Old Line Bancshares 10Q 2011 Q3 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 September 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 October 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

	September 30, 2011		December 31, 2010
	(Unaudited)
Assets
Cash and due from banks	$	44,591,494	$	14,325,266
Interest bearing accounts		14,157		109,170
Federal funds sold		720,898		180,536
Total cash and cash equivalents		45,326,549		14,614,972
Time deposits in other banks		-		297,000
Investment securities available for sale		158,503,556		33,049,795
Investment securities held to maturity		-		21,736,469
Loans, less allowance for loan losses		515,738,796		299,606,430
Equity securities at cost		4,051,482		2,562,750
Premises and equipment		22,748,048		16,867,561
Accrued interest receivable		2,349,748		1,252,970
Prepaid income taxes		162,043		189,523
Deferred income taxes		6,353,633		265,551
Bank owned life insurance		16,298,382		8,703,175
Prepaid pension		1,315,642		-
Other real estate owned		4,126,434		1,153,039
Goodwill		141,723		-
Core deposit intangible		4,613,568		-
Other assets		4,255,685		1,610,715
Total assets	$	785,985,289	$	401,909,950

Liabilities and Stockholders' Equity
Deposits
Non-interest bearing	$	176,167,359	$	67,494,744
Interest bearing		487,824,952		273,032,442
Total deposits		663,992,311		340,527,186
Short term borrowings		32,605,607		5,669,332
Long term borrowings		16,307,146		16,371,947
Accrued interest payable		392,340		434,656
Accrued pension		4,554,285		673,048
Other liabilities		1,867,752		575,031
Total liabilities		719,719,441		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		53,421,825		29,206,617
Retained earnings		10,399,491		7,535,268
Accumulated other comprehensive income		1,898,327		272,956
Total Old Line Bancshares, Inc. stockholders' equity		65,787,739		37,053,758
Non-controlling interest		478,109		604,992
Total stockholders' equity		66,265,848		37,658,750
Total liabilities and stockholders' equity	$	785,985,289	$	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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Interest revenue
Loans, including fees	$	8,573,052		$	4,260,382		$	20,510,217		$	12,259,381
U.S. Treasury securities		2,413			-			4,820			-
U.S. government agency securities		111,428			42,133			231,056			132,830
Mortgage backed securities		782,903			373,619			1,924,401			1,047,096
Municipal securities		221,272			19,699			464,083			60,059
Federal funds sold		994			2,656			5,159			4,842
Other		45,042			60,707			119,202			218,920
Total interest revenue		9,737,104			4,759,196			23,258,938			13,723,128
Interest expense
Deposits		1,175,773			985,950			3,243,461			2,960,315
Borrowed funds		216,756			248,292			612,465			803,025
Total interest expense		1,392,529			1,234,242			3,855,926			3,763,340
Net interest income		8,344,575			3,524,954			19,403,012			9,959,788
Provision for loan losses		800,000			200,000			1,000,000			440,000
Net interest income after provision for loan losses		7,544,575			3,324,954			18,403,012			9,519,788
Non-interest revenue
Service charges on deposit accounts		380,065			78,247			859,300			231,478
Gains on sales or calls of investment securities		72,252			-			112,811			-
Permanent impairment on equity securities		-			-			(122,500	)		-
Earnings on bank owned life insurance		356,281			83,963			557,669			254,071
Gains on sales of other real estate owned		45,595						48,580
Gains (losses) on disposal of assets		8,995			-			(5,160	)		-
Other fees and commissions		152,613			141,036			407,312			381,639
Total non-interest revenue		1,015,801			303,246			1,858,012			867,188
Non-interest expense
Salaries		2,248,065			1,263,368			5,559,074			3,559,727
Employee benefits		782,443			319,550			1,945,879			987,488
Occupancy		746,356			330,752			1,799,276			983,209
Equipment		170,254			105,342			434,629			311,370
Data processing		232,530			126,412			595,612			325,912
FDIC insurance and State of Maryland assessments		143,680			130,595			462,496			361,263
Merger and integration		77,880			187,125			545,154			187,125
Core deposit premium		194,674			-			389,349			-
Other operating		1,557,284			605,068			3,514,313			1,656,814
Total non-interest expense		6,153,166			3,068,212			15,245,782			8,372,908

Income before income taxes		2,407,210			559,988			5,015,242			2,014,068
Income taxes		737,405			265,299			1,729,005			765,431
Net income		1,669,805			294,689			3,286,237			1,248,637
Less: Net income (loss) attributable to the noncontrolling interest		(37,688	)		(17,876	)		(126,883	)		(58,559	)
Net income available to common stockholders	$	1,707,493		$	312,565		$	3,413,120		$	1,307,196

Basic earnings per common share	$	0.25		$	0.08		$	0.56		$	0.34
Diluted earnings per common share	$	0.25		$	0.08		$	0.56		$	0.34
Dividend per common share	$	0.03		$	0.03		$	0.09		$	0.09

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

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2011
(Unaudited)
					Additional paid-in capital						Accumulated other comprehensive income
	Common stock							Retained earnings					Comprehensive income		Non-controlling Interest
	Shares		Par value					Retained earnings					Comprehensive income		Non-controlling 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.		-		-		-			3,413,120			-	$	3,413,120		-
Unrealized gain on
securities available for sale,
net of income tax benefit of $1,534,408		-		-		-			-			1,625,371		1,625,371		-
Comprehensive income		-		-		-			-			-	$	5,038,491		-
Acquisition Maryland Bankcorp, Inc.		2,132,231		21,322		17,784,355			-			-				-
Net income attributable to non-controlling interest		-		-		-			-			-				(126,883	)
Stock based compensation awards		-		-		106,118			-			-				-
Restricted stock issued		8,786		88		(88	)		-			-				-
Private placement-common stock		776,872		7,769		6,324,823			-			-				-
Common stock cash dividend $0.09 per share		-		-		-			(548,897	)		-				-
Balance, September 30, 2011		6,809,594	$	68,096	$	53,421,825		$	10,399,491		$	1,898,327			$	478,109

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

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,	2011			2010
Cash flows from operating activities
Interest received	$	23,621,865		$	13,694,364
Fees and commissions received		1,654,345			654,326
Interest paid		(3,959,024	)		(3,820,867	)
Cash paid to suppliers and employees		(12,842,458	)		(6,924,009	)
Income taxes paid		(226,596	)		(1,003,071	)
		8,248,132			2,600,743
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			7,136,243
Purchase of investment securities
Held to maturity		-			(20,316,548	)
Available for sale		(57,888,014	)		(3,140,625	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call		-			2,819,165
Held to maturity sold		514,079			-
Available for sale at maturity or call		11,182,450			6,940,703
Available for sale sold		17,383,871			-
Loans made, net of principal collected		(27,224,201	)		(32,859,969	)
Proceeds from sale of other real estate owned		77,171			-
Investment in improvements other real estate owned		(53,245	)
Redemption (Purchase) of equity securities		208,952			334,299
Purchase of premises, equipment and software		(2,199,933	)		(321,485	)
		(15,734,688	)		(39,408,217	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits		(28,084,844	)		5,800,014
Other deposits		54,043,969			48,966,663
Increase in short term borrowings		7,542,275			(2,202,584	)
Decrease in long term borrowings		(64,801	)		(60,828	)
Acquisition cash consideration		(1,022,161	)		-
Private placement - common stock		6,332,592			-
Cash dividends paid-common stock		(548,897	)		(349,200	)
Distributions to minority members		-			(11,362	)
		38,198,133			52,142,703

Net increase (decrease) in cash and cash equivalents		30,711,577			15,335,229

Cash and cash equivalents at beginning of period		14,614,972			11,436,587
Cash and cash equivalents at end of period	$	45,326,549		$	26,771,816

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

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

Nine Months Ended September 30,	2011			2010
Reconciliation of net income to net cash
provided by operating activities
Net income	$	3,286,237		$	1,248,637

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

Depreciation and amortization		771,372			605,671
Provision for loan losses		1,000,000			440,000
Change in deferred loan fees net of costs		(196,415	)		(28,589	)
Gains on sales or calls of securities		(112,811	)		-
Amortization of premiums and discounts		527,132			186,553
Permanent impairment on equity securities		122,500			-
Gain on other real estate owned		(48,580	)
Gain on sale of fixed assets		5,160			-
Amortization of intangible		389,349			-
Deferred income taxes		243,900			(61,772	)
Stock based compensation awards		106,118			92,175
Increase (decrease) in
Accrued interest payable		(103,098	)		(57,527	)
Income tax payable		-			(175,543	)
Other liabilities		(246,024	)		555,225
Decrease (increase) in
Accrued interest receivable		32,210			(186,728	)
Bank owned life insurance		(90,856	)		(212,862	)
Prepaid pension		550,847			-
Prepaid income taxes		1,258,509			(325	)
Other assets		752,582			195,828
	$	8,248,132		$	2,600,743

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

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

Nine months ended September 30,	2011			2010

Supplemental Disclosure:
Loans transferred to other real estate owned	$	1,114,290		$	823,169

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		(1,563,745	)		-
Purchase price in excess of net assets acquired	$	141,723		$	-

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

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 (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 September 30, 2011 through November 4, 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). 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 an 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):

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		(1,624	)
Net tangible assets acquired		12,691
Definite lived intangible assets acquired		5,003
Goodwill		141
Net intangible assets acquired		5,144
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 September 30, 2011 and 2010 as if the MB&T acquisition had occurred as of the beginning of the periods presented.

