10-Q 1 olbk-20150331x10q.htm 10-Q olbk_Current folio_10Q

26h

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-50345

 

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Maryland

 

20-0154352

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

 

 

 

 

1525 Pointer Ridge Place

 

 

Bowie, Maryland

 

20716

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (301) 430-2500

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YesNo

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YesNo

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer 

Accelerated filer 

 

 

Non-accelerated filer  (Do not check if a smaller reporting company)

Smaller reporting company 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YesNo

 

As of April 30, 2015, the registrant had 10,616,838 shares of common stock outstanding.

 

 

 

 

 

 


 

 

OLD LINE BANCSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

 

 

 

 

 

 

Page

 

 

Number

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of March 31, 2015 and December 31, 2014

 

 

 

 

Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2015

 

 

 

 

Consolidated Statements of Cash Flows  (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

49 

 

 

 

Item 4. 

Controls and Procedures

50 

 

 

 

PART II. 

 

 

 

 

 

Item 1. 

Legal Proceedings

50 

 

 

 

Item 1A. 

Risk Factors

50 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

51 

 

 

 

Item 3. 

Defaults Upon Senior Securities

51 

 

 

 

Item 4. 

Mine Safety Disclosures

51 

 

 

 

Item 5. 

Other Information

51 

 

 

 

Item 6. 

Exhibits

51 

 

 

 

Signatures 

 

52 

 

 

 

 

2


 

Part 1. Financial Information

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

 

Assets

 

Cash and due from banks

 

$

37,061,793 

 

$

23,572,613 

 

Interest bearing accounts

 

 

1,080,570 

 

 

1,230,864 

 

Federal funds sold

 

 

624,888 

 

 

601,259 

 

Total cash and cash equivalents

 

 

38,767,251 

 

 

25,404,736 

 

Investment securities available for sale-at fair value

 

 

158,380,719 

 

 

161,680,198 

 

Loans held for sale, fair value of $9,007,588 and $4,753,995

 

 

8,692,297 

 

 

4,548,106 

 

Loans held for investment (net of allowance for loan losses of $4,636,048 and $4,281,835, respectively)

 

 

963,706,538 

 

 

926,573,488 

 

Equity securities at cost

 

 

3,353,096 

 

 

5,811,697 

 

Premises and equipment

 

 

33,874,131 

 

 

34,300,375 

 

Accrued interest receivable

 

 

3,172,615 

 

 

3,218,428 

 

Deferred income taxes

 

 

12,506,347 

 

 

16,106,498 

 

Current income taxes receivable

 

 

1,312,872 

 

 

 —

 

Bank owned life insurance

 

 

31,643,001 

 

 

31,429,747 

 

Other real estate owned

 

 

1,600,015 

 

 

2,451,920 

 

Goodwill

 

 

7,793,665 

 

 

7,793,665 

 

Core deposit intangible

 

 

4,210,679 

 

 

4,420,796 

 

Other assets

 

 

6,087,688 

 

 

3,779,350 

 

Total assets

 

$

1,275,100,914 

 

$

1,227,519,004 

 

Liabilities and Stockholders’ Equity

 

Deposits

 

 

 

 

 

 

 

Non-interest bearing

 

$

269,733,047 

 

$

260,913,521 

 

Interest bearing

 

 

781,718,574 

 

 

754,825,885 

 

Total deposits

 

 

1,051,451,621 

 

 

1,015,739,406 

 

Short term borrowings

 

 

71,236,281 

 

 

61,002,889 

 

Long term borrowings

 

 

5,958,485 

 

 

5,987,283 

 

Accrued interest payable

 

 

284,444 

 

 

266,023 

 

Supplemental executive retirement plan

 

 

5,162,732 

 

 

5,095,141 

 

Other liabilities

 

 

3,420,900 

 

 

3,901,625 

 

Total liabilities

 

 

1,137,514,463 

 

 

1,091,992,367 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 25,000,000 shares authorized; 10,755,017 and 10,810,930 shares issued and outstanding in 2015 and 2014, respectively

 

 

107,551 

 

 

108,110 

 

Additional paid-in capital

 

 

104,313,092 

 

 

105,235,646 

 

Retained earnings

 

 

32,281,404 

 

 

30,067,798 

 

Accumulated other comprehensive income (loss)

 

 

630,791 

 

 

(147,250)

 

Total Old Line Bancshares, Inc. stockholders’ equity

 

 

137,332,838 

 

 

135,264,304 

 

Non-controlling interest

 

 

253,613 

 

 

262,333 

 

Total stockholders’ equity

 

 

137,586,451 

 

 

135,526,637 

 

Total liabilities and stockholders’ equity

 

$

1,275,100,914 

 

$

1,227,519,004 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

3


 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2015

    

2014

 

Interest Income

 

 

 

 

 

 

 

Loans, including fees

 

$

11,621,493 

 

$

10,333,973 

 

U.S. treasury securities

 

 

2,606 

 

 

832 

 

U.S. government agency securities

 

 

133,358 

 

 

150,955 

 

Mortgage backed securities

 

 

373,010 

 

 

377,872 

 

Municipal securities

 

 

314,984 

 

 

434,988 

 

Federal funds sold

 

 

176 

 

 

389 

 

Other

 

 

61,950 

 

 

72,861 

 

Total interest income

 

 

12,507,577 

 

 

11,371,870 

 

Interest expense

 

 

 

 

 

 

 

Deposits

 

 

910,957 

 

 

894,303 

 

Borrowed funds

 

 

134,716 

 

 

118,276 

 

Total interest expense

 

 

1,045,673 

 

 

1,012,579 

 

Net interest income

 

 

11,461,904 

 

 

10,359,291 

 

Provision for loan losses

 

 

561,731 

 

 

269,769 

 

Net interest income after provision for loan losses

 

 

10,900,173 

 

 

10,089,522 

 

Non-interest income

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

415,202 

 

 

451,596 

 

Gain on sales or calls of investment securities

 

 

60,694 

 

 

 —

 

Earnings on bank owned life insurance

 

 

248,384 

 

 

243,607 

 

Gain on disposal of assets

 

 

19,975 

 

 

96,993 

 

Rental Income

 

 

210,188 

 

 

200,537 

 

Gain on sale of loans

 

 

354,650 

 

 

106,720 

 

Other fees and commissions

 

 

522,816 

 

 

292,672 

 

Total non-interest income

 

 

1,831,909 

 

 

1,392,125 

 

Non-interest expense

 

 

 

 

 

 

 

Salaries and benefits

 

 

4,217,370 

 

 

4,873,634 

 

Occupancy and equipment

 

 

1,399,877 

 

 

1,586,777 

 

Data processing

 

 

352,060 

 

 

307,160 

 

FDIC insurance and State of Maryland assessments

 

 

248,893 

 

 

218,521 

 

Merger and integration

 

 

 —

 

 

29,167 

 

Core deposit premium amortization

 

 

210,117 

 

 

228,550 

 

(Gain) loss on sales of other real estate owned

 

 

134,754 

 

 

(203,068)

 

OREO expense

 

 

120,201 

 

 

83,066 

 

Directors Fees

 

 

170,000 

 

 

119,700 

 

Network services

 

 

181,663 

 

 

199,588 

 

Telephone

 

 

164,935 

 

 

167,158 

 

Other operating

 

 

1,491,744 

 

 

1,366,290 

 

Total non-interest expense

 

 

8,691,614 

 

 

8,976,543 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

4,040,468 

 

 

2,505,104 

 

Income tax expense

 

 

1,295,035 

 

 

690,737 

 

Net income

 

 

2,745,433 

 

 

1,814,367 

 

Less: Net loss attributable to the non-controlling interest

 

 

(8,720)

 

 

(21,390)

 

Net income available to common stockholders

 

$

2,754,153 

 

$

1,835,757 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.25 

 

$

0.17 

 

Diluted earnings per common share

 

$

0.25 

 

$

0.17 

 

Dividend per common share

 

$

0.05 

 

$

0.04 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

4


 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Comprehensive Income 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

Three Months Ended March 31,

    

2015

    

2014

  

Net income

 

$

2,745,433 

 

$

1,814,367 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain on securities available for sale, net of taxes of $530,750,  $969,750 respectively

 

 

814,794 

 

 

1,488,736 

 

Reclassification adjustment for realized gain on securities available for sale included in net income, net of taxes of $23,941 and $0, respectively

 

 

(36,753)

 

 

 —

 

Other comprehensive income

 

 

778,041 

 

 

1,488,736 

 

Comprehensive income

 

 

3,523,474 

 

 

3,303,103 

 

Comprehensive (loss) attributable to the non-controlling interest

 

 

(8,720)

 

 

(21,390)

 

Total comprehensive income

 

$

3,532,194 

 

$

3,324,493 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

5


 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

    

 

    

Accumulated

    

    

 

    

    

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

Non-

 

Total

 

 

 

Common stock

 

paid-in

 

Retained

 

comprehensive

 

controlling

 

Stockholders’

 

 

 

Shares

 

Par value

 

capital

 

earnings

 

income (loss)

 

Interest

 

Equity

 

                                                    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

 

10,810,930 

 

$

108,110 

 

$

105,235,646 

 

$

30,067,798 

 

$

(147,250)

 

$

262,333 

 

$

135,526,637 

 

Net income attributable to Old Line Bancshares, Inc.

 

 —

 

 

 —

 

 

 —

 

 

2,754,153 

 

 

 —

 

 

 —

 

 

2,754,153 

 

Unrealized gain on securities available for sale, net of income tax benefit of $506,809

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

778,041 

 

 

 —

 

 

778,041 

 

Net loss attributable to non-controlling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,720)

 

 

(8,720)

 

Stock based compensation awards

 

 —

 

 

 —

 

 

91,902 

 

 

 —

 

 

 —

 

 

 —

 

 

91,902 

 

Restricted stock issued

 

9,332 

 

 

93 

 

 

(93)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Common stock repurchased and retired

 

(65,245)

 

 

(652)

 

 

(1,014,363)

 

 

 

 

 

 

 

 

 

 

 

(1,015,015)

 

Common stock cash dividend $0.05 per share

 

 —

 

 

 —

 

 

 —

 

 

(540,547)

 

 

 —

 

 

 —

 

 

(540,547)

 

Balance March 31, 2015

 

10,755,017 

 

$

107,551 

 

$

104,313,092 

 

$

32,281,404 

 

$

630,791 

 

$

253,613 

 

$

137,586,451 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

6


 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Interest received

 

$

12,769,066 

 

$

11,959,298 

 

Fees and commissions received

 

 

1,338,065 

 

 

774,977 

 

Interest paid

 

 

(1,027,252)

 

 

(1,035,405)

 

Cash paid to suppliers and employees

 

 

(10,016,207)

 

 

(9,973,914)

 

Loans originated for sale

 

 

(24,177,793)

 

 

(8,373,541)

 

Proceeds from sale of loans originated for sale

 

 

20,033,602 

 

 

8,111,880 

 

Income taxes paid

 

 

 —

 

 

(59,982)

 

 

 

 

(1,080,519)

 

 

1,403,313 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investment securities available for sale

 

 

 —

 

 

(1,502,344)

 

Proceeds from disposal of investment securities

 

 

 

 

 

 

 

Available for sale at maturity, call or paydowns

 

 

4,419,496 

 

 

3,925,995 

 

Loans made, net of principal collected

 

 

(37,330,280)

 

 

(2,328,978)

 

Proceeds from sale of other real estate owned

 

 

659,776 

 

 

512,878 

 

Redemption of equity securities

 

 

2,458,601 

 

 

1,273,527 

 

Gain on sale of assets

 

 

19,975 

 

 

96,993 

 

Purchase of premises and equipment

 

 

(145,781)

 

 

(37,292)

 

 

 

 

(29,918,213)

 

 

1,940,779 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Net increase (decrease) in

 

 

 

 

 

 

 

Time deposits

 

 

15,647,328 

 

 

(4,549,170)

 

Other deposits

 

 

20,064,887 

 

 

38,342,027 

 

Short term borrowings

 

 

10,233,392 

 

 

(11,336,258)

 

Long term borrowings

 

 

(28,798)

 

 

(21,218)

 

Stock repurchase program

 

 

(1,015,015)

 

 

 —

 

Cash dividends paid-common stock

 

 

(540,547)

 

 

(431,415)

 

 

 

 

44,361,247 

 

 

22,003,966 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

13,362,515 

 

 

25,348,058 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

25,404,736 

 

 

29,058,300 

 

Cash and cash equivalents at end of period

 

$

38,767,251 

 

$

54,406,358 

 

 

The accompanying notes are an integral part of these consolidated financial statements

7


 

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Reconciliation of net income to net cash provided by operating activities

 

 

 

 

 

 

 

Net income

 

$

2,745,433 

 

$

1,814,367 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

572,025 

 

 

591,501 

 

Provision for loan losses

 

 

561,731 

 

 

269,769 

 

Change in deferred loan fees net of costs

 

 

(9,853)

 

 

23,218 

 

(Gain)/loss on sales or calls of securities

 

 

(60,694)

 

 

 —

 

Amortization of premiums and discounts

 

 

225,529 

 

 

262,328 

 

Change in loans held for sale

 

 

(4,144,191)

 

 

(261,661)

 

(Gain)/loss on  sale of loans

 

 

(354,650)

 

 

(106,720)

 

(Gain)/loss on sales of other real estate owned

 

 

134,754 

 

 

(203,068)

 

Gain on the sale of equity securities

 

 

 —

 

 

(96,993)

 

Write down of other real estate owned

 

 

57,375 

 

 

 —

 

(Gain)/loss on sale of fixed assets

 

 

(19,975)

 

 

 —

 

Amortization of intangible

 

 

210,117 

 

 

228,550 

 

Deferred income taxes

 

 

3,093,341 

 

 

198,383 

 

Stock based compensation awards

 

 

91,902 

 

 

126,802 

 

Increase (decrease) in

 

 

 

 

 

 

 

Accrued interest payable

 

 

18,421 

 

 

(22,826)

 

Income tax payable

 

 

(485,435)

 

 

432,372 

 

Accrued pension

 

 

67,591 

 

 

74,879 

 

Other liabilities

 

 

4,710 

 

 

(203,954)

 

Decrease (increase) in

 

 

 

 

 

 

 

Accrued interest receivable

 

 

45,813 

 

 

301,882 

 

Bank owned life insurance

 

 

(213,254)

 

 

(210,367)

 

Income tax receivable

 

 

(1,312,872)

 

 

 —

 

Other assets

 

 

(2,308,337)

 

 

(1,815,149)

 

 

 

$

(1,080,519)

 

$

1,403,313 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure:

 

 

 

 

 

 

 

Loans transferred to other real estate owned

 

$

 —

 

$

591,622 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

8


 

OLD LINE BANCSHARE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business - Old Line Bancshares, Inc. (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.  The primary business of Old Line Bancshares is to own all of the capital stock of Old Line Bank.  We provide a full range of banking services to customers located in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s, and St. Mary’s Counties in Maryland and surrounding areas.

 

Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the activity of Old Line Bancshares and its wholly owned subsidiary, Old Line Bank, and its majority owned subsidiary Pointer Ridge Office Investments, LLC (Pointer Ridge), a real estate investment company.  We have eliminated all significant intercompany transactions and balances.

 

We report the non-controlling interests in Pointer Ridge separately in the consolidated balance sheet.  We report the income of Pointer Ridge attributable to Old Line Bancshares on the consolidated statement of income.

 

The foregoing consolidated financial statements for the periods ended March 31, 2015 and 2014 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP); however, in the opinion of management we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period.  We derived the balances as of December 31, 2014 from audited financial statements.  These statements should be read in conjunction with Old Line Bancshares’ financial statements and accompanying notes included in Old Line Bancshares’ Form 10-K for the year ended December 31, 2014.  We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-K.

 

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.  These estimates and assumptions may affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

 

Reclassifications - We have made certain reclassifications to the 2014 financial presentation to conform to the 2015 presentation.  These reclassifications did not change net income or stockholders’ equity.

 

Recent Accounting Pronouncements - In August 2014, the Financial Accounting Board “”FASB”) issued Accounting Standard Update (“ASU”) No. 2014-14- Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, to address the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. HUD, FHA, VA).  The ASU outlines certain criteria and provides that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  This ASU will be effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period.  The adoption of ASU No. 2014-14 did not have a material impact on our consolidated financial statements and the required disclosures have been included in Note 5.

 

 

 

 

 

 

9


 

2.POINTER RIDGE OFFICE INVESTMENT, LLC

 

Old Line Bank has a 62.5% ownership of Pointer Ridge Office Investment, LLC and we have consolidated its results of operations from the date of acquisition.  One of the Banks directors owns a 12.5% interest in this investment.

 

The following table summarizes the condensed Balance Sheets and Statements of Income information for Pointer Ridge Office Investment, LLC.

