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

For the quarterly period ended March 31, 2009

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 of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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 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:

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 May 8, 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

		March 31,				December 31,
		2009				2008
		(Unaudited)
Assets
Cash and due from banks		$	7,053,061			$	8,823,170
Federal funds sold			111,267				2,140,525
Total cash and cash equivalents			7,164,328				10,963,695
Time deposits in other banks			11,638,162				13,267,000
Investment securities available for sale			30,869,489				29,565,976
Investment securities held to maturity			7,630,994				8,003,391
Loans, less allowance for loan losses			246,841,748				231,053,618
Restricted equity securities at cost			2,765,650				2,126,550
Premises and equipment			12,258,128				12,388,046
Accrued interest receivable			1,126,374				1,091,560
Prepaid income taxes			—				35,649
Bank owned life insurance			8,177,510				8,096,039
Other assets			2,505,564				1,139,101
Total assets		$	330,977,947			$	317,730,625
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	36,403,344			$	39,880,119
Interest-bearing			203,851,047				191,550,521
Total deposits			240,254,391				231,430,640
Short-term borrowings			24,661,925				17,773,934
Long-term borrowings			21,510,918				21,531,133
Accrued interest payable			588,637				625,446
Income tax payable			177,349				—
Deferred income taxes			66,614				65,651
Other liabilities			912,397				4,012,968
Total liabilities			288,172,231				275,439,772
Stockholders’ equity
Preferred stock, par value $0.01 per share and additional paid in capital; 7,000 shares issued and outstanding			6,718,662				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			28,909,419				28,838,810
Warrants to purchase 141,892 shares of common stock			301,434				301,434
Retained earnings			5,705,656				5,411,772
Accumulated other comprehensive income			428,629				392,611
Total Old Line Bancshares, Inc. stockholders’ equity			42,102,424				41,686,842
Noncontrolling interest			703,292				604,011
Total equity			42,805,716				42,290,853
Total liabilities and equity		$	330,977,947			$	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 March 31,		2009				2008
Interest revenue
Loans, including fees		$	3,601,883			$	3,503,684
U.S. Treasury securities			4,856				22,487
U.S. government agency securities			102,921				25,532
Mortgage backed securities			267,921				18,059
Municipal securities			22,999				24,917
Federal funds sold			435				126,378
Other			100,933				49,385
Total interest revenue			4,101,948				3,770,442
Interest expense
Deposits			1,189,384				1,334,837
Borrowed funds			260,311				206,072
Total interest expense			1,449,695				1,540,909
Net interest income			2,652,253				2,229,533
Provision for loan losses			300,000				38,400
Net interest income after provision for loan losses			2,352,253				2,191,133
Non-interest revenue
Service charges on deposit accounts			79,089				72,952
Earnings on bank owned life insurance			93,461				91,603
Income on investment in real estate LLC			—				12,896
Other fees and commissions			431,050				54,987
Total non-interest revenue			603,600				232,438
Non-interest expense
Salaries			837,057				734,931
Employee benefits			302,424				269,453
Occupancy			232,181				279,922
Equipment			79,878				70,475
Data processing			75,337				61,252
Other operating			535,253				329,277
Total non-interest expense			2,062,130				1,745,310
Income before income taxes			893,723				678,261
Income taxes			282,115				233,428
Net income			611,608				444,833
Less: Net income attributable to the noncontrolling interest			99,281				—
Net income attributable to Old Line Bancshares, Inc.			512,327				444,833
Preferred stock dividends and discount accretion			102,572				—
Net income available to common shareholders		$	409,755			$	444,833
Basic earnings per common share		$	0.11			$	0.11
Diluted earnings per common share		$	0.11			$	0.11

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

Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
Three Months Ended March 31, 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							—				—				—				512,327				—				512,327
Unrealized gain on securities available for sale, net of income taxes of $23,461							—				—				—				—				36,018				36,018
Comprehensive income																										$	548,345				99,281
Stock based compensation awards							—				—				70,609				—				—
Common stock cash dividend $0.03 per share							—				—				—				(115,871	)			—
Preferred stock dividend and accretion			15,071				—				—				—				(102,572	)			—
Balance, March 31, 2009		$	7,020,096				3,862,364			$	38,624			$	28,909,419			$	5,705,656			$	428,629							$	703,292

