Old Line Bancshares 10Q 2007 Q2 Quarterly report

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


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

For the quarterly period ended June 30, 2007


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


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

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

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.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filero Non-accelerated filerþ

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

Yeso Noþ

As of July 31, 2007, the registrant had 4,254,598.5 shares of common stock outstanding.

Part I. Financial Information

Item 1. Financial Statements

Old Line Bancshares, Inc. & Subsidiary
Consolidated Balance Sheets


	June 30,			December 31,
	2007			2006
	(Unaudited)
Assets
Cash and due from banks	$	5,015,620		$	5,120,068
Federal funds sold		32,892,808			34,508,127

Total cash and cash equivalents		37,908,428			39,628,195
Investment securities available for sale		12,882,962			14,118,649
Investment securities held to maturity		2,301,993			2,802,389
Loans, less allowance for loan losses		171,355,281			150,417,217
Restricted equity securities at cost		1,630,250			1,575,550
Investment in real estate LLC		788,630			793,714
Bank premises and equipment		4,263,697			4,049,393
Accrued interest receivable		837,962			820,628
Income tax receivable		9,868			—
Deferred income taxes		255,299			226,873
Bank owned life insurance		7,602,020			3,458,065
Other assets		418,173			239,989

	$	240,254,563		$	218,130,662


Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing	$	35,430,789		$	37,963,066
Interest-bearing		145,883,630			131,708,780

Total deposits		181,314,419			169,671,846
Short-term borrowings		19,385,204			9,193,391
Long-term borrowings		3,000,000			3,000,000
Accrued interest payable		713,389			629,557
Income tax payable		—			334,496
Other liabilities		414,408			485,418

		204,827,420			183,314,708

Stockholders’ equity
Common stock, par value $.01 per share; authorized 15,000,000 shares; issued and outstanding 4,254,598.5 in 2007, and 4,253,698.5 in 2006		42,546			42,537
Additional paid-in capital		31,993,556			31,868,025
Retained earnings		3,557,239			3,077,313

		35,593,341			34,987,875
Accumulated other comprehensive income		(166,198	)		(171,921	)

		35,427,143			34,815,954

	$	240,254,563		$	218,130,662

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

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Income
(Unaudited)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007			2006		2007		2006

Interest revenue
Loans, including fees	$	2,970,722		$	2,106,543	$	5,851,279	$	3,950,716
U.S. Treasury securities		29,769			31,764		61,344		63,339
U.S. government agency securities		79,622			58,813		159,982		117,377
Mortgage backed securities		12,801			16,674		26,716		34,069
Tax exempt securities		26,966			28,315		53,944		56,092
Federal funds sold		381,489			380,634		754,954		761,967
Other		21,640			19,817		42,928		38,747

Total interest revenue		3,523,009			2,642,560		6,951,147		5,022,307


Interest expense
Deposits		1,402,699			722,063		2,763,213		1,350,115
Borrowed funds		133,052			130,378		239,296		228,941

Total interest expense		1,535,751			852,441		3,002,509		1,579,056


Net interest income		1,987,258			1,790,119		3,948,638		3,443,251

Provision for loan losses		30,000			140,000		86,000		270,000

Net interest income after provision for loan losses		1,957,258			1,650,119		3,862,638		3,173,251


Non-interest revenue
Service charges on deposit accounts		72,998			71,047		143,918		128,354
Marine division broker origination fees		135,284			67,432		212,958		191,783
Earnings on bank owned life insurance		89,288			37,500		156,638		71,642
Income (loss) on investment in real estate LLC		(6,000	)		—		3,768		246
Other fees and commissions		79,474			35,852		119,669		71,435

Total non-interest revenue		371,044			211,831		636,951		463,460


Non-interest expense
Salaries		800,866			668,205		1,555,037		1,274,811
Employee benefits		228,451			165,577		513,265		345,773
Occupancy		224,183			64,510		434,621		130,727
Equipment		56,956			33,752		118,402		64,610
Data processing		54,652			37,347		114,092		74,708
Other operating		356,566			286,012		689,224		570,821

Total non-interest expense		1,721,674			1,255,403		3,424,641		2,461,450


Income before income taxes		606,628			606,547		1,074,948		1,175,261

Income taxes		198,968			199,805		339,746		385,066

Net income	$	407,660		$	406,742	$	735,202	$	790,195


Basic earnings per common share	$	0.10		$	0.10	$	0.17	$	0.19
Diluted earnings per common share	$	0.10		$	0.10	$	0.17	$	0.19

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

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)


										Accumulated
					Additional					other
	Common stock				paid-in		Retained			comprehensive			Comprehensive
	Shares		Par value		capital		earnings			income			income

Balance, December 31, 2006		4,253,698.5	$	42,537	$	31,868,025	$	3,077,313		$	(171,921	)

Net income		—		—		—		735,202			—		$	735,202
Unrealized gain on securities available for sale, net of income taxes of $3,605		—		—		—		—			5,723			5,723

Comprehensive income													$	740,925

Stock based compensation awards		—		—		119,290		—			—
Cash dividend $0.06 per share		—		—		—		(255,276	)		—
Stock options exercised, including tax benefit of $2,001		900.0		9		6,241		—			—


Balance, June 30, 2007		4,254,598.5	$	42,546	$	31,993,556	$	3,557,239		$	(166,198	)

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)


Six Months Ended June 30,	2007			2006

Cash flows from operating activities
Interest received	$	6,925,518		$	5,019,416
Fees and commissions received		498,080			397,786
Interest paid		(2,918,677	)		(1,515,526	)
Cash paid to suppliers and employees		(3,418,998	)		(2,027,698	)
Income taxes paid		(706,268	)		(369,197	)

		379,655			1,504,781


Cash flows from investing activities
Purchase of investment securities
Held to maturity		—			(599,758	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call		500,000			—
Available for sale at maturity or call		1,243,312			133,342
Loans made, net of principal collected		(21,013,675	)		(26,561,347	)
Purchase of equity securities		(54,700	)		(427,800	)
Investment in bank owned life insurance (BOLI)		(4,000,000	)		—
Return of principal from (investment in) real estate, LLC		8,852			—
Purchase of premises, equipment and software		(429,104	)		—
Proceeds from sale of premises and equipment		60,533			(630,695	)

		(23,684,782	)		(28,086,258	)


Cash flows from financing activities
Net increase (decrease) in
Time deposits		12,462,215			10,877,473
Other deposits		(819,642	)		3,276,727
Net increase in short-term borrowings		10,191,813			8,712,654
(Decrease) increase in long-term borrowings		—			(2,000,000	)
Proceeds from stock options exercised, including tax benefit		6,250			11,791
(Costs) proceeds from stock offering		—			(1,891	)
Dividends paid		(255,276	)		(233,726	)

		21,585,360			20,643,028


Net increase (decrease) in cash and cash equivalents		(1,719,767	)		(5,938,449	)

Cash and cash equivalents at beginning of year		39,628,195			39,961,380

Cash and cash equivalents at end of year	$	37,908,428		$	34,022,931

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)


Six Months Ended June 30,	2007			2006

Reconciliation of net income to net cash provided (used) by operating activities
Net income	$	735,202		$	790,195

Adjustments to reconcile net income to net cash provided (used) by operating activities

Depreciation and amortization		171,149			85,572
Provision for loan losses		86,000			270,000
Loss on sale of equipment		(12,190	)		—
Change in deferred loan fees net of costs		(10,389	)		101,579
Amortization of premiums and discounts		2,094			1,352
Deferred income taxes		(32,026	)		(19,363	)
Stock based compensation awards		119,290			59,032
(Income) loss from investment in real estate LLC		(3,768	)		246
Increase (decrease) in
Accrued interest payable		83,832			63,530
Other liabilities		(405,506	)		251,835
Decrease (increase) in
Accrued interest receivable		(17,334	)		(105,822	)
Bank owned life insurance		(143,955	)		(65,920	)
Other assets		(192,744	)		72,545

	$	379,655		$	1,504,781

Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

1.		ORGANIZATION AND DESCRIPTION OF BUSINESS

		Old Line Bancshares, Inc. 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, Inc. is to own all of the capital stock of the Old Line Bank. Old Line Bancshares also has an approximately $789,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”).

		Old Line Bank is a full service commercial bank operating in the suburban Maryland (Washington, D.C. suburbs) counties of Prince George’s, Charles and northern St. Mary’s. Old Line Bank offers deposit services and loans to individuals, small businesses, associations and government entities. Other services include direct deposit of payroll and social security checks, automatic drafts from accounts, automated teller machine services, cash management services, safe deposit boxes, money orders and travelers cheques. Old Line Bank also offers credit card services and on-line account access with bill payer service.

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

		The foregoing consolidated financial statements are unaudited; however, in the opinion of management we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of December 31, 2006 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, Inc.’s Form 10-KSB for the year ended December 31, 2006. We have made certain reclassifications to the 2006 consolidated financial statement to conform to the 2007 presentation. We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-KSB.

		The accounting and reporting policies of Old Line Bancshares, Inc. conform to accounting principles generally accepted in the United States of America.

2.		INVESTMENT SECURITIES

		As Old Line Bancshares purchases securities, management determines if we should classify the securities as held to maturity, available for sale or trading. We record the securities which management has the intent and ability to hold to maturity at amortized cost which is cost adjusted for amortization of premiums and accretion of discounts to maturity. We classify securities which we may sell before maturity as available for sale and carry these securities at fair value with unrealized gains and losses included in stockholders’ equity on an after tax basis. Management has not identified any investment securities as trading.

		We record gains and losses on the sale of securities on the trade date and determine these gains or losses using the specific identification method. We amortize premiums and accrete discounts using the interest method.

