# John Marshall Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [John Marshall Bancorp, Inc.](/companies/jmsb.md) (CIK 1710482)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 09:00 ET
- Period: 2024-09-30
- Accession: 0001558370-24-015445
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1710482/000155837024015445/jmsb-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1710482/000155837024015445/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $4.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $12.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.87 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.30 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.87 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 14,214,586 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 14,198,333 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $11.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $231.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $3.6m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $49.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $177.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-09-30 | $2.27bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $2.03bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $80.8m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $243.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 103,023 characters.

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 1, Financial Statements, of this Form 10-Q. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate 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 core net income, core non-interest income, core return on average assets (annualized), core return on average equity (annualized), core dilutive earnings per share, tax-equivalent net interest income and tax-equivalent 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, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis.

### Cautionary Note on Forward-Looking Statements

In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. These forward-looking statements are based on our beliefs and assumptions and on the information available to us at the time that these disclosures were prepared, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to have been correct. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition and results of operations. Factors that could have a material adverse effect on the operations of the Company and the Bank include, but are not limited to, the following:

- the concentration of our business in the Washington, D.C. metropolitan area and the effect of changes in the economic, political and environmental conditions on this market;
- adequacy of our allowance for loan credit losses, allowance for unfunded commitments credit losses, and allowance for credit losses associated with our held-to-maturity and available-for-sale securities portfolios;
- deterioration of our asset quality;
- future performance of our loan portfolio with respect to recently originated loans;
- the level of prepayments on loans and mortgage-backed securities;
- liquidity, interest rate and operational risks associated with our business;
- changes in our financial condition or results of operations that reduce capital;
- our ability to maintain existing deposit relationships or attract new deposit relationships;
- changes in consumer spending, borrowing and savings habits;
- inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments;
- changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve;
- additional risks related to new lines of business, products, product enhancements or services;
- increased competition with other financial institutions and fintech companies;
- adverse changes in the securities markets;
- changes in the financial condition or future prospects of issuers of securities that we own;
- our ability to maintain an effective risk management framework;
- changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements;
- compliance with legislative or regulatory requirements;
- results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for credit losses or to write-down assets or take similar actions;
- potential claims, damages, and fines related to litigation or government actions;
- the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting;
- geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, negatively impacting business and economic conditions in the U.S. and abroad;
- the effects of weather-related or natural disasters, which may negatively affect our operations and/or our loan portfolio and increase our cost of conducting business;
- public health events (such as the COVID-19 pandemic) and governmental and societal responses thereto;
- technological risks and developments, and cyber threats, attacks, or events;
- the additional requirements of being a public company;
- changes in accounting policies and practices;
- our ability to successfully capitalize on growth opportunities;
- our ability to retain key employees;
- deteriorating economic conditions, either nationally or in our market area, including higher unemployment and lower real estate values;
- implications of our status as a smaller reporting company and as an emerging growth company; and
- other factors discussed in Item 1A. Risk Factors in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on March 20, 2024.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary note.

### Overview

We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of our organization are performed through the 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 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 SBA 7(a) loans. In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

As of September 30, 2024, the Company had total consolidated assets of $2.27 billion, total loans net of unearned income of $1.82 billion, total deposits of $1.94 billion and total shareholders’ equity of $243.1 million.

### 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.

Our most significant accounting policies are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our audited financial statements for the year ended December 31, 2023, included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on March 20, 2024.

### 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 September 30, 2024 and September 30, 2023 and the selected income statement data for the three and nine months ended September 30, 2024 and September 30, 2023 have been derived from our consolidated financial statements.

*(Dollars in thousands, except per share data)*

| ​ Balance Sheet Data: | ​ ​ | ​ As of or for the Three Months Ended September 30, 2024 ​ ​ ​ | ​ September 30, 2023 ​ ​ ​ | ​ ​ | ​ As of or for the Nine Months Ended September 30, 2024 ​ ​ ​ | ​ September 30, 2023 ​ ​ ​ |
| --- | --- | ---: | ---: | --- | ---: | ---: |
| Loans, net of unearned income | ​ | $1,842,598 ​ | $1,820,132 ​ | ​ | $1,842,598 ​ | $1,820,132 ​ |
| Allowance for loan credit losses | ​ | 18,481 ​ | 20,036 ​ | ​ | 18,481 ​ | 20,036 ​ |
| Total assets | ​ | 2,274,363 ​ | 2,298,202 ​ | ​ | 2,274,363 ​ | 2,298,202 ​ |
| Deposits | ​ | 1,936,150 ​ | 1,981,623 ​ | ​ | 1,936,150 ​ | 1,981,623 ​ |
| Shareholders’ equity | ​ | 243,118 ​ | 220,567 ​ | ​ | 243,118 ​ | 220,567 ​ |
| **Asset Quality Data:** | ​ | ​ | ​ ​ | ​ | ​ | ​ |
| Net (charge-offs) recoveries to average total loans, net of unearned income (annualized) | ​ | 0.00% | 0.00% | ​ | 0.00% | 0.00% |
| Allowance for loan credit losses to nonperforming loans | ​ | NM ​ | NM ​ | ​ | NM ​ | NM ​ |
| Allowance for loan credit losses to total gross loans net of unearned income | ​ | 1.00% | 1.10% | ​ | 1.00% | 1.10% |
| Non-performing assets to total assets | ​ | 0.00% | 0.00% | ​ | 0.00% | 0.00% |
| Non-performing loans to total loans | ​ | 0.00% | 0.00% | ​ | 0.00% | 0.00% |
| **Capital Ratios (Bank level):** | ​ | ​ | ​ ​ | ​ | ​ | ​ |
| Equity-to-total assets ratio | ​ | 11.6% | 10.6% | ​ | ​ 11.6% | ​ 10.6% |
| Total risk-based capital ratio | ​ | 16.3% | 15.7% | ​ | 16.3% | 15.7% |
| Tier 1 risk-based capital ratio | ​ | 15.3% | 14.6% | ​ | 15.3% | 14.6% |
| Common equity tier 1 ratio | ​ | 15.3% | 14.6% | ​ | ​ 15.3% | ​ 14.6% |
| Leverage ratio | ​ | 11.9% | 11.3% | ​ | 11.9% | 11.3% |
| **Income Statement Data:** | ​ | ​ | ​ ​ | ​ | ​ | ​ |
| Interest and dividend income | ​ | $28,428 ​ | $26,263 ​ | ​ | $82,138 ​ | $74,171 ​ |
| Interest expense | ​ | 15,272 ​ | 14,284 ​ | ​ | 45,158 ​ | 35,715 ​ |
| Net interest income | ​ | $13,156 ​ | $11,979 ​ | ​ | $36,980 ​ | $38,456 ​ |
| Provision for (recovery of) credit losses | ​ | 400 ​ | (829) ​ | ​ | (667) ​ | (2,471) ​ |
| Non-interest income (loss) | ​ | 617 ​ | (16,815) ​ | ​ | 1,990 ​ | (15,564) ​ |
| Non-interest expense | ​ | 8,031 ​ | 7,660 ​ | ​ | 23,863 ​ | 23,261 ​ |
| Income (loss) before taxes | ​ | $5,342 ​ | $(11,667) ​ | ​ | $15,774 ​ | $2,102 ​ |
| Income tax expense (benefit) | ​ | 1,107 ​ | (1,530) ​ | ​ | 3,430 ​ | 1,446 ​ |
| Net income (loss) | ​ | $4,235 ​ | $(10,137) ​ | ​ | $12,344 ​ | $656 ​ |
| **Per Share Data and Shares Outstanding:** | ​ | ​ | ​ ​ | ​ | ​ | ​ |
| Weighted average common shares (basic) | ​ | 14,187,691 ​ | 14,080,026 ​ | ​ | 14,164,061 ​ | 14,126,522 ​ |
| Weighted average common shares (diluted) | ​ | 14,214,586 ​ | 14,080,026 ​ | ​ | 14,198,333 ​ | 14,199,178 ​ |
| Common shares outstanding | ​ | 14,238,677 ​ | 14,126,084 ​ | ​ | 14,238,677 ​ | 14,126,084 ​ |
| Earnings (loss) per share, basic | ​ | $0.30 ​ | $(0.72) ​ | ​ | $0.87 ​ | $0.05 ​ |
| Earnings (loss) per share, diluted | ​ | $0.30 ​ | $(0.72) ​ | ​ | $0.87 ​ | $0.05 ​ |
| Book value per share | ​ | $17.07 ​ | $15.61 ​ | ​ | $17.07 ​ | $15.61 ​ |
| **Performance Ratios:** | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Return on average assets ("ROAA")(1) | ​ | 0.73% | (1.73)% | ​ | 0.73% | 0.04% |
| Return on average equity ("ROAE")(2) | ​ | 7.00% | (18.24)% | ​ | 6.97% | 0.40% |
| Net interest margin | ​ | 2.30% | 2.07% | ​ | 2.20% | 2.21% |
| Tax-equivalent net interest margin (Non-GAAP)(3) | ​ | ​ 2.30% | ​ 2.08% | ​ | ​ 2.20% | ​ 2.24% |
| Non-interest expense to average assets (annualized)(4) | ​ | ​ 1.39% | ​ 1.30% | ​ | ​ 1.41% | ​ 1.33% |
| Efficiency ratio(5) | ​ | 58.3% | (158.4)% | ​ | 61.2% | 101.6% |

NM – Not meaningful

(1) ROAA is calculated by dividing year-to-date net income annualized by year-to-date average assets.

(2) ROAE is calculated by dividing year-to-date net income annualized by year-to-date average equity.

(3) Tax-equivalent net interest margin for all periods presented is reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(4) Non-interest expense to average assets is calculated by dividing year-to-date annualized non-interest expense by year-to-date average assets.

(5) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

### Results of Operations – Nine Months Ended September 30, 2024 and September 30, 2023

### Overview

Net income for the nine months ended September 30, 2024 increased $11.7 million to $12.3 million compared to $0.7 million for the same period of 2023. This increase was primarily attributable to the Company selling certain lower-yielding available-for-sale investment securities with a total par value of $161.2 million and selling $21.4 million of BOLI contracts during the third quarter of 2023 (the “Restructuring”), which resulted in a non-recurring, after-tax loss of $14.6 million. Core net income (Non-GAAP), defined as net income less the after tax loss stemming from the Restructuring, was $15.3 million for the nine months ended September 30, 2023. Diluted earnings per share for the nine months ended September 30, 2024 were $0.87, an increase when compared to the $0.05 reported for the nine months ended September 30, 2023.

Net interest income for the nine months ended September 30, 2024 decreased $1.5 million or 3.8% compared to the same period of 2023, driven primarily by the increase in costs of interest-bearing liabilities outpacing the increase in yield on interest-earning assets.

