
Fully tax-equivalent interest income on investment securities decreased by approximately $0.4 million. This decrease was primarily the result of volume decreasing from the amortization and maturities of securities. Average investment securities decreased approximately $29.1 million between the years ended December 31, 2025 and December 31, 2024.
Interest Expense
Interest expense decreased by $6.4 million to $52.7 million for the year ended December 31, 2025 compared to $59.1 million for the year ended December 31, 2024, primarily due to a decrease in rates on interest-bearing deposits coupled with lower average balance of borrowings. The decrease in rates on interest-bearing deposits was mainly due to repricing of the Company’s time deposits as a result of three fed funds rate cuts since December 31, 2024. The decline in average balance of borrowings was driven by the full pay-off of Federal Reserve’s Bank Term Funding Program advance during the third quarter of 2024, which was replaced by lower cost FHLB advances.
Provision Expense
The Company recorded a $1.7 million provision for credit losses for the year ended December 31, 2025 compared to a $0.4 million recovery of provision for the year ended December 31, 2024. The provision for credit losses during the year ended December 31, 2025 was primarily a result of growth of the loan portfolio and the related changes in the portfolio mix, coupled with the impact of the charge-off of the unguaranteed portion of one commercial business SBA 7(a) loan during the fourth quarter of 2025 and management’s assessment of the qualitative adjustments reflecting changing local economic conditions monitored throughout the year.
Non-interest Income
The Company’s recurring sources of non-interest income consist primarily of interchange income, service charges on deposit accounts, gain on sale of government guaranteed loans, and insurance commissions. Generally speaking, loan fees are included in interest income on the loan portfolio and not reported as non-interest income.
The following table summarizes non-interest income for the years ended December 31, 2025 and December 31, 2024.
Year ended
December 31,
(Dollars in thousands) 2025 2024 $ Change % Change
Service charges on deposit accounts
Overdrawn account fees $ 81 $ 84 $ (3) (3.6) %
Account service fees 255 265 (10) (3.8) %
Other service charges and fees
Net gain (loss) on premises and equipment (3) 1 (4) N/M
Gain on sale of government guaranteed loans 322 520 (198) (38.1) %
Non-interest income decreased $197 thousand or 8.7% during the year ended December 31, 2025 compared to the same period of 2024. The decrease was primarily driven by a $198 thousand decrease in the recorded gain on sale of the government guaranteed portion of the SBA 7(a) loans due to lower sale activity along with the $88 thousand decrease in insurance commissions. These decreases were partially offset by a $166 thousand increase to the mark-to-market adjustments on the Company’s NQDC plan and a $37 thousand increase in swap fee income.
54
Table of Contents
Non-interest Expense
Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing banking services. The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.
The following table summarizes non-interest expense for the years ended December 31, 2025 and December 31, 2024.
Year ended
December 31,
(Dollars in thousands) 2025 2024 $ Change % Change
Furniture and equipment expenses 1,285 1,220 65 5.3 %
Advertising expense 381 386 (5) (1.3) %
Supplies, printing, and postage 148 152 (4) (2.6) %
Non-interest expense increased $1.8 million or 5.5% during the year ended December 31, 2025 compared to the same period in 2024 primarily resulting from increases in salaries and employee benefits, data processing service fees, professional fees, and other operating expenses. The $1.5 million or 7.7% increase in salaries and employee benefits was mainly associated with the higher headcount within the Company and an increase in incentive compensation tied to the Company’s operating performance. The investments made to expand the headcount during the current year are expected to contribute to the future growth of the Company and subsequent increases in revenues. Increase in incentive compensation reflected the 24% year-over-year increase in net income and the fact that the Company’s operating performance for 2025 exceeded the budget and strategic plan. The $168 thousand or 7.7% increase in data processing service fees was primarily due to contractual increases and volume-based activity. Professional fees increased $145 thousand or 14.5% for the period, driven primarily by higher consulting fees. These increases were partially offset by a decrease in the Company’s occupancy expense, which declined by $216 thousand or 12.3%, due to a decrease in office rent as a result of the renegotiation of more favorable terms on certain leases.
