UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Commission File Number: 000-50345

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maryland		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 þ       No o

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 o       No o

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. (Check one):

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 o      No þ

As of October 31, 2009, the registrant had 3,862,364 shares of common stock outstanding.

 

 

Part I. Financial Information

Item 1.		Financial Statements

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Balance Sheets

		September 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Cash and due from banks		$	10,705,211			$	8,823,170
Federal funds sold			52,976				2,140,525
Total cash and cash equivalents			10,758,187				10,963,695
Time deposits in other banks			16,403,920				13,267,000
Investment securities available for sale			29,871,265				29,565,976
Investment securities held to maturity			6,198,980				8,003,391
Loans, less allowance for loan losses			262,350,195				231,053,618
Restricted equity securities at cost			2,957,650				2,126,550
Premises and equipment			15,149,716				12,388,046
Accrued interest receivable			1,114,818				1,091,560
Prepaid income taxes			—				35,649
Bank owned life insurance			8,341,566				8,096,039
Other assets			929,314				1,139,101
Total assets		$	354,075,611			$	317,730,625
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	40,886,676			$	39,880,119
Interest-bearing			237,521,579				191,550,521
Total deposits			278,408,255				231,430,640
Short-term borrowings			15,653,411				17,773,934
Long-term borrowings			21,474,069				21,531,133
Accrued interest payable			675,643				625,446
Income tax payable			413				—
Deferred income taxes			100,105				65,651
Other liabilities			1,347,704				4,012,968
Total liabilities			317,659,600				275,439,772
Stockholders’ equity
Preferred stock, par value $0.01 per share and additional paid in capital; 7,000 shares issued and outstanding in 2008			—				6,703,591
Common stock, par value $0.01 per share; authorized 15,000,000 shares; issued and outstanding 3,862,364 in 2009 and 2008			38,624				38,624
Additional paid-in capital			29,021,473				28,838,810
Warrants to purchase 141,892 shares of common stock			—				301,434
Retained earnings			6,148,084				5,411,772
Accumulated other comprehensive income			507,889				392,611
Total Old Line Bancshares, Inc. stockholders’ equity			35,716,070				41,686,842
Noncontrolling interest			699,941				604,011
Total stockholders’ equity			36,416,011				42,290,853
Total liabilities and stockholders’ equity		$	354,075,611			$	317,730,625

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								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Interest revenue
Loans, including fees		$	3,952,742			$	3,642,695			$	11,343,471			$	10,620,360
U.S. Treasury securities			—				17,052				7,230				58,237
U.S. government agency securities			75,672				40,319				262,862				90,026
Mortgage backed securities			276,302				96,203				800,666				209,053
Municipal securities			20,809				23,883				64,808				72,694
Federal funds sold			233				85,110				973				257,079
Other			66,360				31,262				241,390				125,213
Total interest revenue			4,392,118				3,936,524				12,721,400				11,432,662
Interest expense
Deposits			1,153,366				1,256,945				3,499,621				3,773,591
Borrowed funds			252,263				202,894				772,037				593,015
Total interest expense			1,405,629				1,459,839				4,271,658				4,366,606
Net interest income			2,986,489				2,476,685				8,449,742				7,066,056
Provision for loan losses			210,000				180,000				760,000				345,000
Net interest income after provision for loan losses			2,776,489				2,296,685				7,689,742				6,721,056
Non-interest revenue
Service charges on deposit accounts			66,615				78,533				225,495				230,737
Net gains on sales of investment securities			634				—				158,551				—
Earnings on bank owned life insurance			95,322				90,895				282,937				273,609
Income (loss) on investment in real estate LLC			—				(7,737	)			—				5,904
Loss on disposal of assets			(4,803	)			—				(4,803	)			—
Other fees and commissions			210,640				47,419				844,828				191,958
Total non-interest revenue			368,408				209,110				1,507,008				702,208
Non-interest expense
Salaries			1,075,572				822,131				2,851,559				2,308,762
Employee benefits			242,778				222,607				760,624				723,965
Occupancy			306,871				286,729				773,177				837,438
Equipment			96,004				81,771				258,398				228,437
Data processing			90,821				67,163				247,812				193,042
Other operating			572,065				348,886				1,826,919				1,014,822
Total non-interest expense			2,384,111				1,829,287				6,718,489				5,306,466
Income before income taxes			760,786				676,508				2,478,261				2,116,798
Income taxes			257,512				243,115				812,414				741,748
Net Income			503,274				433,393				1,665,847				1,375,050
Less: Net Income attributable to the noncontrolling interest			(4,258	)			—				95,930				—
Net Income attributable to Old Line Bancshares, Inc.			507,532				433,393				1,569,917				1,375,050
Preferred stock dividends and discount accretion			280,849				—				485,993				—
Net income available to common stockholders		$	226,683			$	433,393			$	1,083,924			$	1,375,050
Basic earnings per common share		$	0.06			$	0.11			$	0.28			$	0.35
Diluted earnings per common share		$	0.06			$	0.11			$	0.28			$	0.35
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, 2009
(Unaudited)

