e10vq
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
OR
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o |
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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)
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Maryland
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20-0154352 |
(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
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1525 Pointer Ridge Place
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20716 |
Bowie, Maryland
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(Zip Code) |
(Address of principal executive offices) |
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Registrants 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.
Yes þ No o
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. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of April 25, 2008, the registrant had 3,907,450 shares of common stock outstanding.
Part I. Financial Information
Item 1. Financial Statements
Old Line Bancshares, Inc. & Subsidiary
Consolidated Balance Sheets
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March 31, |
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December 31, |
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2008 |
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2007 |
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(Unaudited) |
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Assets |
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Cash and due from banks |
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$ |
4,394,513 |
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$ |
3,172,089 |
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Federal funds sold |
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16,260,451 |
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9,822,079 |
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Total cash and cash equivalents |
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20,654,964 |
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12,994,168 |
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Time deposits in other banks |
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2,000,000 |
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2,000,000 |
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Investment securities available for sale |
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6,003,112 |
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9,393,356 |
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Investment securities held to maturity |
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9,543,082 |
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2,301,591 |
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Loans, less allowance for loan losses |
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203,221,267 |
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201,941,667 |
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Restricted equity securities at cost |
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2,126,550 |
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2,080,250 |
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Investment in real estate LLC |
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818,967 |
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805,971 |
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Bank premises and equipment |
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4,484,744 |
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4,207,395 |
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Accrued interest receivable |
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975,295 |
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918,078 |
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Deferred income taxes |
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140,309 |
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161,940 |
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Bank owned life insurance |
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7,851,470 |
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7,769,290 |
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Other assets |
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751,252 |
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637,570 |
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$ |
258,571,012 |
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$ |
245,211,276 |
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Liabilities and Stockholders Equity |
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Deposits |
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Noninterest-bearing |
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$ |
34,739,228 |
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$ |
35,141,289 |
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Interest-bearing |
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152,032,664 |
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142,670,944 |
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Total deposits |
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186,771,892 |
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177,812,233 |
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Short-term borrowings |
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21,836,844 |
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16,347,096 |
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Long-term borrowings |
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15,000,000 |
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15,000,000 |
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Accrued interest payable |
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578,253 |
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693,868 |
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Income tax payable |
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78,416 |
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238,226 |
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Other liabilities |
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644,484 |
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488,599 |
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224,909,889 |
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210,580,022 |
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Stockholders equity |
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Common stock, par value $.01 per share; authorized 15,000,000 shares;
issued and outstanding 3,907,450 in 2008, and 4,075,849 in 2007 |
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39,074 |
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40,758 |
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Additional paid-in capital |
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29,126,022 |
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30,465,013 |
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Retained earnings |
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4,478,645 |
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4,155,232 |
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33,643,741 |
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34,661,003 |
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Accumulated other comprehensive income |
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17,382 |
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(29,749 |
) |
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33,661,123 |
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34,631,254 |
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$ |
258,571,012 |
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$ |
245,211,276 |
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The accompanying notes are an integral part of these consolidated financial statements
1
Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Income
(Unaudited)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Interest revenue |
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Loans, including fees |
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$ |
3,503,684 |
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$ |
2,880,557 |
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U.S. Treasury securities |
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22,487 |
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31,575 |
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U.S. government agency securities |
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25,532 |
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80,360 |
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Mortgage backed securities |
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18,059 |
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13,915 |
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Municipal securities |
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24,917 |
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26,978 |
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Federal funds sold |
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126,378 |
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373,465 |
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Other |
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49,385 |
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21,288 |
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Total interest revenue |
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3,770,442 |
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3,428,138 |
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Interest expense |
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Deposits |
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1,334,837 |
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1,360,514 |
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Borrowed funds |
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206,072 |
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106,244 |
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Total interest expense |
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1,540,909 |
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1,466,758 |
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Net interest income |
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2,229,533 |
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1,961,380 |
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Provision for loan losses |
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38,400 |
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56,000 |
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Net interest income after provision for loan losses |
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2,191,133 |
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1,905,380 |
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Non-interest revenue |
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Service charges on deposit accounts |
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72,952 |
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70,920 |
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Marine division broker origination fees |
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77,674 |
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Earnings on bank owned life insurance |
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91,603 |
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67,350 |
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Income on investment in real estate LLC |
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12,896 |
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9,768 |
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Other fees and commissions |
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54,987 |
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40,195 |
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Total non-interest revenue |
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232,438 |
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265,907 |
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Non-interest expense |
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Salaries |
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734,931 |
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754,171 |
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Employee benefits |
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269,453 |
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284,814 |
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Occupancy |
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279,922 |
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210,438 |
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Equipment |
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70,475 |
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61,446 |
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Data processing |
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61,252 |
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59,440 |
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Other operating |
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329,277 |
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332,658 |
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Total non-interest expense |
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1,745,310 |
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1,702,967 |
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Income before income taxes |
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678,261 |
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468,320 |
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Income taxes |
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233,428 |
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140,778 |
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Net income |
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$ |
444,833 |
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$ |
327,542 |
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Basic earnings per common share |
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$ |
0.11 |
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$ |
0.08 |
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Diluted earnings per common share |
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$ |
0.11 |
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$ |
0.08 |
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The accompanying notes are an integral part of these consolidated financial statements
2
Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
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Accumulated |
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Additional |
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other |
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Common stock |
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paid-in |
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Retained |
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comprehensive |
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Comprehensive |
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Shares |
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Par value |
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capital |
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earnings |
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income |
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income |
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Balance, December 31, 2007 |
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4,075,849.0 |
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$ |
40,758 |
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$ |
30,465,013 |
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$ |
4,155,232 |
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$ |
(29,749 |
) |
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Common stock repurchased |
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(168,399.0 |
) |
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(1,684 |
) |
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(1,383,870 |
) |
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Net income |
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444,833 |
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$ |
444,833 |
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Unrealized gain on
securities available for
sale, net of income taxes of $30,700 |
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|
47,131 |
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47,131 |
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Comprehensive income |
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$ |
491,964 |
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Stock based compensation awards |
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44,879 |
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Cash dividend $0.03 per share |
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(121,420 |
) |
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Balance, March 31, 2008 |
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3,907,450.0 |
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$ |
39,074 |
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$ |
29,126,022 |
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$ |
4,478,645 |
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$ |
17,382 |
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3
Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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2008 |
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2007 |
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Cash flows from operating activities |
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Interest received |
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$ |
3,653,997 |
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$ |
3,438,361 |
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Fees and commissions received |
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|
137,262 |
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|
193,552 |
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Interest paid |
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(1,656,524 |
) |
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(1,324,928 |
) |
Cash paid to suppliers and employees |
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(1,560,139 |
) |
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(1,980,236 |
) |
Income taxes paid |
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(402,307 |
) |
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(344,670 |
) |
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172,289 |
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(17,921 |
) |
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Cash flows from investing activities |
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Purchase of investment securities |
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Held to maturity |
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(7,241,731 |
) |
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Available for sale |
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(2,000,000 |
) |
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Proceeds from disposal of investment securities |
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Available for sale at maturity or call |
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5,467,425 |
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|
617,371 |
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Loans made, net of principal collected |
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(1,257,882 |
) |
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(7,629,868 |
) |
Purchase of equity securities |
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(46,300 |
) |
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(54,700 |
) |
Investment in bank owned life insurance (BOLI) |
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(4,000,000 |
) |
Investment in real estate LLC |
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(100 |
) |
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Purchase of premises, equipment and software |
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|
(375,337 |
) |
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|
(164,281 |
) |
Proceeds from sale of premises and equipment |
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|
71,198 |
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(5,453,925 |
) |
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(11,160,280 |
) |
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Cash flows from financing activities |
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Net increase (decrease) in |
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|
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Time deposits |
|
|
7,064,240 |
|
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|
10,848,786 |
|
Other deposits |
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|
1,895,418 |
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|
(8,821,525 |
) |
(Decrease) increase in short-term borrowings |
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|
5,489,748 |
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|
210,587 |
|
Proceeds from stock options exercised, including tax benefit |
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|
|
6,250 |
|
Repurchase of common stock |
|
|
(1,385,554 |
) |
|
|
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|
Dividends paid |
|
|
(121,420 |
) |
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|
(127,639 |
) |
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|
|
12,942,432 |
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|
2,116,459 |
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Net increase (decrease) in cash and cash equivalents |
|
|
7,660,796 |
|
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|
(9,061,742 |
) |
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Cash and cash equivalents at beginning of year |
|
|
12,994,168 |
|
|
|
39,628,195 |
|
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|
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Cash and cash equivalents at end of year |
|
$ |
20,654,964 |
|
|
$ |
30,566,453 |
|
|
|
|
|
|
|
|
4
Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2008 |
|
|
2007 |
|
|
|
|
Reconciliation of net income to net cash
provided (used) by operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
444,833 |
|
|
$ |
327,542 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net
cash provided (used) by operating activities |
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
Depreciation and amortization |
|
|
97,644 |
|
|
|
85,656 |
|
Provision for loan losses |
|
|
38,400 |
|
|
|
56,000 |
|
Loss on sale of equipment |
|
|
|
|
|
|
(12,190 |
) |
Change in deferred loan fees net of costs |
|
|
(60,118 |
) |
|
|
(17,127 |
) |
Amortization of premiums and discounts |
|
|
890 |
|
|
|
1,029 |
|
Deferred income taxes |
|
|
(9,069 |
) |
|
|
(22,956 |
) |
Stock based compensation awards |
|
|
44,879 |
|
|
|
83,193 |
|
(Income) loss from investment in real estate LLC |
|
|
(12,896 |
) |
|
|
(9,768 |
) |
Increase (decrease) in |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
(115,615 |
) |
|
|
141,830 |
|
Other liabilities |
|
|
(3,925 |
) |
|
|
(277,689 |
) |
Decrease (increase) in |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
(57,217 |
) |
|
|
26,321 |
|
Bank owned life insurance |
|
|
(82,180 |
) |
|
|
(62,587 |
) |
Other assets |
|
|
(113,337 |
) |
|
|
(337,175 |
) |
|
|
|
|
|
|
|
|
|
$ |
172,289 |
|
|
$ |
(17,921 |
) |
|
|
|
|
|
|
|
5
Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
1. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Organization and Description of Business-Old Line Bancshares, Inc. 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, Inc. is to own all of the capital
stock of Old Line Bank. Old Line Bancshares, Inc. also has an approximately $819,000
investment in a real estate investment limited liability company named Pointer Ridge Office
Investment, LLC (Pointer Ridge). |
|
|
|
Old Line Bank is a full service commercial bank operating in the suburban Maryland
(Washington, D.C. suburbs) counties of Prince Georges, Anne Arundel, Charles and northern
St. Marys. Old Line Bank offers deposit services and loans to individuals, small
businesses, associations and government entities. Other services include direct deposit of
payroll and social security checks, automatic drafts from accounts, automated teller machine
services, cash management services, safe deposit boxes, money orders and travelers cheques.
