OLD LINE BANCSHARES INC (Form: 10-Q, Received: 05/09/2014 11:40:14)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

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

Commission File Number: 000-50345

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

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

1525 Pointer Ridge Place
Bowie, Maryland		20716
(Address of principal executive offices)		(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 x No o

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

Yes x 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.

Large accelerated filer o	Accelerated filer x

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

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

Yes o No x

As of May 1, 2014, the registrant had 10,785,370 shares of common stock outstanding.

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OLD LINE BANCSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page Number

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited) as of March 31, 2014 and December 31, 2013	1

	Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2014 and 2013	2

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2014 and 2013	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2014	4

	Consolidated Statements of Cash Flows — (Unaudited) for the Three Months Ended March 31, 2014 and 2013	5

	Notes to Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47

Item 4.	Controls and Procedures	47

PART II.

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

Signatures		49

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Part 1. Financial Information

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Balance Sheets

	March 31, 2014			December 31, 2013
	(Unaudited)
Assets
Cash and due from banks	$	54,197,169		$	28,316,351
Interest bearing accounts	30,383			30,375
Federal funds sold	178,806			711,574
Total cash and cash equivalents	54,406,358			29,058,300
Investment securities available for sale-at fair value	172,094,347			172,169,776
Loans held for sale, fair value of $1,682,580 and $2,074,924	1,646,330			2,014,711
Loans held for investment (net of allowance for loan losses of $4,881,939 and $4,929,213, respectively)	849,429,721			847,248,590
Equity securities at cost	4,304,197			5,669,807
Premises and equipment	34,661,659			35,215,868
Accrued interest receivable	3,131,042			3,432,924
Deferred income taxes	20,639,961			21,868,076
Bank owned life insurance	30,787,554			30,577,187
Other real estate owned	4,593,154			4,311,342
Goodwill	7,793,665			7,793,665
Core deposit intangible	5,058,951			5,287,501
Other assets	4,390,527			2,575,377
Total assets	$	1,192,937,466		$	1,167,223,124
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	234,512,077		$	228,733,624
Interest bearing	773,640,266			745,625,862
Total deposits	1,008,152,343			974,359,486
Short term borrowings	38,193,867			49,530,125
Long term borrowings	6,071,856			6,093,074
Accrued pension	4,996,120			4,921,241
Other liabilities	5,975,472			5,769,880
Total liabilities	1,063,389,658			1,040,673,806
Stockholders’ equity
Common stock, par value $0.01 per share; 25,000,000 shares authorized; 10,785,370 and 10,777,113 shares issued and outstanding in 2014 and 2013, respectively	107,854			107,772
Additional paid-in capital	104,748,891			104,622,171
Retained earnings	26,283,617			24,879,275
Accumulated other comprehensive loss	(1,871,087		)	(3,359,823		)
Total Old Line Bancshares, Inc. stockholders’ equity	129,269,275			126,249,395
Non-controlling interest	278,533			299,923
Total stockholders’ equity	129,547,808			126,549,318
Total liabilities and stockholders’ equity	$	1,192,937,466		$	1,167,223,124

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

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Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Interest Income
Loans, including fees	$	10,333,973		$	7,831,823
U.S. treasury securities	832			1,754
U.S. government agency securities	150,955			82,430
Mortgage backed securities	377,872			388,256
Municipal securities	434,988			469,668
Federal funds sold	389			601
Other	72,861			42,544
Total interest income	11,371,870			8,817,076
Interest expense
Deposits	894,303			857,139
Borrowed funds	118,276			112,487
Total interest expense	1,012,579			969,626
Net interest income	10,359,291			7,847,450
Provision for loan losses	269,769			200,000
Net interest income after provision for loan losses	10,089,522			7,647,450
Non-interest income
Service charges on deposit accounts	451,596			300,741
Gain on sales or calls of investment securities	—			631,429
Earnings on bank owned life insurance	243,607			133,228
Gain (loss) on disposal of assets	96,993			(85,561		)
Rental Income	200,537			—
Gain on sale of loans	106,720			—
Other fees and commissions	292,672			247,683
Total non-interest income	1,392,125			1,227,520
Non-interest expense
Salaries and benefits	4,873,634			3,232,677
Occupancy and equipment	1,586,777			1,068,867
Data processing	307,160			239,057
FDIC insurance and State of Maryland assessments	218,521			155,243
Merger and integration	29,167			240,485
Core deposit premium amortization	228,550			177,582
(Gain) loss on sales of other real estate owned	(203,068		)	200,454
OREO expense	83,066			314,165
Other operating	1,852,736			1,451,365
Total non-interest expense	8,976,543			7,079,895

Income before income taxes	2,505,104			1,795,075
Income tax expense	690,737			521,722
Net income	1,814,367			1,273,353
Less: Net loss attributable to the non-controlling interest	(21,390		)	(13,095		)
Net income available to common stockholders	$	1,835,757		$	1,286,448

Basic earnings per common share	$	0.17		$	0.19
Diluted earnings per common share	$	0.17		$	0.19
Dividend per common share	$	0.04		$	0.04

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

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Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Comprehensive Income

Three Months Ended March 31,	2014			2013
Net income	$	1,814,367		$	1,273,353

Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of taxes of $969,750 and ($564,698), respectively	1,488,736			(617,843		)
Reclassification adjustment for realized gain on securities available for sale included in net income, gross of taxes of $0 and $249,067, respectively	—			(631,429		)
Other comprehensive income (loss)	1,488,736			(1,249,272		)
Comprehensive income	3,303,103			24,081
Comprehensive (loss) attributable to the non-controlling interest	(21,390		)	(13,095		)
Comprehensive income available to common stockholders	$	3,324,493		$	37,176

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

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Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

										Accumulated
				Additional						other			Non-			Total
	Common stock			paid-in			Retained			comprehensive			controlling			Stockholders’
	Shares	Par value		capital			earnings			income (loss)			Interest			Equity

Balance, December 31, 2013	10,777,113	$	107,772	$	104,622,171		$	24,879,275		$	(3,359,823	)	$	299,923		$	126,549,318
Net income attributable to Old Line Bancshares, Inc.	—	—		—			1,835,757			—			—			1,835,757
Unrealized loss on securities available for sale, net of income tax benefit of $969,750	—	—		—			—			1,488,736			—			1,488,736
Net loss attributable to non-controlling interest	—	—		—			—			—			(21,390		)	(21,390		)
Stock based compensation awards	—	—		126,802			—			—			—			126,802
Restricted stock issued	8,257	82		(82		)	—			—			—			—
Common stock cash dividend $0.04 per share	—	—		—			(431,415		)	—			—			(431,415		)
Balance, March 31, 2014	10,785,370	$	107,854	$	104,748,891		$	26,283,617		$	(1,871,087	)	$	278,533		$	129,547,808

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

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Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,	2014			2013

Cash flows from operating activities
Interest received	$	11,959,298		$	9,287,947
Fees and commissions received	774,977			488,051
Interest paid	(1,035,405		)	(1,001,454		)
Cash paid to suppliers and employees	(9,973,914		)	(5,450,138		)
Loans originated for sale	(8,373,541		)	—
Proceeds from sale of loans originated for sale	8,111,880			—
Income taxes paid	(59,982		)	—
	1,403,313			3,324,406
Cash flows from investing activities
Purchase of investment securities available for sale	(1,502,344		)	(7,691,835		)
Proceeds from disposal of investment securities
Available for sale at maturity or call	3,925,995			9,387,687
Available for sale sold	—			13,939,926
Loans made, net of principal collected	(2,328,978		)	(16,943,810		)
Proceeds from sale of other real estate owned	512,878			725,485
Redemption of equity securities	1,273,527			494,301
Purchase of premises and equipment	59,701			(263,775		)
	1,940,779			(352,021		)
Cash flows from financing activities
Net increase (decrease) in
Time deposits	(4,549,170		)	6,336,720
Other deposits	38,342,027			6,707,765
Short term borrowings	(11,336,258		)	(6,395,360		)
Long term borrowings	(21,218		)	(25,562		)
Cash dividends paid-common stock	(431,415		)	(274,153		)
	22,003,966			6,349,410

Net increase in cash and cash equivalents	25,348,058			9,321,795

Cash and cash equivalents at beginning of period	29,058,300			28,690,761
Cash and cash equivalents at end of period	$	54,406,358		$	38,012,556

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

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Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,	2014			2013

Reconciliation of net income to net cash provided by operating activities
Net income	$	1,814,367		$	1,273,353

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

Depreciation and amortization	591,501			398,291
Provision for loan losses	269,769			200,000
Change in deferred loan fees net of costs	23,218			38,145
(Gain)/loss on sales or calls of securities	—			(631,429		)
Amortization of premiums and discounts	262,328			304,996
Change in loans held for sale	(368,381		)	—
(Gain)/loss on sales of other real estate owned	(203,068		)	200,454
Gain on the sale of equity securites	(96,993		)	—
Write down of other real estate owned	—			66,600
(Gain)/loss on sale of fixed assets	—			85,561
Amortization of intangible	228,550			177,582
Deferred income taxes	198,383			(27,467		)
Stock based compensation awards	126,802			83,662
Increase (decrease) in
Accrued interest payable	(22,826		)	(31,828		)
Income tax payable	432,372			549,189
Accrued pension	74,879			74,885
Other liabilities	(203,954		)	80,270
Decrease (increase) in
Accrued interest receivable	301,882			127,730
Bank owned life insurance	(210,367		)	(108,040		)
Other assets	(1,815,149		)	462,452
	$	1,403,313		$	3,324,406

Supplemental Disclosure:
Loans transferred to other real estate owned	$	591,622		$	—

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

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the activity of Old Line Bancshares and its wholly owned subsidiary, Old Line Bank, and its majority owned subsidiary Pointer Ridge Office Investments, LLC (Pointer Ridge), a real estate investment company. We have eliminated all significant intercompany transactions and balances.

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

The foregoing consolidated financial statements for the periods ended March 31, 2014 and 2013 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP); 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, 2013 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, 2013. We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-K.

Use of estimates -The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions may affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

Reclassifications -We have made certain reclassifications to the 2013 financial presentation to conform to the 2014 presentation. These reclassifications did not change net income or stockholders’ equity.

Recent Accounting Pronouncements -In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on our consolidated financial statements.

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2. POINTER RIDGE OFFICE INVESTMENT, LLC

Old Line Bank has a 62.5% ownership of Pointer Ridge Office Investment, LLC and we have consolidated its results of operations from the date of acquisition.

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

	Marrch 31,		December 31,
Balance Sheets	2014		2013

Current assets	$	255,629	$	286,206
Non-current assets	6,573,777		6,622,560
Liabilities	6,086,650		6,108,972
Equity	742,756		799,794

	Three Months Ended
	March 31,
	2014			2013
Statements of Income
Revenue	$	238,991		$	224,367
Expenses	296,030			259,286
Net loss	$	(57,039	)	$	(34,919	)

3. ACQUISITION OF WSB HOLDINGS, INC.

On May 10, 2013, Old Line Bancshares acquired WSB Holdings, Inc. (WSB Holdings), the parent company of The Washington Savings Bank, F.S.B. (WSB). We converted each share of common stock of WSB Holdings into the right to receive, at the holder’s election, $6.0743 in cash or 0.557 shares of Old Line Bancshares’ common stock. We paid cash for any fractional shares of Old Line Bancshares’ common stock and aggregate cash consideration of $17.0 million. The total merger consideration was $54.7 million.

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

The acquired assets and assumed liabilities of WSB Holdings were measured at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the acquisition of WSB Holdings. Management judgmentally assigned risk ratings to loans based on appraisals and estimated collateral values, expected cash flows, prepayment speeds and estimated loss factors to measure fair values for loans. Other real estate acquired through foreclosure was valued based upon pending sales contracts and appraised values, adjusted for current market conditions. Premises and equipment was valued based on recent appraised values. Management used quoted or current market prices to determine the fair value of investment securities, and long-term borrowings that were assumed from WSB Holdings.

The statement of net assets acquired and the resulting acquisition date goodwill recorded is presented in the following table. As explained in the notes that accompany the following table, the purchased assets, assumed liabilities and identifiable intangible assets were recorded at the acquisition date fair value.

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3. ACQUISITION OF WSB HOLDINGS, INC. (continued)

								As Recorded by
	As Recorded by			Fair Value				Old Line
	WSB Holdings, Inc			Adjustments				Bancshares, Inc.
Assets
Cash and due from banks	$	5,576,699		$	—			$	5,576,699
Federal funds sold	33,269,900			(16,966,208		)		16,303,692
Total cash and cash equivalents	38,846,599			(16,966,208		)		21,880,391

Investment securities available for sale	79,476,355			(101,654		)	(a)	79,374,701
Loans, net of deferred fees and costs	177,204,282			(14,263,180		)	(b)	162,941,102
Allowance for loan losses	(2,767,274		)	2,767,274			(b)	—
Premises and equipment	4,705,902			5,673,151			(c)	10,379,053
Accrued interest receivable	886,413			—			(d)	886,413
Deferred income taxes	7,396,519			4,005,790				11,402,309
Bank owned life insurance	12,986,817			—				12,986,817
Other real estate owned	5,225,958			(993,476		)	(e)	4,232,482
Core deposit intangible	—			2,434,723			(f)	2,434,723
Other assets	4,326,538			(567,850		)	(g)	3,758,688
Total assets	$	328,288,109		$	(18,011,430	)		$	310,276,679

Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	10,863,874		$	—			$	10,863,874
Interest bearing	204,375,389			955,452			(h)	205,330,841
Total deposits	215,239,263			955,452				216,194,715
Long term borrowings	56,000,000			4,250,568			(i)	60,250,568
Accrued interest payable	246,416			—				246,416
Other liabilities	2,979,727			118,066				3,097,793
Total liabilities	$	274,465,406		$	5,324,086			$	279,789,492

Net identifiable assets acquired over (under) liabilities assumed	53,822,703			(23,335,516		)		30,487,187
Goodwill	—			7,159,875			(j)	7,159,875
Net assets acquired over liabilities assumed	53,822,703			(16,175,641		)		37,647,062

Explanation of fair value adjustments

(a) Adjustment reflects marking the available for sale portfolio to fair value as of the acquisition date.

(b) Adjustment reflects the fair value adjustments based on Old Line Bancshares’ evaluation of the acquired loan portfolio and excludes the allowance for losses recorded by WSB Holdings.

(c) Adjustment reflects the fair value adjustments based on Old Line Bancshares’ evaluation of the acquired premises and equipment.

(d) Adjustment to record deferred tax asset related to fair value adjustments at 39.45% income tax rate.

(e) Adjustment reflects the fair value adjustments to other real estate owned based on Old Line Bancshares’ evaluation of the acquired other real estate owned portfolio.

(f) Adjustment reflects the recording of the core deposits intangible on the acquired deposit accounts.

(g) Adjustment reflects the impairment of certain WSB Holdings’ prepaid and deferred accounts.

(h) Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the acquisition date.

(i) Adjustment reflects the fair value of WSB Holdings’ borrowings acquired on acquisition date and is related to the Federal Home Loan Bank of Atlanta (“FHLB”) pre-payment penalty incurred subsequent to the acquisition date in the connection with the repayment of all of WSB’s FHLB advances by Old Line Bancshares.

(j) Within the measurement period, goodwill was increased $946,241.

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3. ACQUISITION OF WSB HOLDINGS, INC. (continued)

We allocated the purchase price for WSB Holdings as follows:

Purchase Price Consideration-Common Stock

WSB Holdings shares outstanding exchanged for stock	5,223,633
Exchange ratio	0.557
Old Line Bancshares shares issued to WSB Holdings stockholders	2,909,486
Purchase price per WSB Holdings common share	$	6.0743
Cash consideration	$	16,966,208
Purchase price assigned to shares exchanged for stock	$	37,765,128
Expenses not accrued for and paid by Old Line Bank	$	(118,066	)
Final purchase price for WSB acquisition	$	37,647,062

During the third quarter of 2013, within the measurement period, goodwill was increased $946,241 associated with the acquisition of WSB Holdings. As outlined in our financial statements, this amount represented the difference between the estimated fair value of tangible and intangible assets acquired and liabilities assumed at acquisition date. This increased represents $102,484 fair value adjustment on one of our lot loans, $2,949 in our deferred tax assets and $8,310 credit on one commercial land loan and $849,118 on fair value of our investments classified as available for sale that we identified during the period. There was no goodwill adjustment for the period ended March 31, 2014.

4. INVESTMENT SECURITIES

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

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
March 31, 2014
Available for sale
U. S. treasury	$	1,502,168	$	—	$	(2,918	)	$	1,499,250
U.S. government agency	43,738,979		1,974		(1,641,614		)	42,099,339
Municipal securities	61,085,196		838,679		(1,334,774		)	60,589,101
Mortgage backed securities:
FHLMC certificates	4,189,100		72,304		(54,181		)	4,207,223
FNMA certificates	18,510,992		192,218		(365,510		)	18,337,700
GNMA certificates	39,166,237		126,405		(724,533		)	38,568,109
SBA loan pools	6,991,572		—		(197,947		)	6,793,625
	$	175,184,244	$	1,231,580	$	(4,321,477	)	$	172,094,347

December 31, 2013
Available for sale
U. S. treasury	$	1,249,831	$	156	$	—		$	1,249,987
U.S. government agency	42,942,107		—		(2,206,975		)	40,735,132
Municipal securities	61,190,506		601,327		(2,525,198		)	59,266,635
Mortgage backed securities
FHLMC certificates	5,214,835		75,950		(84,819		)	5,205,966
FNMA certificates	19,055,521		161,209		(513,728		)	18,703,002
GNMA certificates	40,878,372		127,750		(1,084,896		)	39,921,226
SBA loan pools	7,339,052		—		(251,224		)	7,087,828
	$	177,870,224	$	966,392	$	(6,666,840	)	$	172,169,776

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4. INVESTMENT SECURITIES — (Continued)

As of March 31, 2014 and December 31, 2013, securities with unrealized losses segregated by length of impairment were as follows:

	March 31, 2014
	Less than 12 months				12 Months or More				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Unrealized losses less than 12 months
U.S. Treasury	$	1,499,250	$	2,918	$	—	$	—	$	1,499,250	$	2,918
U.S. government agency	39,860,865		1,572,301		1,437,900		69,313		41,298,765		1,641,614
Municipal securities	14,604,173		394,847		16,849,269		939,927		31,453,442		1,334,774
Mortgage backed securities	37,450,572		936,673		6,947,791		207,551		44,398,363		1,144,224
SBA loan pools	6,793,625		197,947		—		—		6,793,625		197,947
Total unrealized losses less than 12 months	$	100,208,485	$	3,104,686	$	25,234,960	$	1,216,791	$	125,443,445	$	4,321,477

	December 31,2013
	Less than 12 months				12 Months or More				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Unrealized losses less than 12 months
U.S. government agency	$	39,324,082	$	2,107,099	$	1,411,050	$	99,876	$	40,735,132	$	2,206,975
Municipal securities	30,367,222		1,654,439		9,190,578		870,759		39,557,800		2,525,198
Mortgage backed securities	41,518,287		1,456,886		4,823,932		226,557		46,342,219		1,683,443
SBA loan pools	7,087,828		251,224		—		—		7,087,828		251,224
Total unrealized losses less than 12 months	$	118,297,419	$	5,469,648	$	15,425,560	$	1,197,192	$	133,722,979	$	6,666,840

At March 31, 2014 and December 31, 2013, we had 45 and 26 investment securities, respectively, in an unrealized loss position greater than the 12 months time frame and 165 and 120 securities, respectively, in an unrealized loss position less than the 12 months time frame. We consider all unrealized losses on securities as of March 31, 2014 to be temporary losses because we will redeem each security at face value at or prior to maturity. We have the ability and intent to hold these securities until recovery or maturity. As of March 31, 2014, we do not have the intent to sell any of the securities classified as available for sale and believe that it is more likely than not that we will not have to sell any such securities before a recovery of cost. In most cases, market interest rate fluctuations cause a temporary impairment in value. We expect the fair value to recover as the investments approach their maturity date or re-pricing date or if market yields for these investments decline. We do not believe that credit quality caused the impairment in any of these securities. Because we believe these impairments are temporary, we have not realized any loss in our consolidated statement of income.

