Monday, March 24, 2014

Old Line Bancshares, Inc. Reports Strong Organic Loan Growth of 22.65% for the Year and Increased Earnings of 157.9% for the Fourth Quarter Ended December 31, 2013- 03/28/2014


  1. Sources: Morningstar direct, Old line banker website, Seeking alpha

    Old Line Bancshares (OLBK) operates as the holding company of Old Line Bank. It converted from a national bank to a Maryland chartered trust company in 2003. It provides commercial banking products and services to small and medium size businesses, consumers, and high net worth clients in Maryland. They also own 62.5% of Pointer Ridge Investment.

    Business overview
    Composition of OLBK's revenue. In 2013, interest income provides 83% of total revenue, of which Loans and leases contributes 91% and securities 9 %, non interest revenue accounts for the remaining 17% of total revenue.

    FCF (OCF- CapEx) became positive, 3 million in 2010, was 9 million in 2011&2012, 47% and 28% of same year revenue respectively. FCF was 14 million in 2012&2013, 28%f same year revenue.

    Peer analysis
    OLBK NI margin 4.5%, compare with industry average of 3.72%,
    OLBK Efficiency ratio 61.7%, compare with average of 77%
    OLBK's loans/deposits 88% and tier 1 capital, in line with industry average
    OLBK's P/E is 19.7, compare with industry median of 12.4, P/B is also higher, 144.9 compare with industry median of 85. In summary, OLBK performed better than its competitors, and is also valued higher by the investors.

    Insider holdings
    There are 20 key insiders on Morningstar direct, and they own 19.4% of OLBK's shares, 1.55% increase from last year. Only 1 of them decreased his or her holding, 23 of them increase their holdings, 7 maintained their positions.

    OLBK showed strong growth in revenue and net income over the last 5 years, and its FCF also increased steadily. It has a book value of $10.93, compare with current market price of 17. Analysts gave a median price target of 18.

  2. 2013 10-K, Seeking Alpha


    - Old Line Bancshares, Inc., is the holding company for Old Line Bank engaged in a general commercial banking business, making various types of loans and accepting deposits.
    - Primary market area in the suburban Maryland counties

    Business Segments (Revenue %) Fiscal year 2013
    - Non-interest income 16.7%
    - Interest income 83.3%
    - Loan interest 76%
    - Investment 7%

    CORE BUSINESS - Loan interest
    - Five Year 26.64% CAGR / 34.2% YOY growth
    - Net interest income increased 20.79% in 2013
    - Total average interest earning assets increased 23.78%, offset the effect on net income caused by the low rate environment

    Local Business Owner:
    - Commercial and Industrial Lending
    - Commercial Real Estate Lending
    - Land and Acquisition and Development Lending
    Local Residents:
    - Residential Real Estate Lending
    - Consumer Installment Lending.

    Financial Position:
    - Market Cap 183 million,Net revenue in 2013 is 49.4 million
    - D/E Ratio: lower than 0.1 in the last three years
    - Net loans during the three month period grew $20.8 million net of the loan sale, an increase of 2.51%
    - Net interest margin is 4.53
    - P/E Ratio: 18.22, which is higher than peer average
    Asset Quality Ratios:
    - Allowance to period-end loans 0.58% 0.66%
    Capital Ratios:
    - Tier 1 risk based capital ratio 12.0% 10.8%
    - Leverage ratio 9.3% 7.9%
    - Acquired WSB Holdings, 2013, increased assets by more than $310 million
    - Acquired Maryland Bankcorp, Inc. in 2011 increased assets more than $349 m
    - First Mariner Bancorp Inc
    - CFG Community Bank
    - Community Financial Corp
    - The PNC Financial Services Group Inc

    - Positive Industry fundamental outlook: Regional banks for the next 12 months is positive, on our view that these banks are well capitalized and managed, that loan credit quality is much stronger than in the past, and that net interest margins should benefit from higher long term interest rate
    - Relatively wide profit margin: Net interest margin 4 .53 (Mid-bank Industry average 2.16)
    - Commercial Loan Growth: Small and medium businesses are recovering in the Maryland and Washington D.C. area. Net loans increased $254.1 million or 42.70% in 2013.
    - Old Line Bank is the fourth largest independent commercial bank based in Maryland, with assets of more than $1.2 billion and 23 full service branches serving five counties.
    CON (what may go wrong)
    - Economic conditions: declining real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies may adversely affect our financial results
    - Rely on local real estate market: Originate and retain in portfolio residential mortgage loans. A continued downturn in the local real estate market could affect earnings.
    - Increasing operation expense may occur in the M&A with WSB Holdings.
    - The concentrations of loans may also increase the risk of credit losses. More than 25% of the capital invested in various industry segments, including commercial real estate loans and loans to the hospitality industry, which have high volatility

  3. Sources:
    - 2013 Q3 10Q
    - Seeking alpha
    - Morning Star

    Business Overview: Old Line Bancshares, Inc. is the holding company for Old Line Bank, a commercial bank,with primary market area in the suburban Maryland counties of Prince George's,Charles and northern St. Mary's.