		Preferred																				Accumulated
		Stock												Additional								other
		&				Common stock								paid-in				Retained				comprehensive				Comprehensive				Noncontrolling
		Warrants				Shares				Par value				capital				earnings				income				income				Interest
Balance, December 31, 2008			7,005,025				3,862,364			$	38,624			$	28,838,810			$	5,411,772			$	392,611				—			$	604,011
Net income attributable to Old Line Bancshares, Inc.			—				—				—				—				1,569,917				—				1,569,917				—
Unrealized loss on securities available for sale, net of income tax benefit of $75,091			—				—				—				—				—				115,278				115,278				—
Comprehensive income			—				—				—				—				—				—			$	1,685,195				—
Net income attributable to noncontrolling interest			—				—				—				—				—				—								95,930
Stock based compensation awards			—				—				—				106,230				—				—								—
Common stock cash dividend $0.09 per share			—				—				—				—				(347,612	)			—								—
Repayment of preferred stock and warrant			(7,301,433	)			—				—				76,433				—				—								—
Preferred stock dividend and accretion			296,408				—				—				—				(485,993	)			—								—
Balance, September 30, 2009		$	—				3,862,364			$	38,624			$	29,021,473			$	6,148,084			$	507,889							$	699,941

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,		2009				2008
Cash flows from operating activities
Interest received		$	12,705,525			$	11,337,320
Fees and commissions received			1,102,930				452,155
Interest paid			(4,221,461	)			(4,406,736	)
Cash paid to suppliers and employees			(8,533,195	)			(5,257,879	)
Income taxes paid			(816,988	)			(958,572	)
			236,811				1,166,288
Cash flows from investing activities
Net change of time deposits in other banks			(3,136,920	)			2,000,000
Purchase of investment securities
Held to maturity			—				(8,237,285	)
Available for sale			(9,936,282	)			(5,534,900	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call			1,809,595				693,467
Available for sale at maturity or call			5,912,538				6,178,534
Available for sale, sold			3,994,289				—
Loans made, net of principal collected			(31,996,060	)			(21,911,029	)
Purchase of equity securities			(831,100	)			(46,300	)
Investment in real estate LLC			—				(50	)
Purchase of premises, equipment and software			(3,271,907	)			(892,856	)
			(37,455,847	)			(27,750,419	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits			40,615,700				34,182,473
Other deposits			6,361,915				402,184
(Decrease) increase in short-term borrowings			(2,120,523	)			6,962,952
Decrease in long-term borrowings			(57,064	)			—
Repurchase of common stock			—				(1,749,167	)
Redemption of preferred stock and warrants			(7,225,000	)			—
Cash dividends paid-preferred stock			(213,888	)			—
Cash dividends paid-common stock			(347,612	)			(354,459	)
			37,013,528				39,443,983
Net increase (decrease) in cash and cash equivalents			(205,508	)			12,859,852
Cash and cash equivalents at beginning of year			10,963,695				12,994,168
Cash and cash equivalents at end of year		$	10,758,187			$	25,854,020

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

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

Nine Months Ended September 30,		2009				2008
Reconciliation of net income to net cash provided by operating activities
Net income		$	1,665,847			$	1,375,050
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			510,237				311,780
Provision for loan losses			760,000				345,000
Change in deferred loan fees net of costs			(60,517	)			(23,543	)
Net gains on sale of securities			(158,551	)			—
Amortization of premiums and discounts			67,900				2,408
Deferred income taxes			(40,636	)			(27,207	)
Stock based compensation awards			106,230				84,621
(Income) loss from investment in real estate LLC		—					(5,904	)
Increase (decrease) in
Accrued interest payable			50,197				(40,130	)
Income tax payable			413				—
Other liabilities			(2,640,960	)			(119,074	)
Decrease (increase) in
Accrued interest receivable			(23,258	)			(74,206	)
Bank owned life insurance			(245,527	)			(244,099	)
Prepaid income taxes			35,649				—
Other assets			209,787				(418,408	)
		$	236,811			$	1,166,288

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

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

1.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		Organization and Description of Business-Old Line Bancshares, Inc. (Old Line Bancshares) was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares is to own all of the capital stock of Old Line Bank. We provide a full range of banking services to customers located in Prince George’s, Charles, Anne Arundel, 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 reported the income of Pointer Ridge attributable to Old Line Bancshares from the date of our acquisition of majority interest 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, 2008 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, 2008. 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.
		Accounting Standards Codification-The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, ASC became FASB’s officially recognized source of authoritative United States (U.S.) generally accepting accounting principles (GAAP) applicable to all public and non-public, non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and interpretive releases of the United States Securities and Exchange Commission (SEC) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.
		Reclassifications-We have made certain reclassifications to the 2008 financial presentation to conform to the 2009 presentation.

