Old Line Bancshares 10Q 2011 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

	For the quarterly period ended June 30, 2011

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

Commission File Number: 000-50345

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

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

	1525 Pointer Ridge Place	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.

Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes R No £

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

Yes £ No R

As of July 30, 2011, the registrant had 6,809,594 shares of common stock outstanding.

Part I. Financial Information

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Balance Sheets

	June 30, 2011		December 31, 2010
	(Unaudited)
Assets
Cash and due from banks	$	48,628,138	$	14,325,266
Interest bearing accounts		102,921		109,170
Federal funds sold		264,506		180,536
Total cash and cash equivalents		48,995,565		14,614,972
Time deposits in other banks		-		297,000
Investment securities available for sale		144,694,675		33,049,795
Investment securities held to maturity		-		21,736,469
Loans, less allowance for loan losses		500,370,124		299,606,430
Equity securities at cost		3,402,531		2,562,750
Premises and equipment		22,163,745		16,867,561
Accrued interest receivable		2,278,496		1,252,970
Prepaid income taxes		1,042,054		189,523
Deferred income taxes		6,963,981		265,551
Bank owned life insurance		16,377,113		8,703,175
Prepaid pension		1,315,642		-
Other real estate owned		3,947,340		1,153,039
Goodwill		116,723		-
Core deposit intangible		4,808,242		-
Other assets		2,935,860		1,610,715
Total assets	$	759,412,091	$	401,909,950

Liabilities and Stockholders' Equity
Deposits
Non-interest bearing	$	160,538,320	$	67,494,744
Interest bearing		486,450,237		273,032,442
Total deposits		646,988,557		340,527,186
Short term borrowings		26,153,000		5,669,332
Long term borrowings		16,328,337		16,371,947
Accrued interest payable		391,294		434,656
Accrued pension		4,527,294		673,048
Other liabilities		1,193,613		575,031
Total liabilities		695,582,095		364,251,200

Stockholders' equity
Common stock, par value $0.01 per share; authorized 15,000,000 shares;
issued and outstanding 6,809,594 in 2011 and 3,891,705 in 2010		68,096		38,917
Additional paid-in capital		53,411,845		29,206,617
Retained earnings		8,896,285		7,535,268
Accumulated other comprehensive income		937,973		272,956
Total Old Line Bancshares, Inc. stockholders' equity		63,314,199		37,053,758
Non-controlling interest		515,797		604,992
Total stockholders' equity		63,829,996		37,658,750
Total liabilities and stockholders' equity	$	759,412,091	$	401,909,950

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

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

	Three Months Ended June 30,						Six Months Ended June 30,

	2011			2010			2011			2010
Interest revenue
Loans, including fees	$	7,741,299		$	4,045,643		$	11,937,165		$	7,998,999
U.S. Treasury securities		2,407			-			2,407			-
U.S. government agency securities		93,511			36,142			119,628			90,697
Mortgage backed securities		762,080			398,261			1,141,498			673,477
Municipal securities		223,107			20,727			242,811			40,360
Federal funds sold		2,334			1,543			4,165			2,186
Other		49,234			71,487			74,160			158,213
Total interest revenue		8,873,972			4,573,803			13,521,834			8,963,932
Interest expense
Deposits		1,191,712			999,436			2,067,688			1,974,365
Borrowed funds		211,086			281,189			395,709			554,733
Total interest expense		1,402,798			1,280,625			2,463,397			2,529,098
Net interest income		7,471,174			3,293,178			11,058,437			6,434,834
Provision for loan losses		50,000			170,000			200,000			240,000
Net interest income after provision for loan losses		7,421,174			3,123,178			10,858,437			6,194,834
Non-interest revenue
Service charges on deposit accounts		396,785			78,411			479,235			153,231
Gains (losses) on sales of investment securities		2,489			-			40,559			-
Permanent impairment on equity securities		(122,500	)		-			(122,500	)		-
Earnings on bank owned life insurance		122,350			83,985			201,388			170,108
Loss on disposal of assets		(14,155	)		-			(14,155	)		-
Other fees and commissions		132,362			108,657			257,684			240,603
Total non-interest revenue		517,331			271,053			842,211			563,942
Non-interest expense
Salaries		2,177,222			1,130,944			3,311,009			2,296,359
Employee benefits		796,512			317,803			1,163,436			667,938
Occupancy		686,897			319,051			1,052,920			652,457
Equipment		170,484			99,152			264,375			206,028
Data processing		233,332			105,074			363,082			199,500
FDIC insurance and State of Maryland assessments		167,312			115,553			318,816			230,668
Merger and integration		377,214			-			467,274			-
Core deposit premium		194,675			-			194,675			-
Other operating		1,361,794			522,337			1,957,029			1,051,746
Total non-interest expense		6,165,442			2,609,914			9,092,616			5,304,696

Income before income taxes		1,773,063			784,317			2,608,032			1,454,080
Income taxes		656,357			270,063			991,600			500,132
Net income		1,116,706			514,254			1,616,432			953,948
Less: Net income (loss) attributable to the noncontrolling interest		(66,239	)		(15,843	)		(89,195	)		(40,683	)
Net income available to common stockholders	$	1,182,945		$	530,097		$	1,705,627		$	994,631

Basic earnings per common share	$	0.17		$	0.14		$	0.30		$	0.26
Diluted earnings per common share	$	0.17		$	0.14		$	0.30		$	0.26
Dividend per common share	$	0.03		$	0.03		$	0.06		$	0.06

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

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2011
(Unaudited)

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

Balance, December 31, 2010		3,891,705	$	38,917	$	29,206,617		$	7,535,268		$	272,956			$	604,992
Net income attributable to Old Line Bancshares, Inc.		-		-		-			1,705,627			-	$	1,705,627		-
Unrealized gain on
securities available for sale, net of income tax benefit of $342,584		-		-		-			-			665,017		665,017		-
Comprehensive income		-		-		-			-			-	$	2,370,644		-
Acquisition Maryland Bankcorp, Inc.		2,132,231		21,322		17,805,425			-			-				-
Net income attributable to non-controlling interest		-		-		-			-			-				(89,195	)
Distributions to minority member(s)		-		-		-			-			-				-
Stock based compensation awards		-		-		74,816			-			-				-
Restricted stock issued		8,786		88		(88	)		-			-				-
Private placement - common stock		776,872		7,769		6,325,075			-			-				-
Common stock cash dividend $0.06 per share		-		-		-			(344,610	)		-				-
Balance, June 30, 2011		6,809,594	$	68,096	$	53,411,845		$	8,896,285		$	937,973			$	515,797

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

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,	2011			2010

Cash flows from operating activities
Interest received	$	13,756,800		$	8,941,021
Fees and commissions received		594,677			420,723
Interest paid		(2,567,541	)		(2,585,934	)
Cash paid to suppliers and employees		(6,495,772	)		(4,447,524	)
Income taxes paid		(84,234	)		(740,843	)
		5,203,930			1,587,443
Cash flows from investing activities
Cash and cash equivalents of acquired bank		41,967,182			-
Net change in time deposits in other banks		297,000			4,651,245
Purchase of investment securities
Held to maturity		-			(20,316,548	)
Available for sale		(34,856,352	)		(3,140,625	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call		-			1,513,869
Held to maturity sold		488,457			-
Gain (loss) on sale of held to maturity		25,622			-
Available for sale at maturity or call		595,000			4,454,506
Available for sale sold		17,296,682			-
Gain (loss) on sale of available for sale		14,937			-
Loans made, net of principal collected		(10,923,129	)		(21,247,839	)
Redemption (Purchase) of equity securities		612,903			210,000
Purchase of premises, equipment and software		(1,330,463	)		(265,700	)
		14,187,839			(34,141,092	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits		(37,252,463	)		5,177,927
Other deposits		47,514,823			27,253,358
Increase in short term borrowings		(217,321	)		17,640,314
Decrease in long term borrowings		(43,610	)		(40,969	)
Acquisition cash consideration		(1,000,839	)		-
Restriced stock options exercised		-			-
Private placement - common stock		6,332,844			-
Cash dividends paid-common stock		(344,610	)		(232,799	)
Distributions to minority members		-			(9,336	)
		14,988,824			49,788,495

Net increase (decrease) in cash and cash equivalents		34,380,593			17,234,846

Cash and cash equivalents at beginning of period		14,614,972			11,436,587
Cash and cash equivalents at end of period	$	48,995,565		$	28,671,433

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

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

Six Months Ended June 30,	2011			2010

Reconciliation of net income to net cash
provided by operating activities
Net income	$	1,616,432		$	953,948

Adjustments to reconcile net income to net
cash provided by operating activities

Depreciation and amortization		477,210			403,846
Provision for loan losses		200,000			240,000
Change in deferred loan fees net of costs		(174,375	)		(26,549	)
Gain on sale of securities		(40,559	)		-
Amortization of premiums and discounts		305,879			110,953
Other than temporary impairment		122,500			-
Gain on sale of fixed assets		14,155			-
Amortization of intangible		194,675			-
Deferred income taxes		258,242			(36,710	)
Stock based compensation awards		74,816			66,252
Increase (decrease) in
Accrued interest payable		(104,144	)		(56,836	)
Income tax payable		-			(175,543	)
Other liabilities		(920,163	)		186,322
Decrease (increase) in
Accrued interest receivable		103,462			(107,315	)
Bank owned life insurance		(169,587	)		(143,219	)
Prepaid pension		523,856			-
Prepaid income taxes		649,124			(28,458	)
Other assets		2,072,407			200,752
	$	5,203,930		$	1,587,443

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

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

Six Months Ended June 30,	2011			2010

Supplemental Disclosure:
Loans transferred to other real estate owned	$	140,000		$	223,169

Fair value of assets and liabilities from acquisition:
Cash	$	41,967,182		$	-
Investments		71,434,005			-
Loans		190,826,040			-
Restricted stock		1,575,184			-
Premises and equipment		4,457,086			-
Accrued interest		1,128,988			-
Prepaid assets		1,231,029			-
Deferred tax		7,865,514			-
Bank owned life insurance		7,504,351
Prepaid pension costs		1,315,642			-
Other real estate owned		1,834,451			-
Core deposit intangible		5,002,917			-
Other assets		3,397,552			-
Deposits		(297,506,000	)		-
Short term borrowings		(19,394,000	)		-
Accrued interest payable		(60,782	)		-
Accrued pension acquired		(3,330,390	)		-
Other liabilities		(1,538,745	)		-
Purchase price in excess of net assets acquired	$	116,723		$	-

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

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.’s 12.5% membership interest in Pointer Ridge Office Investment, LLC (Pointer Ridge), a real estate investment company. The effective date of the purchase was November 1, 2008. As a result of this purchase, our membership interest increased from 50.0% to 62.5%. Consequently, we consolidated Pointer Ridge’s results of operations from the date of acquisition. Prior to the date of acquisition, we accounted for our investment in Pointer Ridge using the equity method.

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

We report the non-controlling interests in Pointer Ridge separately in the consolidated balance sheet. We report the income of Pointer Ridge attributable to Old Line Bancshares on the consolidated statement of income.

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, 2010 from audited financial statements. These statements should be read in conjunction with Old Line Bancshares’ financial statements and accompanying notes included in Old Line Bancshares’ Form 10-K for the year ended December 31, 2010. We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-K.

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

Reclassifications-We have made certain reclassifications to the 2010 financial presentation to conform to the 2011 presentation.

Subsequent Events-We evaluated subsequent events after June 30, 2011 through August 10, 2011, the date this report was available to be issued. No significant subsequent events were identified which would affect the presentation of the financial statements.

2.	ACQUISITION OF MARYLAND BANKCORP, INC.

On April 1, 2011, Old Line Bancshares acquired Maryland Bankcorp, Inc. (Maryland Bankcorp) the parent company of Maryland Bank & Trust Company, N.A. (MB&T). Pursuant to the merger agreement between Old Line Bancshares and Maryland Bankcorp, we converted each share of common stock of Maryland Bankcorp into the right to receive, at the holder’s election, $29.11 in cash or 3.4826 shares of Old Line Bancshares’ common stock. We paid cash for any fractional shares of Old Line Bancshares’ common stock and aggregate cash consideration of $1.0 million. The total merger consideration was $18.8 million.

In connection with the acquisition, MB&T was merged with and into Old Line Bank, with Old Line Bank the surviving bank.

As required by the acquisition method of accounting, we have adjusted the acquired assets and liabilities of Maryland Bankcorp to their estimated fair value on the date of acquisition and added them to those of Old Line Bancshares. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which we have based on estimates and assumptions that are subject to change, we have allocated the preliminary purchase price for Maryland Bankcorp as follows (in thousands):

	Fair Value April 1, 2011
Cash and cash equivalents	$	41,967
Investment securities		71,434
Loans		190,826
Restricted equity securities		1,575
Premises and equipment		4,457
Accrued interest receivable		1,129
Prepaid taxes		1,231
Deferred income taxes		7,866
Bank owned life insurance		7,504
Prepaid pension costs		1,317
Other real estate owned		1,836
Other assets		3,403
Deposits		(297,506	)
Short term borrowings		(19,394	)
Deferred compensation		(3,330	)
Accrued expenses & liabilities		(1,600	)
Net tangible assets acquired		12,715
Definite lived intangible assets acquired		5,003
Goodwill		117
Net intangible assets acquired		5,120
Cash consideration		1,000
Total purchase price	$	18,835

Prior to the end of the measurement period, if information becomes available which indicates the purchase price allocations require adjustments, we will include such adjustments in the purchase price allocation retrospectively.

Of the total estimated purchase price, we have allocated an estimate of $12.7 million to net tangible assets acquired and we have allocated $5.0 million to the core deposit intangible which is a definite lived intangible asset. We have allocated the remaining purchase price to goodwill. We will amortize the core deposit intangible on an accelerated basis over its estimated useful life of 18 years. We will evaluate goodwill annually for impairment.

2.	ACQUISITION OF MARYLAND BANKCORP, INC. (Continued)

Pro Forma Results

The following schedule includes consolidated statements of income data for the unaudited pro forma results for the periods ended June 30, 2011 and 2010 as if the MB&T acquisition had occurred as of the beginning of the periods presented.

