Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
OLBK > SEC Filings for OLBK > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for OLD LINE BANCSHARES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for OLD LINE BANCSHARES INC


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Some of the matters discussed below include forward-looking statements. Forward-looking statements often use words such as "believe," "expect," "plan," "may," "will," "should," "project," "contemplate," "anticipate," "forecast," "intend" or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Our actual results and the actual outcome of our expectations and strategies could be different from those anticipated or estimated for the reasons discussed below and under the heading "Information Regarding Forward Looking Statements."

Overview

Old Line Bancshares was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank.

Our primary business is to own all of the capital stock of Old Line Bank. We also have an approximately $634,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (Pointer Ridge). We own 62.5% of Pointer Ridge. Frank Lucente, one of our directors and a director of Old Line Bank, controls 12.5% of Pointer Ridge and controls the manager of Pointer Ridge. The purpose of Pointer Ridge is to acquire, own, hold for profit, sell, assign, transfer, operate, lease, develop, mortgage, refinance, pledge and otherwise deal with real property located at the intersection of Pointer Ridge Road and Route 301 in Bowie, Maryland. Pointer Ridge owns a commercial office building containing approximately 40,000 square feet and leases this space to tenants. We lease approximately 65% of this building for our main office and operate a branch of Old Line Bank from this address.

On April 1, 2011, we acquired Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A (MB&T). This acquisition created the sixth largest independent commercial bank based in Maryland, with assets of more than $750 million and with 18 full service branches serving five counties.

Summary of Recent Performance and Other Activities

In an economic and regulatory climate that continues to present challenges for our industry, we are pleased to report significant strategic accomplishments and continued profitability during the first quarter of 2013. Net income available to common stockholders was $1.3 million or $0.19 per basic and diluted common share for the three month period ended March 31, 2013. This was $469,546 or 26.74% lower than net income available to common stockholders of $1.8 million or $0.26 per basic and diluted common share for the same period in 2012.

The following highlights certain financial data and events that have occurred during the first quarter of 2013:

We received all required regulatory approvals and subsequent to quarter end received all required stockholder approvals for the WSB Holdings, Inc. merger, that we announced on September 10, 2012, and we expect to complete the merger on May 10, 2013.

On March 29, 2013, we closed our Old Line Centre branch and transferred all deposits from this branch to one of our other two Waldorf branch locations.

As a result of our business development efforts, expanded market area and increased name recognition:

Net loans grew approximately $16.7 million or 2.8% during the three months ended March 31, 2013.

Total deposits grew by $13.0 million, or 1.8%, since December 31, 2012.

Average non-interest bearing deposits grew $23.2 million or 14.07% for the three months ended March 31, 2013 relative to the same period in 2012.

Average total loans grew approximately $56.1 million or 10.21% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.


Our asset quality remained strong:

At March 31, 2013, we had three legacy loans (loans originated by Old Line Bank) on non-accrual status in the amount of $1.4 million.

At March 31, 2013 and December 31, 2012, we had 25 acquired loans (loans acquired from MB&T pursuant to the merger) on non-accrual status totaling $4.1 million.

At first quarter end 2013, we had accruing legacy loans past due between 30 and 89 days in the amount of $2.1 million and no accruing legacy loans 90 or more days past due.

At March 31, 2013, we had accruing acquired loans totaling $802,000 past due between 30 and 89 days and no accruing acquired loans 90 or more days past due.

We ended the first quarter of 2013 with a book value of $10.90 per common share and a tangible book value of $10.30 per common share.

We maintained liquidity and by all regulatory measures remained "well capitalized".

We decreased the provision for loan losses by $175,000 during the three month period as compared to the three months ended March 31, 2012.

We recognized a loss, net of taxes, on our investment in Pointer Ridge of approximately $35,000 for the three month period ended March 31, 2013.