The Company recorded a $0.7 million recovery of credit losses for the nine months ended September 30, 2024 compared to a $2.5 million recovery of credit losses for the nine month ended September 30, 2023. Additional discussion of the provision for credit losses is included below under the heading *Provision for Credit Losses.*

Non-interest income was $2.0 million for the nine months ended September 30, 2024 compared to a loss of $15.6 million for the nine months ended September 30, 2023. Core non-interest income (Non-GAAP), defined as reported non-interest income excluding the $17.1 million loss stemming from the bond sale portion of the Restructuring, was $1.6 million for the nine months ended September 30, 2023. The 28.3% increase in non-interest income compared to non-interest income (Non-GAAP) of $440 thousand was primarily attributable to a $459 thousand increase in gains recorded on the sale of the guaranteed portion of SBA 7(a) loans due to increased sale activity.

Non-interest expense increased $602 thousand or 2.6% during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to a $322 thousand non-recurring reversal of a litigation reserve during the third quarter of 2023 and previously disclosed non-recurring expenses totaling $138 thousand incurred during the first quarter of 2024. The first quarter 2024 non-recurring expenses were incurred in connection with a strategic opportunity that was explored and ultimately did not materialize. Excluding the effects of the $322 thousand reversal in 2023 and non-recurring expenses totaling $138 thousand incurred during 2024, non-interest expense increased $142 thousand or 0.6% during the adjusted nine months ended September 30, 2024 when compared to adjusted nine months ended September 30, 2023. The increase was primarily due to increases in professional fees and data processing expense, partially offset by lower salaries and employee benefit expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume based activity. The decrease in salaries and employee benefits was due to lower incentive accruals and higher direct loan origination costs when compared to the same period of the prior year, partially offset by higher deferred compensation expense as result of mark-to-market fluctuations on the Company’s nonqualified deferred compensation plan (“NQDC”).

The ROAA for the nine months ended September 30, 2024 and September 30, 2023 was 0.73% and 0.04%, respectively. Core ROAA (Non-GAAP), defined as average assets divided by the annualized core net income (Non-GAAP) by the average assets, for the nine months ended September 30, 2023 was 0.87%. The ROAE for the nine months ended September 30, 2024 and September 30, 2023 was 6.97% and 0.40%, respectively. Core ROAE (Non-GAAP), defined as average equity divided by the annualized net income by the average equity, for the nine months ended September 30, 2023 was 9.25%.

The following table reconciles net income to core net income, which is a non-GAAP measure, and outlines reported (GAAP) and core (Non-GAAP) diluted earnings per share, annualized ROAA and annualized ROAE as follows:

*(Dollars in thousands, except per share amounts)*

| ​ ​ | ​ ​ | ​ ​ ​ For the Nine Months Ended September 30, 2024 ​ | ​ ​ ​ ​ September 30, 2023 ​ |
| --- | --- | --- | --- |
| Net income (GAAP) | ​ | $12,344 ​ | $656 ​ |
| Add: Loss on securities sale, net of tax | ​ | ​ - ​ | ​ 13,520 ​ |
| Add: Non-recurring tax and 10% modified endowment contract penalty on early surrender of BOLI policies | ​ | ​ - ​ | ​ 1,101 ​ |
| Core net income (Non-GAAP) (1) | ​ | $12,344 ​ | $15,277 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Non-interest income (loss) (GAAP) | ​ | $1,990 ​ | $(15,564) ​ |
| Pre-tax loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 17,114 ​ |
| Core non-interest income (Non-GAAP) (2) | ​ | $1,990 ​ | $1,550 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Income before taxes (GAAP) | ​ | $15,774 ​ | $2,102 ​ |
| Adjustment: Pre-tax loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 17,114 ​ |
| Core income before taxes (Non-GAAP) | ​ | $15,774 ​ | $19,216 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Income tax expense (GAAP) | ​ | $3,430 ​ | $1,446 ​ |
| Adjustment: Tax and 10% modified endowment contract penalty on early surrender of BOLI policies | ​ | ​ - ​ | ​ (1,101) ​ |
| Adjustment: Tax benefit of loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 3,594 ​ |
| Core income tax expense (Non-GAAP) (3) | ​ | $3,430 ​ | $3,939 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Earnings per share - diluted (GAAP) | ​ | $0.87 ​ | $0.05 ​ |
| Core earnings per share - diluted (Non-GAAP) (4) | ​ | $0.87 ​ | $1.08 ​ |
| Return on average assets (annualized) (GAAP) | ​ | ​ 0.73% | ​ 0.04% |
| Core return on average assets (annualized) (Non-GAAP) (5) | ​ | ​ 0.73% | ​ 0.87% |
| Return on average equity (annualized) (GAAP) | ​ | ​ 6.97% | ​ 0.40% |
| Core return on average equity (annualized) (Non-GAAP) (6) | ​ | ​ 6.97% | ​ 9.25% |

(1) Core net income reflects net income adjusted for the non-recurring tax effected loss recognized on the sale of available-for-sale securities and non-recurring tax expense associated with the surrender of the Company’s BOLI policies in July 2023. Tax benefit (expense) is calculated using the federal statutory tax rate of 21%.

(2) Core non-interest income reflects non-interest income adjusted for the pre-tax loss recognized on the sale of available-for-sale securities.

(3) Includes tax benefit (expense) calculated using the federal statutory tax rate of 21%.

(4) Core earnings per share – diluted is calculated by dividing core net income by basic weighted average shares outstanding and diluted weighted average shares outstanding, respectively, for each period presented.

(5) Core return on average assets (annualized) is calculated by dividing annualizing core net income by average assets for each period presented.

(6) Core return on average equity (annualized) is calculated by dividing annualizing core net income by average equity for each period presented.

### Explanation of Non-GAAP Financial Measures

Management’s discussion 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 the impact of the Restructuring where the Company sold certain lower-yielding available-for-sale investment securities with a total par value of $161.2 million and surrendered $21.4 million BOLI contracts, resulting in a non-recurring, after-tax loss of $14.6 million. The sale of the available-for-sale securities did not impact book-value-per-share as the after-tax loss of $13.5 million was already reflected in accumulated other comprehensive loss as of June 30, 2023. The remaining $1.1 million after-tax loss stems from the taxation on the gain associated with the expected cash payout from the BOLI policies. 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 management discussion consist of the following:

Non-interest income, income before taxes, income tax expense, net income, earnings per share (basic and diluted), return on average assets (annualized), return on average equity (annualized). 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. Please refer to the Reconciliation of Certain Non-GAAP Financial Measures table for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

### Net Interest Income and Net Interest Margin

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 nine months ended September 30, 2024 and September 30, 2023.

Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

*John Marshall Bancorp, Inc.*

*Average Balance Sheets, Interest and Rates (unaudited)*

*(Dollar amounts in thousands)*

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Assets: Securities: | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2024 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest Income / Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ Average Rate ​ | ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2023 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest Income / Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Rate ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | ---: | --- | --- | --- | ---: |
| Taxable | ​ | $257,272 |  | $3,864 |  | 2.01% | $401,623 |  | $6,117 |  | 2.04% |
| Tax-exempt(1) | ​ | 1,379 |  | ​ 34 |  | 3.29% | 2,678 |  | ​ 56 |  | 2.80% |
| Total securities | ​ | $258,651 | ​ | $3,898 |  | 2.01% | $404,301 | ​ | $6,173 |  | 2.04% |
| Loans, net of unearned income(2): | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Taxable | ​ | 1,802,807 | ​ | 70,858 |  | 5.25% | 1,748,904 | ​ | 62,664 |  | 4.79% |
| Tax-exempt(1) | ​ | 18,901 | ​ | 546 |  | 3.86% | 28,319 | ​ | 875 |  | 4.13% |
| Total loans, net of unearned income | ​ | $1,821,708 | ​ | $71,404 |  | 5.24% | $1,777,223 | ​ | $63,539 |  | 4.78% |
| Interest-bearing deposits in other banks | ​ | $168,979 | ​ | $6,958 |  | 5.50% | $119,002 | ​ | $4,654 |  | 5.23% |
| Total interest-earning assets | ​ | $2,249,338 | ​ | $82,260 |  | 4.88% | $2,300,526 | ​ | $74,366 |  | 4.32% |
| Total non-interest earning assets | ​ | 16,133 | ​ | ​ ​ |  | ​ | 36,572 | ​ | ​ ​ |  | ​ |
| Total assets | ​ | $2,265,471 | ​ | ​ ​ |  | ​ | $2,337,098 | ​ | ​ ​ |  | ​ |
| **Liabilities & Shareholders’ Equity:** | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Interest-bearing deposits | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| NOW accounts | ​ | $312,255 | ​ | $6,533 |  | 2.79% | $291,217 | ​ | $4,484 |  | 2.06% |
| Money market accounts | ​ | 340,362 | ​ | 8,190 |  | 3.21% | 374,053 | ​ | 7,560 |  | 2.70% |
| Savings accounts | ​ | 50,060 | ​ | 529 |  | 1.41% | 75,273 | ​ | 673 |  | 1.20% |
| Time deposits | ​ | 773,537 | ​ | 26,232 |  | 4.53% | 855,076 | ​ | 20,873 |  | 3.26% |
| Total interest-bearing deposits | ​ | $1,476,214 | ​ | $41,484 |  | 3.75% | $1,595,619 | ​ | $33,590 |  | 2.81% |
| Federal funds purchased | ​ | ​ 37 | ​ | ​ 2 | ​ | 7.22% | ​ 294 | ​ | ​ 10 | ​ | 4.55% |
| Subordinated debt | ​ | 24,737 | ​ | 1,047 |  | 5.65% | 24,653 | ​ | 1,047 |  | 5.68% |
| Federal Reserve Bank borrowings | ​ | 68,543 | ​ | 2,451 |  | 4.78% | 27,494 | ​ | ​ 1,001 | ​ | 4.86% |
| Federal Home Loan Bank advances | ​ | ​ 5,723 | ​ | ​ 174 | ​ | 4.06% | ​ 1,989 | ​ | 67 |  | 4.50% |
| Total interest-bearing liabilities | ​ | $1,575,254 | ​ | $45,158 |  | 3.83% | $1,650,049 | ​ | $35,715 |  | 2.89% |
| Demand deposits | ​ | 436,147 | ​ | ​ ​ |  | ​ | 447,778 | ​ | ​ ​ |  | ​ |
| Other liabilities | ​ | 17,489 | ​ | ​ ​ |  | ​ | 18,483 | ​ | ​ ​ |  | ​ |
| Total liabilities | ​ | $2,028,890 | ​ | ​ ​ |  | ​ | $2,116,310 | ​ | ​ ​ |  | ​ |
| Shareholders’ equity | ​ | $236,581 | ​ | ​ ​ |  | ​ | $220,788 | ​ | ​ ​ |  | ​ |
| Total liabilities and shareholders’ equity | ​ | $2,265,471 | ​ | ​ ​ |  | ​ | $2,337,098 | ​ | ​ ​ |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Tax-equivalent net interest income and spread (Non-GAAP)(1) | ​ | ​ ​ | ​ | $37,102 | ​ | 1.06% | ​ ​ | ​ | $38,651 | ​ | 1.43% |
| Less: tax-equivalent adjustment | ​ | ​ ​ | ​ | ​ 122 | ​ | ​ ​ | ​ ​ | ​ | ​ 195 | ​ | ​ ​ |
| Net interest income and spread (GAAP) | ​ | ​ ​ | ​ | $36,980 | ​ | 1.05% | ​ ​ | ​ | $38,456 | ​ | 1.40% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest income/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 4.88% | ​ ​ | ​ | ​ ​ | ​ | 4.29% |
| Interest expense/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.68% | ​ ​ | ​ | ​ ​ | ​ | 2.08% |
| Net interest margin | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.20% | ​ ​ | ​ | ​ ​ | ​ | 2.21% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Tax-equivalent interest income/earning assets (Non-GAAP)(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | 4.88% | ​ ​ | ​ | ​ ​ | ​ | 4.32% |
| Interest expense/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.68% | ​ ​ | ​ | ​ ​ | ​ | 2.08% |
| Tax-equivalent net interest margin (Non-GAAP)(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.20% | ​ ​ | ​ | ​ ​ | ​ | 2.24% |