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

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

Three Months Ended March 31,		2009				2008
Cash flows from operating activities
Interest received		$	4,022,418			$	3,653,997
Fees and commissions received			522,129				137,262
Interest paid			(1,486,504	)			(1,656,524	)
Cash paid to suppliers and employees			(6,316,141	)			(1,560,139	)
Income taxes paid			(92,578	)			(402,307	)
			(3,350,676	)			172,289
Cash flows from investing activities
Net decrease of time deposits in other banks			1,628,838				—
Purchase of investment securities
Held to maturity			—				(7,241,731	)
Available for sale			(3,103,269	)			(2,000,000	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call			374,057				—
Available for sale at maturity or call			1,840,790				5,467,425
Loans made, net of principal collected			(16,026,628	)			(1,257,882	)
Purchase of equity securities			(639,100	)			(46,300	)
Investment in real estate LLC			—				(100	)
Purchase of premises, equipment and software			(30,979	)			(375,337	)
			(15,956,291	)			(5,453,925	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits			8,894,793				7,064,240
Other deposits			(71,042	)			1,895,418
Net increase in short-term borrowings			6,887,991				5,489,748
(Decrease) increase in long-term borrowings			(20,215	)			—
Repurchase of common stock			—				(1,385,554	)
Cash dividends paid-preferred stock			(68,056	)			—
Cash dividends paid-common stock			(115,871	)			(121,420	)
			15,507,600				12,942,432
Net increase (decrease) in cash and cash equivalents			(3,799,367	)			7,660,796
Cash and cash equivalents at beginning of year			10,963,695				12,994,168
Cash and cash equivalents at end of year		$	7,164,328			$	20,654,964

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

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

Three Months Ended March 31,		2009				2008
Reconciliation of net income to net cash provided by operating activities
Net income		$	512,327			$	444,833
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			167,177				97,644
Provision for loan losses			300,000				38,400
Change in deferred loan fees net of costs			(61,502	)			(60,118	)
Amortization of premiums and discounts			16,786				890
Deferred income taxes			(23,461	)			(9,069	)
Stock based compensation awards			70,609				44,879
(Income) loss from investment in real estate LLC			—				(12,896	)
Increase (decrease) in
Accrued interest payable			(36,809	)			(115,615	)
Other liabilities			(2,835,723	)			(3,925	)
Decrease (increase) in
Accrued interest receivable			(34,814	)			(57,217	)
Bank owned life insurance			(81,471	)			(82,180	)
Other assets			(1,343,795	)			(113,337	)
		$	(3,350,676	)		$	172,289

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 membership interest in Pointer Ridge. We have eliminated all significant intercompany transactions and balances.
		We report the noncontrolling interests in Pointer Ridge 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 separately 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.

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.

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

3.		POINTER RIDGE OFFICE INVESTMENT, LLC
		On January 1, 2009, we adopted SFAS No. 160 (revised 2007), Noncontrolling Interests in Consolidated Financial Statements. 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.

		March 31,				December 31,
Balance Sheets		2009				2008
Current assets		$	868,226			$	540,105
Non-current assets			7,570,466				7,619,352
Liabilities			6,563,245				6,548,760
Equity		$	1,875,447			$	1,610,697

		Three Months Ended
		March 31,
		2009				2008
Statements of Income
Revenue		$	535,155			$	249,122
Expenses			270,405				240,701
Net income		$	264,750			$	8,421

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.

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

5.		EARNINGS PER SHARE
		Effective January 1, 2009, we adopted the Financial Accounting Standards Board Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transaction Are Participating Securities. FSP EITF 03-6-1 provides that unvested share based payment awards that contain nonforfeitable 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 the stock dividends.
		We calculate diluted earnings per share by including the average dilutive common stock equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

		Three Months Ended
		March 31,
		2009				2008
Weighted average number of shares			3,862,364				4,034,126
Dilutive average number of shares			—				3,121

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 three months ended March 31, 2009 and 2008, we recorded stock-based compensation expense of $70,609 and $44,879, respectively.
		Under SFAS 123R, a company may only recognize tax benefits for options that ordinarily will result in a tax deduction when the grant is exercised (non-qualified options). For the three months ended March 31, 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. There were no non-qualified options included in the expense calculation during the three months ended March 31, 2008.
		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 March 31, 2009, there was $63,157 of total unrecognized compensation cost related to non-vested stock options that we expect to realize over the next 3.5 years. As of March 31, 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 month period ended March 31, 2009 or 2008.

