OLD LINE BANCSHARES INC - FORM 10-Q

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EX-31.1 - EX-31.1 - OLD LINE BANCSHARES INC	olbk-20160331ex311210a31.htm
EX-31.2 - EX-31.2 - OLD LINE BANCSHARES INC	olbk-20160331ex31210e661.htm
EX-32 - EX-32 - OLD LINE BANCSHARES INC	olbk-20160331xex32.htm

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26h

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

☐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☒No☐

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

Yes☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☒

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

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

Yes☐No☒

As of April 30, 2016, the registrant had 10,802,560 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			3

Item 1.		Financial Statements

			Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015	3

			Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015	4

			Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015	5

			Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2016	6

			Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016 and 2015	7

			Notes to Consolidated Financial Statements (Unaudited)	9

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.			Quantitative and Qualitative Disclosures about Market Risk	54

Item 4.			Controls and Procedures	56

PART II.

Item 1.			Legal Proceedings	56

Item 1A.			Risk Factors	56

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 3.			Defaults Upon Senior Securities	56

Item 4.			Mine Safety Disclosures	56

Item 5.			Other Information	57

Item 6.			Exhibits	57

Signatures				58

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Part 1. Financial Information

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Balance Sheets


	March 31,		December 31,
	2016		2015
	(Unaudited)
Assets
Cash and due from banks	$	34,108,645	$	40,239,384
Interest bearing accounts		1,150,474		1,135,263
Federal funds sold		325,606		2,326,045
Total cash and cash equivalents		35,584,725		43,700,692
Investment securities available for sale-at fair value		190,749,087		194,705,675
Loans held for sale, fair value of $4,348,156 and $8,277,775		4,148,506		8,112,488
Loans held for investment (net of allowance for loan losses of $5,705,857 and $4,909,818, respectively)		1,175,828,165		1,147,034,715
Equity securities at cost		5,710,845		4,942,346
Premises and equipment		35,995,176		36,174,978
Accrued interest receivable		3,655,444		3,814,546
Deferred income taxes		12,828,069		13,820,679
Bank owned life insurance		36,843,873		36,606,105
Other real estate owned		2,698,344		2,472,044
Goodwill		9,786,357		9,786,357
Core deposit intangible		4,124,985		4,351,226
Other assets		5,062,691		4,567,038
Total assets	$	1,523,016,267	$	1,510,088,889

Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	328,797,753	$	328,549,405
Interest bearing		904,751,898		907,330,561
Total deposits		1,233,549,651		1,235,879,966
Short term borrowings		118,571,030		107,557,246
Long term borrowings		9,561,842		9,593,318
Accrued interest payable		448,677		416,686
Supplemental executive retirement plan		5,405,763		5,336,509
Income taxes payable		4,721,336		3,615,677
Other liabilities		4,473,968		3,700,598
Total liabilities		1,376,732,267		1,366,100,000
Stockholders’ equity
Common stock, par value $0.01 per share; 25,000,000 shares authorized; 10,802,560 shares issued and outstanding in 2016 and 2015		108,026		108,026
Additional paid-in capital		105,408,038		105,293,606
Retained earnings		39,793,541		38,290,876
Accumulated other comprehensive income		717,881		38,200
Total Old Line Bancshares, Inc. stockholders’ equity		146,027,486		143,730,708
Non-controlling interest		256,514		258,181
Total stockholders’ equity		146,284,000		143,988,889
Total liabilities and stockholders’ equity	$	1,523,016,267	$	1,510,088,889

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,
	2016		2015
Interest Income
Loans, including fees	$	13,057,180	$	11,621,493
U.S. treasury securities		3,778		2,606
U.S. government agency securities		125,732		133,358
Mortgage backed securities		513,305		373,010
Municipal securities		359,436		314,984
Federal funds sold		1,125		176
Other		97,770		61,950
Total interest income		14,158,326		12,507,577
Interest expense
Deposits		1,270,421		910,957
Borrowed funds		275,659		134,716
Total interest expense		1,546,080		1,045,673
Net interest income		12,612,246		11,461,904
Provision for loan losses		778,611		561,731
Net interest income after provision for loan losses		11,833,635		10,900,173
Non-interest income
Service charges on deposit accounts		411,337		415,202
Gain on sales or calls of investment securities		76,998		60,694
Earnings on bank owned life insurance		282,186		248,384
Gain on disposal of assets		—		19,975
Rental Income		209,892		210,188
Income on marketable loans		377,138		354,650
Other fees and commissions		626,102		522,816
Total non-interest income		1,983,653		1,831,909
Non-interest expense
Salaries and benefits		5,376,552		4,217,370
Occupancy and equipment		1,724,553		1,399,877
Data processing		397,792		352,060
FDIC insurance and State of Maryland assessments		235,283		248,893
Merger and integration		359,481		—
Core deposit premium amortization		226,241		210,117
(Gain) loss on sales of other real estate owned		(4,208)		134,754
OREO expense		154,966		120,201
Directors Fees		168,800		170,000
Network services		136,895		181,663
Telephone		218,634		164,935
Other operating		1,629,530		1,491,744
Total non-interest expense		10,624,519		8,691,614