(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 nonaccrual as of September 30, 2024 or September 30, 2023.

(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.

Tax-equivalent 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

*(Dollars in thousands)*

| ​ ​ ​ GAAP Financial Measurements: | ​ ​ ​ ​ | ​ ​ Nine months ended September 30, 2024 ​ | ​ | ​ ​ 2023 ​ |
| --- | --- | ---: | --- | ---: |
| Interest Income - Loans | ​ | $71,289 | ​ | $63,355 |
| Interest Income - Securities and Other Interest-Earning Assets | ​ | 10,849 | ​ | 10,816 |
| Interest Expense - Deposits | ​ | 41,484 | ​ | 33,590 |
| Interest Expense - Borrowings | ​ | 3,674 | ​ | 2,125 |
| **Total Net Interest Income (GAAP)** | ​ | $36,980 | ​ | $38,456 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Non-GAAP Financial Measurements:** | ​ |  | ​ |  |
| Add: Tax Benefit on Tax-Exempt Interest Income - Loans | ​ | 115 | ​ | 184 |
| Add: Tax Benefit on Tax-Exempt Interest Income - Securities | ​ | 7 | ​ | 11 |
| **Total Tax Benefit on Tax-Exempt Interest Income (1)** | ​ | $122 | ​ | $195 |
| **Tax-Equivalent Net Interest Income (Non-GAAP)** | ​ | $37,102 | ​ | $38,651 |

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

Net interest income decreased $1.5 million or 4.0% on a fully tax-equivalent basis for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease in net interest income was driven by the increase in the costs of interest-bearing liabilities outpacing the increase in yield on interest-earning assets.

On a fully tax-equivalent basis, the net interest margin was 2.20% for the nine months ended September 30, 2024, compared to 2.24% for the nine months ended September 30, 2023. The decrease in net interest margin was primarily due to an increase in the cost of interest-bearing liabilities, which more than offset the increase in yields on loans, investments, and interest-bearing deposits in other banks. The cost of interest-bearing liabilities was 3.83% for the nine months ended September 30, 2024 compared to 2.89% for the nine months ended September 30, 2023. The increase in the cost of interest-bearing liabilities was primarily due to a 94 basis points increase in the cost of interest-bearing deposits resulting from the repricing of the Company’s time deposits coupled with an increase in rates offered on money market, NOW and savings deposit accounts since the third quarter of 2023. The increase in the overall cost of interest-bearing liabilities during the first three quarters of 2024 relative to the same period of the prior year is largely due to Federal Reserve Bank rate increases totaling 5.25% between March 2022 and July 2023.

The loan portfolio’s yield for the nine months ended September 30, 2024 was 5.24% compared to 4.78% for the nine months ended September 30, 2023. The increase of 46 basis points was primarily attributable to an increase in yield on the Company’s variable rate loans as a result of an increase in interest rates subsequent to September 30, 2023 coupled with a higher weighted average yield on loans originated since the third quarter of 2023.

The yield on interest-bearing deposits due from banks for the nine months ended September 30, 2024 was 5.50% compared to 5.23% for the nine months ended September 30, 2023. The increase of 27 basis points was primarily due to a higher federal funds rate during the nine months ended September 30, 2024 when compared to the same period of 2023.

The following table presents the effects of changing rates and volumes on tax-equivalent 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 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

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Interest-earning Assets: Securities: | ​ ​ ​ ​ ​ ​ | ​ ​ For the Nine Months Ended September 30, 2024 and 2023 Increase (Decrease) Due to Volume ​ | ​ ​ | ​ ​ Rate ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Total Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Taxable | ​ | $(2,172) | ​ | $(81) | ​ | $(2,253) |
| Tax-exempt(1) | ​ | (27) | ​ | 5 | ​ | (22) |
| Total securities | ​ | $(2,199) | ​ | $(76) | ​ | $(2,275) |
| Loans, net of unearned income: | ​ |  | ​ |  | ​ |  |
| Taxable | ​ | 2,120 | ​ | 6,074 | ​ | 8,194 |
| Tax-exempt(1) | ​ | (272) | ​ | ​ (57) | ​ | (329) |
| Total loans, net of unearned income(2) | ​ | $1,848 | ​ | $6,017 | ​ | $7,865 |
| Interest-bearing deposits in other banks | ​ | $2,109 | ​ | $195 | ​ | $2,304 |
| Total interest-earning assets | ​ | $1,758 | ​ | $6,136 | ​ | $7,894 |
| **Interest-bearing Liabilities:** | ​ |  | ​ |  | ​ |  |
| Interest-bearing deposits: | ​ |  | ​ |  | ​ |  |
| NOW accounts | ​ | $816 | ​ | $1,233 | ​ | $2,049 |
| Money market accounts | ​ | (1,018) | ​ | 1,648 | ​ | 630 |
| Savings accounts | ​ | (267) | ​ | 123 | ​ | (144) |
| Time deposits | ​ | (2,805) | ​ | 8,164 | ​ | 5,359 |
| Total interest-bearing deposits | ​ | $(3,274) | ​ | $11,168 | ​ | $7,894 |
| Federal funds purchased | ​ | (8) | ​ | — | ​ | (8) |
| Subordinated debt | ​ | 4 | ​ | (4) | ​ | — |
| Federal Reserve Bank borrowings | ​ | ​ 1,467 | ​ | (17) | ​ | 1,450 |
| Federal Home Loan Bank advances | ​ | 114 | ​ | (7) | ​ | 107 |
| Total interest-bearing liabilities | ​ | $(1,697) | ​ | $11,140 | ​ | $9,443 |
| Change in tax-equivalent net interest income (Non-GAAP) | ​ | $3,455 | ​ | $(5,004) | ​ | $(1,549) |

(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 nonaccrual as of September 30, 2024 or September 30, 2023.

### Interest Income

Interest income increased by $7.9 million or 10.6% to $82.3 million on a fully tax-equivalent basis for the nine months ended September 30, 2024 compared to $74.4 million for the nine months ended September 30, 2023, driven by both an increase in rates and volume on interest-earning assets. The increase in rate on interest-earning assets was primarily attributable to the Company’s loan portfolio. The increase in volume of average interest-earning assets was primarily attributable to interest-bearing deposits due from banks and the Company’s loan portfolio.

Fully tax-equivalent interest income on loans increased by approximately $7.9 million as a result of an increase in rate and volume. Average loans increased $44.5 million between the nine months ended September 30, 2024 and September 30, 2023, which was primarily attributable to origination volume in the investor real estate and residential loan portfolios subsequent to September 30, 2023. That was partially offset by loan payoffs in commercial owner-occupied real estate loans subsequent to September 30, 2023.

Fully tax-equivalent interest income on investment securities decreased by approximately $2.3 million primarily as a result of a decrease in volume. Average investment securities decreased approximately $145.7 million between the nine months ended September 30, 2024 and September 30, 2023, primarily due to the sale of certain low-yielding investment securities in July 2023, and to a lesser extent, the amortization of securities.

Interest income on interest-bearing deposits in other banks increased by $2.3 million as a result of an increase in volume. Average interest-bearing deposits in other banks increased approximately $50.0 million between the nine months ended September 30, 2024 and September 30, 2023, primarily due to the redeployment of proceeds from the sale of certain low-yielding investment securities in July 2023 to other higher-yielding assets, including interest-bearing deposits in other banks.

### Interest Expense

Interest expense increased by $9.4 million to $45.2 million for the nine months ended September 30, 2024 compared to $35.7 million for the nine months ended September 30, 2023, primarily due to an increase in rates on deposits and increase in volume on borrowings. The increase in rates on deposits was primarily a result of the repricing of the Company’s time deposits coupled with an increase in rates offered on deposit accounts subsequent to September 30, 2023 as a result of an increase in benchmark interest rates. The increase in volume on borrowings was primarily a result of the Company’s utilization of BTFP advances.

### Provision for Credit Losses

The Company recorded a $0.7 million recovery of provision for credit losses for the nine months ended September 30, 2024 compared to a $2.5 million recovery of provision for credit losses for the nine months ended September 30, 2023. The recovery of and provision for credit losses for the current period that is directly attributable to the funded and unfunded loan portfolio was $(1.1) million and $0.4 million, respectively.

The recovery of provision for credit losses during the nine months ended September 30, 2024 was primarily a result of changes in the Company’s loss driver analysis, resulting from a periodic review of our assumptions. The review resulted in a higher modeled probability of default, changes in prepayment and curtailment rates, and an assessment of management’s considerations of existing economic versus historical conditions combined with the continued strong credit performance of our loan portfolio segments. See “Asset Quality” below for additional information on the credit quality of the loan portfolio.