Income Taxes
Income tax expense increased $1.4 million or 29.3% to $6.2 million for the year ended December 31, 2025 compared to $4.8 million for the year ended December 31, 2024. Our effective tax rate for the year ended December 31, 2025 was 22.5% compared to 21.7% for the year ended December 31, 2024. The increase in the effective tax rate between the comparative periods was primarily driven by higher permanent differences, the most significant component of which was the increased disallowance of compensation under Internal Revenue Code Section 162(m).
55
Table of Contents
Discussion and Analysis of Financial Condition – Years Ended December 31, 2025 and December 31, 2024
Assets, Liabilities, and Shareholders’ Equity
The Company’s total assets increased $97.6 million or 4.4% to $2.33 billion at December 31, 2025 compared to $2.23 billion at December 31, 2024. The increase in total assets is primarily attributable to the growth of the loan portfolio, which increased $103.2 million or 5.5% since December 31, 2024.
The Company’s total liabilities increased $78.6 million or 4.0% to $2.07 billion at December 31, 2025 compared to $1.99 billion at December 31, 2024, which was driven by the $49.9 million and $40.2 million increases in time deposits and interest-bearing demand deposits, respectively.
Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The year-over-year change in book value per share was primarily due to the Company’s earnings over the previous twelve months and a decrease in accumulated other comprehensive loss, resulting from an increase in the market value of our available-for-sale investment portfolio. This increase was partially offset by the cash dividend paid and the increased share count from shareholder option exercises and restricted share award issuances. The share issuances were partially offset by the Company’s share repurchases during the period.
Investment Securities
The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $212.3 million at December 31, 2025 and $222.3 million at December 31, 2024. The investment portfolio is used as a source of liquidity, interest income, and credit risk diversification, as well as to manage rate sensitivity and provide collateral for secured public funds and secured credit lines. Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale. The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $7.6 million and $2.8 million, respectively, at both December 31, 2025 and December 31, 2024.
The Company purchased $32.3 million of investment securities during the year ended December 31, 2025, which were comprised of $30.3 million of mortgage-backed securities, $1.0 million of collateralized mortgage obligation securities and $1.0 million of U.S. agency securities. The Company did not sell any investment securities during the year ended December 31, 2025. The Company had $47.0 million in maturities and principal repayments on securities during the year ended December 31, 2025. Maturities consisted of $14.8 million in U.S. treasuries, $5.0 million in U.S. agency securities, and $0.3 million in municipal-taxable securities. Principal repayments consisted of $19.3 million of mortgage-backed securities and $7.6 million of collateralized mortgage obligation securities.
56
Table of Contents
The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of December 31, 2025 and December 31, 2024, respectively.
Amortized Fair Amortized Fair
(Dollars in thousands) Cost Value Cost Value
Held-to-maturity
Available-for-sale
Taxable municipal — — 270 263
In the prevailing rate environments as of both December 31, 2025 and December 31, 2024, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 3.9 years and 4.2 years, respectively. The Company’s available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 3.1 years in the prevailing rate environments at both December 31, 2025 and December 31, 2024. The held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 5.2 years and 6.0 years as of December 31, 2025 and December 31, 2024, respectively.
The following table summarizes the maturity composition of our investment securities as of December 31, 2025, including the weighted average yield of each maturity range. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.
Amortized Fair Weighted-Average
(Dollars in thousands) Cost Value Yield
Held-to-maturity
Due in one year or less $ — $ — —
Available-for-sale
Loan Portfolio
Gross loans net of unearned income increased $103.2 million or 5.5% to $1.98 billion as of December 31, 2025 compared to $1.87 billion as of December 31, 2024. The increase in loans from December 31, 2025, was primarily attributable to
57
Table of Contents
growth in construction & development loans and residential mortgage loans, partially offset by a decline in commercial owner-occupied real estate loans. All other portfolios remained relatively unchanged during 2025. The Company continues to maintain its disciplined underwriting standards while prudently pursuing loan growth opportunities that provide acceptable risk-adjusted returns.