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

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

		March 31,
		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			—				—				(10,000	)			11.00
Outstanding, end of period			299,270			$	8.50				244,220			$	9.06

Information related to options as of March 31, 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		March 31, 2009				term				price				March 31, 2009				price
$3.33-$4.80			19,800				2.16			$	3.83				19,800			$	3.83
$4.81-$6.50			72,550				8.99				6.12				38,784				5.95
$6.51-$8.00			37,300				8.84				7.75				24,867				7.75
$8.01-$10.50			159,620				6.51				10.20				153,220				10.20
$10.51-11.31			10,000				8.11				10.85				2,000				10.85
			299,270				7.17			$	8.50				238,671			$	8.73
Intrinsic value of outstanding options where the market value exceeds the exercise price						$	98,316
Intrinsic value of exercisable options where the market value exceeds the exercise price						$	50,530

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 three months ended March 31, 2009 and 2008 were $31,376 and $32,114, 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 three month periods ended March 31, 2009 and 2008 were $31,358 and $29,811, 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. SFAS 157 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 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 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 March 31, 2009, we established values for available for sale investment securities as follows (000’s);

		Total Fair Value				Level 1				Level 2				Level 3
		March 31, 2009				Inputs				Inputs				Inputs
Investment securities available for sale		$	30,869			$	9,866			$	21,003			$	—

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. There were no gains or losses (realized and unrealized) included in earnings for the quarter ended March 31, 2009.

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

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 Old Line 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 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. On January 1, 2009, we adopted SFAS 160 and it affected the way we reported the noncontrolling interest in Pointer Ridge, but it did not 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 tax uncertainties in a business combination after the measurement period will impact income tax expense. The provisions of this standard were effective beginning January 1, 2009. SFAS No. 141(R) did not 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. SFAS No. 161 did not have a material impact on our consolidated results of operations or financial position.

		Financial Accounting Standards Board Staff Positions and Interpretations
		FSP No. EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities provides that unvested share-based payment awards that contain nonforfeitable 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. FSP EITF 03-6-1 became effective on January 1, 2009. As outlined in Note 5-Earnings Per Share, we adopted EITF 03-06-1 and it did not have any impact on our consolidated results of operations or financial position.

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

		FSP SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly affirms that the objective of fair value when the market for an asset is not active is the price that we would receive to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. FSP SFAS 157-4 also requires an entity to base its conclusion on whether a transaction was not orderly on the weight of the evidence. FSP SFAS 157-4 also amended SFAS 157, Fair Value Measurements, to expand certain disclosure requirements. FSP SFAS 157-4 becomes effective for interim and annual reporting periods ending after June 15, 2009. We do not expect that it will have a material impact on our consolidated results of operations or financial position.
		FSP SFAS 115-2 and SFAS 124-2 Recognition and Presentation of Other-Than Temporary Impairments (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 that 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 that it will not have to sell the security before recovery of its cost basis. Under FSP SFAS 115-2 and SFAS 124-2, declines in the fair value of held-to-maturity and available-for-sale securities below their cost deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. FSP SFAS 115-2 and SFAS 124-2 become effective for interim and annual reporting periods ended after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We do not expect that FSP SFAS 115-2 and SFAS 124-2 will have a material impact on our consolidated results of operations or financial position.
		FSP SFAS 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about fair value of financial instruments to interim financial information and amends APB Opinion No. 28. Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FSP SFAS 107-1 and APB 28-1, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. The new interim disclosures required by FSP SFAS 107-1 and APB 28-1 will be included in our interim financial statements beginning with the second quarter of 2009.

          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 first quarter of 2009. Net income available to common shareholders declined $35,078 or 7.89% to $409,755 for the three month period ending March 31, 2009 and there was no change to earnings of $0.11 per basic and diluted common share.

          During the first three months of 2009 the following events occurred.