Income before income taxes		3,192,769		4,040,468
Income tax expense		1,043,366		1,295,035
Net income		2,149,403		2,745,433
Less: Net loss attributable to the non-controlling interest		(1,667)		(8,720)
Net income available to common stockholders	$	2,151,070	$	2,754,153

Basic earnings per common share	$	0.20	$	0.25
Diluted earnings per common share	$	0.20	$	0.25
Dividend per common share	$	0.06	$	0.05

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

(Unaudited)



		Three Months Ended March 31,
	2016		2015
Net income	$	2,149,403	$	2,745,433

Other comprehensive income:
Unrealized gain on securities available for sale, net of taxes of $473,110, and $530,750 respectively		726,303		814,794
Reclassification adjustment for realized gain on securities available for sale included in net income, net of taxes of $30,375 and $23,941, respectively		(46,622)		(36,753)
Other comprehensive income		679,681		778,041
Comprehensive income		2,829,084		3,523,474
Comprehensive loss attributable to the non-controlling interest		(1,667)		(8,720)
Comprehensive income available to common stockholders	$	2,830,751	$	3,532,194

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, 2015	10,802,560	$	108,026	$	105,293,606	$	38,290,876	$	38,200	$	258,181	$	143,988,889
Net income attributable to Old Line Bancshares, Inc.	—		—		—		2,151,070		—		—		2,151,070
Unrealized gain on securities available for sale, net of income tax benefit of $442,734	—		—		—		—		679,681		—		679,681
Net loss attributable to non-controlling interest	—		—		—		—		—		(1,667)		(1,667)
Stock based compensation awards	—		—		114,432		—		—		—		114,432
Common stock cash dividends $0.06 per share	—		—		—		(648,405)		—		—		(648,405)
Balance March 31, 2016	10,802,560	$	108,026	$	105,408,038	$	39,793,541	$	717,881	$	256,514	$	146,284,000

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,
	2016		2015

Cash flows from operating activities
Interest received	$	14,635,278	$	12,769,066
Fees and commissions received		1,287,541		1,338,065
Interest paid		(1,514,089)		(1,027,252)
Cash paid to suppliers and employees		(9,281,979)		(10,016,207)
Loans originated for sale		(16,407,691)		(24,177,793)
Proceeds from sale of loans originated for sale		20,371,673		20,033,602
Income taxes paid		612,135		—
		9,702,868		(1,080,519)
Cash flows from investing activities
Purchase of investment securities available for sale		(11,496,627)		—
Proceeds from disposal of investment securities
Available for sale at maturity, call or paydowns		16,441,001		4,419,496
Loans made, net of principal collected		(29,562,811)		(37,330,280)
Proceeds from sale of other real estate owned		4,208		659,776
Investments in other real estate owned		35,400		—
Redemption/improvements in equity securities		(768,499)		2,458,601
Purchase of premises and equipment		(475,094)		(145,781)
Proceeds from the sale of premises and equipment		—		19,975
		(25,822,422)		(29,918,213)
Cash flows from financing activities
Net increase (decrease) in
Time deposits		(16,470,778)		15,647,328
Other deposits		14,140,463		20,064,887
Short term borrowings		11,013,784		10,233,392
Long term borrowings		(31,476)		(28,798)
Stock proceeds from stock repurchase program		—		(1,015,015)
Cash dividends paid-common stock		(648,406)		(540,547)
		8,003,587		44,361,247

Net increase (decrease) in cash and cash equivalents		(8,115,967)		13,362,515

Cash and cash equivalents at beginning of period		43,700,692		25,404,736
Cash and cash equivalents at end of period	$	35,584,725	$	38,767,251