 

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

Balance Sheets

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Current assets

 

$

250,190 

 

$

269,314 

 

Non-current assets

 

 

6,384,597 

 

 

6,433,380 

 

Liabilities

 

 

5,958,485 

 

 

6,003,139 

 

Equity

 

 

676,303 

 

 

699,555 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

Statements of Income

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Revenue

 

$

243,277 

 

$

238,991 

 

Expenses

 

 

266,530 

 

 

296,030 

 

Net loss

 

$

(23,253)

 

$

(57,039)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

3.INVESTMENT SECURITIES

 

Presented below is a summary of the amortized cost and estimated fair value of securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

unrealized

 

unrealized

 

Estimated

 

 

 

cost

 

gains

 

losses

 

fair value

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

$

3,000,515 

 

$

2,185 

 

$

 —

 

$

3,002,700 

 

U.S. government agency

 

 

38,545,387 

 

 

20,466 

 

 

(247,327)

 

 

38,318,526 

 

Municipal securities

 

 

41,325,292 

 

 

1,073,996 

 

 

(28,184)

 

 

42,371,104 

 

Mortgage backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLMC certificates

 

 

19,587,745 

 

 

245,605 

 

 

 —

 

 

19,833,350 

 

FNMA certificates

 

 

17,359,782 

 

 

121,158 

 

 

(35,619)

 

 

17,445,321 

 

GNMA certificates

 

 

31,733,254 

 

 

150,056 

 

 

(161,174)

 

 

31,722,136 

 

SBA loan pools

 

 

5,787,060 

 

 

 —

 

 

(99,478)

 

 

5,687,582 

 

 

 

$

157,339,035 

 

$

1,613,466 

 

$

(571,782)

 

$

158,380,719 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

$

3,000,690 

 

$

5,460 

 

$

 

$

3,006,150 

 

U.S. government agency

 

 

38,594,843 

 

 

15,851 

 

 

(954,362)

 

 

37,656,332 

 

Municipal securities

 

 

42,662,399 

 

 

980,452 

 

 

(96,690)

 

 

43,546,161 

 

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLMC certificates

 

 

20,323,394 

 

 

150,735 

 

 

(3,182)

 

 

20,470,947 

 

FNMA certificates

 

 

17,898,497 

 

 

61,472 

 

 

(93,163)

 

 

17,866,806 

 

GNMA certificates

 

 

33,266,203 

 

 

145,451 

 

 

(272,309)

 

 

33,139,345 

 

SBA loan pools

 

 

6,177,339 

 

 

 

 

(182,882)

 

 

5,994,457 

 

 

 

$

161,923,365 

 

$

1,359,421 

 

$

(1,602,588)

 

$

161,680,198 

 

 

As of March 31, 2015 and December 31, 2014, securities with unrealized losses segregated by length of impairment were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

Less than 12 months

 

12 Months or More

 

Total

 

 

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

 

 

 

value

 

losses

 

value

 

losses

 

value

 

losses

 

U.S. Treasury

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

U.S. government agency

 

 

 —

 

 

 —

 

 

33,201,911 

 

 

247,327 

 

 

33,201,911 

 

 

247,327 

 

Municipal securities

 

 

1,590,453 

 

 

5,739 

 

 

2,030,963 

 

 

22,445 

 

 

3,621,416 

 

 

28,184 

 

Mortgage backed securities

 

 

3,448,609 

 

 

9,447 

 

 

22,485,723 

 

 

187,346 

 

 

25,934,332 

 

 

196,793 

 

SBA loan pools

 

 

 —

 

 

 —

 

 

5,687,582 

 

 

99,478 

 

 

5,687,582 

 

 

99,478 

 

Total unrealized losses

 

$

5,039,062 

 

$

15,186 

 

$

63,406,179 

 

$

556,596 

 

$

68,445,241 

 

$

571,782 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

Less than 12 months

 

12 Months or More

 

Total

 

 

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

 

 

 

value

 

losses

 

value

 

losses

 

value

 

losses

 

U.S. government agency

 

$

1,492,650 

 

$

6,543 

 

$

32,497,194 

 

$

947,819 

 

$

33,989,844 

 

$

954,362 

 

Municipal securities

 

 

2,054,635 

 

 

19,397 

 

 

4,617,972 

 

 

77,293 

 

 

6,672,607 

 

 

96,690 

 

Mortgage backed securities

 

 

8,967,337 

 

 

11,382 

 

 

29,009,316 

 

 

357,272 

 

 

37,976,653 

 

 

368,654 

 

SBA loan pools

 

 

 —

 

 

 —

 

 

5,994,457 

 

 

182,882 

 

 

5,994,457 

 

 

182,882 

 

Total unrealized losses

 

$

12,514,622 

 

$

37,322 

 

$

72,118,939 

 

$

1,565,266 

 

$

84,633,561 

 

$

1,602,588 

 

 

At March 31, 2015 and December 31, 2014, we had 46 and 57 investment securities, respectively, in an unrealized loss position greater than the 12 month time frame and 8 and 12 securities, respectively, in an unrealized loss

11


 

position less than the 12 month time frame.  We consider all unrealized losses on securities as of March 31, 2015 to be temporary losses because we will redeem each security at face value at or prior to maturity.  We have the ability and intent to hold these securities until recovery or maturity.  As of March 31, 2015, we do not have the intent to sell any of the securities classified as available for sale and believe that it is more likely than not that we will not have to sell any such securities before a recovery of cost.  In most cases, market interest rate fluctuations cause a temporary impairment in value.  We expect the fair value to recover as the investments approach their maturity date or re-pricing date or if market yields for these investments decline.  We do not believe that credit quality caused the impairment in any of these securities.  Because we believe these impairments are temporary, we have not realized any loss in our consolidated statement of income.

 

There were no sales of investment securities for the three months ending March 31, 2015 and 2014.  There were two municipal bonds that were called during the three month period ended March 31, 2015 of which the remaining discount/accretion of $60,694 was recorded as gain on sale of investments.  During the three month period ended March 31, 2015, we received $4.4 million in proceeds from sales, maturities or calls and principal pay-downs on investment securities compared to $3.9 million for the same three month period last year. 

 

Contractual maturities and pledged securities at March 31, 2015 are shown below.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.  We classify mortgage backed securities (MBS) based on maturity date.  However, we receive payments on a monthly basis.    

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

    

Amortized

    

Fair

 

March 31, 2015

 

cost

 

value

 

 

 

 

 

 

 

 

 

Maturing

 

 

 

 

 

 

 

Within one year

 

$

10,511,089 

 

$

10,610,726 

 

Over one to five years

 

 

83,303,546 

 

 

83,998,901 

 

Over five to ten years

 

 

53,947,794 

 

 

54,226,573 

 

Over ten years

 

 

9,576,606 

 

 

9,544,519 

 

 

 

$

157,339,035 

 

$

158,380,719 

 

Pledged securities

 

$

40,498,598 

 

$

40,502,865 

 

 

 

 

 

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4.LOANS

 

Major classifications of loans held for investment are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

    

Legacy (1)

    

Acquired

    

Total

    

Legacy (1)

    

Acquired

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

193,023,154 

 

$

27,441,283 

 

$

220,464,437 

 

$

192,723,718 

 

$

27,891,137 

 

$

220,614,855 

 

Investment

 

 

227,271,036 

 

 

41,250,887 

 

 

268,521,923 

 

 

208,766,058 

 

 

41,624,825 

 

 

250,390,883 

 

Hospitality

 

 

82,633,703 

 

 

8,233,513 

 

 

90,867,216 

 

 

76,342,916 

 

 

8,319,644 

 

 

84,662,560 

 

Land and A&D

 

 

43,947,550 

 

 

4,758,577 

 

 

48,706,127 

 

 

40,260,506 

 

 

4,785,753 

 

 

45,046,259 

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien-Investment

 

 

57,189,916 

 

 

21,548,889 

 

 

78,738,805 

 

 

49,578,862 

 

 

24,185,571 

 

 

73,764,433 

 

First Lien-Owner Occupied

 

 

34,636,616 

 

 

48,772,753 

 

 

83,409,369 

 

 

31,822,773 

 

 

51,242,355 

 

 

83,065,128 

 

Residential Land and A&D

 

 

24,256,462 

 

 

8,060,100 

 

 

32,316,562 

 

 

22,239,663 

 

 

8,509,239 

 

 

30,748,902 

 

HELOC and Jr. Liens

 

 

20,884,878 

 

 

2,777,758 

 

 

23,662,636 

 

 

20,854,737 

 

 

3,046,749 

 

 

23,901,486 

 

Commercial and Industrial

 

 

103,188,657 

 

 

8,375,068 

 

 

111,563,725 

 

 

98,310,009 

 

 

9,694,782 

 

 

108,004,791 

 

Consumer

 

 

8,500,027 

 

 

308,374 

 

 

8,808,401 

 

 

9,068,755 

 

 

313,739 

 

 

9,382,494 

 

 

 

 

795,531,999 

 

 

171,527,202 

 

 

967,059,201 

 

 

749,967,997 

 

 

179,613,794 

 

 

929,581,791 

 

Allowance for loan losses

 

 

(4,127,669)

 

 

(508,379)

 

 

(4,636,048)

 

 

(4,261,835)

 

 

(20,000)

 

 

(4,281,835)

 

Deferred loan costs, net

 

 

1,283,385 

 

 

 —

 

 

1,283,385 

 

 

1,283,455 

 

 

(9,923)

 

 

1,273,532 

 

 

 

$

792,687,715 

 

$

171,018,823 

 

$

963,706,538 

 

$

746,989,617 

 

$

179,583,871 

 

$

926,573,488 

 

 


(1)

As a result of the acquisitions of Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A. (MB&T), in April 2011 and of WSB Holdings, the parent company of The Washington Savings Bank (“WSB”), in May 2013, we have segmented the portfolio into two components, loans originated by Old Line Bank “Legacy” and loans acquired from MB&T and WSB “Acquired”.

 

Credit Policies and Administration

We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote a complete banking relationship rather than a transactional relationship. In an effort to manage risk, prior to funding, the loan committee consisting of the Executive Officers and seven members of the Board of Directors must approve by a majority vote all credit decisions in excess of a lending officer’s lending authority.

Management believes that it employs experienced lending officers, secures appropriate collateral and carefully monitors the financial condition of its borrowers and loan concentrations.

In addition to the internal business processes employed in the credit administration area, Old Line Bank retains an outside independent firm to review the loan portfolio. This firm performs a detailed annual review and an interim update. We use the results of the firm’s report to validate our internal ratings and we review the commentary on specific loans and on our loan administration activities in order to improve our operations.

Commercial Real Estate Loans

We finance commercial real estate for our clients, for owner occupied and investment properties, hospitality and land acquisition and development. Commercial real estate loans totaled $628.6 million and $600.7 million at March 31, 2015 and December 31, 2014, respectively. This lending has involved loans secured by owner‑occupied commercial buildings for office, storage and warehouse space, as well as non‑owner occupied commercial buildings. Our underwriting criteria for commercial real estate loans include maximum loan‑to‑value ratios, debt coverage ratios, secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial real estate may be large in size and may involve a greater degree of risk than one‑to‑four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. We will generally

13


 

finance owner occupied commercial real estate that does not exceed loan to value of 80% and investor real estate at a maximum loan to value of 75%.

Commercial real estate lending entails significant risks. Risks inherent in managing our commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate that may detrimentally impact the borrower’s ability to repay. We monitor the financial condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In addition, we meet with the borrower and/or perform site visits as required.

At March 31, 2015, we had approximately $90.9 million of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

Residential Real Estate Loans

We offer a variety of consumer oriented residential real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on owner occupied and investment properties. Our residential loan portfolio amounted to $218.1 million and $211.5 million at March 31, 2015 and December 31, 2014. Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the borrower’s primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which generally may not exceed 43%, collateral value, length of employment and prior credit history. A credit score of 660 is required. We do not originate any subprime residential real estate loans.

This segment of our portfolio also consists of funds advanced for construction of custom single family residences homes (where the home buyer is the borrower) and financing to builders for the construction of pre-sold homes and multi‑family housing.  These loans generally have short durations, meaning maturities typically of nine months or less.  Old Line Bank limits its construction lending risk through adherence to established underwriting procedures. These loans generally have short durations, meaning maturities typically of nine months or less. Residential houses, multi‑family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. The vast majority of these loans are concentrated in our primary market area.

Construction lending also entails significant risk. These risks generally involve larger loan balances concentrated with single borrowers with funds advanced upon the security of the land or the project under construction. An appraisal of the property estimates the value of the project “as is and as if” completed.  An appraisal of the property estimates the value of the project prior to completion of construction.  Thus, initial funds are advanced based on the current value of the property with the remaining construction funds advanced under a budget sufficient to successfully complete the project within the “as completed” loan to value.  To further mitigate the risks, we generally limit loan amounts to 80% or less of appraised values and obtain first lien positions on the property.

We generally only offer real estate construction financing only to experienced builders, commercial entities or individuals who have demonstrated the ability to obtain a permanent loan “take‑out” (conversion to a permanent mortgage upon completion of the project).  We also perform a complete analysis of the borrower and the project under construction. This analysis includes a review of the cost to construct, the borrower’s ability to obtain a permanent “take‑out” the cash flow available to support the debt payments and construction costs in excess of loan proceeds, and the value of the collateral. During construction, we advance funds on these loans on a percentage of completion basis. We inspect each project as needed prior to advancing funds during the term of the construction loan.  We may provide permanent financing on the same projects for which we have provided the construction financing.

We also offer fixed rate home improvement loans.  Our home equity and home improvement loan portfolio gives us a diverse client base.  Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk.  Usually, we secure our home equity loans and lines of credit with a security interest in the borrower’s primary or secondary residence.

Under our loan approval policy, all residential real estate loans approved must comply with federal regulations.  Generally, we will make residential mortgage loans in amounts up to the limits established from time to time by Fannie Mae and Freddie Mac for secondary market resale purposes.  This amount for single-family residential loans currently varies from $417,000 up to a maximum of $625,500 for certain high-cost designated areas.  We also make residential mortgage loans up to limits established by the Federal Housing Administration, which currently is $625,500.  The

14


 

Washington, D.C. and Baltimore areas are both considered high-cost designated areas.  We will, however, make loans in excess of these amounts if we believe that we can sell the loans in the secondary market or that the loans should be held in our portfolio.  For loans sold in the secondary market, we require a credit score of at least 640 with some exceptions to 620 for veterans.  Loans sold in the secondary market are sold to investors on a servicing released basis and recorded as loans held-for-sale.  The premium is recorded in gain on sale of loans in non-interest income, net of commissions paid to the loan officers.

Commercial and Industrial Lending

Our commercial and industrial lending consists of lines of credit, revolving credit facilities, accounts receivable financing, term loans, equipment loans, SBA loans, standby letters of credit and unsecured loans. We originate commercial loans for any business purpose including the financing of leasehold improvements and equipment, the carrying of accounts receivable, general working capital, and acquisition activities. We have a diverse client base and we do not have a concentration of these types of loans in any specific industry segment. We generally secure commercial business loans with accounts receivable, equipment, deeds of trust and other collateral such as marketable securities, cash value of life insurance and time deposits at Old Line Bank.

Commercial business loans have a higher degree of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the business. They may also involve high average balances, increased difficulty monitoring and a high risk of default. To help manage this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring generally includes a review of the borrower’s annual tax returns and updated financial statements.

Consumer Installment Lending

We offer various types of secured and unsecured consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. This category includes our luxury boat loans, which we made prior to 2008 and that remain in our portfolio.  Consumer loans, however, are not a focus of our lending activities.  The underwriting standards for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan. As a general guideline, a consumer’s total debt service should not exceed 40% of his or her gross income.

Consumer loans may present greater credit risk than residential mortgage loans because many consumer loans are unsecured or rapidly depreciating assets secure these loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower’s continuing financial stability. If a borrower suffers personal financial difficulties, the consumer may not repay the loan. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans.  However, in our opinion, many of these risks do not apply to the luxury boat portion of the loan portfolio due to the credit quality and liquidity of these borrowers.

Concentrations of Credit

Most of our lending activity occurs within the state of Maryland within the suburban Washington, D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s Counties. The majority of our loan portfolio consists of commercial real estate loans and residential real estate loans.

Non‑Accrual and Past Due Loans

We consider loans past due if the borrower has not paid the required principal and interest payments when due under the original or modified terms of the promissory note and place a loan on non‑accrual status when the payment of principal or interest has become 90 days past due. When we classify a loan as non‑accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected. We will generally restore a non‑accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non‑accrual legacy loans only when received.

15


 

We originally recorded purchased, credit‑impaired loans at fair value upon acquisition, and an accretable yield is established and recognized as interest income on purchased loans to the extent subsequent cash flows support the estimated accretable yield. Purchased, credit‑impaired loans that perform consistently with the accretable yield expectations are not reported as non‑accrual or non‑performing. However, purchased, credit‑impaired loans that do not continue to perform according to accretable yield expectations are considered impaired, and presented as non‑accrual and non‑performing. Currently, management expects to fully collect the carrying value of acquired, credit‑impaired loans.

 

The table below presents an aging analysis of the loans held for investment portfolio at March 31, 2015 and December 31, 2014.

 

Age Analysis of Past Due Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

    

Legacy

    

Acquired

    

Total

    

Legacy

    

Acquired

    

Total

 

Current

 

$

793,576,140 

 

$

165,955,647 

 

$

959,531,787 

 

$

746,375,748 

 

$

173,731,329 

 

$

920,107,077 

 

Accruing past due loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-89 days past due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Investment

 

 

117,000 

 

 

 —

 

 

117,000 

 

 

 —

 

 

572,565 

 

 

572,565 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

427,652 

 

 

360,482 

 

 

788,134 

 

 

297,221 

 

 

189,739 

 

 

486,960 

 

First-Owner Occupied

 

 

 —

 

 

2,645,012 

 

 

2,645,012 

 

 

 —

 

 

1,423,752 

 

 

1,423,752 

 

Land and A&D

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

168,875 

 

 

168,875 

 

HELOC and Jr. Liens

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

87,703 

 

 

87,703 

 

Commercial

 

 

169,266 

 

 

43,698 

 

 

212,964 

 

 

45,483 

 

 

1,167,538 

 

 

1,213,021 

 

Consumer

 

 

136,993 

 

 

4,176 

 

 

141,169 

 

 

 —

 

 

9,308 

 

 

9,308 

 

Total 30-89 days past due

 

 

850,911 

 

 

3,053,368 

 

 

3,904,279 

 

 

342,704 

 

 

3,619,480 

 

 

3,962,184 

 

90 or more days past due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

First-Owner Occupied

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

305,323 

 

 

305,323 

 

Land and A&D

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Commercial

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total 90 or more days past due

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

305,323 

 

 

305,323 

 

Total accruing past due loans

 

 

850,911 

 

 

3,053,368 

 

 

3,904,279 

 

 

342,704 

 

 

3,924,803 

 

 

4,267,507 

 

Recorded Investment Non-accruing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

18,530 

 

 

55,501 

 

 

74,031 

 

 

1,849,685 

 

 

55,707 

 

 

1,905,392 

 

Investment

 

 

 —

 

 

206,050 

 

 

206,050 

 

 

 —

 

 

 —

 

 

 —

 

Hospitality

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

First-Investment

 

 

110,559 

 

 

368,646 

 

 

479,205 

 

 

113,264 

 

 

310,735 

 

 

423,999 

 

First-Owner Occupied

 

 

 —

 

 

1,092,690 

 

 

1,092,690 

 

 

 —

 

 

795,920 

 

 

795,920 

 

Land and A&D

 

 

 —

 

 

795,300 

 

 

795,300 

 

 

 —

 

 

795,300 

 

 

795,300 

 

Commercial

 

 

975,859 

 

 

 —

 

 

975,859 

 

 

1,165,955 

 

 

 —

 

 

1,165,955 

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

120,641 

 

 

 —

 

 

120,641 

 

Total Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-accruing past due loans:

 

 

1,104,948 

 

 

2,518,187 

 

 

3,623,135 

 

 

3,249,545 

 

 

1,957,662 

 

 

5,207,207 

 

Total Loans

 

$

795,531,999 

 

$

171,527,202 

 

$

967,059,201 

 

$

749,967,997 

 

$

179,613,794 

 

$

929,581,791 

 

 

16


 

We consider all non-performing loans and troubled debt restructurings (TDRs) to be impaired. We do not recognize interest income on non-performing loans during the time period that the loans are non-performing. We only recognize interest income on non-performing loans when we receive payment in full for all amounts due of all contractually required principle and interest, and the loan is current with its contractual terms.