The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of December 31, 2025 and December 31, 2024.
(Dollars in thousands) Amount Percent Amount Percent
Real Estate Loans:
Commercial - Non Real Estate:
Consumer - Non-Real Estate:
Allowance for loan credit losses (19,805) (18,715)
Net deferred loan costs 5,084 4,521
The following table summarizes the contractual maturities of the loans as of December 31, 2025 by loan type. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The table also summarizes the fixed and floating rate composition of loans held for investment for contractual maturities greater than one year.
After 1 After 5
Year years Maturing
Within 1 Within 5 Within 15 After 15
(Dollars in thousands) Year Years Years Years Total
Real Estate Loans:
Commercial - Non-Real Estate:
Consumer - Non-Real Estate:
For Maturities Over One Year:
Asset Quality
The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions.
58
Table of Contents
The Company’s asset quality remained strong during the year ended December 31, 2025. The Company had no non accrual loans and OREO as of December 31, 2025 and December 31, 2024. During the twelve months ended December 31, 2025, the Company charged-off one commercial business SBA 7(a) loan in the total amount of $361 thousand. The charged-off amount represented the unguaranteed portion of the loan. The Company has submitted a reimbursement claim to the SBA for the guaranteed portion of the loan in the amount of $1.1 million and expects to be paid in full by the end of the first quarter of 2026. The guaranteed portion of the loan was 90 days past due and still accruing interest as of December 31, 2025. The Company had one loan that was 90 days past due and still accruing interest as of December 31, 2024. The loan paid off, in full, on January 7, 2025.
The Company did not have any nonaccrual loans as of December 31, 2025 or December 31, 2024 nor were there any loans placed on nonaccrual during those periods. A loan is placed on nonaccrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection. As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the years ended December 31, 2025 or December 31, 2024.
The Company did not make any loan modifications to borrowers experiencing financial difficulty during the twelve months ended December 31, 2025.
The following table summarizes the Company’s asset quality as of December 31, 2025 and December 31, 2024.
(Dollars in thousands) December 31, 2025 December 31, 2024
Nonaccrual loans $ — $ —
Loans past due 90 days and accruing interest 1,084 9,978
Other real estate owned and repossessed assets — —
Total nonperforming assets $ 1,084 $ 9,978
Allowance for loan credit losses to nonperforming assets 18.3 x 1.9 x
Nonaccrual loans to total loans 0.00 % 0.00 %
Nonperforming loans to total loans 0.05 % 0.53 %
Allowance for Loan Credit Losses
Refer to the discussion in the “Critical Accounting Policies and Estimates” section above for management’s approach to estimating the allowance for loan credit losses.
The Company recorded net charge-offs of $359 thousand during the year ended December 31, 2025 compared to net recoveries of $2 thousand during the year ended December 31, 2024. At December 31, 2025, the allowance for loan credit losses was $19.8 million, or 1.00% of outstanding loans, net of unearned income, compared to $18.7 million, or 1.00% of outstanding loans, net of unearned income, at December 31, 2024. The increase in the allowance for loan credit losses during the current year is predominantly attributable to the growth of the loan portfolio along with the impact of management’s assessment of qualitative factors, mainly related to the evaluation of the existing local economic conditions, as well as considerations of the concentrations of the Company’s loan segments. These factors contributing to an increase in allowance for credit losses were partially offset by the previously mentioned charge-off of the commercial business SBA 7(a) loan.
The following table summarizes the Company’s loan credit loss experience by loan portfolio for the years ended December 31, 2025 and December 31, 2024.