We have recorded no realized gains or losses for the sale or call of investment securities for the three month period ending March 31, 2014 compared to $631,429 gross gains and no gross losses for the three month period ending March 31, 2013. During the three month period ended March 31, 2014, we received $3.9 million proceeds from sales, maturities or calls of investment securities and principal pay-downs compared to $23,327,613 for the same three month period last year.

Contractual maturities and pledged securities at March 31, 2014 are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. We classify mortgage backed securities based on maturity date. However, we receive payments on a monthly basis. We received approximately $2.7 million in principal pay-downs during the three months ending March 31, 2014.

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4. INVESTMENT SECURITIES — (Continued)

	Available for Sale
March 31, 2014	Amortized cost		Fair value

Maturing
Within one year	$	1,734,062	$	1,734,124
Over one to five years	10,194,377		10,099,615
Over five to ten years	47,163,392		45,862,144
Over ten years	116,092,413		114,398,464
	$	175,184,244	$	172,094,347
Pledged securities	$	44,268,035	$	37,937,586

5. LOANS

Major classifications of loans held for investment are as follows:

	March 31, 2014									December 31, 2013
	Legacy (1)			Acquired			Total			Legacy (1)			Acquired			Total

Commercial Real Estate
Owner Occupied	$	167,003,364		$	29,712,784		$	196,716,148		$	163,105,356		$	30,102,731		$	193,208,087
Investment	172,072,391			50,957,428			223,029,819			162,188,671			54,091,676			216,280,347
Hospitality	68,063,766			8,464,828			76,528,594			67,291,387			8,546,239			75,837,626
Land and A&D	36,968,752			6,470,951			43,439,703			40,595,806			8,399,178			48,994,984
Residential Real Estate
First Lien-Investment	45,344,442			27,826,424			73,170,866			45,294,434			28,364,096			73,658,530
First Lien-Owner Occupied	15,677,156			59,987,174			75,664,330			13,909,939			62,247,502			76,157,441
Residential Land and A&D	20,172,345			13,169,636			33,341,981			19,845,291			13,724,942			33,570,233
HELOC and Jr. Liens	18,909,513			3,295,273			22,204,786			18,302,560			3,359,063			21,661,623
Commercial and Industrial	88,511,195			10,172,422			98,683,617			89,629,043			11,161,347			100,790,390
Consumer	9,759,318			775,542			10,534,860			10,127,525			870,843			10,998,368
	642,482,242			210,832,462			853,314,704			630,290,012			220,867,617			851,157,629
Allowance for loan losses	(4,419,133		)	(462,806		)	(4,881,939		)	(4,397,552		)	(531,661		)	(4,929,213		)
Deferred loan costs, net	998,266			(1,310		)	996,956			1,021,167			(993		)	1,020,174
	$	639,061,375		$	210,368,346		$	849,429,721		$	626,913,627		$	220,334,963		$	847,248,590

(1) As a result of the acquisitions of Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A. (MB&T), in April 2011 and of WSB Holdings, the parent company of WSB, in May 2013, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T and WSB (acquired).

Credit policies and Administration

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

In addition to the internal business processes employed in the credit administration area, Old Line Bank retains an outside independent firm to review the loan portfolio. This firm performs a detailed annual review and an interim update.

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5. LOANS-(Continued)

We use the results of the firm’s report to validate our internal ratings and we review the commentary on specific loans and on our loan administration activities in order to improve our operations.

Commercial Real Estate Loans

We finance commercial real estate for our clients, for owner occupied and investment properties. Commercial real estate loans totaled $539.7 million and $534.3 million at March 31, 2014 and December 31, 2013, respectively. This lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial buildings. Our underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial real estate may be large in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent of successful operation or management of the properties. We will generally finance owner occupied commercial real estate at a maximum loan to value of 85% and investor real estate at a maximum loan to value of 75%.

Commercial real estate lending entails significant risks. Risks inherent in managing our commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate that may detrimentally impact the borrower’s ability to repay. We monitor the financial condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In addition, we meet with the borrower and/or perform site visits as required.

At March 31, 2014, we had approximately $76.5 million of commercial real estate loans outstanding to the hospitality industry. An internal review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

Real Estate Construction Loans

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

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

Residential Real Estate Loans

We offer a variety of consumer oriented residential real estate loans. A portion of our portfolio is made up of home equity loans to individuals with a loan to value not exceeding 80%. We also offer fixed rate home improvement loans. Our home equity and home improvement loan portfolio gives us a diverse client base. Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our home equity loans and lines of credit with a security interest in the borrower’s primary or secondary residence. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which

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5. LOANS-(Continued)

generally may not exceed 43%. We also consider the borrower’s length of employment and prior credit history in the approval process. We require borrowers to have a credit score of at least 660. We do not have any subprime residential real estate loans.

We obtain detailed loan applications to determine a borrower’s ability to repay and verify the more significant items on these applications through credit reports, financial statements and confirmations. We also require appraisals of collateral and title insurance on secured real estate loans. Most borrowers must establish a mortgage escrow account for items such as real estate taxes, governmental charges and hazard and private mortgage insurance premiums.

A portion of this segment of the loan portfolio consists of funds advanced for construction of custom single family residences (where the home buyer is the borrower), financing to builders for the construction of pre-sold homes, and loans for multi-family housing. These loans generally have short durations, meaning maturities typically of nine months or less. Residential houses, multi-family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. The vast majority of these loans are concentrated in our primary market area.

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

Under our loan approval policy, all residential real estate loans approved must comply with federal regulations. Generally, we will make residential mortgage loans in amounts up to the limits established from time to time by Fannie Mae and Freddie Mac for secondary market resale purposes. This amount for single-family residential loans currently varies from $417,000 up to a maximum of $625,500 for certain high-cost designated areas. We also make residential mortgage loans up to limits established by the Federal Housing Administration, which currently is $625,500. The Washington, D.C. and Baltimore areas are both considered high-cost designated areas. We will, however, make loans in excess of these amounts if we believe that we can sell the loans in the secondary market or that the loans should be held in our portfolio. For loans sold in the secondary market, we require a credit score of at least 640 with some exceptions to 620 for Veterans. Loans sold in the secondary market are sold to investors on a servicing released basis and recorded as loans as held-for-sale. The premium is recorded in gain on sale of loans in non-interest income, net of commissions paid to the loan officers.

Commercial and Industrial Lending

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

Commercial business loans have a higher degree of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the business. They may also involve higher average balances and an increased difficulty monitoring. To help manage these risks, we typically limit these loans to proven

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5. LOANS (Continued)

businesses and we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring usually includes a review of the borrower’s annual tax returns and updated financial statements.

Consumer Installment Lending

We offer various types of secured and unsecured consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. This category includes our luxury boat loans, which we made prior to 2008 and that remain in our portfolio. Consumer loans, however, are not a focus of our lending activities. The underwriting standards for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan. As a general guideline, the borrower’s total debt service should not exceed 40% of his or her gross income.

Consumer loans may present greater credit risk than residential mortgage loans because many consumer loans are unsecured or rapidly depreciating assets secure these loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower’s continuing financial stability. If a borrower suffers personal financial difficulties, the loan may not be repaid. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans. However, in our opinion, many of these risks do not apply to the luxury boat portion of the loan portfolio due to the credit quality and liquidity of these borrowers.

Concentrations of Credit

Most of our lending activity occurs within the state of Maryland within the suburban Washington D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s Counties. The majority of our loan portfolio consists of commercial real estate loans and residential real estate loans.

Non-Accrual and Past Due Loans

We consider all loans past due if the borrower has not paid the required principal and interest payments when due under the original or modified terms of the promissory note and place a loan on non-accrual status when the payment of principal or interest has become 90 days past due. When we classify a loan as non-accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual legacy loans only when received. We originally recorded purchased, credit-impaired loans at fair value upon acquisition, and an accretable yield is established and recognized as interest income on purchased loans to the extent subsequent cash flows support the estimated accretable yield. Purchased, credit-impaired loans that perform consistent with the accretable yield expectations are not reported as non-accrual or non-performing. However, purchased, credit-impaired loans that do not continue to perform according to accretable yield expectations are considered impaired, and presented as non-accrual and non-performing. Currently, management expects to fully collect the carrying value of acquired, credit-impaired loans.

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5. LOANS (Continued)

The table below presents an aging analysis of the loan held for investment portfolio at March 31, 2014 and December 31, 2013.

Age Analysis of Past Due Loans

	March 31, 2014						December 31, 2013
	Legacy		Acquired		Total		Legacy		Acquired		Total
Current	$	633,426,455	$	206,516,653	$	839,943,108	$	620,559,847	$	214,086,692	$	834,646,539
Accruing past due loans:
30-89 days past due
Commercial Real Estate:
Owner Occupied	752,732		—		752,732		828,388		54,035		882,423
Investment	—		—		—		—		534,694		534,694
Residential Real Estate:
First-Investment	517,494		379,337		896,831		521,405		845,018		1,366,423
First-Owner Occupied	—		1,774,279		1,774,279		—		2,584,408		2,584,408
Land and A&D	269,137		736,341		1,005,478		—		35,162		35,162
Commercial	—		86,196		86,196		224,322		396,215		620,537
Consumer	83,559		990		84,549		—		14,108		14,108
Total 30-89 days past due	1,622,922		2,977,143		4,600,065		1,574,115		4,463,640		6,037,755
90 or more days past due
Commercial Real Estate:
Owner Occupied	—		309,767		309,767		—		309,767		309,767
Residential Real Estate:
First-Owner Occupied	—		167,792		167,792		—		429,144		429,144
Land and A&D	—		—		—		—		915,649		915,649
Commercial	218,272		—		218,272		—		—		—
Consumer	12,132		—		12,132		—		—		—
Total 90 or more days past due	230,404		477,559		707,963		—		1,654,560		1,654,560
Total accruing past due loans	1,853,326		3,454,702		5,308,028		1,574,115		6,118,200		7,692,315
Recorded Investment Non-accruing loans:
Commercial Real Estate:
Owner Occupied	1,849,685		—		1,849,685		1,849,685		—		1,849,685
Investment	—		380,265		380,265		—		376,050		376,050
Hospitality	4,473,345		—		4,473,345		4,473,345		—		4,473,345
Residential Real Estate:
First-Investment	120,478		—		120,478		123,183		—		123,183
First-Owner Occupied	—		350,510		350,510		925,814		156,143		1,081,957
Land and A&D	—		130,332		130,332		—		130,532		130,532
Commercial	752,182		—		752,182		769,597		—		769,597
Consumer	6,771		—		6,771		14,426		—		14,426
Total Recorded Investment
Non-accruing past due loans:	7,202,461		861,107		8,063,568		8,156,050		662,725		8,818,775
Total Loans	$	642,482,242	$	210,832,462	$	853,314,704	$	630,290,012	$	220,867,617	$	851,157,629

We consider all non-performing loans and troubled debt restructurings (TDRs) to be impaired. We do not recognize interest income on non-performing loans during the time period that the loans are non-performing. We only recognize interest income on non-performing loans when we receive payment in full for all amounts due of all contractually required principle and interest, and the loan is current with its contractual terms.

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5. LOANS (Continued)

The tables below present our impaired loans at March 31, 2014 and December 31, 2013.

Impaired Loans

Three months ended March 31, 2014

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:

Owner Occupied	$	2,120,282	$	2,120,282	$	—	$	2,120,388	$	—
Land and A&D
Residential Real Estate:
First-Investment	120,478		120,478		—		121,760		—
Commercial	752,182		752,182		—		763,018		—
With an allowance recorded:
Commercial Real Estate:
Owner Occupied	—		—		—		—		—
Investment	1,351,595		1,351,595		135,160		1,356,616		—
Hospitality	4,473,345		4,473,345		1,250,000		4,473,345		—
Land and A&D	439,694		439,694		185,846		448,918
Total legacy impaired	9,257,576		9,257,576		1,571,006		9,284,045		—

Acquired (1)
With no related allowance recorded:
Commercial Real Estate:
Land and A&D	1,134,224		—		—		1,310,004		—
Residential Real Estate:
First-Owner Occupied	541,394		515,826		—		543,027		4,552
Land and A&D	232,027		232,027		—		232,027		—
Commercial	86,813		86,813		—		87,114		741

With an allowance recorded:
Commercial Real Estate:
Investment	372,048		380,265		279,036		372,048		—
Residential Real Estate:
First-Owner Occupied	351,600		350,510		100,000		351,600		—
Land and A&D	131,031		130,332		83,770		131,031		—
Total acquired impaired	2,849,137		1,695,773		462,806		3,026,851		5,293
Total impaired	$	12,106,713	$	10,953,349	$	2,033,812	$	12,310,896	$	5,293

(1) Generally accepted accounting principles require that we initially record acquired loans at fair value which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet the definition of an acquired, credit-impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans. Acquired, credit-impaired loans where the cash flows do not perform according to initial accretable yield estimates are considered impaired.

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5. LOANS (Continued)

Impaired Loans

Twelve months ended December 31, 2013

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	$	1,849,685	$	1,849,685	$	—	$	1,855,418	$	70,711
Residential Real Estate:
First-Investment	123,183		123,183		—		129,105		—
Commercial	2,136,376		2,136,376		—		2,235,110		90,917

With an allowance recorded:
Commercial Real Estate:
Owner Occupied	274,516		274,516		137,258		282,630		18,177
Investment	1,363,821		1,363,821		136,382		1,385,973		63,855
Hospitality	4,473,345		4,473,345		1,250,000		4,491,435		105,772
Residential Real Estate:
First-Owner Occupied	925,814		925,814		167,450		931,492		16,664
Commercial	459,439		459,439		191,753		510,230		31,018
Consumer	7,390		7,390		7,390		7,426		32
Total legacy impaired	11,613,569		11,613,569		1,890,233		11,828,819		397,146

Acquired (1)
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	605,314		579,583		—		590,677		24,821
Residential Real Estate:
Land and A&D	1,628,156		241,624		—		241,624		—
Commercial	87,387		87,387		—		88,508		4,533

With an allowance recorded:
Commercial Real Estate:
Investment	372,047		376,050		279,037		376,047		17,509
Residential Real Estate:
First-Owner Occupied	411,891		412,742		187,109		414,020		11,460
Land and A&D	131,031		130,532		65,515		130,332		8,709
Total acquired impaired	3,235,826		1,827,918		531,661		1,841,208		67,032
Total impaired	$	14,849,395	$	13,441,487	$	2,421,894	$	13,670,027	$	464,178

(1) Generally accepted accounting principles require that we record acquired loans at fair value at acquisition date. These loans are not performing according to their contractual terms and meet our definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we may accrete their fair value discounts to interest income as a result of pre-payments that exceeds our cash flow expectations or payment in full of amounts due even though we classify them as non-accrual.

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5. LOANS (Continued)

We consider a loan a TDR when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Restructured loans at March 31, 2014 consisted of four loans for $602,639 compared to five loans at December 31, 2013 for $666,970. We had no loans that were modified as a TDR during the three month periods ending March 31, 2014 or 2013. We had no loans that were modified as a TDR that defaulted within twelve months of the modification date during the three month period ending March 31, 2014.

Acquired impaired loans

The following table documents changes in the accretable discount on acquired impaired loans during the three months ended March 31, 2014 and 2013, along with the outstanding balances and related carrying amounts for the beginning and end of those respective periods.

	Three Months Ended March 31,
	2014			2013
Balance at beginning of period	$	40,771		$	—
Accretion of fair value discounts	(299,629		)	(240,238		)
Reclassification from non-accretable	236,909			240,238
Balance at end of period	$	(21,949	)	$	—

	Contractually Required Payments Receivable		Carrying Amount
At March 31, 2014	$	11,884,789	$	8,456,379
At December 31, 2013	12,482,792		8,742,777
At March 31, 2013	24,536,848		13,174,186
At December 31, 2012	24,930,742		13,363,882

Credit Quality Indicators

We review the adequacy of the allowance for loan losses at least quarterly. We base the evaluation of the adequacy of the allowance for loan losses upon loan categories. We categorize loans as residential real estate loans, commercial real estate loans, commercial loans and consumer loans. We further divide commercial real estate loans by owner occupied, investment, hospitality and land acquisition and development. We also divide residential real estate by owner occupied, investment, land acquisition and development and junior liens. All categories are divided by risk rating and loss factors and weighed by risk rating to determine estimated loss amounts. We evaluate delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with collateral separately and assign loss amounts based upon the evaluation.

We determine loss ratios for all loans based upon a review of the three year loss ratio for the category and qualitative factors.

We charge off loans that management has identified as losses. We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge off. We automatically charge off consumer loan accounts based on regulatory requirements.

If a loan that was previously rated a pass performing loan, from our acquisitions, deteriorates subsequent to the acquisition, the subject loan will be assessed for risk and, if necessary, evaluated for impairment. If the risk assessment rating is adversely changed and the loan is determined to not be impaired, the loan will be placed in a migration category and the credit mark established for the loan will be compared to the general reserve allocation that would be applied using the current allowance for loan losses formula for General Reserves. If the credit mark exceeds the allowance for loan losses formula for General Reserves, there will be no change to the allowance for loan losses. If the credit mark is less than the current allowance for loan losses formula for General Reserves, the

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5. LOANS (Continued)

allowance for loan losses will be increased by the amount of the shortfall by a provision recorded in the income statement. If the loan is deemed impaired, the loan will be subject to evaluation for loss exposure and a specific reserve. If the estimate of loss exposure exceeds the credit mark, the allowance for loan losses will be increased by the amount of the excess loss exposure through a provision. If the credit mark exceeds the estimate of loss exposure there will be no change to the allowance for loan losses. If a loan from the acquired loan portfolio is carrying a specific credit mark and a current evaluation determines that there has been an increase in loss exposure, the allowance for loan losses will be increased by the amount of the current loss exposure in excess of the credit mark.