	Six Months Ended June 30,
	2011		2010
Net interest income	$	11,058	$	12,950
Other non-interest revenue		842		1,735
Total revenue		11,900		14,685
Provision expense		200		200
Other non-interest expense		8,607		12,816
Income before income taxes		3,093		1,669
Income tax expense		1,145		618
Net income	$	1,917	$	1,034
Basic earnings per share		0.29		0.17
Diluted earnings per share		0.29		0.17

We have not included any provision for loan losses during the period for loans acquired from MB&T. In accordance with accounting for business combinations, we included the credit losses evident in the loans in the determination of the fair value of loans at the date of acquisition and eliminated the allowance for loan losses maintained by MB&T at acquisition date.

We have presented the pro forma financial information for illustrative purposes only and it is not necessarily indicative of the financial results of the combined companies if we had actually completed the acquisition at the beginning of the periods presented, nor does it indicate future results for any other interim or full year period. Pro forma basic and diluted earnings per common share were calculated using Old Line Bancshares’ actual weighted average shares outstanding for the periods presented, plus the incremental shares issued, assuming the acquisition occurred at the beginning of the periods presented.

3.	INVESTMENT SECURITIES

As Old Line Bank 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. During the 2nd quarter of 2011, Old Line Bank sold $487,046 in investments that we previously classified as held to maturity. As required, all securities held at that time and previously classified as held to maturity were reclassified as available for sale.

3.	INVESTMENT SECURITIES (Continued)

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

June 30, 2011	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Available for sale
U. S. Treasury	$	1,246,980	$	8,395	$	-		$	1,255,375
U.S. government agency		23,176,100		177,493		(2,500	)		23,351,093
Municipal securities		22,479,426		558,664		(375	)		23,037,715
Mortgage backed		95,037,339		2,013,317		(164	)		97,050,492
	$	141,939,845	$	2,757,869	$	(3,039	)	$	144,694,675

December 31, 2010
Available for sale
U.S. government agency	$	3,716,858	$	90,881	$	(3,942	)	$	3,803,797
Municipal securities		1,302,630		24,746		(169	)		1,327,207
Mortgage backed		27,579,549		519,919		(180,677	)		27,918,791
	$	32,599,037	$	635,546	$	(184,788	)	$	33,049,795

Held to maturity
Municipal securities	$	983,783	$	11,569	$	(39,568	)	$	955,784
Mortgage-backed		20,752,686		290,747		(33,636	)		21,009,797
	$	21,736,469	$	302,316	$	(73,204	)	$	21,965,581

3.	INVESTMENT SECURITIES (Continued)

As of June 30, 2011, securities with unrealized losses segregated by length of impairment were as follows:

June 30, 2011	Fair value		Unrealized losses
Unrealized losses less than 12 months
U.S. government agency	$	2,497,500	$	(2,500	)
Municipal securities		-		-
Mortgage backed		1,536,096		(164	)
Total unrealized losses less than 12 months		4,033,596		(2,664	)

Unrealized losses greater than 12 months
U.S. government agency		-		-
Municipal securities		200,020		(375	)
Mortgage backed		-		-
Total unrealized losses greater than 12 months		200,020		(375	)

Total unrealized losses
U.S. government agency		2,497,500		(2,500	)
Municipal securities		200,020		(375	)
Mortgage backed		1,536,096		(164	)
Total unrealized losses	$	4,233,616	$	(3,039	)

We consider all unrealized losses on securities as of June 30, 2011 to be temporary losses because we will redeem each security at face value at or prior to maturity. We have the ability and intent to hold these securities until recovery or maturity. As of June 30, 2011, we do not have the intent to sell any of the securities classified as available for sale and believe that it is more likely than not that we will not have to sell any such securities before a recovery of cost. In most cases, market interest rate fluctuations cause a temporary impairment in value. We expect the fair value to recover as the investments approach their maturity date or repricing date or if market yields for these investments decline. We do not believe that credit quality caused the impairment in any of these securities. Because we believe these impairments are temporary, we have not realized any loss in our consolidated statement of income.

Although we do not have any intent to sell specific securities, as a result of the acquisition of Maryland Bankcorp, we are currently in the process of reevaluating the investment portfolio to ensure that the securities acquired in the acquisition meet our investment criteria and provide adequate liquidity. This may cause us to sell or reclassify securities.

In the three and six month periods ended June 30, 2010, we did not record any gains or losses from the sale of securities. In the three and six month periods ended June 30, 2011, we recorded gross realized gains of $2,489 and $40,559 from the sale of securities.

3.	INVESTMENT SECURITIES (Continued)

Contractual maturities and pledged securities at June 30, 2011 are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. We classify mortgage backed securities based on maturity date. However, we receive payments on a monthly basis.

	Available for Sale
June 30, 2011	Amortized cost		Fair value

Maturing
Within one year	$	1,609,983	$	1,627,146
Over one to five years		16,851,521		17,031,281
Over five to ten years		33,397,587		34,211,559
Over ten years		90,080,754		91,824,689
	$	141,939,845	$	144,694,675
Pledged securities	$	29,056,076	$	29,471,678

4.	POINTER RIDGE OFFICE INVESTMENT, LLC

In 2008, we purchased Chesapeake Custom Homes, L.L.C.’s 12.5% membership interest in Pointer Ridge. As a result of this purchase, we own 62.5% of Pointer Ridge and consolidated their results of operations from the date of acquisition.

The following table summarizes the condensed Balance Sheets and Statements of Income information for Pointer Ridge.

Pointer Ridge Office Investment, LLC

Balance Sheets	June 30,			December 31,
	2011			2010

Current assets	$	553,434		$	758,257
Non-current assets		7,166,873			7,252,413
Liabilities		6,344,850			6,397,360
Equity		1,375,457			1,613,310

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Statements of Income
Revenue	$	388,811		$	199,657		$	389,122		$	397,196
Expenses		626,664			241,904			626,975			505,684
Net income (loss)	$	(237,853	)	$	(42,247	)	$	(237,853	)	$	(108,488	)

5.	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. As a result of the acquisition of MB&T we recorded a $9.0 million deferred tax asset. We have recorded a $1.2 million valuation allowance against deferred tax assets as management believes that it is possible that we will not realize all of the deferred tax assets. We allocate tax expense and tax benefits to Old Line Bank and Old Line Bancshares based on their proportional share of taxable income.

LOANS

Major classifications of loans are as follows:

	June 30, 2011			December 31, 2010

Real estate
Commercial	$	241,143,915		$	153,526,907
Construction		45,409,994			24,377,690
Residential		98,826,376			27,081,399
Commercial		101,276,989			83,523,056
Consumer		15,291,956			13,079,878
		501,949,230			301,588,930
Allowance for loan losses		(2,239,457	)		(2,468,476	)
Deferred loan costs, net		660,351			485,976
	$	500,370,124		$	299,606,430

Credit policies and Administration

We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote a complete banking relationship rather than a transactional relationship. In an effort to manage risk, prior to funding, the loan committee consisting of the Executive Officers and six members of the Board of Directors must approve by a majority vote all credit decisions in excess of a lending officer’s lending authority. Management believes that it employs experienced lending officers, secures appropriate collateral and carefully monitors the financial condition of its borrowers and loan concentrations.

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

6.	LOANS (Continued)

Commercial real estate lending entails significant risks. Risks inherent in managing our commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate that may detrimentally impact the borrower’s ability to repay. We attempt to mitigate these risks by carefully underwriting these loans. We also generally require the personal or corporate guarantee(s) of the owners and/or occupant(s) of the property. For loans of this type in excess of $250,000, we monitor the financial condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In addition, we meet with the borrower and/or perform site visits as required. Many of the loans acquired from MB&T do not comply with underwriting standards that we maintain.

Management tracks all loans secured by commercial real estate. With the exception of loans to the hospitality industry, the properties secured by commercial real estate are diverse in terms of type. This diversity helps to reduce our exposure to economic events that affect any single market or industry. As a general rule, we avoid financing single purpose properties unless other underwriting factors are present to help mitigate the risk. We do have a concentration in the hospitality industry. At June 30, 2011 and December 31, 2010, we had approximately $41.2 million and $38.5 million, respectively, of commercial real estate loans to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

Real Estate Construction Loans

This segment of our portfolio consists of funds advanced for construction of single family residences, multi-family housing and commercial buildings. These loans generally have short durations, meaning maturities typically of nine months or less. Residential houses, multi-family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. All of these loans are concentrated in our primary market area.

Construction lending also entails significant risk. These risks involve larger loan balances concentrated with single borrowers with funds advanced upon the security of the land or the project under construction. An appraisal of the property estimates the value of the project prior to completion of construction. Thus, it is more difficult to accurately evaluate the total loan funds required to complete a project and related loan to value ratios. To mitigate the risks, we generally limit loan amounts to 80% of appraised values and obtain first lien positions on the property. We generally only offer real estate construction financing to experienced builders, commercial entities or individuals who have demonstrated the ability to obtain a permanent loan “take-out.” We also perform a complete analysis of the borrower and the project under construction. This analysis includes a review of the cost to construct, the borrower’s ability to obtain a permanent “take-out”, the cash flow available to support the debt payments and construction costs in excess of loan proceeds, and the value of the collateral. During construction, we advance funds on these loans on a percentage of completion basis. We inspect each project as needed prior to advancing funds during the term of the construction loan.

Residential Real Estate Loans

We offer a variety of consumer oriented residential real estate loans. The majority of our residential real estate portfolio is home equity loans to individuals with a loan to value not exceeding 85%. We also offer fixed rate home improvement loans. Our home equity and home improvement loan portfolio consists of a diverse client base. Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our home equity loans and lines of credit with a security interest in the borrower’s primary or secondary residence. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which generally may not exceed 40%, collateral value, length of employment and prior credit history. We do not have any subprime residential real estate loans.

6.	LOANS (Continued)

Commercial Business Lending

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

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

Consumer Installment Lending

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

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

Concentrations of Credit

Most of our lending activity occurs within the state of Maryland within the suburban Washington D.C. market area in Anne Arundel, Calvert, Charles, Prince George’s and St. Mary’s counties. The majority of our loan portfolio consists of commercial real estate loans and commercial and industrial loans. As of June 30, 2011 and December 31, 2010, the only industry in which we had a concentration of loans was the hospitality industry, as previously mentioned.

6.	LOANS (Continued)

Non-Accrual and Past Due Loans

We consider loans past due if the borrower has not paid the required principal and interest payments when due. 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. When we classify a loan as non-accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual loans only when received.

As a result of the acquisition of Maryland Bankcorp, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T (acquired). The table below presents a breakdown of the non-performing loans and accruing past due loans at June 30, 2011 and December 31, 2010, respectively.

Non-Accrual and Past Due Loans
(Dollars in thousands)
June 30, 2011

	Legacy						Acquired

	# of Borrowers		Account Balance		Interest Not Accrued		# of Borrowers		Account Balance		Interest Not Accrued
Real Estate
Commercial			$	-	$	-		8	$	3,190	$	1,013
Construction		1		1,169		157		3		500		294
Residential				-		-		7		1,028		111
Commercial				-		-		4		636		33
Consumer				-		-		-		-		-
Total non-performing loans		1	$	1,169	$	157		22	$	5,354	$	1,451

Accruing past due loans:
30-89 days past due		4	$	5,242				31	$	2,431
90 or more days past due				-				1		42
Total accruing past due loans		4	$	5,242				32	$	2,473

6.	LOANS (Continued)

Non-Accrual and Past Due Loans
(Dollars in thousands)
December 31, 2010

	Legacy

	# of Borrowers		Account Balance		Interest Not Accrued
Real Estate
Commercial			$	-	$	-
Construction		2		2,427		315
Residential				-		-
Commercial				-		-
Consumer		1		284		4
Total non-performing loans		3	$	2,711	$	319

Accruing past due loans:
30-89 days past due		-	$	-
90 or more days past due		-		-
Total accruing past due loans		-	$	-

Non-accrual legacy loans

There was one non-accrual legacy loan at June 30, 2011 that had a balance of $1,169,377 and is a residential land acquisition and development loan secured by real estate and described below. At June 30, 2011, the non-accrued interest on this loan was $156,721, none of which was included in interest income. The borrower and guarantor on this loan have filed bankruptcy. During the 1st quarter of 2011, we charged $446,980 to the allowance for loan losses and reduced the balance on this loan from $1,616,317 to $1,169,337. We have an additional $65,000 of the allowance for loan losses specifically allocated to this loan. We have identified a potential buyer for this note who has agreed to purchase it at a price slightly lower than the current carrying value and are awaiting ratification of this purchase from the bankruptcy court.

At December 31, 2010, we had three legacy loans totaling $2,710,619 past due and classified as non-accrual. The first loan in the amount of $810,291 is the same loan that we previously reported in our December 31, 2008 and December 31, 2009 financial statements. The borrower on this loan filed for bankruptcy protection in November 2007. A commercial real estate property secures this loan. The loan to value at inception of this loan was 80%. A recent appraisal on the property indicates that the collateral is sufficient for full repayment and we have not designated a specific allowance for this non-accrual loan. At December 31, 2010, we had obtained a “lift stay” on the property and were awaiting ratification of foreclosure. We received this ratification in January 2011 and transferred this property to other real estate owned during the 1st quarter of 2011. At December 31, 2010, the non-accrued interest on this loan was $212,934.

The second loan in the amount of $1,616,317 is the residential acquisition and development loan secured by real estate discussed above. We have received an appraisal that indicates the current value of the collateral that secures this loan is insufficient for repayment. At December 31, 2010, we considered this loan impaired and had allocated $450,000 of the allowance for loan losses to this loan. At December 31, 2010, the interest not accrued on this loan was $101,867.

6.	LOANS (Continued)

The third loan at December 31, 2010 was a luxury boat loan in the amount of $284,011. The borrower on this loan has also filed bankruptcy. At December 31, 2010, the interest not accrued on this loan was $3,728. During the 1st quarter of 2011, we repossessed the boat, charged $47,261 to the allowance for loan losses and recorded the remaining balance of $236,750 as repossessed property in other assets.