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,	2016		2015

Reconciliation of net income to net cash provided by operating activities
Net income	$	2,149,403	$	2,745,433

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

Depreciation and amortization		654,896		572,025
Provision for loan losses		778,611		561,731
Change in deferred loan fees net of costs		106,220		(9,853)
(Gain)/loss on sales or calls of securities		(76,998)		(60,694)
Amortization of premiums and discounts		211,630		225,529
Change in loans held for sale		3,963,982		(4,144,191)
Gain on sale of loans		(377,138)		(354,650)
(Gain)/loss on sales of other real estate owned		(4,208)		134,754
Write down of other real estate owned		—		57,375
Gain on sale of fixed assets		—		(19,975)
Amortization of intangible assets		226,241		210,117
Deferred income taxes		549,842		3,093,341
Stock based compensation awards		114,432		91,902
Increase (decrease) in
Accrued interest payable		31,991		18,421
Income tax payable		1,105,659		(485,435)
Supplemental executive retirement plan		69,254		67,591
Other liabilities		773,370		4,710
Decrease (increase) in
Accrued interest receivable		159,102		45,813
Bank owned life insurance		(237,768)		(213,254)
Income tax receivable		—		(1,312,872)
Other assets		(495,653)		(2,308,337)
	$	9,702,868	$	(1,080,519)

Supplemental Disclosure:
Loans transferred to other real estate owned	$	261,700	$	—

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

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OLD LINE BANCSHARE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of Business - Old Line Bancshares, Inc. (Old Line Bancshares) was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares is to own all of the capital stock of Old Line Bank. We provide a full range of banking services to customers located in Anne Arundel, Baltimore, Calvert, Carroll, 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, 2016 and 2015 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (U.S. 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, 2015 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, 2015. 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 2015 financial presentation to conform to the 2016 presentation. These reclassifications did not change net income or stockholders’ equity.

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU will be effective for us in our first quarter of 2018. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. We are evaluating the transition method that will be elected and the potential effects of the adoption of this ASU on our financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU No. 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The

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amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company is currently evaluating the provisions of this amendment to determine the potential impact the new standard will have on the Company's consolidated financial statements as it relates to future business combinations.

In August 2014, the FASB issued ASU No. 2014-14- Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, to address the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. HUD, FHA, VA). The ASU outlines certain criteria and provides that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This ASU was effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period. The adoption of ASU No. 2014-14 did not have a material impact on our consolidated financial statements and the required disclosures have been included in Note 4.

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements. Going forward, these transactions must all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures, effective for the current reporting period, about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings (see Note 11 to the Consolidated Financial Statements). We adopted the amendments in this ASU effective January 1, 2015. As of December 31, 2015, all of our repurchase agreements were typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, the adoption of ASU No. 2014-11 did not have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target that affects vesting could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of ASU 2014-12 did not have a material impact on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by: requiring equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed

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for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU permits early adoption of the instrument-specific credit risk provision. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.

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. One of Old Line Bank’s directors owns a 12.5% interest in this investment.

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


	March 31,		December 31,
Balance Sheets	2016		2015

Current assets	$	339,575	$	281,441
Non-current assets		6,189,467		6,281,601
Liabilities		5,845,004		5,874,560
Equity		684,038		688,484


	Three Months Ended
	March 31,
Statements of Income	2016		2015

Revenue	$	251,074	$	243,277
Expenses		255,519		266,530
Net loss	$	(4,445)	$	(23,253)

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3.INVESTMENT SECURITIES

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


			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
March 31, 2016
Available for sale
U.S. treasury	$	2,998,516	$	—	$	(2,617)	$	2,995,899
U.S. government agency		35,321,918		156,202		(7,086)		35,471,034
Municipal securities		54,287,501		989,060		(158,251)		55,118,310
Mortgage backed securities:
FHLMC certificates		20,956,698		194,344		—		21,151,042
FNMA certificates		47,813,353		168,108		(57,054)		47,924,407
GNMA certificates		28,185,599		74,021		(171,225)		28,088,395
	$	189,563,585	$	1,581,735	$	(396,233)	$	190,749,087

