Company Quick10K Filing
Old Line
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 17 $448
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-13 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-03-31
10-K 2018-03-09 Annual: 2017-12-31
10-Q 2017-11-06 Quarter: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-06-30
10-Q 2017-05-05 Quarter: 2017-03-31
10-K 2017-03-15 Annual: 2016-12-31
10-Q 2016-11-04 Quarter: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-06 Quarter: 2016-03-31
10-K 2016-03-11 Annual: 2015-12-31
10-Q 2015-11-04 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-03-11 Annual: 2014-12-31
10-Q 2014-11-07 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-03-14 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-K 2013-03-29 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-10 Quarter: 2012-06-30
10-Q 2012-05-11 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-10 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-30 Annual: 2010-12-31
10-Q 2010-11-10 Quarter: 2010-09-30
10-Q 2010-08-02 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-03-26 Annual: 2009-12-31
8-K 2019-11-14 Other Events, Exhibits
8-K 2019-10-29 Shareholder Vote
8-K 2019-10-23 Earnings, Other Events, Exhibits
8-K 2019-08-23 Regulation FD
8-K 2019-07-24 Officers, Exhibits
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-07-23 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2019-05-29 Shareholder Vote
8-K 2019-05-29 Regulation FD
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-02-27 Officers, Exhibits
8-K 2019-02-27 Regulation FD
8-K 2019-01-23 Earnings, Exhibits
8-K 2018-11-28 Regulation FD, Other Events
8-K 2018-10-17 Earnings, Exhibits
8-K 2018-08-31 Regulation FD
8-K 2018-08-30 Officers
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-06-27 Officers, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-05-23 Regulation FD
8-K 2018-05-14 Regulation FD
8-K 2018-04-17 Earnings, Exhibits
8-K 2018-04-17 Officers
8-K 2018-04-13 M&A, Officers, Exhibits
8-K 2018-03-29 Other Events
8-K 2018-03-28 Shareholder Vote, Other Events
8-K 2018-03-09 Other Events
8-K 2018-02-21 Regulation FD
8-K 2018-01-23 Earnings, Exhibits
OLBK 2019-09-30
Part 1. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 exh_311.htm
EX-31.2 exh_312.htm
EX-32 exh_32.htm

Old Line Earnings 2019-09-30

OLBK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
MBIN 485 5,287 4,772 0 0 59 153 86 0.6 1%
AROW 479 3,006 2,721 0 0 36 68 416 6.1 1%
FISI 448 4,314 3,892 0 0 41 95 487 5.1 1%
OLBK 448 3,076 2,686 0 0 36 81 427 5.3 1%
CCBG 446 3,018 2,703 0 0 28 43 446 10.3 1%
EQBK 421 4,180 3,722 0 0 25 86 239 2.8 1%
ACBI 416 2,390 2,053 0 0 50 78 388 5.0 2%
BSRR 412 2,577 2,280 0 0 33 59 344 5.9 1%
FSB 412 4,072 3,678 0 0 22 112 261 2.3 1%
FMNB 408 2,406 2,121 0 0 34 61 413 6.8 1%

10-Q 1 f10q_110819p.htm FORM 10-Q

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

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

 

Commission File Number: 000-50345

 

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   20-0154352
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   Identification No.)

 

1525 Pointer Ridge Place    
Bowie, Maryland   20716
(Address of principal executive offices)   (Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share OLBK The Nasdaq Stock Market LLC

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

   
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☐
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Yes ☐ No ☒

 

As of October 31, 2019, the registrant had 17,005,446 shares of common stock outstanding.

 

 

 

 

 

OLD LINE BANCSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

 

   

Page

Number

PART I. FINANCIAL INFORMATION
   
Item 1. Financial Statements 3
     
  Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 3
     
  Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018 4
     
  Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018 5
     
  Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018 6
     
  Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2019 and 2018 7
     
  Notes to Consolidated Financial Statements (Unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 62
     
Item 4. Controls and Procedures 63
     
PART II.  
   
Item 1. Legal Proceedings 64
     
Item 1A. Risk Factors 64
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 64
     
Item 3. Defaults Upon Senior Securities 64
     
Item 4. Mine Safety Disclosures 64
     
Item 5. Other Information 64
     
Item 6. Exhibits 65
     
Signatures 66

 

 

 

 

 

Part 1. Financial Information

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Balance Sheets

 

   September 30,  December 31,
   2019  2018
   (Unaudited)   
Assets      
Cash and due from banks  $44,987,316   $41,495,763 
Interest bearing accounts   1,625,029    2,051,273 
Federal funds sold   388,971    953,582 
Total cash and cash equivalents   47,001,316    44,500,618 
Investment securities available for sale-at fair value   268,534,675    219,705,762 
Loans held for sale, fair value of $23,203,560 and $11,860,147   22,534,097    11,564,993 
Loans held for investment (net of allowance for loan losses of $8,001,352 and $7,471,023, respectively)   2,473,922,052    2,409,227,698 
Equity securities at cost   10,886,803    11,150,750 
Premises and equipment   42,073,240    42,624,787 
Accrued interest receivable   7,960,574    7,958,511 
Income taxes receivable   123,434    5,014,510 
Deferred income taxes   1,858,345    4,660,278 
Bank owned life insurance   69,167,140    67,920,021 
Annuity Plan   6,226,727    6,268,426 
Other real estate owned   1,091,634    882,510 
Goodwill   94,668,455    94,668,455 
Core deposit intangible   13,400,601    15,362,232 
Other assets   37,388,851    8,497,544 
Total assets  $3,096,837,944   $2,950,007,095 
           
Liabilities and Stockholders’ Equity          
Deposits          
Non-interest bearing  $620,136,296   $559,059,672 
Interest bearing   1,793,209,494    1,736,989,227 
Total deposits   2,413,345,790    2,296,048,899 
Short term borrowings   204,378,672    228,184,856 
Long term borrowings   38,569,343    38,371,291 
Accrued interest payable   2,452,857    2,844,715 
Supplemental executive retirement plan   6,115,372    5,997,819 
Other liabilities   34,615,063    7,788,981 
Total liabilities   2,699,477,097    2,579,236,561 
Stockholders’ equity          
Common stock, par value $0.01 per share; 25,000,000 shares authorized; 16,999,146 and 17,031,052 shares issued and outstanding in 2019 and 2018, respectively   169,991    170,311 
Additional paid-in capital   292,993,861    293,501,107 
Retained earnings   103,100,167    82,628,356 
Accumulated other comprehensive income (loss)   1,096,828    (5,529,240)
Total stockholders’ equity   397,360,847    370,770,534 
Total liabilities and stockholders’ equity  $3,096,837,944   $2,950,007,095 

 

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

 

 3 

 

 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2019  2018  2019  2018
Interest Income                    
Loans, including fees  $29,125,029   $29,056,814   $87,101,189   $75,206,303 
U.S. Treasury securities   16,156    16,325    48,423    42,953 
U.S. government agency securities   527,463    89,953    1,576,012    262,905 
Corporate bonds   258,924    200,394    776,942    607,601 
Foreign bonds   41,318    21,601    93,964    35,979 
Mortgage backed securities   593,737    563,384    1,933,777    1,690,299 
Municipal securities   488,275    498,200    1,476,610    1,498,163 
Federal funds sold   2,853    3,553    11,642    7,079 
Other   293,179    303,100    941,570    895,099 
Total interest income   31,346,934    30,753,324    93,960,129    80,246,381 
Interest expense                    
Deposits   6,119,906    4,098,787    17,840,233    9,551,755 
Borrowed funds   1,678,093    1,768,532    5,791,436    4,817,613 
Total interest expense   7,797,999    5,867,319    23,631,669    14,369,368 
Net interest income   23,548,935    24,886,005    70,328,460    65,877,013 
Provision for loan losses   456,000    307,870    942,758    1,235,023 
Net interest income after provision for loan losses   23,092,935    24,578,135    69,385,702    64,641,990 
Non-interest income                    
Account service charges   709,302    728,550    2,049,185    2,028,013 
Point of sale sponsorship program   688,188    711,577    1,925,005    1,385,079 
Gain on sales or calls of investment securities   544,259    —      560,186    —   
Earnings on bank owned life insurance   528,512    520,785    1,547,445    1,274,777 
Gain (loss) on disposal of assets   —      (1,100)   32,599    13,266 
Loss on write down of stock   —      (91,498)   —      (152,496)
Rental income   214,315    204,714    644,945    602,208 
Income on marketable loans   990,474    411,850    2,329,160    1,342,201 
Other fees and commissions   382,447    320,457    989,523    1,295,359 
Total non-interest income   4,057,497    2,805,335    10,078,048    7,788,407 
Non-interest expense                    
Salaries and benefits   7,717,352    7,491,736    22,451,706    20,178,521 
Occupancy and equipment   2,337,124    2,349,691    7,185,918    6,572,733 
Data processing   782,593    659,926    2,270,503    1,971,747 
FDIC insurance and State of Maryland assessments   62,535    278,109    571,151    786,506 
Merger and integration   —      2,282,705    —      9,404,507 
Core deposit premium amortization   654,046    663,685    1,961,631    1,516,734 
Loss on sales of other real estate owned   —      26,266    —      80,738 
OREO expense (income)   59,272    (99,957)   126,771    113,032 
Directors fees   166,050    172,550    515,550    539,750 
Network services   119,144    127,226    349,909    302,038 
Telephone   221,293    269,070    702,990    725,976 
Other operating   2,715,009    2,441,331    7,678,720    6,539,421 
Total non-interest expense   14,834,418    16,662,338    43,814,849    48,731,703 
                     
