FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

For the quarterly period ended September 30, 2008

OR

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

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 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		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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, 2008 the registrant had 3,858,764 shares of common stock outstanding.

 

 

Part I. Financial Information

Item 1. Financial Statements

Old Line Bancshares, Inc. & Subsidiary
Consolidated Balance Sheets

		September 30,				December 31,
		2008				2007
		(Unaudited)
Assets
Cash and due from banks		$	3,949,847			$	3,172,089
Federal funds sold			21,904,173				9,822,079
Total cash and cash equivalents			25,854,020				12,994,168
Time deposits in other banks			—				2,000,000
Investment securities available for sale			8,751,056				9,393,356
Investment securities held to maturity			9,847,243				2,301,591
Loans, less allowance for loan losses			223,531,239				201,941,667
Restricted equity securities at cost			2,126,550				2,080,250
Investment in real estate LLC			811,925				805,971
Bank premises and equipment			4,801,831				4,207,395
Accrued interest receivable			992,284				918,078
Deferred income taxes			186,948				161,940
Bank owned life insurance			8,013,389				7,769,290
Other assets			1,042,618				637,570
		$	285,959,103			$	245,211,276
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	35,483,127			$	35,141,289
Interest-bearing			176,913,764				142,670,944
Total deposits			212,396,891				177,812,233
Short-term borrowings			23,310,048				16,347,096
Long-term borrowings			15,000,000				15,000,000
Accrued interest payable			653,738				693,868
Income tax payable			48,609				238,226
Other liabilities			559,142				488,599
			251,968,428				210,580,022
Stockholders’ equity
Common stock, par value $.01 per share; authorized 15,000,000 shares; issued and outstanding 3,859,117 in 2008, and 4,075,849 in 2007			38,591				40,758
Additional paid-in capital			28,802,634				30,465,013
Retained earnings			5,175,823				4,155,232
			34,017,048				34,661,003
Accumulated other comprehensive income			(26,373	)			(29,749	)
			33,990,675				34,631,254
		$	285,959,103			$	245,211,276

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

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Interest revenue
Loans, including fees		$	3,642,695			$	3,359,297			$	10,620,360			$	9,210,576
U.S. Treasury securities			17,052				27,993				58,237				89,337
U.S. government agency securities			40,319				70,848				90,026				230,830
Mortgage backed securities			96,203				11,731				209,053				38,447
Municipal securities			23,883				26,954				72,694				80,898
Federal funds sold			85,110				270,175				257,079				1,025,129
Other			31,262				19,268				125,213				62,196
Total interest revenue			3,936,524				3,786,266				11,432,662				10,737,413
Interest expense
Deposits			1,256,945				1,485,826				3,773,591				4,249,039
Borrowed funds			202,894				180,826				593,015				420,122
Total interest expense			1,459,839				1,666,652				4,366,606				4,669,161
Net interest income			2,476,685				2,119,614				7,066,056				6,068,252
Provision for loan losses			180,000				120,000				345,000				206,000
Net interest income after provision for loan losses			2,296,685				1,999,614				6,721,056				5,862,252
Non-interest revenue
Service charges on deposit accounts			78,533				76,579				230,737				220,497
Marine division broker origination fees			—				49,260				—				262,218
Earnings on bank owned life insurance			90,895				91,492				273,609				248,130
Income (loss) on investment in real estate LLC			(7,737	)			(3,512	)			5,904				256
Gain (loss) on disposal of assets			—				(7,372	)			—				(7,372	)
Other fees and commissions			47,419				71,436				191,958				191,105
Total non-interest revenue			209,110				277,883				702,208				914,834
Non-interest expense
Salaries			822,131				851,056				2,308,762				2,406,093
Employee benefits			222,607				236,253				723,965				749,518
Occupancy			286,729				241,648				837,438				676,269
Equipment			81,771				66,197				228,437				184,599
Data processing			67,163				51,293				193,042				165,385
Other operating			348,886				338,654				1,014,822				1,027,878
Total non-interest expense			1,829,287				1,785,101				5,306,466				5,209,742
Income before income taxes			676,508				492,396				2,116,798				1,567,344
Income taxes			243,115				163,857				741,748				503,603
Net income		$	433,393			$	328,539			$	1,375,050			$	1,063,741
Basic earnings per common share		$	0.11			$	0.08			$	0.35			$	0.25
Diluted earnings per common share		$	0.11			$	0.08			$	0.35			$	0.25