59
Table of Contents
Year Ended
Net Net Net Net
(charge-offs) (charge-off) (charge-offs) (charge-off)
Real estate loans:
Commercial $ — — $ — —
Construction and land development — — — —
Residential — — — —
Consumer loans — — — —
Total $ (359) $ 2
Allowance coverage ratio (2) 1.00 % 1.00 %
Total net (charge-off) recovery rate (0.02) % 0.00 %
Allowance to nonaccrual loans ratio (3) N/M N/M
NM – Not meaningful
The following table summarizes the allowance for loan credit losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan credit losses and total loans as of December 31, 2025 and December 31, 2024.
Allowance Percent of Allowance Percent of Loans in
for Loan Credit in Each Category to Each Category to Total
(Dollars in thousands) Losses Total Allocated Allowance Loans
Real Estate Loans:
Commercial - Non-Real Estate:
Consumer - Non-Real Estate:
60
Table of Contents
Allowance Percent of Allowance Percent of Loans in
for Loan Credit in Each Category to Each Category to Total
(Dollars in thousands) Losses Total Allocated Allowance Loans
Real Estate Loans:
Construction and land development 1,761 9.41 % 8.83 %
Commercial - Non-Real Estate:
Consumer - Non-Real Estate:
Management believes that the allowance for loan credit losses is adequate to absorb lifetime credit losses inherent in the portfolio as of December 31, 2025. There can be no assurance, however, that adjustments to the provision for (recovery of) credit losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for (recovery of) credit losses necessary.
Deposits
Total deposits increased $79.9 million or 4.2% to $1.97 billion as of December 31, 2025 compared to $1.89 billion as of December 31, 2024.
Non-interest bearing demand deposits decreased $0.6 million or 0.1% to $432.7 million as of December 31, 2025 compared to $433.3 million at December 31, 2024. Non-interest bearing demand deposits represented 21.9% and 22.9% of total deposits at December 31, 2025 and December 31, 2024, respectively.
Interest-bearing deposits, which include NOW accounts, savings accounts, money market accounts, and time deposits, increased $80.4 million or 5.5% to $1.54 billion as of December 31, 2025 compared to $1.46 billion as of December 31, 2024. Interest-bearing deposits represented 78.1% and 77.1% of total deposits at December 31, 2025 and December 31, 2024, respectively.
The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits. Core deposits consist of checking accounts, NOW accounts, money market accounts, savings accounts, time deposits, reciprocal IntraFi Demand® deposits, IntraFi Money Market® deposits and IntraFi CD® deposits. Core deposits totaled $1.67 billion or 84.7% of total deposits and $1.62 billion or 85.4% of total deposits at December 31, 2025 and December 31, 2024, respectively.
61
Table of Contents
The following table sets forth the average balances of deposits and the average interest rates paid for the years ended December 31, 2025 and 2024.
Average Average
(Dollars in thousands) Amount Rate Amount Rate
Interest bearing:
The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2025.
(Dollars in thousands) Total Uninsured
The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $853.4 million at December 31, 2025 and $816.7 million at December 31, 2024. Included in these amounts were $161.8 million and $157.4 million of public fund deposits that are collateralized by securities as of December 31, 2025 and December 31, 2024, respectively. Deposits that were not insured or not collateralized by securities represented 35.1% of total deposits at both December 31, 2025 and December 31, 2024.
Capital Resources
The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act. As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory requirements.
The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision.
Note 16 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements.
Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The year-over-year change in book value per share was primarily due to the Company’s earnings over the previous twelve months and a decrease in accumulated other comprehensive loss, resulting from an increase in the market value of our available-for-sale investment portfolio. This increase was partially offset by the cash dividend paid and increased share count from shareholder option exercises and restricted share award issuances. The share issuances were partially offset by the Company’s share repurchases during the period.