Acquired impaired loans

Loans acquired in an acquisition are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. In determining the estimated fair value of these loans, we considered a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, net present value of cash flows we expect to receive, among others. As required, we accounted for these acquired loans in accordance with guidance for certain loans acquired in a transfer, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between the contractually required payments and cash flows we expect to collect is the non-accretable difference. Subsequent negative differences to the expected cash flows will generally result in an increase to the provision for the allowance for loan losses. Subsequent collection of payments on these loans will cause an increase in cash flows that will result in a reduction to the non-accretable difference, which would increase interest income. As a result of collection of payments, for the period ended June 30, 2011, we recorded $542,482 in interest income.

Non-accrual acquired loans

At June 30, 2011, we had 28 non-accrual acquired loans to 22 borrowers totaling $5,354,441. As outlined above, at acquisition, we marked these loans to fair value and carry no related allowance for loan losses.

Credit Quality Indicators

We review the adequacy of the allowance for loan losses at least quarterly. Our review includes evaluation of impaired loans as required by ASC Topic 310 Receivables, and ASC Topic 450 Contingencies. Also, incorporated in determining the adequacy of the allowance is guidance contained in the SEC’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, real estate loans and commercial loans. We further divide commercial and real estate 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 collateral separately and assign loss amounts based upon the evaluation.

We determine loss ratios for installment and other consumer loans 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.

6.	LOANS (Continued)

With respect to commercial loans, management assigns a risk rating of one through eight as follows:

Risk rating 1 (Highest Quality) is normally assigned to investment grade risks, meaning that level of risk is associated with entities having access (or capable of access) to the public capital markets and the loan underwriting in question conforms to the standards of institutional credit providers. We also include in this category loans with a perfected security interest in U.S. government securities, investment grade government sponsored entities’ bonds, investment grade municipal bonds, insured savings accounts, and insured certificates of deposits drawn on high quality financial institutions.

Risk rating 2 (Good Quality) is normally assigned to a loan with a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing. This loan carries a normal level of risk, with minimal loss exposure. The borrower has the ability to perform according to the terms of the credit facility. Cash flow coverage is greater than 1.25:1 but may be vulnerable to more rapid deterioration than the higher quality loans. We may also include loans secured by high quality traded stocks, lower grade municipal bonds and uninsured certificates of deposit.

Characteristics of such credits should include: (a) sound primary and secondary repayment sources; (b) strong debt capacity and coverage; (c) good management in all key positions. A credit secured by a properly margined portfolio of marketable securities, but with some portfolio concentration, also would qualify for this risk rating. Additionally, individuals with significant liquidity, low leverage and a defined source of repayment would fall within this risk rating.

Risk rating 3 (Acceptable Quality) is normally assigned when the borrower is a reasonable credit risk and demonstrates the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. Historic financial information may indicate erratic performance, but current trends are positive. Quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher graded loans. If adverse circumstances arise, the impact on the borrower may be significant. We classify many small business loans in this category unless deterioration occurs or we believe the loan requires additional monitoring, such as construction loans, asset based (accounts receivable/inventory) loans, and Small Business Administration (SBA) loans.

Risk rating 4 (Pass/Watch) loans exhibit all the characteristics of a loan graded as a “3” with the exception that there is a greater than normal concern that an external factor may impact the viability of the borrower at some later date; or that the Bank is uncertain because of the lack of financial information available. We will generally grant this risk rating to credits that require additional monitoring such as construction loans, SBA loans and other loans deemed in need of additional monitoring.

Risk rating 5 (Special Mention) is assigned to loans in need of close monitoring. These are defined as classified assets. Loans generally in this category may have either inadequate information, lack sufficient cash flow or some other problem that requires close scrutiny. The current worth and debt service capacity of the borrower or of any pledged collateral are insufficient to ensure repayment of the loan. These risk ratings may also apply to an improving credit previously criticized but some risk factors remain. All loans in this classification or below should have an action plan.

Risk rating 6 (Substandard) is assigned to loans where there is insufficient debt service capacity. These obligations, even if appropriately protected by collateral value, have well defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. There is also the possibility that Old Line Bank will sustain some future loss if the weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual loan we may classify as substandard.

6.	LOANS (Continued)

Risk rating 7 (Doubtful) corresponds to the doubtful asset categories defined by regulatory authorities. A loan classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to strengthening of the asset we have deferred its classification as loss until we may determine a more exact status and estimation of the potential loss.

Risk rating 8 (Loss) is assigned to charged off loans. We consider assets classified as loss as uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has no recovery value, but that it is not practical to defer writing off the worthless assets, even though partial recoveries may occur in the future. We charge off assets in this category. We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge off. We automatically charge off consumer loan accounts based on regulatory requirements.

The following table outlines the allocation of allowance for loan losses by risk rating.

	June 30, 2011				December 31, 2010
	Account Balance		Allocation of Allowance for Loan Losses		Account Balance		Allocation of Allowance for Loan Losses
Risk Rating
Pass (1-4)	$	479,274,337	$	1,690,014	$	281,901,972	$	1,529,356
Special Mention (5)		7,748,758		206,256		13,777,303		489,120
Substandard (6)		14,926,135		343,187		5,909,655		450,000
Doubtful (7)		-		-		-		-
Loss (8)		-		-		-		-
Total	$	501,949,230	$	2,239,457	$	301,588,930	$	2,468,476

6.	LOANS (Continued)

The following table details activity in the allowance for loan losses by portfolio segment for the periods ended June 30, 2011 and December 31, 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

June 30, 2011	Real Estate			Commercial			Boats			Other Consumer			Total
Beginning balance	$	1,748,122		$	417,198		$	294,723		$	8,433		$	2,468,476
Provision for loan losses		245,104			(84,663	)		50,781			(11,222	)		200,000
Recoveries		1,121			47,243			-			24,043			72,407
		1,994,347			379,778			345,504			21,254			2,740,883
Loans charged off		(446,980	)		-			(47,261	)		(7,185	)		(501,426	)
Ending Balance	$	1,547,367		$	379,778		$	298,243		$	14,069		$	2,239,457

Amount allocated to:
Loans individually evaluated for impairment with specific allocation	$	65,000		$	-		$	-		$	-		$	65,000
Loans collectively evaluated for impairment		1,482,367			379,778			298,243			14,069			2,174,457
Ending balance	$	1,547,367		$	379,778		$	298,243		$	14,069		$	2,239,457

December 31, 2010	Real Estate			Commercial			Boats			Other Consumer			Total
Beginning balance	$	1,845,126		$	544,854		$	81,417		$	10,319		$	2,481,716
Provision for loan losses		857,818			9,495			213,306			1,381			1,082,000
Recoveries		3,650			-			-			927			4,577
		2,706,594			554,349			294,723			12,627			3,568,293
Loans charged off		(958,472	)		(137,151	)		-			(4,194	)		(1,099,817	)
Ending Balance	$	1,748,122		$	417,198		$	294,723		$	8,433		$	2,468,476

Amount allocated to:
Loans individually evaluated for impairment with specific allocation	$	450,000		$	-		$	-		$	-		$	450,000
Loans collectively evaluated for impairment		1,298,122			417,198			294,723			8,433			2,018,476
Ending balance	$	1,748,122		$	417,198		$	294,723		$	8,433		$	2,468,476

6.	LOANS (Continued)

Our recorded investment in loans as of June 30, 2011 and December 31, 2010 related to each balance in the allowance for possible loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

June 30, 2011	Real Estate		Commercial		Boats		Other Consumer		Total
Loans individually evaluated for impairment with specific reserve	$	1,169,337	$	-	$	-	$	-		1,169,337
Loans individually evaluated for impairment without specific reserve		1,450,112		1,954,315		-		-		3,404,427
Loans collectively evaluated for impairment		382,760,836		99,322,674		10,376,943		4,915,013		497,375,466
Ending balance	$	385,380,285	$	101,276,989	$	10,376,943	$	4,915,013	$	501,949,230

December 31, 2010	Real Estate		Commercial		Boats		Other Consumer		Total
Loans individually evaluated for impairment with specific reserve	$	1,616,317	$	-	$	-	$	-		1,616,317
Loans individually evaluated for impairment without specific reserve		2,273,029		2,020,309		-		-		4,293,338
Loans collectively evaluated for impairment		201,096,650		81,502,747		11,621,392		1,458,486		295,679,275
Ending balance	$	204,985,996	$	83,523,056	$	11,621,392	$	1,458,486	$	301,588,930

7.	EARNINGS PER COMMON SHARE

We calculate basic earnings per common share by dividing net income by the weighted average number of shares of common stock outstanding giving retroactive effect to stock dividends.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Weighted average number of shares		6,809,594		3,880,005		5,625,689		3,876,789
Dilutive average number of shares		31,941		20,595		32,086		17,300

8.	STOCK BASED COMPENSATION

We account for stock options and restricted stock awards under the fair value method of accounting using a Black-Scholes valuation model to measure stock based compensation expense at the date of grant. We recognize compensation expense related to stock based compensation awards in our income statements over the period during which we require an individual to provide service in exchange for such award. For the six months ended June 30, 2011 and 2010, we recorded stock-based compensation expense of $74,816 and $66,252, respectively. For the three months ended June 30, 2011 and 2010, we recorded stock-based compensation expense of $31,302 and $25,982, respectively.

We only recognize tax benefits for options that ordinarily will result in a tax deduction when the grant is exercised (non-qualified options). For the six months ended June 30, 2011, we recognized a $15,097 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 for the three months ended June 30, 2011 and 2010 or the six months ended June 30, 2010.

We have two equity incentive plans under which we may issue stock options and restricted stock, the 2010 Equity Incentive Plan, approved at the 2010 Annual Meeting of stockholders and the 2004 Equity Incentive Plan. Our Compensation Committee administers the equity incentive plans. As the plans outline, the Compensation Committee approves stock option and restricted stock grants to directors and employees, determines the number of shares, the type of award, the option or share price, the term (not to exceed 10 years from the date of issuance), the restrictions, and the vesting period of options and restricted stock issued. The Compensation Committee has approved and we have granted options vesting immediately as well as over periods of two, three and five years and restricted stock awards that vest over periods of twelve months to three years. We recognize the compensation expense associated with these grants over their respective vesting periods. At June 30, 2011, there was $138,430 of total unrecognized compensation cost related to non-vested stock options and restricted stock awards that we expect to realize over the next 2.5 years. As of June 30, 2011, there were 258,028 shares remaining available for future issuance under the equity incentive plans. Directors and officers did not exercise any options during the six month period ended June 30, 2011 or 2010.

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

	June 30,
	2011					2010
			Weighted					Weighted
	Number		average			Number		average
	of shares		exercise price			of shares		exercise price

Outstanding, beginning of period		310,151		$	8.60		299,270		$	8.50
Options granted		23,280			7.82		22,581			7.13
Options forfeited		-			-		-			-
Outstanding, end of period		333,431		$	8.54		321,851		$	8.41

8.	STOCK BASED COMPENSATION (Continued)

Information related to options as of June 30, 2011 follows:


	Outstanding options						Exercisable options
Exercise price	Number of shares at June 30, 2011		Weighted average remaining term		Weighted average exercise price		Number of shares at June 30, 2011		Weighted average exercise price
$4.39-$5.00		18,000		1.06	$	4.69		18,000	$	4.69
$5.01-$7.64		85,231		7.84		6.52		77,704		6.46
$7.65-$8.65		60,580		7.74		7.78		46,144		7.76
$8.66-$10.00		46,620		3.14		9.74		46,620		9.74
$10.01-$11.31		123,000		4.81		10.43		121,000		10.42
		333,431		5.68	$	8.54		309,468	$	8.60


Intrinsic value of outstanding options			$	261,414
Intrinsic value of exercisable options			$	243,921

During the six months ended June 30, 2011 and 2010, we granted 8,786 and 17,641 restricted common stock awards, respectively. We did not grant any restricted common stock awards during the three month periods ended June 30, 2011 or 2010. The following table provides a summary of the restricted stock awards during the six month periods and their vesting schedule.

	June 30,					June 30,
	2011					2010
			Weighted					Weighted
	Number of shares		average grant date fair value			Number of shares		average grant date fair value
Outstanding, beginning of period		17,641		$	7.13		-		$	-
Restricted stock granted		8,786			7.82		17,641			7.13
Restricted stock vested		8,279			7.13		-			-
Restricted stock forfeited		-			-		-			-
Outstanding, end of period		18,148		$	7.46		17,641		$	-

Vested, end of period		59,029			-		-			-

Intrinsic value of outstanding restricted stock awards where the market value exceeds the exercise price				$	152,080				$	132,484
Intrinsic value of vested restricted stock awards where the market value exceeds the exercise price				$	69,378				$	-

9.	RETIREMENT AND PENSION PLANS

Eligible employees, including those who joined us as part of the MB&T acquisition, participate in a profit sharing plan that qualifies under Section 401(k) of the Internal Revenue Code. The plan allows for elective employee deferrals and Old Line Bank makes matching contributions of up to 4% of eligible employee compensation. Our contributions to the plan, included in employee benefit expenses, for the six months ended June 30, 2011 and 2010 were $134,931 and $78,950 respectively. Old line Bank’s contribution to the plan for the three months ended June 30, 2011 and 2010 were $93,342 and $41,280, respectively.

Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive officers providing for retirement income benefits. We accrue the present value of the SERPs over the remaining number of years to the executives’ retirement dates. Old Line Bank’s expenses for the SERPs for the six month periods ended June 30, 2011 and 2010 were $92,740 and $102,676, respectively. The SERP expense for the three month periods ended June 30, 2011 and 2010 were $54,135 and $58,728, respectively. The SERPs are non-qualified defined benefit pension plans that we have not funded. MB&T also offered SERP to selected officers and we have assumed that liability at acquisition and all subsequent expenses.

MB&T had an employee pension plan that was frozen on June 9, 2003 and no additional benefits accrued subsequent to that date. The funded status of this plan at acquisition date was $1,315,642 and we recorded this amount as an asset on our balance sheet on the acquisition date. We also recorded the loss on plan investments of $730,215 in accumulated comprehensive income. We have notified all participants in the plan that we will terminate this plan. Until determination of the plan asset values on the termination date, we are unable to predict any income or loss that may occur as a result of the termination. However, we do not expect to incur any significant expenses with the termination of the plan.