The following tables outline the class of loans by risk rating at March 31, 2014 and December 31, 2013:

March 31, 2014	Account Balance
	Legacy		Acquired		Total
Risk Rating
Pass (1-5)
Commercial Real Estate:
Owner Occupied	$	163,542,525	$	26,727,753	$	190,270,278
Investment	169,292,647		49,011,853		218,304,500
Hospitality	63,590,421		8,464,828		72,055,249
Land and A&D	33,782,502		6,227,760		40,010,262
Residential Real Estate:
First-Investment	43,985,676		26,591,313		70,576,989
First-Owner Occupied	15,591,130		58,213,835		73,804,965
Land and A&D	17,731,271		12,015,470		29,746,741
HELOC and Jr. Liens	18,909,513		3,295,273		22,204,786
Commercial	84,399,266		8,557,467		92,956,733
Consumer	9,752,546		775,543		10,528,089
	620,577,497		199,881,095		820,458,592
Special Mention (6)
Commercial Real Estate:
Owner Occupied	1,611,155		2,100,264		3,711,419
Investment	1,428,149		830,932		2,259,081
Hospitality	—		—		—
Land and A&D	3,186,250		243,191		3,429,441
Residential Real Estate:
First-Investment	1,238,288		722,055		1,960,343
First-Owner Occupied	86,027		637,465		723,492
Land and A&D	2,441,074		360,793		2,801,867
HELOC and Jr. Liens	—		—		—
Commercial	2,920,052		633,143		3,553,195
Consumer	—		—		—
	12,910,995		5,527,843		18,438,838
Substandard (7)
Commercial Real Estate:
Owner Occupied	1,849,685		884,767		2,734,452
Investment	1,351,595		1,114,643		2,466,238
Hospitality	4,473,345		—		4,473,345
Land and A&D	—		—		—
Residential Real Estate:
First-Investment	120,478		513,056		633,534
First-Owner Occupied	—		1,135,875		1,135,875
Land and A&D	—		793,372		793,372
HELOC and Jr. Liens	—		—		—
Commercial	1,191,876		981,811		2,173,687
Consumer	6,771		—		6,771
	8,993,750		5,423,524		14,417,274
Doubtful (8)	—		—		—
Loss (9)	—		—		—

Total	$	642,482,242	$	210,832,462	$	853,314,704

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5. LOANS (Continued)

December 31, 2013	Account Balance
	Legacy		Acquired		Total
Risk Rating
Pass (1-5)
Commercial Real Estate:
Owner Occupied	$	159,945,564	$	27,089,317	$	187,034,881
Investment	159,392,609		51,664,220		211,056,829
Hospitality	62,818,042		8,546,240		71,364,282
Land and A&D	37,383,344		8,148,372		45,531,716
Residential Real Estate:
First-Investment	44,064,312		27,103,460		71,167,772
First-Owner Occupied	12,896,971		60,399,843		73,296,814
Land and A&D	17,778,528		12,678,761		30,457,289
HELOC and Jr. Liens	18,302,559		3,359,063		21,661,622
Commercial	85,415,692		9,529,078		94,944,770
Consumer	10,113,098		870,843		10,983,941
	608,110,719		209,389,197		817,499,916
Special Mention (6)
Commercial Real Estate:
Owner Occupied	1,310,107		2,128,647		3,438,754
Investment	1,432,243		835,918		2,268,161
Hospitality	—		—		—
Land and A&D	3,212,463		250,806		3,463,269
Residential Real Estate:
First-Investment	1,106,938		733,107		1,840,045
First-Owner Occupied	87,154		762,920		850,074
Land and A&D	2,066,763		—		2,066,763
HELOC and Jr. Liens	—		—		—
Commercial	1,841,859		646,700		2,488,559
Consumer	—		—		—
	11,057,527		5,358,098		16,415,625
Substandard (7)
Commercial Real Estate:
Owner Occupied	1,849,685		884,767		2,734,452
Investment	1,363,821		1,591,538		2,955,359
Hospitality	4,473,345		—		4,473,345
Land and A&D	—		—		—
Residential Real Estate:
First-Investment	123,183		527,528		650,711
First-Owner Occupied	925,812		1,084,740		2,010,552
Land and A&D	—		1,046,181		1,046,181
HELOC and Jr. Liens	—		—		—
Commercial	2,371,493		985,568		3,357,061
Consumer	14,427		—		14,427
	11,121,766		6,120,322		17,242,088
Doubtful (8)	—		—		—
Loss (9)	—		—		—

Total	$	630,290,012	$	220,867,617	$	851,157,629

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5. LOANS (Continued)

The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2014 and 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. During the fourth quarter of 2013, the loan segments were changed to align with our new allowance methodology which resulted in balance transfers from prior loan categories and assigned to each new loan segment.

March 31, 2014	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Beginning balance	$	495,051		$	3,569,395		$	841,234		$	23,533		$	4,929,213
General provision for loan losses	76,063			159,543			91,713			11,251			338,570
Provision (credit) for loan losses for loans acquired with deteriorated credit quality	(5,907		)	(138,480		)	75,586			—			(68,801		)
Recoveries	2,496			40			7,670			4,026			14,232
	567,703			3,590,498			1,016,203			38,810			5,213,214
Loans charged off	(1,000		)	—			(320,006		)	(10,269		)	(331,275		)
Ending Balance	$	566,703		$	3,590,498		$	696,197		$	28,541		$	4,881,939
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	185,846		$	1,385,160		$	—		$	—		$	1,571,006
Other loans not individually evaluated	379,361			1,926,498			512,872			29,396			2,848,127
Acquired Loans:
Individually evaluated for impairment	279,036			—			183,770			—			462,806
Ending balance	$	844,243		$	3,311,658		$	696,642		$	29,396		$	4,881,939

March 31, 2013	Real Estate			Commercial			Boats			Other Consumer			Total
Beginning balance	$	2,826,584		$	755,954		$	248,928		$	133,881		$	3,965,347
General provision for loan losses	22,653			113,670			(7,969		)	(3,354		)	125,000
Provision for loan losses for loans acquired with deteriorated credit quality	75,000			—			—			—			75,000
Recoveries	31,383			16,996			—			22,674			71,053
	2,955,620			886,620			240,959			153,201			4,236,400
Loans charged off	(67,851		)	(102,596		)	—			(13,006		)	(183,453		)
Ending Balance	$	2,887,769		$	784,024		$	240,959		$	140,195		$	4,052,947
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	25,000		$	—		$	—		$	—		$	25,000
Other loans not individually evaluated	2,471,145			784,024			240,959			140,195			3,636,323
Acquired Loans:
Individually evaluated for impairment	391,624			—			—			—			391,624
Ending balance	$	2,887,769		$	784,024		$	240,959		$	140,195		$	4,052,947

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5. LOANS (Continued)

Our recorded investment in loans at March 31, 2014 and 2013 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

March 31, 2014	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	439,694	$	5,824,940	$	—	$	—	$	6,264,634
Individually evaluated for impairment without specific reserve	752,182		2,120,282		120,478		—		2,992,942
Other loans not individually evaluated	87,319,319		436,230,697		99,467,152		9,759,318		632,776,486
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)	—		372,048		482,631		—		854,679
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)	86,813		—		515,826		—		602,639
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)	—		—		232,027		—		232,027
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)	10,085,609		95,166,297		103,563,849		775,542		209,591,297
Ending balance	$	98,683,617	$	539,714,264	$	204,381,963	$	10,534,860	$	853,314,704

March 31, 2013	Real Estate		Commerical		Boats		Other Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	499,122	$	—	$	—	$	—	$	499,122
Individually evaluated for impairment without specific reserve	2,783,091		1,721,438		—		—		4,504,529
Collectively evaluated for impairment without reserve	378,858,376		91,205,536		6,813,884		3,058,822		479,936,618
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)	1,603,144		—		—		—		1,603,144
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)	12,887,376		286,810		—		—		13,174,186
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)	104,057,548		10,135,885		—		936,671		115,130,104
Ending balance	$	500,688,657	$	103,349,669	$	6,813,884	$	3,995,493	$	614,847,703

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6. OTHER REAL ESTATE OWNED

At March 31, 2014 and December 31, 2013, the fair value of other real estate owned was $4.6 million and $4.3 million, respectively. As a result of the acquisitions of Maryland Bankcorp and WSB Holdings, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T and WSB or obtained as a result of loans originated by MB&T and WSB (acquired).

The following outlines the transactions in other real estate owned during the period.

Three months ended March 31, 2014	Legacy		Acquired			Total
Beginning balance	$	475,291	$	3,836,051		$	4,311,342
Real estate acquired through foreclosure of loans	334,000		257,622			591,622
Real estate sold	—		(512,878		)	(512,878		)
Net realized gain (loss) on sale of real estate owned	—		203,068			203,068
Ending balance	$	809,291	$	3,783,863		$	4,593,154

7. EARNINGS PER COMMON SHARE

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

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

	Three Months Ended
	March 31,
	2014	2013
Weighted average number of shares	10,780,141	6,848,505
Dilutive average number of shares	10,942,110	6,950,749

8. STOCK BASED COMPENSATION

For the three months ended March 31, 2014 and 2013, we recorded stock-based compensation expense of $126,802 and $83,662, respectively. At March 31, 2014, there was $461,189 of total unrecognized compensation cost related to non-vested stock options and restricted stock awards that we expect to realize over the next 1.25 years. As of March 31, 2014, there were 413,722 shares remaining available for future issuance under the equity incentive plans. The directors and officers did not exercise any options during the three month periods ended March 31, 2014 and 2013.

For purposes of determining estimated fair value of stock options and restricted stock awards, we have computed the estimated fair values of all stock-based compensation using the Black-Scholes option pricing model and, for stock options and restricted stock awards granted prior to December 31, 2013, have applied the assumptions set forth in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2013. During the three months ended March 31, 2014 and 2013, we granted 50,759 and 52,712 stock options, respectively. The weighted average grant date fair value of these 2014 stock options is $4.69 and was computed using the Black-Scholes option pricing model under similar assumptions.

During the three months ended March 31, 2014 and 2013, we granted 8,257 and 8,382 restricted common stock awards, respectively. The weighted average grant date fair value of these restricted stock awards is $16.76 at March 31, 2014. There were no restricted shares forfeited during the three month periods ending March 31, 2014 and 2013.

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9. FAIR VALUE MEASUREMENT

The fair value of an asset or liability is the price that participants would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The fair value hierarchy established by accounting standards defines three input levels for fair value measurement. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1 is based on quoted market prices in active markets for identical assets. Level 2 is based on significant observable inputs other than Level 1 prices. Level 3 is based on significant unobservable inputs that reflect a company’s own assumptions about the assumption that market participants would use in pricing an asset or liability. We evaluate fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. For the three months ended March 31, 2014 and year ended December 31, 2013, there were no transfers between levels.

At March 31, 2014, we hold, as part of our investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S. government sponsored entities, mortgage-backed securities. The fair value of the majority of these securities is determined using widely accepted valuation techniques including matrix pricing and broker-quote based applications. Inputs include benchmark yields, reported trades, issuer spreads, prepayments speeds and other relevant items. These are inputs used by a third-party pricing service used by us.

To validate the appropriateness of the valuations provided by the third party, we regularly update the understanding of the inputs used and compare valuations to an additional third party source. We classify all our investment securities available for sale in Level 2 of the fair value hierarchy, with the exception of treasury securities which fall into Level 1.

We value Sallie Mae (SLMA) equity securities (included in equity securities) at fair value on a recurring basis. We value SLMA equity securities under Level 1. During the period ending March 31, 2014, the SLMA equity security was sold and the realized gain of $96,993 is recorded in gain (loss) on disposal of assets on the consolidated statement of income.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	At March 31, 2014 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
			Identical Assets		Inputs		Inputs		Included in
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Availabe-for-sale:
Treasury securities	$	1,499	$	1,499	$	—	$	—	$	—
U.S. government agency	42,099		—		42,099		—		—
Municipal securities	60,589		—		60,589		—		—
FHLMC MBS	4,207		—		4,207		—		—
FNMA MBS	18,338		—		18,338		—		—
GNMA MBS	38,568		—		38,568		—		—
SBA loan pools	6,794		—		6,794		—		—
Total recurring assets at fair value	$	172,094	$	1,499	$	170,595	$	—	$	—

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9. FAIR VALUE MEASUREMENT (continued)

	At December 31, 2013 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
			Identical Assets		Inputs		Inputs		Included in
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Availabe-for-sale:
Treasury securities	$	1,250	$	1,250	$	—	$	—	$	—
U.S. government agency	40,735		—		40,735		—		—
Municipal securities	59,267		—		59,267		—		—
FHLMC MBS	5,206		—		5,206		—		—
FNMA MBS	18,703		—		18,703		—		—
GNMA MBS	39,921		—		39,921		—		—
SBA loan pools	7,088		—		7,088		—		—
Total investment securities available for sale	172,170		1,250		170,920		—		—
Sallie Mae equity securities	414		414		—		—		—
Total recurring assets at fair value	$	172,584	$	1,664	$	170,920	$	—	$	—

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.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis at March 31, 2014 and December 31, 2013 are included in the tables below.

We also measure certain non-financial assets such as other real estate owned, TDRs, and repossessed or foreclosed property at fair value on a non-recurring basis. Generally, we estimate the fair value of these items using Level 2 inputs based on observable market data or Level 3 inputs based on discounting criteria.

	At March 31, 2014 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Legacy:	$	7,687	$	—	$	—	$	7,687
Acquired:	1,233		—		—		1,233
Total Impaired Loans	8,920		—		—		8,920

Other real estate owned:
Legacy:	809		—		—		809
Acquired:	3,784		—		—		3,784
Total other real estate owned:	4,593		—		—		4,593

Total	$	13,513	$	—	$	—	$	13,513

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9. FAIR VALUE MEASUREMENT (continued)

	At December 31, 2013 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Legacy:	$	9,723	$	—	$	—	$	9,723
Acquired:	1,296		—		—		1,296
Total Impaired Loans	11,019		—		—		11,019

Other real estate owned:
Legacy:	475		—		—		$	475
Acquired:	3,836		—		—		3,836
Total other real estate owned:	4,311		—		—		4,311

Total	$	15,330	$	—	$	—	$	15,330

As of March 31, 2014 and December 31, 2013, we estimated the fair value of impaired assets using Level 3 inputs to be $13.5 million and $15.3 million, respectively. We determined these Level 3 inputs based on appraisal evaluations, offers to purchase and/or appraisals that we obtained from an outside third party during the preceding twelve months less costs to sell. Discounts have predominantly been in the range of 0% to 50%. As a result of the acquisition of Maryland Bankcorp and WSB Holdings, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T and WSB or obtained as a result of loans originated by MB&T and WSB (acquired).

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

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value because of the short maturities of these instruments.

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

Loans held for Sale- Loans held for sale are carried at the lower of cost or market value. The fair values of loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

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

Equity Securities- Equity securities are considered restricted stock and are carried at cost which approximates fair value.

Bank Owned Life Insurance - The carrying amount of Bank Owned Life Insurance (“BOLI”) purchased on a group of officers is a reasonable estimate of fair value. BOLI is an insurance product that provides an effective way to offset current employee benefit costs.

Accrued Interest Receivable and Payable- The carrying amount of accrued interest and dividends receivable on loans and investments and payable on borrowings and deposits approximate their fair values.

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9. FAIR VALUE MEASUREMENT (continued)

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

Non-Interest bearing deposits- The fair value of non-interest bearing accounts is the amount payable on demand at the reporting date.

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

Off-balance Sheet Commitments and Contingencies- Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to our financial position.

Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. We must report in earnings unrealized gains and losses on items for which we have elected the fair value measurement option at each subsequent reporting date. We measure certain financial assets and financial liabilities at fair value on a non-recurring basis. These assets and liabilities are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment.

	March 31, 2014 (In thousands)
					Quoted Prices		Significant		Significant
			Total		in Active		Other		Other
	Carrying		Estimated		Markets for		Observable		Unobservable
	Amount		Fair		Identical Assets		Inputs		Inputs
	(000’s)		Value		(Level 1)		(Level 2)		(Level 3)

Assets:
Cash and cash equivalents	$	54,406	$	54,406	$	54,406	$	—	$	—
Loans receivable, net	849,430		863,985		—		—		863,985
Loans held for sale	1,682		1,682		—		1,682		—
Investment securities available for sale	172,094		172,094		1,499		170,595		—
Equity Securities at cost	4,304		4,304		—		4,304		—
Bank Owned Life Insurance	30,788		30,788		—		30,788		—
Accrued interest receivable	3,131		3,131		—		906		2,225

Liabilities:
Deposits:
Non-interest-bearing	234,512		234,512		—		234,512		—
Interest bearing	773,640		779,087		—		779,087		—
Short term borrowings	38,194		38,194		—		38,194		—
Long term borrowings	6,072		6,072		—		6,072		—
Accrued Interest payable	242		242		—		242		—

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9. FAIR VALUE MEASUREMENT (continued)

	December 31, 2013 (In thousands)
					Quoted Prices		Significant		Significant
			Total		in Active		Other		Other
	Carrying		Estimated		Markets for		Observable		Unobservable
	Amount		Fair		Identical Assets		Inputs		Inputs
	(000’s)		Value		(Level 1)		(Level 2)		(Level 3)

Assets:
Cash and cash equivalents	$	29,058	$	29,058	$	29,058	$	—	$	—
Loans receivable, net	847,249		860,458		—		—		860,458
Loans held for sale	2,075		2,075		—		2,075		—
Investment securities available for sale	172,170		172,170		1,250		170,920		—
Equity Securities at cost	5,670		5,670		414		5,256		—
Bank Owned Life Insurance	30,577		30,577		—		30,577		—
Accrued interest receivable	3,433		3,433		—		1,088		2,345

Liabilities:
Deposits:
Non-interest-bearing	228,734		228,734		—		228,734		—
Interest bearing	745,626		751,703		—		751,703		—
Short term borrowings	49,530		49,530		—		49,530		—
Long term borrowings	6,093		6,093		—		6,093		—
Accrued Interest payable	265		265		—		265		—

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 $464,223 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 73% of this building for our main office and operate a branch of Old Line Bank from this address.

On April 1, 2011, we acquired Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A (MB&T) and on May 10, 2013, we acquired WSB Holdings, Inc. (WSB Holdings), the parent company of The Washington Savings Bank, F.S.B. (WSB). The acquisition of WSB created the fifth largest independent commercial bank based in Maryland, with assets of more than $1.1 billion and with 23 full service branches serving five counties.

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Summary of Recent Performance and Other Activities

Our net income available to common stockholders increased $549 thousand to net earnings of $1.8 million for the three months ended March 31, 2014, compared to net earnings of $1.3 million for the three months ended March 31, 2013. Income was $0.17 per basic and diluted common share for the three months ended March 31, 2014 compared to earnings of $0.19 per basic and diluted common share for the same period in 2013. The increase in net income is primarily the result of a $2.6 million increase in total interest income and an increase of $165 thousand in non-interest income partially offset by an increase of $1.9 million in non-interest expense.

The following highlights contain additional financial data and events that have occurred during the three months ended March 31, 2014:

· Net income available to common stockholders of $1.8 million, or $0.17 per basic and diluted share, was recorded for the three month period ending March 31, 2014 compared to net income available to common stockholders of $1.3 million or $0.19 per basic and diluted share, for the first quarter of 2013, representing an increase of $549,309 or 42.70%.

· The net interest margin was 4.29% compared to 4.36% for the same period in 2013. The average interest rate paid on total interest-bearing liabilities decreased to 0.51% for the three months ended March 31, 2014 compared to 0.66% for the three months ended March 31, 2013.

· The first quarter Return of Average Assets (ROAA) and Return on Average Equity (ROAE) were 0.64% and 5.95%, respectively, compared to ROAA and ROAE of 0.61% and 7.26%, respectively, for the first quarter of 2013.

· Total assets at March 31, 2014 increased by $25.7 million compared to December 31, 2013.

· Total deposits grew by $33.8 million, or 3.47%, since December 31, 2013.

· Net loans held for investment increased by $2.2 million, or 0.26%, since December 31, 2013.

· Our asset quality remained strong:

· At March 31, 2014, we had five legacy loans (loans originated by Old Line Bank) on non-accrual status in the amount of $7.2 million, compared to eight loans in the amount of $8.2 million at December 31, 2013.

· At March 31, 2014, we had accruing legacy loans past due between 30 and 89 days in the amount of $1.6 million and accruing legacy loans of $230 thousand that are 90 or more days past due, compared to $1.6 million accruing 30-89 days and no loans that were past 90 or more at December 31, 2013.

· At March 31, 2014, we had accruing acquired loans totaling $3.0 million past due between 30 and 89 days and accruing acquired loans of $478 thousand that are 90 or more days past due, compared to $4.5 million between 30-89 days and $1.7 million 90 or more days past due and accruing at December 31, 2013.

· We provided $270 thousand for loan losses during the three month period ended March 31, 2014 compared to $200 thousand for the three months ended March 31, 2013.

· Non-performing assets decreased to 1.12% of total assets at March 31, 2014 compared to 1.27% at December 31, 2013, but increased from 0.94% at March 31, 2013.

· We ended the first quarter of 2014 with a book value of $11.99 per common share and a tangible book value of $10.79 per common share.

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

The following summarizes the highlights of our financial performance for the three month period ended March 31, 2014 compared to same period in 2013 (figures in the table may not match those discussed in the balance of this section due to rounding).