In August of 2025, the Company’s Board of Directors authorized the extension of the Company’s stock repurchase program that was originally adopted in August of 2021. Under the stock repurchase program, the Company may repurchase
62
Table of Contents
up to 700,000 shares of its common stock, par value of $0.01 per share, or approximately 5% of its outstanding shares of common stock. The stock repurchase program will expire on August 31, 2026, or earlier if all the authorized shares have been repurchased. During the twelve months ended December 31, 2025, the Company repurchased 135,640 shares of its outstanding common stock at a weighted average price of $17.80. The aggregate repurchase activity was accretive to the Company’s book value per share.
Liquidity
Liquidity reflects a financial institution’s ability to fund assets and meet current and future financial obligations. Liquidity is essential in all banks to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth. Monitoring and managing both liquidity measurements is critical in developing prudent and effective balance sheet management. Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn.
The Company’s principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Company’s lending and investment activities is determined through monitoring loan demand.
In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as secured borrowing credit lines with the FHLB and the Federal Reserve Bank. Specifically, the Company has pledged a portion of its loan portfolio to the FHLB and the Federal Reserve Bank. Based on collateral pledged as of December 31, 2025, the total FHLB available borrowing capacity was $454.8 million. Additional borrowing capacity with the Federal Reserve Bank was approximately $139.5 million as of December 31, 2025. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at December 31, 2025.
FHLB advances remained unchanged at $56.0 million as of December 31, 2025 compared to December 31, 2024. The three FHLB advances have a weighted average fixed interest rate of 3.99%. In addition to outstanding FHLB advances, total borrowings as of December 31, 2025 included subordinated debt totaling $24.9 million.
Total liquidity, defined as cash and cash equivalents, unencumbered securities at fair value, and available secured borrowing capacity, was $827.0 million at December 31, 2025 compared to $727.3 million at December 31, 2024. The Company’s liquidity position represented 119.6% of uninsured, non-collateralized deposits at December 31, 2025.
Liquidity is a core pillar of the Company’s operations. Conditions may arise in the future that could negatively impact the Company’s future liquidity position resulting in funding mismatches. These include market constraints on the ability to convert assets into cash or accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks also can affect a bank’s liquidity. Management maintains that the Company has a strong liquidity position, but any of the factors referenced above could materially impact that in the future.
The Company has various contractual obligations that affect its cash flows and liquidity. For information regarding material contractual obligations, please see Note 7, Note 8 and Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K.
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors. For further information, see Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.
63
Table of Contents
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 8.Financial Statements and Supplementary Data
John Marshall Bancorp, Inc. Audited Consolidated Financial Statements:
Page
Report of Independent Registered Public Accounting Firm 65
Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 66
Notes to the Consolidated Financial Statements 71
64
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
John Marshall Bancorp, Inc.
Reston, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of John Marshall Bancorp, Inc. and its subsidiary (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company's auditor since 2008.
Richmond, Virginia
March 13, 2026
65
Table of Contents
John Marshall Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2025 and 2024
(In thousands, except share and per share data)
Assets
Cash and due from banks $ 6,492 $ 5,945
Securities available-for-sale, at fair value 123,852 130,257
Restricted securities, at cost 7,644 7,634
Equity securities, at fair value 2,843 2,832
Less: Allowance for loan credit losses (19,805) (18,715)
Bank premises and equipment, net 1,315 1,318
Accrued interest receivable 5,890 5,996
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Commitments and contingencies (Note 11)
Shareholders’ Equity
Accumulated other comprehensive loss (7,115) (10,652)
See Notes to Consolidated Financial Statements.