    It has one operating segment: commercial banking.

    Revenue breakdown: Interest income 83%; Non-interest income 17%

    Customers: mainly focus on small and medium size businesses, entrepreneurs, professionals, consumers and high net worth clients in the primary market area.

    Competition: compete with other commercial banks, savings associations, credit unions, mortgage banking firms, and other financial institutions operating in the primary market area and elsewhere.
    - Four direct competitors in the area: First Mariner Bancorp Inc.; CFG Community Bank; Community Financial Corp; & The PNC Financial Services Group, Inc

    Financial Overview:
    - FCF discussion not necessary for banking industry
    - Net Interest Margin: 4.53% in 2013, 3% slight decrease, while still much higher than mid-bank industry avg. of 2.16
    - Profitability: ROA & ROE increased significantly in 2011 & 2012 thanks to the large increase in revenues. ROA dropped 14% in 2013, because of a 39% increase in assets after the acquisition of WSB Holdings. ROE dropped 26% because of newly raised capital of 12 million in 2013.
    - Liquidity: remained "well capitalized." by all regulatory measures
    - Efficiency Ratio: 74% in 2013, increased from 68% in 2012, mainly because of increasing operating expenses after the acquisition of WSB, including salaries and benefits and merger related expense increases. If excluding the acquisition costs, 65% OLBK shows a good control of non-interest expenses

    What is going right?
    - Net loans increased 42% in 2013. Net income increased 4.1%, with 21% increase in net interest income and 139% increase in non-interest income
    - 32% 5 yr CAGR, much higher than industry average of 7.3%
    - Acquisition of WSB enable OLBK to enter into the residential lending business in what is believed to be a material new opportunity and enhance the liquidity of its stock as well as overall financial condition and operating performance

    What can go wrong?
    - Revenue:
    • Failure to realized expecte benefits of acquisition resulting from the loss of key employees, the loss of key depositors or other bank customers
    • A continuation or worse economic conditions, including declining real estate values, changes in interest rates, may cause a decrease in interest rate spreads
    • Various provisions of the Dodd-Frank Act which have not been fully implemented may adversely impact revenue growth
    • Decreases in spending by the Federal government. Because of the proximity of its primary market area to Washington, this could impact OLBK more than banks that serve a larger or a different geographical area
    - Expenses:
    • Salaries and benefits expenses and other operating expenses will continue to be higher in 2014 than they were in 2013 due to the acquisition of WSB Holdings and future M&A needs

  4. Source: 10k, 10q, seeking alpha
    OLBK: Community bank engaged in general commercial banking business, accepting deposit and making loans and investment. Mainly focus to small to medium sized clients. Its primary market area is the suburban Maryland.

    -Interest income: 83%
    Loan interest: 76%
    Investment: 7%
    -Non-interest income: 17%

    Interest income 3yr CAGR: 11% from 2011 to 2013
    NI: 13%

    Net profit Margin: 16.53% in 2013, 20.43% in 2012
    Net interest margin: 4.53% in 2013, 4.65% in 2012.

    ROE: 7.8%in 2013, 11.17% in 2012,
    ROA: 0.74% in 2013, 0.9% in 2012

    Merger with The Washington Savings Bank became effective May 10, 2013, causing total assets to grow to $1.2 billion at the end of 2013 compared to $861.9 million last year.
    Entered into the residential lending business

    Net loan increased 43% in 2013 as a result of organic growth and acquisition of WSB.

    Consumer: loan borrower. Small to medium sized businesses, entrepreneurs, professionals, consumers and clients.

    What could go wrong:
    Revenue: Changes in prevailing economic conditions, including declining real estate values, changes in interest rates which may cause a decrease in interest rate spreads may hurt its revenue
    Expense: M&A expense: 10% of non-interest expense in 2013, only 2% in 2012 and 3% in 2011
    Regulation risk
    The banking industry is subject to extensive regulation by state and federal banking authorities. Many of these regulations are intended to protect depositors and the public.
    The cost of compliance with regulatory requirements could adversely affect their ability to operate profitably.