3.		INCOME TAXES

		The provision for income taxes includes taxes payable for the current year and deferred income taxes. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. We allocate tax expense and tax benefits to the Bank and Bancshares based on their proportional share of taxable income.

Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

4.		EARNINGS PER 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 the stock dividends.

		We calculate diluted earnings per 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				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006

Weighted average number of shares		4,254,598.50		4,249,478.72		4,254,479.0		4,249,190.2
Dilutive average number of shares		10,232.00		19,676.00		13,565.0		21,811.0

5.		STOCK-BASED COMPENSATION

		We account for employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock-based compensation expense at the date of grant. In the first quarter of 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R,Share-Based Payment, under the modified prospective method. Statement 123R requires companies to recognize compensation expense related to stock-based compensation awards in their income statements over the period during which an individual is required to provide service in exchange for such award. For the six months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $119,290 and $59,032, respectively. For the three months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $36,097 and $23,303, respectively.

		Under SFAS 123R, a company may only recognize tax benefits for options that ordinarily will result in a tax deduction when the grant is exercised (non-qualified options). For the three and six months ended June 30, 2007, we recognized an $11,887 tax benefit associated with the portion of the expense that was related to the issuance of non-qualified options. There were no non-qualified options included in the expense calculation during the three and six months ended June 30, 2006.

		We have two stock option plans under which we may issue options, the 2001 Incentive Stock Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee administers the stock option plans. As the plans outline, the Compensation Committee approves stock option grants to directors and employees, determines the number of shares, the type of option, the option price, the term (not to exceed 10 years from the date of issuance) and the vesting period of options issued. The Compensation Committee has approved and we have issued grants with options vesting immediately as well as over periods of two, three and five years. We recognize the compensation expense associated with these grants over their respective vesting period. As of June 30, 2007, there were 152,480 shares remaining available for future issuance under the stock option plans.

		The intrinsic value of the 900 options that directors and officers exercised during the six months ended June 30, 2007 was $5,184. Directors and officers did not exercise any options during the three month period ended June 30, 2007.

Old Line Bancshares, Inc. & Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

5.		STOCK-BASED COMPENSATION (Continued)

		A summary of the stock option activity during the six month period follows:


	June 30,
	2007					2006
				Weighted					Weighted
	Number			average		Number			average
	of shares			exercise price		of shares			exercise price

Outstanding, beginning of year		182,820		$	8.91		172,620		$	8.60
Options granted		47,200			10.57		—			—
Options exercised		(900	)		4.72		(1,200	)		9.83
Options expired		—			—		—			—

Outstanding, June 30,		229,120		$	9.27		171,420		$	8.59

Information related to options as of June 30, 2007 follows:


	Outstanding options						Exercisable options
			Weighted		Weighted				Weighted
	Number		average		average		Number		average
Exercise	of shares at		remaining		exercise		of shares at		exercise
price	June 30, 2007		term		price		June 30, 2007		price
$3.33-$4.17		11,700		3.51	$	3.44		11,700	$	3.44
$4.18-$5.00		28,800		3.48		4.67		28,800		4.67
$5.01-$10.00		46,620		7.14		9.74		46,620		9.74
$10.01-$11.31		142,000		8.88		10.53		71,733		10.44

		229,120		7.57	$	9.27		158,853	$	8.68


Intrinsic value of outstanding options			$	109,978

Intrinsic value of exercisable options			$	169,973

6.		Retirement Plan

		Old Line Bank maintains a 401(k) profit sharing plan for employees who meet the eligibility requirements set forth in the plan. Pursuant to the plan, which was amended in March 2003 and effective January 1, 2003, Old Line Bank matches the first 3% of employee contributions to the plan and 50% of the next 2% of employee contributions, for a maximum required contribution of 4% of employee eligible compensation. This plan, which covers substantially all employees, allows for elective employee deferrals. Old Line Bank’s contributions to the plan for the six months ended June 30, 2007 and 2006 were $61,010, and $38,763, respectively. Old Line Bank’s contributions to the plan for the three months ended June 30, 2007 and 2006 were $27,711 and 19,687, respectively.

		Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive officers providing for retirement income benefits as well as pre-retirement death benefits. We accrue the present value of these benefits over the remaining number of years to the executives’ retirement dates. Old Line Bank’s expenses for the SERPs for the six months ended June 30, 2007 and 2006, were $48,970, and $46,956, respectively. The SERP expense for the three month period ended June 30, 2007 and 2006 was $25,492 and $23,478, respectively.

7.		Recent Accounting Standards

		In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS No. 115, to, among other things, require certain disclosures for amounts for which the fair value option is applied. Additionally, this standard provides that an entity may reclassify held-to-maturity and available-for-sale securities to the trading account, when the fair value option is elected for such securities, without calling into question the intent to hold other securities to maturity in the future. This standard is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or January 1, 2008. SFAS No. 159 permits early adoption as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. We have not elected early adoption of SFAS No. 159. We have not completed our assessment of SFAS No. 159, and the impact, if any, on our consolidated results of operations or financial position.

		In September 2006, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on issue No. 06-4,Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangementdetermining whether the postretirement benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in accordance with FASB Statement No. 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions(or Opinion 12,Omnibus Opinion-1967, if the arrangement does not constitute a plan). The Task Force concluded that for a split-dollar life insurance arrangement, an employer should recognize a liability for future benefits in accordance with Statement 106 or Opinion 12 (depending on whether a substantive plan is deemed to exist) based on the substantive agreement with the employee. We expect the adoption of EITF Issue No. 06-4, which is effective for fiscal years beginning after December 15, 2007, will not have a material impact on our consolidated results of operations or financial position.

		In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financials statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We do not expect the adoption of SFAS 157 will have a material impact on our consolidated results of operations or financial position.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Some of the matters discussed below include forward-looking statements. Forward-looking statements often use words such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,” “contemplate,” “anticipate,” “forecast,” “intend” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Our actual results and the actual outcome of our expectations and strategies could be different from those anticipated or estimated for the reasons discussed below and under the heading “Information Regarding Forward Looking Statements.”

Overview

Old Line Bancshares, Inc. was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank.

Our primary business is to own all of the capital stock of Old Line Bank. We also have an approximately $789,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”). We own 50% of Pointer Ridge. Frank Lucente, one of our directors and a director of Old Line Bank, controls 25% of Pointer Ridge and controls the manager of Pointer Ridge. The purpose of Pointer Ridge is to acquire, own, hold for profit, sell, assign, transfer, operate, lease, develop, mortgage, refinance, pledge and otherwise deal with real property located at the intersection of Pointer Ridge Road and Route 301 in Bowie, Maryland. Pointer Ridge has acquired the property and has completed the construction of a commercial office building containing approximately 40,000 square feet. On July 10, 2006, we began leasing approximately 50% of this building for our main office (moving our existing main office from Waldorf, Maryland) and operating a branch of Old Line Bank from this address.

Summary of Recent Performance and Other Activities

We are pleased to report sound financial performance for the first six months and the second quarter of 2007. Net income was $407,660 or $0.10 per basic and diluted common share for the three month period ending June 30, 2007. This was comparable to net income of $406,742 or $0.10 per basic and diluted common share for the same period in 2006. Net income for the six month period ended June 30, 2007 was $735,202 or $0.17 per basic and diluted common share. This represented a decrease of $54,993 or 6.96% compared to net income of $790,195 or $0.19 basic and diluted per common share for the six months ended June 30, 2006.

During the first six months of 2007, the following events occurred.

	•		In June, we opened our 6^th branch location at 6301 Ivy Lane, Greenbelt, Maryland.

	•		We grew the loan portfolio $21.0 million or 13.96%.

	•		We maintained asset quality, collected full payment on the one non-accrual loan that we held at the end of the 1^st quarter of 2007 in the amount of $60,000 and had no loans past due more than 90 days.

	•		We invested an additional $4 million in bank owned life insurance which will improve non-interest revenue and provide tax benefits.

	•		We grew total deposits $11.6 million or 6.84%.

	•		As a result of high gas prices, adverse weather conditions and difficult market conditions, the marine division experienced a $66,000 pre-tax loss during the six month period compared to a $15,000 pre-tax profit for the first six months of 2006.

	•		We appointed a new individual to our Board of Directors.

	•		We hired a new commercial lender to service the Anne Arundel County market.

We believe that it was an accomplishment to maintain earnings while incurring the expenses associated with the opening of the Greenbelt branch during the second quarter as well as the costs incurred from our investments in infrastructure during the 2^nd and 3^rd quarters of 2006, and continued softness in the marine industry. The following summarizes the highlights of our financial performance for the three month period ended June 30, 2007 compared to the three month period ended June 30, 2006.

Three months ended June 30,
(Dollars in thousands)


	2007		2006		$ Change		% Change
Net income	$	408	$	407	$	1		0.25	%
Interest revenue		3,523		2,643		880		33.30
Interest expense		1,536		852		684		80.28
Net interest income after provision for loan losses		1,957		1,650		307		18.61
Non-interest revenue		371		212		159		75.00
Non-interest expense		1,722		1,255		467		37.21
Earnings per share basic	$	0.10	$	0.10	$	—		0.00	%
Earnings per share diluted		0.10		0.10		—		0.00	%

The following outlines the highlights of our financial performance for the six month period ended June 30, 2007 compared to the six month period ended June 30, 2006.