	•		We maintained asset quality with total non-performing assets of $1.5 million (0.45% of total assets) and no other loans past due more than 30 days at quarter end.
	•		We increased the provision for loan losses by $261,600 from $38,400 to $300,000.
	•		The loan portfolio grew $15.7 million or 6.79%.
	•		Total deposits grew $8.9 million or 3.85%.
	•		We maintained liquidity and by all regulatory measures remained “well capitalized”.
	•		We recognized a non-recurring increase in earnings on our investment in Pointer Ridge of approximately $153,000 during the quarter.

          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.

          The following summarizes the highlights of our financial performance for the three month period ended March 31, 2009 compared to the three month period ended March 31, 2008 (figures in the table may not match those discussed in the balance of this section due to rounding).

		Three months ended March 31,
		(Dollars in thousands)
		2009				2008				$ Change				% Change
Net income available to common shareholders		$	410			$	445			$	(35	)			(7.87	)%
Interest revenue			4,102				3,770				332				8.81
Interest expense			1,450				1,541				(91	)			(5.91	)
Net interest income after provision for loan losses			2,352				2,191				161				7.35
Non-interest revenue			604				232				372				160.34
Non-interest expense			2,062				1,745				317				18.17
Average total loans			239,957				204,787				35,170				17.17
Average interest earning assets			292,632				234,486				58,146				24.80
Average total interest-bearing deposits			200,636				148,424				52,212				35.18
Average noninterest-bearing deposits			36,388				35,307				1,081				3.06
Net interest margin (1)			3.70	%			3.84	%
Return on average equity			5.00	%			5.13	%
Basic earnings per common share		$	0.11			$	0.11			$	—				—
Diluted earnings per common share			0.11				0.11				—				—

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 into 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 Anne Arundel County. 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 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 3rd quarter of 2009.

          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 $405,000 increase in non-interest revenue, a $102,000 increase in interest expense, an $81,000 reduction in occupancy expense, a $119,000 increase in non-interest expense and an approximately $165,000 increase in pre-tax earnings.

          Although the current economic climate presents significant challenges to 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. 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.

          Because of the new branches, we anticipate salaries and benefits expenses and other operating expenses will increase during 2009. 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 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 March 31, 2009 compared to three months ended March 31, 2008

          Net interest income after provision for loan losses for the three months ended March 31, 2009 increased $161,120 or 7.35% to $2.4 million from $2.2 million for the same period in 2008

          Interest revenue increased from $3.8 million for the three months ended March 31, 2008 to $4.1 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. A decline in the interest rates on these interest earning assets partially offset the growth. The decline in rates was a result of the Federal Reserve decreasing the federal funds rate from 4.25% in the first quarter of 2008 to 0.25% in the first quarter of 2009. The increase in interest earning assets was primarily caused by a $35.2 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 a $1.1 million increase in our legal lending limit that occurred as a result of the issuance of the $7 million of Series A Preferred Stock to the U.S. Treasury in December 2008, because of 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. During the fourth quarter of 2008, we also transferred balances from lower yielding federal funds into higher yielding investment securities. This transfer also improved interest income.

          Interest expense for all interest-bearing liabilities decreased $91,214 or 5.92% to $1.4 million for the three months ended March 31, 2009. This was primarily attributable to a 121 basis point decrease in the cost of interest-bearing deposits. This decrease was partially offset by a 10 basis point increase in the cost of borrowed funds. The decrease in the interest rate on interest-bearing deposits was a result of the decrease in the Federal Reserve interest rate previously discussed. The consolidation of Pointer Ridge’s assets, liabilities and equity caused a 10 basis point increase in the cost of borrowed funds. The decrease in the cost of interest-bearing liabilities was partially offset by a $59.9 million increase in average total interest-bearing liabilities. As a result of these items, our net interest margin was 3.70% for the three months ended March 31, 2009, as compared to 3.84% for the three months ended March 31, 2008.