As noted above, on September 10, 2012, we announced that we had executed a merger agreement that provided for the acquisition of WSB Holdings, Inc. (WSB). We plan to complete the merger on May 10, 2013. This combination will create a $1.2 billion banking institution and will allow us to expand our financial services with the addition of a successful and growing mortgage origination team. We also anticipate that the acquisition and integration of WSB will enhance the liquidity of our stock as well as our overall financial condition and operating performance.

On March 29, 2013, we closed our branch located at 12080 Old Line Centre, Waldorf, Maryland. In conjunction with this closure, we disposed of all of the fixed assets that we did not transfer to another location and accelerated the remaining lease payments due under the lease agreement for this location. We transferred the deposits of this branch to one of our other two Waldorf locations. The closure of this facility eliminates approximately $250,000 in annual non-interest expense.

In January of 2013, we hired Mark Semanie as an Executive Vice President. We anticipate that Mr. Semanie will enhance our core operational capabilities.

During the second quarter of 2013, we plan to open a loan production office located at 12501 Prosperity Drive, Suite 215, Silver Spring, in Montgomery County, Maryland. We executed a lease for this location during the first quarter of 2013. We have hired a Senior Vice President with over 30 years of banking experience to lead this office. This office will allow us to expand our services to the Montgomery County market. We anticipate that the individuals in this office will generate sufficient interest and non-interest income during 2013 and beyond to more than offset the cost associated with this office.

During the first quarter of 2013, we sold two properties that we obtained through foreclosure. With the sale of these properties, we recorded a $200,454 loss on sales of other real estate owned. We expect that the sale of these properties will reduce future legal and maintenance costs.

In June 2012, we established Old Line Financial Services as a division of Old Line Bank and hired an individual with over 25 years of experience to manage this division. Old Line Financial Services allows us to expand the services we provide our customers to include retirement planning and products. Additionally, this division offers investment services including investment management, estate and succession planning and allows our customers to directly purchase individual stocks, bonds and mutual funds. Through this division customers may also purchase life insurance, long term care insurance and key man/woman insurance. We expect that the fees this division generates in 2013 and beyond will more than offset the operating expenses of the division.

In accordance with accounting for business combinations, during the second quarter of 2011, we recorded the acquired assets and liabilities of MB&T at their estimated fair value on April 1, 2011, the acquisition date. The determination of the fair value of the loans caused a significant write down in the value of certain loans, which we assigned to an accretable or non-accretable balance. We will recognize the accretable balance as interest income over the remaining


term of the loan. We will recognize the non-accretable balance as the borrower repays the loan. The accretion of the loan marks, along with other fair value adjustments, favorably impacted our net interest income by $240,476 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. We based the determination of fair value on cash flow expectations and/or collateral values. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. Change in our cash flow expectations could impact net interest income after provision for loan losses. We will recognize any decline in expected cash flows as impairment and record a provision for loan losses during the period. We will recognize any improvement in expected cash flows as an adjustment to interest income.

In conjunction with the MB&T merger, we also recorded the deposits acquired at their fair value and recorded a core deposit intangible of $5.0 million. The amortization of this intangible asset was $177,582 for the three month period ended March 31, 2013 compared to $194,675 for the three months ended March 31, 2012.

The following summarizes the highlights of our financial performance for the three month period ended March 31, 2013 compared to same period in 2012 (figures in the table may not match those discussed in the balance of this section due to rounding).

Three Months ended March 31,

(Dollars in thousands)

                                 2013          2012       $ Change       % Change

Net income available to
common stockholders         $   1,286     $   1,756     $     (470 )       (26.77 ) %
Interest revenue                8,817         9,102           (285 )        (3.13 )
Interest expense                  970         1,340           (370 )       (27.61 )
Net interest income after
provision
for loan losses                 7,647         7,387            260           3.52
Non-interest revenue            1,027           879            148          16.84
Non-interest expense            6,879         5,686          1,193          20.98
Average total loans           605,702       549,594         56,108          10.21
Average interest earning
assets                        772,187       714,209         57,978           8.12
Average total interest
bearing deposits              552,650       521,624         31,026           5.95
Average non-interest
bearing deposits              187,698       164,540         23,158          14.07
Net interest margin (1)          4.36 %        4.51 %
Return on average equity         7.26 %       10.89 %
Basic earnings per common
share                       $    0.19     $    0.26     $    (0.07 )       (26.92 )
Diluted earnings per
common share                     0.19          0.26          (0.07 )       (26.92 )