10.	FAIR VALUE MEASUREMENTS

On January 1, 2008, we adopted FASB ASC Topic 820 Fair Value Measurements and Disclosures which defines fair value as the price that participants would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. We value investment securities classified as available for sale at fair value. The fair value hierarchy established in FASB ASC Topic 820 defines three input levels for fair value measurement. Level 1 is based on quoted market prices in active markets for identical assets. Level 2 is based on significant observable inputs other than those in Level 1. Level 3 is based on significant unobservable inputs.

We value investment securities classified as available for sale at fair value on a recurring basis. We value treasury securities, government sponsored entity securities, and some agency securities under Level 1, and collateralized mortgage obligations and some agency securities under Level 2. At June 30, 2011, we established values for available for sale investment securities as follows (000’s);

		Total Fair Value June 30, 2011				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
Investment securities available for sale		$	144,695			$	23,073			$	121,622			$	-

Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes our methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. Furthermore, we have not

10.	FAIR VALUE MEASUREMENTS

comprehensively revalued the fair value amounts since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the above presented amounts.

We also measure certain non-financial assets such as other real estate owned and repossessed or foreclosed property at fair value on a non-recurring basis. Generally, we estimate the fair value of these items using Level 2 inputs based on observable market data or Level 3 inputs based on discounting criteria. As of June 30, 2011 and December 31, 2010, we estimated the fair value of foreclosed assets using Level 2 inputs to be $3,947,340 and $1,153,039, respectively. We obtained these Level 2 inputs from appraisals of the real estate that we obtained from an outside third party during the preceding twelve months. The following outlines the transactions in other real estate owned during the period (000’s).

Other Real Estate Owned
Beginning balance	$	1,153,039
Acquired from MB&T		1,974,450
Transferred in		825,290
Payment received		(5,439	)
Total end of period	$	3,947,340

We use the following methodologies for estimating fair values of financial instruments that we do not measure on a recurring basis. The estimated fair values of financial instruments equal the carrying value of the instruments except as noted.

Time Deposits-The fair value of time deposits in other banks is an estimate determined by discounting future cash flows using current rates offered for deposits of similar remaining maturities.

Investment Securities-We base the fair values of investment securities upon quoted market prices or dealer quotes.

Loans-We estimate the fair value of loans by discounting future cash flows using current rates for which we would make similar loans to borrowers with similar credit histories. We then adjust this calculated amount for any impairment.

Interest bearing deposits-The fair value of demand deposits and savings accounts is the amount payable on demand. We estimate the fair value of fixed maturity certificates of deposit using the rates currently offered for deposits of similar remaining maturities.

Long and short term borrowings-The fair value of long and short term fixed rate borrowings is estimated by discounting the value of contractual cash flows using rates currently offered for advances with similar terms and remaining maturities.

Loan Commitments, Standby and Commercial Letters of Credit-Lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair value of these items is insignificant and we have not included it in the following table.

10.	FAIR VALUE MEASUREMENTS (Continued)

	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial assets
Time deposits	$	-	$	-	$	297,000	$	297,482
Investment securities		144,694,675		144,694,675		54,786,264		55,015,376
Loans		500,370,124		534,480,647		299,606,430		301,862,245

Financial liabilities
Interest bearing deposits		486,450,237		488,613,945	$	273,032,442	$	274,003,958
Short term borrowings		26,153,000		26,153,000		5,669,332		5,669,332
Long term borrowings		16,328,337		16,882,470		16,371,947		10,618,094

We measure certain financial assets and financial liabilities at fair value on a non-recurring basis. These assets and liabilities are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment. We did not have any financial assets or liabilities measured at fair value on a non-recurring basis during the six months ended June 30, 2011 or year ended December 31, 2010.

11.	ACCOUNTING STANDARDS UPDATES

Accounting Standards Updates (ASU) No. 2009-16, “Transfers and Servicing (Topic- 860)-Accounting for Transfers of Financial Assets” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. ASU 2009-16 also requires additional disclosures about all continuing involvement with transferred financial assets including information about gains and losses resulting from transfers during the period. The provisions of ASU 2009-16 became effective on January 1, 2010 and did not have a significant impact on our consolidated results of operations or financial position.

ASU No. 2009-17, “Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” amends prior guidance to change how a company determines when an entity that is sufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASU 2009-17 requires additional disclosures about the reporting entity’s involvement with variable interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. As further discussed below, ASU No. 2010-10, “Consolidations (Topic 810),” deferred the effective date of ASU 2009-17 for a reporting entity’s interests in investment companies. The provisions of ASU 2009-17 became effective on January 1, 2010 and they did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures About Fair Value Measurements” requires expanded disclosures related to fair value measurements including (i)

the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between the levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) companies should provide fair value measurement disclosures for each class of assets and liabilities (rather than major category), which would generally be a subset of

11.	ACCOUNTING STANDARDS UPDATES (Continued)

assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. ASU No. 2010-06 requires the disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective on January 1, 2010. See Notes 2 Acquisition of Maryland Bankcorp, Inc. and 10-Fair Value Measurements.

ASU No. 2010-10, “Consolidations (Topic 810)-Amendments for Certain Investment Funds” defers the effective date of the amendments to the consolidation requirements made by ASU 2009-17 to a company’s interest in an entity (i) that has all of the attributes of an investment company, as specified under ASC Topic 946, “Financial Services-Investment Companies,” or (ii) for which it is industry practice to apply measurement principles of financial reporting that are consistent with those in ASC Topic 946. As a result of the deferral, companies are not required to apply the ASU 2009-17 amendments to the Subtopic 810-10 consolidation requirements to its interest in an entity that meets the criteria to qualify for the deferral. ASU 2010-10 also clarifies that any interest held by a related party should be treated as though it is an entity’s own interest when evaluating the criteria for determining whether such interest represents a variable interest. ASU 2010-10 also clarifies that companies should not use a quantitative calculation as the sole basis for evaluating whether a decision maker’s or service provider’s fee is variable interest. The provisions of ASU 2010-10 became effective as of January 1, 2010 and did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-11, “Derivatives and Hedging (Topic 815)-Scope Exception Related to Embedded Credit Derivatives” clarifies that the only form of an embedded credit derivative that is exempt from the embedded derivative bifurcation requirement are those that relate to the subordination of one financial instrument to another. Entities that have contracts containing an embedded credit derivative feature in a form other than subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 became effective on July 1, 2010 and did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-20 “Receivables (Topic 310)-Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systemic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a carry forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-2 became effective for financial statements as of December 31, 2010 as it relates to disclosures required as of the end of the reporting period. Disclosures that relate to activity during a reporting period are required for financial statements that include periods beginning on or after January 1, 2011 and did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-28 “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)” modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For these reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating impairment may exist. This update became effective for the interim and annual reporting periods beginning after December 15, 2010 and did not have a material impact on our consolidated results of operations or financial position.

11.	ACCOUNTING STANDARDS UPDATES (Continued)

ASU No. 2010-29 “Business Combinations (Topic 805) Disclosure of Supplementary Pro Forma Information for Business Combinations” contains amendments that specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 also expands supplemental pro forma disclosures under Topic 350 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in reported pro forma revenue and earnings. ASU 2010-29 became effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. See Note 2 for the impact on our consolidated financial statements or results of operations.

ASU No. 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring” amends ASC 310-40, Troubled Debt Restructurings by Creditors”. The amendments specify that in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following conditions exist; the restructuring constitutes a concession and the debtor is experiencing financial difficulties. The amendments clarify the guidance on these points and give examples of both conditions. This update became effective for interim or annual reporting periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Adoption of this amendment did not 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 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 $860,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (Pointer Ridge). We own 62.5% of Pointer Ridge. Frank Lucente, one of our directors and a director of Old Line Bank, controls 12.5% 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 owns a commercial office building containing approximately 40,000 square feet and leases this space to tenants. We lease approximately 50% of this building for our main office and operate a branch of Old Line Bank from this address.

Summary of Recent Performance and Other Activities

In a continually challenging economic environment, we are pleased to report continued profitability for the second quarter of 2011. Net income available to common stockholders was $1.2 million or $0.17 per basic and diluted common share for the three month period ending June 30, 2011. This was $652,848 or 123.21% higher than the same period in 2010. Net income available to common stockholders was $1.7 million or $0.30 per basic and diluted common share for the six month period ending June 30, 2011. This was $710,996 or 71.48% higher than net income available to common stockholders of $994,631 or $0.26 per basic and diluted common share for the same period in 2010.

On April 1, 2011, we acquired Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A (MB&T). This acquisition created the sixth-largest independent commercial bank based in Maryland, with assets of more than $750 million and with 19 full service branches serving five counties. Teams from both institutions have worked, diligently to join the two organizations.

The following highlights certain financial data and events that have occurred during 2011:

·	On September 1, 2010, we announced that we had executed a merger agreement that provided for the acquisition of Maryland Bankcorp, Inc. The merger became effective April 1, 2011.

·	Average total loans grew approximately $126.4 million or 46.07% for the six months ended June 30, 2011 compared to the six months ended June 30, 2010, primarily as a result of our acquisition of Maryland Bankcorp.

·	Average non-interest bearing deposits grew $68.6 million (138.44%) for the six months ended June 30, 2011 relative to the same period in 2010, primarily as a result of our acquisition of Maryland Bankcorp.

·	At June 30, 2011, we had one legacy loan (i.e. a loan in our portfolio prior to the acquisition of Maryland Bankcorp) on non-accrual status in the amount of $1.2 million and 28 acquired loans (loans acquired from MB&T pursuant to the merger) totaling $5.4 million.

·	At second quarter end, we had four other legacy loans past due between 30 and 89 days in the amount of approximately $5.2 million. Subsequent to quarter end, we received the payments due from all of these borrowers.

·	At June 30, 2011, we had 31 acquired loans totaling $2.5 million past due between 30 and 89 days in the amount of approximately $2.4 million and one loan in the amount of approximately $42,000 greater than 90 days past due.

·	We ended the second quarter with a book value of $9.30 per common share and a tangible book value of $8.57 per common share.

·	We maintained liquidity and by all regulatory measures remained “well capitalized”.

·	We decreased the provision for loan losses by $40,000 compared to the first six months of 2010.

·	We recorded $467,724 of non-recurring merger and integration expenses.

·	We recorded $122,350 for the recognition of a permanent impairment on equity securities.

·	We recognized a loss on our investment in Pointer Ridge of approximately $148,000.

On April 1, 2011, all MB&T branches were rebranded as Old Line Bank branches and all data processing and accounting systems were consolidated. As discussed below, during the second quarter of 2011, we also substantially completed the assessment and recordation on our financial statements of MB&T’s assets and liabilities at fair value as required by current accounting guidance. With the exception of the closing of one MB&T branch, which MB&T had previously designated for closure, we have also retained, and expect to continue to retain, all of MB&T’s branches, and the branch personnel with severance of employees occurring only at MB&T’s operations, accounting and executive offices. We are pleased to have the remaining MB&T personnel as part of the Old Line Bank team and anticipate that they will be a significant contributor to our success.

Pursuant to the merger agreement, the stockholders of Maryland Bankcorp received approximately 2.1 million shares of Old Line Bancshares common stock and the aggregate cash consideration paid to holders of Maryland Bankcorp stockholders was $1.0 million. The total merger consideration was $18.8 million. Included in Note 2 to the consolidated financial statements is additional discussion about the MB&T acquisition.

In accordance with accounting for business combinations, we have recorded the acquired assets and liabilities at their estimated fair value on April 1, 2011, the acquisition date. At April 1, 2011, the determination of the fair value of the loans caused an approximately $24.3 million write down in the value of certain loans and other real estate owned, that we assigned to an accretable or non-accretable balance. We will recognize the $2.0 million accretable balance as interest income over the remaining term of the loans. We will recognize the $22.3 million non-accretable balance as the borrowers repay the loans or we sell the other real estate owned. These decreases to the loan portfolio were offset by an approximately $3.1 million fair value adjustment based on current interest rates of similar loans that we will recognize over the remaining life of the loans. The accretion of these adjustments favorably impacted our net interest income by approximately $393,000 in the three and six months ended June 30, 2011. We based the determination of fair value on cash flow expectations and/or collateral values. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. Change in our cash flow expectations could impact net interest income after provision for loan losses. We will recognize any decline in expected cash flows as impairment and record a provision expense during the period. We will recognize any improvement in expected cash flows, as an adjustment to interest income.

In conjunction with the merger, we also recorded the deposits acquired at their fair value and recorded a core deposit intangible (the premium paid to acquire MB&T’s core deposits over the value of such deposits) of $4.8 million. The amortization of this intangible asset decreased net interest income by $194,675.

The following summarizes the highlights of our financial performance for the three month period ended June 30, 2011 compared to the three month period ended June 30, 2010 (figures in the table may not match those discussed in the balance of this section due to rounding).

	Three months ended June 30,
	(Dollars in thousands)

	2011			2010			$ Change		% Change

Net income available to common stockholders	$	1,183		$	530		$	653		123.21	%
Interest revenue		8,874			4,574			4,300		94.01
Interest expense		1,403			1,281			122		9.52
Net interest income after provision for loan losses		7,421			3,123			4,298		137.62
Non-interest revenue		517			271			246		90.77
Non-interest expense		6,165			2,610			3,555		136.21
Average total loans		498,550			279,843			218,707		78.15
Average interest earning assets		656,173			356,899			299,274		83.85
Average total interest bearing deposits		475,658			256,971			218,687		85.10
Average non-interest bearing deposits		174,055			52,343			121,712		232.53
Net interest margin (1)		4.66	%		3.75	%
Return on average equity		7.47	%		5.88	%
Basic earnings per common share	$	0.17		$	0.14		$	0.03		21.43
Diluted earnings per common share		0.17			0.14			0.03		21.43

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

The following summarizes the highlights of our financial performance for the six month period ended June 30, 2011 compared to the six month period ended June 30, 2010 (figures in the table may not match those discussed in the balance of this section due to rounding).