     The following table illustrates average balances of total interest earning assets and total interest-bearing liabilities for the three months ended March 31, 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

		2009												2008
		Average												Average
Three Months Ended March 31,		balance				Interest				Yield				balance				Interest				Yield
Assets:
Federal funds sold(1)		$	415,599			$	436				0.43	%		$	16,712,451			$	129,193				3.10	%
Time deposits in other banks			14,081,697				87,668				2.52				2,000,000				20,266				4.06
Investment securities(1)(2)
U.S. Treasury			499,956				5,142				4.17				2,769,346				23,783				3.44
U.S. government agency			10,510,365				108,854				4.20				3,065,740				27,004				3.53
Mortgage backed securities			23,921,423				267,921				4.54				1,675,894				18,059				4.32
Municipal securities			2,725,547				33,709				5.02				3,005,390				36,248				4.84
Other			2,578,398				13,267				2.09				2,080,657				30,041				5.79
Total investment securities			40,235,689				428,893				4.32				12,597,027				135,135				4.30
Loans: (3)
Commercial			71,891,993				1,062,649				5.99				55,896,847				1,053,762				7.56
Mortgage			152,503,483				2,331,221				6.20				130,781,054				2,210,937				6.78
Consumer			15,561,072				208,013				5.42				18,109,472				238,985				5.29
Total loans			239,956,548				3,601,883				6.09				204,787,373				3,503,684				6.86
Allowance for loan losses			2,057,751				—				—				1,610,509				—
Total loans, net of allowance			237,898,797				3,601,883				6.14				203,176,864				3,503,684				6.92
Total interest earning assets(1)			292,631,782				4,118,880				5.71				234,486,342				3,788,278				6.48
Non-interest bearing cash			6,267,452												3,844,427
Premises and equipment			12,324,862												4,195,720
Other assets			10,492,299												10,775,269
Total assets		$	321,716,395											$	253,301,758
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		$	5,948,272				5,617				0.38			$	6,245,038				11,561				0.74
Money market and NOW			31,429,957				31,708				0.41				34,283,999				111,404				1.30
Other time deposits			163,257,626				1,152,059				2.86				107,894,604				1,211,872				4.51
Total interest-bearing deposits			200,635,855				1,189,384				2.40				148,423,641				1,334,837				3.61
Borrowed funds			40,925,627				260,311				2.58				33,306,846				206,072				2.48
Total interest-bearing liabilities			241,561,482				1,449,695				2.43				181,730,487				1,540,909				3.40
Noninterest-bearing deposits			36,388,123												35,307,109
			277,949,605												217,037,596
Other liabilities			1,534,543												1,479,612
Noncontrolling interest			669,272												—
Stockholders’ equity			41,562,975												34,784,550
Total liabilities and stockholders’ equity		$	321,716,395											$	253,301,758
Net interest spread(1)											3.28												3.08
Net interest income and Net interest margin(1)						$	2,669,185				3.70	%						$	2,247,369				3.84	%

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

Rate/Volume Variance Analysis

		Three months Ended March 31,
		2009 compared to 2008
		Variance due to:
		Total				Rate				Volume
Interest earning assets:
Federal funds sold(1)		$	(128,757	)		$	(100,695	)		$	(28,062	)
Time deposits in other banks			67,402				(35,430	)			102,832
Investment Securities(1)
U.S. Treasury			(18,641	)			10,168				(28,809	)
U.S. government agency			81,850				19,627				62,223
Mortgage backed securities			249,862				3,828				246,034
Municipal securities			(2,539	)			2,549				(5,088	)
Other			(16,774	)			(28,373	)			11,599
Loans:
Commercial			8,887				(438,316	)			447,203
Mortgage			120,284				(410,173	)			530,457
Consumer			(30,972	)			14,607				(45,579	)
Total interest revenue (1)			330,602				(962,208	)			1,292,810
Interest-bearing liabilities
Savings			(5,944	)			(5,804	)			(140	)
Money market and NOW			(79,696	)			(77,381	)			(2,315	)
Other time deposits			(59,813	)			(957,641	)			897,828
Borrowed funds			54,239				22,329				31,910
Total interest expense			(91,214	)			(1,018,497	)			927,283
Net interest income(1)		$	421,816			$	56,289			$	365,527