### Non-interest Income

The Company’s recurring sources of non-interest income consist primarily of interchange income, gains on sale of government guaranteed loans, service charges on deposit accounts 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 nine months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ Service charges on deposit accounts | ​ ​ ​ ​ | ​ ​ Nine months ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Overdrawn account fees | ​ | $61 | ​ | $55 |
| Account service fees | ​ | 199 | ​ | 184 |
| Other service charges and fees | ​ |  | ​ |  |
| Interchange income | ​ | 271 | ​ | 304 |
| Other charges and fees | ​ | 203 | ​ | 373 |
| Bank owned life insurance | ​ | — | ​ | 224 |
| Losses on sale of available-for-sale securities | ​ | — | ​ | (17,316) |
| Net gains on premises and equipment | ​ | 1 | ​ | 16 |
| Insurance commissions | ​ | 357 | ​ | 310 |
| Gain on sale of government guaranteed loans | ​ | ​ 509 | ​ | ​ 50 |
| Non-qualified deferred compensation plan asset gains, net | ​ | ​ 298 | ​ | ​ 112 |
| Other operating income | ​ | 91 | ​ | 124 |
| Total non-interest income | ​ | $1,990 | ​ | $(15,564) |

Non-interest income increased $17.5 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. As previously disclosed, the Company recorded a loss on the sale of certain available-for-sale bonds of $17.1 million during the third quarter 2023. Core non-interest income (Non-GAAP) for the nine months ended September 30, 2023 was $1.5 million. The 28.3% increase in non-interest income compared to core non-interest income (Non-GAAP) of $440 thousand was primarily attributable to a $459 thousand increase in gains recorded on the sale of the guaranteed portion of SBA 7(a) loans due to increased sale activity.

### 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 nine months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Salaries and employee benefits expense | ​ | $14,583 | ​ | $14,929 |
| Occupancy expense of premises | ​ | 1,343 | ​ | 1,363 |
| Furniture and equipment expenses | ​ | 902 | ​ | 882 |
| Advertising expense | ​ | 290 | ​ | 239 |
| Data processing | ​ | 1,595 | ​ | 1,374 |
| FDIC insurance | ​ | 730 | ​ | 771 |
| Professional fees | ​ | 750 | ​ | 154 |
| State franchise tax | ​ | 1,718 | ​ | 1,785 |
| Bank insurance | ​ | 179 | ​ | 174 |
| Vendor services | ​ | 474 | ​ | 407 |
| Supplies, printing, and postage | ​ | 109 | ​ | 103 |
| Director costs | ​ | 593 | ​ | 629 |
| Other operating expenses | ​ | 597 | ​ | 451 |
| Total non-interest expense | ​ | $23,863 | ​ | $23,261 |

Non-interest expense increased $602 thousand or 2.6% during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to a $322 thousand non-recurring reversal of a litigation reserve during the third quarter of 2023 and previously disclosed non-recurring expenses totaling $138 thousand incurred during the first quarter of 2024. The first quarter 2024 non-recurring expenses were incurred in connection with a strategic opportunity that was explored and ultimately did not materialize. Excluding the effects of the $322 thousand reversal in 2023 and non-recurring expenses totaling $138 thousand incurred during 2024, non-interest expense increased $142 thousand or 0.6% during the adjusted nine months ended September 30, 2024 when compared to adjusted nine months ended September 30, 2023. The increase was primarily due to increases in professional fees and data processing expense, partially offset by lower salaries and employee benefit expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume based activity. The decrease in salaries and employee benefits was due to lower incentive accruals and higher direct loan origination costs when compared to the same period of the prior year, partially offset by higher deferred compensation expense as result of mark-to-market fluctuations on the Company’s NQDC.

### Income Taxes

Income tax expense increased $2.0 million or 137.2% to $3.4 million for the nine months ended September 30, 2024 compared to $1.4 million for the nine months ended September 30, 2023. Our effective tax rate for the nine months ended September 30, 2024 was 21.7% compared to 20.5% for the nine months ended September 30, 2023, when excluding the impact of the Restructuring (Non-GAAP).

### Results of Operations – Three Months Ended September 30, 2024 and September 30, 2023

### Overview

Net income for the three months ended September 30, 2024 increased $14.3 million to $4.2 million compared to a net loss of $10.1 million for the three months ended September 30, 2023. The previously disclosed Restructuring, whereby the Company sold certain lower-yielding available-for-sale investment securities with a total par value of $161.2 million and agreed to surrender $21.4 million of BOLI contracts, resulted in a non-recurring, after-tax loss of $14.6 million that was recorded during the third quarter of 2023. Core net income (Non-GAAP), defined as reported net income excluding the non-recurring after-tax loss and taxes paid in conjunction with the Restructuring, was $4.5 million for the third quarter of 2023. Diluted earnings per share for the three months ended September 30, 2024 were $0.30, an increase of $1.02 when compared to the $(0.72) reported for the three months ended September 30, 2023. Core diluted earnings per share (Non GAAP) for the three months ended September 30, 2023 was $0.32.

Net interest income for the three months ended September 30, 2024 increased $1.2 million or 9.8% compared to the three months ended September 30, 2023, driven primarily by the increase in yield on interest-earning assets outpacing the increase in costs of interest-bearing liabilities coupled with the decrease in overall funding balances.

The Company recorded a $400 thousand provision for credit losses for the three months ended September 30, 2024 compared to a recovery of provision for credit losses of $829 thousand for the three months ended September 30, 2023. Additional discussion of the provision for credit losses is included below under the heading *Provision for Credit Losses.*

Non-interest income was $617 thousand for the third quarter of 2024 compared to a loss of $16.8 million for the third quarter of 2023. Core non-interest income (Non-GAAP), defined as reported non-interest income excluding the $17.1 million loss stemming from the bond sale portion of the Restructuring, was $299 thousand for the third quarter 2023. The increase in non-interest income compared to core non-interest income (Non-GAAP) of $318 thousand was primarily attributable to an increase of $199 thousand due to favorable mark-to-market adjustments on investments related to the Company’s NQDC and a $133 thousand increase in gains recorded on the sale of the guaranteed portion of SBA 7(a) loans due to increased sale activity. These increases were partially offset by a decrease in BOLI income of $23 thousand due to the surrender of all BOLI policies in July 2023.

Non-interest expense increased $371 thousand or 4.8% during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a $322 thousand non-recurring reversal of a litigation reserve during the third quarter of 2023. Excluding the effects of the $322 thousand reversal in 2023, non-interest expense increased $49 thousand or 0.6% during the third quarter of 2024 when compared to adjusted third quarter of 2023. The increase was primarily due to increases in professional fees and data processing expense, partially offset by lower salaries and employee benefit expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume based activity. The decrease in salaries and employee benefits was due to lower incentive accruals and higher direct loan origination costs when compared to the same period of the prior year, partially offset by higher deferred compensation expense as result of mark-to-market fluctuations on the Company’s NQDC. The Company continues to analyze cost savings opportunities on existing leases and material contracts.

The ROAA for the three months ended September 30, 2024 and September 30, 2023 was 0.73% and (1.73)%, respectively. Core ROAA (Non-GAAP) for the three months ended September 30, 2023 was 0.76%. The ROAE for the three months ended September 30, 2024 and September 30, 2023 was 7.00% and (18.24)%, respectively. Core ROAE (Non-GAAP) for the three months ended September 30, 2023 was 8.07%

The following table reconciles net income to core net income, which is a non-GAAP measure, and outlines reported (GAAP) and core (Non-GAAP) diluted earnings per share, annualized ROAA and annualized ROAE as follows:

| ​ ​ ​ | ​ ​ | ​ ​ ​ For the Three Months Ended September 30, 2024 ​ | ​ ​ ​ September 30, 2023 ​ |
| --- | --- | --- | --- |
| Net income (GAAP) | ​ | $4,235 ​ | $(10,137) ​ |
| Add: Loss on securities sale, net of tax | ​ | ​ - ​ | ​ 13,520 ​ |
| Add: Non-recurring tax and 10% modified endowment contract penalty on early surrender of BOLI policies | ​ | ​ - ​ | ​ 1,101 ​ |
| Core net income (Non-GAAP) (1) | ​ | $4,235 ​ | $4,484 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Non-interest income (loss) (GAAP) | ​ | $617 ​ | $(16,815) ​ |
| Pre-tax loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 17,114 ​ |
| Core non-interest income (Non-GAAP) (2) | ​ | $617 ​ | $299 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Income before taxes (GAAP) | ​ | $5,342 ​ | $(11,667) ​ |
| Adjustment: Pre-tax loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 17,114 ​ |
| Core income before taxes (Non-GAAP) | ​ | $5,342 ​ | $5,447 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Income tax expense (GAAP) | ​ | $1,107 ​ | $(1,530) ​ |
| Adjustment: Tax and 10% modified endowment contract penalty on early surrender of BOLI policies | ​ | ​ - ​ | ​ (1,101) ​ |
| Adjustment: Tax benefit of loss recognized on sale of available-for-sale securities | ​ | ​ - ​ | ​ 3,594 ​ |
| Core income tax expense (Non-GAAP) (3) | ​ | $1,107 ​ | $963 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Earnings per share - diluted (GAAP) | ​ | $0.30 ​ | $(0.72) ​ |
| Core earnings per share - diluted (Non-GAAP) (4) | ​ | $0.30 ​ | $0.32 ​ |
| Return on average assets (annualized) (GAAP) | ​ | ​ 0.73% | ​ (1.73)% |
| Core return on average assets (annualized) (Non-GAAP) (5) | ​ | ​ 0.73% | ​ 0.76% |
| Return on average equity (annualized) (GAAP) | ​ | ​ 7.00% | ​ (18.24)% |
| Core return on average equity (annualized) (Non-GAAP) (6) | ​ | ​ 7.00% | ​ 8.07% |

(1) Core net income reflects net income adjusted for the non-recurring tax effected loss recognized on the sale of available-for-sale securities and non-recurring tax expense associated with the surrender of the Company’s BOLI policies in July 2023. Tax benefit (expense) is calculated using the federal statutory tax rate of 21%.

(2) Core non-interest income reflects non-interest income adjusted for the pre-tax loss recognized on the sale of available-for-sale securities.

(3) Includes tax benefit (expense) calculated using the federal statutory tax rate of 21%.

(4) Core earnings per share – diluted is calculated by dividing core net income by basic weighted average shares outstanding and diluted weighted average shares outstanding, respectively, for each period presented.

(5) Core return on average assets (annualized) is calculated by dividing annualizing core net income by average assets for each period presented.

(6) Core return on average equity (annualized) is calculated by dividing annualizing core net income by average equity for each period presented.

### Net Interest Income and Net Interest Margin

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 three months ended September 30, 2024 and September 30, 2023.

### Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

*John Marshall Bancorp, Inc.*

*Average Balance Sheets, Interest and Rates (unaudited)*

*(Dollar amounts in thousands)*

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Assets: Securities: | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2024 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest Income / Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ Average Rate ​ | ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2023 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest Income / Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Rate ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | ---: | --- | --- | --- | ---: |
| Taxable | ​ | $247,975 |  | $1,235 |  | 1.98% | $308,723 |  | $1,582 |  | 2.03% |
| Tax-exempt(1) | ​ | 1,379 |  | ​ 11 |  | 3.17% | 1,684 |  | ​ 13 |  | 3.06% |
| Total securities | ​ | $249,354 | ​ | $1,246 |  | 1.99% | $310,407 | ​ | $1,595 |  | 2.04% |
| Loans, net of unearned income(2): | ​ |  | ​ |  |  | ​ ​ |  | ​ |  |  | ​ |
| Taxable | ​ | 1,801,422 | ​ | 24,173 |  | 5.34% | 1,762,653 | ​ | 21,695 |  | 4.88% |
| Tax-exempt(1) | ​ | 17,050 | ​ | 168 |  | 3.92% | 28,067 | ​ | 292 |  | 4.13% |
| Total loans, net of unearned income | ​ | $1,818,472 | ​ | $24,341 |  | 5.33% | $1,790,720 | ​ | $21,987 |  | 4.87% |
| Interest-bearing deposits in other banks | ​ | $209,601 | ​ | $2,878 |  | 5.46% | $200,515 | ​ | $2,746 |  | 5.43% |
| Total interest-earning assets | ​ | $2,277,427 | ​ | $28,465 |  | 4.97% | $2,301,642 | ​ | $26,328 |  | 4.54% |
| Total non-interest earning assets | ​ | 14,958 | ​ | ​ ​ |  | ​ | 29,761 | ​ | ​ ​ |  | ​ |
| Total assets | ​ | $2,292,385 | ​ | ​ ​ |  | ​ | $2,331,403 | ​ | ​ ​ |  | ​ |
| **Liabilities & Shareholders’ Equity:** | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Interest-bearing deposits | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| NOW accounts | ​ | $319,463 | ​ | ​ 2,321 | ​ | 2.89% | $327,309 | ​ | $2,239 |  | 2.71% |
| Money market accounts | ​ | 374,141 | ​ | ​ 3,068 | ​ | 3.26% | 341,672 | ​ | 2,609 |  | 3.03% |
| Savings accounts | ​ | 45,980 | ​ | ​ 168 | ​ | 1.45% | 63,956 | ​ | 198 |  | 1.23% |
| Time deposits | ​ | 738,680 | ​ | ​ 8,545 | ​ | 4.60% | 849,270 | ​ | 8,227 |  | 3.84% |
| Total interest-bearing deposits | ​ | $1,478,264 | ​ | $14,102 | ​ | 3.80% | $1,582,207 | ​ | $13,273 |  | 3.33% |
| Federal funds purchased | ​ | ​ — | ​ | ​ — | ​ | N/M ​ | ​ 99 | ​ | ​ — | ​ | NM ​ |
| Subordinated debt | ​ | 24,758 | ​ | ​ 349 |  | 5.61% | 24,674 | ​ | 349 |  | 5.61% |
| Federal Reserve Bank borrowings | ​ | 53,565 | ​ | ​ 647 |  | 4.81% | 54,000 | ​ | ​ 662 | ​ | 4.86% |
| Federal Home Loan Bank advances | ​ | ​ 17,044 | ​ | ​ 174 | ​ | 4.06% | ​ — | ​ | ​ — | ​ | NM ​ |
| Total interest-bearing liabilities | ​ | $1,573,631 | ​ | $15,272 |  | 3.86% | $1,660,980 | ​ | $14,284 |  | 3.41% |
| Demand deposits | ​ | 461,337 | ​ | ​ ​ |  | ​ | 430,727 | ​ | ​ ​ |  | ​ |
| Other liabilities | ​ | 16,808 | ​ | ​ ​ |  | ​ | 19,223 | ​ | ​ ​ |  | ​ |
| Total liabilities | ​ | $2,051,776 | ​ | ​ ​ |  | ​ | $2,110,930 | ​ | ​ ​ |  | ​ |
| Shareholders’ equity | ​ | $240,609 | ​ | ​ ​ |  | ​ | $220,473 | ​ | ​ ​ |  | ​ |
| Total liabilities and shareholders’ equity | ​ | $2,292,385 | ​ | ​ ​ |  | ​ | $2,331,403 | ​ | ​ ​ |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Tax-equivalent net interest income and spread (Non-GAAP)(1) | ​ | ​ ​ | ​ | $13,193 | ​ | 1.11% | ​ ​ | ​ | $12,044 | ​ | 1.13% |
| Less: tax-equivalent adjustment | ​ | ​ ​ | ​ | ​ 37 | ​ | ​ ​ | ​ ​ | ​ | ​ 65 | ​ | ​ ​ |
| Net interest income and spread (GAAP) | ​ | ​ ​ | ​ | $13,156 | ​ | 1.11% | ​ ​ | ​ | $11,979 | ​ | 1.12% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest income/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 4.97% | ​ ​ | ​ | ​ ​ | ​ | 4.53% |
| Interest expense/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.67% | ​ ​ | ​ | ​ ​ | ​ | 2.46% |
| Net interest margin | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.30% | ​ ​ | ​ | ​ ​ | ​ | 2.07% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Tax-equivalent interest income/earning assets (Non-GAAP)(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | 4.97% | ​ ​ | ​ | ​ ​ | ​ | 4.54% |
| Interest expense/earning assets | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.67% | ​ ​ | ​ | ​ ​ | ​ | 2.46% |
| Tax-equivalent net interest margin (Non-GAAP)(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | 2.30% | ​ ​ | ​ | ​ ​ | ​ | 2.08% |

(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 nonaccrual as of September 30, 2024 or September 30, 2023.

(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.

Tax-equivalent 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

*(Dollars in thousands)*

| ​ ​ ​ GAAP Financial Measurements: | ​ ​ ​ | ​ ​ Three months ended September 30, 2024 ​ | ​ | ​ ​ 2023 ​ |
| --- | --- | ---: | --- | ---: |
| Interest Income - Loans | ​ | $24,306 | ​ | $21,925 |
| Interest Income - Securities and Other Interest-Earning Assets | ​ | 4,122 | ​ | 4,338 |
| Interest Expense - Deposits | ​ | 14,102 | ​ | 13,273 |
| Interest Expense - Borrowings | ​ | 1,170 | ​ | 1,011 |
| **Total Net Interest Income (GAAP)** | ​ | $13,156 | ​ | $11,979 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Non-GAAP Financial Measurements:** | ​ |  | ​ |  |
| Add: Tax Benefit on Tax-Exempt Interest Income - Loans | ​ | 35 | ​ | 62 |
| Add: Tax Benefit on Tax-Exempt Interest Income - Securities | ​ | 2 | ​ | 3 |
| **Total Tax Benefit on Tax-Exempt Interest Income (1)** | ​ | $37 | ​ | $65 |
| **Tax-Equivalent Net Interest Income (Non-GAAP)** | ​ | $13,193 | ​ | $12,044 |

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

Net interest income increased $1.2 million or 9.8% on a fully tax-equivalent basis for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, driven primarily by the increase in yield on and volume of interest-earning assets outpacing the increase in costs of interest-bearing liabilities coupled with the decrease in overall funding balances.

On a fully tax-equivalent basis, the net interest margin was 2.30% for the three months ended September 30, 2024, compared to 2.08% for the three months ended September 30, 2023. The increase in net interest margin was primarily due to an increase in yields on the Company’s interest-earning assets and reduction in volume of time deposits.

The loan portfolio’s yield for the three months ended September 30, 2024 was 5.33% compared to 4.87% for the three months ended September 30, 2023. The increase of 46 basis points was primarily attributable to an increase in yield on the Company’s variable rate loans as a result of an elevated interest rates subsequent to September 30, 2023 coupled with a higher weighted average yield on loans originated since the third quarter of 2023.

The yield on interest-bearing deposits due from banks for the three months ended September 30, 2024 was 5.46% compared to 5.43% for the three months ended September 30, 2023. The increase of 3 basis points was primarily due to a higher average balance during the three months ended September 30, 2024 when compared to the same period of 2023.

The following table presents the effects of changing rates and volumes on tax-equivalent 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 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

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Interest-earning Assets: Securities: | ​ ​ ​ ​ ​ ​ | ​ ​ For the Three Months Ended September 30, 2024 and 2023 Increase (Decrease) Due to Volume ​ | ​ ​ | ​ ​ Rate ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Total Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Taxable | ​ | $(303) | ​ | $(44) | ​ | $(347) |
| Tax-exempt(1) | ​ | (3) | ​ | 1 | ​ | (2) |
| Total securities | ​ | $(306) | ​ | $(43) | ​ | $(349) |
| Loans, net of unearned income: | ​ |  | ​ |  | ​ |  |
| Taxable | ​ | 520 | ​ | 1,958 | ​ | 2,478 |
| Tax-exempt(1) | ​ | (109) | ​ | ​ (15) | ​ | (124) |
| Total loans, net of unearned income(2) | ​ | $411 | ​ | $1,943 | ​ | $2,354 |
| Interest-bearing deposits in other banks | ​ | $128 | ​ | $4 | ​ | $132 |
| Total interest-earning assets | ​ | $233 | ​ | $1,904 | ​ | $2,137 |
| **Interest-bearing Liabilities:** | ​ |  | ​ |  | ​ |  |
| Interest-bearing deposits: | ​ |  | ​ |  | ​ |  |
| NOW accounts | ​ | $9 | ​ | $73 | ​ | $82 |
| Money market accounts | ​ | 184 | ​ | 275 | ​ | 459 |
| Savings accounts | ​ | (66) | ​ | 36 | ​ | (30) |
| Time deposits | ​ | (1,274) | ​ | 1,592 | ​ | 318 |
| Total interest-bearing deposits | ​ | $(1,147) | ​ | $1,976 | ​ | $829 |
| Federal funds purchased | ​ | — | ​ | — | ​ | — |
| Subordinated debt | ​ | ​ — | ​ | — | ​ | — |
| Federal Reserve Bank borrowings | ​ | ​ (5) | ​ | ​ (10) | ​ | ​ (15) |
| Federal Home Loan Bank advances | ​ | 174 | ​ | — | ​ | 174 |
| Total interest-bearing liabilities | ​ | $(978) | ​ | $1,966 | ​ | $988 |
| Change in tax-equivalent net interest income (Non-GAAP) | ​ | $1,211 | ​ | $(62) | ​ | $1,149 |

(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 nonaccrual as of September 30, 2024 or 30, 2023.