Three months ended June 30,
(Dollars in thousands)


	2007			2006			$ Change			% Change
Net income	$	735		$	790		$	(55	)		(6.96	)%
Interest revenue		6,951			5,022			1,929			38.41
Interest expense		3,003			1,579			1,424			90.18
Net interest income after provision for loan losses		3,863			3,173			690			21.75
Non-interest revenue		637			463			174			37.58
Non-interest expense		3,425			2,461			964			39.17
Average interest earning assets		204,327			163,904			40,423			24.66
Average non-interest bearing deposits		35,415			34,291			1,124			3.28
Average gross loans		158,690			113,382			45,308			39.96
Average interest bearing deposits		137,302			92,769			44,533			48.00
Net interest margin (1)		3.95	%		4.30	%
Return on average equity		4.20	%		4.68	%
Earnings per share basic	$	0.17		$	0.19		$	(0.02	)		(10.53	%)
Earnings per share diluted		0.17			0.19			(0.02	)		(10.53	%)


(1)		See “Reconciliation of Non-GAAP Measures”

Growth Strategy

We have based our strategic plan on the premise of enhancing stockholder value and growth through branching and operating profits. Our short-term goals include maintaining credit quality, creating an attractive branch network, expanding fee income, generating extensions of core banking services and using technology to maximize stockholder value.

Expansion

We believe a natural evolution of a community-focused bank like Old Line Bank is to expand the delivery channels via the branch network. We plan to expand in Prince George’s County and Anne Arundel County, Maryland, and may expand in Charles County and contiguous northern and western counties, such as Montgomery County and Howard County, Maryland.

In July 2006, we moved our headquarters to 1525 Pointer Ridge Place, Bowie, Maryland (from our existing main office in Waldorf, Maryland) and we opened a new branch in this building. We hired the majority of the staff for this branch during the 2^nd quarter of 2006.

In June 2007, we opened a new branch in Greenbelt (Prince George’s County), Maryland. Initially, we opened this branch on the 1^st floor of an office building located at 6301 Ivy Lane, Greenbelt, Maryland. Upon completion of construction of new a bank building, we plan to move this branch to the southwest corner of the intersection of Kenilworth Avenue and Ivy Lane, Greenbelt, Maryland. In April 2007, we hired the Branch Manager for this location and hired the remainder of the staff in May and June of 2007.

In 2005, we announced plans to open a new branch in College Park (Prince George’s County), Maryland in the same building as the loan production office that houses our team of loan officers. Our lease provides that we will lease the branch space in January 2008 when the existing branch of a large southeastern regional bank moves from the space. We plan to hire a Branch Manager and the staff for this location during the 3^rd and 4^th quarters of 2007.

As expected, the opening of the new Bowie and Greenbelt branches and the establishment of our new headquarters in July 2006 caused a $357,686 or 183% increase in occupancy and equipments costs during the six month period and a $182,877 or 186% increase during the three month period. Because of the new branches, we anticipate salaries and benefits expenses and other operating expenses will increase. We anticipate that, over time, income generated from the branches will offset any increase in expenses.

Expansion of Commercial, Construction and Commercial Real Estate Lending

In April 2007, we hired a new Senior Vice President of Commercial Lending. This individual is a skilled commercial lender who has worked in the Anne Arundel and Prince George’s County markets for over 25 years. We believe that with his qualifications and through his long term associations with businesses and prominent individuals, he will develop new lending and deposit opportunities for us in these markets. Initially, he will work from our Bowie headquarters.

We hired a Senior Vice President of Commercial Lending, in August 2006, who has over 30 years of lending experience and is a significant addition to our lending team. This individual operates from a loan production office in Gaithersburg (Montgomery County), Maryland. This lender’s expertise and market knowledge have allowed us to expand our presence into southern Montgomery County and the District of Columbia. We anticipate that as a result of this person’s efforts, we will continue to expand in these markets.

In July 2006, we hired a Vice President of Business Development who was formerly Executive Director of the Prince George’s County Chamber of Commerce. This individual works from our Bowie main office. We believe this individual’s expertise and market knowledge have allowed us to continue to enhance our presence in the Prince George’s County market and beyond.

As we expected, the increase in personnel during the second half of 2006 and in 2007 caused an increase in salary and benefit expenses in the second quarter of 2007 compared to the second quarter of 2006 and for the six month period ended June 30, 2007 compared to the same period in 2006. These individuals also contributed to our loan and deposit growth. As a result of their efforts, we anticipate the bank will experience continued improvement in loan growth during 2007 and beyond. We plan to continue to identify and establish new branch locations that will support our long term growth plans.

Old Line Marine Division

In February 2005, we established Old Line Marine as a division of Old Line Bank to serve as a luxury boat loan broker and to originate loans for Old Line Bank. We hired a veteran in the marine lending industry with over 27 years of experience to head this division. Since that time, we have hired three additional sales representatives. Currently we have sales representatives in Annapolis, Maryland, Virginia Beach, Virginia and Wilmington, North Carolina. These representatives service the market from New York to Florida. Prior to joining us, each of these individuals operated as brokers in these markets. We conduct secondary market activity in our marine division as a broker and we earn a fee. In addition to increasing our non-interest income, we expect to capitalize on our relationships with high net worth individuals through this division.

Although we experienced improvement in the marine division’s performance during the second quarter of 2007 relative to the second quarter of 2006, the high gasoline prices, adverse weather conditions and general concerns about the economy continued to cause weakness in the marine industry. This weakness caused volume and earnings per originator to decline. As a result, the marine division experienced an approximately $23,000 pre-tax loss during the quarter compared to a pre-tax loss of $37,000 during the second quarter of 2006. For the six month period, the division posted a pre-tax loss of approximately $66,000 versus a pre-tax profit of $15,000 for the six months ended June 30, 2006. We plan to continue to monitor the market, expand our market focus, and make any other necessary adjustments to help this division attain and maintain profitability for the remainder of 2007, though there can be no assurance that we will be able to do so.

Bank owned life insurance

We increased our investment in Bank Owned Life Insurance (“BOLI”) in February 2007 by $4 million. In June 2005, we purchased $3.3 million of BOLI on the lives of our executive officers, Messrs. Cornelsen and Burnett and Ms. Rush. With the new investment made in February, we increased the insurance on Messrs. Cornelsen and Burnett and expanded the coverage of the insurance policies to insure the lives of several other officers of Old Line Bank. We anticipate the earnings on these policies will pay for our employee benefit expenses as well as our obligations under our Salary Continuation Agreements and Supplemental Life Insurance Agreements that we entered into with our executive officers in January 2006.

Other Opportunities

We use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology, telephone banking and Internet banking with on-line account access and bill payer service. We will continue to evaluate cost effective ways that technology can enhance our management, products and services. In 2007, we plan to offer to selected commercial customers the ability to remotely capture their deposits and electronically transmit them to us. We anticipate that this service will modestly increase equipment cost, reduce courier fees, and positively impact deposit growth. We continually evaluate new products and services that may enhance the service we provide our customers.

We plan to take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks. We currently have no specific plans regarding acquisitions of existing financial institutions or branches thereof.

Results of Operations

Net Interest Income

Net interest income is the difference between income on interest earning assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, and federal funds sold; interest-bearing deposits and other borrowings make up the cost of funds. Non-interest bearing deposits and capital are also funding sources. Changes in the volume and mix of earning assets and funding sources along with changes in associated interest rates determine changes in net interest income.

Three months ended June 30, 2007 compared to three months ended June 30, 2006

Net interest income after provision for loan losses for the three months ended June 30, 2007 increased $307,139 or 18.61% to $2.0 million from $1.7 million for the same period in 2006. The increase was primarily attributable to an increase in total average interest earning assets. A decrease in Federal Funds and deposit growth funded the loan growth. This loan growth caused the increase in average interest earning assets.

Interest revenue increased from $2.6 million for the three months ended June 30, 2006 to $3.5 million for the same period in 2007. Interest expense for all interest bearing liabilities amounted to $1.5 million for the three months ended June 30, 2007 versus $852,441 for the three months ended June 30, 2006. These changes were a result of loan and deposit growth that originated from all areas of the bank.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

Net interest income after provision for loan losses for the six months ended June 30, 2007 amounted to $3.9 million, which was $689,387 or 21.72% greater than the 2006 level of $3.2 million. The increase was primarily attributable to a $40.4 million increase in total average interest earning assets to $204.3 million for the six months ended June 30, 2007 from $163.9 million for the six months ended June 30, 2006. Interest expense for all interest bearing liabilities was $3.0 million for the six months ended June 30, 2007 versus $1.6 million for the six months ended June 30, 2006. The increase in earnings assets was a result of increased business development efforts from the entire Old Line Bank lending team. Additionally, we believe that the move to our new Bowie headquarters and the opening of the Bowie and Greenbelt branches provided us with increased name recognition that also contributed to our growth.

Our net interest margin was 3.95% for the six months ended June 30, 2007, as compared to 4.30% for the six months ended June, 2006. The decrease in the net interest margin is the result of several components. The yield on average interest-earning assets improved during the period 67 basis points from 6.24% in 2006 to 6.91% in 2007, and average interest-earning assets grew by $40.4 million. A 106 basis point increase of the yield on average interest-bearing liabilities from 2.98% in 2006 to 4.04% in 2007, and a $43.1 million increase in interest bearing liabilities offset these improvements.

The yield on average interest-earning assets improved and the cost of interest bearing liabilities increased because of increases in market interest rates. On January 1, 2006, the prime rate was 7.50%. By June 30, 2007, it had increased to 8.25%. The yield also improved because loans, net of allowance comprised 77.00% of total average interest earning assets in 2007 versus 68.48% in 2006.

