Old Line reported 3Q18 net income of $10.2 million, up 23.0% from the $8.3 million recorded in 3Q18.

On a per share basis, 4Q18 came in at $0.59 versus the $0.48 posted in 3Q18 and the $0.46 recorded in the year-ago quarter. Included in 3Q18 results was $2.3 million of merger-related expenses associated with the Bay Bancorp acquisition completed in April, which translates to $0.09 per share on an after-tax basis. Excluding this charge and similar charges from prior periods, 4Q18 EPS of $0.59 was up $0.02 from the adjusted 3Q18 EPS of $0.57. The 4Q18 results exceeded our $0.58 estimate and the median Street estimate by a penny. The main driver of the differential was higher-than-anticipated noninterest income, partially offset by lower-than-expected net interest income.

Highlights of the quarter include:

  • Gross loans held for investment grew $25.1 million or 1.1% sequentially to $2.42 billion, falling short of the 2.5% growth we had projected. Elevated loan payoffs continued to affect loan growth in 4Q18, as roughly $28 million in construction loans paid off during the quarter. In addition, the acquired loan portfolio declined by roughly $32 million, while the sale of $3.7 million of troubled loans acquired in the Bay Bancorp transaction also constrained the growth of the portfolio. Management indicates that the loan pipeline remains solid, though it is not as robust as a year ago. We still believe double-digit loan growth is achievable, but we are not expecting growth to rise much above 10% for 2019.
  • Total deposits climbed $53.8 million or 2.4% sequentially to $2.30 billion. Interest bearing deposits grew $76.1 million or 4.6% sequentially, providing all of the growth, while noninterest bearing deposits declined $22.3 million or 3.8%.
  • Net interest income slid $0.8 million or 3.3% linked-quarter, driven by 15 bps of NIM compression to 3.66% (on a tax-equivalent basis) coupled with a 0.7% rise in average earning assets. The cost of interest bearing liabilities rose 19 bps linked-quarter, while average loan yields remained flat. Accretion income on acquired loans provided 13 bps of boost to the NIM, 1 bps less than it contributed in the prior quarter. We had expected the contribution from accretion to moderate, leading to roughly 2 bps of NIM contraction in 4Q18, but loan yields expanded less than we expected. Management is still optimistic that the NIM can be maintained near current levels, despite the fairly flat yield curve.
  • Noninterest income jumped $1.4 million or 49.4% compared to 3Q18. Most of the increase stemmed from a $556k gain on the previously mentioned sale of loans acquired in the Bay Bancorp transaction and $518k in reversals of previously charged-off loans. The new point of sale (POS) sponsorship program, a national program that was part of the Bay acquisition, provided roughly $641k in revenue in 3Q18, down $71k from the $712k posted in 3Q18.
  • Noninterest expenses declined $2.7 million or 16.2% linked-quarter. The main driver of the change was the absence of the $2.3 million reduction in merger & integration expenses incurred in the prior quarter. Salaries and benefits also declined, falling $0.7 million or 10.0% LQ. Management indicates that temporary factors were partly responsible for the decline and that compensation expenses may not remain this low going forward. Still, we had expected some cost saves from the BYBK merger to become apparent in 4Q18 and this expectation was realized. OLBK’s efficiency ratio improved slightly to 49.4% in 4Q18 from 51.9% (excluding merger expenses) in 3Q18.
  • Asset quality trends were favorable in 4Q18. Minor growth in nonaccrual loans was offset by larger decreases in OREO and loans past due 90 days. As a result, nonaccrual loans remained unchanged from the prior quarter at 0.19% of loans held-for-investment. NPAs plus PD90 fell to 0.20% of total assets from 0.29% at September 30,2018. On the other hand, early-stage delinquencies jumped 17.7% during the quarter, reaching 1.01% of loans held-for-investment. The company experienced minimal net charge-offs of just $123k during the quarter, pushing the net charge-off ratio to 0.02% from 0.01% of average loans in the prior quarter. The loan loss provision for the quarter was $614k, down from $308k in 3Q18. The allowance for loan and lease losses now represents 0.31% of total loans held-for-investment, and 0.45% of legacy loans held-for-investment compared to 0.29% and 0.42%, respectively, at September 30, 2018.
  • Tangible book value per share (including non-controlling interest) stood at $15.39 at December 31, 2018, up from $14.70 at September 30, 2018. The TCE ratio advanced to 9.22% from 8.85% at the prior quarter end.

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