	Six months ended June 30,
	(Dollars in thousands)

	2011			2010			$ Change			% Change

Net income available to common stockholders	$	1,706		$	995		$	711			71.46	%
Interest revenue		13,522			8,964			4,558			50.85
Interest expense		2,463			2,529			(66	)		(2.61	)
Net interest income after provision for loan losses		10,858			6,195			4,663			75.27
Non-interest revenue		842			564			278			49.29
Non-interest expense		9,093			5,305			3,788			71.40
Average total loans		400,620			274,267			126,353			46.07
Average interest earning assets		512,446			345,319			167,127			48.40
Average total interest bearing deposits		376,931			249,966			126,965			50.79
Average non-interest bearing deposits		118,095			49,571			68,524			138.23
Net interest margin (1)		4.43	%		3.80	%
Return on average equity		6.57	%		5.58	%
Basic earnings per common share	$	0.30		$	0.26		$	0.04			15.38
Diluted earnings per common share		0.30			0.26			0.04			15.38

(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 collecting payment on non-accrual and past due loans, profitably disposing of other real estate owned, enhancing and maintaining credit quality, maintaining an attractive branch network, expanding fee income, generating extensions of core banking services, and using technology to maximize stockholder value. During the past two years, we have expanded in Prince George’s County and Anne Arundel County, Maryland and the recent acquisition of Maryland Bankcorp has expanded our operations into St. Mary’s and Calvert Counties, Maryland.

Other Opportunities

We use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology, Internet banking with on-line account access and bill payer service. We provide selected commercial customers the ability to remotely capture their deposits and electronically transmit them to us. We will continue to evaluate cost effective ways that technology can enhance our management capabilities, products and services.

We may 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 or hire additional loan officers. We also continually evaluate and consider opportunities with financial services companies or institutions with which we may become a strategic partner, merge or acquire.

Although the current economic climate continues to present significant challenges for our industry, we have worked diligently towards our goal of becoming the premier community bank east of Washington D.C. While we remain uncertain whether the economy will recover or that the high unemployment rate and soaring national debt will not dampen any possibility of recovery, it appears the economy may reach sustainable, but somewhat anemic, recovery during 2011. We continue to remain cautiously optimistic that we have identified any problem assets and the remaining borrowers will continue to stay current on their loans. Now that we have substantially completed our branch expansion, enhanced our data processing capabilities and expanded our commercial lending team, we believe that we are well positioned to capitalize on the opportunities that may become available in a healthy economy as we have with the Maryland Bankcorp acquisition.

We anticipate that as a result of this acquisition that salaries and benefits expenses and other operating expenses will increase in 2011. We anticipate that, over time, income generated from the branches acquired in the merger, the new loan officers that joined us with the acquisition, and our expanded market area will offset any corresponding increases in expenses. We believe with our 19 branches, including the recent addition of Maryland Bankcorp’s nine branches and staff, our lending staff, our corporate infrastructure and our solid balance sheet and strong capital position, we can continue to focus our efforts on improving earnings per share and enhancing stockholder value.

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, interest bearing deposits and federal funds sold. Cost of funds consists of interest bearing deposits and other borrowings. 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, 2011 compared to three months ended June 30, 2010

Net interest income after provision for loan losses for the three months ended June 30, 2011 increased $4.3 million or 138.71% to $7.4 million from $3.1 million for the same period in 2010. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of average interest earning assets growing at a faster rate than average interest bearing liabilities, an improvement in interest rates earned on interest earning assets and a decline in interest paid on interest bearing liabilities. The acquisition of MB&T was the most significant factor that caused these changes and the improvement in net interest margin as discussed below.

Changes in the federal funds rate and the prime rate impact the interest rates on interest earning assets, net interest income and net interest margin. During the entire year of 2010 and the second quarter of 2011, the prime interest rate remained at 3.25% and the intended federal funds rate remained relatively constant at zero to 0.25%. These rates have remained at historically low levels for a sustained period of time. During 2010 and 2011, when investments and loans matured, they were reinvested in lower yielding securities and loans. Although these lower yields have negatively impacted net interest income in 2011, the relatively stable rate environment has allowed us to adjust the mix and volume of interest earning assets and liabilities on the balance sheet. This also contributed to the improvement in the net interest margin.

We offset the effect on net income caused by these declines primarily by growing total average interest earning assets $299.3 million or 83.86% to $656.2 million for the three months ended June 30, 2011 from $356.9 million for the three months ended June 30, 2010. The growth in net interest income that derived from the increase in total average interest earning assets was partially offset by growth in average interest bearing liabilities. Average interest bearing deposits, which increased to $475.7 million for the three months ended June 30, 2011 from $257.0 million for the three months ended June 30, 2010, was the primary cause of the growth in interest bearing liabilities. The growth in average interest earning assets and interest bearing deposits was primarily a result of the acquisition of MB&T. A $21.7 million decrease in average borrowed funds decreased the total growth in interest bearing liabilities.

Non-interest bearing deposits allow us to fund growth in interest earning assets at minimal cost. As a result of the MB&T acquisition and growth generated from our legacy branch network, our average non-interest bearing deposits increased $121.8 million to $174.1 million. This was also a significant contributor to the improvement in the net interest margin.

Our net interest margin was 4.66% for the three months ended June 30, 2011 as compared to 3.75% for the three months ended June 30, 2010. The yield on average interest earning assets increased 33 basis points during the period from 5.19% for the quarter ended June 30, 2010 to 5.52% for the quarter ended June 30, 2011. This increase was primarily because of the addition of the MB&T loan and investment portfolios and our transfer of funds from interest bearing deposits to higher yielding investment securities and loans.

The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the three months ended June 30, 2011 and 2010, 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
Three Months Ended June 30,	2011							2010
	Average balance		Interest		Yield			Average balance		Interest		Yield
Assets:
Federal funds sold (1)	$	6,137,889	$	2,334		0.15	%	$	1,918,232	$	1,543		0.32	%
Interest bearing deposits		16,462,614		12,630		0.31			23,062,192		54,777		0.95
Investment securities (1)(2)
U.S. treasury		1,294,926		2,550		0.79			-		-
U.S. government agency		17,674,241		98,901		2.24			6,574,597		38,225		2.33
Mortgage backed securities		92,164,958		762,080		3.32			42,901,651		398,261		3.72
Municipal securities		22,702,829		337,728		5.97			2,456,788		30,512		4.98
Other		3,362,251		37,772		4.51			2,724,246		16,869		2.48
Total investment securities		137,199,205		1,239,031		3.62			54,657,282		483,867		3.55
Loans: (1) (3)
Commercial		103,848,651		1,449,325		5.60			76,703,160		1,049,082		5.49
Mortgage		378,129,053		6,075,435		6.44			188,752,588		2,826,331		6.01
Consumer		16,572,381		246,873		5.98			14,387,378		198,188		5.53
Total loans		498,550,085		7,771,633		6.25			279,843,126		4,073,601		5.84
Allowance for loan losses		2,177,287		-					2,581,336		-
Total loans, net of allowance		496,372,798		7,771,633		6.28			277,261,790		4,073,601		5.89
Total interest earning assets(1)		656,172,506		9,025,628		5.52			356,899,496		4,613,788		5.19
Non-interest bearing cash		30,891,654							7,758,921
Premises and equipment		21,286,980							17,231,394
Other assets		37,491,609							12,408,417
Total assets	$	745,842,749						$	394,298,228
Liabilities and Stockholders' Equity:
Interest bearing deposits
Savings	$	61,259,947		49,879		0.33		$	7,985,806		7,154		0.36
Money market and NOW		109,431,051		155,937		0.57			49,497,248		106,738		0.86
Other time deposits		304,966,798		985,896		1.30			199,487,652		885,544		1.78
Total interest bearing deposits		475,657,796		1,191,712		1.01			256,970,706		999,436		1.56
Borrowed funds		25,080,250		211,086		3.38			46,772,435		281,189		2.41
Total interest bearing liabilities		500,738,046		1,402,798		1.12			303,743,141		1,280,625		1.69
Non-interest bearing deposits		174,054,937							52,343,095
		674,792,983							356,086,236
Other liabilities		6,991,978							1,405,463
Non-controlling interest		538,021							651,675
Stockholders' equity		63,519,767							36,154,854
Total liabilities and stockholders' equity	$	745,842,749						$	394,298,228
Net interest spread (1)						4.40							3.50
Net interest income and Net interest margin (1)			$	7,622,830		4.66	%			$	3,333,163		3.75	%

(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 assets. 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)	Average non-accruing loans for the three month periods ended June 30, 2011 and 2010 were $6,523,337 and $1,823,445, respectively.

Six months ended June 30, 2011 compared to six months ended June 30, 2010

Net interest income after provision for loan losses for the six months ended June 30, 2011 increased $4.7 million or 75.81% to $10.9 million from $6.2 million for the same period in 2010. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of average interest earning assets growing at a faster rate than average interest bearing liabilities, an improvement in interest rates earned on interest earning assets and a decline in interest paid on interest bearing liabilities. The acquisition of MB&T was the most significant factor that caused these changes and the improvement in net interest margin as discussed below.

Although a competitive rate environment and a low prime rate have caused lower market yields that have negatively impacted net interest income in 2011, the relatively stable rate environment has allowed us to adjust the mix and volume of interest earning assets and liabilities on the balance sheet. This also contributed to the improvement in the net interest margin.

We offset the effect on net income caused by the low rate environment primarily by growing total average interest earning assets $167.1 million or 48.39% to $512.4 million for the six months ended June 30, 2011 from $345.3 million for the six months ended June 30, 2010. The growth in average interest earning assets derived from a $126.3 million increase in average total loans and a $50.7 million increase in average investment securities. The growth in net interest income that derived from the increase in total average interest earning assets was partially offset by growth in average interest bearing liabilities. The growth in average interest bearing liabilities resulted primarily from the $126.9 million increase in average interest bearing deposits which increased to $376.9 million for the six months ended June 30, 2011 from $250.0 million for the six months ended June 30, 2010. A $21.3 million decrease in average borrowed funds decreased the total growth in interest bearing liabilities.

Our net interest margin was 4.43% for the six months ended June 30, 2011 as compared to 3.80% for the six months ended June 30, 2010. The yield on average interest earning assets increased 12 basis points during the period from 5.28% for the quarter ended June 30, 2010 to 5.40% for the quarter ended June 30, 2011. This increase was primarily because we received a higher average rate on the loan portfolio and paid a 48 basis point lower rate on interest bearing liabilities.

Non-interest bearing deposits are a primary source of funding for our investment and loan portfolios. These deposits allow us to fund growth in interest earning assets at minimal cost. As a result of the MB&T acquisition and growth generated from our legacy branch network, our average non-interest bearing deposits increased $68.5 million to $118.1 million. This was also a significant contributor to the improvement in the net interest margin.

With the new branches acquired in the MB&T acquisition and increased recognition in the St. Mary’s, Calvert, Charles, Prince George’s and Anne Arundel County markets, the high level of non-interest bearing deposits and continued growth in these and interest bearing deposits, we anticipate that we will continue to grow earning assets during 2011. If the Federal Reserve maintains the federal funds rate at current levels and the economy remains stable, we believe that we can continue to grow total loans and deposits during the remainder of 2011. We also believe that we will continue to improve the net interest margin during the remainder of 2011. As a result of this growth and expected continued improvement in the net interest margin, we expect that net interest income will continue to increase during the remainder of 2011, although there can be no guarantee that this will be the case.

One of our primary sources of funding loans, investments and interest bearing deposits is non-interest bearing demand deposits. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) permits depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. Although, we have not yet determined the ultimate impact of this legislation on our operations, we expect that interest costs associated with deposits will increase.

The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the six months ended June 30, 2011 and 2010, 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,	2011							2010
	Average balance		Interest		Yield			Average balance		Interest		Yield
Assets:
Federal funds sold(1)	$	4,754,900	$	4,165		0.18	%	$	1,833,761	$	2,186		0.24	%
Interest bearing deposits		12,077,781		19,639		0.33			25,132,416		121,331		0.97
Investment securities(1)(2)
U.S. treasury		651,040		2,550		0.79			-		-		-
U.S. government agency		10,720,455		126,524		2.38			6,829,438		95,925		2.83
Mortgage backed securities		70,430,585		1,141,498		3.27			34,609,141		673,477		3.92
Municipal securities		12,550,809		367,102		5.90			2,405,977		58,795		4.93
Other		2,965,458		55,995		3.81			2,778,649		37,296		2.71
Total investment securities		97,318,347		1,693,669		3.51			46,623,205		865,493		3.74
Loans: (1) (3)
Commercial		93,579,122		2,469,046		5.32			74,859,465		2,063,975		5.56
Mortgage		292,268,896		9,119,269		6.29			184,842,489		5,592,113		6.10
Consumer		14,772,119		406,453		5.55			14,565,119		398,535		5.52
Total loans		400,620,137		11,994,768		6.04			274,267,073		8,054,623		5.92
Allowance for loan losses		2,324,803		-					2,537,102		-
Total loans, net of allowance		398,295,334		11,994,768		6.07			271,729,971		8,054,623		5.98
Total interest earning assets(1)		512,446,362		13,712,241		5.40			345,319,353		9,043,633		5.28
Non-interest bearing cash		19,724,565							8,734,201
Premises and equipment		19,055,881							17,260,588
Other assets		25,592,328							12,177,262
Total assets	$	576,819,136						$	383,491,404
Liabilities and Stockholders' Equity:
Interest bearing deposits
Savings	$	35,403,222		55,016		0.31		$	7,778,853		13,839		0.36
Money market and NOW		92,236,649		305,432		0.67			46,274,327		190,004		0.83
Other time deposits		249,290,770		1,707,240		1.38			195,913,240		1,770,522		1.82
Total interest bearing deposits		376,930,641		2,067,688		1.11			249,966,420		1,974,365		1.59
Borrowed funds		24,497,365		395,709		3.26			45,837,128		554,733		2.44
Total interest bearing liabilities		401,428,006		2,463,397		1.24			295,803,548		2,529,098		1.72
Non-interest bearing deposits		118,094,756							49,570,865
		519,522,762							345,374,413
Other liabilities		4,343,325							1,506,457
Non-controlling interest		567,704							662,462
Stockholders' equity		52,385,345							35,948,072
Total liabilities and stockholders' equity	$	576,819,136						$	383,491,404
Net interest spread(1)						4.16							3.56
Net interest income and Net interest margin(1)			$	11,248,844		4.43	%			$	6,514,535		3.80	%

(1)

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

(3)	Average non-accruing loans for the six month periods ended June 30, 2011 and 2010 were $1,965,300 and $1,823,445, respectively.