The increased interest rates allowed us to earn a 60 basis point higher average yield on our federal funds and a 41 basis point higher average yield on our loan portfolio. Increases in market interest rates and an increase in the percentage of average balances maintained in interest bearing deposits relative to total deposits caused the cost of average interest bearing liabilities to increase 106 basis points during the period. We expect improvement in our net interest margin during 2007 because we expect the volume of and rates on loans to grow at a faster rate than the volume of and rates on interest bearing liabilities. We will offer promotional campaigns to attract deposits throughout the year or seek brokered deposits, if required, to maintain an acceptable loan to deposit ratio.

Because of the three loan officers in the College Park loan production office, increased recognition in the Prince George’s County market, the new loan officer in Anne Arundel County, the addition of the Bowie and Greenbelt branches, the loan production office in Gaithersburg, the new addition to the Board of Directors and with continued growth in deposits, we anticipate that we will continue to grow earning assets during 2007. We believe that the anticipated growth in earning assets, the change in the composition of earning assets as more funds are deployed to loans and the relatively low cost of funds will result in an increase in our net interest income, although there is no assurance that this will be the case.

The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders’ equity and related income, expense and corresponding weighted average yields and rates. The average balances used in this table and other statistical data were calculated using average daily balances.

Average Balances, Interest and Yields


Six Months Ended June 30,	2007							2006
	Average							Average
	balance		Interest		Yield			balance		Interest		Yield

Assets:
Federal funds sold(1)	$	28,988,555	$	774,054		5.38	%	$	32,982,867	$	781,907		4.78	%
Interest bearing deposits		—		—					3,536		23		1.30
Investment securities(1)(2)
U.S. Treasury		3,872,978		64,315		3.35			4,000,251		66,407		3.35
U.S. Government agency		8,036,855		167,731		4.21			7,398,297		123,062		3.35
Mortgage-backed securities		1,362,224		26,716		3.95			1,733,894		34,069		3.96
Tax exempt securities		3,228,427		78,446		4.90			3,382,629		79,282		4.73
Other		1,502,068		43,765		5.88			2,162,678		39,436		3.68

Total investment securities		18,002,552		380,973		4.27			18,677,749		342,256		3.70

Loans:(3)
Commercial		39,573,748		1,663,362		8.48			22,697,353		937,335		8.33
Mortgage		98,064,317		3,644,152		7.49			68,095,417		2,428,314		7.19
Installment		21,051,455		543,765		5.21			22,589,417		585,067		5.22

Total loans		158,689,520		5,851,279		7.44			113,382,187		3,950,716		7.03
Allowance for loan losses		1,353,354		—					1,142,108		—

Total loans, net of allowance		157,336,166		5,851,279		7.50			112,240,079		3,950,716		7.10

Total interest earning assets(1)		204,327,273		7,006,306		6.91			163,904,231		5,074,902		6.24

Non-interest bearing cash		3,872,730							3,826,617
Premises and equipment		4,099,803							2,411,419
Other assets		9,469,549							5,661,513

Total assets(1)	$	221,769,355						$	175,803,780

Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings	$	8,812,237	$	29,200		0.67		$	8,149,794	$	29,197		0.72
Money market and NOW		24,428,931		240,314		1.98			22,218,212		149,533		1.36
Other time deposits		104,060,965		2,493,699		4.83			62,401,003		1,171,385		3.79

Total interest-bearing deposits		137,302,133		2,763,213		4.06			92,769,009		1,350,115		2.93
Borrowed funds		12,507,453		239,296		3.86			13,925,362		228,941		3.32

Total interest bearing liabilities		149,809,586		3,002,509		4.04			106,694,371		1,579,056		2.98

Non-interest bearing deposits		35,415,159							34,291,269

		185,224,745							140,985,640
Other liabilities		1,225,693							750,107
Stockholders’ equity		35,318,917							34,068,033


Total liabilities and stockholders’ equity	$	221,769,355						$	175,803,780


Net interest spread(1)						2.87							3.26

Net interest income and Net interest margin(1)			$	4,003,797		3.95	%			$	3,495,846		4.30	%


1)		Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE basis adjusts for the tax favored status of these types of securities. Management believes providing this information on a FTE basis provides investors with a more accurate picture of our net interest spread and net interest income and we believe it to be the preferred industry measurement of these calculations. See “Reconciliation of Non-GAAP Measures.”

2)		Available for sale investment securities are presented at amortized cost.

3)		Non-accruing loans for the periods ended June 30, 2007 and 2006 were $0.

The following table describes the impact on our interest income and expense resulting from changes in average balances and average rates for the periods indicated. We have allocated the change in interest revenue, interest expense and net interest income due to both volume and rate proportionately to the rate and volume variances.

Rate/Volume Variance Analysis


	Six months Ended June 30,
	2007 compared to 2006
	Variance due to:
	Total			Rate			Volume
Interest Earning Assets:
Federal funds sold⁽¹⁾	$	(7,853	)	$	123,050		$	(130,903	)
Interest bearing deposits		(23	)		—			(23	)
Investment Securities⁽¹⁾
U.S. Treasury		(2,092	)		43			(2,135	)
U.S. Government agency		44,669			38,242			6,427
Mortgage-backed securities		(7,353	)		(127	)		(7,226	)
Tax exempt securities		(836	)		3,956			(4,792	)
Other		4,329			22,676			(18,347	)
Loans:
Commercial		726,027			33,425			692,602
Mortgage		1,215,838			196,511			1,019,327
Installment		(41,302	)		(3,052	)		(38,250	)

Total interest revenue⁽¹⁾		1,931,404			414,724			1,516,680


Interest-bearing liabilities
Savings		3			(3,086	)		3,089
Money market and NOW		90,781			82,015			8,766
Other time deposits		1,322,314			601,874			720,440
Borrowed funds		10,355			43,547			(33,192	)

Total interest expense		1,423,453			724,350			699,103


Net interest income⁽¹⁾	$	507,951		$	(309,626	)	$	817,577


(1)		Interest revenue is presented on a fully taxable equivalent (FTE) basis. Management believes providing this information on a FTE basis provides investors with a more accurate picture of our net interest spread and net interest income and we believe it to be the preferred industry measurement of these calculations. See “Reconciliation of Non-GAAP Measures.”

Provision for Loan Losses

Originating loans involves a degree of risk that credit losses will occur in varying amounts according to, among other factors, the type of loans being made, the credit-worthiness of the borrowers over the term of the loans, the quality of the collateral for the loan, if any, as well as general economic conditions. We charge the provision for loan losses to earnings to maintain the total allowance for loan losses at a level considered by management to represent its best estimate of the losses known and inherent in the portfolio that are both probable and reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, estimated value of any underlying collateral, economic conditions (particularly as such conditions relate to Old Line Bank’s market area), regulatory guidance, peer statistics, management’s judgment, past due loans in the loan portfolio, loan charge off experience and concentrations of risk (if any). We charge losses on loans against the allowance when we believe that collection of loan principal is unlikely. We add back recoveries on loans previously charged to the allowance.

The provision for loan losses was $30,000 for the three months ended June 30, 2007, as compared to $140,000 for the three months ended June 30, 2006, a decrease of $110,000 or 78.57%. The provision for the six month period was $86,000. This represented a $184,000 or 68.15% decline as compared to the six months ended June 30, 2006. For the 2007 period, we decreased the provision for loan losses because for over seven years we have had minimal past dues and charge-offs and we currently have $0 in non-accruals. Loan growth during the quarter was 13.92% with a significant percentage of that growth occurring in the last 10 days of the quarter. After completing the analysis outlined below, we determined that we have had no significant changes in economic factors, personnel, policies or practices during the period to warrant a higher provision. We further determined that we have completed two years of experience with new lending personnel and a higher legal lending limit and have not experienced any change in our delinquency patterns. Based on this analysis, we determined that it was prudent to reduce our provision during the quarter.

We review the adequacy of the allowance for loan losses at least quarterly. Our review includes evaluation of impaired loans as required by SFAS No. 114,Accounting by Creditors for Impairment of a Loan, and SFAS No. 118,Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure.Also incorporated in determining the adequacy of the allowance is guidance contained in the Securities and Exchange Commission’s SAB No. 102,Loan Loss Allowance Methodology and Documentation;the Federal Financial Institutions Examination Council’s Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions and the Interagency Policy Statement on the Allowance for Loan and Lease Losses provided by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of Thrift Supervision.

We base the evaluation of the adequacy of the allowance for loan losses upon loan categories. We categorize loans as installment and other consumer loans (other than boat loans), boat loans, mortgage loans (commercial real estate, residential real estate and real estate construction) and commercial loans. We apply loss ratios to each category of loan other than commercial loans (including letters of credit and unused commitments). We further divide commercial loans by risk rating and apply loss ratios 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 loan collateral separately and assign loss amounts based upon the evaluation.

We determine loss ratios for installment and other consumer loans (other than boat loans), boat loans and mortgage loans (commercial real estate, residential real estate and real estate construction) based upon a review of prior 18 months delinquency trends for the category, the three year loss ratio for the category, peer group loss ratios and industry standards.

With respect to commercial loans, management assigns a risk rating of one through eight to each loan at inception, with a risk rating of one having the least amount of risk and a risk rating of eight having the greatest amount of risk. For commercial loans of less than $250,000, we may review the risk rating annually based on, among other things, the borrower’s financial condition, cash flow and ongoing financial viability; the collateral securing the loan; the borrower’s industry; and payment history. We review the risk rating for all commercial loans in excess of $250,000 at least annually. We evaluate loans with a risk rating of five or greater separately and assign loss amounts based upon the evaluation. For loans with risk ratings between one and four, we determine loss ratios based upon a review of prior 18 months delinquency trends, the three year loss ratio, peer group loss ratios and industry standards.