Income before income taxes   12,316,014    10,721,132    35,648,901    23,698,694 
Income tax expense   3,131,785    2,456,303    9,048,418    6,642,850 
Net income   9,184,229    8,264,829    26,600,483    17,055,844 
                     
Basic earnings per common share  $0.54   $0.49   $1.56   $1.12 
Diluted earnings per common share  $0.54   $0.48   $1.55   $1.10 

 

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

 

 4 

 

 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

Three Months Ended September 30,  2019  2018
Net income  $9,184,229   $8,264,829 
           
Other comprehensive income (loss):          
Unrealized (loss) gain on securities available for sale, net of taxes of $364,356, and ($392,117), respectively   959,733    (1,032,857)
Reclassification adjustment for realized gain on securities available for sale included in net income, net of taxes of ($149,766) and $0, respectively   (394,493)   —   
Other comprehensive income (loss)   565,240    (1,032,857)
Comprehensive income  $9,749,469   $7,231,972 

 

Nine Months Ended September 30,  2019  2018
Net income  $26,600,483   $17,055,844 
           
Other comprehensive income (loss):          
Unrealized (loss) gain on securities available for sale, net of taxes of $2,669,706, and ($1,708,971), respectively   7,032,090    (4,501,518)
Reclassification adjustment for realized gain on securities available for sale included in net income, net of taxes of ($154,163) and $0, respectively   (406,023)   —   
Other comprehensive income (loss)   6,626,067    (4,501,518)
Comprehensive income   33,226,550    12,554,326 

 

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

 

 

 

 

 

 5 

 

 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

 

               Accumulated   
         Additional     other  Total
   Common stock  paid-in  Retained  comprehensive  Stockholders’
   Shares  Par value  capital  earnings  income (loss)  Equity
Balance December 31, 2018   17,031,052   $170,311   $293,501,107   $82,628,356   $(5,529,240)  $370,770,534 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      8,504,174    —      8,504,174 
Other comprehensive income   —      —      —      —      2,807,204    2,807,204 
Stock based compensation awards   —      —      291,715    —      —      291,715 
Stock options exercised   2,400    24    48,907    —      —      48,931 
Restricted stock issued   28,191    282    (282)   —      —      —   
Stock buyback   (10,074)   (101)   (251,090)   —      —      (251,191)
Common stock cash dividends $0.12 per share   —      —      —      (2,047,969)   —      (2,047,969)
Balance March 31, 2019   17,051,569   $170,516   $293,590,357   $89,084,561   $(2,722,036)  $380,123,398 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      8,912,080    —      8,912,080 
Other comprehensive income   —      —      —      —      3,253,624    3,253,624 
Stock based compensation awards   —      —      368,206    —      —      368,206 
Stock buyback   (52,423)   (525)   (1,304,919)   —      —      (1,305,444)
Common stock cash dividends $0.12 per share   —      —      —      (2,040,355)   —      (2,040,355)
Balance June 30, 2019   16,999,146   $169,991   $292,653,644   $95,956,286   $531,588   $389,311,509 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      9,184,229    —      9,184,229 
Other comprehensive income   —      —      —      —      565,240    565,240 
Stock based compensation awards   —      —      340,217    —      —      340,217 
Common stock cash dividends $0.12 per share   —      —      —      (2,040,348)   —      (2,040,348)
Balance September 30, 2019   16,999,146   $169,991   $292,993,861   $103,100,167   $1,096,828   $397,360,847 
                               
Balance December 31, 2017   12,508,332   $125,083   $148,882,865   $61,054,487   $(2,335,249)  $207,727,186 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      6,065,182    —      6,065,182 
Other comprehensive loss   —      —      —      —      (2,303,310)   (2,303,310)
Tax Cut and Jobs Act   —      —      —      459,973    (459,973)   —   
Stock based compensation awards   —      —      288,559    —      —      288,559 
Stock options exercised   38,921    389    520,507    —      —      520,896 
Restricted stock issued   19,443    195    (195)   —      —      —   
Common stock cash dividends $0.08 per share   —      —      —      (1,005,723)   —      (1,005,723)
Balance March 31, 2018   12,566,696   $125,667   $149,691,736   $66,573,919   $(5,098,532)  $211,292,790 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      2,725,833    —      2,725,833 
Other comprehensive loss   —      —      —      —      (1,165,351)   (1,165,351)
Acquisition of Bay Bancorp, Inc.   4,408,087    44,081    142,601,614    —      —      142,645,695 
Stock based compensation awards   —      —      280,751    —      —      280,751 
Stock options exercised   14,100    141    262,578    —      —      262,719 
Common stock cash dividends $0.10 per share   —      —      —      (1,698,000)   —      (1,698,000)
Balance June 30, 2018   16,988,883   $169,889   $292,836,679   $67,601,752   $(6,263,883)  $354,344,437 
Net income attributable to Old Line Bancshares, Inc.   —      —      —      8,264,829    —      8,264,829 
Other comprehensive loss   —      —      —      —      (1,032,857)   (1,032,857)
Stock based compensation awards   —      —      302,974    —      —      302,974 
Common stock cash dividends $0.10 per share   —      —      —      (1,699,192)   —      (1,699,192)
Balance September 30, 2018   16,988,883   $169,889   $293,139,653   $74,167,389   $(7,296,740)  $360,180,191 

 

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

 

 

 6 

 

 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine Months Ended September 30,
   2019  2018
Cash flows from operating activities          
Net income  $26,600,483   $17,055,844 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation and amortization   2,379,624    2,334,125 
Provision for loan losses   942,758    1,235,023 
Change in deferred loan fees net of costs   (595,490)   (791,450)
Gain on sales or calls of securities   (560,186)   —   
Amortization of premiums and discounts   547,518    636,357 
Origination of loans held for sale   (120,463,317)   (77,092,451)
Proceeds from sale of loans held for sale   107,165,053    71,324,767 
Loss on write down of stock   —      152,496 
Loss on sales of other real estate owned   —      80,738 
Gain on sale of fixed assets   (32,599)   (13,266)
Amortization of intangible assets   1,961,631    1,516,734 
Deferred income taxes   286,390    278,439 
Stock based compensation awards   1,000,138    872,284 
Increase (decrease) in          
Accrued interest payable   (391,858)   171,712 
Income tax payable   —      (2,157,375)
Supplemental executive retirement plan   117,553    230,263 
Other liabilities   (1,450,261)   (436,815)
Decrease (increase) in          
Accrued interest receivable   (2,063)   (882,542)
Bank owned life insurance   (1,247,119)   (1,059,152)
Annuity plan   41,699    (316,818)
Income tax receivable   4,891,076    1,134,944 
Other assets   (614,964)   (86,942)
Net cash provided by operating activities  $20,576,066   $14,186,915 
Cash flows from investing activities          
Cash and cash equivalents of acquired bank, net of cash consideration   —      21,617,611 
Purchase of investment securities available for sale   (104,025,115)   (20,483,491)
Proceeds from disposal of investment securities          
Available for sale at maturity, call or paydowns   64,350,481    15,876,726 
Available for sale sold   —      51,650,175 
Loans made, net of principal collected   (62,921,587)   (141,256,263)
Purchase of bank owned life insurance   —      (8,500,000)
Proceeds from sale of other real estate owned   —      1,495,173 
Change in equity securities   263,947    (1,745,803)
Purchase of premises and equipment   (1,828,077)   (1,093,079)
Proceeds from the sale of premises and equipment   32,599    13,266 
Net cash used in investing activities   (104,127,752)   (82,425,685)
Cash flows from financing activities          
Net increase (decrease) in          
Time deposits   2,269,821    245,116,710 
Other deposits   115,027,070    (197,147,516)
Short term borrowing advances   1,305,000,000    1,389,200,000 
Short term borrowing repayments   (1,328,806,184)   (1,350,377,081)
Long term borrowings   198,052    198,051 
Proceeds from stock options exercised   48,931    783,615 
Repurchase of stock through stock repurchase program   (1,556,634)   —   
Cash dividends paid-common stock   (6,128,672)   (4,402,915)
Net cash provided by financing activities   86,052,384    83,370,864 
           