 

The tables below present our impaired loans at and for the periods ended March 31, 2015 and December 31, 2014.

 

Impaired Loans

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months March 31, 2015

 

 

    

Unpaid

    

 

 

    

 

 

    

Average

    

Interest

  

 

 

Principal

 

Recorded

 

Related

 

Recorded

 

Income

 

 

 

Balance

 

Investment

 

Allowance

 

Investment

 

Recognized

 

Legacy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

260,181 

 

$

260,181 

 

$

 —

 

$

261,197 

 

$

1,123 

 

Investment

 

 

1,302,483 

 

 

1,302,483 

 

 

 —

 

 

1,308,729 

 

 

4,830 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

110,559 

 

 

110,559 

 

 

 —

 

 

333,990 

 

 

 —

 

Commercial

 

 

688,327 

 

 

688,327 

 

 

 —

 

 

2,782,980 

 

 

 —

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

278,711 

 

 

18,530 

 

 

18,530 

 

 

39,526 

 

 

 —

 

Commercial

 

 

1,759,281 

 

 

456,798 

 

 

113,151 

 

 

1,282,317 

 

 

2,631 

 

Total legacy impaired

 

 

4,399,542 

 

 

2,836,878 

 

 

131,681 

 

 

6,008,739 

 

 

8,584 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

48,359 

 

 

55,501 

 

 

 —

 

 

48,359 

 

 

 —

 

     Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Owner Investment

 

 

312,293 

 

 

310,849 

 

 

 —

 

 

1,041,098 

 

 

 —

 

First-Owner Occupied

 

 

1,050,254 

 

 

225,928 

 

 

 —

 

 

756,380 

 

 

 —

 

Land and A&D

 

 

62,613 

 

 

 —

 

 

 —

 

 

666,149 

 

 

 —

 

     Commercial

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

 

210,311 

 

 

206,050 

 

 

51,512 

 

 

210,311 

 

 

 —

 

Land and A&D

 

 

830,949 

 

 

795,300 

 

 

360,500 

 

 

1,500,958 

 

 

 —

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Owner Investment

 

 

57,001 

 

 

57,797 

 

 

14,449 

 

 

57,001 

 

 

 —

 

First-Owner Occupied

 

 

354,047 

 

 

868,766 

 

 

81,917 

 

 

1,416,959 

 

 

 —

 

Total acquired impaired

 

 

2,925,827 

 

 

2,520,191 

 

 

508,378 

 

 

5,697,215 

 

 

 —

 

Total impaired

 

$

7,325,369 

 

$

5,357,069 

 

$

640,059 

 

$

11,705,954 

 

$

8,584 

 

 


(1)

Generally accepted accounting principles require that we initially record acquired loans at fair value which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet the definition of an acquired, credit-impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.  Acquired, credit-impaired loans where the cash flows do not perform according to initial accretable yield estimates are considered impaired.

 

17


 

Impaired Loans

 December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve months December 31, 2014

 

 

 

 

 

 

    

Unpaid

    

 

 

    

 

 

    

Average

    

Interest

 

 

 

 

Principal

 

Recorded

 

Related

 

Recorded

 

Income

 

 

 

 

Balance

 

Investment

 

Allowance

 

Investment

 

Recognized

 

 

Legacy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

2,113,173 

 

$

2,113,173 

 

$

 —

 

$

2,111,733 

 

$

18,318

 

 

Investment

 

 

1,319,280 

 

 

1,319,280 

 

 

 —

 

 

1,315,243 

 

 

58,664

 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

113,264 

 

 

113,264 

 

 

 —

 

 

112,027 

 

 

 —

 

 

Commercial

 

 

979,039 

 

 

979,039 

 

 

 —

 

 

975,224 

 

 

4,767 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

375,450 

 

 

375,450 

 

 

159,040 

 

 

365,860 

 

 

13,101 

 

 

Consumer

 

 

120,641 

 

 

120,641 

 

 

56,500 

 

 

120,641 

 

 

1,038 

 

 

Total legacy impaired

 

 

5,020,847 

 

 

5,020,847 

 

 

215,540 

 

 

5,000,728 

 

 

95,888 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

48,359 

 

 

55,706 

 

 

 —

 

 

48,359 

 

 

1,742 

 

 

Land and A&D

 

 

1,309,568 

 

 

595,300 

 

 

 —

 

 

1,201,246 

 

 

8,357 

 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Owner Occupied

 

 

1,058,125 

 

 

1,016,765 

 

 

 —

 

 

1,055,774 

 

 

17,782 

 

 

Investment

 

 

311,089 

 

 

310,735 

 

 

 —

 

 

311,089 

 

 

14,866 

 

 

Land and A&D

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

Commercial

 

 

83,857 

 

 

83,857 

 

 

 —

 

 

83,717 

 

 

4,512 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land and A&D

 

 

223,336 

 

 

200,000 

 

 

20,000 

 

 

223,536 

 

 

10,529 

 

 

Total acquired impaired

 

 

3,034,334 

 

 

2,262,363 

 

 

20,000 

 

 

2,923,721 

 

 

57,788 

 

 

Total impaired

 

$

8,055,181 

 

$

7,283,210 

 

$

235,540 

 

$

7,924,449 

 

$

153,676

 

 


(1)

Generally accepted accounting principles require that we initially record acquired loans at fair value which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet the definition of an acquired, credit-impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.  Acquired, credit-impaired loans where the cash flows do not perform according to initial accretable yield estimates are considered impaired.

 

We consider a loan a TDR when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties.  Restructured loans at March 31, 2015 consisted of four loans for $583 thousand compared to four loans at December 31, 2014 for $589 thousand

18


 

We had no loans that were modified as a TDR during the three month periods ending March 31, 2015 or 2014.  We had no loans that were modified as a TDR that defaulted within twelve months of the modification date during the three month period ending March 31, 2015.

 

Acquired impaired loans

 

The following table documents changes in the accretable discount on acquired impaired loans during the three months ended March 31, 2015 and 2014, along with the outstanding balances and related carrying amounts for the beginning and end of those respective periods.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2015

    

2014

 

Balance at beginning of period

 

$

(31,551)

 

$

40,771 

 

Accretion of fair value discounts

 

 

(189,886)

 

 

(299,629)

 

Reclassification from non-accretable

 

 

191,171 

 

 

236,909 

 

Balance at end of period

 

$

(30,266)

 

$

(21,949)

 

 

 

 

 

 

 

 

 

 

 

 

    

Contractually

    

 

 

 

 

 

Required Payments

 

 

 

 

 

 

Receivable

 

Carrying Amount

 

At March 31, 2015

 

$

9,872,653 

 

$

7,887,269 

 

At December 31, 2014

 

 

10,658,840 

 

 

7,994,604 

 

At March 31, 2014

 

 

11,884,789 

 

 

8,456,379 

 

At December 31, 2013

 

 

12,482,792 

 

 

8,742,777 

 

 

Credit Quality Indicators

 

We review the adequacy of the allowance for loan losses at least quarterly.  We base the evaluation of the adequacy of the allowance for loan losses upon loan categories.  We categorize loans as residential real estate loans, commercial real estate loans, commercial loans and consumer loans.  We further divide commercial real estate loans by owner occupied, investment, hospitality and land acquisition and development.  We also divide residential real estate by owner occupied, investment, land acquisition and development and junior liens.  All categories are divided by risk rating and loss factors and weighed by risk rating to determine estimated loss amounts.  We evaluate delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with collateral separately and assign loss amounts based upon the evaluation.

 

We determine loss ratios for all loans based upon a review of the three year loss ratio for the category and qualitative factors.

 

We charge off loans that management has identified as losses.  We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge off.  We automatically charge off consumer loan accounts based on regulatory requirements.

 

If a loan that was previously rated a pass performing loan, from our acquisitions, deteriorates subsequent to the acquisition, the subject loan will be assessed for risk and, if necessary, evaluated for impairment.  If the risk assessment rating is adversely changed and the loan is determined to not be impaired, the loan will be placed in a migration category and the credit mark established for the loan will be compared to the general reserve allocation that would be applied using the current allowance for loan losses formula for General Reserves.  If the credit mark exceeds the allowance for loan losses formula for General Reserves, there will be no change to the allowance for loan losses.  If the credit mark is less than the current allowance for loan losses formula for General Reserves, the allowance for loan losses will be increased by the amount of the shortfall by a provision recorded in the income statement. If the loan is deemed impaired, the loan will be subject to evaluation for loss exposure and a specific reserve.  If the estimate of loss exposure exceeds the credit mark, the allowance for loan losses will be increased by the amount of the excess loss exposure through a provision.  If the credit mark exceeds the estimate of loss exposure there will be no change to the allowance for loan losses.  If a loan from the acquired loan portfolio

19


 

is carrying a specific credit mark and a current evaluation determines that there has been an increase in loss exposure, the allowance for loan losses will be increased by the amount of the current loss exposure in excess of the credit mark.

 

The following tables outline the class of loans by risk rating at March 31, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

Account Balance

 

 

    

Legacy

    

Acquired

    

Total

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

Pass (1-5)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

191,524,061 

 

$

24,398,121 

 

$

215,922,182 

 

Investment

 

 

224,731,628 

 

 

39,623,989 

 

 

264,355,617 

 

Hospitality

 

 

82,633,703 

 

 

8,233,513 

 

 

90,867,216 

 

Land and A&D

 

 

41,205,987 

 

 

4,403,405 

 

 

45,609,392 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

55,886,496 

 

 

20,068,439 

 

 

75,954,935 

 

First-Owner Occupied

 

 

34,555,183 

 

 

44,773,040 

 

 

79,328,223 

 

Land and A&D

 

 

22,621,823 

 

 

5,915,373 

 

 

28,537,196 

 

HELOC and Jr. Liens

 

 

20,877,956 

 

 

2,777,758 

 

 

23,655,714 

 

Commercial

 

 

100,615,089 

 

 

6,064,278 

 

 

106,679,367 

 

Consumer

 

 

8,500,027 

 

 

308,374 

 

 

8,808,401 

 

 

 

 

783,151,953 

 

 

156,566,290 

 

 

939,718,243 

 

Special Mention (6)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

352,985 

 

 

2,412,662 

 

 

2,765,647 

 

Investment

 

 

1,236,925 

 

 

667,480 

 

 

1,904,405 

 

Hospitality

 

 

 —

 

 

 —

 

 

 —

 

Land and A&D

 

 

2,741,563 

 

 

355,172 

 

 

3,096,735 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

1,192,861 

 

 

645,841 

 

 

1,838,702 

 

First-Owner Occupied

 

 

81,433 

 

 

2,303,024 

 

 

2,384,457 

 

Land and A&D

 

 

1,634,639 

 

 

698,880 

 

 

2,333,519 

 

HELOC and Jr. Liens

 

 

6,922 

 

 

 —

 

 

6,922 

 

Commercial

 

 

1,428,443 

 

 

1,341,904 

 

 

2,770,347 

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

8,675,771 

 

 

8,424,963 

 

 

17,100,734 

 

Substandard (7)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

1,146,108 

 

 

630,501 

 

 

1,776,609 

 

Investment

 

 

1,302,483 

 

 

959,418 

 

 

2,261,901 

 

Hospitality

 

 

 —

 

 

 —

 

 

 —

 

Land and A&D

 

 

 —

 

 

 —

 

 

 —

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

110,559 

 

 

834,609 

 

 

945,168 

 

First-Owner Occupied

 

 

 —

 

 

1,696,688 

 

 

1,696,688 

 

Land and A&D

 

 

 —

 

 

1,445,847 

 

 

1,445,847 

 

HELOC and Jr. Liens

 

 

 —

 

 

 —

 

 

 —

 

Commercial

 

 

1,145,125 

 

 

968,886 

 

 

2,114,011 

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

3,704,275 

 

 

6,535,949 

 

 

10,240,224 

 

Doubtful (8)

 

 

 —

 

 

 —

 

 

 —

 

Loss (9)

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

795,531,999 

 

$

171,527,202 

 

$

967,059,201 

 

 

 

20


 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Account Balance

 

 

    

Legacy

    

Acquired

    

Total

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

Pass (1-5)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

189,360,330 

 

$

24,816,057 

 

$

214,176,387 

 

Investment

 

 

205,395,067 

 

 

40,023,958 

 

 

245,419,025 

 

Hospitality

 

 

76,342,916 

 

 

8,319,644 

 

 

84,662,560 

 

Land and A&D

 

 

37,227,339 

 

 

4,419,829 

 

 

41,647,168 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

48,263,092 

 

 

22,746,166 

 

 

71,009,258 

 

First-Owner Occupied

 

 

31,740,158 

 

 

47,472,349 

 

 

79,212,507 

 

Land and A&D

 

 

20,601,936 

 

 

6,396,128 

 

 

26,998,064 

 

HELOC and Jr. Liens

 

 

20,847,571 

 

 

3,046,749 

 

 

23,894,320 

 

Commercial

 

 

94,818,009 

 

 

6,847,628 

 

 

101,665,637 

 

Consumer

 

 

9,272,091 

 

 

313,739 

 

 

9,585,830 

 

 

 

 

733,868,509 

 

 

164,402,247 

 

 

898,270,756 

 

Special Mention (6)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

357,092 

 

 

2,444,375 

 

 

2,801,467 

 

Investment

 

 

1,731,771 

 

 

846,789 

 

 

2,578,560 

 

Hospitality

 

 

 

 

 

 

 

Land and A&D

 

 

3,033,167 

 

 

365,924 

 

 

3,399,091 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

1,202,506 

 

 

649,375 

 

 

1,851,881 

 

First-Owner Occupied

 

 

82,616 

 

 

2,367,157 

 

 

2,449,773 

 

Land and A&D

 

 

1,637,727 

 

 

710,163 

 

 

2,347,890 

 

HELOC and Jr. Liens

 

 

7,166 

 

 

 

 

7,166 

 

Commercial

 

 

2,147,102 

 

 

1,871,103 

 

 

4,018,205 

 

Consumer

 

 

 

 

 

 

 

 

 

 

10,199,147 

 

 

9,254,886 

 

 

19,454,033 

 

Substandard (7)

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

3,006,294 

 

 

630,707 

 

 

3,637,001 

 

Investment

 

 

1,315,243 

 

 

754,079 

 

 

2,069,322 

 

Hospitality

 

 

 —

 

 

 

 

 —

 

Land and A&D

 

 

 

 

 

 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

113,264 

 

 

790,030 

 

 

903,294 

 

First-Owner Occupied

 

 

 —

 

 

1,402,848 

 

 

1,402,848 

 

Land and A&D

 

 

 

 

1,402,947 

 

 

1,402,947 

 

HELOC and Jr. Liens

 

 

 

 

 

 

 

Commercial

 

 

1,344,899 

 

 

976,050 

 

 

2,320,949 

 

Consumer

 

 

120,641 

 

 

 

 

120,641 

 

 

 

 

5,900,341 

 

 

5,956,661 

 

 

11,857,002 

 

Doubtful (8)

 

 

 

 

 

 

 

Loss (9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

749,967,997 

 

$

179,613,794 

 

$

929,581,791 

 

 

21


 

 

 

 

 

The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2015 and 2014.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Commercial

    

Residential

    

 

    

 

 

Three Months Ended March 31, 2015

 

Commercial

 

Real Estate

 

Real Estate

 

Consumer

 

Total

 

Beginning balance

 

$

696,371 

 

$

2,558,368 

 

$

926,995 

 

$

100,101 

 

$

4,281,835 

 

General provision for loan losses

 

 

247,099 

 

 

36,271 

 

 

357,460 

 

 

(79,099)

 

 

561,731 

 

Recoveries

 

 

942 

 

 

20 

 

 

10,158 

 

 

20,603 

 

 

31,723 

 

 

 

 

944,412 

 

 

2,594,659 

 

 

1,294,613 

 

 

41,605 

 

 

4,875,289 

 

Loans charged off

 

 

(182,741)

 

 

 —

 

 

(56,500)

 

 

 —

 

 

(239,241)

 

Ending Balance

 

$

761,671 

 

$

2,594,659 

 

$

1,238,113 

 

$

41,605 

 

$

4,636,048 

 

Amount allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

113,151 

 

$

 —

 

$

18,530 

 

$

 —

 

$

131,681 

 

Other loans not individually evaluated

 

 

648,520 

 

 

2,543,147 

 

 

762,717 

 

 

41,605 

 

 

3,995,989 

 

Acquired Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

 

 —

 

 

51,512 

 

 

456,866 

 

 

 —

 

 

508,378 

 

Ending balance

 

$

761,671 

 

$

2,594,659 

 

$

1,238,113 

 

$

41,605 

 

$

4,636,048 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Commercial

    

Residential

    

 

    

 

 

Three Months Ended March 31, 2014

 

Commercial

 

Real Estate

 

Real Estate

 

Consumer

 

Total

 

Beginning balance

 

$

495,051 

 

$

3,569,395 

 

$

841,234 

 

$

23,533 

 

$

4,929,213 

 

General provision for loan losses

 

 

76,063 

 

 

159,543 

 

 

91,713 

 

 

11,251 

 

 

338,570 

 

Provision for loan losses for loans acquired with deteriorated credit quality

 

 

(5,907)

 

 

(138,480)

 

 

75,586 

 

 

 —

 

 

(68,801)

 

Recoveries

 

 

2,496 

 

 

40 

 

 

7,670 

 

 

4,026 

 

 

14,232 

 

 

 

 

567,703 

 

 

3,590,498 

 

 

1,016,203 

 

 

38,810 

 

 

5,213,214 

 

Loans charged off

 

 

(1,000)

 

 

 —

 

 

(320,006)

 

 

(10,269)

 

 

(331,275)

 

Ending Balance

 

$

566,703 

 

$

3,590,498 

 

$

696,197 

 

$

28,541 

 

$

4,881,939 

 

Amount allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

185,846 

 

$

1,385,160 

 

$

 —

 

$

 —

 

$

1,571,006 

 