(1) See "Reconciliation of Non-GAAP Measures"


Strategic Plan

We have based our strategic plan on the premise of enhancing stockholder value and growth through branching and operating profits. Our short term goals include collecting payments on non-accrual and past due loans, profitably disposing of other real estate owned, enhancing and maintaining credit quality, maintaining an attractive branch network, expanding fee income, generating extensions of core banking services, and using technology to maximize stockholder value. During the past two years, we have expanded in Prince George's County and Anne Arundel County, Maryland and the acquisition of Maryland Bankcorp has expanded our operations in Charles County and into St. Mary's and Calvert Counties, Maryland. We anticipate that the acquisition of WSB will further enhance our presence in Charles, Prince George's and Anne Arundel counties.

We use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology, Internet banking with on line account access and bill payer service. We provide selected commercial customers the ability to remotely capture their deposits and electronically transmit them to us. We will continue to evaluate cost effective ways that technology can enhance our management capabilities, products and services.

We may take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks or hire additional loan officers. We also continually evaluate and consider opportunities with financial services companies or institutions with which we may become a strategic partner, merge or acquire such as we have done with WSB and Maryland Bankcorp.

Although the current economic climate continues to present significant challenges for our industry, we have worked diligently towards our goal of becoming the premier community bank in the Washington, D.C. market. While we are uncertain whether the economy will remain at its current anemic growth or if the dysfunctional political environment, high unemployment rate and soaring national debt will continue to dampen the economic climate, we continue to remain cautiously optimistic that we have identified any problem assets and our remaining borrowers will continue to stay current on their loans and that we can continue to grow our balance sheet and earnings. Now that we have substantially completed our branch expansion, enhanced our data processing capabilities and expanded our commercial lending team, we believe that we are well positioned to capitalize on the opportunities that may become available in a healthy economy as we did with the Maryland Bankcorp acquisition and the pending WSB acquisition.

Once we have completed the WSB acquisition, we expect that salaries and benefits expenses and other operating expenses will be higher in 2013 than they were in 2012. We believe with our existing branches, our lending staff, our corporate infrastructure and our solid balance sheet and strong capital position, we can continue to focus our efforts on improving earnings per share and enhancing stockholder value. Until completion of the merger with WSB, we anticipate that merger related expenses may cause earnings to be lower than would otherwise be expected. However, we anticipate that the WSB merger will be accretive to earnings within three quarters of closing.

Results of Operations

Net Interest Income

Net interest income is the difference between income on interest earning assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, interest bearing deposits and federal funds sold. Cost of funds consists of interest bearing deposits and other borrowings. Non-interest bearing deposits and capital are also funding sources. Changes in the volume and mix of earning assets and funding sources along with changes in associated interest rates determine changes in net interest income.

Three months ended March 31, 2013 compared to three months ended March 31, 2012

Net interest income after provision for loan losses for the three months ended March 31, 2013 increased $260,038 or 3.52% to $7.6 million from $7.4 million for the same period in 2012. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of a decline in interest paid on interest bearing liabilities as a result of the lower interest rate environment. The $175,000 decline in the provision for loan losses also positively impacted net interest income after provision for loan losses. These improvements were partially offset by a $291,058 decline in the accretion of the fair value adjustments and a $285,210 decrease in interest revenue primarily related to a decrease in the yield on interest earning assets as a result of the low interest rate environment, substantially offset by a growth in average interest earning assets and the change in the composition of average interest earning assets that occurred with the movement of funds from lower yielding interest bearing deposits into higher yielding loans and investment securities. Although we continued to receive faster than expected repayment of the impaired loans that we acquired from MB&T, the rate of repayment was significantly slower than it was during the first quarter of 2012.