Net increase in cash and cash equivalents   2,500,698    15,132,094 
           
Cash and cash equivalents at beginning of period   44,500,618    35,174,111 
Cash and cash equivalents at end of period  $47,001,316   $50,306,205 

 

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

 

 7 

 

 

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Cash Flows (continued)

(Unaudited)

 

   Nine Months Ended September 30,
   2019  2018
Supplemental Disclosure of Cash Flow Information:      
Cash paid during the period for:      
Interest  $24,023,527   $14,197,656 
Income taxes  $5,750,804   $7,600,000 
Supplemental Disclosure of Non-Cash Flow Operating Activities:          
Loans transferred to other real estate owned  $209,124   $1,041,079 
Loans transferred to available for sale - BYBK acquisition  $—     $21,643,292 
Initial recognition of right of use asset  $26,395,472   $—   
Initial recognition of right of use liability  $26,692,114   $—   

 

   2019  2018
Fair value of assets and liabilities from acquisition:          
Fair value of assets acquired  $—     $650,194,375 
Other intangible assets acquired   —      80,828,494 
Fair value of liabilities assumed   —      (587,403,791)
Total merger consideration  $—     $143,619,078 

 

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

 

 

 

 

 

 8 

 

 

OLD LINE BANCSHARES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business - Old Line Bancshares, Inc. (“Old Line Bancshares”) was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares is to own all of the capital stock of Old Line Bank. We provide a full range of banking services to customers located in Anne Arundel, Baltimore, Baltimore City, Calvert, Carroll, Charles, Frederick, Harford, Howard, Montgomery, Prince George’s, and St. Mary’s Counties in Maryland and surrounding areas.

 

As previously announced, on July 23, 2019, Old Line Bancshares and Old Line Bank entered into an Agreement and Plan of Merger with Wesbanco, Inc. ("WesBanco") and Wesbanco Bank, Inc., pursuant to which Old Line Bancshares will merge with and into Wesbanco (the “Merger”) and Old Line Bank will merge into Wesbanco Bank. We expect that the Merger will be consummated during the fourth quarter of 2019. Please see Note 12 to our consolidated financial statements, “Pending Acquisition,” for more information.

 

Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the activity of Old Line Bancshares and its wholly owned subsidiary, Old Line Bank. We have eliminated all significant intercompany transactions and balances.

 

The foregoing consolidated financial statements for the periods ended September 30, 2019 and 2018 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), however, in the opinion of management we have included all adjustments necessary for a fair presentation of the results of the interim period. We derived the balances as of December 31, 2018 from audited financial statements. These statements should be read in conjunction with Old Line Bancshares’ financial statements and accompanying notes included in Old Line Bancshares’ Form 10-K for the year ended December 31, 2018. We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-K, except as described in the Recent Accounting Pronouncements section below.

 

Accounting Changes - Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.  ASU 2016-02 was effective for us on January 1, 2019.  ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients.  We elected to apply ASU 2016-02 at of the beginning of the period of adoption (January 1, 2019) and have not restated comparative periods.

 

Our operating leases relate primarily to office space and bank branches.  As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use (“ROU”) asset of $26.2 million and an operating lease liability of $26.5 million on January 1, 2019, with no impact on our consolidated statements of income or consolidated statements of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets. See Note 11 - Leases for additional information.

 

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

 

Reclassifications - We have made certain reclassifications to the 2018 financial presentation to conform to the 2019 presentation. These reclassifications did not change net income or stockholders’ equity.

 

 9 

 

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a “current expected credit loss” (“CECL”) model requiring Old Line Bancshares to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Old Line Bancshares has constituted a committee that has the responsibility to gather loan information and consider acceptable methodologies to comply with this ASU. The committee meets periodically to discuss the latest developments and committee members keep themselves updated on such developments via webcasts, publications, and conferences. We have also evaluated and selected a third party vendor solution to assist us in the application of ASU 2016-13. The adoption of ASU 2016-13 is likely to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. We are currently awaiting final comparison results on the parallel model compared to the CECL model.  Due to the expected merger with WesBanco, the CECL model will be transitioned into and with WesBanco’s model. Old Line Bancshares’ evaluation indicates that the provisions of ASU 2016-13 will impact its consolidated financial statements, in particular the level of the reserve for loan losses. We are, however, continuing to evaluate the extent of the potential impact.

 

In March 2017, FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Previously, entities generally amortized the premium over the contractual life of the security. The guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 was effective for interim and annual reporting periods beginning after December 15, 2018; early adoption was permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The adoption of this guidance did not have a material impact on Old Line Bancshares’ consolidated financial statements.

 

In July 2018, FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements.  The amendments set forth therein provide entities with an additional (and optional) transition method to adopt the new leases standard set forth in ASU 2016-02. Under such new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with U.S. GAAP (Topic 840, Leases).  The amendments also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met. If the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for Old Line Bancshares). Old Line Bancshares elected the transition options. ASU 2018-11 did not have a material impact on our consolidated financial statements.

 

ASU 2019-01, Leases (Topic 842), provides clarifications to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing essential information about leasing transactions. Specifically, ASU 2019-01 (i) allows the fair value of the underlying asset reported by lessors that are not manufacturers or dealers to continue to be its cost and not fair value as measured under the fair value definition, (ii) allows for the cash flows received for sales-type and direct financing leases to continue to be presented as results from investing, and (iii) clarifies that entities do not have to disclose the effect of the lease standard on adoption year interim amounts. ASU 2019-01 will be effective for us on January 1, 2020 and will not have a material impact on our consolidated financial statements.

 

 10 

 

 

2.ACQUISITION OF BAY BANCORP, INC.

 

On April 13, 2018, Old Line Bancshares acquired Bay Bancorp, Inc. (“BYBK”), the parent company of Bay Bank, FSB (“Bay Bank”). Upon the consummation of the merger, each share of common stock of BYBK outstanding immediately before the merger was converted into the right to receive 0.4088 shares of Old Line Bancshares’ common stock, provided that cash was paid in lieu of any fractional shares of Old Line Bancshares common stock. As a result, Old Line Bancshares issued 4,408,087 shares of its common stock in exchange for the shares of BYBK common stock in the merger. The aggregate merger consideration was approximately $143.6 million based on the closing sales price of Old Line Bancshares’ common stock on April 13, 2018.

 

In connection with the merger, Bay Bank merged with and into Old Line Bank, with Old Line Bank the surviving bank.

 

At April 13, 2018, BYBK had consolidated assets of approximately $661 million. This merger added eleven banking locations located in BYBK’s primary market areas of Baltimore City and Anne Arundel, Baltimore, Howard and Harford Counties in Maryland.

 

The BYBK transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Management made significant estimates and exercised significant judgment in accounting for the acquisition of BYBK. Management judgmentally assigned risk ratings to loans based on appraisals and estimated collateral values, expected cash flows, prepayment speeds and estimated loss factors to measure fair value for loans. Management used quoted or current market prices to determine the fair value of BYBK’s investment securities.

 

The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.