          Provision for Loan Losses

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

          The provision for loan losses was $300,000 for the three months ended March 31, 2009, as compared to $38,400 for the three months ended March 31, 2008, an increase of $261,600 or 681.25%. After completing the analysis outlined below, during the three month period ended March 31, 2009, we increased the provision for loan losses primarily because there was a 6.83% growth in the loan portfolio from December 31, 2008 to March 31, 2009, and there remains significant weakness in the economic environment in which we operate. Although we have not experienced any substantive change in the quality of the loans in the portfolio, during the period we placed one additional loan in the amount of $699,856 in non-accrual status. At quarter end, we had two non-performing loans and no other loans past due more than 30 days. We believe that most of our clients, even those that directly or indirectly serve the real estate industry, remain financially strong. However, as the real estate industry continues to encounter weakness and we remain in a recession, we believe that it is prudent to continue to increase our provision for loan losses.

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

          We base the evaluation of the adequacy of the allowance for loan losses upon loan categories. We categorize loans as installment and other consumer loans (other than boat loans), boat loans, mortgage loans (commercial real estate, residential real estate and real estate construction) and commercial loans. We apply loss ratios to each category of loan other than commercial loans. We further divide commercial loans by risk rating and apply loss ratios by risk rating, to determine estimated loss amounts. We evaluate delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with loan collateral separately and assign loss amounts based upon the evaluation.

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

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

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

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

          We will not create a separate valuation allowance unless we consider a loan impaired under SFAS No. 114 and SFAS No. 118. At March 31, 2009, we had two non-accrual loans totaling $1.5 million. As outlined in previous reports, we do not consider the first non-accrual loan in the amount of $839,875 as impaired. For approximately one year, the borrower has made payments on the principal balance and the value of the collateral is sufficient to provide repayment. Therefore, we have not allocated any portion of the allowance for loan losses to this loan. The borrower on the second facility has declared bankruptcy. We are currently in the process of determining the value of the property securing this loan and in negotiations with the borrower regarding reaffirmation of the debt. We have determined this loan is impaired. We have allocated $175,000 of the allowance for loan losses to this loan. We have no other loans past due 30 days or more. We also do not have any substantive loans comprised of sub-prime mortgages.

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

          The allowance for loan losses represents 0.92% of gross loans at March 31, 2009 and 0.85% at December 31, 2008. We have no exposure to foreign countries or foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our portfolio.

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

Allowance for Loan Losses

		Three Months Ended								Year Ended
		March 31,								December 31,
		2009				2008				2008
Balance, beginning of period		$	1,983,751			$	1,586,737			$	1,586,737
Provision for loan losses			300,000				38,400				415,000
Chargeoffs:
Commercial			—				—				—
Consumer			—				—				(18,440	)
Total chargeoffs			—				—				(18,440	)
Recoveries:
Consumer			—				159				454
Total recoveries			—				159				454
Net (chargeoffs) recoveries			—				159				(17,986	)
Balance, end of period		$	2,283,751			$	1,625,296			$	1,983,751
Ratio of allowance for loan losses to:
Total loans			0.92	%			0.79	%			0.85	%
Non-accrual loans			148.32	%			155.71	%			233.20	%
Ratio of net-chargeoffs during period to average loans outstanding during period			0.000	%			0.000	%			0.008	%

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

Allocation of Allowance for Loan Losses

		March 31,																December 31,
		2009								2008								2008
						% of Loans								% of Loans								% of Loans
						in Each								in Each								in Each
		Amount				Category				Amount				Category				Amount				Category
Consumer & others		$	8,273				0.40	%		$	10,563				0.40	%		$	13,391				0.02	%
Boat			99,820				5.65				101,557				8.09				94,910				6.70
Mortgage			1,734,420				63.56				1,108,791				63.86				1,348,850				63.21
Commercial			441,238				30.39				404,385				27.65				526,600				30.07
Total		$	2,283,751				100.00	%		$	1,625,296				100.00	%		$	1,983,751				100.00	%

          Non-interest Revenue

          Three months ended March 31, 2009 compared to three months ended March 31, 2008

          Non-interest revenue totaled $603,600 for the three months ended March 31, 2009, an increase of $371,162 or 159.68% from the 2008 amount of $232,438. As previously outlined, in November 2008, we increased our ownership interest in Pointer Ridge from 50.0% to 62.5% and consolidated their results of operations from the date of acquisition. Prior to that time, we recorded our income from our investment in Pointer Ridge in other income. Non-interest revenue for the three months ended March 31, 2009 and March 31, 2008 also included fee income from service charges on deposit accounts and earnings on bank owned life insurance.

