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Old Line Bancshares, Inc. (NASDAQ:OLBK) is the holding company of Old Line Bank. Old Line Bank is engaged in providing commercial banking services in suburban Maryland. Along with other markets, Old Line Bank has a presence in two major markets in Maryland where exceptional growth is possible: Prince George's County and Montgomery.

Old Line opened a loan production office in Montgomery County in the first quarter of 2013. Montgomery is packed with large companies such as Marriot International, Discovery Communications and the Travel Channel, Lockheed Martin and GEICO. U.S. Department of Health, Human Services, Defense, and the U.S. Department of Commerce are among the top employers. Montgomery is the tenth most affluent county in the United States with median household income of $92,909 (as per data on September 2012). Having presence in this market gives the company the opportunity to serve one of the richest counties in Maryland, which has the second highest median household income in the state.

Gaming giant MGM Resorts International is almost ready to build a $925 million luxury casino resort at National Harbour in Prince George's County. This place is also close to several national and international airports. The bank has eight branch locations and four loan production offices in Prince George's County.

Financials

The company posted net income of $1.8 million for the first quarter ended March 31, 2014, an increase of 42.70% from the same quarter the previous year. Total deposits grew by 35% from the first quarter of 2013 to the first quarter of 2014.

"Total net loans increased $1.8 million during the three month period ended March 31, 2014. The unusual inclement weather for our area is a key factor for the low level in loan growth compared to recent periods. The first quarter is historically a soft quarter for loan growth however we are on target with projections."

Source: Old Line Bancshares

Banks can lend at fixed and variable interest rates, but many banks lend at fixed interest rates. In a fixed interest rate loan, the repayments that you make will not change as per the changes in market interest rates. However, in a variable interest rate loan, your repayment will increase or decrease as per the changes in market interest rates. In a rising interest rate environment, variable interest rate loan portfolios tremendously increase the earnings of the bank. The interest rates are expected to rise around April 2015 - this change will help the banks with the variable interest rate portfolio. Old Line has 68% of the loan portfolio generated at variable interest rates, which will benefit the management in boosting earnings.

Valuation

The company posted EPS of $0.17 per share for the first quarter 2014, down from $0.19 for the same period the previous year. Though net income saw a tremendous improvement, the EPS declined due to the significant increase in the average number of basic shares. With EPS of $0.79 for the past 12 months Old Line is trading at $16.89 on May 30, whose price to earnings ratio is 21.4, forward price to earnings ratio is 13.88 and price to book value is 1.41. It might look as if the stock is overvalued, but it isn't, because the company posted a loss in the second quarter of 2013 due to exceptional growth in non-interest expense mainly related to the loan production office the company opened in the first quarter of 2013. Institutional investors own 37.20% of the shares and insiders own 18.90% of the shares.

Branches in Prince George's County and a loan production house in Montgomery will be the primary growth drivers going forward. As interest rates start to rise, the loan portfolio of Old Line is poised to deliver excellent earnings growth.

Source: Old Line Bancshares: Well Positioned To Deliver Strong Growth