	Nine Months Ended September 30,
	2011		2010
Net interest income	$	19,403	$	21,461
Other non-interest revenue		1,858		2,997
Total revenue		21,261		24,458
Provision expense		1,000		3,589
Other non-interest expense		14,750		19,559
Income before income taxes		5,511		1,310
Income tax expense		1,875		498
Net income	$	3,636	$	812
Basic earnings per share		0.52		0.14
Diluted earnings per share		0.52		0.14

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 $488,457 in investments that we previously classified as held to maturity. We recognized a gain of $25,622 on the sale of this security. 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.

September 30, 2011	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Available for sale
U. S. treasury	$	1,247,433	$	9,817	$	-		$	1,257,250
U.S. government agency		24,140,268		189,983		(1,500	)		24,328,751
Municipal securities		24,521,774		1,131,171		(17	)		25,652,928
Mortgage backed		104,253,329		3,070,016		(58,718	)		107,264,627
	$	154,162,804	$	4,400,987	$	(60,235	)	$	158,503,556

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

September 30, 2011	Fair value		Unrealized losses
Unrealized losses less than 12 months
U.S. treasury	$	-	$	-
U.S. government agency		1,498,500		(1,500	)
Municipal securities		829,983		(17	)
Mortgage backed		13,429,307		(58,718	)
Total unrealized losses less than 12 months		15,757,790		(60,235	)

Unrealized losses greater than 12 months
U.S. treasury		-		-
U.S. government agency		-		-
Municipal securities		-		-
Mortgage backed		-		-
Total unrealized losses greater than 12 months		-		-

Total unrealized losses
U.S. treasury		-		-
U.S. government agency		1,498,500		(1,500	)
Municipal securities		829,983		(17	)
Mortgage backed		13,429,307		(58,718	)
Total unrealized losses	$	15,757,790	$	(60,235	)

We consider all unrealized losses on securities as of September 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 September 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.

In the three and nine month periods ended September 30, 2010, we did not record any gains or losses from the sale or call of securities. In the three and nine month periods ended September 30, 2011, we recorded gross realized gains of $72,251 and $112,811, respectively, from the sale or call of securities.

INVESTMENT SECURITIES (Continued)

Contractual maturities and pledged securities at September 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
September 30, 2011	Amortized cost		Fair value

Maturing
Within one year	$	2,262,827	$	2,306,490
Over one to five years		15,640,469		15,799,109
Over five to ten years		31,268,594		32,257,143
Over ten years		104,990,914		108,140,814
	$	154,162,804	$	158,503,556
Pledged securities	$	32,092,583	$	32,915,358

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	September 30, 2011			December 31, 2010

Current assets	$	463,074		$	758,257
Non-current assets		7,136,784			7,252,413
Liabilities		6,324,903			6,397,360
Equity		1,274,955			1,613,310

	Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
Statements of Income
Revenue	$	187,285		$	215,704		$	576,407		$	612,900
Expenses		287,788			263,374			914,763			769,058
Net income (loss)	$	(100,503	)	$	(47,670	)	$	(338,356	)	$	(156,158	)

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:

	September 30, 2011			December 31, 2010

Real estate
Commercial	$	264,964,445		$	153,526,907
Construction		44,089,479			24,377,690
Residential		96,987,284			27,081,399
Commercial		97,639,226			83,523,056
Consumer		14,402,166			13,079,878
		518,082,600			301,588,930
Allowance for loan losses		(3,026,195	)		(2,468,476	)
Deferred loan costs, net		682,391			485,976
	$	515,738,796		$	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 seven 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 ratings 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 do not comply with underwriting standards that we maintain. Accordingly, during our due diligence process, we evaluated these loans using our underwriting standards and discounted the book value of these loans. This discounted book value was subsequently incorporated into our initial purchase price.

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 September 30, 2011 and December 31, 2010, we had approximately $48.6 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 including home equity lines of credit, home improvement loans and first or second mortgages on investment properties. Our residential 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 residential real estate loans with a security interest in the borrower’s primary or secondary residence with a loan to value not exceeding 85%. 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 originate 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 consumer 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 September 30, 2011 and December 31, 2010, the only industry in which we had a concentration of loans was the hospitality industry, as previously mentioned.

Non-Accrual and Past Due Loans

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). We consider all loans past due if the borrower has not paid the required principal and interest payments when due under the original or modified terms of the promissory note 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 legacy loans only when received. We originally recorded acquired non-accrual loans at fair value upon acquisition. We expect to fully collect the carrying value of these loans. Therefore, as provided for under ASC 310-30, we recognize interest income on acquired non-accrual loans through the accretion of the difference between the carrying value of these loans and expected cash flows.

6.	LOANS (Continued)

We consider a loan a troubled debt restructuring when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties.

The table below presents a breakdown of the non-performing loans and accruing past due loans at September 30, 2011 and December 31, 2010, respectively.

Non-Accrual and Past Due Loans and Troubled Debt Restructurings
September 30, 2011
	Legacy						Acquired
	# of Borrowers		Account Balance		Interest Not Accrued		# of Borrowers		Account Balance		Interest Not Accrued
Real Estate
Commercial		-	$	-	$	-		8	$	1,521,485	$	155,853
Construction		1		1,169,337		184,603		2		1,715,000		583,528
Residential		-		-		-		2		973,890		106,607
Commercial		-		-		-		2		44,157		28,680
Consumer		-		-		-		-		-		-
Total non-performing loans		1	$	1,169,337	$	184,603		14	$	4,254,532	$	874,668

Accruing past due loans:
30-89 days past due		2	$	307,060				17	$	954,756
90 or more days past due		-		-				5		1,387,948
Total accruing past due loans		2	$	307,060				22	$	2,342,704

Accruing Troubled Debt Restructurings
Real Estate		2	$	4,755,017				-	$	-
Consumer		1		145,018				2		154,194
Total Accruing Troubled Debt Restructurings		3	$	4,900,035				2	$	154,194

6.	LOANS (Continued)

Non-Accrual and Past Due Loans
December 31, 2010
	Legacy						Acquired
	# of Borrowers		Account Balance		Interest Not Accrued		# of Borrowers		Account Balance		Interest Not Accrued
Real Estate
Commercial			$	-	$	-			$	-	$	-
Construction		2		2,426,608		314,804				-		-
Residential				-		-				-		-
Commercial				-		-				-		-
Consumer		1		284,011		3,728				-		-
Total non-performing loans		3	$	2,710,619	$	318,532		-	$	-	$	-

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

Accruing Troubled Debt Restructurings
Real Estate		1	$	499,122					$	-
Consumer		1		145,018						-
Total Accruing Troubled Debt Restructurings		2	$	644,140				-	$	-

Non-accrual legacy loans

There was one non-accrual legacy loan at September 30, 2011 that had a balance of $1,169,337 and is a residential land acquisition and development loan secured by real estate and described below. At September 30, 2011, the non-accrued interest on this loan was $184,603, 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 had identified a potential buyer for this note who had agreed to purchase it at a price slightly lower than the current carrying value. In October of 2011, the prospective purchaser of the promissory note rescinded his offer. We expect to proceed with foreclosure on the property that secures the promissory note.

6.	LOANS (Continued)

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.

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 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 in the non-accretable difference which would decrease interest income. 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 three and nine months ended September 30, 2011, we recorded $1,180,447 and $1,722,929 in interest income.

Non-accrual acquired loans

At September 30, 2011, we had 24 non-accrual acquired loans to 14 borrowers totaling $4,254,532. 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.

6. Loans (Continued)

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.

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.

6. Loans (Continued)

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 the 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.

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.

	September 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)	$	492,896,371	$	2,720,527	$	281,901,972	$	1,529,356
Special Mention (5)		11,373,599		215,668		13,777,303		489,120
Substandard (6)		13,812,630		90,000		5,909,655		450,000
Doubtful (7)		-		-		-		-
Loss (8)		-		-		-		-
Total	$	518,082,600	$	3,026,195	$	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 September 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.