66
Table of Contents
John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
Years Ended December 31, 2025 and 2024
(In thousands, except per share data)
Year ended
December 31,
Interest and Dividend Income
Interest on investment securities, taxable 4,198 4,692
Interest on investment securities, tax-exempt 36 36
Interest on deposits in banks 5,888 8,682
Interest Expense
Federal funds purchased 2 2
Federal Home Loan Bank advances 2,268 745
Federal Reserve Bank borrowings — 2,451
Provision for (recovery of) credit losses 1,688 (370)
Non-interest Income
Service charges on deposit accounts $ 336 $ 349
Other service charges and fees 571 655
Insurance commissions 328 416
Gain on sale of government guaranteed loans 322 520
Non-qualified deferred compensation plan asset gains, net 402 236
Total non-interest income $ 2,074 $ 2,271
Non-interest Expenses
Salaries and employee benefits $ 20,729 $ 19,240
Occupancy expense of premises 1,544 1,760
Furniture and equipment expenses 1,285 1,220
Total non-interest expenses $ 33,567 $ 31,809
Earnings per share, basic $ 1.49 $ 1.20
Earnings per share, diluted $ 1.49 $ 1.20
See Notes to Consolidated Financial Statements.
67
Table of Contents
John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2025 and 2024
(In thousands)
Year ended
December 31,
Other comprehensive income:
Total other comprehensive income $ 3,537 $ 1,599
See Notes to Consolidated Financial Statements.
68
Table of Contents
John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2025 and December 31, 2024
(In thousands, except share and per share data)
Accumulated
Other Total
Additional Paid- In Retained Comprehensive Shareholders’
Shares Common Stock Capital Earnings (Loss) Equity
Other comprehensive income — — — — 1,599 1,599
Repurchase of common stock (3,003) — (49) — — (49)
Share-based compensation — — 555 — — 555
Other comprehensive income — — — — 3,537 3,537
Share-based compensation — — 527 — — 527
See Notes to Consolidated Financial Statements.
69
Table of Contents
John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2025 and 2024
(In thousands)
Year ended
December 31,
Cash Flows from Operating Activities
Right of use asset amortization 1,011 1,235
Provision for (recovery of) credit losses 1,688 (370)
Share-based compensation expense 527 555
Net accretion of securities (203) (302)
Fair value adjustment on equity securities (402) (236)
Amortization of debt issuance costs 84 83
Net loss (gain) on premises and equipment 3 (1)
Deferred tax benefit (162) (284)
Gain on sale of government guaranteed loans (322) (520)
Changes in assets and liabilities:
Decrease in accrued interest receivable 106 114
Decrease in other assets 677 4,150
Decrease in accrued interest payable (270) (2,165)
Decrease in other liabilities (1,893) (2,568)
Net cash provided by operating activities $ 22,584 $ 17,259
Cash Flows from Investing Activities
Purchase of available-for-sale securities (32,320) —
Net purchases of restricted securities (10) (2,622)
Net proceeds from equity securities 391 196
Proceeds from sale of premises and equipment 47 —
Purchases of bank premises and equipment (554) (483)
Net cash (used in) provided by investing activities $ (88,676) $ 30,965
Cash Flows from Financing Activities
Net increase (decrease) in deposits $ 79,870 $ (14,185)
Net proceeds of Federal Home Loan Bank advances — 56,000
Repayment of Federal Reserve Bank borrowings — (54,000)
Cash dividends paid (4,271) (3,558)
Repayment of federal funds purchased — (10,000)
Issuance of common stock for share options exercised 446 1,053
Repurchase of common stock (2,419) (49)
Net cash provided by (used in) financing activities $ 73,597 $ (24,760)
Net increase in cash and cash equivalents $ 7,505 $ 23,464
Cash and cash equivalents, beginning of period 122,469 99,005
Cash and cash equivalents, end of period $ 129,974 $ 122,469
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Income taxes - U.S. Federal 5,195 1,320
Income taxes - U.S. State and Local - Maryland 346 —
Income taxes - U.S. State and Local - Other 192 —
Total income taxes paid 5,733 1,320
Supplemental Disclosures of Noncash Transactions
Unrealized gain on securities available-for-sale $ 4,514 $ 2,112
See Notes to Consolidated Financial Statements.