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

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statement of Changes in Stockholders’ Equity
Nine Months Ended September 30, 2008
(Unaudited)

																		Accumulated
										Additional								other
		Common stock								paid-in				Retained				comprehensive				Comprehensive
		Shares				Par value				capital				earnings				income				income
Balance, December 31, 2007			4,075,849			$	40,758			$	30,465,013			$	4,155,232			$	(29,749	)
Common stock repurchased			(216,732	)			(2,167	)			(1,747,000	)			—				—
Net income			—				—				—				1,375,050				—			$	1,375,050
Unrealized gain on securities available for sale, net of income taxes of $2,199			—				—				—				—				3,376				3,376
Comprehensive income																						$	1,378,426
Stock based compensation awards			—				—				84,621				—				—
Cash dividend $0.09 per share			—				—				—				(354,459	)			—
Balance, September 30, 2008			3,859,117			$	38,591			$	28,802,634			$	5,175,823			$	(26,373	)

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

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

Nine Months Ended September 30,		2008				2007
Cash flows from operating activities
Interest received		$	11,337,320			$	10,538,974
Fees and commissions received			452,155				700,985
Interest paid			(4,406,736	)			(4,527,904	)
Cash paid to suppliers and employees			(5,257,879	)			(5,112,192	)
Income taxes paid			(958,572	)			(830,109	)
			1,166,288				769,754
Cash flows from investing activities
Purchases of time deposits in other banks			2,000,000				—
Purchase of investment securities
Held to maturity			(8,237,285	)			—
Available for sale			(5,534,900	)			—
Proceeds from disposal of investment securities
Held to maturity			693,467				500,000
Available for sale at maturity or call			6,178,534				1,845,400
Loans made, net of principal collected			(21,911,029	)			(37,780,841	)
Purchase of equity securities			(46,300	)			(9,700	)
Investment in bank owned life insurance (BOLI)			—				(4,000,000	)
Investment in real estate LLC			(50	)			10,322
Purchase of premises, equipment and software			(892,856	)			(553,066	)
Proceeds from sale of premises and equipment			—				76,493
			(27,750,419	)			(39,911,392	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits			34,182,473				9,891,630
Other deposits			402,184				145,272
(Decrease) increase in short-term borrowings			6,962,952				13,383,246
(Decrease) increase in long-term borrowings			—				(3,000,000	)
Repurchase of common stock			(1,749,167	)			—
Proceeds from stock options exercised, including tax benefit			—				6,250
Dividends paid			(354,459	)			(382,915	)
			39,443,983				20,043,483
Net increase (decrease) in cash and cash equivalents			12,859,852				(19,098,155	)
Cash and cash equivalents at beginning of year			12,994,168				39,628,195
Cash and cash equivalents at end of year		$	25,854,020			$	20,530,040

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

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

Nine Months Ended September 30,		2008				2007
Reconciliation of net income to net cash provided (used) by operating activities
Net income		$	1,375,050			$	1,063,741
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation and amortization			311,780				248,936
Provision for loan losses			345,000				206,000
Loss on sale of equipment			—				7,372
Change in deferred loan fees net of costs			(23,543	)			(68,887	)
Amortization of premiums and discounts			2,408				3,130
Deferred income taxes			(27,207	)			(41,095	)
Stock based compensation awards			84,621				149,623
(Income) loss from investment in real estate LLC			(5,904	)			(256	)
Increase (decrease) in
Accrued interest payable			(40,130	)			141,257
Income tax payable & other liabilities			(119,074	)			(377,003	)
Decrease (increase) in
Accrued interest receivable			(74,206	)			(129,552	)
Bank owned life insurance			(244,099	)			(227,045	)
Other assets			(418,408	)			(206,467	)
		$	1,166,288			$	769,754