Old Line Bank also offers credit card services and on-line account access with bill payer
service. |
|
|
|
Basis of Presentation and Consolidation-The accompanying consolidated financial statements
include the activity of Old Line Bancshares, Inc. and its wholly owned subsidiary, Old Line
Bank. We have eliminated all significant intercompany transactions and balances. |
|
|
|
The foregoing consolidated financial statements are unaudited; 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, 2007 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, Inc.s Form 10-K for the year ended December 31, 2007. We
have made no significant changes to Old Line Bancshares accounting policies as disclosed in
the Form 10-K. |
|
|
|
The accounting and reporting policies of Old Line Bancshares, Inc. conform to accounting
principles generally accepted in the United States of America. |
|
2. |
|
INVESTMENT SECURITIES |
|
|
|
As Old Line Bancshares purchases securities, management determines if we should classify the
securities as held to maturity, available for sale or trading. We record the securities
which management has the intent and ability to hold to maturity at amortized cost which is
cost adjusted for amortization of premiums and accretion of discounts to maturity. We
classify securities which we may sell before maturity as available for sale and carry these
securities at fair value with unrealized gains and losses included in stockholders equity
on an after tax basis. Management has not identified any investment securities as trading. |
|
|
|
We record gains and losses on the sale of securities on the trade date and determine
these gains or losses using the specific identification method. We amortize premiums and
accrete discounts using the interest method. |
|
3. |
|
INCOME TAXES |
|
|
|
The provision for income taxes includes taxes payable for the current year and deferred
income taxes. We determine deferred tax assets and liabilities based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which we expect the differences to reverse. We allocate tax
expense and tax benefits to the Bank and Bancshares based on their proportional share of
taxable income. |
6
Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
4. |
|
EARNINGS PER SHARE |
|
|
|
We determine basic earnings per common share by dividing net income by the weighted average
number of shares of common stock outstanding giving retroactive effect to the stock
dividends. |
|
|
|
We calculate diluted earnings per 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, |
|
|
2008 |
|
2007 |
|
Weighted average number of shares |
|
|
4,034,126 |
|
|
|
4,254,359 |
|
Dilutive average number of shares |
|
|
3,121 |
|
|
|
14,923 |
|
5. |
|
STOCK-BASED COMPENSATION |
|
|
|
We account for employee stock options under the fair value method of accounting using a
Black-Scholes valuation model to measure stock-based compensation expense at the date of
grant. In the first quarter of 2006, we adopted Statement of Financial Accounting Standards
(SFAS) 123R, Share-Based Payment, under the modified prospective method. Statement 123R
requires companies to recognize compensation expense related to stock-based compensation
awards in their income statements over the period during which an individual is required to
provide service in exchange for such award. For the three months ended March 31, 2008 and
2007, we recorded stock-based compensation expense of $44,879 and $83,193, respectively. |
|
|
|
Under SFAS 123R, a company may only recognize tax benefits for options that ordinarily will
result in a tax deduction when the grant is exercised (non-qualified options). There were
no non-qualified options included in the expense calculation during the three months ended
March 31, 2008. For the three months ended March 31, 2007, we recognized an $11,887 tax
benefit associated with the portion of the expense that was related to the issuance of
non-qualified options. |
|
|
|
We have two stock option plans under which we may issue options, the 2001 Incentive Stock
Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee
administers the stock option plans. As the plans outline, the Compensation Committee
approves stock option grants to directors and employees, determines the number of shares,
the type of option, the option price, the term (not to exceed 10 years from the date of
issuance) and the vesting period of options issued. The Compensation Committee has approved
and we have issued grants with options vesting immediately as well as over periods of two,
three and five years. We recognize the compensation expense associated with these grants
over their respective vesting period. At March 31, 2008, there was $126,858 of total
unrecognized compensation cost related to nonvested stock options that we expect to realize
over the next 4.5 years. As of March 31, 2008, there were 130,180 shares remaining
available for future issuance under the stock option plans. |
|
|
|
Directors and officers did not exercise any options during the three month period ended
March 31, 2008. The intrinsic value of the 900 options that directors and officers
exercised during the quarter ended March 31, 2007 was $5,184. |
7
Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
5. |
|
STOCK-BASED COMPENSATION (Continued) |
|
|
|
A summary of the stock option activity during the three month period follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
average |
|
Number |
|
average |
|
|
of shares |
|
exercise price |
|
of shares |
|
exercise price |
|
Outstanding, beginning of period |
|
|
216,920 |
|
|
$ |
9.37 |
|
|
|
182,820 |
|
|
$ |
8.91 |
|
Options granted |
|
|
37,300 |
|
|
|
7.75 |
|
|
|
35,200 |
|
|
|
10.48 |
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
(900 |
) |
|
|
4.72 |
|
Option forfeited |
|
|
(10,000 |
) |
|
|
11.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
244,220 |
|
|
$ |
9.06 |
|
|
|
217,120 |
|
|
$ |
9.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to options as of March 31, 2008 follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options |
|
|
|
|
|
|
|
|
|
Exercisable options |
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
average |
|
average |
|
Number |
|
average |
Exercise |
|
of shares at |
|
remaining |
|
exercise |
|
of shares at |
|
exercise |
price |
March 31, 2008 |
|
term |
|
price |
|
March 31, 2008 |
|
price |
$3.33-$4.17 |
|
|
11,700 |
|
|
|
2.75 |
|
|
$ |
3.44 |
|
|
|
11,700 |
|
|
$ |
3.44 |
|
$4.18-$5.00 |
|
|
21,600 |
|
|
|
3.71 |
|
|
|
4.65 |
|
|
|
21,600 |
|
|
|
4.65 |
|
$5.01-$10.00 |
|
|
83,920 |
|
|
|
7.92 |
|
|
|
8.85 |
|
|
|
59,054 |
|
|
|
9.32 |
|
$10.01-$11.31 |
|
|
127,000 |
|
|
|
8.08 |
|
|
|
10.46 |
|
|
|
95,800 |
|
|
|
10.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,220 |
|
|
|
7.39 |
|
|
$ |
9.06 |
|
|
|
188,154 |
|
|
$ |
8.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of
outstanding options
where the market
value exceeds the
exercise price |
|
|
|
|
|
$ |
142,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of
exercisable options
where the market
value exceeds the
exercise price |
|
|
|
|
|
$ |
47,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
6. |
|
RETIREMENT PLAN |
|
|
|
Eligible employees participate in a profit sharing plan that qualifies under Section 401(k)
of the Internal Revenue Code. The plan allows for elective employee deferrals and Old Line
Bank makes matching contributions of up to 4% of employee eligible compensation. Our
contributions to the plan, included in employee benefit expenses, were $32,114, and $33,299,
for the three months ended March 31, 2008 and 2007, respectively. |
|
|
|
Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive
officers providing for retirement income benefits. We accrue the present value of the SERPs
over the remaining number of years to the executives retirement dates. Old Line Banks
expenses for the SERPs for the three month periods ended March 31, 2008 and 2007 were
$29,811 and $25,492, respectively. |
|
7. |
|
ASSETS MEASURED AT FAIR VALUE ON A CONTINUING BASIS |
|
|
|
On January 1, 2008, we adopted Statement of Financing Accounting Standards No. 157, Fair
Value Measurements. Old Line Bank values investment securities classified as available for
sale at fair value. The fair value hierarchy established in SFAS 157, defines three input
levels for fair value measurement. Level 1 is based on quoted market prices in active
markets for identical assets. Level 2 is based on significant observable inputs other than
those in Level 1. Level 3 is based on significant unobservable inputs. We value U.S.
Treasury securities under Level 1, and municipal, debt securities, and equity investments
under Level 2 and agency securities under Level 3. At March 31, 2008, we established values
for available for sale investment securities as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Level 1 Inputs |
|
Level 2 Inputs |
|
Level 3 Inputs |
Invesment securities available for sale |
|
|
6,003,112 |
|
|
|
501,094 |
|
|
|
4,997,568 |
|
|
|
504,450 |
|
9
8. |
|
RECENT ACCOUNTING STANDARDS |
|
|
|
The following are recent accounting pronouncements approved by the Financial Accounting
Standards Board (FASB). These Statements will not have any material impact on the financial
statements of Bancshares or the Bank. |
|
|
|
In December 2007, the FASB issued SFAS No. 160 (revised 2007), Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51,
Consolidated Financial Statements, to establish accounting and reporting standards for
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It
also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in
the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 also changes the way the consolidated income statement is presented by
requiring consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated income statement of income, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interest. SFAS
160 is effective at the beginning of the companys first fiscal year after December 15,
2008. We do not expect that SFAS 160 will have a material impact on our consolidated
results of operations or financial position. |
|
|
|
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS
No. 141(R) will significantly change the accounting for business combinations in a number of
areas, including the treatment of contingent consideration, contingencies, acquisition
costs, in-process research and development costs and restructuring costs. Additionally,
under SFAS No. 141(R), changes in deferred tax asset valuation allowances and acquired
income uncertainties in a business combination after the measurement period will impact
income tax expense. The provisions of this standard are effective beginning January 1,
2009. We do not expect that SFAS No. 141(R) will have a material impact on our consolidated
results of operations or financial position. |
|
|
|
FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133, requires enhanced disclosures about an entitys
derivative and hedging activities and thereby improves the transparency of financing
reporting. The use and complexity of derivative instruments and hedging activities have
increased significantly over the past several years. Constituents have expressed concerns
that the existing disclosure requirements in FASB Statement No. 133, Accounting for
Derivative Instruments Hedging Activities, do not provide adequate information about how
derivative and hedging activities affect an entitys financial position, financial
performance, and cash flows. This Statements is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. We do not expect SFAS No. 161 will
have a material impact on our consolidated results of operations or financial position. |
Item 2. Managements 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, Inc. was incorporated under the laws of the State of Maryland on April
11, 2003 to serve as the holding company of Old Line Bank.