A competitive rate environment and a low prime rate cause low market yields that resulted in the decrease in interest income and continue to negatively impact net interest income. We continue to adjust the mix and volume of interest earning assets and liabilities on the balance sheet to maintain a relatively stable net interest margin.

As noted above, we offset most of the effect on interest income and net interest income caused by the low rate environment by growing total average interest earning assets by $58.0 million or 8.12% to $772.2 million for the three months ended March 31, 2013 from $714.2 million for the three months ended March 31, 2012, as well as by changes in the mix of our interest-earning assets.

As noted above, the decrease in interest paid on interest bearing liabilities offset the impact on net interest income of the decrease in the yield on interest earning assets during the three months ended March 31, 2013. The decrease in interest paid on interest earning liabilities was due to the average rate paid on interest bearing liabilities decreasing to 0.66% during the three months ended March 31, 2013 compared to 0.95% during the three months ended March 31, 2012. The growth in net interest income that derived from the decrease in the average rate paid on interest bearing liabilities was partially offset by growth in average interest bearing liabilities. Average interest bearing deposits, which increased to $552.6 million for the three months ended March 31, 2013 from $521.6 million for the three months ended March 31, 2012, was the primary cause of the growth in interest bearing liabilities.

The growth in average interest earning assets and interest bearing deposits was primarily a result of increased name recognition in our market place and our business development efforts.

Non-interest bearing deposits allow us to fund growth in interest earning assets at minimal cost. As a result of growth generated from our branch network and commercial loan officers, our average non-interest bearing deposits increased $23.2 million to $187.7 million during the three months ended March 31, 2013, compared to the three months ended March 31, 2012.

Our net interest margin was 4.36% for the three months ended March 31, 2013 as compared to 4.51% for the three months ended March 31, 2012. The yield on average interest earning assets decreased thirty nine basis points during the period from 5.26% for the quarter ended March 31, 2012 to 4.87% for the quarter ended March 31, 2013. Fifteen basis points of this decrease was primarily because we had a lower dollar value of impaired loans that we acquired from MB&T that were repaid during the 2013 period relative to the same quarter last year which caused a lower accretion of fair value adjustments. This coupled with re-pricing in the loan portfolio and slightly lower yields on new loans, caused the average loan yield to decline. The accretion of the fair value adjustments associated with the interest bearing deposit portfolio caused an additional two basis point decline in the interest margin during the first quarter of 2013 compared to the first quarter of 2012 as outlined below.

During the three months ended March 31, 2013 and 2012, we continued to successfully collect payments on acquired loans that we had recorded at fair value according to ASC 310-20 and ASC 310-30, albeit at a lower dollar value during the 2013 period than we accomplished during the same period last year. These payments were a direct result of our efforts to negotiate payments, sell notes or foreclose on and sell collateral after the acquisition date. The accretion of the fair value adjustments positively impacted the yield on loans and increased the net interest margin as follows:

                                                                            Three months ended March 31,
                                                                2013                                              2012
                                                                                                                             % Impact
                                                                                                                                on
                                                Fair Value                % Impact on               Fair Value                 Net
                                                 Accretion               Net Interest                Accretion               Interest
                                                  Dollars                   Margin                    Dollars                 Margin
Commercial loans                              $       209,144                      0.11 %         $        41,752                 0.02 %
Mortgage loans(1)                                      (4,500 )                   (0.00 )                 423,275                 0.24
Consumer loans                                          2,371                      0.00                     1,694                 0.00
Interest bearing deposits                              33,461                      0.02                    64,813                 0.04
Total Fair Value Accretion                    $       240,476                      0.13 %         $       531,534                 0.30 %

(1) In 2013, we reclassified mortgage loans totaling $873,918 to commercial loans, the impact of this reclassification was immaterial to prior period net interest income or financial condition. Therefore, we did not adjust prior period information.