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

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

1.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		Organization and Description of Business-Old Line Bancshares, Inc. was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares, Inc. is to own all of the capital stock of Old Line Bank. Old Line Bancshares, Inc. also has an approximately $812,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”).
		Old Line Bank is a full service commercial bank operating in the suburban Maryland (Washington, D.C. suburbs) counties of Prince George’s, Anne Arundel, Charles and northern St. Mary’s. Old Line Bank offers deposit services and loans to individuals, small businesses, associations and government entities. Other services include direct deposit of payroll and social security checks, automatic drafts from accounts, automated teller machine services, cash management services, safe deposit boxes, money orders and travelers cheques. Old Line Bank also offers credit card services and on-line account access with bill payer service.
		Basis of Presentation and Consolidation-The accompanying consolidated financial statements include the activity of Old Line Bancshares, Inc. and its wholly owned subsidiary, Old Line Bank. We have eliminated all significant intercompany transactions and balances.
		The foregoing consolidated financial statements are unaudited; however, in the opinion of management we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of December 31, 2007 from audited financial statements. These statements should be read in conjunction with Old Line Bancshares’ financial statements and accompanying notes included in Old Line Bancshares, Inc.’s Form 10-K for the year ended December 31, 2007. 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, Inc. conform to accounting principles generally accepted in the United States of America.
2.		INVESTMENT SECURITIES
		As Old Line Bancshares purchases securities, management determines if we should classify the securities as held to maturity, available for sale or trading. We record the securities which management has the intent and ability to hold to maturity at amortized cost which is cost adjusted for amortization of premiums and accretion of discounts to maturity. We classify securities which we may sell before maturity as available for sale and carry these securities at fair value with unrealized gains and losses included in stockholders’ equity on an after tax basis. Management has not identified any investment securities as trading.
		We record gains and losses on the sale of securities on the trade date and determine these gains or losses using the specific identification method. We amortize premiums and accrete discounts using the interest method.
3.		INVESTMENT IN REAL ESTATE LLC
		We have a 50% investment in a real estate limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge). As required under FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN46R”), we have considered our investment in Pointer Ridge and determined Pointer Ridge is a variable interest entity, but Old Line Bancshares is not the primary beneficiary. Therefore, we do not consolidate Pointer Ridge’s results and financial position with that of Old Line Bancshares. Rather, we account for our investment in Pointer Ridge using the equity method.

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

Pointer Ridge Office Investment, LLC

		September 30,				December 31,
Balance Sheets		2008				2007
Current assets		$	508,342			$	440,256
Non-current assets			7,685,421				7,815,892
Liabilities			6,569,913				6,644,206
Equity			1,623,850				1,611,942

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Statements of Income
Revenue		$	265,181			$	238,684			$	754,427			$	692,397
Expenses			280,655				245,708				742,619				691,885
Net income (loss)		$	(15,474	)		$	(7,024	)		$	11,808			$	512

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 Bancshares based on their proportional share of taxable income.

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

5.

EARNINGS PER SHARE

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

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

		Three MonthsEnded								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Weighted average number of shares			3,880,460				4,254,599				3,940,228				4,254,599
Dilutive average number of shares			1,324				8,193				2,742				5,869

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. In the first quarter of 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, under the modified prospective method. Statement 123R requires companies to recognize compensation expense related to stock-based compensation awards in their income statements over the period during which an individual is required to provide service in exchange for such award. For the nine months ended September 30, 2008 and 2007, we recorded stock-based compensation expense of $84,621 and $149,623, respectively. For the three months ended September 30, 2008 and 2007, we recorded stock-based compensation expense of $19,821 and $30,333, respectively.

Under SFAS 123R, a company may only recognize tax benefits for options that ordinarily will result in a tax deduction when the grant is exercised (non-qualified options). There were no non-qualified options included in the expense calculation during the three and nine months ended September 30, 2008. For the three and nine months ended September 30, 2007, we recognized an $11,887 tax benefit associated with the portion of the expense that was related to the issuance of non-qualified options.