September 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		95,418			616,246			158,703			129,633			1,000,000
Recoveries		11,254			50,225			-			45,731			107,210
		1,854,794			1,083,669			453,426			183,797			3,575,686
Loans charged off		-			(446,980	)		(47,261	)		(55,250	)		(549,491	)
Ending Balance	$	1,854,794		$	636,689		$	406,165		$	128,547		$	3,026,195

Amount allocated to:
Loans individually evaluated for impairment with specific allocation	$	175,118		$	-		$	70,000		$	-		$	245,118
Loans collectively evaluated for impairment		1,679,676			636,689			336,165			128,547			2,781,077
Ending balance	$	1,854,794		$	636,689		$	406,165		$	128,547		$	3,026,195

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 September 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:

September 30, 2011	Real Estate		Commercial		Boats		Other Consumer		Total
Loans individually evaluated for impairment with specific reserve	$	5,924,353	$	-	$	299,212	$	-		6,223,565
Loans individually evaluated for impairment without specific reserve		8,702,061		3,442,108		-		-		12,144,169
Loans collectively evaluated for impairment		391,414,794		94,197,118		9,036,494		5,066,460		499,714,866
Ending balance	$	406,041,208	$	97,639,226	$	9,335,706	$	5,066,460	$	518,082,600

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 September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Weighted average number of shares		6,809,594		3,880,005		6,024,660		3,880,005
Dilutive average number of shares		24,990		24,011		32,293		19,154

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 nine months ended September 30, 2011 and 2010, we recorded stock-based compensation expense of $106,118 and $92,175 respectively. For the three months ended September 30, 2011 and 2010, we recorded stock-based compensation expense of $31,302 and $25,923, 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 nine months ended September 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 September 30, 2011 and 2010 or the nine months ended September 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 September 30, 2011, there was $107,129 of total unrecognized compensation cost related to non-vested stock options and restricted stock awards that we expect to realize over the next 2.25 years. As of September 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 nine month period ended September 30, 2011 or 2010.

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

	September 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 September 30, 2011 follows:


	Outstanding options						Exercisable options
Exercise price	Number of shares at September 30, 2011		Weighted average remaining term		Weighted average exercise price		Number of shares at September 30, 2011		Weighted average exercise price
$4.39-$5.00		18,000		0.80	$	4.69		18,000	$	4.69
$5.01-$7.64		85,231		7.59		6.52		77,704		6.46
$7.65-$8.65		60,580		7.49		7.78		47,769		7.76
$8.66-$10.00		46,620		2.89		9.74		46,620		9.74
$10.01-$11.31		123,000		4.56		10.43		121,000		10.42
		333,431		5.43	$	8.54		311,093	$	8.59


Intrinsic value of outstanding options			$	71,645
Intrinsic value of exercisable options			$	71,645

During the nine months ended September 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 September 30, 2011 or 2010. The following table provides a summary of the restricted stock awards during the nine month periods and their vesting schedule.

	September 30,					September 30,
	2011					2010
	Number		Weighted			Number		Weighted
	of shares		average			of shares		average
			grant date fair value					grant date fair value
			fair value					fair value
Nonvested, 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		-			-		-			-
Nonvested, end of period		18,148		$	7.46		17,641		$	7.13

Total fair value of shares vested	$	59,029			-		-			-

Intrinsic value of outstanding restricted stock awards				$	180,497				$	143,421
Intrinsic value of vested restricted stock awards				$	56,546				$	-

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 nine months ended September 30, 2011 and 2010 were $218,991 and $120,598, respectively. Old line Bank’s contribution to the plan for the three months ended September 30, 2011 and 2010 were $84,060 and $41,648, 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 nine month periods ended September 30, 2011 and 2010 were $131,345 and $163,086, respectively. The SERP expense for the three month periods ended September 30, 2011 and 2010 were $38,605 and $60,410, 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. This plan had excess assets over liabilities at acquisition date of $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. Effective August 1, 2011, we have notified all participants in the plan that we will terminate this plan. We are currently in the process of liquidating the plan assets and expect to distribute the funds received from these liquidations to participants prior to December 5, 2011. Until we have liquidated all plan assets, we are unable to predict any income or loss that may occur as a result of the termination. However, at this time, 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 September 30, 2011, we established values for available for sale investment securities as follows (000’s);

		Total Fair Value September 30, 2011				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
Investment securities available for sale		$	158,504			$	24,121			$	134,383			$	-

10. FAIR VALUE MEASUREMENTS (Continued)

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 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 September 30, 2011 and December 31, 2010, we estimated the fair value of foreclosed assets using Level 2 inputs to be $4,126,434 and $1,153,039, respectively. We determined these Level 2 inputs from the expected sales value derived from appraisals of the real estate that we obtained from an outside third party during the preceding twelve months, offers to purchase or internal evaluations of appraisals. As a result of the acquisition of Maryland Bankcorp, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T or obtained as a result of loans originated by MB&T (acquired). The following outlines the transactions in other real estate owned during the period (000’s).

Other Real Estate Owned
	Legacy			Acquired			Total
Beginning balance	$	1,153,039		$	-		$	1,153,039
Beginning acquired		-			1,834,451			1,834,451
Transferred in		825,290			289,000			1,114,290
Investment in improvements		-			53,245			53,245
Sales		(5,591	)		(23,000	)		(28,591	)
Total end of period	$	1,972,738		$	2,153,696		$	4,126,434

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)

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial assets
Time deposits	$	-	$	-	$	297,000	$	297,482
Investment securities		158,503,556		158,503,556		54,786,264		55,015,376
Loans		515,783,796		548,048,016		299,606,430		301,862,245

Financial liabilities
Interest bearing deposits		487,824,952		489,224,849	$	273,032,442	$	274,003,958
Short term borrowings		32,605,607		32,605,607		5,669,332		5,669,332
Long term borrowings		16,307,146		19,027,818		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 nine months ended September 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 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-

11. ACCOUNTING STANDARDS UPDATES (Continued)

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 FASB 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. We have included the required disclosures in Note 6.

ASU No. 2011-03 “Reconsideration of Effective Control for Repurchase Agreements” amends FASB ASC 860-10, “Transfers and Servicing-Overall”. The amendments remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. This update becomes effective for interim and annual reporting periods beginning on or after December 15, 2011. We are currently evaluating the impact of adopting the new guidance on our results of operations or financial position.

ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” amends FASB ASC 820 “Fair Value Measurement”. The amendments will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). Among the many areas affected by this

update are the concept of highest and best use, the fair value of an instrument included in stockholders’ equity and disclosures about fair value measurement, particularly disclosures about fair value measurements categorized within Level 3 of the fair value hierarchy. This update becomes effective for the interim and annual reporting periods beginning after December 15, 2011. We are currently evaluating the impact of adopting the new guidance on our results of operations or financial position.

ASU No. 2011-05 “Presentation of Comprehensive Income” amends FASB ASC 220 “Comprehensive Income”. The amendments in this update eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. An entity will have the option to present the total comprehensive income as part of the statement of changes in stockholders’ equity. An entity will have the option to present the total comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity will be required to present the face of financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income. This update becomes effective for interim and annual reporting periods beginning after December 15, 2011. We are currently evaluating the impact of adopting the new guidance on our 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 third quarter of 2011. Net income available to common stockholders was $1.7 million or $0.25 per basic and diluted common share for the three month period ending September 30, 2011. This was $1.4 million or 446.28% higher than the same period in 2010. Net income available to common stockholders was $3.4 million or $0.56 per basic and diluted common share for the nine month period ending September 30, 2011. This was $2.1 million or 161.10% higher than net income available to common stockholders of $1.3 million or $0.34 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 $156.1 million or 55.65% for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010, primarily as a result of our acquisition of Maryland Bankcorp.

Average non-interest bearing deposits grew $72.3 million (140.15%) for the nine months ended September 30, 2011 relative to the same period in 2010, primarily as a result of our acquisition of Maryland Bankcorp.

At September 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.

At September 30, 2011, we had 23 acquired loans (loans acquired from MB&T pursuant to the merger) on non-accrual status totaling $4.3 million compared to 28 acquired non-accrual loans totaling $5.4 million at June 30, 2011.

At third quarter end 2011, we had two accruing legacy loans past due between 30 and 89 days in the amount of $307,060.

At September 30, 2011, we had 22 accruing acquired loans totaling $2.3 million past due between 30 and 89 days compared to 32 accruing acquired loans totaling $2.5 million at June 30, 2011.

We ended the third quarter with a book value of $9.66 per common share and a tangible book value of $8.96 per common share.

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

We increased the provision for loan losses by $600,000 and $560,000 during the three and nine month periods ended September 30, 2011, respectively, compared to September 30, 2010.

As a result of the provision discussed above, and net charge offs for the nine month period of $442,281, the allowance for loan losses increased to $3.0 million at September 30, 2011 from $2.5 million at December 31, 2010.

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 contribute significantly 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. The determination of the fair value of the loans caused a significant write down in the value of certain loans, which we assigned to an accretable or non-accretable balance. We will recognize the accretable balance as interest income over the remaining term of the loan. We will recognize the non-accretable balance as the borrower repays the loan. The accretion of the loan marks, along with other fair value adjustments to loans and to deposits, favorably impacted our net interest income by $1.7 million and $1.2 million in the three and nine months ended September 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. We will recognize any decline in expected cash flows as impairment and record an interest 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 of $5.0 million. The amortization of this intangible asset decreased net interest income by $194,674 for the three and $389,349 for the nine month periods ended September 30, 2011, respectively.