10
Our primary business is to own all of the capital stock of Old Line Bank. We also have an
approximately $819,000 investment in a real estate investment limited liability company named
Pointer Ridge Office Investment, LLC (Pointer Ridge). We own 50% of Pointer Ridge. Frank
Lucente, one of our directors and a director of Old Line Bank, controls 25% 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 50% of this building for our main
office and operate a branch of Old Line Bank from this address.
Summary of Recent Performance and Other Activities
We are pleased to report sound financial performance for the first quarter of 2008. Net
income was $444,833 or $0.11 per basic and diluted common share for the three month period ending
March 31, 2008. This was $117,291 or 35.81% higher than net income of $327,542 or $0.08 per basic
and diluted common share for the same period in 2007.
During the first quarter of 2008, the following events occurred.
|
|
|
We opened our 7th branch location in College Park, Maryland. |
|
|
|
|
The loan portfolio grew $1.3 million (0.64%). |
|
|
|
|
We maintained asset quality. |
|
|
|
|
Total deposits grew $8.9 million (5.06%). |
|
|
|
|
Total assets grew $13.4 million (5.46%). |
|
|
|
|
We repurchased 168,399 shares of our common stock at an average price of $8.23
per share. |
11
We believe that it was an accomplishment to increase earnings, grow the loan portfolio and
maintain credit quality despite the challenging economic environment and the uncertainties faced by
our industry. The following summarizes the highlights of our financial performance for the three
month period ended March 31, 2008 compared to the three month period ended March 31, 2007 (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) |
|
|
2008 |
|
2007 |
|
$Change |
|
% Change |
Net income |
|
$ |
445 |
|
|
$ |
328 |
|
|
$ |
117 |
|
|
|
35.67 |
% |
Interest revenue |
|
|
3,770 |
|
|
|
3,428 |
|
|
|
342 |
|
|
|
9.98 |
|
Interest expense |
|
|
1,541 |
|
|
|
1,467 |
|
|
|
74 |
|
|
|
5.04 |
|
Net interest income after provision
for loan losses |
|
|
2,191 |
|
|
|
1,905 |
|
|
|
286 |
|
|
|
15.01 |
|
Non-interest revenue |
|
|
232 |
|
|
|
266 |
|
|
|
(34 |
) |
|
|
(12.78 |
) |
Non-interest expense |
|
|
1,745 |
|
|
|
1,703 |
|
|
|
42 |
|
|
|
2.47 |
|
Average total loans |
|
|
204,787 |
|
|
|
157,495 |
|
|
|
47,292 |
|
|
|
30.03 |
|
Average interest earning assets |
|
|
234,486 |
|
|
|
203,180 |
|
|
|
31,306 |
|
|
|
15.41 |
|
Average total interest-bearing deposits |
|
|
148,424 |
|
|
|
136,339 |
|
|
|
12,085 |
|
|
|
8.86 |
|
Average noninterest-bearing deposits |
|
|
35,307 |
|
|
|
36,007 |
|
|
|
(700 |
) |
|
|
(1.94 |
) |
Net interest Margin (1) |
|
|
3.84 |
% |
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
Return on average equity |
|
|
5.13 |
% |
|
|
3.78 |
% |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.11 |
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
|
|
37.50 |
|
Diluted earnings per common share |
|
|
0.11 |
|
|
|
0.08 |
|
|
|
0.03 |
|
|
|
37.50 |
|
|
|
|
(1) |
|
See Reconciliation of Non-GAAP Measures |
Growth Strategy
We have based our strategic plan on the premise of enhancing stockholder value and growth
through branching and operating profits. Our short-term goals include maintaining credit quality,
creating an attractive branch network, expanding fee income, generating extensions of core banking
services and using technology to maximize stockholder value.
We believe a natural evolution of a community-focused bank like Old Line Bank is to expand the
delivery channels via the branch network. We plan to expand in Prince Georges County and Anne
Arundel County, Maryland and may expand in Charles County and contiguous northern and western
counties, such as Montgomery County and Howard County, Maryland.
In February 2008, we opened a branch in College Park (Prince Georges County), Maryland at
9658 Baltimore Avenue, College Park, Maryland. This branch is in the same building as the loan
production office that houses our team of loan officers. We hired the Branch Manager and staff for
this location in February 2008.
As part of our expansion efforts, in July 2004, Old Line Bank executed a lease and applied to
regulatory authorities to open a branch at 1641 State Route 3 North, Crofton, Maryland in Anne
Arundel County. We anticipated that construction of the building in which we plan to locate the
branch would begin during the second or third quarter of 2006 and we expected to open the branch in
the first quarter of 2007. However, the owner of the property was unable to
complete the requirements contained in the lease and begin construction of the branch.
Construction of this location began in 2007. We expect to open this branch during the fourth
quarter of 2008 or the first quarter of 2009.
12
In July 2007, we identified a site for a second branch location in Bowie, Maryland.
Currently, the landlord is preparing a pad site. Assuming the landlord completes the preparation
of the pad site and meets all of the conditions of the lease, we plan to lease the pad site and
construct a branch. The pad site is located in the Fairwood Office Park in Bowie, Maryland. We
anticipate we will open this branch during the 3rd or 4th quarter of 2008.
We plan to open an additional branch in Annapolis, Anne Arundel County in 2008. We have
identified a potential site for this branch and are currently in negotiations with the landlord
regarding the lease.
As expected, the operations of the Greenbelt branch that we opened in June 2007 and the
opening of the College Park branch in February 2008 were the primary reasons for a $69,484 or
33.02% increase in occupancy expense and a $9,029 or 14.69% increase in equipments costs during the
three month period. Because of the new branches, we anticipate salaries and benefits expenses and
other operating expenses will increase. We anticipate that, over time, income generated from the
branches will offset any increase in expenses.
Expansion of Commercial, Construction and Commercial Real Estate Lending
We hired a new Vice President of Commercial Lending for our Waldorf office and a new Senior
Vice President of Commercial Lending to service the Anne Arundel County market during 2007. We
also hired a Senior Vice President of Commercial Lending, in August 2006, who resigned in February
2008.
As we expected, the increase in personnel during 2007 and the staffing for the new College
Park and Greenbelt branches caused an increase in salary and benefit expenses in the first quarter
of 2008 compared to the first quarter of 2007. This increase was offset by the termination of the
employees that worked in the marine division that we closed at the end of the third quarter of
2007.
As a result of the new branches and lending personnel, we anticipate the bank will experience
continued improvement in loan and deposit growth during 2008 and beyond. We anticipate that after
establishment of the Bowie, Annapolis and Crofton branches outlined above that we will slow down
the rate of branch expansion, although should we identify new branch locations that will support
our long term growth plans we may open additional branches.
Other Opportunities
We use the Internet and technology to augment our growth plans. Currently, we offer our
customers image technology, telephone banking and Internet banking with on-line account access and
bill payer service. In the fourth quarter of 2007, we began offering selected commercial customers
the ability to remotely capture their deposits and electronically transmit them to us. We
anticipate that this service will modestly increase equipment cost, reduce courier fees, and
positively impact deposit growth. We will continue to evaluate cost effective ways that technology
can enhance our management, products and services.
We plan to 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 currently have no specific plans to
acquire existing financial institutions or branches thereof or to hire additional loan officers.
Results of Operations
Net Interest Income
Net interest income is the difference between income on interest earning assets and the cost
of funds supporting those assets. Earning assets are comprised primarily of loans, investments,
and federal funds sold; interest-bearing deposits and other borrowings make up the cost of funds.
Noninterest-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.
13
Three months ended March 31, 2008 compared to three months ended March 31, 2007
Net interest income after provision for loan losses for the three months ended March 31, 2008
increased $285,753 or 15.00% to $2.2 million from $1.9 million for the same period in 2007. The
increase was primarily attributable to an increase in total average interest earning assets.
Interest revenue increased from $3.4 million for the three months ended March 31, 2007 to $3.8
million for the same period in 2008. As discussed below and outlined in detail in the Rate/Volume
Analysis, these changes were the result of substantial increases in interest earning assets
primarily caused by a $47.3 million increase in average total loans. The growth in average total
loans was attributable to the business development efforts of the entire Old Line Bank lending team
and directors and the expansion of our branch network. We believe that the expansion of our branch
network provides us with increased name recognition and new opportunities that contributed to our
growth. Interest expense for all interest-bearing liabilities amounted to $1.5 million for the
three months ended March 31, 2008 and 2007.
Our net interest margin was 3.84% for the three months ended March 31, 2008, as compared to
3.97% for the three months ended March 31, 2007. The 13 basis point decrease in the net interest
margin is the result of several components. The yield on average interest earning assets decreased
42 basis points during the period primarily because of the recent and rapid 300 basis point rate
reduction in the federal funds interest rate that the Federal Reserve implemented. We partially
offset these rate reductions through growth in the loan portfolio. As a result of this growth,
there were a higher percentage of funds invested in higher yielding commercial and mortgage loans
during the period. In the prior year, these funds were invested in federal funds and lower
yielding investments.
The 65 basis point reduction in the cost of interest-bearing liabilities that occurred as a
result of re-pricing of interest bearing accounts to current market interest rates and maturities
of and subsequent re-pricing of time deposits offset the decrease in yield on interest earning
assets and improved our net interest spread. However, because of an increase in the percentage of
average balances maintained in interest-bearing deposits relative to total deposits, the net
interest margin declined.
Because of increased recognition in the Prince Georges County market, the new loan officers
in Charles and Anne Arundel Counties, the addition of the College Park and Greenbelt branches and
with continued growth in deposits, we anticipate that we will continue to grow earning assets
during the remainder of 2008. Provided that the Federal Reserve does not continue to implement
rapid federal funds decreases, we believe that the anticipated growth in earning assets, the change
in the composition of earning assets as more funds are deployed to loans and the relatively low
cost of funds will result in an increase in our net interest income and modest improvement in the
net interest margin during the remainder of 2008, although there is no assurance that this will be
the case.