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	Three months ended March 31,
	(Dollars in thousands)
	2014			2013			$ Change			% Change

Net income available to common stockholders	$	1,836		$	1,286		$	550		42.77	%
Interest income	11,372			8,817			2,555			28.98
Interest expense	1,013			970			43			4.43

Net interest income before provision for loan losses	10,359			7,847			2,512			32.01
Non-interest income	1,392			1,228			164			13.36
Non-interest expense	8,977			7,080			1,897			26.79
Average total loans	851,080			605,702			245,378			40.51
Average interest earning assets	1,021,996			772,187			249,809			32.35
Average total interest bearing deposits	751,439			552,650			198,789			35.97
Average non-interest bearing deposits	229,230			187,698			41,532			22.13
Net interest margin (1)	4.29		%	4.36		%
Return on average equity	5.95		%	7.26		%
Basic earnings per common share	$	0.17		$	0.19		$	(0.02	)	(10.53	)
Diluted earnings per common share	0.17			0.19			(0.02		)	(10.53	)

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

Strategic Plan

We have based our strategic plan on the premise of enhancing stockholder value and growth through branching and operating profits. Our short term goals include collecting payments on non-accrual and past due loans, profitably disposing of certain acquired loans and other real estate owned, enhancing and maintaining credit quality, maintaining an attractive branch network, expanding fee income, generating extensions of core banking services, and using technology to maximize stockholder value. During the past two years, we have expanded organically in Montgomery County, and through acquisition in Charles County, Prince George’s County and Anne Arundel County, Maryland.

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

We may take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks or hire additional loan officers. We also continually evaluate and consider opportunities with financial services companies or institutions with which we may become a strategic partner, merge or acquire such as we have done with Maryland Bankcorp and WSB Holdings.

Although the current economic climate continues to present significant challenges for our industry, we have worked diligently towards our goal of becoming the premier community bank in the Washington, D.C. market, including through the new branches we acquired in the WSB acquisition and the attendant increased penetration into the Charles, Prince George’s and Anne Arundel County markets. While we are uncertain about the pace of economic growth or the impact of the current political environment, and we believe that high unemployment and growing national debt will continue to dampen the economic climate, we remain cautiously optimistic that we have identified any problem assets, that our remaining borrowers will stay current on their loans and that we can continue to grow our balance sheet and earnings. We believe that we are well positioned to capitalize on the opportunities that may become available in the current economy as well as a healthier economy.

If the Federal Reserve maintains the federal funds rate at current levels and the economy remains stable, we believe that we can continue to grow total loans and deposits during the remainder of 2014. We also believe that we will be able to maintain our current level of net interest margins during the remainder of 2014. As a result of this growth and expected continued strength in the net interest margin, we expect that net interest income will continue to increase during the remainder of 2014, although there can be no guarantee that this will be the case.

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We also expect that salaries and benefits expenses and other operating expenses will continue to be higher in 2014 than they were in 2013 due to the acquisition of WSB Holdings. We believe with our existing branches, our lending staff, our corporate infrastructure and our solid balance sheet and strong capital position, we can continue to focus our efforts on improving earnings per share and enhancing stockholder value.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. As discussed in Old Line Bancshares’ Form 10-K for the fiscal year ended December 31, 2013, we consider our critical accounting policies to be the allowance for loan losses, other-than-temporary impairment of investment securities, goodwill and other intangible assets, income taxes, business combination and accounting for acquired loans. There have been no material changes in our critical accounting policies during the three months ended March 31, 2014.

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Average Balances, Yields and Accretion of Fair Value Adjustments Impact

The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the three months ended March 31, 2014 and 2013, showing the average distribution of assets, liabilities, stockholders’ equity and related income, expense and corresponding weighted average yields and rates. Non-accrual loans are included in total loan balances lowering the effective yield for the portfolio in the aggregate. The average balances used in this table and other statistical data were calculated using average daily balances.

	Average Balances, Interest and Yields
	2014						2013
	Average						Average
Three Months Ended March 31,	balance		Interest		Yield		balance		Interest		Yield
Assets:
Federal funds sold (1)	$	1,324,848	$	389	0.12	%	$	1,709,594	$	603	0.20	%
Interest bearing deposits	27,656		8		0.12		161,326		99		0.25
Investment securities (1)(2)
U.S. Treasury	1,401,315		890		0.26		1,374,133		1,855		0.55
U.S. government agency	36,307,595		159,656		1.78		29,227,991		87,181		1.21
Mortgage backed securities	70,546,412		377,872		2.17		70,720,047		388,256		2.23
Municipal securities	61,152,365		704,065		4.67		63,834,888		751,570		4.77
Other equity securities	5,156,638		76,394		6.01		3,515,366		43,302		5.00
Total investment securities	174,564,325		1,318,877		3.06		168,672,425		1,272,164		3.06
Loans:(1)
Commercial	126,387,167		1,378,718		4.42		100,592,871		1,317,401		5.31
Mortgage real estate	713,505,366		8,961,737		5.09		493,997,648		6,514,081		5.35
Consumer	11,187,466		162,019		5.87		11,111,472		164,490		6.00
Total loans	851,079,999		10,502,474		5.00		605,701,991		7,995,972		5.35
Allowance for loan losses	5,001,250		—				4,058,816		—
Total loans, net of allowance	846,078,749		10,502,474		5.03		601,643,175		7,995,972		5.39
Total interest earning assets(1)	1,021,995,578		11,821,748		4.69		772,186,520		9,268,838		4.87
Non-interest bearing cash	36,258,104						25,465,996
Premises and equipment	34,901,415						25,083,069
Other assets	75,336,154						37,123,329
Total assets(1)	1,168,491,251						859,858,914
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings	86,889,647		36,266		0.17		65,341,432		27,631		0.17
Money market and NOW	298,511,159		161,920		0.22		176,313,295		111,159		0.26
Other time deposits	366,038,675		696,117		0.77		310,994,955		718,349		0.94
Total interest bearing deposits	751,439,481		894,303		0.48		552,649,682		857,139		0.63
Borrowed funds	51,661,794		118,276		0.93		40,335,859		112,487		1.13
Total interest bearing liabilities	803,101,275		1,012,579		0.51		592,985,541		969,626		0.66
Non-interest bearing deposits	229,229,562						187,697,564
	1,032,330,837						780,683,105
Other liabilities	10,813,815						6,909,547
Non-controlling interest	285,355						387,467
Stockholders’ equity	125,061,244						71,878,795
Total liabilities and stockholders’ equity	$	1,168,491,251					$	859,858,914
Net interest spread(1)					4.18						4.21
Net interest margin(1)			$	10,809,169	4.29	%			$	8,299,212	4.36	%

(1) Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE basis adjusts for the tax favored status of these types of assets. Management believes providing this information on a FTE basis provides investors with a more accurate picture of our net interest spread and net interest income and we believe it to be the preferred industry measurement of these calculations. See “Reconciliation of Non-GAAP Measures.”

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

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The following table describes the impact on our interest revenue and expense resulting from changes in average balances and average rates for the three months ended March 31, 2014 and 2013. We have allocated the change in interest income, 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,
	2014 compared to 2013
	Variance due to:
	Total			Rate			Volume

Interest earning assets:
Federal funds sold(1)	$	(214	)	$	(161	)	$	(53	)
Interest bearing deposits	(91		)	(66		)	(25		)
Investment Securities(1)
U.S. treasury	(965		)	(1,029		)	64
U.S. government agency	72,475			64,307			8,168
Mortgage backed securities	(10,384		)	(10,156		)	(228		)
Municipal securities	(47,505		)	(31,867		)	(15,638		)
Other	33,092			21,065			12,027
Loans:(1)
Commercial	61,317			(445,361		)	506,678
Mortgage	2,447,656			(885,113		)	3,332,769
Consumer	(2,471		)	(4,370		)	1,899
Total interest revenue (1)	2,552,910			(1,292,751		)	3,845,661

Interest bearing liabilities
Savings	8,636			(1,555		)	10,191
Money market and NOW	50,761			(47,080		)	97,841
Other time deposits	(22,232		)	(222,855		)	200,623
Borrowed funds	5,788			(41,649		)	47,437
Total interest expense	42,953			(313,139		)	356,092

Net interest income(1)	$	2,509,957		$	(979,612	)	$	3,489,569

Comparison of Operating Results for the Three Months Ended March 31, 2014 and 2013

Net Interest Income . Net interest income before provision for loan losses for the three months ended March 31, 2014 increased $2.5 million or 32.0% to $10.4 million from $7.8 million for the same period in 2013. As outlined in detail in the Rate/Volume Analysis, this increase was the result of an increase in total interest income resulting from an increase in average interest earning assets, partially offset by a decrease in yield on such assets, and a slight increase in interest paid on interest bearing liabilities. Average interest earning assets increased primarily due to the acquisition of WSB and to a lesser extent, organic loan growth, compared to the same three month period last year. A competitive rate environment and a low prime rate resulted in decreases in both the rate paid on interest bearing liabilities and the yield on interest earning assets during the three months ended March 31, 2014, however, the lower market yields on interest bearing assets had a much greater impact on, and continue to negatively impact, net interest income. We continue to adjust the mix and volume of interest earning assets and liabilities on the balance sheet to maintain a relatively stable net interest margin.

Total interest income increased $2.6 million, or 28.98%, to $11.4 million during the three months ended March 31, 2014 compared to $8.8 million during the three months ended March 31, 2013. We offset the effect on interest income and net interest income caused by the low rate environment by growing total average interest earning assets by $249.8 million or 32.35% to $1.0 billion for the three months ended March 31, 2014 from $772.2 million for the three months ended March 31, 2013, as well as by changes in the mix of our interest-earning assets. The increase in total interest earning assets is due to strong organic loan growth during the last nine months of 2013 as well as the loans and investments acquired in the WSB

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Holdings transaction.

Total interest expense increased $42,953, or 4.43%, to $1.0 million during the three months ended March 31, 2014 from $970 thousand for the same period in 2013, as a result of the increase in average interest bearing liabilities partially offset by a decrease in the average interest rate paid on interest bearing liabilities, primarily time deposits. The average rate paid on time deposits decreased to 0.77% during the three months ended March 31, 2014 from 0.94% during the same period last year, while the average interest rate paid on all interest bearing liabilities decreased to 0.51% during the three months ended March 31, 2014 compared to 0.66% during the three months ended March 31, 2013. Average interest bearing liabilities increased $210.1 million or 35.43% to $803.1 million for the three months ended March 31, 2014 from $593.0 million for the three months ended March 31, 2013, primarily as a result of a $198.8 million or 36.0% increase in average interest bearing deposits.

The growth in average interest bearing deposits was primarily the result of the acquisition of WSB, but we also experienced organic growth as a result of increased name recognition in our market place, including as a result of the acquisition, and our business development efforts.

Non-interest bearing deposits allow us to fund growth in interest earning assets at minimal cost. As a result of the acquisition of WSB and the growth generated from our branch network and commercial loan officers, our average non-interest bearing deposits increased $41.5 million to $229.2 million for the three months ended March 31, 2014, compared to $187.7 million for the three months ended March 31, 2013.

Our net interest margin was 4.29% for the three months ended March 31, 2014 compared to 4.36% for the three months ended March 31, 2013. The yield on average interest earning assets decreased 18 basis points during the period from 4.87% for the quarter ended March 31, 2013 to 4.69% for the quarter ended March 31, 2014. Re-pricing in the loan portfolio and slightly lower yields on new loans caused the average loan yield to decline.

During the three months ended March 31, 2014 and 2013, we continued to successfully collect payments on acquired loans that we had recorded at fair value according to ASC 310-20 and ASC 310-30, which contributed to the $429 thousand of total accretion recorded during the three months ended March 31, 2014 as compared to $240 thousand recorded during the same period last year. The payments received were a direct result of our efforts to negotiate payments, sell notes or foreclose on and sell collateral after the acquisition date. The accretion increase is primarily due to higher repayments on impaired loans that we acquired from MB&T and WSB during the three month period ending March 31, 2014 relative to the same three months last year in addition to higher fair value accretion on interest bearing deposits from the WSB acquisition.

Total accretion increased for the three months ending March 31, 2014 as compared to March 31, 2013 primarily due to one real estate loans that was paid off during the quarter ending March 31, 2014 representing approximately $192,000 in accretion. The accretion positively impacted the yield on loans and increased the net interest margin during these periods as follows:

	Three months ended March 31,
	2014				2013
	Accretion Dollars		% Impact on Net Interest Margin		Accretion Dollars			% Impact on Net Interest Margin
Commercial loans	$	7,468	—	%	$	209,144		0.11	%
Mortgage loans(1)	287,526		0.11		(4,500		)	—
Consumer loans	4,635		—		2,371			—
Interest bearing deposits	129,327		0.05		33,461			0.02
Total accretion	$	428,956	0.16	%	$	240,476		0.13	%

(1) In 2013, we reclassified mortgage loans totaling $873,918 to commercial loans, the impact of this reclassification was immaterial to prior period net interest income or financial condition. Therefore, we did not adjust prior period information.

Provision for Loan Losses. The p rovision for loan losses for the three months ended March 31, 2014 was $269,769, an increase of $70 thousand, compared to $200,000 for the three months ended March 31, 2013. Management identified probable losses in the loan portfolio and recorded charge-offs of $331 thousand for the three months ended March 31, 2014, compared to $183 thousand for the three months ended March 31, 2013. Recoveries of $14 thousand were recognized in 2014 compared to $71 thousand in 2013. The allowance for loan losses to gross loans held-for-investment was 0.57% and 0.66%, and the allowance for loan losses to non-accrual loans was 60.59% and 74.33%, at March 31, 2014 and 2013. Additionally, we revised our allowance for loan losses methodology during the fourth quarter of 2013, which resulted in a lower indicated general reserve.

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Non-interest Income. Non-interest income totaled $1.4 million for the three months ended March 31, 2014, an increase of $165 thousand, or 13.41%, from the corresponding period of 2013 amount of $1.2 million. The following table outlines the changes in non-interest income for the three month periods.

	Three months ended
	March 31,
	2014		2013			$ Change			% Change
Service charges on deposit accounts	$	451,596	$	300,741		$	150,855		50.16
Gain on sales or calls of investment securities	—		631,429			(631,429		)	(100.00	)
Earnings on bank owned life insurance	243,607		133,228			110,379			82.85
Gain/(loss) on disposal of assets	96,993		(85,561		)	182,554			(213.36	)
Pointer Ridge rent and other revenue	87,970		68,328			19,642			28.75
Rental income	200,537		—			200,537			100.00
Gain on sale of loans	106,720		—			106,720			100.00
Other fees and commissions	204,702		179,355			25,347			14.13
Total non-interest revenue	$	1,392,125	$	1,227,520		$	164,605		13.41

Non-interest income increased primarily as a result of increases in rental income, service charges on deposit accounts, other fees and commissions, earnings on bank owned life insurance, gain on the disposal of assets, and gains on sale of loans, offsetting a decrease on gain on sales or calls of investment securities. Rental income increased as the result of the rent received on the building at 4201 Mitchellville Road, Bowie, Maryland, which we acquired in the WSB Holdings merger. The service charge on deposit accounts is due to the increase in our deposits primarily as a result of the WSB acquisition. The increase in earnings on bank owned life insurance is the result of the addition of approximately $13.0 million of bank owned life insurance from the acquisition of WSB. The gain on the sale of loans is attributable to the revenues earned on loans sold in the secondary market. Prior to the acquisition of WSB, Old Line Bank did not sell loans in the secondary market. Other fees and commissions increased primarily due to fees collected on our marketable loans and fees collected from Old Line Financial Services. Old Line Financial Services allows us to expand the services we provide our customers to include retirement planning and products. Gain on the disposal of assets was due to the sale of our Student Loan Marketing Association (SLMA) equity security. These increases were partially offset by declines in gain on sales or calls of investment securities. The gains on sales or calls of investment securities decreased during the period as we did not sell any investment securities during the three month period ending March 31, 2014 as compared to a gain of $631 thousand on the sale of $23.3 million of investment securities during the same three month period last year.

Non-interest Expense . Non-interest expense increased $1.9 million or 26.79% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The following chart outlines the changes in non-interest expenses for the period.

	Three months ended
	March 31,
	2014			2013		$ Change			% Change
Salaries and benefits	$	4,873,634		$	3,232,677	$	1,640,957		50.76
Occupancy and equipment	1,586,777			1,068,867		517,910			48.45
Data processing	307,160			239,057		68,103			28.49
FDIC insurance and State of Maryland assessments	218,521			155,243		63,278			40.76
Merger and integration	29,167			240,485		(211,318		)	(87.87	)
Core deposit premium	228,550			177,582		50,968			28.70
Pointer Ridge other operating	52,021			113,397		(61,376		)	(54.12	)
Loss (gain) on sale of other real estate owned	(203,068		)	200,454		(403,522		)	(201.30	)
OREO expense	83,066			314,165		(231,099		)	(73.56	)
Other operating	1,800,715			1,337,968		462,747			34.59
Total non-interest expenses	$	8,976,543		$	7,079,895	$	1,896,648		26.79

The growth in non-interest expenses, as compared to the first quarter of 2013, was mainly attributable to increases in

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salaries and benefits, occupancy and equipment expenses, and other operating expenses, offsetting decreases in merger and integration, loss (gain) on sale of other real estate owned and other real estate owed (OREO) expenses. Salaries and benefits increased by $1.6 million, or 50.76%, when compared to the same period of 2013 primarily as a result of the result of the addition of staff acquired in the acquisition of WSB in May 2013 and additions to the commercial lending, marketing and cash management teams. Included in salaries and benefits during the first quarter of 2014 is $550 thousand in severance payments. The severance was associated with merger-related staff reductions during the quarter that will eliminate $1.1 million in annual salaries and benefits. In early April further reductions were made that will save an additional $330 thousand in annual salaries and benefits for a total reduction of $1.4 million. The cost of health insurance benefits also increased compared to the same three month period of 2013 as a result of an increase in insurance rates and the increased staff. Occupancy and equipment expenses increased $518 thousand or 48.45% compared to the same period in 2013 primarily due to the additional lease expense associated with the acquisition of WSB’s branches. Data processing costs increased $68 thousand, or 28.49%, as a result of the monthly expenses associated with our core banking processor due to the increase in our loans and deposits. Other expenses increased primarily as a result of network services, advertising and telephone. These increases were partially offset by a $203 thousand gain on sales of other real estate owned compared to a loss of $200 thousand during the 2013 period as a result of the sale of two properties which resulted in a net gain compared to the sale of two legacy properties for a net loss during the same three months last year. Costs associated with other real estate owned include taxes and insurance related to other real estate owned. Other real estate owned balance increased but the expenses associated with these properties decreased for the three months ending March 31, 2014. As a result of our final conversion of the core processing systems of the WSB merger on November 1, 2013, which was the last merger-related activity and expense with respect to the WSB acquisition, merger-related costs decreased $211 thousand compared to the same period in 2013.

Income Taxes . We had an income tax expense of $691 thousand (27.57% of pre-tax income) for the three months ended March 31, 2014 compared to an income tax expense of $522 thousand (29.06% of pre-tax income) for the same period in 2013. The taxes were higher primarily because income increased as compared to the same three months last year. The tax rate was slightly lower for the three month period ended March 31, 2014, primarily because there was a higher portion of non-taxable income compared to the same three months ended March 31, 2013.

Net Income Available to Common Stockholders . Net income available to common stockholders was $1.8 million or $0.17 per basic and diluted common share for the three month period ending March 31, 2014 compared to net income available to common stockholders of $1.3 million, or $0.19 per basic and diluted common share for the same period in 2013. The increase in net income available to common stockholders for the 2014 period was primarily the result of the $2.5 million increase in net interest income partially offset by the $1.9 million increase in non-interest expenses compared to the 2013 period. Basic and diluted earnings per common share decreased as a result of an increase in the number of shares outstanding at March 31, 2014 compared to March 31, 2013. Shares outstanding increased by as a result of our issuance of 2.9 million shares of common stock to the former stockholders of WSB Holdings in the WSB Holdings acquisition during the second quarter of 2013 and 936,696 shares of common stock in a private stock offering during the fourth quarter of 2013, resulting in an additional paid in capital of $49.8 million.

