John Marshall Bancorp(US:JMSB)2023-03-23 21:01Loan Portfolio Composition - As of December 31, 2022, the Bank's loan portfolio included approximately 20.5% related to owner-occupied commercial real estate loans and 37.1% related to managed investment commercial real estate[50]. - Construction and development loans constituted about 11.0% of the Bank's loan portfolio as of December 31, 2022[56]. - Commercial term loans and lines of credit combined represented approximately 2.5% of the Bank's loan portfolio as of December 31, 2022[59]. - Bank originated 1-4 family residential mortgage loans accounted for 6.2% of the loan portfolio as of December 31, 2022[60]. - Purchased mortgages made up approximately 14.4% of the loan portfolio as of December 31, 2022[61]. - The loan portfolio is heavily concentrated in commercial real estate, with 57.6% of loans categorized as commercial real estate[165]. - Approximately $1.20 billion, or 67.1%, of the loans in the loan portfolio were first originated during the past three years[175]. - The average age of loans originated in the past three years is 1.43 years for commercial real estate loans[175]. - The 10 largest borrowing relationships accounted for approximately 11.3% of total loans as of December 31, 2022[174]. - The company had no non-performing assets as of December 31, 2022[160]. - The company is exposed to higher credit risk due to its focus on lending to small to medium-sized businesses[161]. - The concentration of loans in the Washington, D.C. metropolitan area increases vulnerability to adverse economic conditions[164]. Risk Management - The company emphasizes the importance of effective risk management, overseeing various risk exposures including liquidity, interest rate, credit, operational, and cybersecurity risks[74]. - Senior management implements risk management processes and reports to the board, focusing on strategic, operational, and regulatory risks[76]. - The company maintains a disciplined underwriting approach, managing credit risk through well-defined criteria and portfolio diversification[78]. - Interest rate and liquidity risk management is overseen by the Asset and Liability Committee, which reviews financial performance and compliance with risk limits[81]. - The company's risk management practices may not adequately reduce credit risk, potentially leading to increased loan defaults and necessitating higher provisions for loan losses[154]. - The company is subject to operational risks, including employee fraud and data processing failures, which could lead to financial losses[204]. - The company’s risk management framework may not effectively mitigate risks, potentially leading to unexpected losses[212]. Capital and Regulatory Compliance - The company must maintain capital above regulatory guidelines to avoid restrictions on dividend payments[103]. - The company is not subject to consolidated regulatory capital requirements due to its total consolidated assets being less than $3 billion[102]. - The Bank's capital ratios as of December 31, 2022, and 2021, were in excess of the fully phased-in requirements, indicating strong capital adequacy[108]. - The minimum common equity Tier 1 capital ratio required is 7.0%, with a capital conservation buffer of 2.5%[108]. - The Bank is classified as "well capitalized" as of December 31, 2022, and 2021, meeting all capital requirements[116]. - The Company implemented the CECL model on January 1, 2023, with the impact on regulatory capital ratios being not significant[114]. - The minimum leverage ratio required for well-capitalized status is 4.0%[108]. - The company is required to maintain minimum risk-based capital and leverage ratios as established by federal regulations[220]. - The company could be required to provide financial assistance to its subsidiary bank during financial distress, which may limit its resources[222]. - The company is subject to various regulatory requirements, including prior approval from the Federal Reserve for significant acquisitions and changes in control[94]. Deposits and Funding - The Bank's deposits are insured up to $250,000 per depositor under the FDIC[117]. - The company’s 10 largest depositor relationships accounted for approximately 17.6% of total deposits as of December 31, 2022, with the largest depositor representing about 3.3%[179]. - Brokered deposits constituted approximately 17.0% of total deposits, with reciprocal deposits adding another 10.8% as of December 31, 2022[180]. - The company may need to pay higher interest rates to maintain brokered deposits, potentially adversely affecting net interest margin[181]. - Liquidity risk is critical, as it is essential for funding asset growth and meeting obligations; reliance on specific funding sources can increase this risk[184]. - Access to funding sources may be impaired by adverse regulatory actions or economic downturns, affecting the company's growth and operations[186]. Economic and Market Conditions - The Federal Reserve raised the federal funds target rate seven times in 2022, reaching 4.25% to 4.50% by year-end, impacting market interest rates[197]. - Interest rate shifts can negatively impact net interest income, with potential gaps in interest rate sensitivities affecting earnings[192]. - Inflation during 2022 has raised operational costs and could affect clients' ability to repay loans, impacting the company's financial condition[197]. - The company faces significant competition from larger financial institutions, which may lead to increased rates on deposits or lower loan rates, affecting profitability[188]. Cybersecurity and Data Protection - The federal bank regulatory agencies expect financial institutions to establish sufficient business continuity planning processes to ensure rapid recovery after a cyberattack[137]. - The Company has not experienced significant data loss or material financial losses related to cybersecurity attacks to date[139]. - The Company must comply with new notification requirements for cybersecurity incidents, requiring notification within 36 hours of determining a significant incident[138]. - The company is subject to inquiries and investigations related to privacy and data protection laws, which could result in significant liabilities or penalties[229]. - Concerns regarding the effectiveness of measures to safeguard personal information could lead to loss of customers and reduced revenues[229]. - The company faces increasing regulatory requirements regarding third-party vendor relationships, which could lead to administrative penalties or fines if oversight is deemed inadequate[230]. Miscellaneous - The Company is committed to serving low and moderate-income areas through various initiatives, including no-fee checking accounts and small business loans[72]. - The Audit Committee is responsible for financial reporting risks, while the Compensation Committee ensures that compensation policies do not encourage excessive risk-taking[75]. - The company qualifies as an "emerging growth company" under the JOBS Act, allowing it to take advantage of certain reporting exemptions[82]. - The company qualifies as an "emerging growth company" and a "smaller reporting company," which allows it to take advantage of reduced disclosure obligations[236][237]. - The market price for the company's common stock has fluctuated between $29.65 and $19.09 per share during the 12 months ended December 31, 2022, indicating potential volatility[240]. - The company is subject to a 15% minimum tax on corporations earning more than $1 billion per year, as per the Inflation Reduction Act of 2022[218]. - The company may face significant civil money penalties for violations of anti-money laundering requirements, which could adversely affect its operations[224]. - The Bank approved 1,096 PPP loans totaling $229.2 million during the first and second rounds of the SBA's PPP[145]. - The fair value of the company's investment in debt securities was approximately $438.7 million as of December 31, 2022[214]. - The Adjustable Interest Rate (LIBOR) Act provides a framework to replace LIBOR with SOFR, but uncertainty remains regarding the transition's ultimate effects[232]. - The company may experience operational problems due to inconsistent approaches to the LIBOR transition among market participants[233].