14
The following table illustrates average balances of total interest earning assets and total
interest-bearing liabilities for the periods indicated, showing the average distribution of
assets, liabilities, stockholders equity and related income, expense and corresponding weighted
average yields and rates. The average balances used in this table and other statistical data
were calculated using average daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances, Interest and Yields |
|
Three Months Ended March 31, |
|
2008 |
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold(1) |
|
$ |
16,712,451 |
|
|
$ |
129,193 |
|
|
|
3.10 |
% |
|
$ |
28,855,433 |
|
|
$ |
384,204 |
|
|
|
5.40 |
% |
Time deposits in other banks |
|
|
2,000,000 |
|
|
|
20,266 |
|
|
|
4.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
2,769,346 |
|
|
|
23,783 |
|
|
|
3.44 |
|
|
|
4,000,075 |
|
|
|
33,104 |
|
|
|
3.36 |
|
U.S. government agency |
|
|
3,065,740 |
|
|
|
27,004 |
|
|
|
3.53 |
|
|
|
8,086,801 |
|
|
|
84,252 |
|
|
|
4.23 |
|
Mortgage backed securities |
|
|
1,675,894 |
|
|
|
18,059 |
|
|
|
4.32 |
|
|
|
1,419,727 |
|
|
|
13,915 |
|
|
|
3.97 |
|
Municipal securities |
|
|
3,005,390 |
|
|
|
36,248 |
|
|
|
4.84 |
|
|
|
3,228,974 |
|
|
|
39,296 |
|
|
|
4.94 |
|
Other |
|
|
2,080,657 |
|
|
|
30,041 |
|
|
|
5.79 |
|
|
|
1,467,479 |
|
|
|
21,685 |
|
|
|
5.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
12,597,027 |
|
|
|
135,135 |
|
|
|
4.30 |
|
|
|
18,203,056 |
|
|
|
192,252 |
|
|
|
4.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
55,896,847 |
|
|
|
1,053,762 |
|
|
|
7.56 |
|
|
|
39,188,677 |
|
|
|
823,733 |
|
|
|
8.52 |
|
Mortgage |
|
|
130,781,054 |
|
|
|
2,210,937 |
|
|
|
6.78 |
|
|
|
96,741,333 |
|
|
|
1,787,379 |
|
|
|
7.49 |
|
Installment |
|
|
18,109,472 |
|
|
|
238,985 |
|
|
|
5.29 |
|
|
|
21,565,294 |
|
|
|
269,445 |
|
|
|
5.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
204,787,373 |
|
|
|
3,503,684 |
|
|
|
6.86 |
|
|
|
157,495,304 |
|
|
|
2,880,557 |
|
|
|
7.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,610,509 |
|
|
|
|
|
|
|
|
|
|
|
1,374,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
203,176,864 |
|
|
|
3,503,684 |
|
|
|
6.92 |
|
|
|
156,121,229 |
|
|
|
2,880,557 |
|
|
|
7.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest earning assets(1) |
|
|
234,486,342 |
|
|
|
3,788,278 |
|
|
|
6.48 |
|
|
|
203,179,718 |
|
|
|
3,457,013 |
|
|
|
6.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
3,844,427 |
|
|
|
|
|
|
|
|
|
|
|
3,839,335 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
4,195,720 |
|
|
|
|
|
|
|
|
|
|
|
4,081,213 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
10,775,269 |
|
|
|
|
|
|
|
|
|
|
|
8,409,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(1) |
|
$ |
253,301,758 |
|
|
|
|
|
|
|
|
|
|
$ |
219,510,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
6,245,038 |
|
|
|
11,561 |
|
|
|
0.74 |
|
|
$ |
9,064,901 |
|
|
|
15,009 |
|
|
|
0.67 |
|
Money market and NOW |
|
|
34,283,999 |
|
|
|
111,404 |
|
|
|
1.30 |
|
|
|
23,620,827 |
|
|
|
116,425 |
|
|
|
2.00 |
|
Other time deposits |
|
|
107,894,604 |
|
|
|
1,211,872 |
|
|
|
4.51 |
|
|
|
103,653,622 |
|
|
|
1,229,080 |
|
|
|
4.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
148,423,641 |
|
|
|
1,334,837 |
|
|
|
3.61 |
|
|
|
136,339,350 |
|
|
|
1,360,514 |
|
|
|
4.05 |
|
Borrowed funds |
|
|
33,306,846 |
|
|
|
206,072 |
|
|
|
2.48 |
|
|
|
10,674,695 |
|
|
|
106,244 |
|
|
|
4.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
181,730,487 |
|
|
|
1,540,909 |
|
|
|
3.40 |
|
|
|
147,014,045 |
|
|
|
1,466,758 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
35,307,109 |
|
|
|
|
|
|
|
|
|
|
|
36,007,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,037,596 |
|
|
|
|
|
|
|
|
|
|
|
183,021,441 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,479,612 |
|
|
|
|
|
|
|
|
|
|
|
1,347,673 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
34,784,550 |
|
|
|
|
|
|
|
|
|
|
|
35,140,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
253,301,758 |
|
|
|
|
|
|
|
|
|
|
$ |
219,510,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread(1) |
|
|
|
|
|
|
|
|
|
|
3.08 |
|
|
|
|
|
|
|
|
|
|
|
2.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and Net
interest margin(1) |
|
|
|
|
|
$ |
2,247,369 |
|
|
|
3.84 |
% |
|
|
|
|
|
$ |
1,990,255 |
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
securities. Management believes providing this information on a FTE basis
provides investors with a more accurate picture of our net interest spread and net
interest
income and we believe it to be the preferred industry measurement of these
calculations. See Reconciliation of Non-GAAP Measures. |
|
2) |
|
Available for sale investment securities are presented at amortized
cost. |
|
3) |
|
Average non-accruing loans for the periods ended March 31, 2008 and
2007 were $1,061,145 and $49,176, respectively. |
15
The following table describes the impact on our interest income and expense resulting from changes
in average balances and average rates for the periods indicated. We have allocated the change in
interest revenue, interest expense and net interest income due to both volume and rate
proportionately to the rate and volume variances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended March 31, |
|
|
|
2008 compared to 2007 |
|
|
|
Variance due to: |
|
|
|
Total |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
(255,011 |
) |
|
$ |
(204,598 |
) |
|
$ |
(50,413 |
) |
Time deposits in other banks |
|
|
20,266 |
|
|
|
|
|
|
|
20,266 |
|
Investment Securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
(9,321 |
) |
|
|
2,880 |
|
|
|
(12,201 |
) |
U.S. Government agency |
|
|
(57,248 |
) |
|
|
(29,436 |
) |
|
|
(27,812 |
) |
Mortgage backed securities |
|
|
4,144 |
|
|
|
2,735 |
|
|
|
1,409 |
|
Municipal securities |
|
|
(3,048 |
) |
|
|
(1,630 |
) |
|
|
(1,418 |
) |
Other |
|
|
8,356 |
|
|
|
(2,434 |
) |
|
|
10,790 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
230,029 |
|
|
|
(247,413 |
) |
|
|
477,442 |
|
Mortgage |
|
|
423,558 |
|
|
|
(441,104 |
) |
|
|
864,662 |
|
Installment |
|
|
(30,460 |
) |
|
|
29,992 |
|
|
|
(60,452 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest revenue (1) |
|
|
331,265 |
|
|
|
(891,008 |
) |
|
|
1,222,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
(3,448 |
) |
|
|
3,458 |
|
|
|
(6,906 |
) |
Money market and NOW |
|
|
(5,021 |
) |
|
|
(84,103 |
) |
|
|
79,082 |
|
Other time deposits |
|
|
(17,208 |
) |
|
|
(102,369 |
) |
|
|
85,161 |
|
Borrowed funds |
|
|
99,828 |
|
|
|
(149,936 |
) |
|
|
249,764 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
74,151 |
|
|
|
(332,950 |
) |
|
|
407,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
257,114 |
|
|
$ |
(558,058 |
) |
|
$ |
815,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest revenue is presented on a fully taxable equivalent
(FTE) basis. 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. |
16
Provision for Loan Losses
Originating loans involves a degree of risk that credit losses will occur in varying amounts
according to, among other factors, the type of loans being made, the credit-worthiness of the
borrowers over the term of the loans,
the quality of the collateral for the loan, if any, as well as general economic conditions.
We charge the provision for loan losses to earnings to maintain the total allowance for loan losses
at a level considered by management to represent its best estimate of the losses known and inherent
in the portfolio that are both probable and reasonable to estimate, based on, among other factors,
prior loss experience, volume and type of lending conducted, estimated value of any underlying
collateral, economic conditions (particularly as such conditions relate to Old Line Banks market
area), regulatory guidance, peer statistics, managements judgment, past due loans in the loan
portfolio, loan charge off experience and concentrations of risk (if any). We charge losses on
loans against the allowance when we believe that collection of loan principal is unlikely. We add
back recoveries on loans previously charged to the allowance.
The provision for loan losses was $38,400 for the three months ended March 31, 2008, as
compared to $56,000 for the three months ended March 31, 2007, a decrease of $17,600 or 31.43%.
After completing the analysis outlined below, during the three month period ended March 31, 2008,
we decreased the provision for loan losses primarily because there was a minimal 0.63% growth in
the loan portfolio from December 31, 2007 to March 31, 2008 and imminent resolution of the $1.1
million in non-performing assets in the loan portfolio discussed in the Asset Quality section
below. We have not experienced any change in the quality of the loans in the portfolio and we have
no loans, other than the two non-performing assets, past due more than 30 days. We believe that
most of our clients, even those that directly or indirectly serve the real estate industry, remain
financially strong. Based on our analysis, there is not any justification for an increased
provision at this time.
We review the adequacy of the allowance for loan losses at least quarterly. Our review
includes evaluation of impaired loans as required by SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure. Also incorporated in determining the adequacy of the allowance is
guidance contained in the Securities and Exchange Commissions SAB No. 102, Loan Loss Allowance
Methodology and Documentation; the Federal Financial Institutions Examination Councils 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 provided by the Office of the Comptroller of the Currency, Board of Governors of the Federal
Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration and
Office of Thrift Supervision.
We base the evaluation of the adequacy of the allowance for loan losses upon loan categories.