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

	Three months ended September 30,
	(Dollars in thousands)

	2011			2010			$ Change		% Change

Net income available to common stockholders	$	1,707		$	313		$	1,394		445.37	%
Interest revenue		9,737			4,759			4,978		104.60
Interest expense		1,393			1,234			159		12.88
Net interest income after provision for loan losses		7,545			3,325			4,220		126.92
Non-interest revenue		1,016			303			713		235.31
Non-interest expense		6,153			3,068			3,085		100.55
Average total loans		507,472			292,831			214,641		73.30
Average interest earning assets		674,069			362,678			311,391		85.86
Average total interest bearing deposits		486,889			273,879			213,010		77.78
Average non-interest bearing deposits		162,479			55,552			106,927		192.48
Net interest margin (1)		5.01	%		3.90	%
Return on average equity		11.02	%		3.39	%
Basic earnings per common share	$	0.25		$	0.08		$	0.17		212.50
Diluted earnings per common share		0.25			0.08			0.17		212.50

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

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

	Nine months ended September 30,
	(Dollars in thousands)

	2011			2010			$ Change		% Change

Net income available to common stockholders	$	3,413		$	1,307		$	2,106		161.13	%
Interest revenue		23,259			13,723			9,536		69.49
Interest expense		3,856			3,763			93		2.47
Net interest income after provision for loan losses		18,403			9,520			8,883		93.31
Non-interest revenue		1,858			867			991		114.30
Non-interest expense		15,246			8,373			6,873		82.09
Average total loans		436,629			280,523			156,106		55.65
Average interest earning assets		566,912			351,169			215,743		61.44
Average total interest bearing deposits		414,114			258,025			156,089		60.49
Average non-interest bearing deposits		123,886			51,586			72,300		140.15
Net interest margin (1)		4.66	%		3.84	%				��
Return on average equity		8.25	%		4.83	%
Basic earnings per common share	$	0.56		$	0.34		$	0.22		64.71
Diluted earnings per common share		0.56			0.34			0.22		64.71

(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 April 2011 acquisition of Maryland Bankcorp has expanded our operations in Charles County and 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 continue to experience anemic growth or if the high unemployment rate and soaring national debt will continue to dampen the economic climate, we remain cautiously optimistic that we have identified any problem assets and our 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 continue to be higher than they were in 2010. We have identified several areas within the former MB&T non-interest expense structure that we expect will provide expense reductions from those incurred during the second and third quarters of 2011. We anticipate that we will begin to realize these reductions during the fourth quarter of 2011 and the first half of 2012. We anticipate that, over time, income generated from the branches acquired in the merger, our new loan officers, and our expanded market area will offset any corresponding increases in expenses. We believe with our 19 branches, including the April 2011 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 September 30, 2011 compared to three months ended September 30, 2010

Net interest income after provision for loan losses for the three months ended September 30, 2011 increased $4.2 million or 127.27% to $7.5 million from $3.3 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, accretion of the fair value adjustments, and a decline in interest paid on interest bearing liabilities. A $600,000 increase in the provision for loan losses negatively impacted net interest income after provision for loan losses. 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 through the third 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 generally reinvested in lower yielding securities and loans. As outlined in the Rate/Volume analysis, the decline in rates on funds invested in federal funds, mortgage backed securities and U.S. government agency securities negatively impacted interest income. This was offset by an improvement in yield on the loan portfolio, particularly loans acquired from MB&T, and a decline in interest rates on interest bearing liabilities. 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 also offset the effect on net income caused by these declines by growing total average interest earning assets $311.4 million or 85.86% to $674.1 million for the three months ended September 30, 2011 from $362.7 million for the three months ended September 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 $486.9 million for the three months ended September 30, 2011 from $273.9 million for the three months ended September 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 coupled with organic growth.

A $14.9 million increase in average borrowed funds, caused by repurchase agreements acquired in the MB&T acquisition, also contributed to the total growth in interest bearing liabilities. During the third quarter of 2011, organic growth caused interest earning assets to grow $17.9 million and interest bearing liabilities to grow $35.1 million.

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 $106.9 million to $162.5 million during the three months ended September 30, 2011 compared to the three months ended September 30, 2010. This was also a significant contributor to the improvement in the net interest margin as it allowed us to increase our level of interest earning assets which allowed us to increase interest income without a corresponding increase in interest bearing liabilities and interest expense. Organic growth produced $15.7 million of the growth in non-interest bearing deposits during the 3rd quarter with the balance attributable to the MB&T acquisition.

The accretion of fair value adjustments contributed to net interest income as follows:

	Three Months Ended September 30, 2011
	Fair Value Accretion Dollars		% Impact on Net Interest Margin
Commercial loans	$	60,855		0.01	%
Mortgage loans		1,042,789		0.15	%
Consumer loans		1,226		0.00	%
Interest bearing deposits		108,469		0.02	%
Total Fair Value Accretion	$	1,213,339		0.18	%

Our net interest margin was 5.01% for the three months ended September 30, 2011 as compared to 3.90% for the three months ended September 30, 2010. The yield on average interest earning assets increased 58 basis points during the period from 5.25% for the quarter ended September 30, 2010 to 5.83% for the quarter ended September 30, 2011. This increase was primarily because of the addition of the MB&T loan and investment portfolios, our transfer of funds from interest bearing deposits to higher yielding investment securities and loans, and the collection of the non-accrual loans and accretion on the fair value adjustments as outlined above.

The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the three months ended September 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 September 30,	2011							2010
	Average							Average
	balance		Interest		Yield			balance		Interest		Yield
Assets:
Federal funds sold(1)	$	4,334,556	$	994		0.09	%	$	3,169,347	$	2,657		0.33	%
Interest bearing deposits		14,238,260		11,237		0.31			17,563,292		43,979		0.99
Investment securities(1)(2)
U.S. treasury		1,247,141		2,552		0.81			-		-
U.S. government agency		22,611,220		117,850		2.07			5,223,912		44,562		3.38
Mortgage backed securities		100,121,572		782,903		3.10			41,442,021		373,619		3.58
Municipal securities		22,537,921		330,861		5.82			2,309,832		29,134		5.00
Other		3,818,831		34,517		3.59			2,522,421		16,977		2.67
Total investment securities		150,336,685		1,268,683		3.35			51,498,186		464,292		3.58
Loans: (1) (3)
Commercial		98,799,462		1,376,251		5.53			80,732,917		1,102,357		5.42
Mortgage		393,694,344		7,030,619		7.08			198,135,067		2,993,170		5.99
Consumer		14,978,369		224,455		5.95			13,963,419		193,706		5.50
Total loans		507,472,175		8,631,325		6.75			292,831,403		4,289,233		5.81
Allowance for loan losses		2,313,027		-					2,383,989		-			��
Total loans, net of allowance		505,159,148		8,631,325		6.78			290,447,414		4,289,233		5.86
Total interest earning assets(1)		674,068,649		9,912,239		5.83			362,678,239		4,800,161		5.25
Non-interest bearing cash		29,110,472							9,382,943
Premises and equipment		22,634,871							17,126,259
Other assets		40,019,636							12,453,680
Total assets	$	765,833,628						$	401,641,121
Liabilities and Stockholders' Equity:
Interest bearing deposits
Savings	$	60,972,112		50,076		0.33		$	8,942,236		7,723		0.34
Money market and NOW		117,322,326		161,479		0.55			59,392,839		135,468		0.90
Other time deposits		308,594,165		964,218		1.24			205,543,927		842,759		1.63
Total interest bearing deposits		486,888,603		1,175,773		0.96			273,879,002		985,950		1.43
Borrowed funds		48,302,618		216,756		1.78			33,415,351		248,292		2.95
Total interest bearing liabilities		535,191,221		1,392,529		1.03			307,294,353		1,234,242		1.59
Non-interest bearing deposits		162,479,123							55,552,085
		697,670,344							362,846,438
Other liabilities		6,192,632							1,575,711
Non-controlling interest		484,851							628,126
Stockholders' equity		61,485,801							36,590,846
Total liabilities and stockholders' equity	$	765,833,628						$	401,641,121
Net interest spread(1)						4.80							3.66
Net interest income and Net interest margin(1)			$	8,519,710		5.01	%			$	3,565,919		3.90	%

(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 September 30, 2011 and 2010 were $5,793,393 and $4,157,490, respectively.

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Net interest income after provision for loan losses for the nine months ended September 30, 2011 increased $8.9 million or 93.68% to $18.4 million from $9.5 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 accretion of the fair value adjustments positively impacted net interest income after provision for loan losses while the $560,000 increase in the provision for loan losses negatively impacted it. 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 $215.7 million or 61.42% to $566.9 million for the nine months ended September 30, 2011 from $351.2 million for the nine months ended September 30, 2010. The growth in average interest earning assets derived from a $156.1 million increase in average total loans and a $66.9 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 $156.1 million increase in average interest bearing deposits which increased to $414.1 million for the nine months ended September 30, 2011 from $258.0 million for the nine months ended September 30, 2010.