We also identify and make any necessary allocation adjustments for any specific concentrations of credit in a loan category that in management’s estimation increase the risk inherent in the category. If necessary, we will also make an adjustment within one or more loan categories for economic considerations in our market area that may impact the quality of the loans in the category. For all periods presented, there were no specific adjustments made for concentrations of credit or economic considerations. We consider qualitative or environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience. These factors include, but are not limited to, changes in lending policies and procedures, changes in the nature and volume of the loan portfolio, changes in the experience, ability and depth of lending management and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our existing portfolio.

In the event that our review of the adequacy of the allowance results in any unallocated amounts, we reallocate such amounts to our loan categories based on the percentage that each category represents to total gross loans. We have risk management practices designed to ensure timely identification of changes in loan risk profiles. However, undetected losses inherently exist within the portfolio. We believe that the allocation of the unallocated portion of the reserve in the manner described above is appropriate.

We will not create a separate valuation allowance unless we consider a loan impaired under SFAS No. 114 and SFAS No. 118. At June 30, 2007 and 2006, we had $0 in impaired loans.

Our policies require a review of assets on a regular basis, and we believe that we appropriately classify loans as well as other assets if warranted. We believe that we use the best information available to make a determination with respect to the allowance for loan losses, recognizing that the determination is inherently subjective and that future adjustments may be necessary depending upon, among other factors, a change in economic conditions of specific borrowers or generally in the economy, and new information that becomes available to us. However, there are no assurances that the allowance for loan losses will be sufficient to absorb losses on non-performing assets, or that the allowance will be sufficient to cover losses on non-performing assets in the future.

The allowance for loan losses represents 0.79% of total loans at June 30, 2007 and 0.85% at December 31, 2006. We have no exposure to foreign countries or foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our portfolio.

The following table represents an analysis of the allowance for loan losses for the periods indicated:


	Six Months Ended						Year Ended
	June 30,						December 31,
	2007			2006			2006

Balance, beginning of period	$	1,280,396		$	954,706		$	954,706
Provision for loan losses		86,000			270,000			339,000


Chargeoffs:
Commercial		(4,979	)		(658	)		(15,772	)
Mortgage		—			—			—
Installment		—			(2,027	)		(2,685	)

Total chargeoffs		(4,979	)		(2,685	)		(18,457	)
Recoveries:
Commercial		—			—			—
Mortgage		—			—			—
Installment		306			354			5,147

Total recoveries		306			354			5,147

Net (chargeoffs) recoveries		(4,673	)		(2,331	)		(13,310	)

Balance, end of period	$	1,361,723		$	1,222,375		$	1,280,396


Allowance for loan losses to gross loans		0.79	%		0.93	%		0.85	%
Ratio of net-chargeoffs during period to average loans outstanding during period		(0.00	%)		(0.00	%)		0.01	%

The following table provides a breakdown of the allowance for loan losses:

Allocation of Allowance for Loan Losses


	June 30,										December 31,
	2007					2006					2006
			% of Loans					% of Loans					% of Loans
			in Each					in Each					in Each
	Amount		Category			Amount		Category			Amount		Category
Installment & others	$	11,254		0.56	%	$	8,098		0.51	%	$	8,939		0.45	%
Boat		127,841		11.02			144,487		15.99			169,093		14.29
Mortgage		902,839		64.42			692,166		63.06			869,101		61.55
Commercial		319,789		24.00			377,624		20.44			233,263		23.71


Total	$	1,361,723		100.00	%	$	1,222,375		100.00	%	$	1,280,396		100.00	%

Non-interest Revenue

Three months ended June 30, 2007 compared to three months ended June 30, 2006

Non-interest revenue totaled $371,044 for the three months ended June 30, 2007, an increase of $159,213 or 75.16% from the 2006 amount of $211,831. Non-interest revenue for the three months ended June 30, 2007 and June 30, 2006 included fee income from service charges on deposit accounts, broker origination fees from the marine division, earnings on bank owned life insurance, income from our investment in real estate LLC (Pointer Ridge) and other fees and commissions.

The following table outlines the changes in non-interest revenue for the three month periods.


	June 30,			June 30,
	2007			2006		$ Change			% Change
Service charges on deposit accounts	$	72,998		$	71,047	$	1,951			2.75	%
Marine division broker origination fees		135,284			67,432		67,852			100.62
Earnings on bank owned life insurance		89,288			37,500		51,788			138.10
Income (loss) on investment in real estate LLC		(6,000	)		—		(6,000	)
Other fees and commissions		79,474			35,852		43,622			121.67

Total non-interest revenue	$	371,044		$	211,831	$	159,213			75.16	%

Service charges on deposit accounts increased due to increases in the number of customers and the services they used. Although marine division broker origination fees increased, this was largely the result of increased originators for the three months ended June 30, 2007 compared to the three months ended June 30, 2006. As a result of high gasoline prices and general concerns about the economy, the marine industry experienced declining sales per originator during the second quarter of 2007. Earnings on bank owned life insurance increased primarily because we invested an additional $4 million in February 2007. Pointer Ridge began leasing its building to tenants in June 2006 and it had minimal income and expenses prior to that time. Therefore, it had no income during the second quarter of 2006. As a result of costs associated with leasing the building, it experienced a loss during the three months ended June 30, 2007. Other fees and commissions increased $43,622 primarily because we leased the Waldorf office space that we vacated in July 2006 and because of increases in miscellaneous and loan income received from the increased volume of closings on loans and letters of credit.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

The following table outlines the changes in non-interest revenue for the six month periods.


	June 30,		June 30,
	2007		2006		$ Change		% Change
Service charges on deposit accounts	$	143,918	$	128,354	$	15,564		12.13	%
Marine division broker origination fees		212,958		191,783		21,175		11.04
Earnings on bank owned life insurance		156,638		71,642		84,996		118.64
Income (loss) on investment in real estate LLC		3,768		246		3,522		1431.71
Other fees and commissions		119,669		71,435		48,234		67.52

Total non-interest revenue	$	636,951	$	463,460	$	173,491		37.43	%

Service charges on deposit accounts increased due to increases in the number of customers and the services they use. Primarily due to the increase in the number of originators and referral sources we used for the marine division, the division’s broker origination fees increased. Earnings on bank owned life insurance increased because we invested an additional $4 million in February 2007. Pointer Ridge began leasing its building to tenants in June 2006 and it did not have any income or expenses prior to that time. Therefore, it had minimal income in 2006. As a result of tenant income exceeding expenses, it experienced a profit during the six months ended June 30, 2007. Other fees and commissions increased $48,324 primarily because we leased the Waldorf office space that we vacated in July 2006 and because of increases in miscellaneous and loan income received from the increased volume of closings on loans and letters of credit.

Because of the new lenders we have hired and the new Bowie and Greenbelt branches that we have opened, we expect that customer relationships will continue to grow during the remainder of 2007. We anticipate this growth will cause an increase in service charges on deposit accounts. We anticipate that we will see improvement in fee income from the marine division during the 3rd quarter of 2007. We believe the demand in the commercial real estate market will remain stable and we will have an additional number of opportunities to provide financing of these facilities. Therefore, other loan fees which are included in other fees and commissions should remain constant. We expect our earnings on bank owned life insurance will continue to increase during the remainder of 2007 primarily because of the additional $4 million investment in February 2007. We anticipate the income from Pointer Ridge will stabilize during the year and will produce break-even profitability. As a result, we expect our earnings in Pointer Ridge during 2007 will be nominal.

Non-interest Expense

Three months ended June 30, 2007 compared to three months ended June 30, 2006

Non-interest expense for the three months ended June 30, 2007 was $1.7 million versus $1.3 million for the same period in 2006. The following chart outlines the changes in non-interest expenses for the period.


	June 30,		June 30,
	2007		2006		$ Change		% Change
Salaries	$	800,866	$	668,205	$	132,661		19.85	%
Employee benefits		228,451		165,577		62,874		37.97
Occupancy		224,183		64,510		159,673		247.52
Equipment		56,956		33,752		23,204		68.75
Data processing		54,652		37,347		17,305		46.34
Other operating		356,566		286,012		70,554		24.67

Total non-interest expenses	$	1,721,674	$	1,255,403	$	466,271		37.14	%

Salary and benefit expenses increased because of general salary increases and because of the new staff for the Bowie and Greenbelt branches, two new loan officers, the new business development officer and additions to corporate and branch staff. Stock based compensation expense also contributed to the increase and was approximately $13,000 higher during the 2nd quarter of 2007 than the 2nd quarter of 2006 because there were more vested options outstanding to an increased number of directors and employees.

Occupancy expense increased because of the new corporate headquarters, the addition of the new Bowie branch in July 2006 and the new Greenbelt branch in June 2007. Data processing increased because of the new locations, new services provided by our data processor, and contractual increases. Other operating expenses increased because janitorial, business development, advertising, stationery, office, and marine division origination costs increased during the period.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

Non-interest expense for the six months ended June 30, 2007 was $3.4 million as compared to $2.5 million for the same period in 2006. The following chart outlines the changes in non-interest expenses for the period.


	June 30,		June 30,
	2007		2006		$ Change		% Change
Salaries	$	1,555,037	$	1,274,811	$	280,226		21.98	%
Employee benefits		513,265		345,773		167,492		48.44
Occupancy		434,621		130,727		303,894		232.46
Equipment		118,402		64,610		53,792		83.26
Data processing		114,092		74,708		39,384		52.72
Other operating		689,224		570,821		118,403		20.74

Total non-interest expenses	$	3,424,641	$	2,461,450	$	963,191		39.13	%

Salary and benefit expenses increased because of general salary increases and because of the new staff for the Bowie and Greenbelt branches, two new loan officers, the new business development officer and additions to corporate and branch staff. Stock based compensation expense also contributed to the increase and was approximately $60,258 higher during the six month period ended June 30, 2007 than the six month period ended June 30, 2006 because there were more vested options outstanding to an increased number of directors and employees.