### Interest Income

Interest income increased by $2.2 million or 8.1% to $28.5 million on a fully tax-equivalent basis for the three months ended September 30, 2024 compared to $26.3 million for the three months ended September 30, 2023, driven by both an increase in rates and volume on interest earning assets. The increase in rates on interest-earning assets was primarily attributable to the Company’s loan portfolio. The increase in volume of average interest-earning assets was primarily attributable to the Company’s loan portfolio and interest-bearing deposits due from banks.

Fully tax-equivalent interest income on loans increased by approximately $2.4 million as a result of volume and an increase in rates. Average loans increased $27.8 million between the three months ended September 30, 2024 and the three months ended September 30, 2023, which was primarily attributable to origination volume in the investor real estate and residential loan portfolios subsequent to September 30, 2023.

Fully tax-equivalent interest income on investment securities decreased by approximately $349 thousand primarily as a result of a decrease in volume. Average investment securities decreased approximately $61.1 million between the three months ended September 30, 2024 and September 30, 2023 primarily due to the sale of certain low-yielding investment securities in July 2023, and to a lesser extent, the amortization of securities.

Interest income on interest-bearing deposits in other banks increased by $132 thousand as a result of an increase in volume. Average interest-bearing deposits in other banks increased approximately $9.1 million between the three months ended September 30, 2024 and September 30, 2023. The increase in interest-bearing deposits in other banks was primarily due to a decrease in investments.

### Interest Expense

Interest expense increased by $1.0 million to $15.2 million for the three months ended September 30, 2024 compared to $14.2 million for the three months ended September 30, 2023, primarily due to an increase in rates on deposits and increase in volume on borrowings. The increase in rates on deposits was primarily a result of the repricing of the Company’s time deposits coupled with an increase in rates offered on deposit accounts subsequent to September 30, 2023 as a result of an increase in benchmark interest rates. The increase in borrowings was primarily a result of the Company’s FHLB advances.

### Provision for Credit Losses

The Company recorded a $400 thousand provision for credit losses for the three months ended September 30, 2024 compared to a $829 thousand recovery of provision for credit losses for the three months ended September 30, 2023. The provision for credit losses for the current period that is directly attributable to the funded and unfunded loan portfolios was $48 thousand and $352 thousand, respectively.

The provision for credit losses during the three months ended September 30, 2024 was primarily a result of changes in the Company’s loss driver analysis, resulting from a periodic review of our assumptions. The review resulted in a higher modeled probability of default, changes in prepayment and curtailment rates, and an assessment of management’s considerations of existing economic versus historical conditions combined with the continued strong credit performance of our loan portfolio segments. See “Asset Quality” below for additional information on the credit quality of the loan portfolio.

### Non-interest Income

The following table summarizes non-interest income for the three months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ Service charges on deposit accounts | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Overdrawn account fees | ​ | $18 | ​ | $20 |
| Account service fees | ​ | 66 | ​ | 65 |
| Other service charges and fees | ​ |  | ​ |  |
| Interchange income | ​ | 91 | ​ | 101 |
| Other charges and fees | ​ | 69 | ​ | 59 |
| Bank owned life insurance | ​ | — | ​ | 23 |
| Losses on sale of available-for-sale securities | ​ | — | ​ | (17,114) |
| Net gains on premises and equipment | ​ | 1 | ​ | — |
| Insurance commissions | ​ | 64 | ​ | 54 |
| Gain on sale of government guaranteed loans | ​ | ​ 160 | ​ | ​ 27 |
| Non-qualified deferred compensation plan asset gains, net | ​ | ​ 139 | ​ | ​ (60) |
| Other operating income | ​ | 9 | ​ | 10 |
| Total non-interest income | ​ | $617 | ​ | $(16,815) |

Non-interest income was $617 thousand for the third quarter of 2024 compared to a loss of $16.8 million for the third quarter of 2023. Core non-interest income (Non-GAAP) was $299 thousand for the third quarter 2023. The increase in non-interest income compared to core non-interest income (Non-GAAP) of $318 thousand was primarily attributable to an increase of $199 thousand due to favorable mark-to-market adjustments on investments related to the Company’s NQDC and a $133 thousand increase in gains recorded on the sale of the guaranteed portion of SBA 7(a) loans due to increased sale activity. These increases were partially offset by a decrease in BOLI income of $23 thousand due to the surrender of all BOLI policies in July 2023.

### Non-interest Expense

The following table summarizes non-interest expense for the three months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Salaries and employee benefits expense | ​ | $4,897 | ​ | $5,052 |
| Occupancy expense of premises | ​ | 444 | ​ | 445 |
| Furniture and equipment expenses | ​ | 304 | ​ | 282 |
| Advertising expense | ​ | 96 | ​ | 87 |
| Data processing | ​ | 538 | ​ | 493 |
| FDIC insurance | ​ | 250 | ​ | 275 |
| Professional fees | ​ | 256 | ​ | (141) |
| State franchise tax | ​ | 574 | ​ | 604 |
| Bank insurance | ​ | 58 | ​ | 60 |
| Vendor services | ​ | 167 | ​ | 135 |
| Supplies, printing, and postage | ​ | 40 | ​ | 41 |
| Director costs | ​ | 192 | ​ | 186 |
| Other operating expenses | ​ | 215 | ​ | 141 |
| Total non-interest expense | ​ | $8,031 | ​ | $7,660 |

Non-interest expense increased $371 thousand or 4.8% during the third quarter of 2024 compared to the third quarter of 2023. The increase was primarily due to a $322 thousand non-recurring reversal of a litigation reserve during the third quarter of 2023. Excluding the effects of the $322 thousand reversal in 2023, non-interest expense increased $49 thousand or 0.6% during the third quarter of 2024 when compared to adjusted third quarter of 2023. The increase was primarily due to increases in professional fees and data processing expense, partially offset by lower salaries and employee benefit expense. The increase in professional fees was due to increased contract costs and services. The increase in data processing fees was primarily due to contractual increases and volume based activity. The decrease in salaries and employee benefits was due to lower incentive accruals and higher direct loan origination costs when compared to the same period of the prior year, partially offset by higher deferred compensation expense as result of mark-to-market fluctuations on the Company’s NQDC. The Company continues to analyze cost savings opportunities on existing leases and material contracts.

### Income Taxes

Income tax expense increased $2.6 million to $1.1 million for the three months ended September 30, 2024 compared to tax benefit of $1.5 million for the three months ended September 30, 2023 in connection with the Restructuring. Our effective tax rate for the three months ended September 30, 2024 was 20.7% compared to 17.7% for the same period ended September 30, 2023, when excluding the impact of Restructuring (Non-GAAP).

### Discussion and Analysis of Financial Condition

### Assets, Liabilities, and Shareholders’ Equity

The Company’s total assets increased $31.8 million or 1.4% to $2.27 billion at September 30, 2024 compared to $2.24 billion at December 31, 2023. The increase in total assets is primarily attributable to increases in interest-bearing deposits in banks of $78.2 million, partially offset by a decrease in investments of $25.3 million and loans, net of unearned income of $17.4 million.

The Company’s total liabilities increased $18.6 million or 0.9% to $2.03 billion at September 30, 2024 compared to $2.01 billion at December 31, 2023. The increase in total liabilities was primarily attributable to a net increase in deposits of $29.5 million partially offset by a reduction of borrowings of $8.0 million. During the nine months ended September 30, 2024, the Company paid off its $10.0 million Federal funds purchased, refinanced its $54.0 million advance and advanced an additional $23.0 million from the BTFP in January 2024 to secure lower funding costs relative to wholesale deposits and previously outstanding borrowings. In September, the Company paid off its BTFP. Total borrowings as of September 30, 2024 consisted of subordinated debt totaling $24.7 million and three FHLB advances totaling $56.0 million. The increase in deposits was primarily driven by an increase in interest bearing and non-interest bearing demand deposits of $77.4 million and $61.0 million, respectively, partially offset by decreases in time deposits of $100.6 million.

Shareholders’ equity increased $13.2 million or 5.7% to $243.1 million at September 30, 2024 compared to $229.9 million at December 31, 2023. The increase in shareholders’ equity was primarily attributable to an increase in net income and a decrease in accumulated other comprehensive loss due to lower interest rates during the nine months ended September 30, 2024. The increases in equity were partially offset by the $3.6 million in cash dividends paid. Book value per share was $17.07 as of September 30, 2024 compared to $16.25 as of December 31, 2023.

### Investment Securities

The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $237.5 million at September 30, 2024 and $265.5 million at December 31, 2023. 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 $2.7 million, respectively, as of September 30, 2024 and $5.0 million and $2.8 million, respectively, as of December 31, 2023.

The Company did not purchase or sell fixed income investment securities during the nine months ended September 30, 2024. The Company had $32.1 million in maturities and principal repayments on securities during the nine months ended September 30, 2024, which was comprised of $14.3 million of mortgage-backed securities, $14.0 million of U.S. Treasuries, $3.5 million of collateralized mortgage obligation securities and $0.3 of Municipal securities.

The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of September 30, 2024 and December 31, 2023, respectively.

*(Dollars in thousands)*

| ​ ​ ​ Held-to-maturity | ​ ​ ​ | ​ ​ September 30, 2024 Amortized Cost ​ | ​ ​ | ​ ​ Fair Value ​ | ​ ​ | ​ ​ December 31, 2023 Amortized Cost ​ | ​ ​ | ​ ​ Fair Value ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| U.S. Treasuries | ​ | $6,002 | ​ | $5,501 | ​ | $6,001 | ​ | $5,334 |
| U.S. government and federal agencies | ​ | 35,359 | ​ | 31,485 | ​ | 35,434 | ​ | 30,334 |
| U.S. agency collateralized mortgage obligations | ​ | 18,227 | ​ | 14,716 | ​ | 19,395 | ​ | 15,300 |
| Taxable municipal | ​ | 6,045 | ​ | 5,158 | ​ | 6,057 | ​ | 4,956 |
| U.S. agency mortgage-backed | ​ | 27,230 | ​ | 22,871 | ​ | 28,618 | ​ | 23,608 |
| Total Held-to-maturity Securities | ​ | $92,863 | ​ | $79,731 | ​ | $95,505 | ​ | $79,532 |
| **Available-for-sale** | ​ |  | ​ |  | ​ |  | ​ |  |
| U.S. Treasuries | ​ | $30,892 | ​ | $30,004 | ​ | $44,793 | ​ | $42,977 |
| U.S. government and federal agencies | ​ | 13,939 | ​ | 13,621 | ​ | 13,850 | ​ | 13,275 |
| Corporate bonds | ​ | 3,000 | ​ | 2,655 | ​ | 3,000 | ​ | 2,523 |
| U.S. agency collateralized mortgage obligations | ​ | 38,508 | ​ | 32,906 | ​ | 40,806 | ​ | 34,310 |
| Tax-exempt municipal | ​ | 1,379 | ​ | 1,221 | ​ | 1,380 | ​ | 1,231 |
| Taxable municipal | ​ | 270 | ​ | 261 | ​ | 606 | ​ | 587 |
| U.S. agency mortgage-backed | ​ | 68,438 | ​ | 63,981 | ​ | 81,255 | ​ | 75,090 |
| Total Available-for-sale Securities | ​ | $156,426 | ​ | $144,649 | ​ | $185,690 | ​ | $169,993 |

In the prevailing rate environments as of September 30, 2024 and December 31, 2023, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 4.0 years and 4.2 years, respectively. The available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 2.8 years and 3.0 years as of September 30, 2024 and December 31, 2023, respectively. The held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 6.0 years and 6.7 years as of September 30, 2024 and December 31, 2023, respectively.