The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the three months ended March 31, 2013 and 2012, showing the average distribution of assets, liabilities, stockholders' equity and related income, expense and corresponding weighted average yields and rates. The average balances used in this table and other statistical data were calculated using average daily balances.

                                                    Average Balances, Interest and Yields
Three months ended
March 31,                                   2013                                            2012
                            Average                                         Average
                            balance         Interest         Yield          balance         Interest         Yield
Assets:
Federal funds sold(1)    $   1,709,594             603          0.14 %   $   3,642,521     $     1,071          0.12 %
Interest bearing
deposits                       161,326              99          0.25         1,597,590             996          0.25
Investment
securities(1)(2)
  U.S. treasury              1,374,133           1,855          0.55         1,248,050           2,535          0.82
  U.S. government
agency                      29,227,991          87,181          1.21        26,476,165         107,281          1.63
  Mortgage backed
securities                  70,720,047         388,256          2.23        94,522,598         666,016          2.83
  Municipal securities      63,834,888         751,570          4.77        37,007,270         500,435          5.44
  Other                      3,515,366          43,302          5.00         3,945,534          45,587          4.65
Total investment
securities                 168,672,425       1,272,164          3.06       163,199,617       1,321,854          3.26
Loans: (1) (3)
  Commercial               100,592,871       1,317,401          5.31       104,376,133       1,317,340          5.08
  Mortgage                 493,997,648       6,514,081          5.35       431,676,205       6,510,549          6.07
  Consumer                  11,111,472         164,490          6.00        13,542,054         191,135          5.68
   Total loans             605,701,991       7,995,972          5.35       549,594,392       8,019,024          5.87
  Allowance for loan
losses                       4,058,816               -                       3,825,189               -
Total loans, net of
allowance                  601,643,175       7,995,972          5.39       545,769,203       8,019,024          5.94
Total interest earning
assets(1)                  772,186,520       9,268,838          4.87       714,208,931       9,342,945          5.26
  Non-interest bearing
cash                        25,465,996                                      27,694,416
  Premises and
equipment                   25,083,069                                      23,607,367
  Other assets              37,123,329                                      38,395,297
Total assets             $ 859,858,914                                   $ 803,906,011
Liabilities and
Stockholders' Equity:
Interest bearing
deposits
  Savings                $  65,341,432          27,631          0.17     $  61,215,826          50,723          0.33
  Money market and NOW     176,313,295         111,159          0.26       131,354,039         139,515          0.43
  Other time deposits      310,994,955         718,349          0.94       329,054,012         937,260          1.15
Total interest bearing
deposits                   552,649,682         857,139          0.63       521,623,877       1,127,498          0.87
  Borrowed funds            40,335,859         112,487          1.13        45,823,568         212,376          1.86
Total interest bearing
liabilities                592,985,541         969,626          0.66       567,447,445       1,339,874          0.95
Non-interest bearing
deposits                   187,697,564                                     164,540,014
                           780,683,105                                     731,987,459
Other liabilities            6,909,547                                       6,631,135
Non-controlling
interest                       387,467                                         443,876
Stockholders' equity        71,878,795                                      64,843,541
Total liabilities and
stockholders' equity     $ 859,858,914                                   $ 803,906,011
Net interest spread(1)                                          4.21                                            4.31

Net interest income
and
  Net interest
margin(1)                                  $ 8,299,212          4.36 %                     $ 8,003,071          4.51 %

(1)Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE basis adjusts for the tax favored status of these types of assets. Management believes providing this information on a FTE basis provides investors with a more accurate picture of our net interest spread and net interest income and we believe it to be the preferred industry measurement of these calculations. See "Reconciliation of Non-GAAP Measures."

(2)Available for sale investment securities are presented at amortized cost.

(3)Average non-accruing loans for the three month periods ended March 31, 2013 and 2012 were $5,713,683 and $5,074,864, respectively. There was no non-accrual interest included in interest income.

. . .

  Add OLBK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for OLBK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.