Analysis of Financial Condition

Investment Securities. Our portfolio consists primarily of 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 (FHLB) stock, Maryland Financial Bank stock and Atlantic Central Bankers Bank stock. With the acquisition of MB&T, we acquired approximately $262,000 of SLMA stock, which we sold in the first quarter of 2014 at a net gain of $97 thousand. We have prudently managed our investment portfolio to maintain liquidity and safety. The portfolio provides a source of liquidity, collateral for borrowings as well as a means of diversifying our earning asset portfolio. While we usually intend to hold the investment securities until maturity, currently we classify all of our investment securities as available for sale. This classification provides us the opportunity to divest of securities that may no longer meet our liquidity objectives. We account for these securities at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects. We account for investment securities when classified in the held to maturity category at amortized cost. Although we will occasionally sell a security, generally, we invest in securities for the yield they produce and not to profit from trading the securities. As a result of the acquisition of WSB Holdings, we evaluated the investment portfolio to ensure that the securities acquired in the acquisition met our investment criteria and provide adequate liquidity, and that there is adequate diversity in the investment portfolio. We continually evaluate the investment portfolio to ensure the portfolio is adequately diversified, provides sufficient cash flow and does not subject us to undue interest rate risk. There are no trading securities in the portfolio.

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The investment securities at March 31, 2014 amounted to $172.1 million, a decrease of $75 thousand, or 0.04%, from the December 31, 2013 amount of $172.2 million. As outlined above, at March 31, 2014, all securities are classified as available for sale.

The fair value of available for sale securities included net unrealized losses of $3.1 million at March 31, 2014 (reflected as unrealized losses of $1.9 million in stockholders’ equity after deferred taxes) as compared to net unrealized loss of $5.7 million ($3.4 million net of taxes) at December 31, 2013. The increase in fair value is due to the decrease in the market interest rates which improved bond values. We have evaluated securities with unrealized losses for an extended period of time and determined that these losses are temporary because, at this point in time, we expect to hold them until maturity. We have no intent or plan to sell these securities, it is not likely that we will have to sell these securities and we have not identified any portion of the loss that is a result of credit deterioration in the issuer of the security. As the maturity date moves closer and/or interest rates decline, any unrealized losses in the portfolio will decline or dissipate.

Loan Portfolio. Net of allowance, unearned fees and origination costs, loans held for investment increased $2.2 million or 0.26% to $849.4 million at March 31, 2014 from $847.2 million at December 31, 2013. Commercial real estate loans increased by $5.4 million, residential real estate loans decreased by $666 thousand, commercial and industrial loans decreased by $2.1 million and consumer loans decreased $464 thousand from their respective balances at December 31, 2013. The loan growth during the period was primarily due to the new originations resulting from our enhanced presence in our market area. The decreases are the result of loan pay-downs during the quarter. Loan growth for the three months ended March 31, 2014 was adversely impacted by a harsh and extended winter. We expect growth to improve as the year progresses.

Most of our lending activity occurs within the state of Maryland within the suburban Washington, D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s Counties. The majority of our loan portfolio consists of commercial real estate loans and commercial and industrial loans.

The following table summarizes the composition of the loan portfolio held for investment by dollar amount and percentages at the dates indicated:

	March 31, 2014									December 31, 2013
	Legacy (1)			Acquired			Total			Legacy (1)			Acquired			Total

Commercial Real Estate
Owner Occupied	$	167,003,364		$	29,712,784		$	196,716,148		$	163,105,356		$	30,102,731		$	193,208,087
Investment	172,072,391			50,957,428			223,029,819			162,188,671			54,091,676			216,280,347
Hospitality	68,063,766			8,464,828			76,528,594			67,291,387			8,546,239			75,837,626
Land and A&D	36,968,752			6,470,951			43,439,703			40,595,806			8,399,178			48,994,984
Residential Real Estate
First Lien-Investment	45,344,442			27,826,424			73,170,866			45,294,434			28,364,096			73,658,530
First Lien-Owner Occupied	15,677,156			59,987,174			75,664,330			13,909,939			62,247,502			76,157,441
Residential Land and A&D	20,172,345			13,169,636			33,341,981			19,845,291			13,724,942			33,570,233
HELOC and Jr. Liens	18,909,513			3,295,273			22,204,786			18,302,560			3,359,063			21,661,623
Commercial and Industrial	88,511,195			10,172,422			98,683,617			89,629,043			11,161,347			100,790,390
Consumer	9,759,318			775,542			10,534,860			10,127,525			870,843			10,998,368
	642,482,242			210,832,462			853,314,704			630,290,012			220,867,617			851,157,629
Allowance for loan losses	(4,419,133		)	(462,806		)	(4,881,939		)	(4,397,552		)	(531,661		)	(4,929,213		)
Deferred loan costs, net	998,266			(1,310		)	996,956			1,021,167			(993		)	1,020,174
	$	639,061,375		$	210,368,346		$	849,429,721		$	626,913,627		$	220,334,963		$	847,248,590

(1) As a result of the acquisitions of Maryland Bankcorp, the parent company of MB&T, in April 2011 and of WSB Holdings, the parent company of WSB, in May 2013, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T and WSB (acquired).

Bank owned life insurance. At March 31, 2014, we have invested $30.8 million in life insurance policies on our executive officers, other officers of Old Line Bank, retired officers of MB&T and former officers of WSB. This represents a $210 thousand increase from December 31, 2013 as a result of interest earned on these policies.

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Deposits . At March 31, 2014, the deposit portfolio had increased to $1.0 billion, a $33.8 million or 3.47% increase over the December 31, 2013 level of $974.4 million. Deposit growth during the three month period was comprised of $5.8 million, or 2.53%, in non-interest bearing deposits and $28.0 million, or 3.76%, in interest bearing deposits. Non-interest bearing deposits increased to $234.5 million from $228.7 million, and interest bearing deposits increased to $773.6 million from $745.6 million. The increase in our deposit base is due to our enhanced presence in the surrounding areas. We used some of these funds acquired from increased deposits to reduce our short term borrowings and expect to use the remainder to fund loan originations in the near future.

The following table outlines the increase in interest bearing deposits:

	March 31,		December 31,
	2014		2013		$ Change			% Change
	(Dollars in thousands)
Certificates of deposit	$	361,886	$	366,433	$	(4,547	)	(1.24	)%
Interest bearing checking	322,114		294,050		28,064			9.54
Savings	89,640		85,143		4,497			5.28
Total	$	773,640	$	745,626	$	28,014		3.76	%

We acquire brokered certificates of deposit through the Promontory Interfinancial Network (Promontory). Through this deposit matching network and its certificate of deposit account registry service (CDARS) and money market account service, we have the ability to offer our customers access to FDIC insured deposit products in aggregate amounts exceeding current insurance limits. When we place funds through Promontory on behalf of a customer, we receive matching deposits through the network’s reciprocal deposit program. We can also place deposits through this network without receiving matching deposits. At March 31, 2014, we had $27.4 million in CDARS and $74.8 million in money market accounts through Promontory’s reciprocal deposit program compared to $27.4 million and $74.8 million, respectively, at December 31, 2013. During 2013, we acquired $18.0 million in brokered certificates of deposit in the WSB acquisition. We expect that we will continue to use brokered deposits as an element of our funding strategy when required to maintain an acceptable loan to deposit ratio.

Borrowings. Short-term borrowings consist of daily rate credit, short-term borrowings with the FHLB and short-term promissory notes issued to Old Line Bank’s commercial customers as an enhancement to the basic non-interest bearing demand deposit account. This service electronically sweeps excess funds from the customer’s account into a short term promissory note with Old Line Bank. These obligations are payable on demand, are secured by investments or are unsecured, re-price daily and have maturities of one to 270 days. At December 31, 2013 we had $12.0 million of FHLB borrowings, which was repaid during the first quarter of 2014. At March 31, 2014, we had no outstanding FHLB borrowings. At March 31, 2014, we had $6.6 million in unsecured promissory notes and $31.6 million in secured promissory notes. At December 31, 2013, such promissory notes were $7.8 million and $29.8 million, respectively.

Long-term borrowings consist of a promissory note related to Pointer Ridge for which we have guaranteed to the lender payment of up to 62.50% of the loan payment plus any costs the lender incurs resulting from any omissions or alleged acts by Pointer Ridge. The outstanding balance on such promissory note was $6.1 million at both March 31, 2014 and December 31, 2013.

Liquidity and Capital Resources . Our overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff. Our management monitors the liquidity position daily in conjunction with Federal Reserve guidelines. As further discussed below, we have credit lines, unsecured and secured, available from several correspondent banks totaling $29.5 million. Additionally, we may borrow funds from the FHLB and the Federal Reserve Bank of Richmond. We can use these credit facilities in conjunction with the normal deposit strategies, which include pricing changes to increase deposits as necessary. We can also sell available for sale investment securities or pledge investment securities as collateral to create additional liquidity. From time to time we may sell or participate out loans to create additional liquidity as required. Additional sources of liquidity include funds held in time deposits and cash from the investment and loan portfolios.

Our immediate sources of liquidity are cash and due from banks, federal funds sold and time deposits in other banks. On March 31, 2014, we had $54.2 million in cash and due from banks, $30 thousand in interest bearing accounts, and $179 thousand in federal funds sold. As of December 31, 2013, we had $28.3 million in cash and due from banks, $30 thousand in interest bearing accounts, and $712 thousand in federal funds sold.

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Old Line Bank has sufficient liquidity to meet its loan commitments as well as fluctuations in deposits. We usually retain maturing certificates of deposit as we offer competitive rates on certificates of deposit. Management is not aware of any demands, trends, commitments, or events that would result in Old Line Bank’s inability to meet anticipated or unexpected liquidity needs.

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

Old Line Bancshares has available a $5.0 million unsecured line of credit. In addition, Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks, totaling $24.5 million at March 31, 2014. Old Line Bank has an additional secured line of credit from the FHLB of $347.5 million at March 31, 2014. As a condition of obtaining the line of credit from the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB. Prior to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line Bank provide collateral to support borrowings. Therefore, we have provided collateral to support up to $216.5 million of borrowings. We may increase availability by providing additional collateral. Additionally, we have overnight repurchase agreements sold to the Bank’s customers and have provided collateral in the form of investment securities to support the $31.6 million repurchase agreement.

Current regulations require subsidiaries of a financial institution to be separately capitalized and require investments in and extensions of credit to any subsidiary engaged in activities not permissible for a bank to be deducted in the computation of the institution’s regulatory capital. Regulatory capital and regulatory assets below also reflect increases of $1.9 million and $3.1 million, respectively, which represents unrealized losses (after-tax for capital additions and pre-tax for asset additions, respectively) on mortgage-backed securities and investment securities classified as available for sale. In addition, the risk-based capital reflects an increase of $4.9 million for the general loan loss reserve during the three months ended March 31, 2014. The following table shows Old Line Bank’s regulatory capital ratios and the minimum capital ratios currently required by its banking regulator to be “well capitalized” at March 31, 2014.

					Minimum capital				To be well
	Actual				adequacy				capitalized
March 31, 2014	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in 000’s)
Total capital (to risk weighted assets)	$	106,923	12.10	%	$	70,680	8	%	$	88,350	10	%
Tier 1 capital (to risk weighted assets)	$	102,380	11.59	%	$	35,340	4	%	$	53,010	6	%
Tier 1 capital (to average assets)	$	102,380	8.94	%	$	45,820	4	%	$	57,275	5	%

Our management believes that, under current regulations, and eliminating the assets of Old Line Bancshares, Old Line Bank remains well capitalized and will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond our control, such as a shift in interest rates or a continued downturn or slower recovery in the economy in areas where we extend credit, could adversely affect future earnings and, consequently, our ability to meet minimum capital requirements in the future.

Asset Quality

Overview . Management performs reviews of all delinquent loans and foreclosed assets and directs relationship officers to work with customers to resolve potential credit issues in a timely manner. Management reports to the Loan Committee for their approval and recommendation to the Board of Directors on a monthly basis. The reports presented include information on delinquent loans and foreclosed real estate. We have formal action plans on criticized assets and provide status reports on OREO on a quarterly basis. These action plans include our actions and plans to cure the delinquent status of the loans and to dispose of the foreclosed properties. The Loan Committee consists of three inside and four outside directors.

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We generally classify loans as non-accrual when we do not expect collection of full principal and interest under the original terms of the loan or payment of principal or interest has become 90 days past due. Classifying a loan as non-accrual results in our no longer accruing interest on such loan and reversing any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual loans only when received.

We classify any property acquired as a result of foreclosure on a mortgage loan as “other real estate owned” and record it at the lower of the unpaid principal balance or fair value at the date of acquisition and subsequently carry the property at the lower of cost or net realizable value. We charge any required write down of the loan to its net realizable value against the allowance for loan losses at the time of foreclosure. We charge to expense any subsequent adjustments to net realizable value. Upon foreclosure, Old Line Bank generally requires an appraisal of the property and, thereafter, appraisals of the property generally on an annual basis and external inspections on at least a quarterly basis.

As required by ASC Topic 310- Receivables and ASC Topic 450- Contingencies , we measure all impaired loans, which consist of all modified loans (trouble debt restructurings) and other loans for which collection of all contractual principal and interest is not probable, based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, we recognize impairment through a valuation allowance and corresponding provision for loan losses. Old Line Bank considers consumer loans as homogenous loans and thus does not apply the impairment test to these loans. We write off impaired loans when collection of the loan is doubtful.

We have identified additional potential problem loans classified as trouble debt restructurings (TDRs) totaling $602,639 at March 31, 2014 that are complying with their repayment terms. This balance consists of three residential and one commercial acquired loans. With respect to each of such loans management has concerns either about the ability of the borrower to continue to comply with repayment terms because of the borrower’s potential operating or financial difficulties or the underlying collateral has experienced a decline in value. These weaknesses have caused management to heighten the attention given to these loans.

Acquired Loans . Loans acquired in an acquisition are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Generally accepted accounting principles require that we record acquired loans at fair value, which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet our definition of a non-performing loan. The discounts that arise from recording these loans at fair value were due to credit quality. Although we do not accrue interest income at the contractual rate on these loans, we may accrete these discounts to interest income as a result of pre-payments that exceed our expectations or payment in full of amounts due. Purchased, credit-impaired loans that perform consistent with the accretable yield expectations are not reported as non-accrual or non-performing.

In 2011, we recorded the loans acquired from MB&T at fair value and on May 10, 2013, we recorded the loans acquired from WSB at fair value. The fair value of the acquired loans includes expected loan losses, and as a result there was no allowance for loan losses recorded for acquired loans at the time of acquisition. Accordingly, the existence of the acquired loans reduces the ratios of the allowance for loan losses to total gross loans and the allowance for loan losses to non-accrual loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally lower for acquired loans since we recorded these loans net of expected loan losses. Therefore, the ratio of net charge-offs during the period to average loans outstanding is reduced as a result of the existence of acquired loans, and the measures are not directly comparable to prior periods. Other institutions may not have acquired loans, and therefore there may be no direct comparability of these ratios between and among other institutions when compared in total.

The accounting guidance also requires that if we experience a decrease in the expected cash flows subsequent to the acquisition date, we establish an allowance for loan losses for those acquired loans with decreased cash flows. At March 31, 2014 and December 31, 2013, there was an allowance for loan losses on acquired loans of $462,806 and $531,661, respectively, as a result of a decrease in the expected cash flows subsequent to the acquisition dates.

Nonperforming Assets . As of March 31, 2014, our nonperforming assets totaled $13.4 million and consisted of $8.1 million of nonaccrual loans, $708 thousand of loans 90 days or more past due and still accruing and other real estate owned of $4.6 million. The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

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	Nonperforming Assets
	March 31, 2014						December 31, 2013
	Legacy		Acquired		Total		Legacy		Acquired		Total
Accruing loans 90 or more days past due
Commercial Real Estate
Owner Occupied	$	—	$	309,767	309,767		$	—	$	309,767	309,767
Residential Real Estate:
First-Owner Occupied	—		167,792		167,792		—		429,144		429,144
Land and A&D	—		—		—		—		915,649		915,649
Commercial	218,272		—		218,272		—		—		—
Consumer	12,132		—		12,132		—		—		—
Total accruing loans 90 or more days past due	230,404		477,559		707,963		—		1,654,560		1,654,560
Non-accruing loans:
Commercial Real Estate
Owner Occupied	$	1,849,685	$	—	$	1,849,685	$	1,849,685	$	—	$	1,849,685
Investment	—		—		—		—		376,050		376,050
Hospitality	4,473,345		—		4,473,345		4,473,345		—		4,473,345
Land and A&D	—		130,332		130,332		—		—		—
Residential Real Estate:
First-Investment	120,478		—		120,478		123,183		—		123,183
First-Owner Occupied	—		350,510		350,510		925,814		156,143		1,081,957
Land and A&D	—		—		—		—		130,532		130,532
Commercial	752,182		380,265		1,132,447		769,597		—		769,597
Consumer	6,771		—		6,771		14,426		—		14,426
Total Non-accruing past due loans:	7,202,461		861,107		8,063,568		8,156,050		662,725		8,818,775

Other real estate owned (“OREO”)	809,290		3,783,864		4,593,154		475,291		3,836,051		4,311,342

Total non performing assets	$	8,242,155	$	5,122,530	$	13,364,685	$	8,631,341	$	6,153,336	$	14,784,677

Accruing Troubled Debt Restructurings
Residential Real Estate:
First-Owner Occupied	$	—	$	515,826	$	515,826	$	—	$	579,583	$	579,583
Commercial	—		86,813		86,813		—		87,387		87,387
Total Accruing Troubled Debt Restructurings	$	—	$	602,639	$	602,639	$	—	$	666,970	$	666,970

The table below reflects our ratios of our non-performing assets at March 31, 2014 and December 31, 2013.

	March 31,		December 31,
	2014		2013
Ratios, Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	0.96	%	1.01	%
Total nonperforming assets as a percentage of total assets	0.69	%	0.74	%
Total nonperforming assets as a percentage of total loans held for investment	0.96	%	1.01	%

Ratios, Including Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	1.56	%	1.73	%
Total nonperforming assets as a percentage of total assets	1.12	%	1.27	%
Total nonperforming assets as a percentage of total loans held for investment	1.56	%	1.73	%

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The table below presents a breakdown of the recorded book balance of non-accruing loans at March 31, 2014 and December 31, 2013.

	March 31, 2014							December 31, 2013
	# of Contracts	Unpaid Principal Balance		Recorded Investment		Interest Not Accrued		# of Contracts	Unpaid Principal Balance		Recorded Investment		Interest Not Accrued
Legacy
Commercial Real Estate:
Owner Occupied	1	$	1,849,685	$	1,849,685	$	117,156	1	$	1,849,685	$	1,849,685	$	82,474
Hospitality	1	4,473,345		4,473,345		96,876		1	4,473,345		4,473,345		57,958
Residential Real Estate
First-Investment	1	120,478		120,478		11,884		1	123,183		123,183		10,362
First-Owner Occupied	—	—		—		—		2	925,814		925,814		51,453
Commercial	1	752,182		752,182		98,795		1	769,597		769,597		89,257
Consumer	1	6,946		6,771		72		2	14,426		14,426		147
Total non-accrual loans	5	7,202,636		7,202,461		324,783		8	8,156,050		8,156,050		291,651

Acquired (1)
Commercial Real Estate:
Investment	—	—		—		—		2	372,047		376,050		10,853
Land and A & D	1	131,031		130,332		5,259		—	—		—		—
Residential Real Estate
First-Owner Occupied	1	351,600		350,510		4,137		2	154,884		156,143		4,697
Land and A & D	—	—		—		—		3	131,031		130,532		2,638
Commercial	2	372,048		380,265		17,363		—	—		—		—
Total non-accrual loans	4	$	854,679	$	861,107	$	26,759	7	$	657,962	$	662,725	$	18,188
Total all non-accrual loans	9	$	8,057,315	$	8,063,568	$	351,542	15	$	8,814,012	$	8,818,775	$	309,839

(1) Generally accepted accounting principles require that we record acquired loans at fair value which includes a discount for loans with credit impairment. These loans are not performing according to their contractual terms and meet our definition of a non-performing loan. The discounts that arise from recording these loans at fair value were due to credit quality. Although we do not accrue interest income at the contractual rate on these loans, we may accrete these discounts to interest income as a result of pre-payments that exceed our cash flow expectations or payment in full of amounts due even though we classify them as 90 or more days past due.