We have two stock option plans under which we may issue options, the 2001 Incentive Stock Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee administers the stock option plans. As the plans outline, the Compensation Committee approves stock option grants to directors and employees, determines the number of shares, the type of option, the option price, the term (not to exceed 10 years from the date of issuance) and the vesting period of options issued. The Compensation Committee has approved and we have issued grants with options vesting immediately as well as over periods of two, three and five years. We recognize the compensation expense associated with these grants over their respective vesting period. At September 30, 2008, there was $79,248 of total unrecognized compensation cost related to nonvested stock options that we expect to realize over the next 3.75 years. As of September 30, 2008, there were 134,180 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 period ended September 30, 2008. The intrinsic value of the 900 options that directors and officers exercised during the nine months ended September 30, 2007 was $5,184. Directors and officers did not exercise any options during the three month period ended September 30, 2007.

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

6.		STOCK-BASED COMPENSATION (Continued)
		A summary of the stock option activity during the nine month period follows:

		September 30,
		2008								2007
						Weighted								Weighted
		Number				average				Number				average
		of shares				exercise price				of shares				exercise price
Outstanding, beginning of period			216,920			$	9.37				182,820			$	8.91
Options granted			37,300				7.75				47,200				10.57
Options exercised			—				—				(900	)			4.72
Options forfeited			(14,000	)			11.09				(4,000	)			11.31
Outstanding, end of period			240,220			$	9.02				225,120			$	9.23

Information related to options as of September 30, 2008 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, 2008				term				price				September 30, 2008				price
$3.33-$4.17			11,700				2.25			$	3.44				11,700			$	3.44
$4.18-$5.00			21,600				3.21				4.65				21,600				4.65
$5.01-$10.00			83,920				7.42				8.85				59,054				9.32
$10.01-$11.31			123,000				7.56				10.43				100,200				10.41
			240,220				6.86			$	9.02				192,554			$	9.00
Intrinsic value of outstanding options where the market value exceeds the exercise price						$	117,375
Intrinsic value of exercisable options where the market value exceeds the exercise price						$	117,375

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, 2008 and 2007 were $100,273, and $97,182, respectively. Old Line Bank’s contributions to the plan for the three months ended September 30, 2008 and 2007 were $33,280 and $36,172, 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, 2008 and 2007 were $89,434 and $72,448, respectively. The SERP expense for the three month periods ended September 30, 2008 and 2007 were $29,812 and $23,478, respectively.

8.		ASSETS MEASURED AT FAIR VALUE ON A CONTINUING BASIS
		On January 1, 2008, we adopted Statement of Financing Accounting Standards No. 157, Fair Value Measurements. Old Line Bank values investment securities classified as available for sale at fair value. The fair value hierarchy established in SFAS 157, 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 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, 2008, we established values for available for sale investment securities as follows (000’s):

		Total				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
Invesment securities available for sale			8,751				5,507				3,244				—

The following table reconciles the changes in Level 3 input balances during the quarter (000’s):

Balance beginning of quarter		$	2,937
Total unrealized losses included in other comprehensive income
Purchases, issuances, and settlments
Transfers in and/or out of Level 3			(2,937	)
Balance September 30, 2008		$	—
The amount of total losses for the period attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	—

There were no changes in gains and losses (realized and unrealized) included in earnings for the quarter ended September 30, 2008.

9.		RECENT ACCOUNTING STANDARDS
		The following are recent accounting pronouncements approved by the Financial Accounting Standards Board (FASB). These Statements will not have any material impact on the financial statements of Bancshares or the Bank.

		In December 2007, the FASB issued SFAS No. 160 (revised 2007), Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 is effective at the beginning of the company’s first fiscal year after December 15, 2008. We do not expect that SFAS 160 will have a material impact on our consolidated results of operations or financial position.
		In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS No. 141(R) will significantly change the accounting for business combinations in a number of areas, including the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development costs and restructuring costs. Additionally, under SFAS No. 141(R), changes in deferred tax asset valuation allowances and acquired income uncertainties in a business combination after the measurement period will impact income tax expense. The provisions of this standard are effective beginning January 1, 2009. We do not expect that SFAS No. 141(R) will have a material impact on our consolidated results of operations or financial position.
		FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133, requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financing reporting. The use and complexity of derivative instruments and hedging activities have increased significantly over the past several years. Constituents have expressed concerns that the existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative Instruments Hedging Activities, do not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We do not expect SFAS No. 161 will have a material impact on our consolidated results of operations or financial position.