We categorize loans as installment and other consumer loans (other than boat loans), boat loans,
mortgage loans (commercial real estate, residential real estate and real estate construction) and
commercial loans. We apply loss ratios to each category of loan other than commercial loans
(including letters of credit and unused commitments). We further divide commercial loans by risk
rating and apply loss ratios 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 loan collateral separately and assign loss amounts based
upon the evaluation.
We determine loss ratios for installment and other consumer loans (other than boat loans),
boat loans and mortgage loans (commercial real estate, residential real estate and real estate
construction) based upon a review of prior 18 months delinquency trends for the category, the three
year loss ratio for the category, peer group loss ratios and industry standards.
With respect to commercial loans, management assigns a risk rating of one through eight to
each loan at inception, with a risk rating of one having the least amount of risk and a risk rating
of eight having the greatest amount of risk. For commercial loans of less than $250,000, we may
review the risk rating annually based on, among other things, the borrowers financial condition,
cash flow and ongoing financial viability; the collateral securing the loan; the borrowers
industry; and payment history. We review the risk rating for all commercial loans in excess of
$250,000 at least annually. We evaluate loans with a risk rating of five or greater separately and
assign loss amounts based upon the evaluation. For loans with risk ratings between one and four,
we determine loss ratios based upon a review of prior 18 months delinquency trends, the three year
loss ratio, peer group loss ratios and industry standards.
17
We also identify and make any necessary allocation adjustments for any specific concentrations
of credit in
a loan category that in managements estimation increase the risk inherent in the category.
If necessary, we will also make an adjustment within one or more loan categories for economic
considerations in our market area that may impact the quality of the loans in the category. For
all periods presented, there were no specific adjustments made for concentrations of credit or
economic considerations. We consider qualitative or environmental factors that are likely to cause
estimated credit losses associated with our existing portfolio to differ from historical loss
experience. These factors include, but are not limited to, changes in lending policies and
procedures, changes in the nature and volume of the loan portfolio, changes in the experience,
ability and depth of lending management and the effect of other external factors such as economic
factors, competition and legal and regulatory requirements on the level of estimated credit losses
in our existing portfolio.
In the event that our review of the adequacy of the allowance results in any unallocated
amounts, we reallocate such amounts to our loan categories based on the percentage that each
category represents to total gross loans. We have risk management practices designed to ensure
timely identification of changes in loan risk profiles. However, undetected losses inherently
exist within the portfolio. We believe that the allocation of the unallocated portion of the
reserve in the manner described above is appropriate.
We will not create a separate valuation allowance unless we consider a loan impaired under
SFAS No. 114 and SFAS No. 118. At March 31, 2008, we had two non-accrual loans totaling $1.1
million. We have not designated a specific allowance for either of these non-accrual loans. We
have no other loans past due 30 days or more. We also do not have any substantive loans comprised
of sub-prime mortgages.
Our policies require a review of assets on a regular basis, and we believe that we
appropriately classify loans as well as other assets if warranted. We believe that we use the best
information available to make a determination with respect to the allowance for loan losses,
recognizing that the determination is inherently subjective and that future adjustments may be
necessary depending upon, among other factors, a change in economic conditions of specific
borrowers or generally in the economy, and new information that becomes available to us. However,
there are no assurances that the allowance for loan losses will be sufficient to absorb losses on
non-performing assets, or that the allowance will be sufficient to cover losses on non-performing
assets in the future.
The allowance for loan losses represents 0.79% of gross loans at March 31, 2008 and 0.78% at
December 31, 2007. 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.
18
The following table provides an analysis of the allowance for loan losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
|
|
Balance, beginning of period |
|
$ |
1,586,737 |
|
|
$ |
1,280,396 |
|
|
$ |
1,280,396 |
|
Provision for loan losses |
|
|
38,400 |
|
|
|
56,000 |
|
|
|
318,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
(6,064 |
) |
Installment |
|
|
|
|
|
|
(4,979 |
) |
|
|
(6,085 |
) |
|
|
|
|
|
|
|
|
|
|
Total chargeoffs |
|
|
|
|
|
|
(4,979 |
) |
|
|
(12,149 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
159 |
|
|
|
184 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
159 |
|
|
|
184 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
Net (chargeoffs) recoveries |
|
|
159 |
|
|
|
(4,795 |
) |
|
|
(11,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
1,625,296 |
|
|
$ |
1,331,601 |
|
|
$ |
1,586,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to gross loans |
|
|
0.79 |
% |
|
|
0.84 |
% |
|
|
0.78 |
% |
Ratio of net-chargeoffs during period to
average loans outstanding during period |
|
|
0.000 |
% |
|
|
0.003 |
% |
|
|
0.007 |
% |
The following table provides a breakdown of the allowance for loan losses:
Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
Installment & others |
|
$ |
10,563 |
|
|
|
0.40 |
% |
|
$ |
9,092 |
|
|
|
1.48 |
% |
|
$ |
10,236 |
|
|
|
0.45 |
% |
Boat |
|
|
101,557 |
|
|
|
8.09 |
|
|
|
155,244 |
|
|
|
12.10 |
|
|
|
106,405 |
|
|
|
8.66 |
|
Mortgage |
|
|
1,108,791 |
|
|
|
63.86 |
|
|
|
841,365 |
|
|
|
61.33 |
|
|
|
1,080,897 |
|
|
|
63.57 |
|
Commercial |
|
|
404,385 |
|
|
|
27.65 |
|
|
|
325,900 |
|
|
|
25.09 |
|
|
|
389,199 |
|
|
|
27.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,625,296 |
|
|
|
100.00 |
% |
|
$ |
1,331,601 |
|
|
|
100.00 |
% |
|
$ |
1,586,737 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Non-interest Revenue
Three months ended March 31, 2008 compared to three months ended March 31, 2007
Non-interest revenue totaled $232,438 for the three months ended March 31, 2008, a decrease of
$33,469 or 12.59% from the 2007 amount of $265,907. Non-interest revenue for the three months
ended March 31, 2008 and March 31, 2007 included fee income from service charges on deposit
accounts, earnings on bank owned life insurance, income from our investment in real estate LLC
(Pointer Ridge) and other fees and commissions. For the period ended March 31, 2007, non-interest
revenue also included broker origination fees from the marine division.
The following table outlines the changes in non-interest revenue for the three month periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Service charges on deposit accounts |
|
$ |
72,952 |
|
|
$ |
70,920 |
|
|
$ |
2,032 |
|
|
|
2.87 |
% |
Marine division broker origination fees |
|
|
|
|
|
|
77,674 |
|
|
|
(77,674 |
) |
|
|
(100.00 |
) |
Earnings on bank owned life insurance |
|
|
91,603 |
|
|
|
67,350 |
|
|
|
24,253 |
|
|
|
36.01 |
|
Income (loss) on investment in real
estate LLC |
|
|
12,896 |
|
|
|
9,768 |
|
|
|
3,128 |
|
|
|
32.02 |
|
Other fees and commissions |
|
|
54,987 |
|
|
|
40,195 |
|
|
|
14,792 |
|
|
|
36.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
$ |
232,438 |
|
|
$ |
265,907 |
|
|
$ |
(33,469 |
) |
|
|
(12.59) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts increased due to increases in the number of customers and
the services they used. There were no fees earned from marine division broker origination fees
during the quarter ended March 31, 2008 because late in the third quarter of 2007, we closed this
division. Earnings on bank owned life insurance increased primarily because we invested an
additional $4 million in February 2007. Therefore, we had an additional thirty days in earnings on
the BOLI during the three months ended March 31, 2008. Pointer Ridge was fully leased during the
1st quarter of 2008 and had vacancies during the 1st quarter of 2007. As a
result of this and rental increases, income on investment in real estate LLC was higher in the
1st quarter of 2008 than the comparable period of 2007. Other fees and commissions
increased $14,792 primarily because in April 2007 we started leasing the Waldorf office space that
we vacated in July 2006.
Because of the new lenders we have hired and the new College Park and Greenbelt branches that
we have opened, we expect that customer relationships will continue to grow during the remainder of
2008. We anticipate this growth will cause an increase in service charges on deposit accounts. As
a result of our decision to cease operations in the marine division, we will not have any fee
income from the marine division in 2008. We believe the demand in the commercial real estate
market will remain stable and we will have an additional number of opportunities to provide
financing of these facilities. Therefore, other loan fees which are included in other fees and
commissions should remain constant. We expect our earnings on bank owned life insurance will
remain stable during the remainder of 2008. We anticipate the income from Pointer Ridge will remain
stable during the remainder of the year and will produce moderate earnings.
20
Non-interest Expense
Three months ended March 31, 2008 compared to three months ended March 31, 2007
Non-interest expense remained relatively stable for the three months ended March 31, 2008 at
$1.7 million compared to the same period in 2007. The following chart outlines the changes in
non-interest expenses for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
%Change |
|
Salaries |
|
$ |
734,931 |
|
|
$ |
754,171 |
|
|
$ |
(19,240 |
) |
|
|
(2.55) |
% |
Employee benefits |
|
|
269,453 |
|
|
|
284,814 |
|
|
|
(15,361 |
) |
|
|
(5.39 |
) |
Occupancy |
|
|
279,922 |
|
|
|
210,438 |
|
|
|
69,484 |
|
|
|
33.02 |
|
Equipment |
|
|
70,475 |
|
|
|
61,446 |
|
|
|
9,029 |
|
|
|
14.69 |
|
Data processing |
|
|
61,252 |
|
|
|
59,440 |
|
|
|
1,812 |
|
|
|
3.05 |
|
Other operating |
|
|
329,277 |
|
|
|
332,658 |
|
|
|
(3,381 |
) |
|
|
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
$ |
1,745,310 |
|
|
$ |
1,702,967 |
|
|
$ |
42,343 |
|
|
|
2.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and benefit expenses decreased primarily because we closed the marine division late in
the third quarter of 2007 and terminated the employees associated with it and stock based
compensation expense decreased from $83,193 in 2007 to $44,879 for the same period in 2008. The
stock based compensation expense decreased because the Board of Directors did not receive any
vested options in the first quarter of 2008 and they received 10,000 vested options during the
first quarter of 2007. These reductions were partially offset by the costs associated with the new
personnel hired for the Greenbelt and College Park branches and the new loan officers hired in
April and September of 2007.