Other loans not individually evaluated

 

 

101,821 

 

 

2,205,338 

 

 

512,427 

 

 

28,541 

 

 

2,848,127 

 

Acquired Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

 

279,036 

 

 

 —

 

 

183,770 

 

 

 —

 

 

462,806 

 

Ending balance

 

$

566,703 

 

$

3,590,498 

 

$

696,197 

 

$

28,541 

 

$

4,881,939 

 

 

 

22


 

Our recorded investment in loans at March 31, 2015 and 2014 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Commercial

    

Residential

    

 

 

    

 

 

 

March 31, 2015

 

Commercial

 

Real Estate

 

Real Estate

 

Consumer

 

Total

 

Legacy loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment with specific reserve

 

$

456,798 

 

$

 —

 

$

18,530 

 

$

 —

 

$

475,328 

 

Individually evaluated for impairment without specific reserve

 

 

688,327 

 

 

1,562,664 

 

 

110,559 

 

 

 —

 

 

2,361,550 

 

Other loans not individually evaluated

 

 

102,043,532 

 

 

545,312,779 

 

 

136,838,784 

 

 

8,500,027 

 

 

792,695,122 

 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)

 

 

 —

 

 

55,501 

 

 

1,054,178 

 

 

 —

 

 

1,109,679 

 

Individually evaluated for impairment with specific reserve (ASC 310-30 at acquisition)

 

 

 —

 

 

206,050 

 

 

1,204,462 

 

 

 —

 

 

1,410,512 

 

Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)

 

 

8,375,068 

 

 

81,422,709 

 

 

78,900,859 

 

 

308,374 

 

 

169,007,010 

 

Ending balance

 

$

111,563,725 

 

$

628,559,703 

 

$

218,127,372 

 

$

8,808,401 

 

$

967,059,201 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

Commercial

Residential

    

 

    

 

 

 

March 31, 2014

 

Commercial

 

 

Real Estate

Real Estate

 

Consumer

 

Total

 

Legacy loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment with specific reserve

 

$

439,694 

 

$

5,824,940 

 

$

 —

 

$

 —

 

$

6,264,634 

 

Individually evaluated for impairment without specific reserve

 

 

752,182 

 

 

2,120,282 

 

 

120,478 

 

 

 —

 

 

2,992,942 

 

Other loans not individually evaluated

 

 

87,319,319 

 

 

436,230,697 

 

 

99,467,152 

 

 

9,759,318 

 

 

632,776,486 

 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)

 

 

 —

 

 

372,048 

 

 

482,631 

 

 

 —

 

 

854,679 

 

Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)

 

 

86,813 

 

 

 —

 

 

515,826 

 

 

 —

 

 

602,639 

 

Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)

 

 

 —

 

 

 —

 

 

232,027 

 

 

 —

 

 

232,027 

 

Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)

 

 

10,085,609 

 

 

95,166,297 

 

 

103,563,849 

 

 

775,542 

 

 

209,591,297 

 

Ending balance

 

$

98,683,617 

 

$

539,714,264 

 

$

204,381,963 

 

$

10,534,860 

 

$

853,314,704 

 

 

 

 

 

 

5.OTHER REAL ESTATE OWNED

 

At March 31, 2015 and December 31, 2014, the fair value of other real estate owned was $1.6 million and $2.5 million, respectively.  As a result of the acquisitions of Maryland Bankcorp and WSB Holdings, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T and WSB or obtained as a result of loans originated by MB&T and WSB (acquired).

 

23


 

The following outlines the transactions in other real estate owned during the period.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2015

    

Legacy

    

Acquired

    

Total

 

Beginning balance

 

$

475,291 

 

$

1,976,629 

 

$

2,451,920 

 

Additional write down of real estate owned

 

 

 —

 

 

(57,375)

 

 

(57,375)

 

Sales/deposit on sales

 

 

 —

 

 

(659,776)

 

 

(659,776)

 

Net realized gain (loss) on sale of real estate owned

 

 

 —

 

 

(134,754)

 

 

(134,754)

 

Ending balance owned

 

$

475,291 

 

$

1,124,724 

 

$

1,600,015 

 

 

 

 

 

Residential Foreclosures and Repossessed Assets — Once all potential alternatives for reinstatement are exhausted, past due loans collateralized by residential real estate are referred for foreclosure proceedings in accordance with local requirements of the applicable jurisdiction. Once possession of the property collateralizing the loan is obtained, the repossessed property will be recorded within other assets either as other real estate owned or, where management has both the intent and ability to recover its losses through a government guarantee, as a foreclosure claim receivable.  At March 31, 2015, residential foreclosures classified as other real estate owned totaled $336 thousand.  Loans secured by residential real estate in process of foreclosure totaled $2.7 million at March 31, 2015.

 

 

 

 

 

6.EARNINGS PER COMMON SHARE

 

We determine basic earnings per common share by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding giving retroactive effect to stock dividends.

 

We calculate diluted earnings per common share by including the average dilutive common stock equivalents outstanding during the period.  Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

    

2015

    

2014

Weighted average number of shares

 

10,807,366 

 

10,780,141 

Dilutive average number of shares

 

10,899,030 

 

10,942,110 

 

 

 

 

 

7.STOCK BASED COMPENSATION

 

For the three months ended March 31, 2015 and 2014, we recorded stock-based compensation expense of $91,902 and $126,802, respectively.  At March 31, 2015, there was $318,629 of total unrecognized compensation cost related to non-vested stock options and restricted stock awards that we expect to realize over the next 2.25 years. As of March 31, 2015, there were 425,264 shares remaining available for future issuance under the equity incentive plans. The directors and officers did not exercise any options during the three month period ended March 31, 2015 and 2014.

 

For purposes of determining estimated fair value of stock options and restricted stock awards, we have computed the estimated fair values of all stock-based compensation using the Black-Scholes option pricing model and, for stock options and restricted stock awards granted prior to December 31, 2014, have applied the assumptions set forth in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2014.  During the three months ended March 31, 2015 and 2014, we granted 50,597 and 50,759 stock options, respectively.  The weighted average grant date fair value of these 2015 stock options is $5.09 and was computed using the Black-Scholes option pricing model under similar assumptions.

 

During the three months ended March 31, 2015 and 2014, we granted 9,331 and 8,257 restricted common stock awards, respectively. The weighted average grant date fair value of these restricted stock awards is $14.38 at

24


 

March 31, 2015. There were no restricted shares forfeited during the three month periods ending March 31, 2015 and 2014.

 

8.FAIR VALUE MEASUREMENT

 

The fair value of an asset or liability is the price that participants would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction.  Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

 

The fair value hierarchy established by accounting standards defines three input levels for fair value measurement.  The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1 is based on quoted market prices in active markets for identical assets.  Level 2 is based on significant observable inputs other than Level 1 prices.  Level 3 is based on significant unobservable inputs that reflect a company’s own assumptions about the assumption that market participants would use in pricing an asset or liability.  We evaluate fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels.  For the three months ended March 31, 2015 and year ended December 31, 2014, there were no transfers between levels.

 

At March 31, 2015, we hold, as part of our investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S. government sponsored entities, mortgage-backed securities.  The fair value of the majority of these securities is determined using widely accepted valuation techniques including matrix pricing and broker-quote based applications.  Inputs include benchmark yields, reported trades, issuer spreads, prepayments speeds and other relevant items.  These are inputs used by a third-party pricing service used by us.

 

To validate the appropriateness of the valuations provided by the third party, we regularly update the understanding of the inputs used and compare valuations to an additional third party source.  We classify all our investment securities available for sale in Level 2 of the fair value hierarchy, with the exception of treasury securities which fall into Level 1.

 

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2015 (In thousands)

 

 

    

    

 

    

Quoted Prices in

    

Other

    

Significant

    

Total Changes

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

in Fair Values

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

Included in

 

 

 

Carrying Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Period Earnings

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury securities

 

$

3,003 

 

$

3,003 

 

$

 —

 

$

 —

 

$

 —

 

U.S. government agency

 

 

38,319 

 

 

 —

 

 

38,319 

 

 

 —

 

 

 —

 

Municipal securities

 

 

42,371 

 

 

 —

 

 

42,371 

 

 

 —

 

 

 —

 

FHLMC MBS

 

 

19,833 

 

 

 —

 

 

19,833 

 

 

 —

 

 

 —

 

FNMA MBS

 

 

17,445 

 

 

 —

 

 

17,445 

 

 

 —

 

 

 —

 

GNMA MBS

 

 

31,722 

 

 

 —

 

 

31,722 

 

 

 —

 

 

 —

 

SBA loan pools

 

 

5,688 

 

 

 —

 

 

5,688 

 

 

 —

 

 

 —

 

Total recurring assets at fair value

 

$

158,381 

 

$

3,003 

 

$

155,378 

 

$

 —

 

$

 —

 

 

 

 

25


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014 (In thousands)

 

 

    

    

 

    

Quoted Prices in

    

Other

    

Significant

    

Total Changes

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

in Fair Values

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

Included in

 

 

 

Carrying Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Period Earnings

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury securities

 

$

3,006 

 

$

3,006 

 

$

 —

 

$

 —

 

$

 —

 

U.S. government agency

 

 

37,656 

 

 

 —

 

 

37,656 

 

 

 —

 

 

 —

 

Municipal securities

 

 

43,546 

 

 

 —

 

 

43,546 

 

 

 —

 

 

 —

 

FHLMC MBS

 

 

20,471 

 

 

 —

 

 

20,471 

 

 

 —

 

 

 —

 

FNMA MBS

 

 

17,867 

 

 

 —

 

 

17,867 

 

 

 —

 

 

 —

 

GNMA MBS

 

 

33,139 

 

 

 —

 

 

33,139 

 

 

 —

 

 

 —

 

SBA loan pools

 

 

5,995 

 

 

 —

 

 

5,995 

 

 

 —

 

 

 —

 

Total recurring assets at fair value

 

$

161,680 

 

$

3,006 

 

$

158,674 

 

$

 —

 

$

 —

 

 

Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes our methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.  Furthermore, we have not comprehensively revalued the fair value amounts since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the above presented amounts.

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

We may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014 are included in the tables below.

 

We also measure certain non-financial assets such as other real estate owned, TDRs, and repossessed or foreclosed property at fair value on a non-recurring basis. Generally, we estimate the fair value of these items using Level 2 inputs based on observable market data or Level 3 inputs based on discounting criteria.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2015 (In thousands)

 

 

    

    

 

    

Quoted Prices in

    

Other

    

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Carrying Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy:

 

$

1,143 

 

$

 —

 

$

 —

 

$

1,143 

 

Acquired:

 

 

2,381 

 

 

 —

 

 

 —

 

 

2,381 

 

Total Impaired Loans

 

 

3,524 

 

 

 —

 

 

 —

 

 

3,524 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy:

 

 

475 

 

 

 —

 

 

 —

 

 

475 

 

Acquired:

 

 

1,125 

 

 

 —

 

 

 —

 

 

1,125 

 

Total other real estate owned:

 

 

1,600 

 

 

 —

 

 

 —

 

 

1,600 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,124 

 

$

 —

 

$

 —

 

$

5,124 

 

 

 

 

26


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014 (In thousands)

 

 

    

    

 

    

Quoted Prices in

    

Other

    

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Carrying Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy:

 

$

4,805 

 

$

 —

 

$

 —

 

$

4,805 

 

Acquired:

 

 

2,242 

 

 

 —

 

 

 —

 

 

2,242 

 

Total Impaired Loans

 

 

7,047 

 

 

 —

 

 

 —

 

 

7,047 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy:

 

 

475 

 

 

 —

 

 

 —

 

$

475 

 

Acquired:

 

 

1,977 

 

 

 —

 

 

 —

 

 

1,977 

 

Total other real estate owned:

 

 

2,452 

 

 

 —

 

 

 —

 

 

2,452 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,499 

 

$

 —

 

$

 —

 

$

9,499 

 

 

As of March 31, 2015 and December 31, 2014, we estimated the fair value of impaired assets using Level 3 inputs to be $5.1 million and $9.5 million, respectively.  We determined these Level 3 inputs based on appraisal evaluations, offers to purchase and/or appraisals that we obtained from an outside third party during the preceding twelve months less costs to sell.  Discounts have predominantly been in the range of 0% to 50%.  As a result of the acquisition of Maryland Bankcorp and WSB Holdings, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T and WSB or obtained as a result of loans originated by MB&T and WSB (acquired).

 

We use the following methodologies for estimating fair values of financial instruments that we do not measure on a recurring basis.  The estimated fair values of financial instruments equal the carrying value of the instruments except as noted.

 

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value because of the short maturities of these instruments.

 

Loans- We estimate the fair value of loans, segregated by type based on similar financial characteristics, by discounting future cash flows using current rates for which we would make similar loans to borrowers with similar credit histories.  We then adjust this calculated amount for any credit impairment.

 

Loans held for Sale- Loans held for sale are carried at the lower of cost or market value.  The fair values of loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

 

Investment Securities- We base the fair values of investment securities upon quoted market prices or dealer quotes.

 

Equity Securities- Equity securities are considered restricted stock and are carried at cost which approximates fair value.

 

Bank Owned Life Insurance - The carrying amount of Bank Owned Life Insurance (“BOLI”) purchased on a group of officers is a reasonable estimate of fair value.  BOLI is an insurance product that provides an effective way to offset current employee benefit costs.

 

Accrued Interest Receivable and Payable- The carrying amount of accrued interest and dividends receivable on loans and investments and payable on borrowings and deposits approximate their fair values.

 

Interest bearing deposits-The fair value of demand deposits and savings accounts is the amount payable on demand.  We estimate the fair value of fixed maturity certificates of deposit using the rates currently offered for deposits of similar remaining maturities.

 

27


 

Non-Interest bearing deposits- The fair value of non-interest bearing accounts is the amount payable on demand at the reporting date.

 

Long and short term borrowings- The fair value of long and short term fixed rate borrowings is estimated by discounting the value of contractual cash flows using rates currently offered for advances with similar terms and remaining maturities.

 

Off-balance Sheet Commitments and Contingencies- Carrying amounts are reasonable estimates of the fair values for such financial instruments.  Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to our financial position.

 

Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates.  The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments.  We must report in earnings unrealized gains and losses on items for which we have elected the fair value measurement option at each subsequent reporting date.  We measure certain financial assets and financial liabilities at fair value on a non-recurring basis.  These assets and liabilities are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015 (In thousands)

 

 

    

    

 

    

    

 

    

Quoted Prices

    

Significant

    

Significant

 

 

 

 

 

 

Total

 

in Active

 

Other

 

Other

 

 

 

Carrying

 

Estimated

 

Markets for

 

Observable

 

Unobservable

 

 

 

Amount

 

Fair

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(000’s)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,767 

 

$

38,767 

 

$

38,767 

 

$

 —

 

$

 —

 

Loans receivable, net

 

 

963,707 

 

 

981,184 

 

 

 —

 

 

 —

 

 

981,184 

 

Loans held for sale

 

 

8,692 

 

 

9,008 

 

 

 —

 

 

9,008 

 

 

 —

 

Investment securities available for sale

 

 

158,381 

 

 

158,381 

 

 

3,003 

 

 

155,378 

 

 

 —

 

Equity Securities at cost

 

 

3,353 

 

 

3,353 

 

 

 —

 

 

3,353 

 

 

 —

 

Bank Owned Life Insurance

 

 

31,643 

 

 

31,643 

 

 

 —

 

 

31,643 

 

 

 —

 

Accrued interest receivable

 

 

3,173 

 

 

3,173 

 

 

 —

 

 

693 

 

 

2,480 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

 

 

269,733 

 

 

269,733 

 

 

 —

 

 

269,733 

 

 

 —

 

Interest bearing

 

 

781,719 

 

 

787,204 

 

 

 —

 

 

787,204 

 

 

 —

 

Short term borrowings

 

 

71,236 

 

 

71,236 

 

 

 —

 

 

71,236 

 

 

 —

 

Long term borrowings

 

 

5,958 

 

 

5,867 

 

 

 —

 

 

5,867 

 

 

 —

 

Accrued Interest payable

 

 

284 

 

 

284 

 

 

 —

 

 

284 

 

 

 —

 

 

 

 

28


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014 (In thousands)

 

 

    

    

 

    

    

 

    

Quoted Prices

    

Significant

    

Significant

 

 

 

 

 

 

Total

 

in Active

 

Other

 

Other

 

 

 

Carrying

 

Estimated

 

Markets for

 

Observable

 

Unobservable

 

 

 

Amount

 

Fair

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(000’s)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,405 

 

$

25,405 

 

$

25,405 

 

$

 —

 

$

 —

 

Loans receivable, net

 

 

926,573 

 

 

935,397 

 

 

 —

 

 

 —

 

 

935,397 

 

Loans held for sale

 

 

4,548 

 

 

4,754 

 

 

 —

 

 

4,754 

 

 

 —

 

Investment securities available for sale

 

 

161,680 

 

 

161,680 

 

 

3,006 

 

 

158,674 

 

 

 —

 

Equity Securities at cost

 

 

5,812 

 

 

5,812 

 

 

 —

 

 

5,812 

 

 

 —

 

Bank Owned Life Insurance

 

 

31,430 

 

 

31,430 

 

 

 —

 

 

31,431 

 

 

 —

 

Accrued interest receivable

 

 

3,218 

 

 

3,218 

 

 

 —

 

 

883 

 

 

2,335 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

 

 

260,914 

 

 

260,914 

 

 

 —

 

 

260,914 

 

 

 —

 

Interest bearing

 

 

754,826 

 

 

760,503 

 

 

 —

 

 

760,503 

 

 

 —

 

Short term borrowings

 

 

61,003 

 

 

61,003 

 

 

 —

 

 

61,003 

 

 

 —

 

Long term borrowings

 

 

5,987 

 

 

5,987 

 

 

 —

 

 

5,987 

 

 

 —

 

Accrued Interest payable

 

 

266 

 

 

266 

 

 

 —

 

 

266 

 

 

 —

 

  

 

 

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 $423 thousand 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 98% 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) and on May 10, 2013, we acquired WSB Holdings, Inc. (WSB Holdings), the parent company of The Washington Savings Bank, F.S.B. (WSB).  The acquisition of WSB created the fourth largest independent commercial bank based in Maryland, with assets of more than $1.1 billion and with 23 full service branches serving five counties at the time of the acquisition.  As of December 31, 2014, we closed four of our branches that were in close proximity of existing branches leaving us 19 full service branches in our service area.