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

2.		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.
		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.

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
September 30, 2009		Cost				Gains				Losses				Fair Value
Available for sale
U.S. government agency		$	7,564,710			$	198,739			$	(20,429	)		$	7,743,020
Municipal securities			2,231,664				49,959				(371	)			2,281,252
Mortgage-backed			19,236,168				610,825				—				19,846,993
		$	29,032,542			$	859,523			$	(20,800	)		$	29,871,265
Held to maturity
Municipal securities		$	300,801			$	6,879			$	—			$	307,680
Mortgage-backed			5,898,179				321,862				—				6,220,041
		$	6,198,980			$	328,741			$	—			$	6,527,721
December 31, 2008
Available for sale
U.S. government agency		$	10,578,928			$	318,722			$	—			$	10,897,650
Municipal securities			2,425,036				21,547				(3,105	)			2,443,478
Mortgage-backed			15,913,656				311,457				(265	)			16,224,848
		$	28,917,620			$	651,726			$	(3,370	)		$	29,565,976
Held to maturity
U.S. Treasury		$	499,942			$	7,089			$	—			$	507,031
Municipal securities			300,866				194				(2,753	)			298,307
Mortgage-backed			7,202,583				227,092				—				7,429,675
		$	8,003,391			$	234,375			$	(2,753	)		$	8,235,013

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

2.	INVESTMENT SECURITIES (Continued)
	As of September 30, 2009, securities with unrealized losses segregated by length of impairment were as follows:

		Fair				Unrealized
September 30, 2009		Value				Losses
Unrealized losses less than 12 months
U.S. government agency		$	2,004,960			$	20,429
Municipal securities			200,300				371
Mortgage-backed			—				—
Total unrealized losses less than 12 months			2,205,260				20,800
Unrealized losses greater than 12 months
U.S. government agency		$	—			$	—
Municipal securities			—				—
Mortgage-backed			—				—
Total unrealized losses greater than 12 months			—				—
Total unrealized losses
U.S. government agency		$	2,004,960			$	20,429
Municipal securities			200,300				371
Mortgage-backed			—				—
Total unrealized losses			2,205,260				20,800

	We consider all unrealized losses on securities as of September 30, 2009 to be temporary losses because we will receive face value for the security at or prior to maturity. We have the ability and intent to hold the securities in the table above until they mature, at which time we will receive full value for the securities. As of September 30, 2009, 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 income statement.
	In the three and nine month periods ended September 30, 2009, we recorded gross realized gains of $634 and $163,674, respectively from the sale of available-for-sale securities. There were no recorded realized or unrealized gains or losses in the three month period ended September 30, 2009. We recorded a $5,123 realized loss in the nine month period and no unrealized gains or losses.

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

2.		INVESTMENT SECURITIES (Continued)
		Contractual maturities and pledged securities at September 30, 2009 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								Held to Maturity
		Amortized				Fair				Amortized				Fair
September 30, 2009		cost				Value				cost				Value
Maturing
Within one year		$	2,644,427			$	2,674,580			$	—			$	—
Over one to five years			6,591,921				6,765,016				99,915				100,186
Over five to ten years			6,265,403				6,550,543				2,416,655				2,534,280
Over ten years			13,530,791				13,881,126				3,682,410				3,893,255
		$	29,032,542			$	29,871,265			$	6,198,980			$	6,527,721
Pledged securities		$	—			$	—			$	—			$	—

3.		POINTER RIDGE OFFICE INVESTMENT, LLC
		On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.’s 12.5% membership interest in Pointer Ridge. The effective date of the purchase was November 1, 2008. 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,				December 31,
		2009				2008
Current assets		$	887,794			$	540,105
Non-current assets			7,472,675				7,619,352
Liabilities			6,493,960				6,548,760
Equity			1,866,509				1,610,697

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Statements of Income
Revenue		$	251,274			$	265,181			$	1,032,235			$	754,427
Expenses			262,630				280,655				776,423				742,619
Net income (loss)		$	(11,356	)		$	(15,474	)		$	255,812			$	11,808