Occupancy expense increased because of the opening of the new Greenbelt branch in June 2007
and the new College Park branch in February 2008. Data processing increased because of the new
locations and new services provided by our data processor. Other operating expenses decreased
primarily because there were no origination costs derived from the marine division during the
period.
For the remainder of 2008, we anticipate non-interest expenses will increase. We will incur
increased rent expense related to the new Greenbelt and College Park location and increased
operational expenses associated with these branches as well as costs associated with the additional
branches we expect to open during 2008. The stock based compensation expense will decline during
the remainder of the year.
Income Taxes
Three months ended March 31, 2008 compared to three months ended March 31, 2007
Income tax expense was $233,428 (34.42% of pre-tax income) for the three months ended March
31, 2008 as compared to $140,778 (30.06% of pre-tax income) for the same period in 2007. The
increase in the effective tax rate is primarily due to a decrease in interest on tax exempt
securities as a percent of pre-tax income during the period.
21
Net Income
Three months ended March 31, 2008 compared to three months ended March 31, 2007
Net income was $444,833 or $0.11 per basic and diluted common share for the three month period
ending March 31, 2008 compared to net income of $327,542 or $0.08 per basic and diluted common share
for the same period in 2007. The increase in net income was the result of a $285,753 increase in
net interest income after provision for loan losses and a $42,343 reduction in non-interest expense
partially offset by a $33,469 decrease in non-interest revenue and a $92,650 increase in income
taxes for the period compared to the same period in 2007. Earnings per common share increased on a
basic and diluted basis because of higher earnings in 2008 and because the average number of common
shares decreased by 214,773 common shares from 4,254,359 in 2007 to 4,034,126 in 2008 because we
repurchased 354,359 shares of common stock since inception of the Stock Repurchase Program in
December 2007. We repurchased 168,399 shares of common stock during the quarter ended March 31,
2008.
Analysis of Financial Condition
Investment Securities
Our portfolio consists primarily of U.S. Treasury securities, U.S. government agency
securities, securities issued by states, counties and municipalities, mortgage-backed securities,
and certain equity securities, including Federal Reserve Bank stock, Federal Home Loan Bank stock,
Maryland Financial Bank stock and Atlantic Central Bankers Bank stock. The portfolio provides a
source of liquidity, collateral for repurchase agreements as well as a means of diversifying our
earning asset portfolio. While we generally intend to hold the investment securities until
maturity, we classify a significant portion of the investment securities as available for sale. We
account for investment securities so classified 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 classified in the held to maturity category at
amortized cost. We invest in securities for the yield they produce and not to profit from trading
the securities. There are no trading securities in the portfolio.
The investment securities at March 31, 2008 amounted to $15.5 million, an increase of $3.8
million, or 32.93%, from the December 31, 2007 amount of $11.7 million. Available for sale
investment securities decreased to $6.0 million at March 31, 2008 from $9.4 million at December 31,
2007. The decrease in the available for sale investment securities occurred because some of these
assets matured and we purchased federal funds, investment securities held to maturity, or deployed
the proceeds into loans. Held to maturity securities at March 31, 2008 increased to $9.5 million
from the $2.3 million balance on December 31, 2007 because we purchased new securities during the
period. The fair value of available for sale securities included net unrealized gains of $28,704
at March 31, 2008 (reflected as unrealized gains of $17,382 in stockholders equity after deferred
taxes) as compared to net unrealized losses of $49,127 ($29,749 net of taxes) as of December 31,
2007. In general, the increase in fair value was a result of the maturity of securities, declining
interest rates and a shortening of the remaining term until maturity. As required under SFAS No.
115, 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. As the maturity date moves closer and/or interest rates decline, the unrealized
losses in the portfolio will decline or dissipate.
Investment in real estate LLC
As discussed above, Old Line Bancshares has a 50% ownership or $818,967 investment in Pointer
Ridge, a real estate investment limited liability company. In July 2006, we moved our main office
facility from Waldorf, Maryland to the building owned by Pointer Ridge at 1525 Pointer Ridge Place,
Bowie, Maryland in Prince Georges County and established a branch in this facility.
Frank Lucente, a director of Old Line Bancshares, Inc. and Old Line Bank, controls 25% of
Pointer Ridge and controls the manager of Pointer Ridge. On June 6, 2006, we executed leases for
2,557 square feet on the 1st floor of the building for a new branch office, 5,449 square
feet on the 3rd floor and 11,053 square feet on the 4th floor of this
building for our new headquarters. The leases which commenced on July 1, 2006, are for thirteen
years, with two, five-year renewal options. The leases are full service leases and payment terms
include the cost of taxes, insurance and maintenance with basic monthly payments of $41,967 and 3%
annual increases in base rents plus adjustment for increased taxes, insurances and maintenance.
22
Loan Portfolio
Loans secured by real estate or luxury boats comprise the majority of the loan portfolio. Old
Line Banks loan customers are generally located in the greater Washington, D.C. metropolitan area.
The loan portfolio, net of allowance, unearned fees and origination costs, increased $1.3
million or 0.64% to $203.2 million at March 31, 2008 from $201.9 million at December 31, 2007.
Commercial business loans increased by $1.0 million (1.85%), commercial real estate loans
(generally owner-occupied) increased by $337,000 (0.35%), residential real estate loans (generally
home equity and fixed rate home improvement loans) decreased by $543,000 (4.84%), real estate
construction loans (primarily commercial real estate construction) increased by $1.6 million
(7.32%) and installment loans decreased by $1.2 million (6.30%) from their respective balances at
December 31, 2007.
During the first quarter of 2008, we received approximately $9 million in loan payoffs that
negatively impacted our loan growth for the period. These payoffs were primarily attributable to a
significant slowdown in the real estate market. In spite of these payoffs, we experienced nominal
growth in the loan portfolio. We saw loan and deposit growth generated from our entire team of
lenders, branch personnel and board of directors. We anticipate the entire team will continue to
focus their efforts on business development during the remainder of 2008 and continue to grow the
loan portfolio.
The following table summarizes the composition of the loan portfolio by dollar amount and
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
96,355 |
|
|
|
47.13 |
% |
|
$ |
96,018 |
|
|
|
47.26 |
% |
Construction |
|
|
23,508 |
|
|
|
11.50 |
|
|
|
21,905 |
|
|
|
10.78 |
|
Residential |
|
|
10,684 |
|
|
|
5.23 |
|
|
|
11,227 |
|
|
|
5.53 |
|
Commercial |
|
|
56,540 |
|
|
|
27.65 |
|
|
|
55,513 |
|
|
|
27.32 |
|
Installment |
|
|
17,361 |
|
|
|
8.49 |
|
|
|
18,528 |
|
|
|
9.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,448 |
|
|
|
100.00 |
% |
|
|
203,191 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(1,625 |
) |
|
|
|
|
|
|
(1,586 |
) |
|
|
|
|
Deferred loan costs, net |
|
|
398 |
|
|
|
|
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
203,221 |
|
|
|
|
|
|
$ |
201,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Asset Quality
Management performs reviews of all delinquent loans and directs relationship officers to work
with customers to resolve potential credit issues in a timely manner. Management generally
classifies loans as non-accrual when it does not expect collection of full principal and interest
under the original terms of the loan or payment of principal or interest has become 90 days past
due. Classifying a loan as non-accrual results in our no longer accruing interest on such loan and
reversing 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 loans only when received. At March 31, 2008 and December 31,
2007, we had two loans totaling $1.1 million that were 90 days past due and were classified as non-accrual. The foreclosure
process on one of these loans in the amount of $127,000 was completed in January 2008. We
anticipate we will receive payment in full (including costs) during the second quarter of 2008.
The borrower on the second loan in the amount of $934,144 filed for bankruptcy protection in
November, 2007. A commercial real estate property secures this loan. The loan to value at
inception of this loan was 80%. During the first quarter, the borrower began remitting payments
and advised us that the borrower will make all past due interest and principal current prior to
March 31, 2009. We do not expect to incur any losses on this loan. As of March 31, 2008, the
interest not accrued on these loans was $33,695 none of which was included in net income for the
quarter ended March 31, 2008. Other than the loans outlined above there were no loans 30 days or
more past due as of March 31, 2008 and only one loan in the amount of approximately $6,000 was more
than 30 days past due as of December 31, 2007.
We classify any property acquired as a result of foreclosure on a mortgage loan as 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 loan 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 on at least an annual basis and external inspections on
at least a quarterly basis. As of March 31, 2008 and December 31, 2007, we held no real estate
acquired as a result of foreclosure.
We apply the provisions of Statement of Financial Accounting Standards No. 114 (SFAS No.
114), Accounting by Creditors for Impairment of a Loan, as amended by Statement of Financial
Accounting Standards No. 118 (SFAS No. 118), Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure. SFAS No. 114 and SFAS No. 118 require that impaired loans,
which consist of all modified loans and other loans for which collection of all contractual
principal and interest is not probable, be measured based on the present value of expected future
cash flows discounted at the loans effective interest rate, or at the loans 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 SFAS No. 114 impairment test to
these loans. We write off impaired loans when collection of the loan is doubtful.
As of March 31, 2008 and December 31, 2007, we had no impaired or restructured loans.
Bank owned life insurance
We increased our investment in Bank Owned Life Insurance (BOLI) in February 2007 by
$4.0 million. In June 2005, we purchased $3.3 million of BOLI on the lives of our executive
officers, Messrs. Cornelsen and Burnett and Ms. Rush. With the new investment made in February
2007, we increased the insurance on Messrs. Cornelsen and Burnett and expanded the coverage of the
insurance policies to insure the lives of several other officers of Old Line Bank. We anticipate
the earnings on these policies will pay for our employee benefit expenses as well as our
obligations under our Salary Continuation Agreements and Supplemental Life Insurance Agreements
that we entered into with our executive officers in January 2006. The additional $4 million
investment caused increased earnings, during the first three months of 2008 and the cash surrender
value of the insurance policies increased by $82,180. There were no post retirement death benefits
associated with the BOLI policies.
24
Deposits
We seek deposits within our market area by paying competitive interest rates, offering high
quality customer service and using technology to deliver deposit services effectively.