Our net interest margin was 4.66% for the nine months ended September 30, 2011 as compared to 3.84% for the nine months ended September 30, 2010. The yield on average interest earning assets increased 30 basis points during the period from 5.27% for the quarter ended September 30, 2010 to 5.57% for the quarter ended September 30, 2011. This increase was primarily because we received a higher average rate on the loan portfolio and paid a 55 basis point lower rate on interest bearing liabilities.

The accretion of the fair value adjustments positively impacted the yield on loans and increased the net interest margin as follows:

	Nine Months Ended September 30, 2011
	Fair Value Accretion Dollars		% Impact on Net Interest Margin
Commercial loans	$	5,901		0.00	%
Mortgage loans		1,394,888		0.25	%
Consumer loans		2,101		0.00	%
Interest bearing deposits		235,991		0.04	%
Total Fair Value Accretion	$	1,638,881		0.29	%

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 $72.3 million to $123.9 million during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. This was also a significant contributor to the improvement in the net interest margin as it allowed us to increase our level of interest earning assets which allowed us to increase interest income without a corresponding increase in interest bearing liabilities and interest expense.

With the branches acquired in the MB&T acquisition and increased recognition in the St. Mary’s, Calvert, Charles, Prince George’s and Anne Arundel counties, 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 and beyond. We also believe that we will continue to maintain the net interest margin during the remainder of 2011. As a result of this growth and maintenance of 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 experienced any impact from this legislation on our operations, it is possible that interest costs associated with deposits could increase.

The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the nine months ended September 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
Nine Months Ended September 30,	2011							2010
	Average							Average
	balance		Interest		Yield			balance		Interest		Yield
Assets:
Federal funds sold(1)	$	4,613,246	$	5,160		0.15	%	$	2,283,849	$	4,843		0.28	%
Interest bearing deposits		12,805,854		30,876		0.32			22,581,649		165,310		0.98
Investment securities(1)(2)
U.S. treasury		851,924		5,102		0.80			-		-
U.S. government agency		14,727,598		244,374		2.22			6,288,382		140,487		2.99
Mortgage backed securities		80,436,339		1,924,401		3.20			36,911,796		1,047,096		3.79
Municipal securities		15,916,429		697,963		5.86			2,373,576		87,929		4.95
Other		3,253,041		90,511		3.72			2,692,301		54,273		2.70
Total investment securities		115,185,331		2,962,351		3.44			48,266,055		1,329,785		3.68
Loans: (1) (3)
Commercial		95,338,358		3,802,025		5.33			76,838,797		3,166,333		5.51
Mortgage		326,448,900		16,152,486		6.62			189,322,040		8,585,283		6.06
Consumer		14,841,625		671,582		6.05			14,362,349		592,240		5.51
Total loans		436,628,883		20,626,093		6.32			280,523,186		12,343,856		5.88
Allowance for loan losses		2,320,835		-					2,485,503		-
Total loans, net of allowance		434,308,048		20,626,093		6.35			278,037,683		12,343,856		5.94
Total interest earning assets(1)		566,912,479		23,624,480		5.57			351,169,236		13,843,794		5.27
Non-interest bearing cash		22,886,823							8,952,613
Premises and equipment		20,264,015							17,185,259
Other assets		30,461,153							12,300,672
Total assets	$	640,524,470						$	389,607,780
Liabilities and Stockholders' Equity:
Interest bearing deposits
Savings	$	44,019,844		105,093		0.32		$	8,170,909		21,561		0.35
Money market and NOW		100,818,430		466,910		0.62			50,695,217		325,472		0.86
Other time deposits		269,275,797		2,671,458		1.33			199,158,747		2,613,282		1.75
Total interest bearing deposits		414,114,071		3,243,461		1.05			258,024,873		2,960,315		1.53
Borrowed funds		41,685,261		612,465		1.96			41,651,147		803,025		2.58
Total interest bearing liabilities		455,799,332		3,855,926		1.13			299,676,020		3,763,340		1.68
Non-interest bearing deposits		123,885,807							51,586,292
		579,685,139							351,262,312
Other liabilities		4,971,706							1,592,766
Non-controlling interest		536,006							651,017
Stockholders' equity		55,331,619							36,164,685
Total liabilities and stockholders' equity	$	640,524,470						$	389,670,780
Net interest spread(1)						4.44							3.59
Net interest income and Net interest margin(1)			$	19,768,554		4.66	%			$	10,080,454		3.84	%

(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 nine month periods ended September 30, 2011 and 2010 were $2,033,017 and $3,103,083, 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 September 30,
	2011 compared to 2010
	Variance due to:

	Total			Rate			Volume

Interest earning assets:
Federal funds sold(1)	$	(1,663	)	$	(3,209	)	$	1,546
Interest bearing deposits		(32,742	)		(30,609	)		(2,133	)
Investment Securities(1)
U.S. treasury		2,552			-			2,552
U.S. government agency		73,288			(70,757	)		144,045
Mortgage backed securities		409,284			(175,797	)		585,081
Municipal securities		301,727			20,854			280,873
Other		17,540			12,731			4,809
Loans:(1)
Commercial		273,894			72,137			201,757
Mortgage		4,037,449			1,706,478			2,330,971
Consumer		30,749			25,032			5,717
Total interest revenue (1)		5,112,078			1,556,860			3,555,218

Interest bearing liabilities
Savings		42,353			(1,538	)		43,891
Money market and NOW		26,011			(147,073	)		173,084
Other time deposits		121,459			(472,592	)		594,051
Borrowed funds		(31,536	)		(196,938	)		165,402
Total interest expense		158,287			(818,141	)		976,428

Net interest income(1)	$	4,953,791		$	2,375,001		$	2,578,790

(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.”

Rate/Volume Variance Analysis

	Nine months Ended September 30,
	2011 compared to 2010
	Variance due to:

	Total			Rate			Volume

Interest earning assets:
Federal funds sold(1)	$	317		$	(3,657	)	$	3,974
Interest bearing deposits		(134,434	)		(90,662	)		(43,772	)
Investment Securities(1)
U.S. treasury		5,102			-			5,102
U.S. government agency		103,887			(55,736	)		159,623
Mortgage backed securities		877,305			(240,094	)		1,117,399
Municipal securities		610,034			25,182			584,852
Other		36,238			25,706			10,532
Loans:(1)
Commercial		635,692			(134,959	)		770,651
Mortgage		7,567,203			1,089,489			6,477,714
Consumer		79,342			63,151			16,191
Total interest revenue (1)		9,780,686			678,420			9,102,266

Interest bearing liabilities
Savings		83,532			(2,981	)		86,513
Money market and NOW		141,438			(137,432	)		278,870
Other time deposits		58,176			(856,885	)		915,061
Borrowed funds		(190,560	)		(191,383	)		823
Total interest expense		92,586			(1,188,681	)		1,281,267

Net interest income(1)	$	9,688,100		$	1,867,101		$	7,820,999

(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 $800,000 for the three months ended September 30, 2011, as compared to $200,000 for the three months ended September 30, 2010, an increase of $600,000 or 300.00%. After completing the analysis outlined below, during the three month period ended September 30, 2011, we increased the provision for loan losses primarily because although our asset quality remained stable, we experienced $15.4 million in growth in the legacy portfolio during the three months ended September 30, 2011. There are also indications that the economy may experience either flat or negative growth in the near term and this could negatively impact our borrowers’ financial stability. Additionally, we are unable to adequately assess the underwriting skills of the lenders that joined us from the acquisition and the long term impact the acquisition may have on our internal management capabilities. Therefore, we believe it is prudent to increase the allowance. Our legacy non-performing assets remain statistically low at 0.43% of total assets and we had only $307,060 of legacy loans past due between 30-89 days at quarter end.

The provision for the nine month period was $1,000,000. This represented a $560,000 or 127.27% increase as compared to the nine months ended September 30, 2010. For the nine months ended September 30, 2011, we increased the provision for loan losses for the reasons outlined above. We 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. We have allocated a specific reserve for those loans where we consider it probable that we will incur a loss. Although there are no indicators that our legacy asset quality has deteriorated or changed in any manner, the addition of several new lenders from the acquisition, the increased size and complexity of the acquired portfolio and the anemic growth in the economy all contribute to increased uncertainty regarding the future performance of our borrowers. As a result, our historical asset quality may not be an accurate indicator of our future performance. Therefore, we determined that it was prudent to increase the allowance for loan losses.

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.