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

Introduction

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

Overview

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

     Our primary business is to own all of the capital stock of Old Line Bank. We also have an approximately $812,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”). We own 50% of Pointer Ridge. Frank Lucente, one of our directors and a director of Old Line Bank, controls 25% of Pointer Ridge and controls the manager of Pointer Ridge. The purpose of Pointer Ridge is to acquire, own, hold for profit, sell, assign, transfer, operate, lease, develop, mortgage, refinance, pledge and otherwise deal with real property located at the intersection of Pointer Ridge Road and Route 301 in Bowie, Maryland. Pointer Ridge 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

     We are pleased to report sound financial performance for the third quarter of 2008. Net income was $433,393 or $0.11 per basic and diluted common share for the three month period ending September 30, 2008. This was $104,854 or 31.92% higher than net income of $328,539 or $0.08 per basic and diluted common share for the same period in 2007. Net income for the nine month period ended September 30, 2008 was $1.4 million or $0.35 per basic and diluted common share. This represented an increase of $311,309 or 29.27% compared to net income of $1.1 million or $0.25 per basic and diluted common share for the nine months ended September 30, 2007.

     During the first nine months of 2008, the following events occurred.

	•		We opened our 8th branch at 167-U Jennifer Road, Annapolis, Anne Arundel County, Maryland.
	•		We maintained asset quality and collected all principal, interests and costs on an approximately $127,000 non-accrual loan that we previously reported.
	•		We increased the provision for loan losses 67.48% or $139,000.
	•		The loan portfolio grew $21.6 million (10.70%).
	•		Total assets increased $40.8 million (16.64%).
	•		We repurchased 216,732 shares of our common stock at an average price of $8.07 per share.
	•		We increased earnings per basic share $0.10 or 40.0%.
	•		We increased the number of shares of the Company’s common stock that we may repurchase under the previously approved Stock Repurchase Program from 400,000 shares of common stock to 500,000 shares.
	•		We maintained liquidity and by all regulatory measures remained “well capitalized”.

     We believe that it was an accomplishment to increase earnings, grow the loan portfolio and maintain credit quality despite the turbulence in the financial markets, the continued weak economic environment and the uncertainties faced by our industry. Because of this weak economic environment and growth in the loan portfolio, we increased the provision for loan losses 50.0% or $60,000 during the three month period and 67.48% or $139,000 during the nine month period ended September 30, 2008.

     The following summarizes the highlights of our financial performance for the three month period ended September 30, 2008 compared to the three month period ended September 30, 2007 (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)
		2008				2007				$ Change				% Change
Net income		$	433			$	329			$	104				31.61	%
Interest revenue			3,937				3,786				151				3.99
Interest expense			1,460				1,667				(207	)			(12.42	)
Net interest income after provision for loan losses			2,297				2,000				297				14.85
Non-interest revenue			209				278				(69	)			(24.82	)
Non-interest expense			1,829				1,785				44				2.46
Average total loans			223,182				179,228				43,954				24.52
Average interest earning assets			259,704				215,098				44,606				20.74
Average total interest-bearing deposits			171,862				143,586				28,276				19.69
Average noninterest-bearing deposits			35,866				33,090				2,776				8.39
Net interest Margin (1)			3.81	%			3.96	%
Return on average equity			5.04	%			3.65	%
Basic earnings per common share		$	0.11			$	0.08			$	0.03				37.50
Diluted earnings per common share			0.11				0.08				0.03				37.50

The following outlines the highlights of our financial performance for the nine month period ended September 30, 2008 compared to the nine month period ended September 30, 2007.

		Nine months ended September 30,
		(Dollars in thousands)
		2008				2007				$ Change				% Change
Net income		$	1,375			$	1,064			$	311				29.23	%
Interest revenue			11,433				10,737				696				6.48
Interest expense			4,367				4,669				(302	)			(6.47	)
Net interest income after provision for loan losses			6,721				5,862				859				14.65
Non-interest revenue			702				915				(213	)			(23.28	)
Non-interest expense			5,306				5,210				96				1.84
Average total loans			213,755				165,611				48,144				29.07
Average interest earning assets			245,186				207,957				37,229				17.90
Average total interest-bearing deposits			158,310				139,420				18,890				13.55
Average noninterest-bearing deposits			35,730				34,632				1,098				3.17
Net interest Margin (1)			3.87	%			3.95	%			(0	)			(2.03	)
Return on average equity			5.34	%			4.01	%			0				33.17
Basic earnings per common share		$	0.35			$	0.25			$	0.10				40.00
Diluted earnings per common share			0.35				0.25				0.10				40.00

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, creating 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. We plan to expand in Prince George’s County, Maryland and may expand in Charles County and Anne Arundel County as well as contiguous northern and western counties, such as Montgomery County and Howard County, Maryland.