 

Purchase Price Consideration   
Cash consideration  $973,383 
Purchase price assigned to shares exchanged for stock   142,645,695 
Total purchase price for BYBK acquisition   143,619,078 

 

 11 

 

 

Fair Value of Assets Acquired   
Cash and due from banks  $22,590,994 
Investment securities   51,895,757 
Restricted equity securities, at cost   2,339,700 
Loans, net   546,215,988 
Premises and equipment   3,127,963 
Accrued interest receivable   1,714,054 
Accrued taxes receivable   1,912,807 
Deferred income taxes   1,219,602 
Bank owned life insurance   16,319,198 
Other real estate owned   1,041,079 
Core deposit intangible   11,243,714 
Other assets   1,817,233 
Total assets acquired  $661,438,089 
Fair Value of Liabilities assumed     
Deposits  $541,368,907 
Short term borrowings   41,100,000 
Other liabilities   4,934,884 
Total liabilities assumed  $587,403,791 
Fair Value of net assets acquired   74,034,298 
Total Purchase Price   143,619,078 
      
Goodwill recorded for BYBK  $69,584,780 

 

 

 

 

 

 12 

 

 

3.INVESTMENT SECURITIES

 

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

 

      Gross  Gross   
   Amortized  unrealized  unrealized  Estimated
   cost  gains  losses  fair value
September 30, 2019                    
Available for sale                    
U.S. Treasury  $2,992,763   $3,018   $—     $2,995,781 
U.S. government agency   59,034,066    1,126,506    (23,138)   60,137,434 
Corporate bonds   18,611,304    387,435    —      18,998,739 
Foreign bonds   7,000,000    2,025    (17)   7,002,008 
Municipal securities   77,726,662    1,168,288    (382)   78,894,568 
Mortgage backed securities:                    
FHLMC certificates   17,009,957    19,704    (301,524)   16,728,137 
FNMA certificates   58,733,502    151,114    (945,451)   57,939,165 
GNMA certificates   25,913,190    80,616    (154,963)   25,838,843 
Total available for sale securities  $267,021,444   $2,938,706   $(1,425,475)  $268,534,675 
                     
December 31, 2018                    
Available for sale                    
U.S. Treasury  $3,003,410   $—     $(10,910)  $2,992,500 
U.S. government agency   19,123,653    —      (517,475)   18,606,178 
Corporate bonds   18,615,768    227,691    (4,231)   18,839,228 
Foreign bonds   3,500,000    98    —      3,500,098 
Municipal securities   79,416,920    19,392    (2,147,608)   77,288,704 
Mortgage backed securities                    
FHLMC certificates   19,079,921    962    (1,007,115)   18,073,768 
FNMA certificates   56,720,930    —      (3,062,170)   53,658,760 
GNMA certificates   27,873,539    —      (1,127,013)   26,746,526 
Total available for sale securities  $227,334,141   $248,143   $(7,876,522)  $219,705,762 

 

At September 30, 2019 and December 31, 2018, securities with unrealized losses segregated by length of impairment were as follows:

 

   September 30, 2019
   Less than 12 months  12 Months or More  Total
   Fair  Unrealized  Fair  Unrealized  Fair  Unrealized
   value  losses  value  losses  value  losses
U.S. government agency  $—     $—     $3,922,889   $23,138   $3,922,889   $23,138 
Foreign debt securities   499,983    17    —      —      499,983    17 
Municipal securities   495,906    382    —      —      495,906    382 
Mortgage backed securities                              
FHLMC certificates   —      —      15,124,875    301,524    15,124,875    301,524 
FNMA certificates   —      —      47,004,928    945,451    47,004,928    945,451 
GNMA certificates   —      —      12,415,077    154,963    12,415,077    154,963 
Total  $995,889   $399   $78,467,769   $1,425,076   $79,463,658   $1,425,475 

 

   December 31, 2018
   Less than 12 months  12 Months or More  Total
   Fair  Unrealized  Fair  Unrealized  Fair  Unrealized
   value  losses  value  losses  value  losses
U.S. Treasury  $1,503,516   $1,313   $1,488,984   $9,597   $2,992,500   $10,910 
U.S. government agency   1,357,980    26,795    15,288,957    490,680    16,646,937    517,475 
Corporate bonds   2,995,769    4,231    —      —      2,995,769    4,231 
Municipal securities   13,707,759    100,387    54,243,374    2,047,221    67,951,133    2,147,608 
Mortgage backed securities                              
FHLMC certificates   1,715,756    26,062    16,293,413    981,053    18,009,169    1,007,115 
FNMA certificates   1,164,291    11,023    52,494,470    3,051,147    53,658,761    3,062,170 
GNMA certificates   8,871,024    138,099    17,875,503    988,914    26,746,527    1,127,013 
Total  $31,316,095   $307,910   $157,684,701   $7,568,612   $189,000,796   $7,876,522 

 

 13 

 

 

At September 30, 2019 and December 31, 2018, we had 65 and 166 investment securities, respectively, in an unrealized loss position for 12 months or more and 2 and 34 securities, respectively, in an unrealized loss position for less than 12 months.  We consider all unrealized losses on securities as of September 30, 2019 to be temporary losses because we will redeem each security at face value at or prior to maturity. We have the ability and intent to hold these securities until recovery or maturity. As of September 30, 2019, we do not have the intent to sell any of the securities classified as available for sale and believe that it is more likely than not that we will not have to sell any such securities before a recovery of cost. In most cases, market interest rate fluctuations cause a temporary impairment in value. We expect the fair value to recover as the investments approach their maturity date or re-pricing date or if market yields for these investments decline. We do not believe that credit quality caused the impairment in any of these securities. Because we believe these impairments are temporary, we have not realized any loss in our consolidated statement of income.

 

Gain on sales or calls of investment securities for the nine months ended September 30, 2019 is the result of ten callable agencies that were called compared to no sales or calls for the comparable nine months last year.

 

Contractual maturities and pledged securities at September 30, 2019 are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. We classify mortgage-backed securities (“MBS”) based on contractual maturity date. However, we receive payments on a monthly basis.

 

   Available for Sale
   Amortized  Fair
September 30, 2019  cost  value
       
Maturing          
Within one year  $5,497,172   $5,501,382 
Over one to five years   7,291,284    7,307,682 
Over five to ten years   89,753,727    91,175,688 
Over ten years   164,479,261    164,549,923 
Total  $267,021,444   $268,534,675 
Pledged securities  $121,507,956   $120,840,383 

 

 14 

 

 

4.LOANS

 

Major classifications of loans held for investment are as follows:

 

   September 30, 2019  December 31, 2018
   Legacy (1)  Acquired  Total  Legacy (1)  Acquired  Total
                   
Commercial Real Estate                              
Owner Occupied  $309,452,786   $124,699,211   $434,151,997   $299,266,275   $140,892,706   $440,158,981 
Investment   662,296,193    175,779,493    838,075,686    592,529,807    195,883,002    788,412,809 
Hospitality   231,201,755    18,957,943    250,159,698    172,189,046    13,134,019    185,323,065 
Land and A&D   81,167,986    7,034,455    88,202,441    71,908,761    21,760,867    93,669,628 
Residential Real Estate                              
First Lien-Investment   127,305,162    40,180,391    167,485,553    104,084,050    48,483,340    152,567,390 
First Lien-Owner Occupied   108,338,535    123,386,650    231,725,185    108,696,078    140,221,589    248,917,667 
Residential Land and A&D   42,648,776    10,016,798    52,665,574    42,639,161    16,828,434    59,467,595 
HELOC and Jr. Liens   22,149,070    35,570,762    57,719,832    20,749,184    41,939,123    62,688,307 
Commercial and Industrial   255,088,072    64,195,020    319,283,092    239,766,662    91,431,724    331,198,386 
Consumer   13,004,012    25,708,210    38,712,222    16,289,147    34,919,111    51,208,258 
Total loans   1,852,652,347    625,528,933    2,478,181,280    1,668,118,171    745,493,915    2,413,612,086 
Allowance for loan losses   (7,780,318)   (221,034)   (8,001,352)   (7,004,839)   (466,184)   (7,471,023)
Deferred loan costs, net   3,742,124    —      3,742,124    3,086,635    —      3,086,635 
Net loans  $1,848,614,153   $625,307,899   $2,473,922,052   $1,664,199,967   $745,027,731   $2,409,227,698 

__________________

(1)As a result of the acquisitions of Maryland Bankcorp, Inc. (“Maryland Bankcorp”), the parent company of Maryland Bank & Trust Company, N.A. (“MB&T”), in April 2011, WSB Holdings Inc., the parent company of The Washington Savings Bank (“WSB”), in May 2013, Regal Bancorp, Inc. (“Regal”), the parent company of Regal Bank & Trust (“Regal Bank”), in December 2015, DCB Bancshares, Inc. (“DCB”), the parent company of Damascus Community Bank (“Damascus”), in July 2017, and BYBK, the parent company of Bay Bank, in April 2018, we have segmented the portfolio into two components, “Legacy” loans originated by Old Line Bank and “Acquired” loans acquired from MB&T, WSB, Regal Bank, Damascus and Bay Bank.