 

29


 

Summary of Recent Performance and Other Activities

 

Net loans held–for-investment increased $37.1 million and deposits increased $35.7 million during the three months ending March 31, 2015.  Our net income available to common stockholders increased $918 thousand to $2.8 million for the three months ended March 31, 2015, compared to net income of $1.8 million for the three months ended March 31, 2014.  Earnings were $0.25 per basic and diluted common share for the three months ended March 31, 2015 compared to $0.17 per basic and diluted common share for the same period in 2014.  The increase in net income is primarily the result of a $1.1 million increase in net interest income, a $440 thousand increase in non-interest income and a $285 thousand decrease in non-interest expenses, offsetting an increase of $292 thousand in the provision for loan losses.

 

The following highlights contain additional financial data and events that have occurred during the three months ended March 31, 2015:

·

Net loans held-for-investment increased $37.1 million, or 4.01%, during the three months ended March 31, 2015, to $963.7 million at March 31, 2015, compared to $926.6 million at December 31, 2014, as a result of organic growth within our surrounding market area.  Average gross loans increased $49.6 million, or 5.48% to $954.9 million for the period ending March 31, 2015 compared to $905.2 million for the three month period ended December 31, 2014.

·

Total assets increased $47.6 million, or 3.88%, since December 31, 2014.

·

Net income increased 50.03% to $2.8 million, or $0.25 per basic and diluted share for the three month period ending March 31, 2015, compared to net income of $1.8 million, or $0.17 per basic and diluted share, for the first quarter of 2014.

·

Non-performing assets decreased 60.71% to 0.44% of total assets at March 31, 2015 compared to 1.12% at March 31, 2014.   Non-performing assets stood at 0.65% at December 31, 2014. 

·

The net interest margin was 4.32% compared to 4.29% for the same period in 2014.  Total yield on interest earning assets increased to 4.70% for the three months ending March 31, 2015, compared to 4.69% for the same three month period last year.  Interest expense as a percentage of total interest-bearing liabilities decreased slightly to 0.50% for the three months ended March 31, 2015 compared to 0.51% for the same three month period of 2014.

·

The first quarter Return on Average Assets (ROAA) and Return on Average Equity (ROAE) were 0.89% and 8.27%, respectively, compared to ROAA and ROAE of 0.64% and 5.95%, respectively, for the first quarter of 2014.

·

Total deposits grew by $35.7 million, or 3.52%, since December 31, 2014.

·

The first quarter of 2015 ended with a book value of $12.77 per common share and a tangible book value of $11.65 per common share compared to $12.51 and $11.38, respectively, at December 31 2014.

·

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

 

·

On February 25, 2015, Old Line Bancshares’ board of directors approved the repurchase of up to 500,000 shares of its outstanding common stock.  As of March 31, 2015, 65,245 shares have been repurchased at an average price of $15.60 per share. The repurchased shares returned to the status of authorized but unissued shares.  Subsequent to March 31, 2015, an additional 137,279 shares have been repurchased, resulting in a total repurchase of 202,524 shares at an average price of $15.80 per share of a total cost of approximately $3.2 million.

 

·

On March 6, 2015, Old Line Bank, a Maryland chartered trust company (with all the powers of a commercial bank) cancelled its stock in the Federal Reserve Bank of Richmond, thus terminating its status as a member of the Federal Reserve System.  As a result, its primary regulator is the Federal Deposit Insurance Corporation (“FDIC”) and as of that date we are subject to regulation, supervision and regular examination by the Maryland Office of the Commissioner of Financial Regulation and the FDIC.    

 

30


 

The following summarizes the highlights of our financial performance for the three month period ended March 31, 2015 compared to same period in 2014 (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)

 

 

    

2015

 

2014

    

$ Change

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

2,754 

 

$

1,836 

 

$

918 

 

50.00 

%

Interest income

 

 

12,508 

 

 

11,372 

 

 

1,136 

 

9.99 

 

Interest expense

 

 

1,046 

 

 

1,013 

 

 

33 

 

3.26 

 

Net interest income before provision for loan losses

 

 

11,462 

 

 

10,359 

 

 

1,103 

 

10.65 

 

Provision for loan losses

 

 

562 

 

 

270 

 

 

292 

 

108.15 

 

Non-interest income

 

 

1,832 

 

 

1,392 

 

 

440 

 

31.61 

 

Non-interest expense

 

 

8,692 

 

 

8,977 

 

 

(285)

 

(3.17)

 

Average total loans

 

 

954,873 

 

 

851,080 

 

 

103,793 

 

12.20 

 

Average interest earning assets

 

 

1,115,529 

 

 

1,021,996 

 

 

93,533 

 

9.15 

 

Average total interest bearing deposits

 

 

772,839 

 

 

751,439 

 

 

21,400 

 

2.85 

 

Average non-interest bearing deposits

 

 

262,926 

 

 

229,230 

 

 

33,696 

 

14.70 

 

Net interest margin 

 

 

4.32 

%  

 

4.29 

%  

 

 

 

 

 

Return on average equity

 

 

8.27 

%  

 

5.95 

%

 

 

 

 

 

Basic earnings per common share

 

$

0.25 

 

$

0.17 

 

$

0.08 

 

47.06 

 

Diluted earnings per common share

 

 

0.25 

 

 

0.17 

 

 

0.08 

 

47.06 

 

 

Strategic Plan

 

We have based our strategic plan on the objective of enhancing stockholder value and growth through branching and operating profits.  Our short term goals include continuing the growth of the loan and deposit portfolios, collecting payments on non-accrual and past due loans, profitably disposing of certain acquired loans and 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.  Consistent with our strategic plan, during the past three years, we have expanded organically in Montgomery County, and through acquisition in Charles County, Prince George’s County and Anne Arundel County, Maryland.  We have also entered into the residential mortgage business through the WSB merger.

 

We use the Internet and technology to augment our growth plans.  Currently, we offer our customers image technology, Internet and mobile banking with online 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 Maryland Bankcorp and WSB Holdings.

 

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, including through the branches we acquired in the WSB acquisition and the attendant increased penetration into the Charles, Prince George’s and Anne Arundel County markets.  While we are uncertain about the pace of economic growth or the impact of the current political environment, and we believe that the weak job market and growing national debt will continue to dampen the economic climate, we remain cautiously optimistic that we have identified any problem assets, that our remaining borrowers will stay current on their loans and that we can continue to grow our balance sheet and earnings.   We believe that we are well positioned to capitalize on the opportunities that may become available in the current economy as well as a healthier economy.    

 

If the Federal Reserve maintains the federal funds rate at current levels and the economy remains stable, we believe that we can continue to grow total loans and deposits during the remainder of 2015.  As a result of this growth and

31


 

expected continued strength in the net interest margin, we expect that net interest income will continue to increase during the remainder of 2015, although there can be no guarantee that this will be the case.

 

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.

 

Critical Accounting Policies

 

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions.  As discussed in Old Line Bancshares’ Form 10-K for the fiscal year ended December 31, 2014, we consider our critical accounting policies to be the allowance for loan losses, other-than-temporary impairment of investment securities, goodwill and other intangible assets, income taxes, business combinations and accounting for acquired loans.  There have been no material changes in our critical accounting policies during the three months ended March 31, 2015.

 

Results of Operations for the Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014.

 

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 paid on 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.

 

Net interest income before provision for loan losses for the three months ended March 31, 2015 increased $1.1 million, or 10.7%, to $11.5 million from $10.4 million for the same period in 2014.  As outlined in detail in the Rate/Volume Variance Analysis, this increase was the result of an increase in total interest income resulting primarily from an increase in the volume of our average loans, offset by an increase in our average interest-bearing liabilitiesThe net effect of fair value accretion/amortization on acquired loans affects the net interest income, primarily due to payoffs on such acquired loans.  Payoffs during the three months ended March 31, 2015 contributed a 21 basis point increase in interest income, as compared to 11 basis points for the three month ending March 31, 2014.  The fair value accretion recorded on acquired deposits affects interest expense.  The benefit from accretion on such deposits decreased by four basis points as compared to the same three month period of 2014.  Average interest earning assets increased $93.6 million, primarily as a result of average loan growth, partially offset by a decrease in investment securities.  Average interest-bearing liabilities increased $42.5 million for the three months ended March 31, 2015 compared to three months ended March 31, 2014.  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.

 

Total interest income increased $1.1 million, or 9.9%, to $12.5 million during the three months ended March 31, 2015 compared to $11.4 million during the three months ended March 31, 2014, as a result of an increase in interest and fees on loans,  partially offset by a decrease in the interest earned on investment securities.   The increase in interest and fees on loans is a result of a $104.3 million increase in our average loans for the three months ended March 31, 2015 compared to the same period in 2014. The average yield on net loans remained relatively stable at 5.04% for the three months ended March 31, 2015 from 5.03% during the three months ended March 31, 2014We increased interest income and net interest income increased by growing our total average interest earning assets by $93.6 million or 9.16% to $1.1 billion for the three months ended March 31, 2015 from $1.0 billion for the three months ended March 31, 2014.  The increase in total interest earning assets is due to organic loan growth.    Accretion on acquired loans also contributed to the increase in interest income and net interest income, as described above.  The decrease in interest earned on investment securities is a result of decreases in both the average balance of investment securities and the yield on these assets.  The average balance of investment securities decreased by $11.3 million, or 6.49% to $163.2 million during the three months ended March 31, 2015 from $174.6 million during the same period last year, and the average yield decreased to 2.70% during the three months ended March 31, 2015 from 3.06% during the same period in 2014The decrease in both the amount of and yield on our investment securities is due to the sale of investment securities as we restructured our balance sheet during the second quarter of 2014.  In that regard, we sold investment securities that had longer durations, as part of

32


 

managing our interest rate risk and used a portion of the proceeds from such sales to purchase mortgage-backed securities with shorter durations.

 

Total interest expense increased $33 thousand, or 3.26%, to $1.0 million during the three months ended March 31, 2015 from $1.0 million for the same period in 2014,  primarily as a result of the increase in the average balance of interest bearing liabilities.  The average rate paid on interest bearing deposits remained stable at 0.48% during the three months ended March 31, 2015 and March 31, 2014, while the average interest rate paid on all interest bearing liabilities decreased slightly to 0.50% during the three months ended March 31, 2015 compared to 0.51% during the three months ended March 31, 2014 Average interest bearing liabilities increased $42.5 million, or 5.29%, to $845.6 million for the three months ended March 31, 2015 from $803.1 million for the three months ended March 31, 2014, primarily as a result of a $21.4 million, or 2.67%, increase in average interest bearing deposits and an increase of  $21.1 million in average borrowings for the three months ending March 31, 2015 compared to the same three months last year. 

 

The growth in average interest bearing deposits was primarily due to our enhanced presence in our primary market and surrounding area as a result of our marketing efforts as well as the continued efforts of our cash management and financial service teamsThe increase in borrowings is due to additional liquidity needed to fund new loan originations.

 

Non-interest bearing deposits allow us to fund growth in interest earning assets at minimal cost.  As a result of the growth generated primarily from our branch network and also from the efforts of our commercial loan officers in working with loan clients to move their commercial deposits to Old Line Bank, average non-interest bearing deposits increased $33.7 million to $262.9 million for the three months ended March 31, 2015, compared to $229.3 million for the three months ended March 31, 2014.

 

Our net interest margin was 4.32% for the three months ended March 31, 2015 compared to 4.29% for the three months ended March 31, 2014.  The yield on average interest earning assets increased one basis point for the period from 4.69% for the quarter ended March 31, 2014 to 4.70% for the quarter ended March 31, 2015.      We have been able to maintain our core net interest margin over the past year even though the prolonged low interest rate environment has resulted in downward pressure on asset yields. Our growth in loans continues to result in favorable volume component change and overall change. 

 

During the three months ended March 31, 2015 and 2014, 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, which resulted in a positive impact in interest income. Total accretion increased by  $218 thousand for the period ended March 31, 2015, as compared to the same period last year.  The payments received were a direct result of our efforts to negotiate payments, sell notes or foreclose on and sell collateral after the acquisition date.   

 

  The accretion positively impacted the yield on loans and increased the net interest margin during these periods as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

 

    

 

 

    

% Impact on

    

 

 

    

% Impact on

 

 

 

Accretion

 

Net Interest

 

Accretion

 

Net Interest

 

 

 

Dollars

 

Margin

 

Dollars

 

Margin

 

Commercial loans

 

$

    8,690

 

 —

%  

$

7,468 

 

 —

%  

Mortgage loans

 

 

589,266 

 

0.21 

 

 

287,526 

 

0.11 

 

Consumer loans

 

 

11,390 

 

 

 

4,635 

 

 

Interest bearing deposits

 

 

37,263 

 

0.01 

 

 

129,327 

 

0.05 

 

Total accretion (amortization)

 

$

646,609 

 

0.22 

%  

$

428,956 

 

0.16 

%  

 

33


 

Average Balances, Yields and Accretion of Fair Value Adjustments Impact.  The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the three months ended March 31, 2015 and 2014, showing the average distribution of assets, liabilities, stockholders’ equity and related income, expense and corresponding weighted average yields and rates.  Non-accrual loans are included in total loan balances lowering the effective yield for the portfolio in the aggregate.  The average balances used in this table and other statistical data were calculated using average daily balances.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances, Interest and Yields

 

 

 

2015

 

2014

 

 

    

Average

    

    

 

    

    

    

Average

    

    

 

    

    

 

Three months ended  March 31,

 

balance

 

Interest

 

Yield

 

balance

 

Interest

 

Yield

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds sold (1)

 

$

593,602 

 

$

177 

 

0.12 

%  

$

1,324,848 

 

$

389 

 

0.12

%  

Interest bearing deposits

 

 

1,321,460 

 

 

 

 —

 

 

27,656 

 

 

 

0.12

 

Investment securities (1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

3,000,627 

 

 

2,773 

 

0.37 

 

 

1,401,315 

 

 

890 

 

0.26

 

U.S. government agency

 

 

38,427,608 

 

 

141,045 

 

1.49 

 

 

36,307,595 

 

 

159,656 

 

1.78

 

Mortgage backed securities

 

 

76,487,119 

 

 

373,010 

 

1.98 

 

 

70,546,412 

 

 

377,872 

 

2.17

 

Municipal securities

 

 

42,069,998 

 

 

504,873 

 

4.87 

 

 

61,152,365 

 

 

704,065 

 

4.67

 

Other equity securities

 

 

3,253,469 

 

 

64,697 

 

8.06 

 

 

5,156,638 

 

 

76,394 

 

6.01

 

Total investment securities

 

 

163,238,821 

 

 

1,086,398 

 

2.70 

 

 

174,564,325 

 

 

1,318,877 

 

3.06

 

Loans(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

137,236,366 

 

 

1,335,638 

 

3.95 

 

 

126,387,167 

 

 

1,378,718 

 

4.42

 

Mortgage real estate

 

 

808,034,807 

 

 

10,371,988 

 

5.21 

 

 

713,505,366 

 

 

8,961,737 

 

5.09

 

Consumer

 

 

9,601,864 

 

 

142,961 

 

6.04 

 

 

11,187,466 

 

 

162,019 

 

5.87

 

Total loans 

 

 

954,873,037 

 

 

11,850,587 

 

5.03 

 

 

851,079,999 

 

 

10,502,474 

 

5.00

 

Allowance for loan losses

 

 

4,498,086 

 

 

 

 

 

 

5,001,250 

 

 

 

 

 

Total loans, net of allowance

 

 

950,374,951 

 

 

11,850,587 

 

5.04 

 

 

846,078,749 

 

 

10,502,474 

 

5.03

 

Total interest earning assets(1)

 

 

1,115,528,834 

 

 

12,937,170 

 

4.70 

 

 

1,021,995,578 

 

 

11,821,748 

 

4.69

 

Non-interest bearing cash

 

 

34,422,919 

 

 

 

 

 

 

 

36,258,104 

 

 

 

 

 

 

Premises and equipment

 

 

34,373,914 

 

 

 

 

 

 

 

34,901,415 

 

 

 

 

 

 

Other assets

 

 

68,409,003 

 

 

 

 

 

 

 

75,336,154 

 

 

 

 

 

 

Total assets(1)

 

 

1,252,734,670 

 

 

 

 

 

 

 

1,168,491,251 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

 

89,347,501 

 

 

26,742 

 

0.12 

 

 

86,889,647 

 

 

36,266 

 

0.17

 

Money market and NOW

 

 

326,664,982 

 

 

161,184 

 

0.20 

 

 

298,511,159 

 

 

161,920 

 

0.22

 

Other time deposits

 

 

356,826,302 

 

 

723,031 

 

0.82 

 

 

366,038,675 

 

 

696,117 

 

0.77

 

Total interest bearing deposits

 

 

772,838,785 

 

 

910,957 

 

0.48 

 

 

751,439,481 

 

 

894,303 

 

0.48

 

Borrowed funds

 

 

72,721,100 

 

 

134,716 

 

0.75 

 

 

51,661,794 

 

 

118,276 

 

0.93

 

Total interest bearing liabilities

 

 

845,559,885 

 

 

1,045,673 

 

0.50 

 

 

803,101,275 

 

 

1,012,579 

 

0.51

 

Non-interest bearing deposits

 

 

262,926,103 

 

 

 

 

 

 

 

229,229,562 

 

 

 

 

 

 

 

 

 

1,108,485,988 

 

 

 

 

 

 

 

1,032,330,837 

 

 

 

 

 

 

Other liabilities 

 

 

9,009,800 

 

 

 

 

 

 

 

10,813,815 

 

 

 

 

 

 

Non-controlling interest

 

 

258,240 

 

 

 

 

 

 

 

285,355 

 

 

 

 

 

 

Stockholders’ equity

 

 

134,980,642 

 

 

 

 

 

 

 

125,061,244 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,252,734,670 

 

 

 

 

 

 

$

1,168,491,251 

 

 

 

 

 

 

Net interest spread(1) 

 

 

 

 

 

 

 

4.20

 

 

 

 

 

 

 

4.18

 

Net interest margin(1) 

 

 

 

 

$

11,891,497

 

4.32

%  

 

 

 

$

10,809,169

 

4.29

%  

 


(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.

 

 

The following table describes the impact on our interest revenue and expense resulting from changes in average balances and average rates for the three months ended March 31, 2015 and 2014.  We have allocated the change in interest

34


 

income, interest expense and net interest income due to both volume and rate proportionately to the rate and volume variances.