Occupancy expense increased because of the new corporate headquarters, the addition of the new Bowie branch in July 2006 and the new Greenbelt branch in June 2007. Data processing increased because of the new locations, new services provided by our data processor, and contractual increases. Other operating expenses increased because of increases in janitorial, business development, travel, advertising, stationery, office, security and marine division origination expenses.

For the remainder of 2007, we anticipate non-interest expenses will continue to increase. In addition to the personnel increases discussed above, we will incur increased rent expense related to the new Greenbelt location that will also increase operational expenses. We expect to somewhat offset the effect of these increases with a reduction in the stock based compensation expense of $50,000 for each of the remaining two quarters of the year, improvement in non-interest income that derives from the boat brokerage business, and continued increases in interest income through loan growth.

Income Taxes

Three months ended June 30, 2007 compared to three months ended June 30, 2006

Income tax expense was $198,968 (32.80% of pre-tax income) for the three months ended June 30, 2007 as compared to $199,805 (32.94% of pre-tax income) for the same period in 2006. The decrease in the effective tax rate is primarily due to a $51,788 increase in income from the bank owned life insurance which is tax exempt.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

Income tax expense was $339,746 (31.61% of pre-tax income) for the six months ended June 30, 2007 compared to $385,066 (32.76% of pre-tax income) for the same period in 2006. The decrease in the effective tax rate is primarily due to the tax-exempt income generated by the bank owned life insurance and the $11,887 tax benefit associated the portion of the stock compensation expense that was related to the issuance of non-qualified options.

Net Income

Three months ended June 30, 2007 compared to three months ended June 30, 2006

Net income was $407,660 or $0.10 per basic and diluted common share for the three month period ending June 30, 2007 compared to net income of $406,742 or $0.10 per basic and diluted common share for the same period in 2006.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

Net income was $735,202 or $0.17 per basic and diluted common share for the six month period ending June 30, 2007, a decrease of $54,993 or 6.96% compared to net income of $790,195 or $0.19 per basic and diluted common share for the same period in 2006. The decrease in net income was the result of a $689,387 increase in net interest income after provision for loan losses, a $45,320 decrease in income taxes, and a $173,491 increase in non-interest revenue, offset by a $963,191 increase in non-interest expense for the period compared to the same period in 2006. Earnings per share decreased on a basic and diluted basis because of lower earnings in 2007.

Analysis of Financial Condition

Investment Securities

Our portfolio consists primarily of U.S. Treasury securities, U.S. government agency securities, securities issued by states, counties and municipalities, mortgage-backed securities, and certain equity securities, including Federal Reserve Bank stock, Federal Home Loan Bank stock, Maryland Financial Bank stock and Atlantic Central Bankers Bank stock. The portfolio provides a source of liquidity, collateral for repurchase agreements as well as a means of diversifying our earning asset portfolio. While we generally intend to hold the investment portfolio assets until maturity, we classify a significant portion of the portfolio as available for sale. We account for securities so classified at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects. We account for securities classified in the held to maturity category at amortized cost. We invest in securities for the yield they produce and not to profit from trading the securities. There are no trading securities in the portfolio.

The investment portfolio at June 30, 2007 amounted to $15.2 million, a decrease of $1.7 million, or 10.06%, from the December 31, 2006 amount of $16.9 million. Available for sale investment securities decreased to $12.9 million at June 30, 2007 from $14.1 million at December 31, 2006. The decrease in the available for sale investment portfolio occurred because some of these assets matured and we purchased federal funds or deployed the proceeds into loans. Held to maturity securities at June 30, 2007 declined $500,396 from the $2.8 million balance on December 31, 2006 because of a maturing investment during the period. The carrying value of available for sale securities included net unrealized losses of $270,769 at June 30, 2007 (reflected as unrealized losses of $166,198 in stockholders’ equity after deferred taxes) as compared to net unrealized losses of $280,092 ($171,921 net of taxes) as of December 31, 2006. In general, the decrease in unrealized losses was a result of the maturity of securities and a shortening of the remaining term until maturity. As required under SFAS No. 115, we have evaluated securities with unrealized losses for an extended period of time and determined that these losses are temporary because, at this point in time, we expect to hold them until maturity. As the maturity date moves closer and/or interest rates decline, the unrealized losses in the portfolio will decline or dissipate.

Investment in real estate LLC

As discussed above, Old Line Bancshares also has a 50% ownership or $788,630 investment in Pointer Ridge, a real estate investment limited liability company. In July 2006, we moved our main office facility from Waldorf, Maryland to the building owned by Pointer Ridge at 1525 Pointer Ridge Place, Bowie, Maryland in Prince George’s County and established a branch in this facility.

Frank Lucente, a director of Old Line Bancshares, Inc. and Old Line Bank, controls 25% of Pointer Ridge and controls the manager of Pointer Ridge. On June 6, 2006, we executed leases for 2,557 square feet on the 1^st floor of the building for a new branch office, 5,449 square feet on the 3^rd floor and 11,053 square feet on the 4^th floor of this building for our new headquarters. The leases which commenced on July 1, 2006, are for thirteen years, with two, five-year renewal options. The leases are full service leases and payment terms include the cost of taxes, insurance and maintenance with basic monthly payments of $40,558 and 3% annual increases in base rents plus adjustment for increased taxes, insurances and maintenance.

Loan Portfolio

Loans secured by real estate or luxury boats comprise the majority of the loan portfolio. Old Line Bank’s loan customers are generally located in the greater Washington, D.C. metropolitan area.

The loan portfolio, net of allowance, unearned fees and origination costs, increased $21.0 million or 13.96% to $171.4 million at June 30, 2007 from $150.4 million at December 31, 2006. Commercial business loans increased by $5.5 million (15.32%), commercial real estate loans (generally owner-occupied) increased by $11.8 million (16.05%), residential real estate loans (generally home equity and fixed rate home improvement loans) decreased by $1.0 million (8.77%), real estate construction loans increased by $7.1 million (85.54%) and installment loans decreased by $2.3 million (10.31%) from their respective balances at December 31, 2006.

During the first six months and second quarter of 2007, we saw loan and deposit growth generated from our entire team of lenders, branch personnel and board of directors. We anticipate the entire team will continue to focus their efforts on business development during 2007 and continue to grow the loan portfolio.

The following table summarizes the composition of the loan portfolio by dollar amount and percentages:

Loan Portfolio
(Dollars in thousands)


	June 30,					December 31,
	2007					2006

Real Estate
Commercial	$	85,335		49.48	%	$	73,511		48.54	%
Construction		15,422		8.94			8,321		5.49
Residential		10,367		6.01			11,391		7.52
Commercial		41,388		23.99			35,914		23.71
Installment		19,965		11.58			22,330		14.74

		172,477		100.00	%		151,467		100.00	%

Allowance for loan losses		(1,362	)				(1,280	)

Net deferred loan (fees) and costs		256					230

	$	171,371				$	150,417

Asset Quality

Management performs reviews of all delinquent loans and directs relationship officers to work with customers to resolve potential credit issues in a timely manner. Management generally classifies loans as non-accrual when it does not expect collection of full principal and interest under the original terms of the loan or payment of principal or interest has become 90 days past due. Classifying a loan as non-accrual results in our no longer accruing interest on such loan and reversing 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 loans only when received. There was one non-accrual loan in the amount of $59,809 at March 31, 2007. We received payment in full on this loan during the second quarter and there were no non-accrual loans on June 30, 2007 and December 31, 2006. There were also no loans 90 days or more past due as of June 30, 2007 or December 31, 2006.

We classify any property acquired as a result of foreclosure on a mortgage loan as “real estate owned” and record it at the lower of the unpaid principal balance or fair value at the date of acquisition and subsequently carry the loan at the lower of cost or net realizable value. We charge any required write-down of the loan to its net realizable value against the allowance for loan losses at the time of foreclosure. We charge to expense any subsequent adjustments to net realizable value. Upon foreclosure, Old Line Bank generally requires an appraisal of the property and, thereafter, appraisals of the property on at least an annual basis and external inspections on at least a quarterly basis. As of June 30, 2007 and December 31, 2006, we held no real estate acquired as a result of foreclosure.

We apply the provisions of Statement of Financial Accounting Standards No. 114 (“SFAS No. 114”),Accounting by Creditors for Impairment of a Loan,as amended by Statement of Financial Accounting Standards No. 118 (“SFAS No. 118”),Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure.SFAS No. 114 and SFAS No. 118 require that impaired loans, which consist of all modified loans and other loans for which collection of all contractual principal and interest is not probable, be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, we recognize impairment through a valuation allowance and corresponding provision for loan losses. Old Line Bank considers consumer loans as homogenous loans and thus does not apply the SFAS No. 114 impairment test to these loans. We write off impaired loans when collection of the loan is doubtful.

As of June 30, 2007 and December 31, 2006, we had no impaired or restructured loans.

Bank owned life insurance

Deposits

We seek deposits within our market area by paying competitive interest rates, offering high quality customer service and using technology to deliver deposit services effectively.

At June 30, 2007, the deposit portfolio had grown to $181.3 million, an $11.6 million or 6.84% increase over the December 31, 2006 level of $169.7 million. Non-interest bearing deposits declined $2.6 million during the period to $35.4 million from $38.0 million primarily due to a decline in balances in commercial checking accounts as well as in title company accounts and the transfer of funds to interest bearing accounts. Interest-bearing deposits grew $14.2 million to $145.9 million from $131.7 million. The majority of the growth in interest-bearing deposits was in money market and certificates of deposit. Money market accounts grew from $29.4 million at December 31, 2006 to $34.5 million at June 30, 2007. Certificates of deposit grew $12.5 million or 13.19% to $107.3 million from $94.8 million. The growth in these deposits was offset by a $3.1 million decline in savings accounts. Certificates of deposit and money market accounts grew due to new customer relationships and the transfer of funds from savings accounts.