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

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

5.		EARNINGS PER COMMON SHARE
		Effective January 1, 2009, we adopted the new authoritative accounting guidance under FASB ASC Topic 260, Earnings Per Share, which provides that non-vested share based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. We have determined that our outstanding non-vested stock awards are not participating securities. We determine basic earnings per common share by dividing net income by the weighted average number of shares of common stock outstanding giving retroactive effect to 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,								September 30,
		2009				2008				2009				2008
Weighted average number of shares			3,862,364				3,880,460				3,862,364				3,940,228
Dilutive average number of shares			9,159				1,324				6,857				2,742

6.		STOCK-BASED COMPENSATION
		We account for employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock-based compensation expense at the date of grant. We recognize compensation expense related to stock-based compensation awards in our income statements over the period during which an individual is required to provide service in exchange for such award. For the nine months ended September 30, 2009 and 2008, we recorded stock-based compensation expense of $106,230 and $84,621 respectively. For the three months ended September 30, 2009 and 2008, we recorded stock-based compensation expense of $15,646 and $19,821, 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, 2009, we recognized an $8,298 tax benefit associated with the portion of the expense that was related to the issuance of non-qualified options. For the three months ended September 30, 2009 and for the three and nine months ended September 30, 2008, there were no non-qualified options included in the expense calculation.
		We have two stock option plans under which we may issue options, the 2001 Incentive Stock Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee administers the stock option plans. As the plans outline, the Compensation Committee approves stock option grants to directors and employees, determines the number of shares, the type of option, the option price, the term (not to exceed 10 years from the date of issuance) and the vesting period of options issued. The Compensation Committee has approved and we have granted options vesting immediately as well as over periods of two, three and five years. We recognize the compensation expense associated with these grants over their

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

		respective vesting period. At September 30, 2009, there was $51,342 of total unrecognized compensation cost related to non-vested stock options that we expect to realize over the next 3 years. As of September 30, 2009, there were 71,530 shares remaining available for future issuance under the stock option plans. Directors and officers did not exercise any options during the three or nine month periods ended September 30, 2009 or 2008.
		A summary of the stock option activity during the nine month period follows:

						September 30,
		2009								2008
						Weighted								Weighted
		Number				average				Number				average
		of shares				exercise price				of shares				exercise price
Outstanding, beginning of period			236,620			$	9.09				216,920			$	9.37
Options granted			62,650				6.30				37,300				7.75
Options forfeited			—				—				(14,000	)			11.09
Outstanding, end of period			299,270			$	8.50				240,220			$	9.02

Information related to options as of September 30, 2009 follows:

		Outstanding options												Exercisable options
						Weighted				Weighted								Weighted
		Number				average				average				Number				average
Exercise		of shares at				remaining				exercise				of shares at				exercise
price		September 30, 2009				term				price				September 30, 2009				price
$3.33- $4.80			19,800				1.66			$	3.83				19,800			$	3.83
$4.81- $6.50			72,550				8.49				6.12				38,784				5.95
$6.51- $8.00			37,300				8.34				7.75				24,866				7.75
$8.01- $10.50			159,620				6.01				10.20				159,620				10.20
$10.51- $11.31			10,000				7.61				10.85				4,000				10.85
			299,270				6.67			$	8.50				247,070			$	8.79
Intrinsic value of outstanding options where the market value exceeds the exercise price						$	69,799
Intrinsic value of exercisable options where the market value exceeds the exercise price						$	67,097

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

7.		RETIREMENT PLAN
		Eligible employees 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 employee eligible compensation. Our contributions to the plan, included in employee benefit expenses, for the nine months ended September 30, 2009 and 2008 were $99,106, and $100,273 respectively. Old Line Bank’s contributions to the plan for the three months ended September 30, 2009 and 2008 were $35,485 and $33,280, respectively.
		Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive officers providing for retirement income benefits. We accrue the present value of the SERPs over the remaining number of years to the executives’ retirement dates. Old Line Bank’s expenses for the SERPs for the nine month periods ended September 30, 2009 and 2008 were $91,738 and $89,434, respectively. The SERP expense for the three month periods ended September 30, 2009 and 2008 were $30,569 and $29,812 respectively. The SERPs are non-qualified defined benefit pension plans that we have not funded.

8.		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 would be received to sell an asset or paid 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. The Bank values 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, 2009, we established values for available for sale investment securities as follows (000’s);

		Total Fair Value				Level 1				Level 2				Level 3
		September 30, 2009				Inputs				Inputs				Inputs
Investment securities available for sale		$	29,871			$	7,743			$	22,128			$	—

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.