The following table summarizes the maturity composition of our fixed income investment securities as of September 30, 2024, including the weighted average yield of each maturity band. 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.

*(Dollars in thousands)*

| ​ ​ ​ Held-to-maturity | ​ ​ | ​ ​ September 30, 2024 Amortized Cost ​ | ​ ​ | ​ ​ Fair Value ​ | ​ ​ ​ ​ Weighted-Average Yield ​ |
| --- | --- | ---: | --- | ---: | ---: |
| Due in one year or less | ​ | $— | ​ | $— | — ​ |
| Due after one year through five years | ​ | 25,428 | ​ | 23,212 | 1.09% |
| Due after five years through ten years | ​ | 23,647 | ​ | 20,555 | 1.62% |
| Due after ten years | ​ | 43,788 | ​ | 35,964 | 1.41% |
| Total Held-to-maturity Securities | ​ | $92,863 | ​ | $79,731 | 1.38% |
| **Available-for-sale** | ​ |  | ​ |  | ​ |
| Due in one year or less | ​ | $23,710 | ​ | $23,463 | 2.07% |
| Due after one year through five years | ​ | 35,095 | ​ | 33,934 | 1.90% |
| Due after five years through ten years | ​ | 40,145 | ​ | 38,487 | 2.71% |
| Due after ten years | ​ | 57,476 | ​ | 48,765 | 1.57% |
| Total Available-for-sale Securities | ​ | $156,426 | ​ | $144,649 | 2.01% |

### Loan Portfolio

Gross loans, net of unearned income, decreased $17.4 million or 0.9% to $1.84 billion as of September 30, 2024 compared to $1.86 billion as of December 31, 2023. 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 September 30, 2024 and December 31, 2023.

*(Dollars in thousands)*

| ​ ​ Real Estate Loans: | ​ ​ | ​ ​ September 30, 2024 Amount ​ | ​ | ​ ​ Percent | ​ ​ December 31, 2023 Amount ​ | ​ ​ ​ Percent ​ |
| --- | --- | ---: | --- | ---: | ---: | ---: |
| Commercial | ​ | $1,162,103 |  | 63.22% | $1,146,116 | 61.79% |
| Construction and land development | ​ | 161,466 |  | 8.78% | 180,922 | 9.75% |
| Residential | ​ | 473,787 |  | 25.78% | 482,182 | 25.99% |
| Commercial - Non Real Estate: | ​ |  |  | ​ ​ |  | ​ ​ |
| Commercial loans | ​ | 39,867 |  | 2.17% | 45,204 | 2.44% |
| Consumer - Non-Real Estate: | ​ |  |  | ​ ​ |  | ​ ​ |
| Consumer loans | ​ | 877 |  | 0.05% | 560 | 0.03% |
| Total Gross Loans | ​ | $1,838,100 |  | 100.00% | $1,854,984 | 100.00% |
| Allowance for loan credit losses | ​ | (18,481) | ​ | ​ ​ | (19,543) | ​ |
| Net deferred loan costs | ​ | 4,498 | ​ | ​ ​ | 4,983 | ​ |
| Total net loans | ​ | $1,824,117 | ​ | ​ ​ | $1,840,424 | ​ |

The following table summarizes the contractual maturities of the loans as of September 30, 2024 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Real Estate Loans: | ​ ​ ​ ​ ​ | ​ ​ September 30, 2024 ​ ​ ​ ​ Within 1 Year ​ | ​ ​ ​ ​ | ​ ​ After 1 Year Within 5 Years ​ | ​ ​ ​ ​ | ​ ​ After 5 years Within 15 Years ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Maturing After 15 Years ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Total ​ |
| --- | --- | ---: | --- | ---: | --- | --- | --- | --- | --- | ---: |
| Residential | ​ | $12,922 | ​ | $32,772 | ​ | $36,235 | ​ | $391,858 | ​ | $473,787 |
| Commercial | ​ | 72,375 | ​ | 387,299 | ​ | ​ 691,332 | ​ | ​ 11,097 | ​ | 1,162,103 |
| Construction and land development | ​ | 107,748 | ​ | 43,555 | ​ | ​ 10,163 | ​ | ​ — | ​ | 161,466 |
| Commercial - Non-Real Estate: | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |  |
| Commercial loans | ​ | 6,534 | ​ | 21,070 | ​ | ​ 10,359 | ​ | ​ 1,904 | ​ | 39,867 |
| Consumer - Non-Real Estate: | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |  |
| Consumer loans | ​ | 245 | ​ | 617 | ​ | ​ — | ​ | ​ 15 | ​ | 877 |
| Total Gross Loans | ​ | $199,824 | ​ | $485,313 | ​ | $748,089 | ​ | $404,874 | ​ | $1,838,100 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| For Maturities Over One Year: | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  |
| Floating rate loans | ​ | ​ ​ | ​ | $169,706 | ​ | $275,707 | ​ | $403,043 | ​ | $848,456 |
| Fixed rate loans | ​ | ​ ​ | ​ | 315,607 | ​ | ​ 472,382 | ​ | ​ 1,831 | ​ | 789,820 |
| ​ | ​ | ​ ​ | ​ | $485,313 | ​ | $748,089 | ​ | $404,874 | ​ | $1,638,276 |

### 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.

The Company’s asset quality remained strong through the first three quarters of 2024. The Company did not have any nonperforming assets, which includes nonperforming loans and OREO, as of September 30, 2024 or December 31, 2023. As a result, the Company did not have any nonperforming loans, which consists of loans that are 90 days or more past due or loans placed on nonaccrual as of September 30, 2024 or December 31, 2023.

The Company did not have any nonaccrual loans as of September 30, 2024 or December 31, 2023 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 three and nine months ended September 30, 2024 or the three and nine months ended September 30, 2023.

The following table summarizes the Company’s asset quality as of September 30, 2024 and December 31, 2023.

*(Dollars in thousands)*

| ​ | ​ | ​ ​ ​ September 30, 2024 | ​ ​ ​ December 31, 2023 |
| --- | --- | ---: | ---: |
| Nonaccrual loans | ​ | $— ​ | $— ​ |
| Loans past due 90 days and accruing interest | ​ | — ​ | — ​ |
| Other real estate owned and repossessed assets | ​ | — ​ | — ​ |
| Total nonperforming assets | ​ | $— ​ | $— ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan credit losses to nonperforming assets | ​ | NM ​ | NM ​ |
| Nonaccrual loans to gross loans | ​ | 0.00% | 0.00% |
| Nonperforming assets to period end loans and OREO | ​ | 0.00% | 0.00% |

NM – Not meaningful

### Allowance for Loan Credit Losses

Refer to the discussion in Note 1 of the audited financial statements and notes for the year ended December 31, 2023 contained in the Company’s 2023 Annual Report on Form 10-K for management’s approach to estimating the allowance for loan credit losses.

The Company recorded no net charge-offs and a net recovery of $1 thousand during the three months ended September 30, 2024 compared to no net charge-offs or recoveries during the three months ended September 30, 2023. The Company recorded net recoveries of $2 thousand during the nine months ended September 30, 2024 and $2 thousand during the nine months ended September 30, 2023. At September 30, 2024, the allowance for loan credit losses was $18.5 million or 1.00% of outstanding loans, net of unearned income, compared to $19.5 million or 1.05% of outstanding loans, net of unearned income, at December 31, 2023. The decrease in the allowance as a percentage of outstanding loans, net of unearned income, was primarily a result of changes in the Company’s loss driver analysis, resulting from a periodic review of our assumptions. The review resulted in a higher modeled probability of default, changes in prepayment and curtailment rates, and an assessment of management’s considerations of existing economic versus historical conditions combined with the continued strong credit performance of our loan portfolio segments.

The following table summarizes the Company’s loan loss experience by loan portfolio for the three months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ ​ Real estate loans: | ​ ​ ​ ​ | ​ ​ September 30, 2024 Net (charge-offs) recoveries ​ | ​ ​ ​ | ​ Net (charge-off) recovery rate (1) ​ | ​ ​ ​ ​ ​ | ​ ​ September 30, 2023 Net (charge-offs) recoveries ​ | ​ ​ ​ | ​ ​ Net (charge-off) recovery rate (1) ​ |
| --- | --- | ---: | --- | --- | ---: | ---: | --- | ---: |
| Commercial | ​ | $— |  | ​ | — ​ | $— |  | — ​ |
| Construction and land development | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Residential | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Commercial loans | ​ | 1 |  | ​ | — ​ | — |  | 0.00% |
| Consumer loans | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Total | ​ | $1 | ​ | ​ | ​ ​ | $— |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| Average loans outstanding during the period | ​ | $1,818,472 | ​ | ​ | ​ ​ | $1,790,720 |  | ​ |
| Allowance coverage ratio (2) | ​ | ​ | ​ |  | 1.00% |  |  | 1.10% |
| Total net (charge-off) recovery rate | ​ | ​ | ​ |  | 0.00% |  |  | 0.00% |
| Allowance to nonaccrual loans ratio(3) | ​ | ​ | ​ |  | NM ​ |  |  | NM ​ |

NM – Not meaningful

(1) The net (charge-off) recovery rate is calculated by dividing annualized total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.

(2) The allowance coverage ratio is calculated by dividing the allowance for loan credit losses at the end of the period by gross loans, net of unearned income at the end of the period.

(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan credit losses at the end of the period by nonaccrual loans at the end of the period.