The following tables describe the impact on our interest revenue 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

	Three months Ended June 30,
	2011 compared to 2010
	Variance due to:

	Total			Rate			Volume

Interest earning assets:
Federal funds sold(1)	$	791		$	(2,940	)	$	3,731
Time deposits in other banks		(42,147	)		(38,129	)		(4,018	)
Investment Securities(1)
U.S. treasury		2,550			-			2,550
U.S. government agency		60,676			(5,601	)		66,277
Mortgage backed securities		363,819			(152,170	)		515,989
Municipal securities		307,216			26,979			280,237
Other		20,903			19,504			1,399
Loans:(1)
Commercial		400,243			75,149			325,094
Mortgage		3,249,104			734,146			2,514,958
Consumer		48,685			33,231			15,454
Total interest revenue (1)		4,411,840			690,169			3,721,671

Interest bearing liabilities
Savings		42,725			(2,738	)		45,463
Money market and NOW		49,199			(110,735	)		159,934
Other time deposits		100,352			(562,996	)		663,348
Borrowed funds		(70,103	)		147,947			(218,050	)
Total interest expense		122,173			(528,522	)		650,695

Net interest income(1)	$	4,289,667		$	1,218,691		$	3,070,976

(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.”

	Six months Ended June 30,
	2011 compared to 2010
	Variance due to:

	Total			Rate			Volume

Interest earning assets:
Federal funds sold(1)	$	1,979		$	(1,253	)	$	3,232
Time deposits in other banks		(101,692	)		(73,244	)		(28,448	)
Investment Securities(1)
U.S. treasury		2,550			-			2,550
U.S. government agency		30,599			(28,427	)		59,026
Mortgage backed securities		468,021			(227,480	)		695,501
Municipal securities		308,307			26,537			281,770
Other		18,699			17,283			1,416
Loans:(1)
Commercial		405,071			(161,605	)		566,676
Mortgage		3,527,156			345,971			3,181,185
Consumer		7,918			3,498			4,420
Total interest revenue (1)		4,668,608			(98,720	)		4,767,328

Interest bearing liabilities
Savings		41,177			(3,828	)		45,005
Money market and NOW		115,428			(73,910	)		189,338
Other time deposits		(63,282	)		(659,933	)		596,651
Borrowed funds		(159,024	)		211,570			(370,594	)
Total interest expense		(65,701	)		(526,101	)		460,400

Net interest income(1)	$	4,734,309		$	427,381		$	4,306,928

(1)

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 $50,000 for the three months ended June 30, 2011, as compared to $170,000 for the three months ended June 30, 2010, a decrease of $120,000 or 70.59%. After completing the analysis outlined below, during the three month period ended June 30, 2011, we decreased the provision for loan losses primarily because our asset quality remained stable, we experienced minimal growth in the legacy portfolio, and we believe that recoveries of $72,407 along with the $50,000 provision were sufficient to support any inherent risk in the loan portfolio. As previously mentioned, while it remains uncertain whether the economy will continue on its path towards recovery, it appears the economy may reach a sustainable recovery during 2011 and we remain cautiously optimistic that our borrowers will continue to stay current on their loans.

The provision for the six month period was $200,000. This represented a $40,000 or 16.67% decrease as compared to the six months ended June 30, 2010. For the six months ended June 30, 2011, we decreased the provision for loan losses because we believe that in 2010 we specifically identified and appropriately reserved for any potential deterioration in the loan portfolio caused by the tumultuous economic climate. We believe the economy has stabilized in 2011. We also believe that we have appropriately identified and allocated specific reserves to previously identified borrowers that represent increased risk or potential loss. At quarter end, we had one legacy loan in the amount of $1.2 million on non-accrual status. As outlined below, we are currently working towards resolution with this borrower and we have allocated a specific reserve for this loan to the extent we consider it probable that we will incur a loss.

We review the adequacy of the allowance for loan losses at least quarterly. Our review includes evaluation of impaired loans as required by ASC Topic 310-Receivables, and ASC Topic 450-Contingencies. 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. 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, probability of loss factors 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 allocate a portion of the allowance for loan losses 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, probability of loss factors 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. 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 economic factors, 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. Although we may allocate specific portions of the allowance for specific credits or other factors, the entire allowance is available for any credit that we should charge off. We will not create a separate valuation allowance unless we consider a loan impaired.

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.

As outlined in Footnote 6 to our financial statements, loans acquired in an acquisition are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. This was the primary reason for the decline in the allowance for loan losses to 0.45% of gross loans at June 30, 2011 from 0.82% as of December 31, 2010. 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 provides an analysis of the allowance for loan losses for the periods indicated:

Allowance for Loan Losses
	Six Months Ended						Year Ended
	June 30,						December 31,
	2011			2010			2010

Balance, beginning of period	$	2,468,476		$	2,481,716		$	2,481,716
Provision for loan losses		200,000			240,000			1,082,000

Chargeoffs:
Commercial		-			-			(137,151	)
Mortgage		(446,980	)		(11,733	)		(958,472	)
Consumer		(54,446	)		(1,223	)		(4,194	)
Total chargeoffs		(501,426	)		(12,956	)		(1,099,817	)
Recoveries:
Commercial		47,243			-			-
Mortgage		1,121			3,650			3,650
Consumer		24,043			519			927
Total recoveries		72,407			4,169			4,577
Net (chargeoffs) recoveries		(429,019	)		(8,787	)		(1,095,240	)
Balance, end of period	$	2,239,457		$	2,712,929		$	2,468,476

Ratio of allowance for loan losses to:
Total gross loans		0.45	%		0.94	%		0.82	%
Non-accrual legacy loans		191.52	%		56.71	%		91.07	%
Ratio of net-chargeoffs during period to
average total loans during period		0.142	%		0.003	%		0.384	%

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

Allocation of Allowance for Loan Losses
	June 30,										December 31,
	2011					2010					2010
	Amount		% of Loans in Each Category			Amount		% of Loans in Each Category			Amount		% of Loans in Each Category


Consumer & others	$	13,453		0.98	%	$	9,736		0.57	%	$	8,433		0.48	%
Boat		298,243		2.07			129,405		4.28			294,723		3.86
Mortgage		1,547,983		76.77			2,020,334		68.21			1,748,122		67.97
Commercial		379,778		20.18			553,454		26.94			417,198		27.69

Total	$	2,239,457		100.00	%	$	2,712,929		100.00	%	$	2,468,476		100.00	%

Non-interest Revenue

Three months ended June 30, 2011 compared to three months ended June 30, 2010

Non-interest revenue totaled $517,331 for the three months ended June 30, 2011, an increase of $246,278 or 90.86% from the 2010 amount of $271,053. Non-interest revenue for the three months ended June 30, 2011 and June 30, 2010 included fee income from service charges on deposit accounts, gains on sales of investment securities, earnings on bank owned life insurance, a loss on disposal of assets and other fees and commissions including revenues with respect to Pointer Ridge. Non-interest revenue for the three months ended June 30, 2011 also included gains on sales of investment securities and permanent impairment on equity securities. The primary cause of the increase in non-interest revenue was the acquisition of MB&T which was supplemented by growth in legacy bank customers and services. The acquisition was the major contributor to the increase in service charges, earnings on bank owned life insurance and other fees and commissions. A $122,500 impairment in an equity security owned by Old Line Bank prior to the acquisition partially offset these increases. We charged the impairment against earnings because we believe that current market factors indicate this security is permanently impaired. Pointer Ridge rent and other revenues declined as a result of loss of tenants in the building owned by Pointer Ridge. The loss on disposal of assets was a result of the assets disposed of in the closure of one of the acquired MB&T branches.

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

	June 30, 2011			June 30, 2010		$ Change			% Change
Service charges on deposit accounts	$	396,785		$	78,411	$	318,374			406.03	%
Gains on sales of investment securities		2,489			-		2,489
Permanent impairment on equity securities		(122,500	)		-		(122,500	)
Earnings on bank owned life insurance		122,350			83,985		38,365			45.68
Pointer Ridge rent and other revenue		45,785			64,729		(18,944	)		(29.27	)
Gain (loss) on disposal of assets		(14,155	)		-		(14,155	)
Other fees and commissions		86,577			43,928		42,649			97.09
Total non-interest revenue	$	517,331		$	271,053	$	246,278			90.86	%

Six months ended June 30, 2011 compared to six months ended June 30, 2010

Non-interest revenue totaled $842,211 for the six months ended June 30, 2011, an increase of $278,269 or 49.34% from the 2010 amount of $563,942. The primary cause of the increase in non-interest revenue was the acquisition of MB&T and growth in customer services and deposits. The loss of tenants in the building that Pointer Ridge owns caused the decline in the rent and other revenue that we earn from Pointer Ridge. A $122,500 impairment in an equity security owned by Old Line Bank prior to the acquisition partially offset these increases. We charged the impairment against earnings because we believe that current market factors indicate this security is permanently impaired. Pointer Ridge rent and other revenues declined as a result of loss of tenants in the building owned by Pointer Ridge. The loss on disposal of assets was a result of the assets disposed of in the closure of one of the acquired MB&T branches.

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

	June 30, 2011			June 30, 2010		$ Change			% Change
Service charges on deposit accounts	$	479,235		$	153,231	$	326,004			212.75	%
Gain on sales of investment securities		40,559			-		40,559
Permanent impairment on equity securities		(122,500	)		-		(122,500	)
Earnings on bank owned life insurance		201,388			170,108		31,280			18.39
Pointer Ridge rent and other revenue		113,940			128,699		(14,759	)		(11.47	)
Gain (loss) on disposal of assets		(14,155	)		-		(14,155	)
Other fees and commissions		143,744			111,904		31,840			28.45
Total non-interest revenue	$	842,211		$	563,942	$	278,269			49.34	%

Because of the acquisition of Maryland Bankcorp, the business development efforts of our lenders, managers and the new branches, we expect that customer relationships will continue to grow during the remainder of 2011. We anticipate this growth will cause an increase in service charges on deposit accounts. We also expect our earnings on bank owned life insurance will increase during the remainder of 2011.

Non-interest Expense

Three months ended June 30, 2011 compared to three months ended June 30, 2010

Non-interest expense increased $3.6 million for the three months ended June 30, 2011. The following chart outlines the changes in non-interest expenses for the period.

	June 30, 2011		June 30, 2010		$ Change		% Change
Salaries	$	2,177,222	$	1,130,944	$	1,046,278		92.51	%
Employee benefits		796,512		317,803		478,709		150.63
Occupancy		686,987		319,051		367,936		115.32
Equipment		170,484		99,152		71,332		71.94
Data processing		233,332		105,074		128,258		122.06
Pointer Ridge other operating		209,460		88,700		120,760		136.14
FDIC insurance and State of Maryland assessments		167,312		115,553		51,759		44.79
Merger and integration		377,214		-		377,214
Core deposit premium		194,675		-		194,675
Other operating		1,152,244		433,637		718,607		165.72
Total non-interest expenses	$	6,165,442	$	2,609,914	$	3,555,528		136.23	%

Salaries, employee benefits, occupancy, equipment, data processing and other operating expenses increased primarily because of increased operating expenses resulting from the acquisition of MB&T. As a result of the acquisition, we increased our number of employees by 86 and our branch network by nine. Pointer Ridge other operating expense increased primarily because of the charge off of rents due from a prior tenant. Merger and integration costs include severance costs of approximately $168,000 and attorney, accounting and other professional fees of approximately $209,000 associated with the acquisition of MB&T. The increase in FDIC insurance and State of Maryland assessments was a result of the additional assets acquired from MB&T. This increase was partially offset by the change in the FDIC assessment base and rate calculation as required by the Dodd-Frank Act. The increase in the core deposit premium is the expense associated with the acquisition of MB&T’s core deposits and subsequent amortization of these assets.

Six months ended June 30, 2011 compared to six months ended June 30, 2010

Non-interest expense increased $3.8 million for the six months ended June 30, 2011. The following chart outlines the changes in non-interest expenses for the period.

	June 30, 2011		June 30, 2010		$ Change		% Change
Salaries	$	3,311,009	$	2,296,359	$	1,014,650		44.19	%
Employee benefits		1,163,436		667,938		495,498		74.18
Occupancy		1,052,920		652,457		400,463		61.38
Equipment		264,375		206,028		58,347		28.32
Data processing		363,082		199,500		163,582		82.00
Pointer Ridge other operating		327,682		202,400		125,282		61.90
FDIC insurance and State of Maryland assessments		318,816		230,668		88,148		38.21
Merger and integration		467,274		-		467,274
Core deposit premium		194,675		-		194,675
Other operating		1,629,347		849,346		780,001		91.84
Total non-interest expenses	$	9,092,616	$	5,304,696	$	3,787,920		71.41	%

Salaries, employee benefits, occupancy, equipment, data processing and other operating expenses increased primarily because of increased operating expenses resulting from the acquisition of MB&T. As a result of the acquisition, we increased our number of employees by 86 and our branch network by nine. Pointer Ridge other operating expense increased primarily because of a one time increase in management fees and the charge off of rents due from a prior tenant. Merger and integration costs include severance costs of approximately $168,000 and attorney, accounting and other professional fees of approximately $299,274 associated with the acquisition of MB&T. The increase in FDIC insurance and State of Maryland assessments was a result of the additional assets acquired from MB&T. This increase was partially offset by the change in the FDIC assessment base and rate calculation as required by the Dodd-Frank Act. The core deposit premium is the expense associated with the acquisition of MB&T’s core deposits and subsequent amortization of these assets.

For the remainder of 2011, we anticipate non-interest expenses will exceed last year’s expenses. During the remainder of 2011, we will continue to incur increased salary, benefits, occupancy, equipment and data processing expenses related to increased operational expenses associated with the merger of Maryland Bankcorp. We have continued to focus our efforts on reducing the operating expenses and anticipate that we will experience a reduction in these expenses from those reported for the three months ended June 30, 2011. We expect that we may have additional severance expenses during the remainder of 2011 as we continue to assess the staffing requirements of the combined organization.