 

Credit Policies and Administration

 

We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote a complete banking relationship rather than a transactional relationship. Our lending staff follows pricing guidelines established periodically by our management team. In an effort to manage risk, prior to funding the loan committee, consisting of four non-employee members of the board of directors and four executive officers, must approve by majority vote all credit decisions in excess of a lending officer’s lending authority. Management believes that we employ experienced lending officers, secure appropriate collateral and carefully monitor the financial condition of our borrowers and the concentrations of loans in the portfolio.

 

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

 

Commercial Real Estate Loans

 

We finance commercial real estate for our clients, for owner occupied and investment properties, hospitality and land acquisition and development. Commercial real estate loans totaled $1.61 billion and $1.51 billion, respectively, at September 30, 2019 and December 31, 2018. This lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial buildings. Our underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial real estate may be large in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. We will generally finance owner occupied commercial real estate that does not exceed loan to value of 80% and investor real estate at a maximum loan to value of 75%.

 

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

 

At September 30, 2019, we had approximately $250.2 million of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

 

Residential Real Estate Loans

 

We offer a variety of consumer oriented residential real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on owner occupied and investment properties. Our residential loan portfolio amounted to $509.6 million and $523.6 million, respectively, at September 30, 2019 and December 31, 2018. Although most of these loans are in our market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the borrower’s primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis of the borrower’s debt/income ratio, which generally may not exceed 43%, collateral value, length of employment and prior credit history. A credit score of at least 640 is required, except for loans originated for sale in the secondary market, as discussed below. We do not originate any subprime residential real estate loans.

 

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

 

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

 

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

 

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

 

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Under our loan approval policy, all residential real estate loans approved must comply with federal regulations. Generally, we will make residential mortgage loans in amounts up to the limits established by Fannie Mae and Freddie Mac for secondary market resale purposes. Currently this amount for single-family residential loans varies from $484,350 up to a maximum of $726,525 for certain high-cost designated areas. We also make residential mortgage loans up to limits established by the Federal Housing Administration, which currently is $726,525. The Washington, D.C. and Baltimore areas are both considered high-cost designated areas. We will, however, make loans in excess of these amounts if we believe that we can sell the loans in the secondary market or that the loans should be held in our portfolio. For loans we originate for sale in the secondary market, we typically require a credit score of 620 or higher, with some exceptions provided we receive an approval recommendation from FannieMae, FreddieMac or the Federal Housing Administration’s automated underwriting approval system.  Loans sold in the secondary market are sold to investors on a servicing released basis and recorded as loans as held for sale.  The premium is recorded in income on marketable loans in non-interest income, net of commissions paid to the loan officers.

 

Commercial and Industrial Lending

 

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

 

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

 

Consumer Installment Lending

 

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

 

Our consumer loan portfolio includes indirect loans, which consists primarily of auto and RV loans. These loans are financed through dealers and the dealers receive a percentage of the finance charge, which varies depending on the terms of each loan. We use the same underwriting standards in originating these indirect loans as we do for consumer loans generally.

 

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

 

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Concentrations of Credit

 

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

 

Non-Accrual and Past Due Loans

 

We consider loans past due if the borrower has not paid the required principal and interest payments when due under the original or modified terms of the promissory note and place a loan on non-accrual status when the payment of principal or interest has become 90 days past due. When we classify a loan as non-accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual legacy loans only when received. We originally recorded purchased, credit-impaired loans at fair value upon acquisition, and an accretable yield is established and recognized as interest income on purchased loans to the extent subsequent cash flows support the estimated accretable yield. Purchased, credit-impaired loans that perform consistently with the accretable yield expectations are not reported as non-accrual or nonperforming. However, purchased, credit-impaired loans that do not continue to perform according to accretable yield expectations are considered impaired, and presented as non-accrual and nonperforming. Currently, management expects to fully collect the carrying value of acquired, credit-impaired loans.

 

 

 

 

 

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The table below presents an age analysis of the loans held for investment portfolio at September 30, 2019 and December 31, 2018.

 

Age Analysis of Past Due Loans

 

   Age Analysis of Past Due Loans
   September 30, 2019  December 31, 2018
   Legacy  Acquired  Total  Legacy  Acquired  Total
Current  $1,841,048,778   $614,066,133   $2,455,114,911   $1,659,191,112   $729,738,007   $2,388,929,119 
Accruing past due loans:                              
30 - 89 days past due                              
Commercial Real Estate:                              
Owner Occupied   1,692,891    —      1,692,891    3,990,558    —      3,990,558 
Investment   1,716,554    3,099,400    4,815,954    1,729,404    3,849,944    5,579,348 
Residential Real Estate:                              
First Lien-Investment   —      479,052    479,052    179,701    896,227    1,075,928 
First Lien-Owner Occupied   90,884    1,684,528    1,775,412    94,178    3,062,084    3,156,262 
Land and A&D   622,365    —      622,365    883,460    413,191    1,296,651 
HELOC and Jr. Liens   100,227    512,939    613,166    119,924    790,989    910,913 
Commercial and Industrial   2,615,507    1,253,843    3,869,350    670,318    1,444,347    2,114,665 
Consumer   136,811    602,432    739,243    320,071    1,338,813    1,658,884 
Total 30 - 89 days past due   6,975,239    7,632,194    14,607,433    7,987,614    11,795,595    19,783,209 
90 or more days past due                              
Commercial Real Estate:                              
Investment   —      —      —      —      139,247    139,247 
Residential Real Estate:                              
First-Investment   —      83,391    83,391    —      —      —   
First Lien-Owner Occupied   —      771,798    771,798    —      103,365    103,365 
Commercial and Industrial   58,665    —      58,665    —      —      —   
Consumer   15,419    —      15,419    —      54    54 
Total 90 or more days past due   74,084    855,189    929,273    —      242,666    242,666 
Total accruing past due loans   7,049,323    8,487,383    15,536,706    7,987,614    12,038,261    20,025,875 
Recorded Investment Non-accruing loans:                              
Commercial Real Estate:                              
Owner Occupied   2,691,810    249,087    2,940,897    —      182,261    182,261 
Investment   576,671    52,646    629,317    —      51,070    51,070 
Land and A&D   —      10,000    10,000    —      45,000    45,000 
Residential Real Estate:                              
First Lien-Investment   392,490    130,973    523,463    192,501    292,758    485,259 
First Lien-Owner Occupied   243,846    1,446,632    1,690,478    262,194    2,027,974    2,290,168 
Land and A&D   284,129    199,234    483,363    277,704    201,737    479,441 
HELOC and Jr. Liens   —      788,585    788,585    —      690,732    690,732 
Commercial and Industrial   336,179    10,435    346,614    191,388    45,269    236,657 
Consumer   29,071    87,825    116,896    15,658    180,846    196,504 
Non-accruing past due loans:   4,554,196    2,975,417    7,529,613    939,445    3,717,647    4,657,092 
Total Loans  $1,852,652,297   $625,528,933   $2,478,181,230   $1,668,118,171   $745,493,915   $2,413,612,086 

 

We consider all nonperforming loans and troubled debt restructurings (“TDRs”) to be impaired. We do not recognize interest income on nonperforming loans during the time period that the loans are nonperforming. We only recognize interest income on nonperforming loans when we receive payment in full for all amounts due of all contractually required principle and interest, and the loan is current with its contractual terms. The tables below present our impaired loans at and for the periods ended September 30, 2019 and December 31, 2018.