 

Rate/Volume Variance Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015 compared to 2014

 

 

 

Variance due to:

 

 

    

Total

 

Rate

 

Volume

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

Federal funds sold(1)

 

$

(212)

 

$

 

$

(218)

 

Interest bearing deposits

 

 

 —

 

 

(15)

 

 

15 

 

Investment Securities(1)

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

 

1,883 

 

 

537 

 

 

1,346 

 

U.S. government agency

 

 

(18,611)

 

 

(27,531)

 

 

8,920 

 

Mortgage backed securities

 

 

(4,862)

 

 

(35,302)

 

 

30,440 

 

Municipal securities

 

 

(199,192)

 

 

28,700 

 

 

(227,892)

 

Other

 

 

(11,697)

 

 

21,505 

 

 

(33,202)

 

Loans:(1)

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

(43,080)

 

 

(155,774)

 

 

112,694 

 

Mortgage 

 

 

1,410,251 

 

 

200,574 

 

 

1,209,677 

 

Consumer

 

 

(19,058)

 

 

4,443 

 

 

(23,501)

 

Total interest revenue (1)

 

 

1,115,422 

 

 

37,143 

 

 

1,078,279 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities 

 

 

 

 

 

 

 

 

 

 

Savings

 

 

(9,524)

 

 

(10,523)

 

 

999 

 

Money market and NOW

 

 

(736)

 

 

(15,303)

 

 

14,567 

 

Other time deposits

 

 

26,914 

 

 

44,752 

 

 

(17,838)

 

Borrowed funds

 

 

16,440 

 

 

(25,507)

 

 

41,947 

 

Total interest expense

 

 

33,094 

 

 

(6,581)

 

 

39,675 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(1)

 

$

1,082,328 

 

$

43,724 

 

$

1,038,604 

 


(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.”

 

Provision for Loan Losses.  The provision for loan losses for the three months ended March 31, 2015 was $562 thousand, an increase of $292 thousand, compared to $270 thousand for the three months ended March 31, 2014Our provision for loan losses increased for the three months ended March 31, 2015 due to the impact of the increase in our loans held-for-investment portfolio and an increase in our specific reserves on acquired impaired loans over December 31, 2014. 

 

Management identified probable losses in the loan portfolio and recorded charge-offs of $239 thousand for the three months ended March 31, 2015, compared to $331 thousand for the three months ended March 31, 2014 Recoveries of $32 thousand were recognized for the three months ending March 31, 2015 compared to $14 thousand for the same three month period in 2014.

 

 

The allowance for loan losses to gross loans held-for-investment was 0.48% and 0.46%, and the allowance for loan losses to non-accrual loans was 127.96% and 121.61%, at March 31, 2015 and December 31, 2014, respectively.  The increase in the allowance for loan losses as a percentage of gross loans held-for-investment was the result of the increase in our specific reserves on acquired impaired loansThe increase in the allowance for loan losses to non-accrual loans is primarily the result of a reduction in our non-accrual loans. 

 

35


 

 

 

Non-interest IncomeNon-interest income totaled $1.8 million for the three months ended March 31, 2015, an increase of $440 thousand, or 31.59%, from the corresponding period of 2014 amount of $1.4 million.

 

The following table outlines the changes in non-interest income for the three month periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

    

2015

    

2014

    

$ Change

    

% Change

 

Service charges on deposit accounts

 

$

415,202 

 

$

451,596 

 

$

(36,394)

 

(8.06)

 

Gain on sale/call of investment securities

 

 

60,694 

 

 

 —

 

 

60,694 

 

100.00 

 

Earnings on bank owned life insurance

 

 

248,384 

 

 

243,607 

 

 

4,777 

 

1.96 

 

Pointer Ridge rent and other revenue

 

 

119,889 

 

 

87,970 

 

 

31,919 

 

36.28 

 

Rental income

 

 

210,188 

 

 

200,537 

 

 

9,651 

 

4.81 

 

Gain on sale of assets

 

 

19,975 

 

 

96,993 

 

 

(77,018)

 

(79.41)

 

Gain on sale of loans

 

 

354,650 

 

 

106,720 

 

 

247,930 

 

232.32 

 

Other fees and commissions

 

 

402,927 

 

 

204,702 

 

 

198,225 

 

96.84 

 

Total non-interest revenue 

 

$

1,831,909 

 

$

1,392,125 

 

$

439,784 

 

31.59 

 

 

Non-interest income increased primarily as a result of increases in gain on the sale of loans, other fees and commissions and gain on sale of investment securities, offsetting decreases in gain on sale of assets and service charges on deposit accounts.  Our residential mortgage division continues to generate a higher volume of loan originations which increased the gains recorded on the residential mortgage loans sold in the secondary market. For the three month period ended March 31, 2015, we originated and sold $24.2 million and $20.0 million, respectively, of loans compared to $8.4 million and $8.1 million, respectively, for the same three month period in 2014.  The increase in other fees and commissions is primarily related to increased letter of credit fees and other marketable loan fees.  The gain on the sale of investment securities includes a municipal bond that was called during the first quarter of 2015 that had a discount remaining on the bond, compared to no sales or calls for the comparable three month period last year.  Service charges on deposit accounts decreased as a result of lower overdraft and ATM fees compared to the same three month period last year.  The gain on sale of assets decreased due to the sale of an acquired Sallie Mae stock during the first quarter of last year that resulted in a gain of $97 thousand.

 

 Non-interest Expense.  Non-interest expense decreased $285 thousand, or 3.17% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014.

 

36


 

The following chart outlines the changes in non-interest expenses for the period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

    

2015

 

2014

    

$ Change

    

% Change

 

Salaries and benefits

 

$

4,217,370 

 

$

4,873,634 

 

$

(656,264)

 

(13.47)

 

Occupancy and equipment

 

 

1,399,877 

 

 

1,586,777 

 

 

(186,900)

 

(11.78)

 

Data processing

 

 

352,060 

 

 

307,160 

 

 

44,900 

 

14.62 

 

FDIC insurance and State of Maryland assessments

 

 

248,893 

 

 

218,521 

 

 

30,372 

 

13.90 

 

Merger and integration 

 

 

 

 

29,167 

 

 

(29,167)

 

(100)

 

Core deposit premium

 

 

210,117 

 

 

228,550 

 

 

(18,433)

 

(8.07)

 

Pointer Ridge other operating

 

 

16,881 

 

 

52,021 

 

 

(35,140)

 

(67.55)

 

(Gain) loss on sale of other real estate owned

 

 

134,754 

 

 

(203,068)

 

 

337,822 

 

(166.36)

 

OREO expense

 

 

120,201 

 

 

83,066 

 

 

37,135 

 

44.71 

 

Director Fees

 

 

170,000 

 

 

119,700 

 

 

50,300 

 

42.02 

 

Network services

 

 

181,663 

 

 

199,588 

 

 

(17,925)

 

(8.98)

 

Telephone

 

 

164,935 

 

 

167,158 

 

 

(2,223)

 

(1.33)

 

Other operating

 

 

1,474,863 

 

 

1,314,269 

 

 

160,594 

 

12.2 

 

Total non-interest expenses 

 

$

8,691,614 

 

$

8,976,543 

 

$

(284,929)

 

(3.17)

 

 

The decrease in non-interest expenses during the three months ended March 31, 2015, as compared to the same period of 2014, was mainly attributable to decreases in salaries and benefits and occupancy and equipment, partially offset by increases in other operating expense and data processing expenses, and the loss on other real estate owned.      Salaries and benefits decreased as severance payments were included in the same three month period last year as well as the elimination of salaries associated with four branches that closed effective December 31, 2014.  The severance was associated with merger related staff reductions.  Occupancy and equipment decreased as a result of the previously mentioned branch closings.  Losses on the sale of three other real estate properties during the three months ended March 31, 2015 resulted in a net loss of $135 thousand on three properties compared to a net gain of $203 thousand on the sale of two properties for the comparable period last year.  Other operating expenses which included outsourced internal audit fees, legal expenses and foreclosure expenses, increased to $1.5 million during the quarter ended March 31, 2015 from $1.3 million for the quarter ended March 31, 2014 as a result of increased foreclosure costs associated with the sale of other real estate propertiesData processing expenses increased $45 thousand during the three months ended March 31, 2015 compared to the same three month period last year due to increases in our loan and deposit portfolios.

 

Income Taxes.  We had an income tax expense of $1.3 million  (32.06% of pre-tax income) for the three months ended March 31, 2015 compared to an income tax expense of $691 thousand (27.57% of pre-tax income) for the same period in 2014.  The effective tax rate increased due to an increase in our taxable income related to loan interest and a decline in interest on municipal securities as a percentage of total pre-tax income compared to the same period last year.

 

Net Income Available to Common Stockholders.  Net income available to common stockholders was $2.8 million or $0.25 per basic and diluted common share for the three month period ending March 31, 2015 compared to $1.8 million, or $0.17 per basic and diluted common share, for the same period in 2014.  The increase in net income available to common stockholders for the 2015 period was primarily the result of the increases of $1.1 million in net interest income and $440 thousand in non-interest income and the $285 thousand decrease in non-interest expenses, partially offset by the  $292 thousand increase in the provision for loan losses as discussed above.

 

Analysis of Financial Condition

 

Investment Securities.  Our portfolio consists primarily of investment grade securities including U.S. treasury securities, U.S. government agency securities, U.S. government sponsored entity securities, securities issued by states, counties and municipalities, mortgage backed securities, and certain equity securities, including Federal Home Loan Bank (FHLB) stock, Maryland Financial Bank stock and Atlantic Central Bankers Bank stock.  We have prudently managed our

37


 

investment portfolio to maintain liquidity and safety.  The portfolio provides a source of liquidity, collateral for borrowings as well as a means of diversifying our earning asset portfolio.  While we usually intend to hold the investment securities until maturity, currently we classify all of our investment securities as available for sale. This classification provides us the opportunity to divest of securities that may no longer meet our liquidity objectives.  We account for these securities at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects.  We account for investment securities when classified in the held to maturity category at amortized cost.  Although we will occasionally sell a security, generally, we invest in securities for the yield they produce and not to profit from trading the securities.  We continually evaluate the investment portfolio to ensure the portfolio is adequately diversified, provides sufficient cash flow and does not subject us to undue interest rate risk. There are no trading securities in the portfolio.

 

The investment securities at March 31, 2015 amounted to $158.4 million, a decrease of $3.3 million, or 2.04%, from the December 31, 2014 amount of $161.7 million.  As outlined above, at March 31, 2015, all securities are classified as available for sale.

 

The fair value of available for sale securities included net unrealized gains of $1.0 million at March 31, 2015 (reflected as $631 thousand in stockholders’ equity after deferred taxes) as compared to net unrealized loss of $243 thousand  (reflected as $147 thousand net of taxes) at December 31, 2014.  The increase in fair value is due to the decrease in the market interest rates which improved bond values.  We have evaluated securities with unrealized losses for an extended period of time and determined that these losses are temporary because, at this point in time, we expect to hold them until maturity.  We have no intent or plan to sell these securities, it is not likely that we will have to sell these securities and we have not identified any portion of the loss that is a result of credit deterioration in the issuer of the security.  As the maturity date moves closer and/or interest rates decline, any unrealized losses in the portfolio will decline or dissipate.

 

Loan Portfolio.  Net of allowance, unearned fees and origination costs, loans held for investment increased $37.1 million or 4.01% to $963.7 million at March 31, 2015 from $926.6 million at December 31, 2014.  Commercial real estate loans increased by $27.8 million, residential real estate loans increased by $6.7 million, commercial and industrial loans increased by $3.6 million and consumer loans decreased $574 thousand from their respective balances at December 31, 2014.  The loan growth during the period was primarily due to the new commercial real estate originations resulting from our enhanced presence in our market area.  The decrease in our consumer loans is the result of loan pay-downs during the period.

 

Most of our lending activity occurs within the state of Maryland within the suburban Washington, D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s Counties.  The majority of our loan portfolio consists of commercial real estate loans and commercial and industrial loans.

 

38


 

The following table summarizes the composition of the loan portfolio held for investment by dollar amount and percentages at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

    

Legacy (1)

 

Acquired

 

Total

 

Legacy (1)

 

Acquired

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied 

 

$

193,023,154 

 

$

27,441,283 

 

$

220,464,437 

 

$

192,723,718 

 

$

27,891,137 

 

$

220,614,855 

 

Investment 

 

 

227,271,036 

 

 

41,250,887 

 

 

268,521,923 

 

 

208,766,058 

 

 

41,624,825 

 

 

250,390,883 

 

Hospitality 

 

 

82,633,703 

 

 

8,233,513 

 

 

90,867,216 

 

 

76,342,916 

 

 

8,319,644 

 

 

84,662,560 

 

Land and A&D 

 

 

43,947,550 

 

 

4,758,577 

 

 

48,706,127 

 

 

40,260,506 

 

 

4,785,753 

 

 

45,046,259 

 

Residential Real Estate 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien-Investment 

 

 

57,189,916 

 

 

21,548,889 

 

 

78,738,805 

 

 

49,578,862 

 

 

24,185,571 

 

 

73,764,433 

 

First Lien-Owner Occupied 

 

 

34,636,616 

 

 

48,772,753 

 

 

83,409,369 

 

 

31,822,773 

 

 

51,242,355 

 

 

83,065,128 

 

Residential Land and A&D 

 

 

24,256,462 

 

 

8,060,100 

 

 

32,316,562 

 

 

22,239,663 

 

 

8,509,239 

 

 

30,748,902 

 

HELOC and Jr. Liens 

 

 

20,884,878 

 

 

2,777,758 

 

 

23,662,636 

 

 

20,854,737 

 

 

3,046,749 

 

 

23,901,486 

 

Commercial and Industrial 

 

 

103,188,657 

 

 

8,375,068 

 

 

111,563,725 

 

 

98,310,009 

 

 

9,694,782 

 

 

108,004,791 

 

Consumer 

 

 

8,500,027 

 

 

308,374 

 

 

8,808,401 

 

 

9,068,755 

 

 

313,739 

 

 

9,382,494 

 

 

 

 

795,531,999 

 

 

171,527,202 

 

 

967,059,201 

 

 

749,967,997 

 

 

179,613,794 

 

 

929,581,791 

 

Allowance for loan losses 

 

 

(4,127,669)

 

 

(508,379)

 

 

(4,636,048)

 

 

(4,261,835)

 

 

(20,000)

 

 

(4,281,835)

 

Deferred loan costs, net 

 

 

1,283,385 

 

 

 —

 

 

1,283,385 

 

 

1,283,455 

 

 

(9,923)

 

 

1,273,532 

 

 

 

$

792,687,715 

 

$

171,018,823 

 

$

963,706,538 

 

$

746,989,617 

 

$

179,583,871 

 

$

926,573,488 

 

 


(1)

As a result of the acquisitions of Maryland Bankcorp, the parent company of MB&T, in April 2011 and of WSB Holdings, the parent company of WSB, in May 2013, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T and WSB (acquired).

 

Bank owned life insurance.  At March 31, 2015, we have invested $31.7 million in life insurance policies on our executive officers, other officers of Old Line Bank, retired officers of MB&T and former officers of WSB.  This represents a $213 thousand increase from December 31, 2014 as a result of interest earned on these policies.

 

Deposits.  At March 31, 2015, the deposit portfolio had increased to $1.1 billion, a $35.7 million or 3.52% increase over the December 31, 2014 level of $1.0 billion.  Deposit growth during the three month period was comprised of $8.8 million, or 3.38%, in non-interest bearing deposits and $26.9 million, or 3.57%, in interest bearing deposits.  Non-interest bearing deposits increased to $269.7 million from $260.9 million and interest bearing deposits increased to $781.7 million from $754.8 million.  The growth in our deposit base is due to our enhanced presence in our primary market and the surrounding areas as a result of our marketing efforts as well as the continued efforts of our cash management and financial services team.  We used these funds acquired from increased deposits to fund new loan originations.

 

The following table outlines the increase in interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

 

 

 

 

 

 

2015

 

2014

 

$ Change

 

% Change

 

 

 

(Dollars in thousands)

 

Certificates of deposit

 

$

364,547 

 

$

348,900 

 

$

15,647 

 

4.48 

%

Interest bearing checking

 

 

326,841 

 

 

315,796 

 

 

11,045 

 

3.50 

 

Savings

 

 

90,330 

 

 

90,130 

 

 

200 

 

0.22 

 

Total 

 

$

781,718 

 

$

754,826 

 

$

26,892 

 

3.57 

%  

 

We acquire brokered certificates of deposit through the Promontory Interfinancial Network (Promontory).  Through this deposit matching network and its certificate of deposit account registry service (CDARS) and money market account service, we have the ability to offer our customers access to FDIC insured deposit products in aggregate amounts exceeding current insurance limits.  When we place funds through Promontory on behalf of a customer, we receive matching deposits through the network’s reciprocal deposit program.  We can also place deposits through this network without receiving matching deposits.  At March 31, 2015, we had $41.7 million in CDARS and $84.1 million in money market accounts through Promontory’s reciprocal deposit program compared to $27.4 million and $85.3 million,

39


 

respectively, at December 31, 2014.  During 2013, we acquired $18.0 million in brokered certificates of deposit in the WSB acquisition.  A $4.0 million brokered certificate of deposit matured during the three months ended March 31, 2015 and brought the remaining balance at March 31, 2015 to $14.0 million.  This balance will continue to decrease as brokered certificates of deposit mature.  We expect that we will continue to use brokered deposits as an element of our funding strategy when required to maintain an acceptable loan to deposit ratio.

 

Borrowings.  Short-term borrowings consist of daily rate credit, short-term borrowings with the FHLB and short-term promissory notes issued to Old Line Bank’s commercial customers as an enhancement to the basic non-interest bearing demand deposit account. This service electronically sweeps excess funds from the customer’s account into a short term promissory note with Old Line Bank.  These obligations are payable on demand, are secured by investments, re-price daily and have maturities of one to 270 days.  At March 31, 2015, we had $45.0 million outstanding in short term FHLB borrowings.  At March 31, 2015 and December 31, 2015, we had no unsecured promissory notes and $26.2 million and $27.5 million, respectively, in secured promissory notes. 

 

Long-term borrowings consist of a promissory note related to Pointer Ridge for which we have guaranteed to the lender payment of up to 62.50% of the loan payment plus any costs the lender incurs resulting from any omissions or alleged acts by Pointer Ridge.  The outstanding balance on such promissory note was $5.9 million at both March 31, 2015 and December 31, 2014.