At March 31, 2008, the deposit portfolio had grown to $186.8 million, a $9.0 million or 5.06%
increase over the December 31, 2007 level of $177.8 million. Noninterest-bearing deposits declined
$402,000 during the period to $34.7 million from $35.1 million primarily due to a decline in
balances in commercial checking accounts that was primarily caused by the decline in the real
estate market and the transfer of funds to interest-bearing accounts. Interest-bearing deposits
grew $9.3 million to $152.0 million from $142.7 million. The majority of the growth in interest-bearing deposits was in money market accounts and certificates of deposit.
Money market accounts grew from $33.9 million at December 31, 2007 to $36.3 million at March 31,
2008. Certificates of deposit grew $7.1 million or 6.95% to $109.2 million from $102.1 million.
The growth in these deposits was offset by a $100,000 decline in savings accounts. Certificates of
deposit and money market accounts grew due to new customer relationships, new deposits from
existing customers, and the transfer of funds from savings accounts.
In the first quarter of 2006, we began acquiring brokered certificates of deposit through the
Promontory Interfinancial Network. Through this deposit matching network and its certificate of
deposit account registry service (CDARS), we obtained the ability to offer our customers access to
FDIC-insured deposit products in aggregate amounts exceeding current insurance limits. When we
place funds through CDARS on behalf of a customer, we receive matching deposits through the
network. At March 31, 2008, we had $15.7 million in CDARS compared to $13.5 million at December
31, 2007. At March 31, 2008 and December 31, 2007, we had an additional $5 million in brokered
certificates of deposit.
During the three months ended March 31, 2008, we saw growth in total deposits because of the
opening of the Greenbelt branch in June 2007, the opening of the College Park branch in February
2008 and the successful business development efforts of our branch staff, lending personnel and
Board of Directors. During the period, our new and existing customers looked for higher yields.
This coupled with the continued slow down in real estate settlements caused a lower level of
balances on deposit in noninterest-bearing accounts. We expect the balances in noninterest-bearing
accounts will improve during the remainder of the year.
Borrowings
Old Line Bank has available lines of credit, including overnight federal funds and repurchase
agreements from its correspondent banks totaling $33.3 million as of March 31, 2008. Old Line Bank
has an additional secured line of credit from the Federal Home Loan Bank of Atlanta (FHLB) that
totaled $72.9 million at March 31, 2008 and $71.1 million at December 31, 2007. 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, at
March 31, 2008 we have provided collateral to support up to $38.9 million of borrowings. Of this,
we had borrowed $15 million at March 31, 2008 and December 31, 2007.
Short-term borrowings consisted of short-term promissory notes issued to Old Line Banks
customers. Old Line Bank offers its commercial customers an enhancement to the basic
noninterest-bearing demand deposit account. This service electronically sweeps excess funds from
the customers account into an interest-bearing Master Note with Old Line Bank. These Master Notes
re-price daily and have maturities of 270 days or less. At March 31, 2008, Old Line Bank had $21.8
million outstanding in these short term promissory notes with an average interest rate of 1.75%.
At December 31, 2007, Old Line Bank had $16.3 million outstanding with an average interest rate of
2.53%.
At March 31, 2008 and December 31, 2007, Old Line Bank had three advances in the amount of
$5.0 million each, from the FHLB totaling $15.0 million. On November 24, 2007, Old Line Bank
borrowed $5.0 million with an interest rate of 3.66%. Interest is due on the 23rd day
of each February, May, August and November, commencing on February 23, 2008. On November 23, 2008,
or any interest payment date thereafter, the FHLB has the option to convert the interest rate on
this advance from a fixed rate to a three (3) month London Interbank Offer Rate (LIBOR) based
variable rate. Old Line Bank must repay this advance in full on November 23, 2010.
On December 12, 2007, Old Line Bank borrowed another $5.0 million from the FHLB. The interest
rate on this advance is 3.3575% and interest is payable on the 12th day of each March,
June, September and December, commencing on March 12, 2008. On December 12, 2008, or any interest
payment date thereafter, the FHLB has the option to convert the interest rate on this advance to a
fixed rate three (3) month LIBOR. The maturity date on this advance is December 12, 2012.
On December 19, 2007, Old Line Bank borrowed an additional $5.0 million from the FHLB. The
interest rate on this borrowing is 3.119% and is payable on the 19th day of each month.
On January 22, 2008 or any interest payment date thereafter, the FHLB has the option to convert the
interest rate on this advance from a fixed rate to a one (1) month LIBOR based variable rate. This borrowing matures on December 19, 2012.
25
Interest Rate Sensitivity Analysis and Interest Rate Risk Management
A principal objective of Old Line Banks 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 Asset and Liability Committee of the
Board of Directors oversees this review.
The Asset and Liability Committee establishes policies to control interest rate sensitivity.
Interest rate sensitivity is the volatility of a banks earnings resulting from movements in market
interest rates. Management monitors rate sensitivity in order to reduce vulnerability to interest
rate fluctuations while maintaining adequate capital levels and acceptable levels of liquidity.
Monthly financial reports supply management with information to evaluate and manage rate
sensitivity and adherence to policy. Old Line Banks asset/liability policys goal is to manage
assets and liabilities in a manner that stabilizes net interest income and net economic value
within a broad range of interest rate environments. Management makes adjustments to the mix of
assets and liabilities periodically in an effort to achieve dependable, steady growth in net
interest income regardless of the behavior of interest rates in general.
As part of the interest rate risk sensitivity analysis, the Asset and Liability Committee
examines the extent to which Old Line Banks assets and liabilities are interest rate sensitive and
monitors the interest rate sensitivity gap. An interest rate sensitive asset or liability is one
that, within a defined time period, either matures or experiences an interest rate change in line
with general market rates. The interest rate sensitivity gap is the difference between
interest-earning assets and interest-bearing liabilities scheduled to mature or re-price within
such time period. A gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net interest income.
During a period of declining interest rates, a negative gap would tend to result in an increase in
net interest income, while a positive gap would tend to adversely affect net interest income. If
re-pricing of assets and liabilities were equally flexible and moved concurrently, the impact of
any increase or decrease in interest rates on net interest income would be minimal.
Old Line Bank currently has a negative gap over the short term, which suggests that the net
yield on interest earning assets may decrease during periods of rising interest rates. However, a
simple interest rate gap analysis by itself may not be an accurate indicator of how changes in
interest rates will affect net interest income. Changes in interest rates may not uniformly affect
income associated with interest-earning assets and costs associated with interest-bearing
liabilities. In addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income. Although certain assets and liabilities may have
similar maturities or periods of re-pricing, they may react in different degrees to changes in
market interest rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on other types may lag
behind changes in general market rates. In the event of a change in interest rates, prepayment and
early withdrawal levels also could deviate significantly from those assumed in calculating the
interest-rate gap. The ability of many borrowers to service their debts also may decrease in the
event of an interest rate increase.
Liquidity
Our 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. We have credit lines unsecured and secured
available from several correspondent banks totaling $24.8 million. Additionally, we may borrow
funds from the Federal Home Loan Bank of Atlanta. 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 or pledge available for sale investment securities 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.
26
Our immediate sources of liquidity are cash and due from banks and federal funds sold. On
March 31, 2008, we had $4.4 million in cash and due from banks, and $16.3 million in federal funds
sold and overnight investments. As of December 31, 2007, we had $3.2 million in cash and due from
banks, and $9.8 million in federal funds sold and other overnight investments. As we continue to
deploy these proceeds into loans, we anticipate these balances will decline.
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 Banks inability to meet anticipated or unexpected liquidity needs.
Capital
Our stockholders equity amounted to $33.7 million at March 31, 2008 and $34.6 million at
December 31, 2007. We are considered well capitalized under the risk-based capital guidelines
adopted by the Federal Reserve. Stockholders equity decreased during the three month period
because of the $1.4 million cost for stock repurchases during the period and the $121,420 dividend
paid in March 2008. These items were partially offset by net income of $444,833, plus the $44,879
adjustment for stock based compensation awards, and the $47,131 unrealized gain in available for
sale securities.
Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements
Old Line Bancshares, Inc. 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, Inc. 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 which
would have a material effect on Old Line Bancshares, Inc. Old Line Bancshares, Inc. also has
operating lease obligations.
Old Line Bancshares, Incs guaranty obligation made in connection with Pointer Ridges
mortgage loan, outlined below, also creates off-balance sheet risk, as further described below.
Outstanding loan commitments and lines and letters of credit at March 31, 2008 and
December 31, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Commitments to extend credit and available credit
lines: |
|
|
|
|
|
|
|
|
Commercial |
|
$ |
21,508 |
|
|
$ |
16,398 |
|
Real
estate-undisbursed development and construction |
|
|
32,476 |
|
|
|
35,966 |
|
Real estate-undisbursed home equity lines of credit |
|
|
5,580 |
|
|
|
5,250 |
|
|
|
|
|
|
|
|
|
|
$ |
59,564 |
|
|
$ |
57,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
$ |
1,743 |
|
|
$ |
1,634 |
|
|
|
|
|
|
|
|
27
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, Inc. 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 managements 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 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 customers credit-worthiness on a case-by-case basis. 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 $32.5 million, or
54.53% of the $59.6 million of outstanding commitments, 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 nonperformance 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.
On August 25, 2006, Pointer Ridge entered into a loan agreement with an unrelated bank,
pursuant to which the bank agreed to make a mortgage loan to Pointer Ridge in a principal amount of
$6.6 million to finance the commercial office building at 1525 Pointer Ridge Place, Bowie,
Maryland. We lease approximately half of this building for our main office and operate a branch of
Old Line Bank from this address. Old Line Bancshares, Inc. has a 50% ownership in Pointer Ridge
and we record this investment on the equity method.
The Amended Promissory Note provides that the loan will accrue interest from the date of the
Amended Promissory Note through September 5, 2016 at a rate of 6.28% (Initial Term Interest
Rate). After September 5, 2016, the interest rate will adjust to the greater of (i) the Initial
Term Interest Rate plus 200 basis points or (ii) the Treasury Rate (as defined in the Amended
Promissory Note) plus 200 basis points.
Payments on the Amended Promissory Note began October 5, 2006. For the first 12 months,
Pointer Ridge paid to the lender an installment of interest only. Commencing with the
13th payment and continuing until August 5, 2036, Pointer Ridge pays equal monthly
payments of principal and interest based on a 30-year amortization. There is a prepayment penalty
if Pointer Ridge prepays the loan prior to September 5, 2016. At March 31, 2008, Pointer Ridge had
borrowed $6.6 million under the Amended Promissory Note.