Non-performing legacy loans decreased $954 thousand from December 31, 2013 primarily due to two residential real estate relationships that were removed from nonaccrual status. One residential loan totaling $499 thousand was transferred to OREO and the related charge-off of $165 thousand was recorded against the allowance for loan losses. The balance in OREO for this property is $334 thousand, net of specific reserve of $165 thousand. The other residential real estate loan was paid off during the first quarter.

Non-performing acquired loans increased $198 thousand from December 31, 2013 primarily due to one residential land and acquisition and development loan and two commercial loans offsetting the decrease of two commercial real estate loans and three residential land and acquisition and development loans.

At March 31, 2014, legacy OREO increased by $334 thousand from December 31, 2013 as a result of the foreclosure discussed above. At March 31, 2014, legacy OREO consisted of four properties, an increase from December 31, 2013 when we had three properties.

At March 31, 2014, acquired OREO decreased by $52 thousand from December 31, 2013. The decrease in OREO was driven by the sale of two properties for $513 thousand, offset by $258 thousand transferred in to OREO. We recorded net gains of $203 thousand during the three month period ended March 31, 2014 compared to a net loss of $200 thousand as of March 31, 2013.

Allowance for Loan Losses . We review the adequacy of the allowance for loan losses at least quarterly. Our review includes evaluation of impaired loans as required by ASC Topic 310- Receivables , and ASC Topic 450- Contingencies . Also incorporated in determining the adequacy of the allowance is guidance contained in the Securities and Exchange Commission’s SAB No. 102, Loan Loss Allowance Methodology and Documentation, the Federal Financial Institutions Examination Council’s Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. We also continue to measure the credit impairment at each period end on all loans that have been classified as a TDR using the guidance in ASC 310-10-35.

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We have risk management practices designed to ensure timely identification of changes in loan risk profiles. However, undetected losses inherently exist within the portfolio. Although we may allocate specific portions of the allowance for specific loans or other factors, the entire allowance is available for any loans that we should charge off. We will not create a separate valuation allowance unless we consider a loan impaired.

The following tables provide an analysis of the allowance for loan losses for the periods indicated:

March 31, 2014	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Beginning balance	$	495,051		$	3,569,395		$	841,234		$	23,533		$	4,929,213
General provision for loan losses	76,063			159,543			91,713			11,251			338,570
Provision (credit) for loan losses for loans acquired with deteriorated credit quality	(5,907		)	(138,480		)	75,586			—			(68,801		)
Recoveries	2,496			40			7,670			4,026			14,232
	567,703			3,590,498			1,016,203			38,810			5,213,214
Loans charged off	(1,000		)	—			(320,006		)	(10,269		)	(331,275		)
Ending Balance	$	566,703		$	3,590,498		$	696,197		$	28,541		$	4,881,939
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	185,846		$	1,385,160		$	—		$	—		$	1,571,006
Other loans not individually evaluated	379,361			1,926,498			512,872			29,396			2,848,127
Acquired Loans:
Individually evaluated for impairment	279,036			—			183,770			—			462,806
Ending balance	$	844,243		$	3,311,658		$	696,642		$	29,396		$	4,881,939

December 31, 2013	Commercial			Commercial Real Estate			Residential Real Estate			Other Consumer			Total
Beginning balance													3,965,347
General provision for loan losses													1,289,153
Provision balance transferred	$	597,739		$	3,359,989		$	1,260,579		$	36,193		$	5,254,500
Provision for loan losses for loans acquired with deteriorated credit quality	—			279,037			(64,000		)	—			215,037
Recoveries	141			32,964			169,469			77,066			279,640
	597,880			3,671,990			1,366,048			113,259			5,749,177
Loans charged off	(102,829		)	(102,595		)	(524,814		)	(89,726		)	(819,964		)
Ending Balance	$	495,051		$	3,569,395		$	841,234		$	23,533		$	4,929,213
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	191,753		$	1,523,640		$	167,450		$	7,390		$	1,890,233
Other loans not individually evaluated	303,298			1,766,718			421,160			16,143			2,507,319
Acquired Loans:
Individually evaluated for impairment	—			279,037			252,624			—			531,661
Ending balance	$	495,051		$	3,569,395		$	841,234		$	23,533		$	4,929,213

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The ratio of the allowance for loan losses are as follows:

	March 31, 2014		December 31, 2013

Total gross loans held for investment	0.57	%	0.58	%
Non-accrual loans	60.59	%	60.71	%
Net charge-offs to average loans	0.04	%	0.07	%

During the three months ended March 31, 2014, we charged $331 thousand to the allowance for loan losses for two legacy loans and four acquired loans from MB&T. The legacy loans consisted of one residential real estate mortgage loan and one consumer loan. The acquired loans consisted of two residential mortgage real estate loans and two consumer loans. The majority of the recoveries recorded to the allowance for loan losses were from acquired loans that were charged to the allowance for loan losses at MB&T prior to the acquisition date of April 1, 2011.

The allowance for loan losses represented 0.57% and 0.58% of gross loans at March 31, 2014 and December 31, 2013, respectively and 0.76% and 0.52% of legacy loans at March 31, 2014 and December 31, 2013 respectively. 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.

Overall, we continue to believe that the loan portfolio remains manageable in terms of charge-offs and nonperforming assets as a percentage of total loans. We remain diligent and aware of our credit costs and the impact that these can have on our financial institution, and we have taken proactive measures to identify problem loans, including in-house and independent review of larger transactions. Our policy for evaluating problem loans includes obtaining new certified real estate appraisals as needed. We continue to monitor and review frequently the overall asset quality within the loan portfolio.

C ontractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

Old Line Bancshares is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments primarily include commitments to extend credit, lines of credit and standby letters of credit. Old Line Bancshares uses these financial instruments to meet the financing needs of its customers. These financial instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These commitments do not represent unusual risks and management does not anticipate any losses that would have a material effect on Old Line Bancshares. Old Line Bancshares also has operating lease obligations.

Outstanding loan commitments and lines and letters of credit at March 31, 2014 and December 31, 2013, are as follows:

	March 31,		December 31,
	2014		2013
	(Dollars in thousands)

Commitments to extend credit and available credit lines:
Commercial	$	63,338	$	62,249
Real estate-undisbursed development and construction	77,584		69,074
Consumer	13,040		15,873
	$	153,962	$	147,196
Standby letters of credit	$	12,034	$	17,306

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Old Line Bancshares generally requires collateral to support financial instruments with credit risk on the same basis as it does for on balance sheet instruments. The collateral is based on management’s credit evaluation of the counter party. Commitments generally have interest rates fixed at current market rates, expiration dates or other termination clauses and may require payment of a fee. Available credit lines represent the unused portion of lines of credit previously extended and available to the customer so long as there is no violation of any contractual condition. These lines generally have variable interest rates. Since many of the commitments are expected to expire without being drawn upon, and since it is unlikely that all customers will draw upon their lines of credit in full at any time, the total commitment amount or line of

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credit amount does not necessarily represent future cash requirements. We evaluate each customer’s credit worthiness on a case by case basis. We regularly reevaluate many of our commitments to extend credit. Because we conservatively underwrite these facilities at inception, we generally do not have to withdraw any commitments. We are not aware of any loss that we would incur by funding our commitments or lines of credit.

Commitments for real estate development and construction, which totaled $77.6 million, or 50.39% of the $154.0 million of outstanding commitments at March 31, 2014, are generally short term and turn over rapidly with principal repayment from permanent financing arrangements upon completion of construction or from sales of the properties financed.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Our exposure to credit loss in the event of non-performance by the customer is the contract amount of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In general, loan commitments, credit lines and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans. We evaluate each customer’s credit worthiness and the collateral required on a case by case basis.

Reconciliation of Non-GAAP Measures

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

Three months ended March 31, 2014

	Net Interest Income		Yield		Net Interest Spread
GAAP net interest income	$	10,359,291	4.11	%	4.00	%
Tax equivalent adjustment
Federal funds sold	—		—		—
Investment securities	281,377		0.11		0.11
Loans	168,501		0.07		0.07
Total tax equivalent adjustment	449,878		0.18		0.18
Tax equivalent interest yield	$	10,809,169	4.29	%	4.18	%

Three months ended March 31, 2013

	Net Interest Income		Yield		Net Interest Spread
GAAP net interest income	$	7,847,450	4.12	%	3.97	%
Tax equivalent adjustment
Federal funds sold	2		—		—
Investment securities	287,612		0.15		0.15
Loans	164,149		0.09		0.09
Total tax equivalent adjustment	451,763		0.24		0.24
Tax equivalent interest yield	$	8,299,213	4.36	%	4.21	%

Impact of Inflation and Changing Prices

Management has prepared the financial statements and related data presented herein in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, and may frequently reflect government policy initiatives or economic factors not measured by a price index. As discussed above, we strive to manage our interest sensitive assets and liabilities in order to offset the effects of rate changes and inflation.

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Information Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may also include forward-looking statements in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. Forward-looking statements often use words such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,” “contemplate,” “anticipate,” “forecast,” “intend” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

The statements presented herein with respect to, among other things, Old Line Bancshares’ plans, objectives, expectations and intentions, including the expected impact of recent accounting pronouncements, maintenance of the net interest margin during the remainder of 2014, continued increases in net interest income, continued increases in salaries and benefit expenses and other operating expenses during 2014, hiring and acquisition possibilities, our belief that we have identified any problem assets and that our borrowers will remain current on their loans, being well positioned to capitalize on potential opportunities in a healthy economy, impact of outstanding off-balance sheet commitments, sources of liquidity and that we have sufficient liquidity, the sufficiency of the allowance for loan losses, expected collections on acquired credit-impaired loans, expected loan, deposit, balance sheet and earnings growth, expected losses on and our intentions with respect to our investment securities, the amount of potential problem loans, continuing to meet regulatory capital requirements, continued use of brokered deposits for funding, expectations with respect to the impact of pending legal proceedings, improving earnings per share and stockholder value, and financial and other goals and plans are forward looking. Old Line Bancshares bases these statements on our beliefs, assumptions and on information available to us as of the date of this filing, which involves risks and uncertainties. These risks and uncertainties include, among others: those discussed in this report; the ability of Old Line Bancshares to retain key personnel; the ability of Old Line Bancshares to successfully implement its growth and expansion strategy; risk of loan losses; that the allowance for loan losses may not be sufficient; that changes in interest rates and monetary policy could adversely affect Old Line Bancshares; that changes in regulatory requirements and/or restrictive banking legislation may adversely affect Old Line Bancshares, including regulations adopted pursuant to the Dodd-Frank Act; that the market value of investments could negatively impact stockholders’ equity; risks associated with Old Line Bancshares’ lending limit; expenses associated with operating as a public company; potential conflicts of interest associated with the interest in Pointer Ridge; deterioration in general economic conditions, continued slow growth during the recovery or another recession; and changes in competitive, governmental, regulatory, technological and other factors which may affect Old Line Bancshares specifically or the banking industry generally. For a more complete discussion of some of these risks and uncertainties see “Risk Factors” in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2013.

Old Line Bancshares’ actual results and the actual outcome of our expectations and strategies could differ materially from those anticipated or estimated because of these risks and uncertainties and you should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and Old Line Bancshares undertakes no obligation to update the forward-looking statements to reflect factual assumptions, circumstances or events that have changed after we have made the forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. Due to the nature of our operations, only interest rate risk is significant to our consolidated results of operations or financial position. For information regarding our Quantitative and Qualitative Disclosure about Market Risk, see “Interest Rate Sensitivity Analysis and Interest Rate Risk Management” in Part I, Item 2 of this Form 10-Q. We have no material changes in our quantitative and qualitative disclosures about market risk as of March 31, 2014 from that presented in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, Old Line Bancshares’ Chief Executive Officer and Acting Chief Financial Officer evaluated the effectiveness of Old Line Bancshares’ disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, Old Line Bancshares’ Chief Executive Officer and Acting Chief Financial Officer concluded that Old Line Bancshares’ disclosure controls and procedures are effective as of March 31, 2014. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Old Line Bancshares in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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In addition, there were no changes in Old Line Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, Old Line Bancshares’ internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our normal course of business. Currently, we are not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

10.45		Salary Continuation Plan Agreement by and between Old Line Bank and Mark A. Semanie dated March 27, 2014

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

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

32		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Old Line Bancshares, Inc.


Date: May 9, 2014	By:	/s/ James W. Cornelsen
		James W. Cornelsen,
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: May 9, 2014	By:	/s/ Elise M. Hubbard
		Elise M. Hubbard,
		Senior Vice President and Chief Financial Officer
		(Principal Accounting and Financial Officer)

EXHIBIT 10.45

OLD LINE BANK

SALARY CONTINUATION PLAN AGREEMENT
(2014)

THIS AGREEMENT is made and entered into this 27th day of March, 2014, by and between Old Line Bank, a banking corporation organized and existing under the laws of the State of Maryland, hereinafter referred to as the “Plan Sponsor”, and Mark Semanie, hereinafter referred to as the “Participant”.

WITNESSETH

WHEREAS, it is the consensus of the Board that the Participant’s services to the Plan Sponsor in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Plan Sponsor bringing it to its present status of operating efficiency, and its present position in its field of activity; and,

WHEREAS, the experience of the Participant, the Participant’s knowledge of the affairs of the Plan Sponsor, the Participant’s reputation and contacts in the industry are so valuable that assurance of the Participant’s continued services is essential for the future growth and profits of the Plan Sponsor and it is in the best interests of the Plan Sponsor to arrange terms of continued employment for the Participant so as to reasonably assure the Participant’s remaining in the Plan Sponsor’s employment during the Participant’s lifetime or until the age of retirement; and,

WHEREAS , it is the desire of the Plan Sponsor that the Participant’s services be retained as herein provided; and,

WHEREAS , the Participant is willing to continue in the employ of the Plan Sponsor provided the Plan Sponsor agrees to pay to the Participant and/or the Participant’s beneficiaries certain benefits in accordance with the terms and conditions hereinafter set forth; and,

WHEREAS , the Plan Sponsor intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred compensation plan for tax purposes and for purposes of Title I of ERISA. This Plan is not intended to qualify for favorable tax treatment pursuant to IRC Section 401(a) of the Code or any successor section or statute. This Plan is intended to comply with IRC Section 409A as created under The American Jobs Creation Act of 2004 (the “Jobs Act of 2004”). It is both anticipated and expected that the terms and provisions of this Plan may need to be amended in the future to assure continued compliance. The Plan Sponsor and the Participant acknowledge that fact and agree to take any and all steps necessary to operate the plan in “good faith” based on their current understanding of the regulations;

NOW THEREFORE , in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained, it is agreed as follows:

ARTICLE 1

DEFINITIONS

DEFINITION OF TERMS. Certain words and phrases are defined when first used in later Articles of this Plan. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. For the purpose of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1 “Accrued Benefit” shall mean, as of any date, the benefit accrued and recorded on the books of the Plan Sponsor on behalf of the Participant with respect to service beginning January 1, 2014, as shown on the attached Schedule A.

1.2 “Applicable Guidance” shall mean, as the context requires, Code § 409A and the Final Treasury Regulations issued thereunder, or other written Treasury or IRS guidance regarding or affecting Code § 409A.

1.3 “Beneficiary” shall mean the person or persons, natural or otherwise, designated in writing by a Participant in accordance with Article 5 before the Participant’s death to receive Plan benefits in the event of the Participant’s death.

1.4 “Board” shall mean the board of director’s of the Plan Sponsor, unless specifically noted otherwise.

1.5 “Cause” shall mean any of the following acts or circumstances: (i) willful destruction by the Participant of property of the Plan Sponsor having a material value to the Plan Sponsor; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed by the Participant (excluding acts involving a de minimis dollar value and not related to the Plan Sponsor); (iii) the Participant’s conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty, or moral turpitude (excluding acts involving a de minimis dollar value and not related to the Plan Sponsor); (iv) the Participant’s breach, neglect, refusal, or failure to materially discharge the Participant’s duties (other than due to physical or mental illness) commensurate with the Participant’s title and function or the Participant’s failure to comply with the lawful directions of a senior managing officer of the Plan Sponsor in any such case that is not cured within fifteen (15) days after the Participant has received written notice thereof from such senior managing officer; or (v) any willful misconduct by the Participant which may cause substantial economic or reputation injury to the Plan Sponsor, including, but not limited to, sexual harassment.

1.6 “Change in Control” shall mean the occurrence of a Change in Control event, within the meaning of Treasury Regulations §1.409A-3(i)(5) and described in any of subparagraph (a), (b), or (c), (collectively referred to as “Change in Control Events”), or any combination of the Change in Control Events. To constitute a Change in Control Event with respect to the Participant or Beneficiary, the Change in Control Event must relate to: (i) the corporation for whom the Participant is performing services at the time of the Change in Control Event; (ii) the corporation that is liable for the payment of the deferred compensation (or all corporations liable for the payment if more than one corporation is liable); or (iii) a corporation that is a majority shareholder of a corporation identified in clause (i) or (ii), or any corporation in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in clause (i) or (ii).

(a) Change in Ownership. A Change in Ownership occurs if a person, or a group of persons acting together, acquires more than fifty percent (50%) of the stock of the corporation, measured by voting power or value. Incremental increases in ownership by a person or group that already owns fifty percent (50%) of the corporation do not result in a Change of Ownership, as defined in Treasury Regulations §1.409A-3(i)(5)(v).

(b) Change in Effective Control. A Change in Effective Control occurs if, over a twelve (12) month period: (i) a person or group acquires stock representing thirty percent (30%) of the voting power of the corporation; or (ii) a majority of the members of the board of directors of the ultimate parent corporation is replaced by directors not endorsed by the persons who were members of the board before the new directors’ appointment, as defined in Treasury Regulations §1.409A-3(i)(5)(vi).

(c) Change in Ownership of a Substantial Portion of Corporate Assets. A Change in Control based on the sale of assets occurs if a person or group acquires Forty percent (40%) or more of the gross fair market value of the assets of a corporation over a

twelve (12) month period. No change in control results pursuant to this Article (c) if the assets are transferred to certain entities controlled directly or indirectly by the shareholders of the transferring corporation, as defined in Treasury Regulations §1.409A-3(i)(5)(vii).

1.7 “Claimant” shall mean a person who believes that he or she is being denied a benefit to which he or she is entitled hereunder.

1.8 “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.9 “Disability” shall mean a condition of the Participant whereby he or she either: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Plan Sponsor. The Administrator will determine whether the Participant has incurred a Disability based on its own good faith determination and may require the Participant to submit to reasonable physical and mental examinations for this purpose. The Participant will also be deemed to have incurred a Disability if determined to be totally disabled by the Social Security Administration, Railroad Retirement Board, or in accordance with a disability insurance program, provided that the definition of disability applied under such disability insurance program complies with the requirements of Treasury Regulation §1.409A-3(i)(4) and authoritative guidance.