70
Table of Contents
Note 1— Nature of Business and Summary of Significant Accounting Policy
Nature of Banking Activities
John Marshall Bancorp, Inc. (the “Company”), headquartered in Reston, Virginia, became the registered bank holding company under the Bank Holding Company Act of 1956 for its wholly-owned subsidiary, John Marshall Bank (the “Bank”), on March 1, 2017. This reorganization was completed through a one-for-one share exchange in which the Bank’s shareholders received one share of voting common stock of the Company in exchange for each share of the Bank’s voting common stock.
The Company was formed on April 21, 2016 under the laws of the Commonwealth Virginia. The Bank formed on April 5, 2005 under the laws of the Commonwealth of Virginia and was chartered as a bank on February 9, 2006, by the Virginia Bureau of Financial Institutions. The Bank is a member of the Federal Reserve System and is subject to the rules and regulations of the Virginia Bureau of Financial Institutions, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank opened for business on April 17, 2006 and provides banking services to its customers primarily in the Washington, D.C. metropolitan area.
The accounting and reporting policies of John Marshall Bancorp, Inc. conform to generally accepted accounting principles in the United States of America and reflect practices of the banking industry. The significant accounting policies are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.
Segment Reporting
The Company has one operating segment, the Bank, and has determined that it meets the aggregation criteria of ASC 280 Segment Reporting, as its current operating model is structured whereby all product offerings are managed through similar processes and platforms that are collectively reviewed by the Company’s President/Chief Executive Officer and Chief Financial Officer, who have been identified as the chief operating decision makers (“CODMs”).
The CODMs regularly assesses performance of the aggregated single operating and reporting segment and decide how to allocate resources based on net income calculated on the same basis as is reported in the Company’s consolidated statements of income and comprehensive income. The CODMs are also regularly provided with expense information at a level consistent with that disclosed in the Company’s statements of income and comprehensive income.
Restriction on Dividends
The Bank is subject to certain restrictions on the amount of dividends that it may pay to the Company without prior regulatory approval. At December 31, 2025, the Bank had $27.8 million available to distribute in the form of dividends to the Company.
Significant Accounting Policies
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan credit losses.
71
Table of Contents
Reclassifications
Certain items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
Concentration of Credit Risk
Most of the Company’s activities are with customers located in the Washington, D.C. metropolitan area. Real estate loans, including commercial, construction and land development, and residential loans, represented 97% of the total loan portfolio at both December 31, 2025 and December 31, 2024. The Company does not have any significant concentrations to any one industry or customer.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits in banks (items with an original maturity of three months or less).
Securities
Certain debt securities that management has the positive intent and ability to hold-to-maturity are classified as “held-to-maturity” and recorded at amortized cost. Debt securities not classified as held-to-maturity or trading, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported net of deferred tax in accumulated other comprehensive income (loss) within shareholders’ equity. Purchase premiums and discounts on debt securities are recognized in interest income using the interest method over the terms of the securities.
Transfers of debt securities into the held-to-maturity classification from the available-for-sale classification are made at fair value on the date of transfer. The unrealized holding gain or loss on the date of the transfer is reported in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining contractual lives of the securities.
Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in net income. Any equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Restricted equity securities are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value. The entirety of any impairment on the equity securities is recognized in earnings.
Gains and losses on sales of securities are recorded on the trade date and determined using the specific identification method.
Allowance for Credit Losses - Held-to-Maturity Securities
The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a Probability of Default/Loss Given Default (“PD/LGD”) methodology primarily using security-level credit ratings. The primary indicators of credit quality for the Company’s held-to-maturity portfolio are security type and credit rating, which are influenced by a number of factors including obligor cash flow, geography, seniority, among other factors. The Company’s held-to-maturity securities with credit risk are municipal bonds, which had a credit rating of AA or better as of December 31, 2025. All other held-to-maturity securities are covered by the explicit or implied guarantee of the United States government or one of its agencies.
Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit losses in the Consolidated Statements of Income.