 

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   Impaired Loans            
           

Three months

September 30, 2019

 

Nine months

September 30, 2019

   Unpaid        Average  Interest  Average  Interest
   Principal  Recorded  Related  Recorded  Income  Recorded  Income
   Balance  Investment  Allowance  Investment  Recognized  Investment  Recognized
Legacy                                   
With no related allowance recorded:                                   
Commercial Real Estate:                                   
Owner Occupied  $4,388,978   $4,388,978   $—     $4,408,758   $26,298    4,390,510   $113,063 
Investment   1,661,904         —      1,665,461    6,348    1,672,558    37,937 
Land and A&D   —      —      —      —      —      —      —   
Residential Real Estate:                                   
First Lien-Investment   177,569    177,569    —      177,569    —      178,361    4,344 
First Lien-Owner Occupied   554,426    554,426    —      585,780    4,763    594,879    17,992 
Commercial and Industrial   388,132    388,132    —      396,657    3,817    404,026    10,573 
Consumer   18,371    18,371    —      19,857    473    20,986    1,346 
With an allowance recorded:                                   
Commercial Real Estate:                                   
Residential Real Estate:                                   
First Lien-Investment   214,921    214,921    36,621    213,397    —      199,543    —   
First Lien-Owner Occupied   141,717    141,717    —      137,449    —      136,898    —   
Land and A&D   284,179    284,179    35,000    284,179    —      283,663    —   
Commercial and Industrial   261,831    261,831    92,424    262,469    —      263,095    402 
Consumer   10,700    10,700    1,328    11,730    157    12,200    927 
Total legacy impaired   8,102,728    6,440,824    165,373    8,163,306    41,856    8,156,719    186,584 
Acquired(1)                                   
With no related allowance recorded:                                   
Commercial Real Estate:                                   
Owner Occupied   268,416    268,416    —      268,197    —      267,605    —   
Investment   72,408    72,408    —      163,876    —      163,876    —   
Land and A&D   —      —      —      —      —      —      —   
Residential Real Estate:                                   
First Lien-Owner Occupied   1,578,372    1,566,765    —      1,696,380    21,155    1,706,748    95,104 
First Lien-Investment   —      —      —      —      —      —      —   
Land and A&D   52,325    52,325    —      59,432    950    60,299    4,168 
HELOC and Jr. Lien   575,505    575,505    —      641,739    4,821    651,554    20,181 
Commercial   —      —      —      —      —      —      —   
Consumer   93,903    93,903    —      107,108    2,489    119,554    7,692 
With an allowance recorded:                                   
Commercial Real Estate:                                   
Investment   —      —      —      —      —      —      —   
Land and A&D   293,376    10,000    10,000    293,376    —      316,506    —   
Residential Real Estate:                                   
Land and A&D   157,628    157,628    86,434    162,348    —      161,556    —   
First Lien-Investment   131,636    131,636    35,160    139,152    6,397    135,530    7,905 
First Lien-Owner Occupied   67,633    67,633    26,865    68,922    719    69,375    2,532 
HELOC and Jr. Lien   226,635    226,635    56,048    253,151         255,925    3,674 
Commercial and Industrial   84,995    84,995    4,435    84,898    —      85,797    1,341 
Consumer   17,753    17,753    2,092    26,486    —      27,308    654 
Total acquired impaired   3,620,585    3,325,602    221,034    3,965,065    36,531    4,021,633    143,251 
Total impaired  $11,723,313   $9,766,426   $386,407   $12,128,371   $78,387    12,178,352   $329,835 

__________________

(1)U.S. GAAP requires that we record acquired loans at fair value at acquisition, which includes a discount for loans with credit impairment. These purchased credit impaired loans are not performing according to their contractual terms and meet the definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.

 

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Impaired Loans
December 31, 2018
                
   Unpaid        Average  Interest
   Principal  Recorded  Related  Recorded  Income
   Balance  Investment  Allowance  Investment  Recognized
Legacy                         
With no related allowance recorded:                         
Commercial Real Estate:                         
Owner Occupied  $1,737,394   $1,737,394   $—     $1,766,117   $74,203 
Investment   1,688,661    1,688,661    —      1,716,183    88,410 
Residential Real Estate:                         
First Lien-Owner Occupied   262,194    262,194    —      285,514    11,412 
Land and A&D   277,704    277,704    —      277,704    —   
Commercial and Industrial   486,048    486,048    —      509,971    18,595 
Consumer   1,495    1,495    —      10,707    1,130 
With an allowance recorded:                         
Residential Real Estate:                         
First Lien-Owner Occupied                         
First Lien-Investment   192,501    192,501    39,420    192,501    —   
Commercial and Industrial   148,349    148,349    13,149    152,898    3,926 
Consumer   14,163    14,163    1,416    27,217    1,129 
Total legacy impaired   4,808,509    4,808,509    53,985    4,938,812    198,805 
Acquired(1)                         
With no related allowance recorded:                         
Commercial Real Estate:                         
Owner Occupied   283,083    232,635    —      542,654    3,281 
Residential Real Estate:                         
First Lien-Owner Occupied   2,127,854    2,011,286    —      2,159,327    38,636 
Land and A&D   58,659    58,659    —      62,178    2,896 
Consumer   22,139    22,139    —      26,027    364 
With an allowance recorded:                         
Commercial Real Estate:                         
Owner Occupied                         
Investment   72,408    72,408    14,340    163,876    2,750 
First Lien-Owner Occupied   459,033    459,033    98,008    482,422    7,695 
First Lien-Investment   298,187    298,187    62,701    310,862    7,871 
Land and A&D   154,297    154,297    99,517    159,819    —   
HELOC and Jr. Lien   533,565    533,565    78,814    534,204    12,254 
Commercial and Industrial   48,750    48,750    48,750    48,750    237 
Consumer   188,102    188,102    19,053    231,978    11,619 
Total acquired impaired   4,810,584    4,359,717    466,183    5,289,532    96,107 
Total impaired  $9,619,093   $9,168,226   $520,168   $10,228,344   $294,912 

__________________

(1)U.S. GAAP requires that we record acquired loans at fair value at acquisition, which includes a discount for loans with credit impairment. These purchased credit impaired loans are not performing according to their contractual terms and meet the definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.

 

We consider a loan a TDR when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Restructured loans at September 30, 2019 consisted of seven loans for an aggregate of $2.2 million compared to seven loans for an aggregate of $2.4 million at December 31, 2018.

 

We had no loan modifications reported as TDRs during the three or nine months ended September 30, 2019. We had one loan modification reported as a TDR during the nine months ended September 30, 2018. We had no loans that were modified as a TDR that defaulted during the three or nine-month periods ended September 30, 2019 or 2018.

 

The following table includes the recorded investment in and number of modifications of TDRs for the three and nine months ended September 30, 2019 and 2018. We report the recorded investment in loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge-off of the principal balance prior to the modification. We had no loans that were modified as a TDR that defaulted within three months of the modification date during the three- or nine-month periods ended September 30, 2019 and 2018.

 

 

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   Loans Modified as a TDR for the three months ended
   September 30, 2019  September 30, 2018
      Pre-  Post     Pre-  Post
      Modification  Modification     Modification  Modification
      Outstanding  Outstanding     Outstanding  Outstanding
Troubled Debt Restructurings—  #of  Recorded  Recorded  #of  Recorded  Recorded
(Dollars in thousands)  Contracts  Investment  Investment  Contracts  Investment  Investment
Legacy                  
Residential Real Estate Owner Occupied                        
Total legacy TDRs      $   $        $   $ 

 

   Loans Modified as a TDR for the nine months ended
   September 30, 2019  September 30, 2018
      Pre-  Post     Pre-  Post
      Modification  Modification     Modification  Modification
      Outstanding  Outstanding     Outstanding  Outstanding
Troubled Debt Restructurings—  #of  Recorded  Recorded  #of  Recorded  Recorded
(Dollars in thousands)  Contracts  Investment  Investment  Contracts  Investment  Investment
Legacy                  
Consumer                   28,009    27,009 
Total legacy TDRs      $   $        $28,009   $27,009 

 

Acquired impaired loans

 

The following table documents changes in the accretable (premium) discount on acquired impaired loans during the nine months ended September 30, 2019 and 2018, along with the outstanding balances and related carrying amounts for the beginning and end of those respective periods.