In the first quarter of 2006, we began acquiring brokered certificates of deposit through the Promontory Interfinancial Network. Through this deposit matching network and its certificate of deposit account registry service (CDARS), we obtained the ability to offer our customers access to FDIC-insured deposit products in aggregate amounts exceeding current insurance limits. When we place funds through CDARS on behalf of a customer, we receive matching deposits through the network. At June 30, 2007, we had $28.2 million in CDARS compared to $15.8 million at December 31, 2006. At June 30, 2007, we had $9.9 million in brokered certificates of deposit a $61,000 decrease over the December 31, 2006, balance of $10.1 million.

During the six and three months ended June 30, 2007, we saw growth in total deposits because of the opening of the Greenbelt branch in June 2007, the opening of the Bowie branch in July 2006 and the successful business development efforts of our branch staff, lending personnel and Board of Directors. We did experience a shift in deposits from non-interest bearing, money market and savings accounts to interest bearing certificates of deposit and to our commercial sweep service (outlined below) as our customers began looking for higher yields. This coupled with the continued slow down in real estate settlements caused a lower level of balances on deposit in non-interest bearing accounts. We expect the balances in non-interest bearing accounts will improve as the year progresses.

Borrowings

Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks totaling $27.8 million as of June 30, 2007. Old Line Bank has an additional secured line of credit from the Federal Home Loan Bank of Atlanta (FHLB) that totaled $65.9 million at June 30, 2007 and $53.8 million at December 31, 2006. Of this, we had borrowed $3 million at June 30, 2007 and $5 million as of December 31, 2006.

Short-term borrowings consisted of short-term promissory notes issued to Old Line Bank’s customers, federal funds purchased and advances from the FHLB. Old Line Bank offers its commercial customers an enhancement to the basic non-interest bearing demand deposit account. This service electronically sweeps excess funds from the customer’s account into an interest bearing Master Note with Old Line Bank. These Master Notes re-price daily and have maturities of 270 days or less. At June 30, 2007, Old Line Bank had $19.4 million outstanding in these short term promissory notes with an average interest rate of 3.74%. At December 31, 2006, Old Line Bank had $7.2 million outstanding with an average interest rate of 3.46%. At June 30, 2007 and December 31, 2006, Old Line Bank did not have any borrowings in overnight federal funds with the FHLB. On December 31, 2006, Old Line Bank had $2 million outstanding in short term advances from the FHLB. On July 16, 2006, Old Line Bank borrowed $2 million from the FHLB at an interest rate of 5.65% monthly. We paid this balance in full on January 16, 2007.

At June 30, 2007 and December 31, 2006, long term borrowings were one advance from the FHLB. On July 20, 2006, Old Line Bank borrowed $3.0 million and pays interest at 5.328% each January, April, July and October. The balance was due in full on July 20, 2009. The FHLB had the one-time option to terminate the transaction and require payment in full on July 20, 2007. The FHLB exercised its option to terminate the transaction and we paid the borrowings in full on July 20, 2007.

Interest Rate Sensitivity Analysis and Interest Rate Risk Management

A principal objective of Old Line Bank’s asset/liability management policy is to minimize exposure to changes in interest rates by an ongoing review of the maturity and re-pricing of interest-earning assets and interest-bearing liabilities. The Asset and Liability Committee of the Board of Directors oversees this review.

The Asset and Liability Committee establishes policies to control interest rate sensitivity. Interest rate sensitivity is the volatility of a bank’s earnings resulting from movements in market interest rates. Management monitors rate sensitivity in order to reduce vulnerability to interest rate fluctuations while maintaining adequate capital levels and acceptable levels of liquidity. Monthly financial reports supply management with information to evaluate and manage rate sensitivity and adherence to policy. Old Line Bank’s asset/liability policy’s goal is to manage assets and liabilities in a manner that stabilizes net interest income and net economic value within a broad range of interest rate environments. Management makes adjustments to the mix of assets and liabilities periodically in an effort to achieve dependable, steady growth in net interest income regardless of the behavior of interest rates in general.

As part of the interest rate risk sensitivity analysis, the Asset and Liability Committee examines the extent to which Old Line Bank’s assets and liabilities are interest rate sensitive and monitors the interest rate sensitivity gap. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. The interest rate sensitivity gap is the difference between interest-earning assets and interest-bearing liabilities scheduled to mature or re-price within such time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of declining interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If re-pricing of assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

Old Line Bank currently has a negative gap over the short term, which suggests that the net yield on interest earning assets may decrease during periods of rising interest rates. However, a simple interest rate “gap” analysis by itself may not be an accurate indicator of how changes in interest rates will affect net interest income. Changes in interest rates may not uniformly affect income associated with interest-earning assets and costs associated with interest-bearing liabilities. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In the event of a change in interest rates, prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest-rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest rate increase.

Liquidity

Our overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff. Our management monitors the liquidity position daily in conjunction with Federal Reserve guidelines. We have credit lines unsecured and secured available from several correspondent banks totaling $27.8 million. Additionally, we may borrow funds from the Federal Home Loan Bank of Atlanta. We can use these credit facilities in conjunction with the normal deposit strategies, which include pricing changes to increase deposits as necessary. We can also sell or pledge available for sale investment securities to create additional liquidity. From time to time we may sell or participate out loans to create additional liquidity as required. Additional sources of liquidity include funds held in time deposits and cash from the investment and loan portfolios.

Our immediate sources of liquidity are cash and due from banks and federal funds sold. On June 30, 2007, we had $5.0 million in cash and due from banks, and $32.9 million in federal funds sold and overnight investments. As of December 31, 2006, we had $5.1 million in cash and due from banks, and $34.5 million in federal funds sold and other overnight investments. As we continue to deploy these proceeds into loans, we anticipate these balances will decline.

Old Line Bank has sufficient liquidity to meet its loan commitments as well as fluctuations in deposits. We usually retain maturing certificates of deposit as we offer competitive rates on certificates of deposit. Management is not aware of any demands, trends, commitments, or events that would result in Old Line Bank’s inability to meet anticipated or unexpected liquidity needs.

Capital

Our stockholders’ equity amounted to $35.4 million at June 30, 2007 and $34.8 million at December 31, 2006. We are considered “well capitalized” under the risk-based capital guidelines adopted by the Federal Reserve. Stockholders’ equity increased during the six month period because of net income of $735,202, plus the $125,540 adjustment for stock based compensation awards and proceeds from stock options exercised, and the $5,723 unrealized gain in available for sale securities less the $255,276 in dividends paid in March and June.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

Old Line Bancshares, Inc. is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments primarily include commitments to extend credit, lines of credit and standby letters of credit. Old Line Bancshares, Inc. uses these financial instruments to meet the financing needs of its customers. These financial instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These do not represent unusual risks and management does not anticipate any losses which would have a material effect on Old Line Bancshares, Inc. Old Line Bancshares, Inc. also has operating lease obligations.

Old Line Bancshares, Inc.’s guaranty obligation made in connection with Pointer Ridge’s mortgage loan, outlined below, also creates off-balance sheet risk, as further described below.

Outstanding loan commitments and lines and letters of credit at June 30, 2007 and December 31, 2006, are as follows:


	June 30,		December 31,
	2007		2006
	(Dollars in thousands)
Commitments to extend credit and available credit lines:
Commercial	$	14,548	$	13,095
Real estate-undisbursed development and construction		27,200		27,295
Real estate-undisbursed home equity lines of credit		5,295		4,525


	$	47,043	$	44,915


Standby letters of credit	$	1,389	$	1,515

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Old Line Bancshares, Inc. generally requires collateral to support financial instruments with credit risk on the same basis as it does for on-balance sheet instruments. The collateral is based on management’s credit evaluation of the counter party. Commitments generally have interest rates fixed at current market rates, expiration dates or other termination clauses and may require payment of a fee. Available credit lines represent the unused portion of lines of credit previously extended and available to the customer so long as there is no violation of any contractual condition. These lines generally have variable interest rates. Since many of the commitments are expected to expire without being drawn upon, and since it is unlikely that customers will draw upon their lines of credit in full at any time, the total commitment amount or line of credit amount does not necessarily represent future cash requirements. Each customer’s credit-worthiness is evaluated on a case-by-case basis. We are not aware of any loss that we would incur by funding our commitments or lines of credit.

Commitments for real estate development and construction, which totaled $27.2 million, or 57.87% of the $47.0 million, are generally short-term and turn over rapidly with principal repayment from permanent financing arrangements upon completion of construction or from sales of the properties financed.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Our exposure to credit loss in the event of nonperformance by the customer is the contract amount of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

On August 25, 2006, Pointer Ridge entered into a loan agreement with an unrelated bank, pursuant to which the bank agreed to make a mortgage loan to Pointer Ridge in a principal amount of $6.6 million to finance the commercial office building at 1525 Pointer Ridge Place, Bowie, Maryland. We lease approximately half of this building for our main office and operate a branch of Old Line Bank from this address. Old Line Bancshares, Inc. has a 50% ownership in Pointer Ridge and we record this investment on the equity method.

The Amended Promissory Note provides that the loan will accrue interest from the date of the Amended Promissory Note through September 5, 2016 at a rate of 6.28% (“Initial Term Interest Rate”). After September 5, 2016, the interest rate will adjust to the greater of (i) the Initial Term Interest Rate plus 200 basis points or (ii) the Treasury Rate (as defined in the Amended Promissory Note) plus 200 basis points.