The following table summarizes the Company’s loan loss experience by loan portfolio for the nine months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ ​ Real estate loans: | ​ ​ ​ ​ | ​ ​ September 30, 2024 Net (charge-offs) recoveries ​ | ​ ​ ​ | ​ Net (charge-off) recovery rate (1) ​ | ​ ​ ​ ​ ​ | ​ ​ September 30, 2023 Net (charge-offs) recoveries ​ | ​ ​ ​ | ​ ​ Net (charge-off) recovery rate (1) ​ |
| --- | --- | ---: | --- | --- | ---: | ---: | --- | ---: |
| Commercial | ​ | $— |  | ​ | — ​ | $— |  | —% |
| Construction and land development | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Residential | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Commercial loans | ​ | 2 |  | ​ | 0.01% | 2 |  | 0.01% |
| Consumer loans | ​ | — |  | ​ | — ​ | — |  | — ​ |
| Total | ​ | $2 | ​ | ​ | ​ ​ | $2 |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| Average loans outstanding during the period | ​ | $1,821,708 | ​ | ​ | ​ ​ | $1,777,223 |  | ​ |
| Allowance coverage ratio (2) | ​ | ​ | ​ |  | 1.00% |  |  | 1.10% |
| Total net (charge-off) recovery rate | ​ | ​ | ​ |  | 0.00% |  |  | 0.00% |
| Allowance to nonaccrual loans ratio(3) | ​ | ​ | ​ |  | NM ​ |  |  | NM ​ |

NM – Not meaningful

(1) The net (charge-off) recovery rate is calculated by dividing annualized total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.

(2) The allowance coverage ratio is calculated by dividing the allowance for loan credit losses at the end of the period by gross loans, net of unearned income at the end of the period.

(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan credit losses at the end of the period by nonaccrual loans at the end of the period.

The following tables summarize 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 September 30, 2024 and December 31, 2023.

*(Dollars in thousands)*

| ​ ​ ​ ​ Real Estate Loans: | ​ ​ ​ ​ ​ | ​ ​ September 30, 2024 Allowance for Loan Credit Losses ​ | ​ ​ ​ ​ Percent of Allowance ​ ​ in Each Category to ​ ​ Total Allocated Allowance ​ | ​ ​ Percent of Loans in Each Category to Total Loans ​ |
| --- | --- | ---: | ---: | ---: |
| Commercial | ​ | $11,555 | 62.52% | 63.22% |
| Construction and land development | ​ | 1,697 | 9.18% | 8.78% |
| Residential | ​ | 4,642 | 25.12% | 25.78% |
| Commercial - Non-Real Estate: | ​ |  |  | ​ |
| Commercial loans | ​ | 534 | 2.89% | 2.17% |
| Consumer - Non-Real Estate: | ​ |  |  | ​ |
| Consumer loans | ​ | 53 | 0.29% | 0.05% |
| Total | ​ | $18,481 | 100.00% | 100.00% |

*(Dollars in thousands)*

| ​ ​ ​ ​ Real Estate Loans: | ​ ​ ​ ​ | ​ ​ December 31, 2023 Allowance for Loan Credit Losses ​ ​ | ​ ​ ​ Percent of Allowance ​ in Each Category to ​ ​ Total Allocated Allowance ​ | ​ ​ Percent of Loans in Each Category to Total Loans ​ |
| --- | --- | ---: | ---: | ---: |
| Commercial | ​ | $12,841 | 65.71% | 61.79% |
| Construction and land development | ​ | 1,787 | 9.14% | 9.75% |
| Residential | ​ | 4,323 | 22.12% | 25.99% |
| Commercial - Non-Real Estate: | ​ | ​ |  | ​ |
| Commercial loans | ​ | 495 | 2.53% | 2.44% |
| Consumer - Non-Real Estate: | ​ | ​ |  | ​ |
| Consumer loans | ​ | 97 | 0.50% | 0.03% |
| Total | ​ | $19,543 | 100.00% | 100.00% |

Management believes that the allowance for loan credit losses is adequate to absorb lifetime credit losses inherent in the portfolio as of September 30, 2024. 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 $29.5 million or 1.5% to $1.94 billion as of September 30, 2024 compared to $1.91 billion as of December 31, 2023.

Non-interest bearing demand deposits increased $61.0 million or 14.8% to $472.4 million as of September 30, 2024 compared to $411.4 million at December 31, 2023. Non-interest bearing demand deposits represented 24.4% and 21.6% of total deposits at September 30, 2024 and December 31, 2023, respectively.

Interest-bearing deposits, which include NOW accounts, regular savings accounts, money market accounts, and time deposits, decreased $31.5 million or 2.1% to $1.46 billion as of September 30, 2024 compared to $1.50 billion as of December 31, 2023. Interest-bearing deposits represented 75.6% and 78.4% of total deposits at September 30, 2024 and December 31, 2023, 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, regular savings accounts, time deposits, reciprocal IntraFi Demand® deposits, IntraFi Money Market® deposits and IntraFi CD® deposits. Core deposits totaled $1.65 billion or 85.5% of total deposits and $1.58 billion or 82.7% of total deposits at September 30, 2024 and December 31, 2023, respectively.

The following table sets forth the average balances of deposits and the average interest rates paid for the three months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ September 30, 2024 Average Amount | ​ ​ | ​ ​ ​ ​ Rate ​ | ​ ​ September 30, 2023 Average Amount | ​ ​ ​ ​ ​ Rate |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Non-interest bearing | ​ | $461,337 | ​ | ​ | $430,727 | ​ |
| Interest bearing: | ​ |  | ​ |  | ​ | ​ |
| NOW accounts | ​ | 319,463 | ​ | 2.89% | ​ 327,309 | 2.71% |
| Money market accounts | ​ | 374,141 | ​ | 3.26% | ​ 341,672 | 3.03% |
| Savings accounts | ​ | 45,980 | ​ | 1.45% | ​ 63,956 | 1.23% |
| Time deposits | ​ | 738,680 | ​ | 4.60% | ​ 849,270 | 3.84% |
| Total interest-bearing | ​ | 1,478,264 | ​ | 3.80% | ​ 1,582,207 | 3.33% |
| Total | ​ | $1,939,601 | ​ | 2.89% | $2,012,934 | 2.62% |

The following table sets forth the average balances of deposits and the average interest rates paid for the nine months ended September 30, 2024 and September 30, 2023.

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ September 30, 2024 Average Amount | ​ ​ | ​ ​ ​ ​ Rate ​ | ​ ​ September 30, 2023 Average Amount | ​ ​ ​ ​ ​ Rate |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Non-interest bearing | ​ | $436,147 | ​ | ​ | $447,778 | ​ |
| Interest bearing: | ​ |  | ​ |  | ​ | ​ |
| NOW accounts | ​ | 312,255 | ​ | 2.79% | ​ 291,217 | 2.06% |
| Money market accounts | ​ | 340,362 | ​ | 3.21% | ​ 374,053 | 2.70% |
| Savings accounts | ​ | 50,060 | ​ | 1.41% | ​ 75,273 | 1.20% |
| Time deposits | ​ | 773,537 | ​ | 4.53% | ​ 855,076 | 3.26% |
| Total interest-bearing | ​ | 1,476,214 | ​ | 3.75% | ​ 1,595,619 | 2.81% |
| Total | ​ | $1,912,361 | ​ | 2.90% | $2,043,397 | 2.20 ​ |

The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of September 30, 2024.

*(Dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ September 30, 2024 Total | ​ | ​ ​ Uninsured |
| --- | --- | ---: | --- | ---: |
| Three months or less | ​ | $69,808 | ​ | $49,058 |
| Over three through 6 months | ​ | 53,441 | ​ | 40,941 |
| Over 6 through 12 months | ​ | 93,024 | ​ | 81,524 |
| Over 12 months | ​ | 64,037 | ​ | 57,037 |
| Total | ​ | $280,310 | ​ | $228,560 |

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $882.0 million at September 30, 2024 and $802.8 million at December 31, 2023. Included in these amounts were $167.8 million and $168.7 million of public fund deposits that are collateralized as of September 30, 2024 and December 31, 2023, respectively. Deposits that were not insured or not collateralized represented 37% and 33% of total deposits, respectively, as of September 30, 2024 and December 31, 2023.

### 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 capital 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 11 to the Consolidated Financial Statements, included in Item 1 of this Form 10-Q, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements.

Shareholders’ equity increased $13.2 million or 5.7% to $243.1 million at September 30, 2024 compared to $229.9 million at December 31, 2023. The increase in shareholders’ equity was primarily attributable to an increase in net income and a decrease in accumulated other comprehensive loss due to lower interest rates during the nine months ended September 30, 2024. The increases in equity were partially offset by the $3.6 million in cash dividends paid. Book value per share was $17.07 as of September 30, 2024 compared to $16.25 as of December 31, 2023.

In July of 2024, 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 up to 700,000 shares of its outstanding common stock, or 5.0% of outstanding shares as of September 30, 2024. The stock repurchase program will expire on August 31, 2025, or earlier if all the authorized shares have been repurchased. The Company did not repurchase any shares of its outstanding common stock under the program during the three months ended September 30, 2024. The Company repurchased 3,003 shares of its outstanding common stock under the program during the nine months ended September 30, 2024.

### 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 Reserve Bank. Specifically, the Company has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and the Reserve Bank. Based on collateral pledged as of September 30, 2024, the total FHLB available borrowing capacity was $373.2 million. Additional borrowing capacity with the Reserve Bank was approximately $101.6 million as of September 30, 2024.

On March 12, 2023, the Reserve Bank made available the BTFP, which enhances the ability of banks to borrow against the par value of certain high-quality, unencumbered investments. The Company refinanced its $54.0 million advance and secured an additional $23.0 million from the BTFP in January 2024. In doing so, the Company obtained lower funding costs relative to wholesale deposits and the prior outstanding BTFP advance. The $77.0 million BTFP advance matures January 2025, bears interest at a fixed rate of 4.76% and can be prepaid in whole or in part, at any time without penalty prior to maturity. On September 3, 2024, the Company paid off the BTFP advance.

On September 3, 2024, the Company took out three fixed interest rate advances with terms of 18, 24, and 36 months. The interest rates on the advances range from 3.92% to 4.15%. At September 30, 2024, the Company had three outstanding FHLB advances totaling $56 million.

Total liquidity, defined as cash and cash equivalents, unencumbered securities at fair value, and available secured borrowing capacity, was $775.5 million at September 30, 2024 compared to $638.9 million at December 31, 2023.

In addition to available secured borrowing capacity, the Company had available federal funds lines with correspondent banks of $110.0 million at September 30, 2024.

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 believes that the Company has a strong liquidity position, but any of the factors referenced above could materially impact that in the future.

### 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 7 to the Consolidated Financial Statements, included in Item 1 of this Form 10-Q, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.

## Controls and procedures

As filed, 1,069 characters.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and regulations are designed and operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the third fiscal quarter of 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 207 characters.

There have been no material changes in the risk factors that were disclosed in Item 1A, under the caption “Risk Factors” in our 2023 Annual Report on Form 10-K, which we filed with the SEC on March 20, 2024.

Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-015445. Last ingested by Listed: Oct 28, 2026, 08:46 ET. No prices; not investment advice.