1.10 “Effective Date” shall mean the later of (i) the date specified on the first page of this Plan or (ii) the date the Plan is executed by the Plan Sponsor.

1.11 “Eligible Employee” shall mean for any Plan Year (or applicable portion of a Plan Year), an Employee who is determined by the Plan Sponsor, or its designee, to be a Participant under the Plan. If the Plan Sponsor determines that an Employee first becomes an Eligible Employee during a Plan Year, the Plan Sponsor shall notify the individual in writing of its determination and of the date during the Plan Year on which the individual shall first become a Plan Participant.

1.12 “Employee” shall mean a person providing services to the Plan Sponsor in the capacity of a common law Employee of the Plan Sponsor.

1.13 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.14 “Normal Retirement Age” shall mean the date the Participant attains age 65.

1.15 “Normal Retirement Benefit” shall mean an annual benefit payment in the amount of One hundred Fifty Four Thousand Four Hundred Thirty Five Dollars ($154,435), which shall be paid each year for a period of fifteen (15) years in the form of equal monthly installments. For purposes of this Section 1.15, the “annual” period over which the Normal Retirement Benefit shall be paid is a period of twelve (12) consecutive months that begins on the payment commencement date determined in accordance with Article 3 (rather than a calendar or Taxable Year of the Plan Sponsor).

1.16 “Participant” shall mean the Employee identified as the Participant on the first page of the Agreement.

1.17 “Plan” shall mean this Old Line Bank Salary Continuation Plan Agreement, all Election Forms, the Trust, (if any), and any other written documents relevant to the Plan. For purposes of applying Code § 409A requirements, this Plan is a non-account balance plan under Treasury Regulation §1.409-1(c)(2)(i)(A).

1.18 “Plan Administrator” or “Administrator” shall be a committee designated by the Plan Sponsor. If a Participant is part of a group of persons designated as a committee or Plan Administrator, then the Participant may not participate in any activity or decision relating solely to the Participant’s individual benefits under this Plan. Matters solely affecting the applicable Participant will be resolved by the remaining committee members.

1. 19 “Plan Sponsor” shall mean the person or entity receiving the services of the Participant, as identified on the first page of this Plan.

1.20 “Plan Year” shall mean, for the first Plan Year, the period beginning on the Effective Date of the Plan and ending December 31 of such calendar year, and thereafter, a twelve (12) month period beginning January 1 of each calendar year and continuing through December 31 of such calendar year.

1.21 “Section 409A” shall mean Section 409A of the Code and other Applicable Guidance issued under that Section.

1.22 “Separation from Service” shall mean the occurrence of a Participant’s death, retirement, or “other termination of employment” (as defined in Treasury Regulations §1.409A- 1(h)(1)(ii)) with the Plan Sponsor. If the Plan Sponsor is a member of a controlled group of corporations or a group of trades or business under common control (as described in Code Section 414(b) or (c), but substituting a 50% ownership level for the 80% level set forth in those Code Sections), all members of the group shall be treated as a single employer for purposes of whether there has occurred a Separation from Service. However, a Separation from Service shall not occur if the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to reemployment with the Plan Sponsor under an applicable statute or by contract.

In accordance with Section 409A, a Participant will have incurred a Separation from Service where the Plan Sponsor and the Participant reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Participant would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the employer if the Participant has been providing services to the Plan Sponsor less than 36 months).

1.23 “Schedule A” shall mean the schedule attached to this Agreement and made a part hereof. Schedule A shall be updated upon a change in any of the benefits under Article 3.

1.24 “Specified Employee” shall mean that the Participant also satisfies the definition of a “key employee” as such term is defined in Code §416(i) (without regard to Section 416(i)(5)). However, the Participant is not a Specified Employee unless any stock of the Plan Sponsor is publicly traded on an established securities market or otherwise, as defined in Code §1.897-1(m). If the Participant is a key employee at any time during the twelve (12) months ending on the identification date (see below), the Participant is a Specified Employee for the twelve (12) month period commencing on the first day of the fourth month following the identification date. For purposes of this Article, the identification date is December 31. The determination of the Participant as a Specified Employee shall be made by the Administrator in accordance with IRC Section 416(i), the “specified employee” requirements of Section 409A, and Treasury Regulations.

1.25 “Taxable Year” shall mean the twelve (12) consecutive month period ending each December 31.

1.26 “Treasury Regulations” shall mean regulations promulgated by the Internal Revenue Service for the U.S. Department of the Treasury, as they may be amended from time to time.

1.27 “Trust” shall mean one or more trusts that may be established in accordance with the terms of this Plan.

ARTICLE 2

Selection, Enrollment, Eligibility

2.1 Selection by Plan Sponsor . Participation in the Plan shall be limited to a select group of management or highly compensated employees of the Plan Sponsor, as determined by the Plan Sponsor in its sole and absolute discretion. The initial group of Eligible Employees shall become Participants on the Effective Date. Any Eligible Employee selected as a Plan Participant after the Effective Date, shall become a Participant on a date determined by the Plan Sponsor.

2.2 Re-Employment. If a Participant who incurs a Separation from Service is subsequently re-employed, he or she may, at the sole and absolute discretion of the Plan Administrator, become a Participant in accordance with the provisions of the Plan.

2.3 Enrollment Requirements . As a condition of participation, each selected Employee shall complete, execute, and return to the Plan Administrator all form(s) required by the Plan Administrator and within the time specified by the Plan Administrator. In addition, the Plan Administrator shall establish such other enrollment requirements as it determines necessary or advisable.

2.4 Eligibility; Commencement of Participation . Provided that an Employee selected to participate in the Plan has met all enrollment requirements set forth in the Plan and required by the Plan Administrator, the Employee shall commence participation in the Plan on the date the Plan is executed by the Plan Sponsor.

2.5 Termination of Participation. If the Plan Administrator determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Section 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Plan Administrator shall cease further benefit accruals hereunder.

ARTICLE 3

BENEFITS

3.1 Normal Retirement Benefit. If the Participant remains in the service of the Plan Sponsor until reaching the Participant’s Normal Retirement Age, the Participant shall be entitled to the Participant’s Normal Retirement Benefit. The Normal Retirement Benefit shall commence to be paid on the on the first day of the second month following the date the Participant achieves Normal Retirement Age.

3.2 Death Prior to Commencement of Benefit Payments. In the event the Participant should die while actively employed by the Plan Sponsor at any time after the date of this Plan but prior to the Participant’s Normal Retirement Age, the Participant shall be entitled to the benefit amount shown on Schedule A under the column labeled “Early Termination Annual Benefit” for the Plan Year in which the Participant’s death occurs, multiplied by fifteen (15) (the “Death Benefit”). The Death Benefit shall be paid in one hundred eighty (180) equal monthly installments to the Participant’s Beneficiary, and shall commence to be paid on the first day of the second month following the month in which the Participant dies.

3.3 Death Subsequent to Commencement of Benefit Payments. In the event the Participant dies while receiving payments, but prior to receiving all the payments due and owing hereunder, the unpaid balance of the payments shall continue to be paid to the Participant’s Beneficiary at the same time and in the same form as those payments would have made to the Participant had the Participant survived.

3.4 Disability Benefit. In the event the Participant becomes Disabled prior to the date the Participant dies or experiences a Separation from Service, and prior to the date of a Change in Control, the Participant shall be entitled to receive the benefit amount shown on Schedule A under the column labeled “Disability Annual Benefit” for the Plan Year in which the Participant’s Disability occurs, multiplied by fifteen (15) (the “Disability Benefit”). The Disability Benefit shall be paid in one hundred eighty (180) equal monthly installments, and shall commence to be paid on the first day of the second month following the month in which the Participant achieves Normal Retirement Age or dies (whichever occurs first).

3.5 Separation from Service Benefit. If the Participant experiences a Separation from Service prior to Normal Retirement Age because the Participant’s employment is terminated voluntarily or involuntarily for reasons other than death, Disability, or as described in the second paragraph of Section 3.6, then the Participant shall be entitled to the benefit amount shown on Schedule A under the column labeled “Early Termination Annual Benefit” for the Plan Year in which the Participant’s Separation from Service occurs, multiplied by fifteen (15) (the “Early Termination Benefit”). The Early Termination Benefit shall be paid in one hundred eighty (180) equal monthly installments, and shall commence to be paid on the first day of the second month following the month in which the Participant achieves Normal Retirement Age (or, if the Participant is determined by the Plan Administrator to be a Specified Employee, the later of (i) the second month following the month in which the Participant achieves Normal Retirement Age or (ii) the first day of the seventh month following Separation from Service) or dies (whichever occurs first).

3.6 Change in Control Benefit. Upon a Change in Control prior to the Participant’s attainment of Normal Retirement Age, Separation from Service, death or Disability, the Participant shall be entitled to the benefit amount shown on Schedule A under the column labeled “Change in Control Annual Benefit” for the Plan Year in which the Change in Control occurs, multiplied by fifteen (15) (the “Change in Control Benefit”). Subject to the paragraph below, the Change in Control Benefit shall be paid in one hundred eighty (180) equal monthly installments, and shall commence to be paid on the first day of the second month following the Participant’s Separation from Service. Notwithstanding the foregoing, in the event that the Participant is determined by the Plan Administrator to be a Specified Employee, the first benefit payment shall be paid on the first day of the seventh month following Separation from Service.

Notwithstanding the preceding, if the Participant experiences a Separation from Service within 24 months following the Change in Control, the following provisions apply. In lieu of receiving one hundred eighty (180) equal monthly installments, the Participant may elect to receive the Participant’s Change in Control Benefit in the form of (i) a lump sum, (ii) equal monthly installments over two (2) years, or (iii) equal monthly installments over five (5) years, so long as the election is made by the Participant and submitted to the Plan Sponsor by the Effective Date or within thirty (30) days thereafter. Any payment made pursuant to this paragraph shall commence to be paid on the first day of the second month following the Participant’s Separation from Service (unless the Participant is determined by the Plan Administrator to be a Specified Employee, in which case payments shall commence on the first day of the seventh month following Separation from Service).

3.7 Termination for Cause. Notwithstanding anything in this Plan to the contrary, if the Plan Sponsor terminates the Participant’s employment for “Cause”, then the Participant shall not be entitled to any benefits under the terms of this Plan.

3.8 Prohibition on Acceleration of Payments. Notwithstanding anything in this Plan to the contrary, neither the Plan Sponsor nor a Participant may accelerate the time or schedule of any payment or amount scheduled to be paid under this Plan, except that the Plan Sponsor, in its discretion, may accelerate payments as permitted by Treasury Regulations

§1.409A-3(j)(4). The Plan Sponsor shall deny any change made to an election if the Plan Sponsor determines that the change violates the requirements of Applicable Guidance.

3.9 Subsequent Changes in the Time or Form of Payment. If permitted by the Plan Sponsor, a Participant may elect to change the time or form of payments (collectively, “payment elections”), provided the following conditions are met:

(i) Such change will not take effect until at least twelve (12) months after the date on which the new payment election is made and approved by the Plan Administrator;

(ii) If the change of payment election relates to a payment based on Separation from Service, or if the payment is at a specified time or pursuant to a fixed schedule, the change of payment election must result in payment being deferred for a period of not less than five (5) years from the date such payment would otherwise have been paid (or in the case of installment payments, which are treated as a single payment, five (5) years from the date the first amount was scheduled to be paid);

(iii) If the change of payment election relates to a payment at a specified time or pursuant to a fixed schedule, the Participant or Plan Sponsor must make the change of payment election not less than twelve (12) months before the date the payment is scheduled to be paid (or in the case of installment payments, which are treated as a single payment, twelve (12) months before the date the first amount was scheduled to be paid).

3.10 Delay in Payment by Plan Sponsor.

(a) A payment may be delayed to a date after the designated payment date under any of the circumstances described below, and the provision will not fail to meet the requirements of establishing a permissible payment event. The delay in the payment will not constitute a subsequent deferral election, so long as the Plan Sponsor treats all payments to similarly situated Participants on a reasonably consistent basis.

(i) Payments subject to Section 162(m). A payment may be delayed to the extent that the Plan Sponsor reasonably anticipates that if the payment were made as scheduled, the Plan Sponsor’s deduction with respect to such payment would not be permitted due to the application of Code §162(m). If a payment is delayed, such payment must be made either:

(1) during the Participant’s first Taxable Year in which the Plan Sponsor reasonably anticipates, or should reasonably anticipate, that if the payment is made during such year, the deduction of such payment will not be barred by application of Code §162(m) or,

(2) during the period beginning with the date of the Participant’s Separation from Service and ending on the later of the last day of the Taxable Year of the Plan Sponsor in which the Participant separates from service or the 15 th day of the third month following the Participant’s Separation from Service. Where any scheduled payment to a specific Participant in the Plan Sponsor’s Taxable Year is delayed in accordance with this Article, the delay in payment will be treated as a subsequent deferral election unless all scheduled payments to the Participant that could be delayed in accordance with this Article are also delayed. Where the payment is delayed to a date on or after the Participant’s Separation from Service, the payment will be considered a payment upon a Separation from Service for purposes of the rules under Treasury Regulations §1.409A-3(i)(2) (payments to specified employees upon a separation from service) and, the 6 month delay rule will apply for Specified Employees.

(ii) Payments that would violate Federal securities laws or other applicable law. A payment may be delayed where the Plan Sponsor reasonably anticipates that the making of the payment will violate Federal securities laws or other applicable law provided that the payment is made at the earliest date at which the Plan Sponsor reasonably anticipates that the making of the payment will not cause such violation. The making of a payment that would cause inclusion in gross income or the application of any penalty provision or other provision of the Internal Revenue Code is not treated as a violation of applicable law.

(iii) Other events and conditions. The Plan Sponsor may delay a payment upon such other events and conditions as the Commissioner of the IRS may prescribe.

(iv) Notwithstanding the above, a payment may be delayed in accordance with Code section 409A where the payment would jeopardize the ability of the Plan Sponsor to continue as a going concern.

(b) Treatment of Payment as Made on Designated Payment Date. Each payment under this Plan is deemed made on the required payment date even if the payment is made after such date, provided the payment is made by the latest of: (i) the end of the calendar year in which the payment is due; (ii) the 15th day of the third calendar month following the payment due date; (iii) in case the Plan Sponsor cannot calculate the payment amount on account of administrative impracticality which is beyond the Participant’s control (or the control of the Participant’s estate), in the first calendar year in which payment is practicable; (iv) in case the Plan Sponsor does not have sufficient funds to make the payment without jeopardizing the Plan Sponsor’s solvency, in the first calendar year in which the Plan Sponsor’s funds are sufficient to make the payment.

3.11 Unsecured General Creditor Status of Participant:

(a) Payment to the Participant or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Plan Sponsor and no person shall have any interest in any such asset by virtue of any provision of this Plan. The Plan Sponsor’s obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Plan Sponsor under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Plan Sponsor and no such person shall have or acquire any legal or equitable right, interest, or claim in or to any property or assets of the Plan Sponsor.

(b) In the event that the Plan Sponsor purchases an insurance policy or policies insuring the life of a Participant or employee, to allow the Plan Sponsor to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or Beneficiary shall have any rights whatsoever in said policy or the proceeds therefrom. The Plan Sponsor or the Trustee of the Trust (if any) shall be the primary owner and beneficiary of any such insurance policy or property and shall possess and may exercise all incidents of ownership therein. No insurance policy with regard to any director, “highly compensated employee”, or “highly compensated individual” as defined in IRS Section 101(j) shall be acquired before satisfying the Section 101(j) “Notice and Consent” requirements.

(c) In the event that the Plan Sponsor purchases an insurance policy or policies on the life of a Participant as provided for above, then all of such policies shall be subject to the claims of the creditors of the Plan Sponsor.

(d) If the Plan Sponsor chooses to obtain insurance on the life of a Participant in connection with its obligations under this Plan, the Participant hereby agrees to take such physical examinations and to truthfully and completely supply such information as may be required by the Plan Sponsor or the insurance company

designated by the Plan Sponsor.

3.12 Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator may make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Plan Sponsor and the Plan Administrator from further liability on account thereof.

3.13 Excise Tax Limitation. In the event that any payment or benefit (within the meaning of Code §280G(b)(2) of the Code) to the Participant or for the Participant’s benefit paid or payable or distributed or distributable (including, but not limited to, the acceleration of the time for the vesting or payment of such benefit or payment) pursuant to the terms of this Plan or otherwise in connection with, or arising out of, the Participant’s employment with the Plan Sponsor or any of its Affiliates or a Change in Control within the meaning of Code §280G of the Code (a “Payment” or “Payments”), would be subject to the excise tax imposed by Code §4999 of the Code (the “Excise Tax”), then the Payments shall be increased in an amount necessary to provide for the payment of the excise tax imposed by Code § 4999 (the “Section 4999 Limit”). Any payment made to the Participant under this Section 3.13 shall be made no later than the end of the calendar year following the calendar year in which the Participant remits the related taxes.

ARTICLE 4

Taxes

4.1 Vesting.

(a) Normal Retirement Benefit. Upon attainment of Normal Retirement Age, the Participant shall be one hundred (100%) percent vested in the Normal Retirement Benefit.

(b) Death Benefit. Upon death, the Participant shall be one hundred (100%) percent vested in the Death Benefit (as defined in Section 3.2).

(c) Disability Benefit. Upon the Participant’s Disability, the Participant shall be one hundred (100%) percent vested in the Disability Benefit (as defined in Section 3.4).

(d) Early Termination Benefit. On each January 1 during which the Plan is in effect and the Participant is employed by the Plan Sponsor, the Participant shall be one hundred (100%) percent vested in the Early Termination Benefit (as defined in Section 3.5).

(e) Change in Control Benefit. Upon a Change in Control, the Participant shall be one hundred (100%) percent vested in the Change in Control Benefit (as defined in Section 3.6).

4.2 FICA, Withholding and Other Taxes:

(a) When a Participant becomes vested in a benefit under the Plan, the Plan Sponsor shall withhold from the Participant’s cash compensation in a manner determined in the sole discretion of the Plan Sponsor, the Participant’s share of FICA and other employment taxes on such vested benefit.

(b) Distributions. The Plan Sponsor, or trustee of the Trust, shall withhold from any payments made to a Participant or Beneficiary under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Plan Sponsor in a manner determined in the sole discretion of the Plan Sponsor or the trustee of the Trust in compliance with applicable tax withholding requirements.

ARTICLE 5

BENEFICIARY DESIGNATION

5.1 Designation of Beneficiaries.

(a) The Participant may designate any person or persons (who may be named contingently or successively) to receive any benefits payable under the Plan upon the Participant’s death, and the designation may be changed from time to time by the Participant by filing a new designation. Each designation will revoke all prior designations by the Participant and shall be in the form prescribed by the Administrator, and shall be effective only when filed in writing with the Administrator during the Participant’s lifetime.

(b) In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Participant, the Plan Sponsor shall pay the benefit payment to the Participant’s spouse, if then living, and if the spouse is not then living to the Participant’s then living descendants, if any, per stirpes, and if there are no living descendants, to the Participant’s estate. In determining the existence or identity of anyone entitled to a benefit payment, the Plan Sponsor may rely conclusively upon information supplied by the Participant’s personal representative, executor, or administrator.

(c) If a question arises as to the existence or identity of anyone entitled to receive a death benefit payment under the Plan, or if a dispute arises with respect to any death benefit payment under the Plan, the Plan Sponsor may distribute the payment to the Participant’s estate without liability for any tax or other consequences, or may take any other action which the Plan Sponsor deems to be appropriate.

5.2 Information to be Furnished by Participants and Beneficiaries; Inability to Locate Participants or Beneficiaries. Any communication, statement, or notice addressed to the Participant or to a Beneficiary at his or her last post office address as shown on the Plan Sponsor’s records shall be binding on the Participant or Beneficiary for all purposes of this Plan. The Plan Sponsor shall not be obligated to search for any Participant or Beneficiary beyond the sending of a registered letter to the last known address.