 

Liquidity and Capital ResourcesOur overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff.  Our management monitors the liquidity position daily in conjunction with Federal Reserve guidelines.  As further discussed below, we have credit lines, unsecured and secured, available from several correspondent banks totaling $29.5 million.  Additionally, we may borrow funds from the FHLB and the Federal Reserve Bank of Richmond.  We can use these credit facilities in conjunction with the normal deposit strategies, which include pricing changes to increase deposits as necessary.  We can also sell available for sale investment securities or pledge investment securities as collateral to create additional liquidity.  From time to time we may sell or participate out loans to create additional liquidity as required.  Additional sources of liquidity include funds held in time deposits and cash from the investment and loan portfolios.

 

Our immediate sources of liquidity are cash and due from banks, federal funds sold and time deposits in other banks.  On March 31, 2015, we had $37.1 million in cash and due from banks, $1.1 million in interest bearing accounts, and $625 thousand in federal funds sold.  As of December 31, 2014, we had $23.6 million in cash and due from banks, $1.2 million in interest bearing accounts, and $601 thousand in federal funds sold.

 

Old Line Bank has sufficient liquidity to meet its loan commitments as well as fluctuations in deposits.  We usually retain maturing certificates of deposit as we offer competitive rates on certificates of deposit.  Management is not aware of any demands, trends, commitments, or events that would result in Old Line Bank’s inability to meet anticipated or unexpected liquidity needs.

 

During the extended period of turmoil in the financial markets, some institutions experienced large deposit withdrawals that caused liquidity problems.  We did not have any significant withdrawals of deposits or any liquidity issues.  Although we plan for various liquidity scenarios, if turmoil in the financial markets occurs and our depositors lose confidence in us, we could experience liquidity issues.

 

Old Line Bancshares has available a $5.0 million unsecured line of credit.  In addition, Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks, totaling $29.5 million at March 31, 2015.  Old Line Bank has an additional secured line of credit from the FHLB of $366.0 million at March 31, 2015.  As a condition of obtaining the line of credit from the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB.  Prior to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line Bank provide collateral to support borrowings.  Therefore, we have provided collateral to support up to $177.6 million in lendable collateral value for FHLB borrowings.  We may increase availability by providing additional collateral.  Additionally, we have overnight repurchase agreements sold to Old Line Bank’s customers and have provided collateral in the form of investment securities to support the $26.2 million in repurchase agreements.

 

The Board of Governors of the Federal Reserve System and FDIC approved the final rules implementing the Basel III.  Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by

40


 

the Company.  The rules include a new common equity Tier 1 capital for risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%.  A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements.  The capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.  Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.  The final rules also revise the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets. 

 

The Bank has elected to permanently opt out of the inclusion of accumulated other comprehensive income in our capital calculations, as permitted by the regulations.  This opt-out will reduce the impact of market volatility on our regulatory capital levels.

 

The phase-in period for the final rules became effective for Old Line Bancshares and Old Line Bank on January 1, 2015, with full compliance with all of the final rule requirements phased in over a multi-year schedule, to be fully phased in by January 1, 2019.  As of March 31, 2015, Old Line Bancshares capital levels remained characterized as “well-capitalized” under the new rules.

 

Current regulations require subsidiaries of a financial institution to be separately capitalized and require investments in and extensions of credit to any subsidiary engaged in activities not permissible for a bank to be deducted in the computation of the institution’s regulatory capital.  Regulatory capital and regulatory assets below also reflect decreases of $631 thousand and $1.0 million, respectively, which represents unrealized gains (after-tax for capital additions and pre-tax for asset additions, respectively) on mortgage-backed securities and investment securities classified as available for sale.  In addition, the risk-based capital reflects an increase of $4.6 million for the general loan loss reserve during the three months ended March 31, 2015

 

As of March 31, 2015, Old Line Bank met all capital adequacy requirements to be considered well capitalized.  There were no conditions or events since the end of the first quarter of 2015 that management believes have changed the Bank’s classification as well capitalized 

 

The following table shows Old Line Bank’s regulatory capital ratios and the minimum capital ratios currently required by its banking regulator to be “well capitalized” at March 31, 2015.     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum capital

 

To be well

 

 

 

Actual

 

adequacy

 

capitalized

 

March 31, 2015

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

 

(Dollars in 000’s)

 

Common equity tier 1 (to risk-weighted assets)

 

$

116,929 

 

11.59 

%  

$

45,409 

 

4.5 

%  

$

65,591 

 

6.5 

%  

Total capital (to risk weighted assets)

 

$

121,565 

 

12.05 

%  

$

80,728 

 

%  

$

100,910 

 

10 

%  

Tier 1 capital (to risk weighted assets)

 

$

116,929 

 

11.59 

%  

$

60,546 

 

%  

$

80,728 

 

%  

Tier 1 leverage (to average assets)

 

$

116,929 

 

9.49 

%  

$

49,301 

 

%  

$

61,626 

 

%  

 

On February 25, 2015, Old Line Bancshares, Inc. board of directors approved the repurchase of up to 500,000 shares of its outstanding common stock.  As of March 31, 2015, 65,245 shares have been repurchased at an average price of $15.60 per share. Subsequent to March 31, 2015, an additional 137,279 shares have been repurchased for a total of 202,524 shares at an average price of $15.80 per share.  The repurchased shares will return to the status of authorized but unissued shares. We have repurchased shares for a total cost of approximately $3.2 million since the board of directors authorized such transactions.

 

Our management believes that, under current regulations, and eliminating the assets of Old Line Bancshares, Old Line Bank remains well capitalized and will continue to meet its minimum capital requirements in the foreseeable future.  However, events beyond our control, such as a shift in interest rates or an economic downturn in areas where we extend

41


 

credit, could adversely affect future earnings and, consequently, our ability to meet minimum capital requirements in the future.

 

Asset Quality

 

Overview.  Management performs reviews of all delinquent loans and foreclosed assets and directs relationship officers to work with customers to resolve potential credit issues in a timely manner. Management reports to the Loan Committee for their approval and recommendation to the Board of Directors on a monthly basis. The reports presented include information on delinquent loans and foreclosed real estate. We have formal action plans on criticized assets and provide status reports on OREO on a quarterly basis. These action plans include our actions and plans to cure the delinquent status of the loans and to dispose of the foreclosed properties. The Loan Committee consists of three executive officers and four independent members of the board of directors.

 

We classify any property acquired as a result of foreclosure on a mortgage loan as “other real estate owned” and record it at the lower of the unpaid principal balance or fair value at the date of acquisition and subsequently carry the property at the lower of cost or net realizable value. We charge any required write down of the loan to its net realizable value against the allowance for loan losses at the time of foreclosure. We charge to expense any subsequent adjustments to net realizable value. Upon foreclosure, Old Line Bank generally requires an appraisal of the property and, thereafter, appraisals of the property generally on an annual basis and external inspections on at least a quarterly basis.

 

As required by ASC Topic 310-Receivables and ASC Topic 450-Contingencies, we measure all impaired loans, which consist of all modified loans (trouble debt restructurings) and other loans for which collection of all contractual principal and interest is not probable, based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.  If the measure of the impaired loan is less than the recorded investment in the loan, we recognize impairment through a valuation allowance and corresponding provision for loan losses.  Old Line Bank considers consumer loans as homogenous loans and thus does not apply the impairment test to these loans.  We write off impaired loans when collection of the loan is doubtful.

 

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of a borrower has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms.  These loans do not meet the criteria for, and are therefore not included in, non-performing assets.  Management, however, classifies potential problem loans as either special mention, watch, or substandard.  These loans were considered in  determining the adequacy of the allowance for loan losses and are closely and regularly monitored to protect our interests.  Potential problem loans, which are not included in non-performing assets, amounted to $23.7 million at March 31, 2015 compared to $25.8 million at December 31, 2014.  At March 31, 2015, we had  $11.3 million and $12.4 million, respectively, of potential problem loans attributable to our legacy and acquired loan portfolios, compared to $12.8 million and $12.9 million, respectively, at December 31, 2014.

 

Acquired Loans.  Loans acquired in mergers are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses.  Generally accepted accounting principles require that we record acquired loans at fair value, which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet our definition of a non-performing loan. The discounts that arise from recording these loans at fair value were due to credit quality.  Although we do not accrue interest income at the contractual rate on these loans, we may accrete these discounts to interest income as a result of pre-payments that exceed our expectations or payment in full of amounts due. Purchased, credit-impaired loans that perform consistent with the accretable yield expectations are not reported as non-accrual or non-performing.

 

In 2011, we recorded the loans acquired from MB&T at fair value and in 2013, we recorded the loans acquired from WSB at fair value. The fair value of the acquired loans includes expected loan losses, and as a result there was no allowance for loan losses recorded for acquired loans at the time of acquisition. Accordingly, the existence of the acquired loans reduces the ratios of the allowance for loan losses to total gross loans and the allowance for loan losses to non-accrual loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally lower for acquired loans since we recorded these loans net of expected loan losses. Therefore, the ratio of net charge-offs during the period to average loans outstanding is reduced as a result of the existence of acquired loans, and the measures

42


 

are not directly comparable to prior periods. Other institutions may not have acquired loans, and therefore there may be no direct comparability of these ratios between and among other institutions when compared in total.

 

The accounting guidance also requires that if we experience a decrease in the expected cash flows of a loan subsequent to the acquisition date, we establish an allowance for loan losses for those acquired loans with decreased cash flows. At  March 31, 2015, there was $508 thousand allowance for loan losses on acquired loans compared to  $20 thousand at December 31, 2014,  as a result of a decrease in the expected cash flows subsequent to the acquisition dates.     

 

 Nonperforming Assets.  As of March 31, 2015, our nonperforming assets totaled $5.2 million and consisted of $3.6 million of nonaccrual loans and other real estate owned of $1.6 million.

 

The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming Assets

 

 

 

March 31, 2015

 

December 31, 2014

 

 

    

Legacy

 

Acquired

 

Total

 

Legacy

 

Acquired

 

Total

 

Accruing loans 90 or more days past due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

 

$

 

 

 

$

 —

 

$

 —

 

$

 —

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Investment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

305,323 

 

 

305,323 

 

First-Owner Occupied

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Land and A&D

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Commercial

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Consumer

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total accruing loans 90 or more days past due

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

305,323 

 

 

305,323 

 

Non-accruing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

$

18,530 

 

$

55,501 

 

$

74,031 

 

$

1,849,685 

 

$

55,707 

 

$

1,905,392 

 

Investment

 

 

 

 

206,050 

 

 

206,050 

 

 

 

 

 —

 

 

 —

 

Hospitality

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 

 

 —

 

Land and A&D

 

 

 

 

 —

 

 

 —

 

 

 

 

 

 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

110,559 

 

 

368,646 

 

 

479,205 

 

 

113,264 

 

 

310,735 

 

 

423,999 

 

First-Owner Occupied

 

 

 

 

1,092,690 

 

 

1,092,690 

 

 

 —

 

 

795,920 

 

 

795,920 

 

Land and A&D

 

 

 

 

795,300 

 

 

795,300 

 

 

 

 

795,300 

 

 

795,300 

 

Commercial

 

 

975,859 

 

 

 —

 

 

975,859 

 

 

1,165,955 

 

 

 

 

1,165,955 

 

Consumer

 

 

 —

 

 

 

 

 —

 

 

120,641 

 

 

 

 

120,641 

 

Total Non-accruing loans:

 

 

1,104,948 

 

 

2,518,187 

 

 

3,623,135 

 

 

3,249,545 

 

 

1,957,662 

 

 

5,207,207 

 

 

 

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned (“OREO”)

 

 

475,291 

 

 

1,124,724 

 

 

1,600,015 

 

 

475,291 

 

 

1,976,629 

 

 

2,451,920 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non performing assets

 

$

1,580,239 

 

$

3,642,911 

 

$

5,223,150 

 

$

3,724,836 

 

$

4,239,614 

 

$

7,964,450 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing Troubled Debt Restructurings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Owner Occupied

 

$

 —

 

$

274,842 

 

$

274,842 

 

$

 —

 

$

579,583 

 

$

579,583 

 

Commercial

 

 

 —

 

 

82,342 

 

 

82,342 

 

 

 —

 

 

87,387 

 

 

87,387 

 

Total Accruing Troubled Debt Restructurings

 

$

 —

 

$

357,184 

 

$

357,184 

 

$

 —

 

$

666,970 

 

$

666,970 

 

 

43


 

The table below reflects our ratios of our non-performing assets at March 31, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Ratios, Excluding Acquired Assets 

 

 

 

 

 

Total nonperforming assets as a percentage of total loans held for investment and OREO

 

0.20 

%  

0.40 

%  

Total nonperforming assets as a percentage of total assets

 

0.12 

%  

0.30 

%  

Total nonperforming assets as a percentage of total loans held for investment 

 

0.20 

%  

0.38 

%  

 

 

 

 

 

 

Ratios, Including Acquired Assets 

 

 

 

 

 

Total nonperforming assets as a percentage of total loans held for investment and OREO

 

0.57 

%  

0.85 

%  

Total nonperforming assets as a percentage of total assets

 

0.44 

%  

0.65 

%  

Total nonperforming assets as a percentage of total loans held for investment 

 

0.57 

%  

0.86 

%  

 

The table below presents a breakdown of the recorded book balance of non-accruing loans at March 31, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

    

 

    

Unpaid

    

 

 

    

Interest

    

 

    

Unpaid

    

 

 

    

 

 

 

 

 

# of

 

Principal

 

Recorded

 

Not

 

# of

 

Principal

 

Recorded

 

Interest Not

 

 

 

Contracts

 

Balance

 

Investment

 

Accrued

 

Contracts

 

Balance

 

Investment

 

Accrued

 

Legacy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

$

18,530 

 

$

18,530 

 

$

25,598 

 

 

$

1,849,685 

 

$

1,849,685 

 

$

 —

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

113,264 

 

 

113,264 

 

 

 —

 

First-Owner Occupied

 

 

 

110,559 

 

 

110,559 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Commercial

 

 

 

975,859 

 

 

975,859 

 

 

 —

 

 

 

1,165,955 

 

 

1,165,955 

 

 

 —

 

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

120,641 

 

 

120,641 

 

 

3,934 

 

Total non-accrual loans

 

 

 

1,104,948 

 

 

1,104,948 

 

 

25,598 

 

 

 

3,249,545 

 

 

3,249,545 

 

 

3,934 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

 

 

210,311 

 

 

206,050 

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Owner Occupied

 

 

 

48,359 

 

 

55,501 

 

 

2,062 

 

 

 

48,359 

 

 

55,707 

 

 

178,434 

 

Land and A & D

 

 

 

893,562 

 

 

795,300 

 

 

200,314 

 

 

 

1,532,904 

 

 

795,300 

 

 

89,026 

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First-Investment

 

 

 

369,295 

 

 

368,646 

 

 

126,919 

 

 

 

311,089 

 

 

310,735 

 

 

119,616 

 

First-Owner Occupied

 

 

 

1,131,245 

 

 

1,092,690 

 

 

3,934 

 

 

 

830,949 

 

 

795,920 

 

 

32,592 

 

Total non-accrual loans

 

10 

 

$

2,652,772 

 

$

2,518,187 

 

$

333,229 

 

11 

 

$

2,723,301 

 

$

1,957,662 

 

$

419,668 

 

Total all non-accrual loans

 

15 

 

$

3,757,720 

 

$

3,623,135 

 

$

358,827 

 

17 

 

$

5,972,846 

 

$

5,207,207 

 

$

423,602 

 

 


(1)

Generally accepted accounting principles require that we record acquired loans at fair value at acquisition which includes a discount for loans with credit impairment.  These loans are not performing according to their contractual terms and meet our definition of a non-performing loan.  The discounts that arise from recording these loans at fair value were due to credit quality.  Although we do not accrue interest income at the contractual rate on these loans, we may accrete these discounts to interest income as a result of pre-payments that exceed our cash flow expectations or payment in full of amounts due even though we classify them as 90 or more days past due.

 

Non-performing legacy loans decreased $2.1 million from December 31, 2014 primarily due to one commercial real estate loan for $1.9 million that was sold at foreclosure in the first quarter of this year.   This relationship was classified as an impaired loan and adequately reserved for at December 31, 2014.

 

44


 

Non-performing acquired loans increased $561 thousand from December 31, 2014 primarily due to the addition of one commercial real estate loan and one residential real estate loan.

 

At March 31, 2015, legacy OREO remained stable from December 31, 2014.  At March 31, 2015 and December 31, 2014, legacy OREO consisted of one property.

 

At March 31, 2015, acquired OREO decreased by $852 thousand from December 31, 2014.  The decrease in acquired OREO was driven by the sale of three acquired OREO properties for $795 thousand during the three month period ended March 31, 2015.  We recorded net loss of $135 thousand during the three month period ended March 31, 2015 compared to a net gain of $203 thousand during the three month period ended March 31, 2014.

 

Allowance for Loan Losses.  We review the adequacy of the allowance for loan losses at least quarterly. Our review includes evaluation of impaired loans as required by ASC Topic 310-Receivables, and ASC Topic 450-Contingencies. Also incorporated in determining the adequacy of the allowance is guidance contained in the Securities and Exchange Commission’s SAB No. 102, Loan Loss Allowance Methodology and Documentation, the Federal Financial Institutions Examination Council’s Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. We also continue to measure the credit impairment at each period end on all loans that have been classified as a TDR using the guidance in ASC 310-10-35.

 

We have risk management practices designed to ensure timely identification of changes in loan risk profiles. However, undetected losses inherently exist within the portfolio. Although we may allocate specific portions of the allowance for specific loans or other factors, the entire allowance is available for any loans that we should charge off. We will not create a separate valuation allowance unless we consider a loan impaired.