 

   September 30, 2019  September 30, 2018
Balance at beginning of period  $124,090   $115,066 
Additions due to BYBK acquisition   —      50,984 
Accretion of fair value discounts   (1,375,970)   (873,308)
Reclassification (to)/from non-accretable discount   1,334,580    847,153 
Balance at end of period  $82,700   $139,895 

 

   Contractually   
   Required Payments   
   Receivable  Carrying Amount
At September 30, 2019  $9,125,242   $7,976,188 
At December 31, 2018   11,146,165    9,396,862 
At September 30, 2018   17,975,448    14,109,972 
At December 31, 2017   8,277,731    6,617,774 

 

Credit Quality Indicators

 

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

 

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

 

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We charge off loans that management has identified as losses. We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge off. We automatically charge off consumer loan accounts based on regulatory requirements. We partially charge off real estate loans that are collateral dependent based on the value of the collateral.

 

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

 

 

 

 

 

 

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The following tables outline the class of loans by risk rating at September 30, 2019 and December 31, 2018:

 

   Account Balance
September 30, 2019  Legacy  Acquired  Total
Risk Rating               
Pass(1 - 5)               
Commercial Real Estate:               
Owner Occupied  $303,183,923   $122,143,948   $425,327,871 
Investment   659,590,203    74,557,546    734,147,749 
Hospitality   231,201,755    18,957,943    250,159,698 
Land and A&D   81,167,986    6,839,775    88,007,761 
Residential Real Estate:               
First Lien-Investment   126,493,210    37,115,151    163,608,361 
First Lien-Owner Occupied   108,036,843    118,639,242    226,676,085 
Land and A&D   40,330,083    9,718,740    50,048,823 
HELOC and Jr. Liens   22,149,070    33,850,157    55,999,227 
Commercial   252,223,178    61,748,358    313,971,536 
Consumer   12,974,941    25,495,847    38,470,788 
    1,837,351,192    509,066,707    2,346,417,899 
Special Mention(6)               
Commercial Real Estate:               
Owner Occupied   408,090    1,261,341    1,669,431 
Investment   1,044,086    915,223    1,959,309 
Land and A&D   —      184,681    184,681 
Residential Real Estate:               
First Lien-Investment   280,873    1,746,159    2,027,032 
First Lien-Owner Occupied   57,846    1,945,545    2,003,391 
Land and A&D   2,034,514    98,824    2,133,338 
HELOC and Jr. Liens   —      845,111    845,111 
Commercial   1,401,346    2,364,123    3,765,469 
Consumer   —      97,199    97,199 
    5,226,755    9,458,206    14,684,961 
Substandard(7)               
Commercial Real Estate:               
Owner Occupied   5,860,773    1,293,922    7,154,695 
Investment   1,661,904    306,724    1,968,628 
Land and A&D   —      10,000    10,000 
Residential Real Estate:               
First Lien-Investment   531,079    1,319,081    1,850,160 
First Lien-Owner Occupied   243,846    2,801,863    3,045,709 
Land and A&D   284,179    199,234    483,413 
HELOC and Jr. Liens   —      875,493    875,493 
Commercial   1,463,548    82,539    1,546,087 
Consumer   29,071    115,164    144,235 
    10,074,400    7,004,020    17,078,420 
Doubtful(8)   —      —      —   
Loss(9)   —      —      —   
Total  $1,852,652,347   $525,528,933   $2,378,181,280 

 

 

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   Account Balance
December 31, 2018  Legacy  Acquired  Total
Risk Rating               
Pass(1 - 5)               
Commercial Real Estate:               
Owner Occupied  $293,682,007   $137,978,800   $431,660,807 
Investment   589,763,511    194,092,985    783,856,496 
Hospitality   172,189,046    13,134,019    185,323,065 
Land and A&D   71,908,761    21,514,420    93,423,181 
Residential Real Estate:               
First Lien-Investment   103,270,617    45,431,446    148,702,063 
First Lien-Owner Occupied   108,371,748    134,959,907    243,331,655 
Land and A&D   40,268,376    16,524,667    56,793,043 
HELOC and Jr. Liens   20,749,184    41,196,500    61,945,684 
Commercial   237,713,832    89,049,308    326,763,140 
Consumer   16,273,489    34,674,679    50,948,168 
    1,654,190,571    728,556,731    2,382,747,302 
Special Mention(6)               
Commercial Real Estate:               
Owner Occupied   420,347    1,303,849    1,724,196 
Investment   1,077,635    557,687    1,635,322 
Land and A&D   —      201,447    201,447 
Residential Real Estate:               
First Lien-Investment   289,618    1,709,025    1,998,643 
First Lien-Owner Occupied   62,136    1,522,737    1,584,873 
Land and A&D   2,093,081    102,030    2,195,111 
Commercial   174,729    174,429    349,158 
Consumer   —      30,848    30,848 
    4,117,546    5,602,052    9,719,598 
Substandard(7)               
Commercial Real Estate:               
Owner Occupied   5,163,921    1,610,057    6,773,978 
Investment   1,688,661    1,232,330    2,920,991 
Land and A&D   —      45,000    45,000 
Residential Real Estate:               
First Lien-Investment   523,815    1,342,869    1,866,684 
First Lien-Owner Occupied   262,194    3,738,945    4,001,139 
Land and A&D   277,704    201,737    479,441 
HELOC and Jr. Liens   —      742,623    742,623 
Commercial   1,878,101    2,207,987    4,086,088 
Consumer   15,658    213,584    229,242 
    9,810,054    11,335,132    21,145,186 
Doubtful(8)   —      —      —   
Loss(9)   —      —      —   
Total  $1,668,118,171   $745,493,915   $2,413,612,086 

 

The following table details activity in the allowance for loan losses by portfolio segment for the three- and nine-month periods ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

   Commercial  Commercial  Residential      
Three Months Ended September 30, 2019  and Industrial  Real Estate  Real Estate  Consumer  Total
Beginning balance  $1,665,674   $4,882,255   $1,283,903   $57,903   $7,889,735 
Provision for loan losses   (54,913)   279,425    91,970    139,518    456,000 
Recoveries   400    417    6,119    19,424    26,360 
Total   1,611,161    5,162,097    1,381,992    216,845    8,372,095 
Loans charged off   (48,750)   —      (165,498)   (156,495)   (370,743)
Ending Balance  $1,562,411   $5,162,097   $1,216,494   $60,350   $8,001,352 

 

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   Commercial  Commercial  Residential      
Nine Months Ended September 30, 2019  and Industrial  Real Estate  Real Estate  Consumer  Total
Beginning balance  $1,562,740   $4,728,694   $1,081,394   $98,195   $7,471,023 
Provision for loan losses   41,176    432,152    248,477    220,953    942,758 
Recoveries   11,353    1,251    53,149    58,320    124,073 
Total   1,615,269    5,162,097    1,383,020    377,468    8,537,854 
Loans charged off   (52,858)       (166,526)   (317,118)   (536,502)
Ending Balance  $1,562,411   $5,162,097   $1,216,494   $60,350   $8,001,352 
Amount allocated to:                         
Legacy Loans:                         
Individually evaluated for impairment  $92,424   $   $71,621   $1,328   $165,373 
Other loans not individually evaluated   1,465,552    5,152,097    939,200    58,096    7,614,945 
Acquired Loans:                         
Individually evaluated for impairment   4,435    10,000    205,673    926    221,034 
Ending balance  $1,562,411   $5,162,097   $1,216,494   $60,350   $8,001,352 

 

   Commercial  Commercial  Residential      
Three Months Ended September 30, 2018  and Industrial  Real Estate  Real Estate  Consumer  Total
Beginning balance  $1,680,448   $4,196,752   $749,630   $77,747   $6,704,577 
Provision for loan losses   (141,751)   303,547    34,609    111,465    307,870 
Recoveries   65,819    417    3,119    5,127    74,482 
Total   1,604,516    4,500,716    787,358    194,339    7,086,929 
Loans charged off               (106,879)   (106,879)
Ending Balance  $1,604,516   $4,500,716   $787,358   $87,460   $6,980,050 

 