Income Taxes

Three months ended June 30, 2011 compared to three months ended June 30, 2010

Income tax expense was $656,357 (37.02% of pre-tax income) for the three months ended June 30, 2011 as compared to $270,063 (34.43% of pre-tax income) for the same period in 2010. Approximately $140,000 of the merger and integration expense is non-deductible for tax purposes and was the primary cause of the increase in the tax rate.

Six months ended June 30, 2011 compared to six months ended June 30, 2010

Income tax expense was $991,600 (38.02% of pre-tax income) for the six months ended June 30, 2011 as compared to $500,132 (34.40% of pre-tax income) for the same period in 2010 Approximately $140,000 of the merger and integration expense is non-deductible for tax purposes and was the primary cause of the increase in the tax rate.

Net Income Available to Common Stockholders

Three months ended June 30, 2011 compared to three months ended June 30, 2010

Net income available to common stockholders was $1.2 million or $0.17 per basic and diluted common share for the three month period ending June 30, 2011 compared to net income available to common stockholders of $530,097 or $0.14 per basic and diluted common share for the same period in 2010. The increase in net income available to common stockholders for the 2011 period was primarily the result of a $4.3 million increase in net interest income, a $246,278 increase in non-interest revenue and a $120,000 decrease in the provision for loan losses. These increases were partially offset by a $3.6 million increase in non-interest expense and an increase in taxes.

Six months ended June 30, 2011 compared to six months ended June 30, 2010

Net income available to common stockholders was $1.7 million or $0.30 per basic and diluted common share for the six month period ending June 30, 2011 compared to net income available to common stockholders of $994,631 or $0.26 per basic and diluted common share for the same period in 2010. The increase in net income available to common stockholders for the 2011 period was primarily the result of a $4.7 million increase in net interest income, a $40,000 decrease in the provision for loan losses and a $278,269 increase in non-interest revenue. These increases were partially offset by a $3.8 million increase in non-interest expense and an increase in taxes compared to the same period in 2010.

Analysis of Financial Condition

Investment Securities

Our portfolio consists primarily of time deposits in other banks, investment grade securities including U.S. Treasury securities, U.S. government agency securities, U.S. government sponsored entity 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. We have prudently managed our investment portfolio to maintain liquidity and safety and we have never owned stock in Fannie Mae or Freddie Mac or any of the more complex securities available in the market. The portfolio provides a source of liquidity, collateral for borrowings as well as a means of diversifying our earning asset portfolio. While we usually intend to hold the investment securities until maturity, currently all of our investment securities are classified as available for sale because we sold a held to maturity security during the period and, as required by accounting guidance, we reclassified all securities classified as held to maturity to available for sale. We account for investment 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 investment securities classified in the held to maturity category at amortized cost. Although we will occasionally sell a security, generally, we invest in securities for the yield they produce and not to profit from trading the securities. As a result of the acquisition of Maryland Bankcorp, we are currently in the process of reevaluating the investment portfolio to ensure that the securities acquired in the acquisition meet our investment criteria and provide adequate liquidity. There are no trading securities in the portfolio.

The investment securities at June 30, 2011 amounted to $144.7 million, an increase of $89.9 million, or 164.05%, from the December 31, 2010 amount of $54.8 million. As outlined above, at June 30, 2011, all securities were classified as available for sale. At December 31, 2010, this balance was $33.1 million. At June 30, 2011, we did not hold any held to maturity securities compared to $21.7 million on December 31, 2010.

The fair value of available for sale securities included net unrealized gains of $2.8 million at June 30, 2011 (reflected as unrealized gains of $1.7 million in stockholders’ equity after deferred taxes) as compared to net unrealized gains of $635,246 ($272,956 net of taxes) as of December 31, 2010. In general, the increase in fair value was a result of the acquisition of MB&T, changes in length of time to maturity and decreasing market rates. 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. We have no intent or plan to sell these securities, it is not likely that we will have to sell these securities and we have not identified any portion of the loss that is a result of credit deterioration in the issuer of the security. As the maturity date moves closer and/or interest rates decline, the unrealized losses in the portfolio will decline or dissipate.

While we do not intend to sell any securities, we continue to evaluate the impact of the MB&T investment securities on our earnings, interest rate sensitivity and liquidity. As a result of this acquisition, we may continue to reposition the investments in our portfolio to ensure that we maintain an acceptable level of earnings and liquidity and that there is not any significant credit exposure that arises from the combined portfolio. As previously mentioned, it is not our intent to sell securities. If, however, this analysis indicates that it is prudent to sell securities, we may elect to sell securities.

As part of the acquisition of MB&T, we also acquired investments held by their pension plan. At June 30, 2011, accumulated other comprehensive income also included a $730,215 loss associated with these investments.

Loan Portfolio

Commercial loans and loans secured by real estate 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 $200.8 million or 67.02% to $500.4 million at June 30, 2011 from $299.6 million at December 31, 2010. Commercial business loans increased by $17.8 million (21.32%), commercial real estate loans increased by $87.6 million (57.07%), residential real estate loans increased by $71.7 million (264.58%), real estate construction loans (primarily commercial real estate construction and acquisition and development) increased by $21.0 million (86.07%) and consumer loans increased by $2.2 million (16.79%) from their respective balances at December 31, 2010. During the first six months of 2011, we received scheduled loan payoffs on construction loans that negatively impacted our loan growth for the period. The acquired loans were the primary cause of growth during the period although we also experienced an approximately $10.0 million growth in the legacy portfolio. We saw loan and deposit growth generated from our entire team of lenders, branch personnel and board of directors. We anticipate the entire team along with the team from MB&T will continue to focus their efforts on business development during the remainder of 2011 and continue to grow the loan portfolio. However, the current economic climate and the challenges associated with integrating MB&T into our organization may cause slower loan growth.

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

Loan Portfolio
(Dollars in thousands)
	June 30, 2011					December 31, 2010

Real Estate
Commercial	$	241,144		48.04	%	$	153,527		50.91	%
Construction		45,410		9.05			24,378		8.08
Residential		98,826		19.69			27,081		8.98
Commercial		101,277		20.18			83,523		27.69
Consumer		15,292		3.05			13,080		4.34
		501,949		100.00	%		301,589		100.00	%
Allowance for loan losses		(2,239	)				(2,469	)
Deferred loan costs, net		660					486
	$	500,370				$	299,606

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.

As outlined below, we have only two construction loans that have an interest reserve included in the commitment amount and where advances on the loan currently pay the interest due.

Loans With Interest Paid From Loan Advances
(Dollars in thousands)
	June 30, 2011			December 31, 2010
	# of Borrowers	(000's)		# of Borrowers	(000's)
Hotels	1	$	979	1	$	979
Single family acquisition & development	1		1,188	1		2,336
	2	$	2,167	2	$	3,315

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.

As previously discussed in the provision for loan losses section of this report, at June 30, 2011, we had one legacy loan in the amount $1.2 million that was 90 days past due and was classified as non-accrual compared to three loans in the amount of $2.7 million at December 31, 2010. At June 30, 2011, we have completed foreclosure on three properties that secured legacy loans and hold these properties in other real estate owned at a value of $1.9 million. At June 30, 2011, we had 28 acquired non-performing loans totaling $5.4 million and other real estate owned valued at $2.0 million. At June 30, 2011, we had four legacy loans totaling $5.2 million past due 30-89 days and 32 acquired loans fair valued at $2.5 million past due 30-89 days.

The table below outlines the transfer of loans from and to non-accrual status for the six month period:

Non-Accrual Loans June 30, 2010 (Dollars in thousands)
	# of Borrowers			Loan Balance
Beginning Balance		3		$	2,711
Added to non-accrual legacy loans		-			-
Added to non-accrual acquired loans		22			5,354
Repossessed legacy loan		(1	)		(237	)
Charged off legacy portfolio		-			(494	)
Charged off acquired portfolio		-			-
Transferred to other real estate owned legacy portfolio		(1	)		(810	)
Transferred to other real estate owned acquired portfolio		-			-
Ending balance non-accrual loans		23		$	6,524

Non-Accrual Legacy Loans and Legacy Other Real Estate Owned

The only non-accrual legacy loan at June 30, 2011 had a balance of $1.2 million and is a residential land acquisition and development loan secured by real estate. The non-accrued interest on this loan was $156,521 at June 30, 2011, none of which is included in interest income. The borrower and the guarantor on this loan have filed bankruptcy. We have received an appraisal that indicates the current value of the collateral that secures this loan is insufficient for repayment and are currently working towards obtaining a “lift stay” and foreclosure. As previously mentioned, because we believe the collateral is insufficient to repay the original amount due on this loan of $1.6 million, we charged $446,980 to the allowance for loan losses and have an additional $65,000 of the allowance for loan losses specifically allocated to this loan. We have identified a potential buyer for this note who has agreed to purchase it at a price slightly lower than the current carrying value and are awaiting ratification of this purchase from the bankruptcy court.

At December 31, 2010, we had three loans totaling $2.7 million past due and classified as non-accrual. The first loan in the amount of $810,291 was the same loan that we previously reported at December 31, 2008 and 2009. At December 31, 2010, we had obtained a “lift stay” on the property that secured the loan and were awaiting ratification of foreclosure. We received this ratification in January 2011 and transferred this property to other real estate owned.

The second loan, in the amount of $1,616,317, is a residential acquisition and development loan secured by real estate. As discussed above, we have charged $446,980 to the allowance for loan losses. At December 31, 2010, we considered this loan impaired and had allocated $450,000 of the allowance for loan losses to this loan.

The third loan was a luxury boat loan in the amount of $284,011. The borrower on this loan filed bankruptcy. During the 1st quarter of 2011, we repossessed the boat securing this loan. At repossession, we obtained a survey on the boat to determine its value. The collateral is insufficient to repay the loan balance. We have charged approximately $50,000 to the allowance for loan losses and recorded the remaining value of the repossessed boat of $236,750 in other assets.

Non-Accrual Acquired Loans and Other Real Estate Owned

At June 30, 2011, we had 28 non-accrual acquired loans totaling $4.5 million to 22 borrowers. Of these, the borrowers on 19 loans totaling $2.7 million are current according to their contractual terms and are generally making monthly payments, although not always in a timely manner. The loans were placed on non-accrual by MB&T because of their slow payment history and/or the industry was significantly impacted by the current weaknesses in the economy. One additional loan with a carrying balance of $100,000 was paid in full in July 2011.

We have two borrowers owned by the same individual and the aggregate fair value of four loans totals $775,000. We are currently in negotiations with the individual to obtain additional collateral. Residential land secures these loans. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs or expenses to sell.

We have one borrower with one note secured by commercial real estate and the fair value of the loan is $590,694. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs, litigation costs or expenses to sell. We are currently in negotiations with the borrower to obtain additional collateral and restructure the loan.

We have one borrower with one note secured by commercial real estate and the fair value of the loan is $300,000. This borrower is currently in the process of exiting from bankruptcy protection. Once the borrower has exited, we plan to foreclose. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs or expenses to sell.

We have one borrower with a loan secured by commercial real estate and the fair value of the loan is $350,000. We are currently in negotiations with the borrower to develop a repayment plan or obtain additional collateral. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs or expenses to sell.

We have one borrower with a loan secured by commercial real estate and the fair value of the loan is $250,000. The borrower has filed bankruptcy and has 30 days from filing to file a bankruptcy plan before we can obtain a “lift stay” on the property that secures the loan. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs or expenses to sell.

We have one borrower with two loans secured by residential real estate and the aggregate fair value of the loans is $50,000. The borrower currently has a contract for the purchase of the properties. Assuming this borrower proceeds to settlement on these contracts, we will receive payment in full. The fair value is equivalent to our assessment of the current value of the real estate less any carrying costs or expenses to sell.

We classify any property acquired as a result of foreclosure on a mortgage loan as “other 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 property 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 required by ASC Topic 310-Receivables and ASC Topic 450-Contingencies, we measure all impaired loans, which consist of all modified loans and other loans for which collection of all contractual principal and interest is not probable, 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 impairment test to these loans. We write off impaired loans when collection of the loan is doubtful.

The table below presents a breakdown of the non-performing loans, other real estate owned and accruing past due loans at June 30, 2011.

Non-Accrual and Past Due Loans
(Dollars in thousands)
June 30, 2011
	Legacy							Acquired							Total
	# of Borrowers		Account Balance			Interest Not Accrued		# of Borrowers		Account Balance			Interest Not Accrued		Account Balance
Real Estate
Commercial			$	-		$	-		14	$	3,190		$	1,013	$	3,190
Construction		1		1,169			157		3		500			294		1,669
Residential				-			-		7		1,028			111		1,028
Commercial				-			-		4		636			33		636
Consumer				-			-				-			-		-
Total non-performing loans		1		1,169			157		28		5,354			1,451		6,523
Other real estate owned		3		1,975					7		1,974					3,949
Total non-performing assets		4	$	3,144					35	$	7,328				$	10,472

Non-performing assets as a percentage of total assets				0.41	%						0.96	%				1.38	%
Non-performing loans as a percentage of gross loans				0.23	%						1.07	%				1.30	%

Accruing past due loans:
30-89 days past due		4	$	5,242					31	$	2,431				$	7,673
90 or more days past due				-					1		42					42
Total accruing past due loans		4	$	5,242					32	$	2,473				$	7,715

Non-Performing Assets and Past Due Loans
Legacy
December 31, 2010


	#		Balance			Interest Not Accrued
Real Estate
Commercial		3	$	1,586		$	191
Construction				-			-
Residential				-			-
Commercial				-			-
Consumer				-			-
Other real estate owned				-			-
Total non-performing assets		3	$	1,586		$	191

Non-performing assets as a percentage of total assets				0.44	%
Non-performing loans as a percentage of total gross loans				0.59	%

Accruing past due loans:
30-89 days past due		2		581
90 or more days past due				-
Total accruing past due loans		2	$	581

Ratio of accruing past due loans to total loans:
30-89 days past due				0.0022	%
90 or more days past due				-
Total accruing past due loans				0.0022	%

Bank owned life insurance

We have invested $16.4 million in life insurance policies on our executive officers, other officers of Old Line Bank, and retired officers of MB&T. We anticipate the earnings on these policies will contribute to 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. During the first six months of 2011, the cash surrender value of the insurance policies increased by $7.7 million as a result of the transfer of $7.5 million at fair value from MB&T and earnings on the investments. There are no post retirement death benefits associated with the BOLI policies.