The allowance for loan losses represented 0.58% of gross loans at September 30, 2011 and 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

	Three Months Ended						Nine Months Ended						Year Ended
	September 30,						September 30,						December 31,
	2011			2010			2011			2010			2010

Balance, beginning of period	$	2,239,457		$	2,712,929		$	2,468,476		$	2,481,716		$	2,481,716
Provision for loan losses		800,000			200,000			1,000,000			440,000			1,082,000

Chargeoffs legacy:
Commercial		-			(137,151	)		-			(137,151	)		(137,151	)
Mortgage		-			(946,739	)		(446,980	)		(958,472	)		(958,472	)
Consumer		(4,200	)		(2,971	)		(51,461	)		(4,194	)		(4,194	)
Total chargeoffs legacy		(4,200	)		(1,086,861	)		(498,441	)		(1,099,817	)		(1,099,817	)

Chargeoffs acquired:
Commercial		-			-			-			-			-
Mortgage		-			-			-			-			-
Consumer		(43,865	)		-			(51,050	)		-			-
Total chargeoffs acquired		(43,865	)		-			(51,050	)		-			-
Total chargeoffs		(48,065	)		(1,086,861	)		(549,491	)		(1,099,817	)		(1,099,817	)

Recoveries legacy:
Commercial		-			-			-			-			-
Mortgage		-			-			-			3,650			3,650
Consumer		60			204			265			723			927
Total recoveries legacy		60			204			265			4,373			4,577
Recoveries acquired:
Commercial		2,983			-			50,225			-			-
Mortgage		10,133			-			11,254			-			-
Consumer		21,627			-			45,466			-			-
Total recoveries acquired		34,743			-			106,945			-			-
Total recoveries		34,803			204			107,210			4,373			4,577
Total net (chargeoffs) recoveries		(13,262	)		(1,086,657	)		(442,281	)		(1,095,444	)		(1,095,240	)
Balance, end of period	$	3,026,195		$	1,826,272		$	3,026,195		$	1,826,272		$	2,468,476

Ratio of allowance for loan losses to:
Total gross loans		0.58	%		0.61	%		0.58	%		0.61	%		0.82	%
Non-accrual legacy loans		191.52	%		61.29	%		191.52	%		61.29	%		91.07	%
Ratio of net-chargeoffs during period to
average total loans during period		0.003	%		0.371	%		0.085	%		0.391	%		0.384	%

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

Allocation of Allowance for Loan Losses
	September 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	$	128,547		2.76	%	$	8,267		0.47	%	$	8,433		0.48	%
Boat		406,165		0.02			153,479		3.96			294,723		3.86
Mortgage		1,854,794		78.37			1,235,001		67.63			1,748,122		67.97
Commercial		636,689		18.85			429,525		27.94			417,198		27.69

Total	$	3,026,195		100.00	%	$	1,826,272		100.00	%	$	2,468,476		100.00	%

Non-interest Revenue

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

Non-interest revenue totaled $1.0 million for the three months ended September 30, 2011, an increase of $712,555 or 234.98% from the 2010 amount of $303,246. Non-interest revenue for the three months ended September 30, 2011 and September 30, 2010 included fee income from service charges on deposit accounts, earnings on bank owned life insurance, and other fees and commissions including revenues with respect to Pointer Ridge. Non-interest revenue for the three months ended September 30, 2011 also included gains on sales or calls of investment securities, gains on other real estate owned and gains on disposal of assets. 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. This acquisition was the major contributor to the increase in service charges and other fees and commissions. During the period, we had calls on investment securities that provided gains of $72,252. Earnings on bank owned life insurance increased because of the addition of the MB&T bank owned life insurance policies and because during the period we recorded an approximately $213,000 non-recurring gain that occurred due to the loss of a colleague during the period. During the period, we sold one property in other real estate owned that we acquired from MB&T and recorded a gain. Pointer Ridge rent and other revenues declined as a result of loss of tenants in the building owned by Pointer Ridge. The gain 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.

	September 30, 2011		September 30, 2010		$ Change			% Change
Service charges on deposit accounts	$	380,065	$	78,247	$	301,818			385.72	%
Gains on sales or calls of investment securities		72,252		-		72,252
Earnings on bank owned life insurance		356,281		83,963		272,318			324.33
Gains on sales of other real estate owned		45,595		-		45,595
Pointer Ridge rent and other revenue		45,611		78,126		(32,515	)		(41.62	)
Gains (losses) on disposal of assets		8,995		-		8,995
Other fees and commissions		107,002		62,910		44,092			70.09
Total non-interest revenue	$	1,015,801	$	303,246	$	712,555			234.98	%

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Non-interest revenue totaled $1.9 million for the nine months ended September 30, 2011, an increase of $990,824 or 114.26% from the 2010 amount of $867,188. The increase in non-interest revenue during the period was primarily attributable to increases in service charges on deposit accounts, gains on sales or call of investment securities, and earnings on bank owned life insurance, partially offset by a $122,500 impairment on equity securities. The primary cause of the increase in service charges on deposit accounts and other fees and commissions was the acquisition of MB&T and the resulting growth in customer services and deposits. During the nine month period, we sold securities and had securities called which provided the gain on sales of investment securities. We did not have any sales or calls of securities during the nine months ended September 30, 2010. Earnings on bank owned life insurance increased because of the addition of the MB&T bank owned life insurance policies and because during the period we recorded an approximately $213,000 non-recurring gain that occurred due to the loss of a colleague during the period. 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. As noted above, 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. 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 nine month periods.

	September 30, 2011			September 30, 2010		$ Change			% Change
Service charges on deposit accounts	$	859,300		$	231,478	$	627,822			271.22	%
Gain on sales of investment securities		112,811			-		112,811
Permanent impairment on equity securities		(122,500	)		-		(122,500	)
Earnings on bank owned life insurance		557,669			254,071		303,598			119.49
Gains on sales of other real estate owned		48,580			-		48,580
Pointer Ridge rent and other revenue		159,551			206,825		(47,274	)		(22.86	)
Gain (loss) on disposal of assets		(5,160	)		-		(5,160	)
Other fees and commissions		247,761			174,814		72,947			41.73
Total non-interest revenue	$	1,858,012		$	867,188	$	990,824			114.26	%

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 do not expect any additional non-recurring earnings on bank owned life insurance during the remainder of 2011 and anticipate these earnings will be comparable to the approximately $122,300 recorded in the three months ended June 30, 2011. We plan to continue our efforts to sell other real estate owned from MB&T. We are unable to predict the timing of those sales or any gains or losses that we may incur with the sale of those properties.

Non-interest Expense

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

Non-interest expense increased $3.1 million for the three months ended September 30, 2011. The following chart outlines the changes in non-interest expenses for the period.

	September 30, 2011		September 30, 2010		$ Change			% Change
Salaries	$	2,248,065	$	1,263,368	$	984,697			77.94	%
Employee benefits		782,443		319,550		462,893			144.86
Occupancy		746,356		330,752		415,604			125.65
Equipment		170,254		105,342		64,912			61.62
Data processing		232,530		126,412		106,118			83.95
Pointer Ridge other operating		134,526		111,791		22,735			20.34
FDIC insurance and State of Maryland assessments		143,680		130,595		13,085			10.02
Merger and integration		77,880		187,125		(109,245	)		(58.38	)
Core deposit premium		194,674		-		194,674
Other operating		1,422,758		493,277		929,481			188.43
Total non-interest expenses	$	6,153,166	$	3,068,212	$	3,084,954			100.55	%

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. Employee benefits also increased approximately $183,000 as a result of a non-recurring expense payable to the estate of a colleague who passed away during the period. Pointer Ridge other operating expense increased primarily because of increased operating costs associated with the building. Merger and integration costs include severance costs of approximately $35,630 and attorney, accounting and other professional fees of approximately $42,250 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 expense was the result of the expense associated with the acquisition of MB&T and subsequent amortization of the core deposit intangible.

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Non-interest expense increased $6.9 million for the nine months ended September 30, 2011. The following chart outlines the changes in non-interest expenses for the period.

	September 30, 2011		September 30, 2010		$ Change		% Change
Salaries	$	5,559,074	$	3,559,727	$	1,999,347		56.17	%
Employee benefits		1,945,879		987,488		958,391		97.05
Occupancy		1,799,276		983,209		816,067		83.00
Equipment		434,629		311,370		123,259		39.59
Data processing		595,612		325,912		269,700		82.75
Pointer Ridge other operating		465,208		314,191		151,017		48.07
FDIC insurance and State of Maryland assessments		462,496		361,263		101,233		28.02
Merger and integration		545,154		187,125		358,029		191.33
Core deposit premium		389,349		-		389,349
Other operating		3,049,105		1,342,623		1,706,482		127.10
Total non-interest expenses	$	15,245,782	$	8,372,908	$	6,872,874		82.08	%

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. Employee benefits also increased approximately $183,000 as a result of a non-recurring expense payable to the estate of a colleague who passed away during the period. Pointer Ridge other operating expense increased because of a one time increase in management fees, the charge off of rents due from a prior tenant and increased operating expenses associated with the building. Merger and integration costs include severance costs of approximately $203,630 and attorney, accounting and other professional fees of approximately $341,524 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 was the result of the acquisition of MB&T and subsequent amortization of the core deposit intangible.