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

9.		NEW AUTHORITATIVE ACCOUNTING GUIDANCE
		As discussed in Note-1 Summary of Significant Accounting Policies, on July 1, 2009, the Accounting Standards Codification became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public, non-governmental entities, superseding existing FASB, ACIPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies, citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section, and Paragraph structure.
		FASB ASC Topic 260-Earnings Per Share. On January 1, 2009, we adopted new authoritative accounting guidance under FASB ASC Topic 260-Earnings Per Share which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and entities shall include these participating securities in the computation of earnings per share pursuant to the two-class method. As outlined in Note 5-Earnings Per Share, we adopted ASC Topic 260 and it did not have any impact on our consolidated results of operations or financial position.
		FASB ASC Topic 320-Investments-Debt and Equity Securities. New authoritative accounting guidance under ASC Topic 320-Investments-Debt and Equity Securities (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, entities that deem that the declines in the fair value of held-to-maturity and available-for-sale securities below their cost are other than temporary will reflect these other than temporary losses in earnings as realized losses to the extent the impairment is related to credit losses. Entities will record the amount of the impairment related to other factors in other comprehensive income. ASC Topic 320 became effective for interim and annual reporting periods ended after June 15, 2009. Adoption of this new guidance did not have a material impact on our consolidated results of operations or financial position.
		FASB ASC Topic 715-Compensation Retirement Benefits. New authoritative guidance under ASC Topic 715-Compensation Retirement Benefits provides guidance related to an employer’s disclosure about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an understanding of how managers of the plan make allocation decisions, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. ASC Topic 715 becomes effective for financial statements beginning with the financial statements for the year ended December 31, 2009 and we do not anticipate that it will have a material impact on our consolidated results of operations or financial position.
		FASB ASC Topic 805- Business Combinations. The new authoritative guidance under ASC Topic 805 Business Combinations became applicable to how we account for business combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. The acquirer must recognize and measure at fair value contingent consideration when the acquirer can determine the amount of that consideration beyond a reasonable doubt. The fair value approach replaces the cost-allocation process required under previous accounting guidance

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

9.		NEW AUTHORITATIVE ACCOUNTING GUIDANCE (Continued)
		whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC Topic 805 requires the acquirer to expense acquisition related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance. If the acquirer cannot reasonably estimate the value of the asset or liability, the acquirer would generally recognize the value of the asset or liability in accordance with ASC Topic 450-Contingencies. Under ASC Topic 805, in order for the acquirer to accrue for a restructuring plan in purchase accounting it must meet the requirements of ASC Topic 420-Exit or Disposal Cost Obligations. The acquirer is to recognize contingencies at fair value, unless the contingencies are not likely to materialize, in which case, the acquirer should not recognize anything in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450-Contingencies. We did not have any business combination closing on or after January 1, 2009 and the adoption of ASC Topic 805 did not impact our consolidated results of operations or financial condition.
		FASB ASC Topic 810-Consolidation. New authoritative guidance under ASC Topic 810 amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as a minority interest, is an ownership interest in the consolidated entity that the consolidated entity should report as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income be reported at amounts attributable to both the parent and non-controlling interest. It also requires disclosure, on the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. ASC Topic 810 became effective on January 1, 2009, and it affected the way we reported the non-controlling interest in Pointer Ridge, but it did not have a material impact on our consolidated results of operations or financial position.
		Further new authoritative guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled though voting (or similar rights) should be consolidated. ASC Topic 810 requires a company to determine whether to consolidate an entity 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. The new authoritative guidance 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 effect on the entity’s financial statements. The new authoritative guidance under ASC Topic 810 will be effective January 1, 2010 and we do not expect that it will have a material impact on our consolidated results of operations or financial position.
		FASB ASC Topic 820-Fair Value Measurements and Disclosures. New authoritative guidance under ASC Topic 820-Fair Value Measurements and Disclosures affirms that the objective of fair value when the market for an asset is not active is the price that the company would receive to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there is a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. We adopted the new accounting guidance under ASC Topic 820 during the first quarter of 2009. Adoption of the new guidance did not have a material impact on our consolidated results of operations or financial position.
		Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity must measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets,

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

9.

NEW AUTHORITATIVE ACCOUNTING GUIDANCE (Continued)

(iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative guidance under ASC Topic 820 will be effective for our financial statements beginning October 1, 2009 and we do not expect that it will have a significant impact on our consolidated results of operations or financial position.