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, 2011, the deposit portfolio had grown to $647.0 million, a $306.5 million or 90.01% increase over the December 31, 2010 level of $340.5 million. Non-interest bearing deposits increased $93.0 million during the period to $160.5 million from $67.5 million primarily due to acquisition of MB&T, as well as the establishment of new customer demand deposit accounts and expansion of existing demand deposit accounts. Interest-bearing deposits grew $213.5 million to $486.5 million from $273.0 million. Approximately $112.5 million of the increase in interest bearing deposits was in certificates of deposit, $34.4 million was in money market accounts and $48.9 million was in savings accounts. The growth in these categories was the result of the acquisition of MB&T along with the expansion of existing customer relationships, the new money market accounts discussed below and new customers.

We acquire brokered certificates of deposit and money market accounts through the Promontory Interfinancial Network. Through this deposit matching network and its certificate of deposit and money market 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’s reciprocal deposit program. Generally, these deposits originate from local municipalities, homeowners’ associations or other similar type customers with whom we maintain a significant relationship. We can also place deposits through this network without receiving matching deposits. At June 30, 2011, we had $20.7 million in CDARS certificates of deposit and $13.4 million in CDARS money market accounts through the reciprocal deposit program compared to $21.1 million in certificates of deposit and $5.7 million in money market accounts at December 31, 2010. We had received $37.0 million at June 30, 2011 and $31.8 million at December 31, 2010 in certificates of deposit through the CDARS network that were not reciprocal deposits.

Borrowings

Old Line Bancshares has available a $3 million unsecured line of credit. Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks totaling $29.5 million as of June 30, 2011. Old Line Bank has an additional secured line of credit from the Federal Home Loan Bank of Atlanta (FHLB) that totaled $119.9 million at June 30, 2011 and $120.9 million at December 31, 2010. As a condition of obtaining the line of credit from the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB. Prior to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line Bank provide collateral to support borrowings. This collateral consists of commercial and residential mortgage loans held in our portfolio. The FHLB monitors the value of this collateral and performs audits on a regular basis. At June 30, 2011, we have provided collateral to support up to $62.9 million of borrowings. Of this, we had borrowed $10.0 million at June 30, 2011 and December 31, 2010, as outlined below. This was the maximum amount that we had borrowed during the period ended June 30, 2011.

Short-term borrowings consisted of short-term promissory notes issued to Old Line Bank’s customers. 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 a short term promissory note with Old Line Bank. These obligations are payable on demand, are secured by investments or are unsecured, re-price daily and have maturities of one to 270 days. At June 30, 2011, Old Line Bank had $8.5 million outstanding in these short term unsecured promissory notes with an average interest rate of 0.20% and $17.6 million outstanding in secured promissory notes with an average interest rate of 0.50%. We recorded these secured promissory notes with the acquisition of MB&T. At December 31, 2010, Old Line Bank had $5.7 million outstanding with an average interest rate of 0.50%.

At June 30, 2011 and December 31, 2010, Old Line Bank had two advances in the amount of $5 million each, from the FHLB totaling $10 million.

On December 12, 2007, Old Line Bank borrowed another $5.0 million from the FHLB. The interest rate on this advance is 3.3575% and interest is payable on the 12th day of each March, June, September and December, commencing on March 12, 2008. On December 12, 2008, or any interest payment date thereafter, the FHLB has the option to convert the interest rate on this advance to a fixed rate three (3) month LIBOR. The maturity date on this advance is December 12, 2012.

On December 19, 2007, Old Line Bank borrowed an additional $5.0 million from the FHLB. The interest rate on this borrowing is 3.119% and interest is payable on the 19th day of each month. On January 22, 2008 or any interest payment date thereafter, the FHLB has the option to convert the interest rate on this advance from a fixed rate to a one (1) month LIBOR based variable rate. This borrowing matures on December 19, 2012.

The following table outlines our borrowings as of June 30, 2011 and December 31, 2010.

Borrowings
	June 30, 2011					December 31, 2010
	Amount		Rate			Amount		Rate
Short term promissory notes	$	8,551,610		0.20	%	$	5,669,332		0.50	%
Repurchase agreements		17,601,390		0.50	%		-		0.00	%
Total short term borrowings		26,153,000					5,669,332

FHLB advance due Dec. 2012		5,000,000		3.36	%		5,000,000		3.36	%
FHLB advance due Dec. 2012		5,000,000		3.12	%		5,000,000		3.12	%
Senior note, fixed at 6.28%		6,328,337		6.28	%		6,371,947		6.28	%
Total long term borrowings		16,328,337					16,371,947

On August 25, 2006, Pointer Ridge entered into an Amended and Restated Promissory Note in the principal amount of $6.6 million. This loan accrues interest at a rate of 6.28% through September 5, 2016. After September 5, 2016, the rate adjusts to the greater of (i) 6.28% plus 200 basis points or (ii) the Treasury Rate (as defined in the Amended Promissory Note) plus 200 basis points. At June 30, 2011 and December 31, 2010, Pointer Ridge had borrowed $6.3 million and $6.4 million, respectively, under the Amended Promissory Note. We have guaranteed to the lender payment of up to 62.5% of the loan payment plus any costs the lender incurs resulting from any omissions or alleged acts or omissions by Pointer Ridge arising out of or relating to misapplication or misappropriation of money, rents received after an event of default, waste or damage to the property, failure to maintain insurance, fraud or material misrepresentation, filing of bankruptcy or Pointer Ridge’s failure to maintain its status as a single purpose entity.

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. As outlined in the borrowing section of this report, we have credit lines, unsecured and secured, available from several correspondent banks totaling $32.5 million. Additionally, we may borrow funds from the FHLB and the Federal Reserve Bank of Richmond. 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 available for sale investment securities or pledge investment securities as collateral 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, federal funds sold and time deposits in other banks. On June 30, 2011, we had $48.6 million in cash and due from banks, $102,921 in interest bearing accounts, and $264,506 in federal funds sold. As of December 31, 2010, we had $14.3 million in cash and due from banks, $109,170 in interest bearing accounts, $180,536 in federal funds sold and other overnight investments and $297,000 in time deposits in other banks. The increase in liquidity was primarily the result of the acquisition of MB&T.

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.

During the turmoil in the financial markets in late 2008 and early 2009, some institutions experienced large deposit withdrawals that caused liquidity problems. We did not have any significant withdrawals of deposits or any liquidity issues. Although we plan for various liquidity scenarios, if there is further turmoil in the financial markets or our depositors lose confidence in us, we could experience liquidity issues.

Capital

Our stockholders’ equity amounted to $63.3 million at June 30, 2011 and $37.1 million at December 31, 2010. We are considered “well capitalized” under the risk-based capital guidelines adopted by the Federal Reserve. Stockholders’ equity increased during the six month period primarily because of the capital received in the acquisition of Maryland Bankcorp of $17.8 million, the $6.3 million in capital received in the private placement in January 2011, net income available to common stockholders of $1.7 million, the $74,816 adjustment for stock based compensation awards and the $665,017 after tax unrealized gain on available for sale securities. These items were partially offset by the $344,610 common stock cash dividend.

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

Old Line Bancshares 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 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 commitments do not represent unusual risks and management does not anticipate any losses which would have a material effect on Old Line Bancshares. Old Line Bancshares also has operating lease obligations.

Outstanding loan commitments and lines and letters of credit at June 30, 2011 and December 31, 2010, are as follows:

	June 30, 2011		December 31, 2010
	(Dollars in thousands)

Commitments to extend credit and available credit lines:
Commercial	$	44,252	$	34,485
Real estate-undisbursed development and construction		22,314		11,512
Consumer		10,306		7,256
	$	76,872	$	53,253
Standby letters of credit	$	8,492	$	7,901

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 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 all 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. We evaluate each customer's credit worthiness on a case by case basis. We regularly reevaluate many of our commitments to extend credit. Because we conservatively underwrite these facilities at inception, we generally do not have to withdraw any commitments. 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 $22.3 million, or 29.00% of the $76.9 million of outstanding commitments at June 30, 2011, 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. In general, loan commitments, credit lines and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans. We evaluate each customer’s credit worthiness and the collateral required on a case by case basis.

Reconciliation of Non-GAAP Measures

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

Three months ended June 30, 2011
	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	7,471,174		4.57	%		4.30	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		121,322		0.07			0.08
Loans		30,334		0.02			0.02
Total tax equivalent adjustment		151,656		0.09			0.10
Tax equivalent interest yield	$	7,622,830		4.66	%		4.40	%

Three months ended June 30, 2010
	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	3,293,178		3.70	%		3.45	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		12,027		0.01			0.01
Loans		27,958		0.04			0.04
Total tax equivalent adjustment		39,985		0.05			0.05
Tax equivalent interest yield	$	3,333,163		3.75	%		3.50	%

Six months ended June 30, 2011
	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	11,058,437		4.35	%		4.08	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		132,804		0.06			0.06
Loans		57,603		0.02			0.02
Total tax equivalent adjustment		190,407		0.08			0.08
Tax equivalent interest yield	$	11,248,844		4.43	%		4.16	%

Six months ended June 30, 2010
	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	6,434,834		3.75	%		3.51	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		24,077		0.02			0.02
Loans		55,624		0.03			0.03
Total tax equivalent adjustment		79,701		0.05			0.05
Tax equivalent interest yield	$	6,514,535		3.80	%		3.56	%

Impact of Inflation and Changing Prices

Management has prepared the financial statements and related data presented herein 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 a 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 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’ plans, objectives, expectations and intentions, including anticipated increases in expenses as a result of the merger with Maryland Bankcorp, anticipated expenses in connection with termination of the MB&T employee pension plan, our expectations that income generated from the branches acquired in the merger, our new loan officers, and our expanded market area will offset corresponding increased expenses, branch retention and expansion, statements with respect to retention or severance of former MB&T personnel, statements regarding anticipated changes in revenue, expenses and income, increases in net interest income, hiring and acquisition possibilities, improving our net interest margin during the remainder of 2011, our belief that we have identified any problem assets and that our borrowers will continue to remain current on their loans, being well positioned to capitalize on potential opportunities in a healthy economy, continued growth in customer relationships, sources of liquidity, the allowance for loan losses, expected loan, deposit and asset growth, losses on and our intentions with respect to our investment securities, anticipated receipt of all amounts due in connection with the sale of a foreclosed property, interest rate sensitivity, losses on off balance sheet arrangements, earnings on BOLI, expectations with respect to the outcome and impact of pending legal proceedings, payment with respect to non-accrual loans, improving earnings per share and stockholder value, and financial and other goals and plans are forward looking. Old Line Bancshares 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 businesses of Maryland Bankcorp may not be integrated into Old Line Bancshares successfully or such integration may be more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the merger may not be fully realized, or realized within the expected timeframe; potential disruption in our businesses, operations and customer and employee relationships as a result of the integration of Maryland Bankcorp’s business with our own; the ability of Old Line Bancshares to retain key personnel; the ability of Old Line Bancshares to successfully implement its growth and expansion strategy; risk of loan losses; that the allowance for loan losses may not be sufficient; that changes in interest rates and monetary policy could adversely affect Old Line Bancshares; that changes in regulatory requirements and/or restrictive banking legislation may adversely affect Old Line Bancshares, including regulations adopted pursuant to the Dodd-Frank Act; that the market value of investments could negatively impact stockholders’ equity; risks associated with Old Line Bancshares’ 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; further deterioration in general economic conditions or a slower than anticipated recovery; and changes in competitive, governmental, regulatory, technological and other factors which may affect Old Line Bancshares specifically or the banking industry generally. For a more complete discussion of some of these risks and uncertainties see “Risk Factors” in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2010, Old Line Bancshares’ registration statement on Form S-4 filed on November 8, 2010 and in this report.

Old Line Bancshares’ 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 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’ Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Old Line Bancshares’ disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, Old Line Bancshares’ Chief Executive Officer and Chief Financial Officer concluded that Old Line Bancshares’ disclosure controls and procedures are effective as of June 30, 2011. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Old Line Bancshares 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’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, Old Line Bancshares’ internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

At June 30, 2011, we were not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.

Item 1A. Risk Factors

We have identified the following material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

The Standard & Poor’s downgrade in the U.S. government’s sovereign credit rating and in the credit ratings of instruments issued, insured or guaranteed by certain related institutions, agencies and instrumentalities, could result in risks to us.

On August 5, 2011, Standard & Poor’s downgraded the United States long-term debt rating from its AAA rating to AA+. On August 8, 2011, Standard & Poor’s downgraded the credit ratings of certain long term debt instruments issued by Fannie Mae and Freddie Mac and other U.S. government agencies linked to long term U.S. debt. Instruments of this nature are key assets on the balance sheets of financial institutions, including the ours. These downgrades could adversely affect the market value of such instruments, could adversely impact our ability to obtain funding that is collateralized by affected instruments, and could adversely impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. These ratings downgrades could result in a significant adverse impact to Old Line Bank and Old Line Bancshares, and could exacerbate the other risks to which we are subject.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

None

Item 6. Exhibits

10.46

Non-Compete Agreement by and between Old Line Bancshares, Inc. and G. Thomas Daugherty dated April 11, 2011

31.1

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

31.2

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

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101 Interactive Data Files pursuant to Rule 405 of Regulation S-T.*

*Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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 15, 2011	By:	/s/ James W. Cornelsen
		James W. Cornelsen, President and Chief Executive Officer
		(Principal Executive Officer)


Date August 15, 2011	By:	/s/ Christine M. Rush
		Christine M. Rush, Executive Vice President and Chief Financial Officer
		(Principal Accounting and Financial Officer)

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Old Line Bancshares (OLBK) 10-Q2011 Q2 Quarterly report

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