Old Line lends to those it knows

Banking Bright Spot

November 21, 2008|By JAY HANCOCK | JAY HANCOCK,jay.hancock@baltsun.com

As the economy slumps, one Maryland bank has not only stayed out of trouble but has burnished the kind of 24-karat lending record that rivals would covet even in a boom.

Bowie-based Old Line Bank has lent more than $200 million to local homebuilders, hoteliers, auto repair shops, lawyers, homebuyers and landscapers. But as banks fail nationwide at the greatest rate since 1993, so far every one of Old Line's borrowers is paying interest and principal as planned.

A church that was behind on payments is catching up. Other than that, Old Line has zero "nonperforming" loans, defined as at least 90 days overdue. It doesn't even have a loan that is 30 days overdue.

There's no guarantee that it won't take some lumps. But Old Line's performance so far in the greatest financial crisis in decades is up there with pitching a perfect game against the 1927 Yankees or bowling 300 wearing mittens.

"This is absolutely amazing," says independent banking analyst Bert Ely as he looks at Old Line's recently published Sept. 30 numbers. "This is one of the cleanest loan books I've seen. It's almost like these are too good to be true."

Something else is amazing. Old Line didn't stay perfect by sitting on its dough. Its loans have doubled since 2005. It's making new loans today, although not at the same pace as a year ago.

"It seems like bankers are getting a little skittish right now," said Al Patel, president of Greenbelt-based Baywood Hotels. But Baywood just got $8.5 million from Old Line to build a Marriott hotel in St. Mary's County. "In today's environment I would not have been surprised if they hadn't done the deal."

With eight branches from Annapolis to Waldorf and two under construction, Old Line belies the notion that business has frozen. Community banks like this, which have stayed generally healthier than their giant competitors, must carry the economy now that Wall Street has checked out.

"We do this only on relationship banking," says Old Line President James W. Cornelsen. "We do it with absolutely the most talented people we can find. And we do it with superior credit underwriting."

Translation: Old Line got to know borrowers. It ensured that they had enough income to make payments. It did not assume that property prices would ascend forever. It didn't do deals just to pocket closing fees.

Radical concepts, for sure.

But Old Line has increased profits by almost one-third this year as competitors struggle. It even avoided the poison investments - Fannie Mae preferred, soured mortgage bonds - that wounded other community banks.

To be sure, the bank benefits from being in Maryland, whose economy is healthier than that of the nation as a whole. Its main products are commercial loans, not the residential mortgages that blew up in so many other bankers' faces.

But it had plenty of chances to mess up. It holds more than $10 million in home loans. And, says Ely, "what I find most unusual is that they've [lent] $16 million to homebuilders, and everything appears to be current."

Old Line avoided housing traps by rejecting subprime loans, by not financing entire subdivisions and by picking builders it knew with steady profits, said Cornelsen, who has run the bank since 1994. Old Line was founded in the late 1980s.

While its stock has suffered along with those of other financiers, Old Line's shares are down only about 30 percent from last year's highs, while those of many banking companies have plunged more than twice as far.

"We weren't tempted at all" by the easy money of 2005 and 2006, says Cornelsen, though he admits he's surprised by the scope of the reckoning. "We kept on shaking our heads and said, the day will come when you separate the good lenders from the lazy lenders. And I believe that day is coming."

It's here. The federal government has shut down 19 banks this year and will surely close many more before it's through.

What angers Cornselsen and other small bankers is that they're suffering - in reputation, lower profits and higher FDIC premiums - from the irresponsibility of Bear Stearns, Citigroup and the other monsters that fueled the housing bubble.

"Most of us are pretty mad. We're mad because we ran our businesses in the proper way," he said. "To see it all come out of the investment side - out of Wall Street - and then have all these problems being blamed on 'banks' by the press, by the legislature - it's terribly frustrating to the community banker."

He doesn't expect Old Line borrowers to maintain their perfect record. The bank is adding to reserves to deal with possible defaults.

"The dynamics have changed out there," he said. "We'll have a loan or two go past due, most likely. We want to be prepared."

But neither is it rejecting new, qualified clients.

Insight Technology Solutions, a Bowie-based information-technology contractor for the Pentagon and Department of Homeland Security, closed last week on a $500,000 line of credit from Old Line. The loan, says ITS President Gary Anderson, would let him expand and hire dozens of people if he wins new business he hopes to land.

"The lending environment for small businesses has certainly gotten much tighter," he said. "I was very happy to see that some of the smaller banks were willing and able to lend money to businesses my size. I certainly think I will be using that line."

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