     In May 2008, we executed a lease agreement to lease 1,620 square feet of space in a store unit located at 167-U Jennifer Road, Annapolis, Maryland in the County of Anne Arundel. In September 2008, we opened this branch. We hired the staff for this branch during the months of August and September of 2008.

     In February 2008, we opened a branch in College Park (Prince George’s County), Maryland at 9658 Baltimore Avenue, College Park, Maryland. This branch is 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.

     As part of our expansion efforts, in July 2004, Old Line Bank executed a lease and applied to regulatory authorities to open a branch at 1641 State Route 3 North, Crofton, Maryland in Anne Arundel County. We anticipated that construction of the building in which we plan to locate the branch would begin during the second or third quarter of 2006 and we expected to open the branch in the first quarter of 2007. However, the owner of the property was unable to complete the requirements contained in the lease and begin construction of the branch. Construction of this location began in 2007. We expect to open this branch during the first or second quarter of 2009.

     In July 2007, we identified a site for a second branch location in Bowie, Maryland. Currently, the landlord is preparing a pad site. Assuming the landlord completes the preparation of the pad site and meets all of the conditions of the lease, we plan to lease the pad site and construct a branch. The pad site is located in the Fairwood Office Park in Bowie, Maryland. We anticipate we will open this branch during the 1^st or 2^nd quarter of 2009.

     As expected, the costs associated with opening of the Annapolis branch caused a $60,655 or 19.70% increase in occupancy and equipments costs during the three month period ended September 30, 2008. The openings of this branch, the Greenbelt branch in June 2007 and the College Park branch in February 2008 were the major factors contributing to the $205,007 or 23.81% increase in these costs during the nine month period ended September 30, 2008. Because of the new branches, we anticipate salaries and benefits expenses and other operating expenses will increase. We anticipate that, over time, income generated from the branches will offset any increase in expenses.

     Expansion of Commercial, Construction and Commercial Real Estate Lending

     We hired a new Vice President of Commercial Lending for our Waldorf office and a new Senior Vice President of Commercial Lending to service the Anne Arundel County market during 2007. As we expected, the increase in personnel during 2007 and the staffing for the new Annapolis, College Park and Greenbelt branches caused an increase in salary and benefit expenses in the third quarter of 2008 compared to the third quarter of 2007. This increase was offset by the termination of the employees that worked in the marine division that we closed at the end of the third quarter of 2007.

     Although the current economic climate presents significant challenges to our industry, as a result of the new branches and lending personnel, we anticipate the bank will experience loan and deposit growth during the remainder of 2008 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. We anticipate that after establishment of the Bowie and Crofton branches outlined above that we will slow down the rate of branch expansion, although should we identify new branch locations that will support our long term growth plans we may open additional branches.

     Other Opportunities

     We use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology, telephone banking and Internet banking with on-line account access and bill payer service. In the fourth quarter of 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. We will continue to evaluate cost effective ways that technology can enhance our management, products and services.

     We plan to take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks 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.

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, 2008 compared to three months ended September 30, 2007

     Net interest income after provision for loan losses for the three months ended September 30, 2008 increased $297,071 or 14.86% to $2.3 million from $2.0 million for the same period in 2007.

     Interest revenue increased from $3.8 million for the three months ended September 30, 2007 to $3.9 million for the same period in 2008. 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. A decline in the interest rates on these assets partially offset the growth in loans. The increase in interest bearing assets was primarily caused by a $44.0 million increase in average total loans. 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.