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 MB&T. We have continued to focus our efforts on reducing the operating expenses and anticipate that we will continue to see reduction in these expenses from those reported in the three months ended September 30, 2011. We expect that we may have minimal additional severance expenses during the remainder of 2011 and possibly the first quarter of 2012 as we continue to assess the staffing requirements of the combined organization.

Income Taxes

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

Income tax expense was $737,405 (30.63% of pre-tax income) for the three months ended September 30, 2011 as compared to $265,299 (47.38% of pre-tax income) for the same period in 2010. The decrease in the tax rate as a percentage of pre-tax income was primarily because of an increase in tax exempt income and tax deductible expenses.

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Income tax expense was $1.7 million (34.48% of pre-tax income) for the nine months ended September 30, 2011 as compared to $765,431 (38.00% of pre-tax income) for the same period in 2010. The decrease in the tax rate as a percentage of pre-tax income was primarily because of an increase in tax exempt income and tax deductible expenses.

Net Income Available to Common Stockholders

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

Net income available to common stockholders was $1.7 million or $0.25 per basic and diluted common share for the three month period ending September 30, 2011 compared to net income available to common stockholders of $312,565 or $0.08 per basic and diluted common share for the same period in 2010. The increase in net income attributable to Old Line Bancshares for the 2011 period was primarily the result of a $4.2 million increase in net interest income and $712,555 increase in non-interest revenue. These increases were partially offset by a $600,000 increase in the provision for loan losses, a $3.1 million increase in non-interest expense and a $472,106 increase in taxes.

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Net income available to common stockholders was $3.4 million or $0.56 per basic and diluted common share for the nine month period ending September 30, 2011 compared to net income available to common stockholders of $1.3 million or $0.34 per basic and diluted common share for the same period in 2010. The increase in net income attributable to Old Line Bancshares for the 2011 period was primarily the result of a $9.4 million increase in net interest income and a $990,824 increase in non-interest revenue. These increases were partially offset by a $6.9 million increase in non-interest expense, a $560,000 increase in the provision for loan losses and a $963,574 increase in taxes for 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. With the acquisition of MB&T, we acquired approximately $262,000 of Student Loan Marketing Association (SLMA) stock. We have prudently managed our investment portfolio to maintain liquidity and safety. 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 during the 2nd quarter of 2011, we sold a held to maturity security 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 when 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 September 30, 2011 amounted to $158.5 million, an increase of $103.7 million, or 189.23%, from the December 31, 2010 amount of $54.8 million. As outlined above, at September 30, 2011, all securities were classified as available for sale. At December 31, 2010, this balance was $33.1 million. At September 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 $4.3 million at September 30, 2011 (reflected as unrealized gains of $2.6 million in stockholders’ equity after deferred taxes) as compared to net unrealized gains of $450,758 ($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 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 September 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 $216.1 million or 72.13% to $515.7 million at September 30, 2011 from $299.6 million at December 31, 2010. Commercial business loans increased by $14.1 million (16.90%), commercial real estate loans increased by $111.4 million (72.59%), residential real estate loans increased by $69.9 million (258.14%), real estate construction loans (primarily commercial real estate construction and acquisition and development) increased by $19.7 million (80.86%) and consumer loans increased by $1.3 million (10.11%) from their respective balances at December 31, 2010. During the first nine months of 2011, we received scheduled loan payoffs on construction loans that negatively impacted our loan growth for the period. The $190.8 million of acquired loans were the primary cause of growth during the period although we also experienced an approximately $25.3 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)
	September 30, 2011					December 31, 2010

Real Estate
Commercial	$	264,965		51.14	%	$	153,527		50.91	%
Construction		44,090		8.51			24,378		8.08
Residential		96,987		18.72			27,081		8.98
Commercial		97,639		18.85			83,523		27.69
Consumer		14,402		2.78			13,080		4.34
		518,083		100.00	%		301,589		100.00	%
Allowance for loan losses		(3,026	)				(2,469	)
Deferred loan costs, net		682					486
	$	515,739				$	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)

	September 30, 2011				December 31, 2010
	# of Borrowers				# of Borrowers
Hotels		1	$	1,170		1	$	979
Single family acquisition & development		1		1,405		1		2,336
		2	$	2,575		2	$	3,315

Management has identified additional potential problem legacy loans totaling $14.6 million that are complying with their repayment terms. Management has concerns either about the ability of the borrower to continue to comply with repayment terms because of the borrower’s potential operating or financial difficulties or the underlying collateral has experienced a decline in value. These weaknesses have caused management to heighten the attention given to these credits.

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 September 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 September 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 September 30, 2011, we had 14 acquired non-performing loans totaling $4.3 million and other real estate owned totaling $2.2 million consisting of nine properties. At September 30, 2011, we had two legacy loans totaling $307,060 past due 30-89 days, 17 acquired loans fair valued at $955,000 past due 30-89 days and five acquired loans fair valued at $1.4 million past due greater than 90 days.

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

Non-Accrual Loans September 30, 2011 (000's)
	Legacy Loans						Acquired Loans						Total
	# of Borrowers			Loan Balance			# of Borrowers			Loan Balance			Loan Balance
Beginning Balance December 31, 2010		3		$	2,711			-		$	-		$	2,711
Acquired April 1, 2011		-			-			18			5,357			5,357
Transferred In		-			-			-			-			-
Payments received		-			-			(3	)		(1,052	)		(1,052	)
Repossessed		(1	)		(237	)		-			-			(237	)
Charged off		-			(495	)		-			-			(495	)
Transferred to other real estate owned		(1	)		(810	)		(1	)		(50	)		(860	)
Ending balance non-accrual loans		1		$	1,169			14		$	4,255		$	5,424

Non-Accrual Legacy Loans and Legacy Other Real Estate Owned

The only non-accrual legacy loan at September 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 $184,603 at September 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 had identified a potential buyer for this note who had agreed to purchase it at a price slightly lower than the current carrying value and were awaiting ratification of this purchase from the bankruptcy court. In October of 2011, the prospective purchaser of the promissory note rescinded his offer. We expect to proceed with foreclosure on the property that secures the promissory note.

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 was 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 September 30, 2011, we had 23 non-accrual acquired loans to 14 borrowers totaling $4.3 million. Of these, the borrowers on 16 loans totaling $2.9 million are generally making monthly payments according to their contractual terms, albeit in a slow 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 weaknesses in the economy. One additional loan with a carrying balance of $100,000 was paid in full in July 2011. During the three months ended September 30, 2011, we received payment in full on three notes for the total principal balance of $1.1 million and transferred the value of $50,000 for one property to other real estate owned.

We have two borrowers owned by the same individual and the fair value of four loans totals $775,000. We were unable to conclude negotiations with the individual to obtain additional collateral that was satisfactory to us and we have proceeded with foreclosure. 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 $300,000. The borrower recently exited from bankruptcy protection. We plan to foreclose on this property. 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 we are currently working towards obtaining 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 fair value of the loans is $50,000. The borrower on this loan has provided us a deed in lieu of foreclosure on the property. We have a contract to purchase this property. 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 September 30, 2011.

Non-Performing Assets
(Dollars in thousands)
September 30, 2011
	Legacy							Acquired							Total
	# of Borrowers		Account Balance			Interest Not Accrued		# of Borrowers		Account Balance			Interest Not Accrued		Account Balance
Real Estate
Commercial			$	-		$	-		8	$	1,521		$	1,013	$	1,521
Construction		1		1,169			185		2		1,715			294		2,884
Residential				-			-		2		974			111		974
Commercial				-			-		2		44			33		44
Consumer				-			-		-		-			-		-
Total non-performing loans		1		1,169			185		14		4,254			1,451		5,423
Repossessions		1		237					-		-					237
Other real estate owned		3		1,972					8		2,154					4,126
Total non-performing assets		5	$	3,378					22	$	6,408				$	9,786

Non-performing assets as a percentage of total assets				0.43	%						0.82	%				1.25	%
Non-performing loans as a percentage of gross loans				0.23	%						0.82	%				1.05	%

Accruing past due loans:
30-89 days past due		2	$	307					17	$	955				$	1,262
90 or more days past due				-					5		1,388					1,388
Total accruing past due loans		2	$	307					22	$	2,343				$	2,650

Ratio of accruing gross past due loans to total loans:
30-89 days past due				0.09	%						0.55	%				0.24	%
90 or more days past due				0.00	%						0.80	%				0.27	%
Total accruing past due loans				0.09	%						1.35	%				0.51	%

Non-Performing Assets and Past Due Loans
Legacy
(Dollars in thousands)

	December 31, 2010
		#	Balance				Interest Not Accrued
Real Estate
Commercial		2	$	2,427			$	315
Construction		-		-				-
Residential		-		-				-
Commercial		-		-				-
Consumer		1		284				4
Other real estate owned		2		1,153				-
Total non-performing assets		5	$	3,864			$	319

Non-performing assets as a percentage of total assets				0.96		%
Non-performing loans as a percentage of total gross loans				0.90	%

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

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

Bank owned life insurance

We have invested $16.3 million in life insurance policies on our executive officers, other officers of the 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 nine months of 2011, the cash surrender value of the insurance policies increased by $7.6 million as a result of the transfer of $7.5 million at fair value from MB&T and earnings which were partially offset by the payment of a death benefit that resulted from the loss of a colleague during the period. There are no post retirement death benefits associated with the BOLI policies owned by Old Line Bank prior to the acquisition of MB&T. We have accrued a $191,432 liability associated with the post retirement death benefits of the BOLI policies acquired from MB&T..