 

The following tables provide an analysis of the allowance for loan losses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Commercial

    

Residential

    

 

    

 

 

Three Months Ended March 31, 2015

 

Commercial

 

Real Estate

 

Real Estate

 

Consumer

 

Total

 

Beginning balance

 

$

696,371 

 

$

2,558,368 

 

$

926,995 

 

$

100,101 

 

$

4,281,835 

 

General provision for loan losses

 

 

247,099 

 

 

36,271 

 

 

357,460 

 

 

(79,099)

 

 

561,731 

 

Recoveries

 

 

942 

 

 

20 

 

 

10,158 

 

 

20,603 

 

 

31,723 

 

 

 

 

944,412 

 

 

2,594,659 

 

 

1,294,613 

 

 

41,605 

 

 

4,875,289 

 

Loans charged off

 

 

(182,741)

 

 

 —

 

 

(56,500)

 

 

 —

 

 

(239,241)

 

Ending Balance

 

$

761,671 

 

$

2,594,659 

 

$

1,238,113 

 

$

41,605 

 

$

4,636,048 

 

Amount allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

113,151 

 

$

 —

 

$

18,530 

 

$

 —

 

$

131,681 

 

Other loans not individually evaluated

 

 

648,520 

 

 

2,543,147 

 

 

762,717 

 

 

41,605 

 

 

3,995,989 

 

Acquired Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

 

 —

 

 

51,512 

 

 

456,866 

 

 

 —

 

 

508,378 

 

Ending balance

 

$

761,671 

 

$

2,594,659 

 

$

1,238,113 

 

$

41,605 

 

$

4,636,048 

 

 

 

 

 

45


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Commercial

    

Residential

    

Other

    

 

 

 

December 31, 2014

 

Commercial

 

Real Estate

 

Real Estate

 

Consumer

 

Total

 

Beginning balance

 

$

495,051 

 

$

3,569,395 

 

$

841,234 

 

$

23,533 

 

$

4,929,213 

 

Provision for loan losses

 

 

206,558 

 

 

1,668,877 

 

 

843,810 

 

 

108,052 

 

 

2,827,297 

 

Recoveries

 

 

12,342 

 

 

122 

 

 

75,149 

 

 

27,319 

 

 

114,932 

 

 

 

 

713,951 

 

 

5,238,394 

 

 

1,760,193 

 

 

158,904 

 

 

7,871,442 

 

Loans charged off

 

 

(17,580)

 

 

(2,680,026)

 

 

(833,198)

 

 

(58,803)

 

 

(3,589,607)

 

Ending Balance

 

$

696,371 

 

$

2,558,368 

 

$

926,995 

 

$

100,101 

 

$

4,281,835 

 

Allowance allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

159,040 

 

$

 —

 

$

 —

 

$

56,500 

 

$

215,540 

 

Other loans not individually evaluated

 

 

537,331 

 

 

2,558,368 

 

 

906,995 

 

 

43,601 

 

 

4,046,295 

 

Acquired Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

 

 

 

 —

 

 

20,000 

 

 

 

 

20,000 

 

Ending balance

 

$

696,371 

 

$

2,558,368 

 

$

926,995 

 

$

100,101 

 

$

4,281,835 

 

 

The ratios of the allowance for loan losses are as follows:

 

 

 

 

 

 

 

 

 

    

March 31, 2015

 

December 31, 2014

 

 

 

 

 

 

 

Total gross loans held for investment

 

0.48 

%  

0.46 

%  

Non-accrual loans

 

78.15 

%  

121.61 

%  

Net charge-offs to average loans

 

0.03 

%  

0.39 

%  

 

During the three months ended March 31, 2015, we charged-off  $239 thousand in loans through the allowance for loan losses for two legacy loans.  The legacy loans consisted of one commercial real estate loan for $183 thousand and one consumer boat loan for $57 thousand.  The majority of the recoveries recorded to the allowance for loan losses were from acquired loans that were charged to the allowance for loan losses at MB&T prior to the acquisition date of April 1, 2011.

 

The allowance for loan losses represented 0.48% and 0.46% of gross loans held for investment at March 31, 2015 and December 31, 2014, respectively and 0.59% and 0.57% of legacy loans at March 31, 2015 and December 31, 2014, respectively. We have no exposure to foreign countries or foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our portfolio.    

 

Overall, we continue to believe that the loan portfolio remains manageable in terms of charge-offs and nonperforming assets as a percentage of total loans. We remain diligent and aware of our credit costs and the impact that these can have on our financial institution, and we have taken proactive measures to identify problem loans, including in-house and independent review of larger transactions. Our policy for evaluating problem loans includes obtaining new certified real estate appraisals as needed. We continue to monitor and review frequently the overall asset quality within the loan portfolio.

 

Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

 

Old Line Bancshares is a party to financial instruments with off-balance sheet risk in the normal course of business.  These financial instruments primarily include commitments to extend credit, lines of credit and standby letters of credit.  Old Line Bancshares uses these financial instruments to meet the financing needs of its customers.  These financial instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk.  These commitments do not represent unusual risks and management does not anticipate any losses that would have a material effect on Old Line Bancshares.  Old Line Bancshares also has operating lease obligations.

 

46


 

Outstanding loan commitments and lines and letters of credit at March 31, 2015 and December 31, 2014, are as follows:

 

 

 

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Commitments to extend credit and available credit lines: 

 

 

 

 

 

 

 

Commercial 

 

$

70,315 

 

$

69,347 

 

Real estate-undisbursed development and construction 

 

 

56,263 

 

 

57,879 

 

Consumer 

 

 

15,936 

 

 

15,725 

 

 

 

$

142,514 

 

$

142,951 

 

Standby letters of credit 

 

$

15,873 

 

$

15,725 

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Old Line Bancshares generally requires collateral to support financial instruments with credit risk on the same basis as it does for on balance sheet instruments. The collateral is based on management’s credit evaluation of the counter party. Commitments generally have interest rates fixed at current market rates, expiration dates or other termination clauses and may require payment of a fee.  Available credit lines represent the unused portion of lines of credit previously extended and available to the customer so long as there is no violation of any contractual condition.  These lines generally have variable interest rates.  Since many of the commitments are expected to expire without being drawn upon, and since it is unlikely that all customers will draw upon their lines of credit in full at any time, the total commitment amount or line of credit amount does not necessarily represent future cash requirements.  We evaluate each customer’s credit worthiness on a case by case basis. We regularly reevaluate many of our commitments to extend credit.  Because we conservatively underwrite these facilities at inception, we generally do not have to withdraw any commitments.  We are not aware of any loss that we would incur by funding our commitments or lines of credit.

 

Commitments for real estate development and construction, which totaled $56.2 million, or 39.5% of the $142.5 million of outstanding commitments at March 31, 2015, are generally short term and turn over rapidly with principal repayment from permanent financing arrangements upon completion of construction or from sales of the properties financed.

 

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  Our exposure to credit loss in the event of non-performance by the customer is the contract amount of the commitment.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  In general, loan commitments, credit lines and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans.  We evaluate each customer’s credit worthiness and the collateral required on a case by case basis.

 

Reconciliation of Non-GAAP Measures

 

Below is a reconciliation of the fully tax equivalent adjustments and the GAAP basis information presented in this report:

 

Three months ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

    

Net

 

 

 

Net Interest

 

 

 

Interest

 

 

 

Income

 

Yield

 

Spread

 

GAAP net interest income

 

$

11,461,904 

 

4.17 

%  

4.05 

%  

Tax equivalent adjustment

 

 

 

 

 

 

 

 

Federal funds sold

 

 

 

 

 

Investment securities

 

 

200,498 

 

0.07 

 

0.11 

 

Loans

 

 

229,094 

 

0.08 

 

0.04 

 

Total tax equivalent adjustment

 

 

429,593 

 

0.15 

 

0.15 

 

Tax equivalent interest yield

 

$

11,891,497 

 

4.32 

%  

4.20 

%  

 

47


 

Three months ended March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

    

Net

 

 

 

Net Interest

 

 

 

Interest

 

 

 

Income

 

Yield

 

Spread

 

GAAP net interest income

 

$

10,359,291 

 

4.11 

%  

4.00 

%  

Tax equivalent adjustment

 

 

 

 

 

 

 

 

Federal funds sold

 

 

 —

 

 

 —

 

Investment securities

 

 

281,377 

 

0.11 

 

0.11 

 

Loans

 

 

168,501 

 

0.07 

 

0.07 

 

Total tax equivalent adjustment

 

 

449,878 

 

0.18 

 

0.18 

 

Tax equivalent interest yield

 

$

10,809,169 

 

4.29 

%  

4.18 

%  

 

Impact of Inflation and Changing Prices

 

Management has prepared the financial statements and related data presented herein in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

 

Unlike industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.  Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, and may frequently reflect government policy initiatives or economic factors not measured by a price index.  As discussed above, we strive to manage our interest sensitive assets and liabilities in order to offset the effects of rate changes and inflation.

 

Information Regarding Forward-Looking Statements

 

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  We may also include forward-looking statements in other statements that we make.  All statements that are not descriptions of historical facts are 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.

 

The statements presented herein with respect to, among other things, Old Line Bancshares’ plans, objectives, expectations and intentions,  including maintenance of the net interest margin during the remainder of 2015, continued increases in net interest income, hiring and acquisition possibilities, our belief that we have identified any problem assets and that our borrowers will remain current on their loans, being well positioned to capitalize on potential opportunities in the current and in a healthier economy, impact of outstanding off-balance sheet commitments, sources of liquidity and that we have sufficient liquidity, the sufficiency of the allowance for loan losses, expected collections on acquired credit-impaired loans, expected loan, deposit,  balance sheet and earnings growth, expected losses on and our intentions with respect to our investment securities, the number of potential problem loans, continuing to meet regulatory capital requirements, continued use of brokered deposits for funding, expectations with respect to the impact of pending legal proceedings, improving earnings per share and stockholder value, and financial and other goals and plans are forward looking.  Old Line Bancshares bases these statements on our beliefs, assumptions and on information available to us as of the date of this filing, which involves risks and uncertainties.  These risks and uncertainties include, among others: those discussed in this report; the ability of Old Line Bancshares to retain key personnel; the ability of Old Line Bancshares to successfully implement its growth and expansion strategy; risk of loan losses; that the allowance for loan losses may not be sufficient; that changes in interest rates and monetary policy could adversely affect Old Line Bancshares; that changes in regulatory requirements and/or restrictive banking legislation may adversely affect Old Line Bancshares, including regulations adopted pursuant to the Dodd-Frank Act; that the market value of investments could negatively impact stockholders’ equity; risks associated with Old Line Bancshares’ lending limit; expenses associated with operating as a public company;  potential conflicts of interest associated with the interest in Pointer Ridge; deterioration in general economic conditions, continued slow growth during the recovery or another recession; and changes in competitive, governmental, regulatory, technological and other factors which may affect Old Line Bancshares specifically or the

48


 

banking industry generally.  For a more complete discussion of some of these risks and uncertainties see “Risk Factors” in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2014.

 

Old Line Bancshares’ actual results and the actual outcome of our expectations and strategies could differ materially from those anticipated or estimated because of these risks and uncertainties and you should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and Old Line Bancshares undertakes no obligation to update the forward-looking statements to reflect factual assumptions, circumstances or events that have changed after we have made the forward-looking statements.

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments.  Various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices, may cause these changes.  We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets and liabilities.  Foreign exchange rates, commodity prices, or equity prices do not pose significant market risk to us.   Due to the nature of our operations, only interest rate risk is significant to our consolidated results of operations or financial position.  We have no material changes in our quantitative and qualitative disclosures about market risk as of March 31, 2015 from that presented in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Interest Rate Sensitivity Analysis and Interest Rate Risk Management

 

A principal objective of Old Line Bank’s asset/liability management policy is to minimize exposure to changes in interest rates by an ongoing review of the maturity and re-pricing of interest earning assets and interest bearing liabilities. 

 

The tables below present Old Line Bank’s interest rate sensitivity at March 31, 2015 and December 31, 2014.  Because certain categories of securities and loans are prepaid before their maturity date even without regard to interest rate fluctuations, we have made certain assumptions to calculate the expected maturity of securities and loans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Sensitivity Analysis

 

 

 

March 31, 2015

 

 

 

Maturing or Repricing

 

 

 

Within

 

4 - 12

 

1 - 5

 

Over

 

 

 

 

 

 

3 Months

 

Months

 

Years

 

5 Years

 

Total

 

 

 

(Dollars in thousands)

 

Interest Earning Assets:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Interest bearing accounts

 

$

30 

 

$

 —

 

$

 —

 

$

 —

 

$

30 

 

Time deposits in other banks

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Federal funds sold

 

 

625 

 

 

 —

 

 

 —

 

 

 —

 

 

625 

 

Investment securities

 

 

2,046 

 

 

8,565 

 

 

83,999 

 

 

63,771 

 

 

158,381 

 

Loans

 

 

190,363 

 

 

62,759 

 

 

557,954 

 

 

155,983 

 

 

967,059 

 

Total interest earning assets

 

 

193,064 

 

 

71,324 

 

 

641,953 

 

 

219,754 

 

 

1,126,095 

 

Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction deposits

 

 

217,894 

 

 

108,947 

 

 

 —

 

 

 —

 

 

326,841 

 

Savings accounts

 

 

31,110 

 

 

30,110 

 

 

30,110 

 

 

 —

 

 

91,330 

 

Time deposits

 

 

78,934 

 

 

120,638 

 

 

149,328 

 

 

 —

 

 

348,900 

 

Total interest-bearing deposits

 

 

327,938 

 

 

259,695 

 

 

179,438 

 

 

 —

 

 

767,071 

 

FHLB advances

 

 

45,000 

 

 

 —

 

 

 —

 

 

 —

 

 

45,000 

 

Other borrowings

 

 

26,236 

 

 

 —

 

 

5,958 

 

 

 —

 

 

32,194 

 

Total interest-bearing liabilities

 

 

399,174 

 

 

259,695 

 

 

185,396 

 

 

 —

 

 

844,265 

 

Period Gap

 

$

(206,110)

 

$

(188,371)

 

$

456,557 

 

$

219,754 

 

$

281,830 

 

Cumulative Gap

 

$

(206,110)

 

$

(394,481)

 

$

62,076 

 

$

281,830 

 

 

 

 

Cumulative Gap/Total Assets

 

 

(16.79)

%  

 

(32.14)

%  

 

5.06 

%  

 

22.96 

%  

 

 

 

 

 

49


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Sensitivity Analysis

 

 

 

December 31, 2014

 

 

 

Maturing or Repricing

 

 

 

Within

 

4 - 12

 

1 - 5

 

Over

 

 

 

 

 

 

3 Months

 

Months

 

Years

 

5 Years

 

Total

 

 

 

(Dollars in thousands)

 

Interest Earning Assets:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Interest bearing accounts

 

$

30 

 

$

 —

 

$

 —

 

$

 —

 

$

30 

 

Time deposits in other banks

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Federal funds sold

 

 

601 

 

 

 —

 

 

 —

 

 

 —

 

 

601 

 

Investment securities

 

 

1,346 

 

 

2,288 

 

 

62,122 

 

 

95,924 

 

 

161,680 

 

Loans

 

 

195,388 

 

 

50,898 

 

 

537,027 

 

 

146,269 

 

 

929,582 

 

Total interest earning assets

 

 

197,365 

 

 

53,186 

 

 

599,149 

 

 

242,193 

 

 

1,091,893 

 

Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction deposits

 

 

210,531 

 

 

105,265 

 

 

 —

 

 

 —

 

 

315,796 

 

Savings accounts

 

 

30,043 

 

 

30,043 

 

 

30,043 

 

 

 —

 

 

90,129 

 

Time deposits

 

 

78,934 

 

 

120,638 

 

 

149,328 

 

 

 —

 

 

348,900 

 

Total interest-bearing deposits

 

 

319,508 

 

 

255,946 

 

 

179,371 

 

 

 —

 

 

754,825 

 

FHLB advances

 

 

33,500 

 

 

 —

 

 

 —

 

 

 —

 

 

33,500 

 

Other borrowings

 

 

27,503 

 

 

92 

 

 

5,895 

 

 

 —

 

 

33,490 

 

Total interest-bearing liabilities

 

 

380,511 

 

 

256,038 

 

 

185,266 

 

 

 —

 

 

821,815 

 

Period Gap

 

$

(183,146)

 

$

(202,852)

 

$

413,883 

 

$

242,193 

 

$

270,078 

 

Cumulative Gap

 

$

(183,146)

 

$

(385,998)

 

$

27,885 

 

$

270,078 

 

 

 

 

Cumulative Gap/Total Assets

 

 

(14.92)

%  

 

(31.45)

%  

 

2.27 

%  

 

22.00 

%  

 

 

 

 

 

Item 4.Controls and Procedures

 

As of the end of the period covered by this quarterly report on Form 10-Q, Old Line Bancshares’ Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Old Line Bancshares’ disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.  Based upon that evaluation, Old Line Bancshares’ Chief Executive Officer and Chief Financial Officer concluded that Old Line Bancshares’ disclosure controls and procedures are effective as of March 31, 2015.  Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Old Line Bancshares in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

In addition, there were no changes in Old Line Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2015, that have materially affected, or are reasonably likely to materially affect, Old Line Bancshares’ internal control over financial reporting.

 

 

 

PART II-OTHER INFORMATION

 

Item 1.Legal Proceedings

 

From time to time, we may be involved in litigation relating to claims arising out of our normal course of business.  Currently, we are not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.

 

Item 1A.Risk Factors

 

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

50


 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)

Not applicable

(b)

Not applicable

(c)

The following table present a summary of the Company’s share repurchase during the quarter ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

Shares Purchased during the period:

    

Total number of
shares repurchased

    

Average Price
paid per share

    

Total number of
share purchased as
part of publicly
announced program(1)

    

Maximum number of
shares that may yet be
purchased under the
program (1)

 

 

 

 

 

 

 

 

 

February 1 - March 31, 2015

 

65,245 

 

15.60 

 

65,245 

 

434,755 

(1)

On February 25, 2015, Old Line Bancshares’ board of directors approved the repurchase of up to 500,000 shares of our outstanding common stock.  As of March 31, 2015, 65,245 shares have been repurchased at an average price of $15.60 per share or a total cost  of approximately $1.0 million.

 

Item 3.Defaults Upon Senior Securities

 

None

 

Item 4.Mine Safety Disclosures

 

Not applicable

 

Item 5.Other Information

 

None

 

Item 6.Exhibits

 

 

 

31.1 

Rule 13a-14(a) Certification of Chief Executive Officer

 

 

31.2 

Rule 13a-14(a) Certification of Chief Financial Officer

 

 

32 

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

 

 

101 

Interactive Data Files pursuant to Rule 405 of Regulation S-T.

 

 

51


 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

Old Line Bancshares, Inc.

 

 

 

 

 

 

Date: May 8, 2015

By:

/s/ James W. Cornelsen

 

 

James W. Cornelsen,
President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: May 8, 2015

By:

/s/ Elise M. Hubbard

 

 

Elise M. Hubbard,
Senior Vice President and Chief Financial Officer

 

 

(Principal Accounting and Financial Officer)

 

52