     Interest expense for all interest-bearing liabilities decreased $206,813 or 12.41% to $1.5 million for the three months ended September 30, 2008. This was primarily attributable to a 121 basis point decrease in the cost of interest-bearing deposits and a 142 basis point decrease in the cost of borrowed funds. This decrease in the cost of interest bearing liabilities was partially offset by a $44.9 million increase in total interest bearing liabilities. As a result of these items, our net interest margin was 3.81% for the three months ended September 30, 2008, as compared to 3.96% for the three months ended September 30, 2007.

     The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the three months ended September 30, 2008 and 2007, 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,		2008												2007
		Average												Average
		balance				Interest				Yield				balance				Interest				Yield
Assets:
Federal funds sold(1)		$	17,066,658			$	86,739				2.02	%		$	20,716,231			$	275,598				5.28	%
Time deposits in other banks			1,539,007				11,083				2.86				—				—
Investment securities(1)(2) U.S. Treasury			2,000,219				18,035				3.58				3,499,976				29,349				3.33
U.S. government agency			4,252,471				42,643				3.98				7,248,935				74,280				4.07
Mortgage backed securities			8,478,144				96,203				4.50				1,188,637				11,731				3.92
Municipal securities			2,872,573				38,626				5.33				3,226,799				42,700				5.25
Other			2,093,391				20,627				3.91				1,375,179				19,600				5.65
Total investment securities			19,696,798				216,134				4.35				16,539,526				177,660				4.26
Loans:(3)
Commercial			65,730,075				1,098,186				6.63				44,282,892				928,169				8.32
Mortgage			141,040,659				2,320,927				6.53				114,914,717				2,159,857				7.46
Installment			16,411,781				223,582				5.40				20,030,827				271,271				5.37
Total loans			223,182,515				3,642,695				6.48				179,228,436				3,359,297				7.44
Allowance for loan losses			1,780,801				—								1,385,694				—
Total loans, net of allowance			221,401,714				3,642,695				6.53				177,842,742				3,359,297				7.49
Total interest earning assets(1)			259,704,177				3,956,651				6.04				215,098,499				3,812,555				7.03
Non-interest bearing cash			4,095,686												3,766,509
Premises and equipment			4,558,753												4,303,295
Other assets			11,382,635												10,262,060
Total assets		$	279,741,251											$	233,430,363
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		$	6,891,844				10,271				0.59			$	8,385,896				14,083				0.67
Money market and NOW			34,783,690				77,031				0.88				30,400,034				182,704				2.38
Other time deposits			130,186,143				1,169,643				3.56				104,800,085				1,289,039				4.88
Total interest-bearing deposits			171,861,677				1,256,945				2.90				143,586,015				1,485,826				4.11
Borrowed funds			36,418,106				202,894				2.21				19,772,858				180,826				3.63
Total interest-bearing liabilities			208,279,783				1,459,839				2.78				163,358,873				1,666,652				4.05
Noninterest-bearing deposits			35,866,273												33,089,747
			244,146,056												196,448,620
Other liabilities			1,455,087												1,248,865
Stockholders’ equity			34,140,108												35,732,878
Total liabilities and stockholders’ equity		$	279,741,251											$	233,430,363
Net interest spread(1)											3.26												2.98
Net interest income and Net interest margin(1)						$	2,496,812				3.81	%						$	2,145,903				3.96	%

     Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

     Net interest income after provision for loan losses for the nine months ended September 30, 2008 amounted to $6.7 million, which was $858,804 or 14.65% greater than the 2007 level of $5.9 million. The increase was primarily attributable to a $37.2 million increase in total average interest earning assets to $245.2 million for the nine months ended September 30, 2008 from $208.0 million for the nine months ended September 30, 2007. Interest expense for all interest bearing liabilities was $4.4 million for the nine months ended September 30, 2008 versus $4.7 million for the nine months ended September 30, 2007. The increase in earnings assets was a result of increased business development efforts from the entire Old Line Bank lending team. Additionally, we believe that the opening of the College Park and Greenbelt branches provided us with increased name recognition that also contributed to our growth.