Prepaid pension

MB&T had an employee pension plan that was frozen on June 9, 2003 and no additional benefits accrued subsequent to that date. This plan had excess assets over liabilities at acquisition date of $1,315,642 and we recorded this amount as an asset on our balance sheet on the acquisition date. We also recorded the loss in the mark to market of plan investments of $730,215 in accumulated comprehensive income. Effective August 1, 2011, we have notified all participants in the plan that we will terminate this plan. We are currently in the process of liquidating the plan assets and expect to distribute the funds received from these liquidations to participants prior to December 5, 2011. Until we have liquidated all plan assets, we are unable to predict any income or loss that may occur as a result of the termination. However, at this time, we do not expect to incur any significant expenses with the termination of the plan.

Other real estate owned

As a result of the acquisition of Maryland Bankcorp, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T or obtained as a result of loans originated by MB&T (acquired). We are currently aggressively either marketing these properties for sale or improving them in preparation for sale. As previously mentioned, during the three months ended September 30, 2011, we sold one property and recorded a gain on this sale of $45,595. The following outlines the transactions in other real estate owned during the period (000’s).

Other Real Estate Owned
	Legacy			Acquired			Total
Beginning balance	$	1,153,039		$	-		$	1,153,039
Acquired April 1, 2011		-			1,834,451			1,834,451
Transferred in		825,290			289,000			1,114,290
Investment in improvements		-			53,245			53,245
Sales		(5,591	)		(23,000	)		(28,591	)
Total end of period	$	1,972,738		$	2,153,696		$	4,126,434

Goodwill

During the 2nd quarter of 2011, we recorded goodwill of $116,723 associated with acquisition of Maryland Bankcorp. As outlined in Footnote 2 of our financial statements, this amount represented the difference between the estimated fair value of tangible and intangible assets acquired and liabilities assumed at acquisition date. During the 3rd quarter of 2011, the goodwill increased $25,000 as a result of additional liabilities that we identified during the period.

Core deposit intangible

As a result of the acquisition of Maryland Bankcorp, during the 2nd quarter of 2011, we recorded a core deposit intangible of $5.0 million. This amount represented the premium that we paid to acquire MB&T’s core deposits over the fair value of such deposits. We will amortize the core deposit intangible on an accelerated basis over its estimated useful life of 18 years. At September 30, 2011, the core deposit intangible was $4.6 million.

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 September 30, 2011, the deposit portfolio had grown to $664.0 million, a $323.5 million or 95.01% increase over the December 31, 2010 level of $340.5 million. Non-interest bearing deposits increased $108.7 million during the period to $176.2 million from $67.5 million primarily due to the acquisition of MB&T, the establishment of new customer demand deposit accounts and expansion of existing demand deposit accounts. Interest-bearing deposits grew $214.8 million to $487.8 million from $273.0 million. The growth in interest bearing deposits was the result of the acquisition of MB&T, expansion of existing customer relationships and new customers. The following table outlines the growth in interest bearing deposits (000’s):

	September 30, 2011		December 31, 2010		$ Change		% Change
Certificates of deposit	$	313,701		192,530	$	121,171		62.94	%
Interest bearing checking		114,487		70,998		43,489		61.25	%
Savings		59,637		9,504		50,133		527.49	%
Total	$	487,825	$	273,032	$	214,793		78.670	%

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 have 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 September 30, 2011, we had $20.6 million in CDARS certificates of deposit and $11.9 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 $36.8 million at September 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 line of credit secured by Old Line Bank stock. 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 September 30, 2011. Old Line Bank has an additional secured line of credit from the Federal Home Loan Bank of Atlanta (FHLB) that totaled $225.7 million at September 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 a collateral report to support borrowings. The reported collateral consists of commercial and residential mortgage loans held in our portfolio. The FHLB monitors the value of this reported collateral and performs audits on a regular basis. At September 30, 2011, we have reported collateral to support up to $66.2 million of borrowings. Of this, we had borrowed $10.0 million at September 30, 2011 and December 31, 2010, as outlined below. This was the maximum amount that we had borrowed during the period ended September 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 September 30, 2011, Old Line Bank had $10.2 million outstanding in these short term unsecured promissory notes with an average interest rate of 0.30% and $22.4 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 September 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 $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 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 September 30, 2011 and December 31, 2010.

Borrowings
	September 30, 2011					December 31, 2010
	Amount		Rate			Amount		Rate
Short term promissory notes	$	10,190,607		0.30	%	$	5,669,332		0.50	%
Repurchase agreements		22,415,000		0.50	%		-
Total short term borrowings		32,605,607					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%		6,307,146		6.28	%		6,371,947		6.28	%
Total long term borrowings	$	16,307,146				$	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 September 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 positive gap occurs when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A negative gap occurs 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 tends to adversely affect net interest income, while a positive gap tends to result in an increase in net interest income. During a period of declining interest rates, a negative gap tends to result in an increase in net interest income, while a positive gap tends 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 positive gap over the short term, which suggests that the net yield on interest earning assets may increase 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 September 30, 2011, we had $44.6 million in cash and due from banks, $14,157 in interest bearing accounts, and $720,898 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.

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 greater turmoil in the financial markets or our depositors lose confidence in us, we could experience liquidity issues.

Capital

Our stockholders’ equity amounted to $66.3 million at September 30, 2011 and $37.7 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 nine 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 of 2011, net income attributable to Old Line Bancshares, Inc. of $3.4 million, the $106,118 adjustment for stock based compensation awards and the $1.6 million after tax unrealized gain on available for sale securities. These items were partially offset by the $548,897 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 September 30, 2011 and December 31, 2010, are as follows:

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

Commitments to extend credit and available credit lines:
Commercial	$	42,103	$	34,485
Real estate-undisbursed development and construction		23,888		11,512
Consumer		12,881		7,256
	$	78,872	$	53,253
Standby letters of credit	$	8,299	$	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 $23.9 million, or 30.29% of the $78.9 million of outstanding commitments at September 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 September 30, 2011

	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	8,344,575		4.91	%		4.70	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		116,863		0.07			0.07
Loans		58,273		0.03			0.03
Total tax equivalent adjustment		175,136		0.10			0.10
Tax equivalent interest yield	$	8,519,711		5.01	%		4.80	%

Three months ended September 30, 2010

	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	3,524,954		3.86	%		3.62	%
Tax equivalent adjustment
Federal funds sold		1		0.00			0.00
Investment securities		12,113		0.01			0.01
Loans		28,851		0.03			0.03
Total tax equivalent adjustment		40,965		0.04			0.04
Tax equivalent interest yield	$	3,565,919		3.90	%		3.66	%

Nine months ended September 30, 2011

	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	19,403,012		4.58	%		4.36	%
Tax equivalent adjustment
Federal funds sold		-		-			-
Investment securities		249,666		0.05			0.05
Loans		115,876		0.03			0.03
Total tax equivalent adjustment		365,542		0.08			0.08
Tax equivalent interest yield	$	19,768,554		4.66	%		4.44	%

Nine months ended September 30, 2010

	Net Interest Income		Yield			Net Interest Spread
GAAP net interest income	$	9,959,788		3.79	%		3.54	%
Tax equivalent adjustment
Federal funds sold		1		-			-
Investment securities		36,190		0.02			0.02
Loans		84,475		0.03			0.03
Total tax equivalent adjustment		120,666		0.05			0.05
Tax equivalent interest yield	$	10,080,454		3.84	%		3.59	%

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 intensions, statements with respect to retention or severance of former MB&T personnel, statements regarding anticipated changes in revenue and expenses, increases in net interest income, hiring and acquisition possibilities, maintenance of our net interest margin, 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, planned foreclosures and anticipated payment on non-accrual loans, earnings on BOLI, expectations with respect to the impact of pending legal proceedings, 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, continued slow growth during the recovery or another recession; 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 the Risk Factors section of our Quarterly Report on Form 10-Q for the period ended June 30, 2011.

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 September 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 September 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 September 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

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the period ended June 30, 2011.

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

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: November 10, 2011	By:	/s/ James W. Cornelsen
		James W. Cornelsen, President and Chief Executive Officer
		(Principal Executive Officer)


Date: November 10, 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) Inactive 10-Q2011 Q3 Quarterly report

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