   Commercial  Commercial  Residential      
Nine Months Ended September 30, 2018  and Industrial  Real Estate  Real Estate  Consumer  Total
Beginning balance  $1,262,030   $3,783,735   $844,355   $30,466   $5,920,586 
Provision for loan losses   273,017    716,147    (70,403)   316,262    1,235,023 
Recoveries   69,469    834    15,230    11,980    97,513 
Total   1,604,516    4,500,716    789,182    358,708    7,253,122 
Loans charged off           (1,824)   (271,248)   (273,072)
Ending Balance  $1,604,516   $4,500,716   $787,358   $87,460   $6,980,050 
Amount allocated to:                         
Legacy Loans:                         
Individually evaluated for impairment  $93,892   $   $76,495   $   $170,387 
Other loans not individually evaluated   1,441,108    4,500,716    525,749    60,852    6,528,425 
Acquired Loans:                         
Individually evaluated for impairment   69,516        185,114    26,608    281,238 
Ending balance  $1,604,516   $4,500,716   $787,358   $87,460   $6,980,050 

 

 

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Our recorded investment in loans at September 30, 2019 and 2018 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

 

   Commercial  Commercial  Residential      
September 30, 2019  and Industrial  Real Estate  Real Estate  Consumer  Total
Legacy loans:                         
Individually evaluated for impairment with specific reserve  $261,831   $   $640,817   $10,700   $913,348 
Individually evaluated for impairment without specific reserve   388,132    6,050,882    731,995    18,371    7,189,380 
Other loans not individually evaluated   254,438,109    1,278,067,839    299,068,731    12,974,940    1,844,549,619 
Acquired loans:                         
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)   84,995    10,000    583,532    17,753    696,280 
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)       340,824    2,194,595    93,903    2,629,322 
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)   172,609    3,234,991    4,568,592        7,976,192 
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)   63,937,416    322,885,287    201,807,881    25,596,555    614,227,139 
Ending balance  $319,283,092   $1,610,589,823   $509,596,143   $38,712,222   $2,478,181,280 

 

   Commercial  Commercial  Residential      
September 30, 2018  and Industrial  Real Estate  Real Estate  Consumer  Total
Legacy loans:                         
Individually evaluated for impairment with specific reserve  $93,892   $   $242,592   $   $336,484 
Individually evaluated for impairment without specific reserve   509,772    3,453,579    494,423        4,457,774 
Other loans not individually evaluated   215,125,991    1,113,299,121    258,804,372    17,671,242    1,604,900,726 
Acquired loans:                         
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)   68,888    45,000    407,735    27,009    548,632 
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)   167,560    773,457    2,720,353    52,730    3,714,100 
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)   559,248    7,872,328    5,664,394    14,000    14,109,970 
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)   96,617,110    379,553,784    245,912,416    38,603,984    760,687,294 
Ending balance  $312,642,461   $1,504,997,269   $514,246,285   $56,368,965   $2,388,254,980 

 

5.OTHER REAL ESTATE OWNED

 

The fair value of other real estate owned was $1.1 million at September 30, 2019 and December 31, 2018. As a result of the acquisitions of Maryland Bankcorp, WSB Holdings, Regal and BYBK, we have segmented other real estate owned (“OREO”) into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T, WSB, Regal Bank and Bay Bank or obtained as a result of loans originated by MB&T, WSB, Regal Bank and Bay Bank (acquired); we did not acquire any OREO properties in the DCB acquisition. We are currently aggressively either marketing these properties for sale or improving them in preparation for sale.

 

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The following outlines the transactions in OREO during the period.

 

Nine Months ended September 30, 2019  Legacy  Acquired  Total
Beginning balance  $   $882,510   $882,510 
Real estate acquired through foreclosure of loans       209,124    209,124 
Sales/deposits on sales            
Net realized gain/(loss)            
Total end of period  $   $1,091,634   $1,091,634 

 

Residential Foreclosures and Repossessed Assets — Once all potential alternatives for reinstatement are exhausted, past due loans collateralized by residential real estate are referred for foreclosure proceedings in accordance with local requirements of the applicable jurisdiction. Once possession of the property collateralizing the loan is obtained, the repossessed property will be recorded within other assets either as OREO or, where management has both the intent and ability to recover its losses through a government guarantee, as a foreclosure claim receivable. At September 30, 2019 and December 31, 2018, residential foreclosures classified as OREO totaled $544 thousand. We had six loans for an aggregate of $474 thousand secured by residential real estate in process of foreclosure at September 30, 2019 compared to five loans for $786 thousand at December 31, 2018.

 

6.EARNINGS PER COMMON 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 stock dividends.

 

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

 

    Three Months Ended  Nine Months Ended
    September 30,  September 30,
    2019  2018  2019  2018
Weighted average number of shares    16,999,146    16,988,883    17,021,359    15,277,219 
Dilutive average number of shares    17,129,181    17,187,837    17,146,723    15,485,452 

 

7.STOCK-BASED COMPENSATION

 

For the three months ended September 30, 2019 and 2018, we recorded stock-based compensation expense of $340,217 and $302,974, respectively.  For the nine months ended September 30, 2019 and 2018, we recorded stock-based compensation expense of $1,000,138 and $872,284, respectively. At September 30, 2019, there was $2.0 million of total unrecognized compensation cost related to non-vested stock options that we expect to realize over the next 2.0 years. As of September 30, 2019, there were 167,213 shares remaining available for future issuance under the 2010 equity incentive plan. The officers exercised 4,370 options during the nine-month period ended September 30, 2019 compared to 53,021 options exercised during the nine-month period ended September 30, 2018.

 

For purposes of determining estimated fair value of stock options, we have computed the estimated fair value of all stock-based compensation using the Black-Scholes option pricing model and, for stock options granted prior to December 31, 2018, we have applied the assumptions set forth in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2018.  Restricted stock awards are valued at the current stock price on the date of the award. During the nine months ended September 30, 2019, there were no stock options granted compared to 50,000 stock options granted during the nine months ended September 30, 2018. The weighted average grant date fair value of the 2018 stock options is $8.90 and was computed using the Black-Scholes option pricing model under similar assumptions.

 

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During the nine months ended September 30, 2019 and 2018, we granted 28,191 and 19,443 restricted common stock awards, respectively. The weighted average grant date fair value of these restricted stock awards was $28.74 at September 30, 2019.  At September 30, 2019, there was $5.0 million of total unrecognized compensation cost related to restricted stock awards that we expect to realize over the next 2.5 years. There were 667 restricted shares forfeited during the nine-month period ended September 30, 2019 and no restricted shares forfeited during the nine-month period ended September 30, 2018.

 

8.FAIR VALUE MEASUREMENT

 

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

 

The fair value hierarchy established by accounting standards defines three input levels for fair value measurement. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1 is based on quoted market prices in active markets for identical assets. Level 2 is based on significant observable inputs other than Level 1 prices. Level 3 is based on significant unobservable inputs that reflect a company’s own assumptions about the assumption that market participants would use in pricing an asset or liability. We evaluate fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. There were no transfers between levels during the three and nine months ended September 30, 2019 or the year ended December 31, 2018.

 

At September 30, 2019, we hold, as part of our investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S. government sponsored entities, corporate bonds, and MBS. Prior to September 30, 2019, corporate bonds included our foreign debt securities (Israel bonds) that we have now moved into a separate classification. The fair value of the majority of these securities is determined using widely accepted valuation techniques including matrix pricing and broker quote-based applications. Inputs include benchmark yields, reported trades, issuer spreads, prepayments speeds and other relevant items, which inputs are used by a third-party pricing service we use to make these determinations.

 

To validate the appropriateness of the valuations provided by the third party, we regularly update the understanding of the inputs used and compare valuations to an additional third party source. We classify all our investment securities available for sale in Level 2 of the fair value hierarchy, with the exception of treasury securities, which fall into Level 1, and our corporate bonds and our foreign debt securities, which fall into Level 3.

 

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

   At September 30, 2019 (In thousands)
      Quoted Prices in  Other  Significant  Total Changes
      Active Markets for  Observable  Unobservable  in Fair Values
      Identical Assets  Inputs  Inputs  Included in
   Carrying Value  (Level 1)  (Level 2)  (Level 3)  Period Earnings
Available-for-sale:               
Treasury securities  $2,996   $2,996   $   $   $ 
U.S. government agency   60,137        60,137         
Corporate bonds   18,999            18,999     
Foreign debt securities   7,002            7,002      
Municipal securities   78,895        78,895         
FHLMC MBS   16,728        16,728         
FNMA MBS   57,939        57,939         
GNMA MBS   25,839        25,839         
Total recurring assets at fair value