		FASB ASC Topic 825-Financial Instruments. New authoritative accounting guidance under ASC Topic 825 Financial Instruments requires an entity to provide disclosures about fair value of financial instruments in interim financial information and amends prior guidance to require these disclosures in summarized financial information at interim reporting periods. We include the new interim disclosures required under Topic 825 in Note 8-Fair Value Measurements.
		FASB ASC Topic 855-Subsequent Events. New authoritative guidance under ASC Topic 855 Subsequent Events establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before an entity issues financial statements or the entity has the financial statements available for issuance. ASC Topic 855 defines (i) the period after the balance sheet during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. This new authoritative guidance under ASC Topic 855 became effective for financial statements for periods ending after June 15, 2009 and did not have a material impact on our consolidated results of operation or financial position.
		FASB ASC Topic 860-Transfers and Servicing. New authoritative guidance under ASC Topic 860-Transfers and Servicing 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. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative guidance under ASC Topic 860 will be effective January 1, 2010 and we do not expect that it will have a material impact on our consolidated results of operation 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 $1.2 million 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

     During one of the most challenging economic periods in the last thirty years, we are pleased to report continued profitability for the third quarter of 2009. Net income available to common stockholders was $226,683 or $0.06 per basic and diluted common share for the three month period ending September 30, 2009. This was $206,710 or 47.70% lower than net income available to common stockholders of $433,393 or $0.11 per basic and diluted common share for the same period in 2008. Net income available to common stockholders for the nine month period ended September 30, 2009 was $1.1 million or $0.28 per basic and diluted common share. This represented a decrease of $291,126 or 21.17% compared to net income available to common stockholders of $1.4 million or $0.35 per basic and diluted common share for the nine months ended September 30, 2008.

     During the first nine months of 2009, the following events occurred.

	•		We maintained asset quality with total non-performing assets of $1.6 million (0.45% of total assets) and 4 other loans in the amount of approximately $153,000 past due between 30 and 89 days at quarter end.
	•		We increased the provision for loan losses by $415,000 from $345,000 to $760,000.
	•		The loan portfolio grew $31.0 million or 13.41%.
	•		Total deposits grew $47.0 million or 20.31%.
	•		We maintained liquidity and by all regulatory measures remained “well capitalized”.
	•		We recognized an increase in earnings on our investment in Pointer Ridge of approximately $160,000 inclusive of a non-recurring lease termination fee of approximately $158,000 recognized in the quarter ended March 31, 2009.
	•		We recorded an approximately $159,000 gain from sale on investments.
	•		We incurred a $326,000 increase in FDIC insurance premiums inclusive of a $149,748 special assessment.

	•		We repurchased from the U.S. Treasury 7,000 shares of preferred stock and the warrant to purchase 141,892 share of our common stock that we issued to them in December 2008.
	•		We opened new branch locations in Crofton and Glen Dale, Maryland and moved our Greenbelt location to a permanent building.

     In an economic climate that continues to present a multitude of challenges to us, many of our peer banks and our customers, we are very satisfied with our performance. We believe that it was an accomplishment to maintain profitability and asset quality in an extremely challenging environment while incurring increased FDIC insurance cost, increased operating costs associated with the new branches and a $415,000 increase in the loan loss provision for the nine month period.

     The following summarizes the highlights of our financial performance for the three month period ended September 30, 2009 compared to the three month period ended September 30, 2008 (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)
		2009				2008				$ Change				% Change
Net income available to common stockholders		$	227			$	433			$	(206	)			(47.58	)%
Interest revenue			4,392				3,937				455				11.56
Interest expense			1,406				1,460				(54	)			(3.70	)
Net interest income after provision for loan losses			2,777				2,297				480				20.90
Non-interest revenue			368				209				159				76.08
Non-interest expense			2,384				1,829				555				30.34
Average total loans			260,563				223,183				37,380				16.75
Average interest earning assets			309,189				259,704				49,485				19.05
Average total interest-bearing deposits			226,719				171,862				54,857				31.92
Average noninterest-bearing deposits			39,760				35,866				3,894				10.86
Net interest margin (1)			3.89	%			3.81	%
Return on average equity			5.37	%			5.04	%
Basic earnings per common share		$	0.06			$	0.11			$	(0.05	)			(45.45	)
Diluted earnings per common share			0.06				0.11				(0.05	)			(45.45	)

		Nine months ended September 30,
		(Dollars in thousands)
		2009				2008				$ Change				% Change
Net income available to common stockholders		$	1,084			$	1,375			$	(291	)			(21.16	)%
Interest revenue			12,721				11,433				1,288				11.27
Interest expense			4,272				4,367				(95	)			(2.18	)
Net interest income after provision for loan losses			7,690				6,721				969				14.42
Non-interest revenue			1,507				702				805				114.67
Non-interest expense			6,718				5,306				1,412				26.61
Average total loans			251,428				213,755				37,673				17.62
Average interest earning assets			302,587				245,186				57,401				23.41
Average total interest-bearing deposits			214,289				158,310				55,979				35.36
Average noninterest-bearing deposits			38,451				35,730				2,721				7.62
Net interest Margin (1)			3.77	%			3.87	%
Return on average equity			5.22	%			5.34	%
Basic earnings per common share		$	0.28			$	0.35			$	(0.07	)			(20.00	)
Diluted earnings per common share			0.28				0.35				(0.07	)			(20.00	)

Growth Strategy

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

     We believe a natural evolution of a community-focused bank like Old Line Bank is to expand the delivery channels via the branch network. In the past 18 months, we have expanded in Prince George’s County and Anne Arundel County, Maryland.