On August 25, 2006, Old Line executed a new Guaranty Agreement with the lender that was
effective upon Pointer Ridges execution of the Amended Promissory Note and Amended Deed of Trust.
Pursuant to the terms of the guaranty, Old Line has guaranteed the payment to the lender of up to
50% of the loan amount plus any costs incurred by the lender resulting from any acts, omissions or
alleged acts or omissions arising out of or relating to: (1) the misapplication or misappropriation
by Pointer Ridge of any or all money collected, paid or received; (2) rents, issues, profits and
revenues of all or any portion of the property located at 1525 Pointer Ridge Place, Bowie, Maryland
(the Security Property) received or applicable to a period after the occurrence of any Event of
Default which are not applied to pay, first (a) real estate taxes and other charges which, if
unpaid, could result in liens superior to that of the Amended Deed of Trust and (b) premiums on
insurance policies required under the loan documents, and, second, the other ordinary and necessary
expenses of owning and operating the Security Property; (3) waste committed on the Security
Property or damage to the Security Property as a result of intentional misconduct or gross
negligence or the removal of all or any portion of the Security Property in violation of the terms
of the loan documents; (4) fraud or material misrepresentation or failure to disclose a material
fact; (5) the filing of any petition for bankruptcy; or (6) Pointer Ridges failure to maintain its
status as a single purpose entity as required by the loan documents.
We do not believe that we will incur any obligations under the guaranty. If we were to become
obligated under the guaranty, we do not believe that it would have any material effect on our
liquidity or capital resources.
28
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, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Federal Funds |
|
|
Investment |
|
|
Interest |
|
|
Net Interest |
|
|
Interest |
|
|
|
Sold |
|
|
Securities |
|
|
Earning Assets |
|
|
Income |
|
|
Spread |
|
GAAP interest income |
|
$ |
126,378 |
|
|
$ |
120,114 |
|
|
$ |
3,770,442 |
|
|
$ |
2,229,533 |
|
|
|
|
|
Tax equivalent adjustment |
|
|
2,815 |
|
|
|
15,021 |
|
|
|
17,836 |
|
|
|
17,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest income |
|
$ |
129,193 |
|
|
$ |
135,135 |
|
|
$ |
3,788,278 |
|
|
$ |
2,247,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP interest yield |
|
|
3.03 |
% |
|
|
3.82 |
% |
|
|
6.45 |
% |
|
|
3.81 |
% |
|
|
3.05 |
% |
Taxable equivalent adjustment |
|
|
0.07 |
% |
|
|
0.48 |
% |
|
|
0.03 |
% |
|
|
0.03 |
% |
|
|
0.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
|
3.10 |
% |
|
|
4.30 |
% |
|
|
6.48 |
% |
|
|
3.84 |
% |
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Federal Funds |
|
|
Investment |
|
|
Interest |
|
|
Net Interest |
|
|
Interest |
|
|
|
Sold |
|
|
Securities |
|
|
Earning Assets |
|
|
Income |
|
|
Spread |
|
GAAP interest income |
|
$ |
373,465 |
|
|
$ |
174,116 |
|
|
$ |
3,428,138 |
|
|
$ |
1,961,380 |
|
|
|
|
|
Tax equivalent adjustment |
|
|
10,739 |
|
|
|
18,136 |
|
|
|
28,875 |
|
|
|
28,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest income |
|
$ |
384,204 |
|
|
$ |
192,252 |
|
|
$ |
3,457,013 |
|
|
$ |
1,990,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP interest yield |
|
|
5.25 |
% |
|
|
3.88 |
% |
|
|
6.84 |
% |
|
|
3.91 |
% |
|
|
2.79 |
% |
Taxable equivalent adjustment |
|
|
0.15 |
% |
|
|
0.40 |
% |
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
|
5.40 |
% |
|
|
4.28 |
% |
|
|
6.90 |
% |
|
|
3.97 |
% |
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared 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 institutions 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 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.
29
Application of Critical Accounting Policies
We prepare our financial statements in accordance with accounting principles generally
accepted in the United States of America and follow general practices within the industry in which
we operate. Application of these principles requires management to make estimates, assumptions,
and judgments that affect the amounts reported in the financial statements and accompanying notes.
We base these estimates, assumptions, and judgments on information available as of the date of the
financial statements; accordingly, as this information changes, the financial statements could
reflect different estimates, assumptions, and judgments. Certain policies inherently have a
greater reliance on the use of estimates, assumptions, and judgments and as such have a greater
possibility of producing results that could be materially different than originally reported.
Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be
recorded at fair value, when a decline in the value of an asset not carried on the financial
statements at fair value warrants an impairment write-down or valuation reserve to be established,
or when an asset or liability needs to be recorded contingent upon a future event. Carrying
assets and liabilities at fair value inherently results in more financial statement volatility. We
base the fair values and the information used to record valuation adjustments for certain assets
and liabilities on quoted market prices or from information other third-party sources provide, when
available.
Based on the valuation techniques used and the sensitivity of financial statement amounts to
the methods, assumptions, and estimates underlying those amounts, management has identified the
determination of the provision for loan losses as the accounting area that requires the most
subjective or complex judgments, and as such could be most subject to revision as new information
becomes available.
Management has significant discretion in making the judgments inherent in the determination of
the provision and allowance for loan losses, including in connection with the valuation of
collateral and the financial condition of the borrower, and in establishing loss ratios and risk
ratings. The establishment of allowance factors is a continuing exercise and allowance factors may
change over time, resulting in an increase or decrease in the amount of the provision or allowance
based upon the same volume and classification of loans.
Changes in allowance factors or in managements interpretation of those factors will have a
direct impact on the amount of the provision, and a corresponding effect on income and assets.
Also, errors in managements perception and assessment of the allowance factors could result in the
allowance not being adequate to cover losses in the portfolio, and may result in additional
provisions or charge-offs, which would adversely affect income and capital. For additional
information regarding the allowance for loan losses, see Provision for Loan Losses.
Information Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Exchange Act of 1933, as amended 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.
30
The statements presented herein with respect to, among other things, Old Line Bancshares,
Inc.s plans, objectives, expectations and intentions, including statements regarding revenue and
expenses, changes in various revenue components, earnings/income, sources of liquidity, the
allowance for loan losses, expected loan, deposit and asset growth, changes in the composition of
earnings assets, costs of funds, commercial real estate demand and related financing opportunities,
payment of non-performing loans, interest rate sensitivity, improvement in our net interest margin,
market risk, financial and other goals and plans, expansion of services and use of technology, the
expected income from new branches offsetting related expenses, the impact of remote deposit capture
on expenses and deposit growth, expected openings of new branches, earnings on BOLI, and customer
growth are forward looking. Old Line Bancshares, Inc. 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, Inc. to retain key personnel; the
ability of Old Line Bancshares, Inc. 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, Inc.;
that changes in regulatory requirements and/or restrictive banking legislation may adversely affect
Old Line Bancshares, Inc.; that the market value of investments could negatively impact
stockholders equity; risks associated with Old Line Bancshares, Inc.s lending limit; increased
expenses due to stock benefit plans; expenses associated with operating as a public company;
potential conflicts of interest associated with the interest in Pointer Ridge; and changes in
economic, competitive, governmental, regulatory, technological and other factors which may affect
Old Line Bancshares, Inc. specifically or the banking industry generally. For a more complete
discussion of some of these risks and uncertainties see Factors Affecting Future Results in Old
Line Bancshares, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007.
Old Line Bancshares, Inc.s 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, Inc.
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. Due to the nature of our operations, only interest rate risk is significant
to our consolidated results of operations or financial position. For information regarding our
Quantitative and Qualitative Disclosure about Market Risk, see Interest Rate Sensitivity Analysis
and Interest Rate Risk Management in Part I, Item 2 of this Form 10-Q.
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, Old Line
Bancshares, Inc.s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of Old Line Bancshares, Inc.s disclosure controls and procedures as defined in Rule 13a-15(e)
under the Exchange Act. Based upon that evaluation, Old Line Bancshares, Inc.s Chief Executive
Officer and Chief Financial Officer concluded that Old Line Bancshares, Inc.s disclosure controls
and procedures are effective as of March 31, 2008. Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed by Old
Line Bancshares, Inc. 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 SECs rules and forms.
In addition, there were no changes in Old Line Bancshares, Inc.s internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended
March 31, 2008, that have materially affected, or are reasonably likely to materially affect, Old
Line Bancshares, Inc.s internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None
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, 2007.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
We announced on August 17, 2007 that our board of directors had authorized our repurchase of
up to 300,000 shares of our common stock. On March 12, 2008, we announced that the board of
directors had authorized the repurchase of an additional 100,000 shares of our common stock. The
following table outlines the purchases we made of our shares of common stock during the first
quarter ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
of Shares That |
|
|
|
|
|
|
|
|
|
|
|
as |
|
|
May |
|
|
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
of |
|
|
Average Price |
|
|
Announced Plan |
|
|
Under the Plan or |
|
Date |
|
Shares Purchased |
|
|
Paid Per Share(1) |
|
|
or Program |
|
|
Programs |
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,050 |
|
January 1-31, 2008 |
|
|
20,155 |
|
|
$ |
8.05 |
|
|
|
20,155 |
|
|
|
93,895 |
|
February 1-29, 2008 |
|
|
5,863 |
|
|
|
8.05 |
|
|
|
5,863 |
|
|
|
88,032 |
|
Repurchase Program
Increase-3/12/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,032 |
|
March 1-31, 2008 |
|
|
142,381 |
|
|
|
8.26 |
|
|
|
142,381 |
|
|
|
45,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total First Quarter |
|
|
168,399 |
|
|
$ |
8.23 |
|
|
|
168,399 |
|
|
|
45,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Includes commissions and fees. |
At March 31, 2008, there are 45,651 shares of common stock that we may yet repurchase as part
of our publicly announced plan.
32
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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 |
33
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 12, 2008 |
By: |
/s/ James W. Cornelsen
|
|
|
|
James W. Cornelsen, |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: May 12, 2008 |
By: |
/s/ Christine M. Rush
|
|
|
|
Christine M. Rush, |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer) |
34