ARTICLE 6

ADMINISTRATION

6.1 Administrator Duties. The Administrator shall be responsible for the management, operation, and administration of the Plan. The Administrator shall act at meetings by affirmative vote of a majority of its members. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a unanimous written consent to the action is signed by all members and such written consent is filed with the minutes of the proceedings of the Administrator, provided, however that no member may vote or act upon any matter which relates solely to the Participant. The chair, or any other member or members of the Administrator designated by the chair, may execute any certificate or other written direction on behalf of the Administrator. When making a determination or calculation, the Administrator shall be entitled to rely on information furnished by the Participant or the Plan Sponsor. No provision of this Plan shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.

6.2 Administrator Authority. The Administrator shall enforce this Plan in accordance with its terms, shall be charged with the general administration of this Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:

(a) To construe and interpret the terms and provisions of this Plan;

(b) To compute and certify the amount and kind of benefits payable to the Participant and their Beneficiaries; to determine the time and manner in which such benefits are paid; and to determine the amount of any withholding taxes to be deducted;

(d) To provide for the disclosure of all information and the filing or provision of all reports and statements to the Participant, Beneficiaries, and governmental agencies as shall be required by law;

(e) To make and publish such rules for the regulation of this Plan and procedures for the administration of this Plan as are not inconsistent with the terms hereof;

(f) To administer this Plan’s claims procedures;

(g) To approve election forms and procedures for use under this Plan; and

(h) To appoint a plan record keeper or any other agent, and to delegate to them such powers and duties in connection with the administration of this Plan as the Administrator may from time to time prescribe.

6.3 Binding Effect of Decision. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation, and application of this Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Plan.

6.4 Compensation, Expenses, and Indemnity. The Administrator shall serve without compensation for services rendered hereunder. The Administrator is authorized at the expense of the Plan Sponsor to employ such legal counsel and/or Plan record keeper as it may deem advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this Plan shall be paid by the Plan Sponsor.

6.5 Plan Sponsor Information. To enable the Administrator to perform its functions, the Plan Sponsor shall supply full and timely information to the Administrator, on all matters relating to the compensation of the Participant, the date and circumstances of the Disability, death, or Separation from Service of the Participant, and such other pertinent information as the Administrator may reasonably require.

6.6 Periodic Statements. Under procedures established by the Administrator, Participant shall be provided a statement on an annual basis.

ARTICLE 7

CLAIMS PROCEDURE

7.1 Claims Procedures . This Section 7.1 is based on final regulations issued by the Department of Labor and published in the Federal Register on November 21, 2000 and codified at section 2560.503 1 of the Department of Labor Regulations. If any provision of this Section 7.1 conflicts with the requirements of those regulations, the requirements of those regulations will prevail.

(a) Initial Claim . A Participant or Beneficiary who believes he or she is entitled to any Benefit (a “Claimant”) under this Plan may file a claim with the Administrator. The Administrator will review the claim itself or appoint another individual or entity to review the claim.

(i) Benefit Claims that do not Require a Determination of Disability . If the claim is for a benefit other than a disability benefit, the Claimant will be notified within ninety (90) days after the claim is filed whether the claim is allowed or denied, unless the

Claimant receives written notice from the Administrator or appointee of the Administrator before the end of the ninety (90) day period stating that special circumstances require an extension of the time for decision, such extension not to extend beyond the day which is one hundred eighty (180) days after the day the claim is filed.

(ii) Disability Benefit Claims . In the case of a benefits claim that requires a determination by the Plan Administrator of a Participant’s disability status, the Plan Administrator will notify the Claimant of the Plan’s adverse benefit determination within a reasonable period of time, but not later than forty-five (45) days after receipt of the claim. If, due to matters beyond the control of the Plan, the Plan Administrator needs additional time to process a claim, the Claimant will be notified, within forty-five (45) days after the Plan Administrator receives the claim, of those circumstances and of when the Plan Administrator expects to make its decision but not beyond seventy-five (75) days. If, prior to the end of the extension period, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to one hundred five (105) days, provided that the Plan Administrator notifies the Claimant of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. The extension notice will specifically explain the standards on which entitlement to a disability benefit is based, the unresolved issues that prevent a decision on the claim and the additional information needed from the Claimant to resolve those issues, and the Claimant will be afforded at least forty-five (45) days within which to provide the specified information.

(iii) Manner and Content of Denial of Initial Claims . If the Plan Administrator denies a claim, it must provide to the Claimant, in writing or by electronic communication:

(A) The specific reasons for the denial;

(B) A reference to the Plan provision or insurance contract provision upon which the denial is based;

(C) A description of any additional information or material that the Claimant must provide in order to perfect the claim;

(D) An explanation of why such additional material or information is necessary;

(E) Notice that the Claimant has a right to request a review of the claim denial and information on the steps to be taken if the Claimant wishes to request a review of the claim denial; and

(F) A statement of the participant’s right to bring a civil action under ERISA section 502(a) following a denial on review of the initial denial.

In addition, in the case of a denial of disability benefits on the basis of the Plan Administrator’s independent determination of the Participant’s disability status, the Plan Administrator will provide a copy of any rule, guideline, protocol, or other similar criterion relied upon in making the adverse determination (or a statement that the same will be provided upon request by the Claimant and without charge).

(b) Review Procedures .

(i) Benefit Claims that do not Require a Determination of Disability . Except for claims requiring an independent determination of a Participant’s disability status, a request for review of a denied claim must be made in writing to the Plan Administrator within sixty (60) days after receiving notice of denial. The decision upon review will be made within sixty (60) days after the Plan Administrator’s receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than one hundred twenty (120) days after receipt of a request for review. A

notice of such an extension must be provided to the Claimant within the initial sixty (60) day period and must explain the special circumstances and provide an expected date of decision.

The reviewer will afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information and records and to submit issues and comments in writing to the Plan Administrator. The reviewer will take into account all comments, documents, records and other information submitted by the Claimant relating to the claim regardless of whether the information was submitted or considered in the initial benefit determination.

(ii) Disability Benefit Claims . In addition to having the right to review documents and submit comments as described in (i) above, a Claimant whose claim for disability benefits requires an independent determination by the Plan Administrator of the Participant’s disability status has at least one hundred eighty (180) days following receipt of a notification of an adverse benefit determination within which to request a review of the initial determination. In such cases, the review will meet the following requirements:

(A) The Plan will provide a review that does not afford deference to the initial adverse benefit determination and that is conducted by an appropriate named fiduciary of the Plan who did not make the initial determination that is the subject of the appeal, nor is a subordinate of the individual who made the determination.

(B) The appropriate named fiduciary of the Plan will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment before making a decision on review of any adverse initial determination based in whole or in part on a medical judgment. The professional engaged for purposes of a consultation in the preceding sentence will not be an individual who was consulted in connection with the initial determination that is the subject of the appeal or the subordinate of any such individual.

(C) The Plan will identify to the Claimant the medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the review, without regard to whether the advice was relied upon in making the benefit review determination.

(D) The decision on review will be made within forty-five (45) days after the Plan Administrator’s receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than ninety (90) days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial forty-five (45) day period and must explain the special circumstances and provide an expected date of decision.

(iii) Manner and Content of Notice of Decision on Review . Upon completion of its review of an adverse initial claim determination, the Plan Administrator will give the Claimant, in writing or by electronic notification, a notice containing:

(A) its decision;

(B) the specific reasons for the decision;

(D) a statement that the Claimant is entitled to receive, upon request and without charge, reasonable access to, and copies of, all documents, records and other information in the Plan’s files which is relevant to the Claimant’s claim for benefits;

(E) a statement describing the Claimant’s right to bring an action for judicial review under ERISA section 502(a); and

(F) if an internal rule, guideline, protocol or other similar criterion was relied upon in making the adverse determination on review, a statement that a copy of the rule, guideline, protocol or other similar criterion will be provided without charge to the Claimant upon request.

(c) Calculation of Time Periods . For purposes of the time periods specified in this Section, the period of time during which a benefit determination is required to be made begins at the time a claim is filed in accordance with the Plan procedures without regard to whether all the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant’s failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimant responds.

(d) Failure of Plan to Follow Procedures . If the Plan fails to follow the claims procedures required by this Section 7.1, a Claimant shall be deemed to have exhausted the administrative remedies available under the Plan and shall be entitled to pursue any available remedy under ERISA section 502(a) on the basis that the Plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

(e) Failure of Claimant to Follow Procedures . A Claimant’s compliance with the foregoing provisions of this Section 7.1 is a mandatory prerequisite to the Claimant’s right to commence any legal action with respect to any claim for benefits under the Plan.

7.2 Arbitration of Claims. All claims or controversies arising out of or in connection with this Plan shall, subject to the initial review provided for in the foregoing provisions of this Article, be resolved through arbitration. Except as otherwise mutually agreed to by the parties, any arbitration shall be administered under and by the Judicial Arbitration & Mediation Services, Inc. (“JAMS”), in accordance with the JAMS procedures then in effect. The arbitration shall be held in the JAMS office nearest to where the Claimant is or was last employed by the Plan Sponsor or at a mutually agreeable location.

ARTICLE 8

AMENDMENT AND TERMINATION

8.1 Amendment. The Plan Sponsor reserves the right to amend this Plan at any time to comply with Section 409A or for any other purpose, provided that such amendment will not cause the Plan to violate the provisions of Section 409A. Except to the extent necessary to bring this Plan into compliance with Section 409A, no amendment or modification shall be effective to decrease the value or vested percentage of a Participant’s Accrued Benefit in existence at the time an amendment or modification is made to the Plan.

8.2 Plan Termination . The Plan Sponsor reserves the right to terminate this Plan in accordance with one of the following, subject to the restrictions imposed by Section 409A and authoritative guidance:

(a) Corporate Dissolution or Bankruptcy. This Plan may be terminated within twelve (12) months of a corporate dissolution taxed under Code § 331, or with the approval of a Plan Sponsor bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), and distributions may then be made to the Participant provided that the amounts payable under this Plan are included in the Participants’ gross income in the latest of:

(i) The calendar year in which the Plan termination occurs;

(ii) The calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or

(iii) The first calendar year in which the payment is administratively practicable.

(b) Change in Control. This Plan may be terminated within the thirty (30) days preceding or the twelve (12) months following a Change in Control. This Plan will then be treated as terminated only if all substantially similar arrangements sponsored by the Plan Sponsor are terminated so that all participants in all similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date of termination of the arrangements.

(i) All plans sponsored by the Plan Sponsor that would be aggregated with any terminated arrangements under Treasury Regulations §1.409A-1(c) are terminated;

(ii) No payments, other than payments that would be payable under the terms of this plan if the termination had not occurred, are made within twelve (12) months of this plan termination;

(iii) All payments are made within twenty-four (24) months of this plan termination; and

(iv) Neither the Plan Sponsor nor any of its affiliates adopts a new plan that would be aggregated with any terminated plan if the same Participant participated in both arrangements at any time within three (3) years following the date of termination of this Plan.

(v) The termination does not occur proximate to a downturn in the financial health of the Plan Sponsor.

ARTICLE 9

THE TRUST

9.1 Establishment of Trust. The Plan Sponsor may establish a grantor trust (the “Trust”), of which the Plan Sponsor is the grantor, within the meaning of subpart E, part I, subchapter J, subtitle A of the Code, to pay benefits under this Plan. If the Plan Sponsor establishes a Trust, all benefits payable under this Plan to a Participant shall be paid directly by the Plan Sponsor from the Trust. To the extent such benefits are not paid from the Trust, the benefits shall be paid from the general assets of the Plan Sponsor. The Trust, (if any), shall be a grantor trust which conforms to the terms of the model trust as described in IRS Revenue Procedure 92-64, I.R.B. 1992-33, as same may be amended or modified from time to time. If the Plan Sponsor establishes a Trust, the assets of the Trust will be subject to the claims of the Plan Sponsor’s creditors in the event of its insolvency. Except as may otherwise be provided under the Trust, the Plan Sponsor shall not be obligated to set aside, earmark, or escrow any funds or other assets to satisfy its obligations under this Plan, and the Participant and/or her designated Beneficiaries shall not have any property interest in any specific assets of the Plan Sponsor other than the unsecured right to receive payments from the Plan Sponsor, as provided in this Plan.

9.2 Interrelationship of the Plan and the Trust. The provisions of this Plan shall govern the rights of a Participant to receive distributions pursuant to this Plan. The provisions of the Trust (if established) shall govern the rights of the Participant and the creditors of the Plan Sponsor to the assets transferred to the Trust. The Plan Sponsor and each Participant shall at all times remain liable to carry out its obligations under this Plan. The Plan Sponsor’s obligations under this Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust.

9.3 Contribution to the Trust. Amounts may be contributed by the Plan Sponsor to the Trust at the sole discretion of the Plan Sponsor.

ARTICLE 10

MISCELLANEOUS

10.1 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein; except to the extent that Section 409A requires that this Section 10.1 be disregarded because it purports to nullify Plan terms that are not in compliance with Section 409A.

10.2 Nonassignability. Neither any Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part hereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment (except to the extent the Plan Sponsor may be required to garnish amounts from payments due under this Plan pursuant to applicable law), or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency, or be transferable to a spouse as a result of a property settlement or otherwise. If any Participant, Beneficiary, or successor in interest is adjudicated bankrupt or purports to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber transfer, hypothecate, alienate, or convey in advance of actual receipt, the amount, if any, payable hereunder, or any part thereof, the Plan Administrator, in its discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary, or successor in interest in such manner as the Plan Administrator shall direct.

10.3 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Plan Sponsor and the Participant. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Plan Sponsor as an employee or otherwise or to interfere with the right of the Plan Sponsor to discipline or discharge the Participant at any time.

10.4 Unclaimed Benefits. In the case that the Plan Administrator is unable to locate the Participant or Beneficiary to whom a benefit is payable, such Plan benefit shall be forfeited to the Plan Sponsor upon the Plan Administrator’s determination. Notwithstanding the foregoing, payment may be made to a Participant, and that payment will be treated as made upon the date specified under the Plan, if the Participant provides notice to the Plan Sponsor within ninety (90) days of the latest date upon which the payment could have been timely made in accordance with the terms of the Plan and Section 409A, and if not paid, if the Participant takes further enforcement measures within one-hundred eighty (180) days after such latest date.

10.5 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Maryland without regard to its conflicts of laws principles.

10.6 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing and shall be signed by the party giving or making the same. If such notice, consent, or demand is mailed, it shall be sent by United States certified mail, postage prepaid, addressed to the addressee’s last known address as shown on the records of the Plan Sponsor. The date of such mailing shall be deemed the date of notice consent or demand. Any person may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.

10.7 Coordination with Other Benefits. The benefits provided for a Participant and Participant’s Beneficiary under this Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Plan Sponsor. This Plan shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.

10.8 Compliance. A Participant shall have no right to receive payment with respect to the Participant’s Accrued Benefit until all legal and contractual obligations of the Plan Sponsor relating to establishment of the Plan and the making of such payments shall have been complied with in full.

10.9 Compliance with Section 409A and Authoritative Guidance. Notwithstanding anything in this Plan to the contrary, all provisions of this Plan, including but not limited to the definitions of terms, elections to defer, and distributions, shall be made in accordance with and shall comply with Section 409A and any authoritative guidance. The Plan Sponsor will amend the terms of this Plan retroactively, if necessary, to the extent required to comply with Section 409A and any authoritative guidance. No election made by a Participant hereunder, and no change made by a Participant to a previous election, shall be accepted by the Plan Sponsor if the Plan Sponsor determines that acceptance of such election or change could violate any of the requirements of Section 409A or the authoritative guidance. This Plan and any accompanying forms shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A and the authoritative guidance, including, without limitation, any such Treasury Regulations or other guidance that may be issued after the date hereof.

10.10 Aggregation of Plans . If the Plan Sponsor offers non-account balance deferred compensation plans in addition to the Plan, those plans, together with the Plan, shall be treated as a single plan to the extent required under Section 409A.

IN WITNESS WHEREOF , the Plan Sponsor and Participant have signed this Plan document as of the date indicated below.

WITNESS:		FOR THE PLAN SPONSOR:

(signature)		(signature)

(print name)		(print name)

		(date)


		PARTICIPANT:

		(signature)

		(print name)

		(date)

Schedule A
Mark A. Semanie

Assumed Separation Date	Age	Early Termination Annual Benefit(1)	Disability Annual Benefit(1)	Change in Control Annual Benefit(2)
1/1/2014	50	0	0	77,055
1/1/2015	51	10,838	10,838	80,907
1/1/2016	52	21,675	21,675	84,953
1/1/2017	53	32,513	32,513	89,200
1/1/2018	54	43,350	43,350	93,660
1/1/2019	55	54,188	54,188	98,343
1/1/2020	56	65,025	65,025	103,260
1/1/2021	57	75,863	75,863	108,424
1/1/2022	58	86,700	86,700	113,845
1/1/2023	59	97,538	97,538	119,537
1/1/2024	60	108,375	108,375	125,514
1/1/2025	61	119,213	119,213	131,789
1/1/2026	62	130,050	130,050	138,379
1/1/2027	63	140,888	140,888	145,298
1/1/2028	64	151,726	151,726	152,563
4/22/2028 (3)	65	154,435	154,435	154,435

(1) As described in the Plan, the Participant’s Early Termination Benefit or Disability Benefit under the plan shall be the Annual Benefit amount determined for the year in which termination or disability occurs, as applicable, multiplied by fifteen(15).

(2) As described in the Plan, the Participant’s Change in Control Benefit shall be the Change in Control Annual Benefit amount determined for the year in which the Change in Control occurs, multiplied by fifteen (15).

(3) This is the date the Participant reaches Normal Retirement Age and becomes vested in the Normal Retirement Benefit.

OLD LINE BANK

Salary Continuation Agreement (2014)

BENEFICIARY DESIGNATION FORM

o New Designation

o Change in Designation

I , designate the following as Beneficiary under this Agreement:

Primary: % Name of Beneficiary

% Name of Beneficiary

Contingent: % Name of Beneficiary

% Name of Beneficiary

Notes:

Please PRINT CLEARLY the names of the beneficiaries.

To name a Trust as Beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

To name your Estate as Beneficiary, please write “Estate of <your name>”.

Be aware that none of the contingent beneficiaries will receive anything unless

ALL of the primary beneficiaries predecease you.

I understand that I may change these beneficiary designations by delivering a new written designation to the Plan Administrator, which shall be effective only upon receipt and acknowledgment by the Plan Administrator prior to my death. I further understand that the designations will be automatically revoked if the Beneficiary predeceases me, or, if I named my spouse as Beneficiary and our marriage is subsequently dissolved.

Name:

Signature:			Date:

Received by the Plan Administrator this day of , .

By:

Title:

Exhibit 31.1

I, James W. Cornelsen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Old Line Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2014	By:	/s/ James W. Cornelsen
	Name: James W. Cornelsen
	Title: President and
	Chief Executive Officer

Exhibit 31.2

I, Elise M. Hubbard, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Old Line Bancshares, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 9, 2014	By:	/s/ Elise M. Hubbard
	Name: Elise M. Hubbard
	Title: Senior Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Old Line Bancshares, Inc. (the “Company”) each certifies to the best of his or her knowledge that the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


By:	/s/ James W. Cornelsen
James W. Cornelsen
President and Chief Executive Officer
May 9, 2014

By:	/s/ Elise M. Hubbard
Elise M. Hubbard
Senior Vice President and Chief Financial Officer
May 9, 2014

This certification is made solely for the purpose of 18 U.S.C. Section 1350, and is not being filed as part of the Form 10-Q or as a separate disclosure document, and may not be disclosed, distributed or used by any person for any reason other than as specifically required by law.