Payments on the Amended Promissory Note began October 5, 2006. For the first 12 months, Pointer Ridge will pay to the lender an installment of interest only. Commencing with the 13^th payment and continuing until August 5, 2036, Pointer Ridge will pay equal monthly payments of principal and interest based on a 30-year amortization. There is a prepayment penalty if Pointer Ridge prepays the loan prior to September 5, 2016. At June 30, 2007, Pointer Ridge had borrowed $6.6 million under the Amended Promissory Note.

On August 25, 2006, Old Line executed a new Guaranty Agreement with the lender that was effective upon Pointer Ridge’s execution of the Amended Promissory Note and Amended Deed of Trust. Pursuant to the terms of the guaranty, Old Line has guaranteed the payment to the lender of up to 50% of the loan amount plus any costs incurred by the lender resulting from any acts, omissions or alleged acts or omissions arising out of or relating to: (1) the misapplication or misappropriation by Pointer Ridge of any or all money collected, paid or received; (2) rents, issues, profits and revenues of all or any portion of the property located at 1525 Pointer Ridge Place, Bowie, Maryland (the “Security Property”) received or applicable to a period after the occurrence of any Event of Default which are not applied to pay, first (a) real estate taxes and other charges which, if unpaid, could result in liens superior to that of the Amended Deed of Trust and (b) premiums on insurance policies required under the loan documents, and, second, the other ordinary and necessary expenses of owning and operating the Security Property; (3) waste committed on the Security Property or damage to the Security Property as a result of intentional misconduct or gross negligence or the removal of all or any portion of the Security Property in violation of the terms of the loan documents; (4) fraud or material misrepresentation or failure to disclose a material fact; (5) the filing of any petition for bankruptcy; or (6) Pointer Ridge’s failure to maintain its status as a single purpose entity as required by the loan documents.

We do not believe that we will incur any obligations under the guaranty. If we were to become obligated under the guaranty, we do not believe that it would have any material effect on our liquidity or capital resources.

Reconciliation of Non-GAAP Measures

Below is a reconciliation of the FTE adjustments and the GAAP basis information presented in this report:

Six months ended June 30, 2007


													Net
	Federal Funds			Investment			Interest			Net Interest			Interest
	Sold			Securities			Earning Assets			Income			Spread
GAAP interest income	$	754,954		$	344,914		$	6,951,147		$	3,948,638
Tax equivalent adjustment		19,100			36,059			55,159			55,159

Tax equivalent interest income	$	774,054		$	380,973		$	7,006,306		$	4,003,797


GAAP interest yield		5.25	%		3.86	%		6.86	%		3.90	%		2.82	%
Taxable equivalent adjustment		0.13	%		0.41	%		0.05	%		0.05	%		0.05	%

Tax equivalent interest yield		5.38	%		4.27	%		6.91	%		3.95	%		2.87	%

Six months ended June 30, 2006


	Federal												Net
	Funds			Investment			Interest			Net Interest			Interest
	Sold			Securities			Earning Assets			Income			Spread
GAAP interest income	$	761,967		$	309,601		$	5,022,307		$	3,443,251
Tax equivalent adjustment		19,940			32,655			52,595			52,595

Tax equivalent interest income	$	781,907		$	342,256		$	5,074,902		$	3,495,846


GAAP interest yield		4.68	%		3.38	%		6.21	%		4.27	%		3.22	%
Taxable equivalent adjustment		0.10	%		0.32	%		0.03	%		0.03	%		0.04	%

Tax equivalent interest yield		4.78	%		3.70	%		6.24	%		4.30	%		3.26	%

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, and may frequently reflect government policy initiatives or economic factors not measured by price index. As discussed above, we strive to manage our interest sensitive assets and liabilities in order to offset the effects of rate changes and inflation.

Application of Critical Accounting Policies

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. We base these estimates, assumptions, and judgments on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. We base the fair values and the information used to record valuation adjustments for certain assets and liabilities on quoted market prices or from information other third-party sources provide, when available.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the provision for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for loan losses, including in connection with the valuation of collateral and the financial condition of the borrower, and in establishing loss ratios and risk ratings. The establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance based upon the same volume and classification of loans.

Changes in allowance factors or in management’s interpretation of those factors will have a direct impact on the amount of the provision, and a corresponding effect on income and assets. Also, errors in management’s perception and assessment of the allowance factors could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs, which would adversely affect income and capital. For additional information regarding the allowance for loan losses, see “Provision for Loan Losses”.

Information Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may also include forward-looking statements in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. Forward-looking statements often use words such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,” “contemplate,” “anticipate,” “forecast,” “intend” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

The statements presented herein with respect to, among other things, Old Line Bancshares, Inc.’s plans, objectives, expectations and intentions, including statements regarding profitability and expenses, earnings, liquidity, the allowance for loan losses, expected loan growth, interest rate sensitivity, changes in our net interest margin, market risk, financial and other goals and plans, the expected costs and benefits of new facilities and personnel, anticipated new hires, expected openings of new branches and market expansion, earnings on BOLI, customer growth and expected demand in the commercial real estate market are forward looking. Old Line Bancshares, Inc. bases these statements on our beliefs, assumptions and on information available to us as of the date of this filing, which involves risks and uncertainties. These risks and uncertainties include, among others those discussed in this report; the ability of Old Line Bancshares, Inc. to retain key personnel; the ability of Old Line Bancshares, Inc. to successfully implement its growth and expansion strategy; risk of loan losses; risks associated with the marine brokerage division; that the allowance for loan losses may not be sufficient; that changes in interest rates and monetary policy could adversely affect Old Line Bancshares, Inc.; that changes in regulatory requirements and/or restrictive banking legislation may adversely affect Old Line Bancshares, Inc.; that the market value of investments could negatively impact stockholders’ equity; risks associated with Old Line Bancshares, Inc.’s lending limit; increased expenses due to stock benefit plans; expenses associated with operating as a public company; potential conflicts of interest associated with the interest in Pointer Ridge; and changes in economic, competitive, governmental, regulatory, technological and other factors which may affect Old Line Bancshares, Inc. specifically or the banking industry generally. For a more complete discussion of some of these risks and uncertainties see “Factors Affecting Future Results” in Old Line Bancshares, Inc.’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

Old Line Bancshares, Inc.’s actual results and the actual outcome of our expectations and strategies could differ materially from those anticipated or estimated because of these risks and uncertainties and you should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and Old Line Bancshares, Inc. undertakes no obligation to update the forward-looking statements to reflect factual assumptions, circumstances or events that have changed after we have made the forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. Due to the nature of our operations, only interest rate risk is significant to our consolidated results of operations or financial position. For information regarding our Quantitative and Qualitative Disclosure about Market Risk, see “Interest Rate Sensitivity Analysis and Interest Rate Risk Management” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, Old Line Bancshares, Inc.’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Old Line Bancshares, Inc.’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, Old Line Bancshares, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that Old Line Bancshares, Inc.’s disclosure controls and procedures are effective as of June 30, 2007. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Old Line Bancshares, Inc. in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In addition, there were no changes in Old Line Bancshares, Inc.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, Old Line Bancshares, Inc.’s internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

(a) Old Line Bancshares, Inc. held its annual meeting of stockholders on May 24, 2007.

(b) At the annual meeting, James W. Cornelsen, Daniel W. Deming, James F. Dent and John D. Mitchell, Jr. were elected to serve a three-year term expiring upon the date of Old Line Bancshares, Inc.’s 2010 Annual Meeting and John M. Suit, II was elected to serve the remainder of a three year term expiring in 2009. The term of office of the following directors continued after the meeting:

Term Expiring at 2008 Annual Meeting
Craig E. Clark
Gail D. Manuel
Gregory S. Proctor, Jr.
Suhas R. Shah

Term Expiring at 2009 Annual Meeting
Charles A. Bongar, Jr.
Nancy L. Gasparovic
Frank Lucente, Jr.

(c) 1. The following individuals were nominees for the Board of Directors for a term to expire at the 2010 Annual Meeting. The number of votes for or withheld for each nominee was as follows:


	For		Withheld		Total
James W. Cornelsen		3,858,159.5		11,046.0		3,869,205.5
James F. Dent		3,858,159.5		11,046.0		3,869,205.5
Daniel W. Deming		3,858,159.5		11,046.0		3,869,205.5
John D. Mitchell, Jr.		3,858,159.5		11,046.0		3,869,205.5

John M. Suit, II was elected to serve the remainder of a three year term expiring in 2009. The number of votes for or withheld for John M. Suit, II was as follows:


For		Withheld		Total
	3,826,359.5.5		42,846.0		3,869,205.5

2. Votes were cast to ratify the appointment of Rowles & Company, LLP as independent public accountants to audit the financial statements of Old Line Bancshares, Inc. for 2007 as follows:


For	Against		Abstain		Broker Non-Votes		Total
3,862,465.5		4,050.0		2,690.0		0		3,869,205.5

Item 5. Other Information

None

Item 6. Exhibits

	31.1		Rule 13a-14(a) Certification of Chief Executive Officer

	31.2		Rule 13a-14(a) Certification of Chief Financial Officer

	32		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Old Line Bancshares, Inc.

Date: August 9, 2007	By:	/s/ James W. Cornelsen

		James W. Cornelsen,
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 9, 2007	By:	/s/ Christine M. Rush

		Christine M. Rush,
		Executive Vice President and Chief Financial Officer
		(Principal Accounting and Financial Officer)

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Legalese
Litigous
Readability	8th grade Good

Old Line Bancshares (OLBK) 10-Q2007 Q2 Quarterly report

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