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

		March 31,				March 31,
		2009				2008				$ Change				% Change
Service charges on deposit accounts		$	79,089			$	72,952			$	6,137				8.41	%
Earnings on bank owned life insurance			93,461				91,603				1,858				2.03
Income (loss) on investment in real estate LLC			—				12,896				(12,896	)			(100.00	)
Pointer Ridge rent and other revenue			405,477				—				405,477				100.00
Other fees and commissions			25,573				54,987				(29,414	)			(53.49	)
Total non-interest revenue		$	603,600			$	232,438			$	371,162				159.68	%

          During the 1^st quarter of 2009, Pointer Ridge received a one-time lease termination fee in the amount of approximately $300,000. This amount plus Pointer Ridge’s monthly rental income increased our non-interest revenue $405,477. Service charges on deposit accounts increased due to increases in the number of customers and the services they used. Earnings on bank owned life insurance increased primarily because the rate earned on the investment increased. Other fees and commissions decreased $29,414 primarily because of a decrease in other loan fees that was caused primarily from a decline in construction related settlements.

          Non-interest Expense

          Three months ended March 31, 2009 compared to three months ended March 31, 2008

          Non-interest expense increased 18.15% or $316,820 for the three months ended March 31, 2009. The following chart outlines the changes in non-interest expenses for the period. As previously outlined, in November 2008, we increased our ownership interest in Pointer Ridge from 50.0% to 62.5% and consolidated their results of operations from the date of acquisition.

		March 31				March 31,
		2009				2008				$ Change				% Change
Salaries		$	837,057			$	734,931			$	102,126				13.90	%
Employee benefits			302,424				269,453				32,971				12.24
Occupancy			232,181				279,922				(47,741	)			(17.06	)
Equipment			79,878				70,475				9,403				13.34
Data processing			75,337				61,252				14,085				23.00
Pointer Ridge other operating			119,065				—				119,065				100.00
Other operating			416,188				329,277				86,911				26.39
Total non-interest expenses		$	2,062,130			$	1,745,310			$	316,820				18.15	%

          Salaries and benefits increased primarily because we opened the College Park branch in February 2008 and the Annapolis branch in September 2008, the increase in stock option expense for options granted in the first quarter and an increase in health care costs. The opening of these branches and annual rental increases increased occupancy and equipment expenses. As a result of the consolidation of Pointer Ridge, these increases were offset by the elimination of $129,678 of rental expenses paid to Pointer Ridge. Data processing costs increased because of our new locations and new services provided by our data processor. Other operating expenses increased primarily because of increased FDIC and Maryland State insurance assessments, higher ATM and Visa Debit costs, increased stationery and supplies and increased travel expenses.

          Income Taxes

          Three months ended March 31, 2009 compared to three months ended March 31, 2008

          Income tax expense was $282,115 (31.57% of pre-tax income) for the three months ended March 31, 2009 as compared to $233,428 (34.42% of pre-tax income) for the same period in 2008. The decrease in the effective tax rate is primarily due to the consolidation of net income attributable to the noncontrolling interest and the $8,298 tax benefit recognized from the issuance of non-qualified stock options in 2009.

          Net Income Available to Common Shareholders

          Three months ended March 31, 2009 compared to three months ended March 31, 2008

          Net income attributable to Old Line Bancshares was $512,327 for the three months ended March 31, 2009 compared to $444, 833 for the three month period ended March 31, 2008. Net income available to common shareholders was $409,755 or $0.11 per basic and diluted common share for the three month period ending March 31, 2009 compared to net income available to common shareholders of $444,833 or $0.11 per basic and diluted common share for the same period in 2008. The increase in net income attributable to Old Line Bancshares for the 2009 period was primarily the result of a $161,120 increase in net interest income after provision for loan losses and a $371,162 increase in non-interest revenue compared to the same period in 2008. These items were offset by a $316,820 increase in non-interest expense, a $48,687 increase in income taxes, and the elimination of the $99,281 noncontrolling interest compared to the same period in 2008. The decrease in net income available to common shareholders for the 2009 period was primarily due to the $102,572 preferred stock dividend payable to the U.S. Treasury during the period for its $7 million investment in the preferred stock. This preferred stock was not issued as of March 31, 2008. Earnings per common share remained comparable for the period on a basic and diluted basis because of marginally lower earnings in 2009 and because the average number of common shares decreased by 171,762 common shares from 4,034,126 for the three months ended March 31, 2008 to 3,862,364 for the same period in 2009. This occurred because we repurchased 217,085 shares of common stock during 2008.