     We opened a branch at 167-U Jennifer Road, Annapolis, Maryland in Anne Arundel County in September 2008. We hired the staff for this branch during the months of August and September of 2008. In February 2008, we opened a branch in Prince George’s County at 9658 Baltimore Avenue, College Park, Maryland in the same building as the loan production office that houses our team of loan officers. We hired the Branch Manager and staff for this location in February 2008. On July 1, 2009, we opened a branch at 1641 State Route 3 North, Crofton, Maryland in Anne Arundel County. During July and August of 2009, we hired the staff for this location. In October 2009, we opened our branch in the Fairwood Office Park located at 12100 Annapolis Road, Suite 1, Glen Dale, Maryland. We hired the staff for this location during the third quarter of 2009.

     We believe with these 10 branches, our lending staff, our corporate infrastructure and our solid balance sheet and strong capital position, we are positioned to focus our future efforts on improving earnings per share and enhancing stockholder value by capitalizing on the many opportunities available in the market.

     As previously reported, in December 2008, we increased our ownership in Pointer Ridge Office Investment, LLC from 50.0% to 62.5%. As a result, we now consolidate their results of operations and financial performance. This consolidation caused an approximately $479,000 increase in non-interest revenue, a $311,000 increase in interest expense, a $393,000 reduction in occupancy expense and a $73,000 increase in non-interest expense.

     Although the current economic climate continues to present significant challenges for our industry, we anticipate the bank will experience loan and deposit growth during the remainder of 2009 and beyond. We do expect that the current economic climate will cause a slower rate of loan growth in the future than we have historically experienced. Although we remain cautiously optimistic that we will continue to successfully navigate through this difficult period, we also recognize that we are not immune to losses in our loan portfolio as even our strong borrowers continue to cope with declining revenues, diminishing cash flows and depreciating collateral values in their businesses. Therefore, we may have to continue to increase our loan loss provisions.

     With the opening of the Fairwood branch as discussed above, we have substantially completed our current branch expansion. Accordingly, we don’t anticipate opening any additional branches in the immediate future, although should we identify new branch locations that will support our long term growth plans we may open additional branches.

     Because of the new branches, we anticipate salaries and benefits expenses and other operating expenses will increase during the remainder of 2009 and in 2010. We anticipate that, over time, income generated from the branches will offset any increase in expenses. We also expect that for the remainder of 2009 Pointer Ridge will operate at a slight loss.

     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. In 2007, we began offering selected commercial customers the ability to remotely capture their deposits and electronically transmit them to us. This service has modestly increased equipment cost, reduced courier fees, and positively impacted deposit growth.

     In order to support our growth, provide improved management information capabilities and enhance the products and services we deliver to our customers, during the 1^st quarter of 2009, we began enhancing our core data processing systems. We completed this process in April 2009. We anticipate that this new system will cause data processing costs to moderately increase. We will continue to evaluate cost effective ways that technology can enhance our management, 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 currently have no specific plans to acquire existing financial institutions or branches thereof or to hire additional loan officers.

     Repayment of Troubled Asset Relief Program (TARP) Investment

     On July 15, 2009, we repurchased from the U.S. Treasury 7,000 shares of preferred stock that we issued to them in December 2008 under the U.S. Treasury’s Capital Purchase Program through the Troubled Asset Relief Program. We paid the U.S. Treasury $7,058,333 to repurchase the preferred stock which reflects the liquidation value of the preferred stock and $58,333 of accrued but unpaid dividends. As a result of this repurchase, we recorded approximately $281,000 for the remaining dividend due and the accretion of the preferred stock during the three month period ended September 30, 2009. For the nine month period ended September 30, 2009, we recorded approximately $486,000 for the dividend due and the accretion of the preferred stock. After careful consideration, we determined that we would repay the U.S. Treasury and believe this repayment will be in the best long term interest of our stockholders. We have also repurchased at a fair market value of $225,000 the warrant to purchase 141,892 shares of our common stock that was issued to the U.S. Treasury in conjunction with the issuance of the preferred stock.