Allowance for Credit Losses - Available-for-Sale Securities
Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security
72
Table of Contents
or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specific to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any deficiency is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on available-for-sale securities totaled $347 thousand at December 31, 2025 and was excluded from the estimate of credit losses.
Loans
The Company grants real estate, commercial and consumer loans to customers (representing the Company’s loan segments). A substantial portion of the loan portfolio is represented by commercial real estate loans in the Washington, D.C. metropolitan area. Within the real estate segment, the Company has also identified the residential, commercial and construction classes. The ability of the Company’s debtors to honor their real estate loan contracts is dependent upon the real estate market and general economic conditions in this area, among other factors.
Underwriting and risk characteristics of each loan class are summarized as follows:
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan credit losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of
73
Table of Contents
certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in the process of collection. Other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The determination of days past due or delinquency status uses the first contractual payment date that has not been paid-in-full by the borrower.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses - Loans
The allowance for loan credit losses represents an amount which, in management's judgment, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The allowance for loan credit losses is measured and recorded upon the initial recognition of a financial asset. The allowance for loan credit losses is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statements of Income.
The Company is utilizing a discounted cash flow model to estimate its current expected credit losses. For the purposes of calculating its quantitative reserves, the Company has segmented its loan portfolio based on loans which share similar risk characteristics. Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of loss drivers, which may include unemployment rates, home price indices, and/or gross domestic product, to adjust its loss rates over a reasonable and supportable forecast period of one year. A straight-line reversion technique is used for the following four quarters, at which time the Company reverts to historical averages. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider qualitative factors, including but not limited to: variability in the economic forecast and management’s assessment of the existing economic conditions, changes in volume and severity of adversely classified loans, changes in concentrations of credit, changes in the nature and volume of the loan segments, factors related to credit administration, and other idiosyncratic risks not embedded in the data used in the model.
Loans that do not share risk characteristics are evaluated on an individual basis. The Company designates individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk and loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. The Company has adopted the practical expedient to measure the allowance for credit losses for collateral dependent loans based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
Allowance for Credit Losses – Unfunded Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for (or recovery of) credit losses in the
74
Table of Contents
Consolidated Statements of Income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date using the same methodology as the loan portfolio, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s Consolidated Balance Sheets.
Accrued Interest Receivable
The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the allowance for credit losses for both loans and held-to-maturity securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $5.1 million on loans and $245 thousand on held-to-maturity securities at December 31, 2025, and is included in “Accrued Interest Receivable” on the Company’s Consolidated Balance Sheets.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed on the straight-line method over the useful lives of the assets, ranging from three to fifteen years, or the expected term of leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably certain. Maintenance and repairs of property and equipment are expensed as incurred, while major improvements are capitalized and amortized over their respective useful life.
Other Real Estate Owned (“OREO”)
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Operating costs after acquisition are expensed as incurred. The Company had no OREO as of December 31, 2025 and 2024. At December 31, 2025 and 2024, there were no consumer mortgage loans secured by residential real estate for which formal foreclosure proceedings were in progress.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (a) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in the event of bankruptcy or other receivership, (b) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (c) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Loan Servicing Rights
Under the U.S Small Business Administration (“SBA”) 7(a) program, the Bank can sell in the secondary market the guaranteed portion of its SBA 7(a) loans and retain the related unguaranteed portion of these loans, as well as the servicing on such loans, for which it is paid a fee. The Company generally offers SBA 7(a) loans within a range of $50 thousand to $2.0 million. SBA 7(a) loans are fixed or adjustable rate loans based on the Prime Rate. Under the SBA 7(a) program, the loans carry an SBA guaranty for up to 85% of the loan. Typical maturities for this type of loan vary but can be up to ten years. The Company holds rights to service the guaranteed portion of SBA loans sold in the secondary market. Management has elected the amortization method to account for loan servicing rights. The loan servicing spread is generally a minimum of 1.00% on all SBA 7(a) loans.