Analysis of Financial Condition

          Investment Securities

          Our portfolio consists primarily of time deposits in other banks, investment grade securities including U.S. Treasury securities, U.S. government agency securities, U.S. government sponsored entity securities, securities issued by states, counties and municipalities, mortgage-backed securities, and certain equity securities, including Federal Reserve Bank stock, Federal Home Loan Bank stock, Maryland Financial Bank stock and Atlantic Central Bankers Bank stock. We have prudently managed our investment portfolio to maintain liquidity and safety and we have never owned stock in Fannie Mae or Freddie Mac or any of the more complex securities available in the market. The portfolio provides a source of liquidity, collateral for borrowings as well as a means of diversifying our earning asset portfolio. While we generally intend to hold the investment securities until maturity, we classify a significant portion of the investment securities as available for sale. We account for investment securities so classified at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects. We account for investment securities classified in the held to maturity category at amortized cost. We invest in securities for the yield they produce and not to profit from trading the securities. There are no trading securities in the portfolio.

          The investment securities at March 31, 2009 amounted to $38.5 million, an increase of $931,116 million, or 2.48%, from the December 31, 2008 amount of $37.6 million. Available for sale investment securities increased to $30.9 million at March 31, 2009 from $29.6 million at December 31, 2008. The increase in the available for sale investment securities occurred because we deployed federal funds into higher yielding investment securities. Held to maturity securities at March 31, 2009 decreased to $7.6 million from the $8.0 million balance on December 31, 2008 because securities matured or were called during the period. The fair value of available for sale securities included net unrealized gains of $707,835 at March 31, 2009 (reflected as unrealized gains of $428,629 in stockholders’ equity after deferred taxes) as compared to net unrealized gains of $648,356 ($392,611 net of taxes) as of December 31, 2008. In general, the increase in fair value was a result of maturities, decreasing market rates and changes in investment ratings. As required under SFAS No. 115, we have evaluated securities with unrealized losses for an extended period of time and determined that these losses are temporary because, at this point in time, we expect to hold them until maturity. As the maturity date moves closer and/or interest rates decline, the unrealized losses in the portfolio will decline or dissipate.

          Loan Portfolio

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

          The loan portfolio, net of allowance, unearned fees and origination costs, increased $15.7 million or 6.79% to $246.8 million at March 31, 2009 from $231.1 million at December 31, 2008. Commercial business loans increased by $5.6 million (8.00%), commercial real estate loans increased by $12.7 million (11.46%), residential real estate loans (generally home equity and fixed rate home improvement loans) increased by $749,000 (5.84%), real estate construction loans (primarily commercial real estate construction) decreased by $2.4 million (10.26%) and consumer loans decreased by $585,000 (3.74%) from their respective balances at December 31, 2008.

          During the first three months of 2009, we received scheduled loan payoffs on construction loans that negatively impacted our loan growth for the period. In spite of these payoffs, we experienced a 6.79% growth in the loan portfolio. We saw loan and deposit growth generated from our entire team of lenders, branch personnel and board of directors. We anticipate the entire team will continue to focus their efforts on business development during the remainder of 2009 and continue to grow the loan portfolio. However, continued deterioration in the economic climate may cause slower loan growth.

          The following table outlines those construction loans that have an interest reserve included in the commitment amount and where advances on the loan currently pay the interest due.

		3/31/09								12/31/08
		# of								# of
		Borrowers				(000’s)				Borrowers				(000’s)
Loans with interest paid from loan advances:
Hotels			3			$	12,627				3			$	8,563
Owner occupied							—				1				2,882
Single family acquisition & development			5				6,133				5				5,889
			8			$	18,760				9			$	17,334