Results of Operations

Net Interest Income

     Net interest income is the difference between income on interest earning assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, and federal funds sold; interest-bearing deposits and other borrowings make up the cost of funds. Noninterest-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, 2009 compared to three months ended September 30, 2008

     Net interest income after provision for loan losses for the three months ended September 30, 2009 increased $479,804 or 20.89% to $2.8 million from $2.3 million for the same period in 2008.

     Interest revenue increased from $3.9 million for the three months ended September 30, 2008 to $4.4 million for the same period in 2009. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of interest earning assets growing at a faster rate than interest-bearing liabilities and the interest yield on interest bearing liabilities declining at a faster rate than the interest yield on interest bearing assets. The increase in interest bearing assets was primarily caused by a $37.4 million increase in average total loans and a $20.3 million increase in average total investment securities. In order to fund this loan growth, we deployed funds from lower yielding federal funds sold. The growth in average total loans was attributable to the business development efforts of the entire Old Line Bank lending team and directors and the expansion of our branch network. We believe that the expansion of our branch network provides us with increased name recognition and new opportunities that contributed to our growth. The growth in interest bearing assets was partially offset by a 32 basis point decrease in the yield on investment securities and a 41 point decline in the yield on the loan portfolio.

     Interest expense for all interest-bearing liabilities decreased $54,210 or 3.71% to $1.4 million for the three months ended September 30, 2009. This was primarily attributable to an 88 basis point decrease in the cost of interest-bearing deposits. This decrease in the cost of interest-bearing deposits was partially offset by a $54.8 million increase in average interest bearing deposits and a 63 basis point increase in the cost of borrowed funds. The consolidation of Pointer Ridge’s assets, liabilities, and equity caused the increase in the cost of borrowed funds. We also used overnight federal funds borrowing during the period. As a result of these items, our net interest margin was 3.89% for the three months ended September 30, 2009, as compared to 3.81% for the three months ended September 30, 2008.

The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the three months ended September 30, 2009 and 2008, 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,		2009												2008
		Average												Average
		balance				Interest				Yield				balance				Interest				Yield
Assets:
Federal funds sold(1)		$	434,238			$	233				0.21	%		$	17,066,658			$	86,739				2.02	%
Time deposits in other banks			10,513,525				48,522				1.83				1,539,007				11,083				2.86
Investment securities(1)(2)
U.S. Treasury			—				—				—				2,000,219				18,035				3.58
U.S. government agency			7,568,260				80,034				4.20				4,252,471				42,643				3.98
Mortgage backed securities			25,968,160				276,302				4.22				8,478,144				96,203				4.50
Municipal securities			2,455,492				31,323				5.06				2,872,573				38,626				5.33
Other			3,976,513				18,047				1.80				2,093,391				20,627				3.91
Total investment securities			39,968,425				405,706				4.03				19,696,798				216,134				4.35
Loans: (1) (3)
Commercial			75,254,258				1,063,052				5.60				65,730,075				1,098,186				6.63
Mortgage			169,750,186				2,707,705				6.33				141,040,659				2,320,927				6.53
Consumer			15,558,258				211,507				5.39				16,411,781				223,582				5.40
Total loans			260,562,702				3,982,264				6.06				223,182,515				3,642,695				6.48
Allowance for loan losses			2,290,316				—								1,780,801				—
Total loans, net of allowance			258,272,386				3,982,264				6.12				221,401,714				3,642,695				6.53
Total interest earning assets(1)			309,188,574				4,436,725				5.69				259,704,177				3,956,651				6.04
Non-interest bearing cash			7,567,129												4,095,686
Premises and equipment			14,717,765												4,558,753
Other assets			10,094,330												11,382,635
Total assets		$	341,567,798											$	279,741,251
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		$	7,058,391				6,611				0.37			$	6,891,844				10,271				0.59
Money market and NOW			34,630,956				47,773				0.55				34,783,690				77,031				0.88
Other time deposits			185,029,565				1,098,982				2.36				130,186,143				1,169,643				3.56
Total interest-bearing deposits			226,718,912				1,153,366				2.02				171,861,677				1,256,945				2.90
Borrowed funds			35,187,194				252,263				2.84				36,418,106				202,894				2.21
Total interest-bearing liabilities			261,906,106				1,405,629				2.13				208,279,783				1,459,839				2.78
Noninterest-bearing deposits			39,760,199												35,866,273
			301,666,305												244,146,056
Other liabilities			1,721,983												1,455,087
Noncontrolling interest			700,862												—
Stockholders’ equity			37,478,648												34,140,108
Total liabilities and stockholders’ equity		$	341,567,798											$	279,741,251
Net interest spread(1)											3.56												3.26
Net interest income and Net interest margin(1)						$	3,031,096				3.89	%						$	2,496,812				3.81	%