     Our net interest margin was 3.87% for the nine months ended September 30, 2008, as compared to 3.95% for the nine months ended September 30, 2007. The decrease in the net interest margin is the result of several components. The yield on average interest-earning assets declined during the period 72 basis points from 6.96% in 2007 to 6.24% in 2008. This decrease was because of the rapid reduction in the federal funds interest rate that the Federal Reserve implemented. We partially offset these rate reductions through growth in the loan portfolio. As a result of this growth, there were a higher percentage of funds invested in higher yielding commercial and mortgage loans during the period.

     The 103 basis point reduction in the cost of interest-bearing liabilities that occurred as a result of re-pricing of interest bearing accounts to current market interest rates and maturities of and subsequent re-pricing of time deposits partially offset the decrease in yield on interest earning assets and improved our net interest spread. However, because of an increase in the percentage of average total interest bearing liabilities relative to average total liabilities the net interest margin declined.

     Because of increased recognition in the Prince George’s County market, the new loan officers in Charles and Anne Arundel Counties, the addition of the College Park, Greenbelt, and Annapolis branches and with continued growth in deposits; we anticipate that we will continue to grow earning assets during the remainder of 2008. In an effort to stimulate the economy, the Federal Reserve has continued to decrease interest rates which may result in lower interest rates that we can charge on loans as well lower interest rates paid on our other interest-earning assets. Although we expect to deploy federal funds into higher earning investments and loans for the remainder of the year, we anticipate that it will be a challenge to continue to grow net interest income and the net interest margin during the remainder of 2008.

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

Average Balances, Interest and Yields

		2008												2007
		Average												Average
Nine Months Ended September 30,		balance				Interest				Yield				balance				Interest				Yield
Assets:
Federal funds sold(1)		$	14,324,829			$	262,020				2.44	%		$	26,200,812			$	1,049,652				5.36	%
Time deposits in other banks			1,850,149				47,198				3.40				—				—
Investment securities(1)(2) U.S. Treasury			2,345,107				61,594				3.50				3,747,278				93,664				3.34
U.S. government agency			3,373,028				95,215				3.76				7,771,329				242,011				4.16
Mortgage backed securities			6,206,584				209,053				4.49				1,303,726				38,447				3.94
Municipal securities			2,917,024				107,488				4.91				3,227,878				121,146				5.02
Other			2,100,469				80,317				5.09				1,459,307				63,365				5.81
Total investment securities			16,942,212				553,667				4.35				17,509,518				558,633				4.27
Loans: (3)
Commercial			61,197,893				3,171,251				6.90				41,160,713				2,591,531				8.42
Mortgage			135,422,739				6,772,121				6.66				103,742,840				5,804,009				7.48
Installment			17,134,442				676,988				5.26				20,707,507				815,036				5.26
Total loans			213,755,074				10,620,360				6.62				165,611,060				9,210,576				7.44
Allowance for loan losses			1,686,510				—								1,364,252				—
Total loans, net of allowance			212,068,564				10,620,360				6.67				164,246,808				9,210,576				7.50
Total interest earning assets(1)			245,185,754				11,483,245				6.24				207,957,138				10,818,861				6.96
Non-interest bearing cash			3,955,090												3,836,934
Premises and equipment			4,414,384												4,168,379
Other assets			11,095,402												9,736,622
Total assets		$	264,650,630											$	225,699,073
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		$	6,647,613				31,901				0.64			$	8,668,562				43,283				0.67
Money market and NOW			34,244,291				259,736				1.01				26,441,171				423,018				2.14
Other time deposits			117,417,843				3,481,954				3.95				104,310,045				3,782,738				4.85
Total interest-bearing deposits			158,309,747				3,773,591				3.18				139,419,778				4,249,039				4.07
Borrowed funds			34,915,382				593,015				2.26				14,955,868				420,122				3.76
Total interest-bearing liabilities			193,225,129				4,366,606				3.01				154,375,646				4,669,161				4.04
Noninterest-bearing deposits			35,729,533												34,631,504
			228,954,662												189,007,150
Other liabilities			1,385,765												1,233,502
Stockholders’ equity			34,310,203												35,458,421
Total liabilities and stockholders’ equity		$	264,650,630											$	225,699,073
Net interest spread(1)											3.23												2.92
Net interest income and Net interest margin(1)						$	7,116,639				3.87	%						$	6,149,700				3.95	%