December 31, 2015
Available for sale
U.S. treasury	$	2,999,978	$	118	$	(96)	$	3,000,000
U.S. government agency		36,874,804		10,283		(278,424)		36,606,663
Municipal securities		49,130,632		1,092,044		(19,970)		50,202,706
Mortgage backed securities
FHLMC certificates		21,734,289		55,218		(26,350)		21,763,157
FNMA certificates		49,461,464		22,916		(382,909)		49,101,471
GNMA certificates		29,758,449		48,759		(389,199)		29,418,009
SBA loan pools		4,682,975		—		(69,306)		4,613,669
	$	194,642,591	$	1,229,338	$	(1,166,254)	$	194,705,675

As of March 31, 2016 and December 31, 2015, securities with unrealized losses segregated by length of impairment were as follows:


	March 31, 2016
	Less than 12 months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
U.S. Treasury	$	2,995,899	$	2,617	$	—	$	—	$	2,995,899	$	2,617
U.S. government agency		355,502		560		1,493,474		6,526		1,848,976		7,086
Municipal securities		10,085,171		156,067		289,423		2,184		10,374,594		158,251
Mortgage backed securities
GNMA certificates		26,099,878		100,023		11,946,646		128,256		38,046,525		228,279
Total unrealized losses	$	39,536,450	$	259,267	$	13,729,543	$	136,966	$	53,265,994	$	396,233


	December 31, 2015
	Less than 12 months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
U.S. treasury	$	1,500,000	$	96	$	—	$		$	1,500,000	$	96
U.S. government agency		33,613,513		261,290		1,482,867		17,133		35,096,380		278,423
Municipal securities		4,864,113		12,224		762,762		7,747		5,626,875		19,971
Mortgage backed securities
FHLMC certificates		9,150,943		26,350		—		—		9,150,943		26,350
FNMA certificates		33,441,909		345,209		2,999,700		37,700		36,441,609		382,909
GNMA certificates		13,781,185		141,005		12,352,866		248,194		26,134,051		389,199
SBA loan pools		—		—		4,613,669		69,306		4,613,669		69,306
	$	96,351,663	$	786,174	$	22,211,864	$	380,080	$	118,563,527	$	1,166,254

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As of March 31 2016 and December 31, 2015, we had 15 and 23 investment securities, respectively, in an unrealized loss position greater than the 12 month time frame and 40 and 71 securities, respectively, in an unrealized loss position less than the 12 month time frame at March 31, 2016 and December 31, 2015. We consider all unrealized losses on securities as of March 31, 2016 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, 2016, 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.

During the three months ended March 31, 2016, we received $16.4 million in proceeds from sales, maturities or calls and principal pay-downs on investment securities and realized gains of $144 thousand and realized losses of $67 thousand for total realized net gain of $77 thousand. Such sales, maturities or calls and principal pay-downs consisted of the sale three mortgage backed securities (MBS) pools, one municipal bond, one callable agency security and two municipal bonds during the three month period ending March 31, 2016. $11.5 million of the net proceeds of these transactions were used to purchase new investment securities and remainder for new loan originations. During the three month period ended March 31, 2015, we received $4.4 million in proceeds from sales, maturities or calls and principal pay-downs on investment securities, consisting of two municipal bonds that were called of which the remaining discount/accretion of $61 thousand was recorded as gain on sale of investments during the period.

Contractual maturities and pledged securities at March 31, 2016 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 MBS based on maturity date. However, we receive payments on a monthly basis.


	Available for Sale
	Amortized		Fair
March 31, 2016	cost		value

Maturing
Within one year	$	1,498,948	$	1,498,945
Over one to five years		37,982,659		38,172,838
Over five to ten years		19,535,714		19,858,679
Over ten years		130,546,264		131,218,625
	$	189,563,585	$	190,749,087
Pledged securities	$	41,006,230	$	42,385,435

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4.LOANS

Major classifications of loans held for investment are as follows:


	March 31, 2016						December 31, 2015
	Legacy (1)		Acquired		Total		Legacy (1)		Acquired		Total

Commercial Real Estate
Owner Occupied	$	195,806,091	$	55,602,935	$	251,409,026	$	193,909,818	$	57,212,598	$	251,122,416
Investment		321,056,178		57,216,335		378,272,513		298,434,087		57,749,376		356,183,463
Hospitality		96,064,364		10,843,916		106,908,280		91,440,548		10,776,561		102,217,109
Land and A&D		49,140,686		6,345,422		55,486,108		50,584,469		7,538,964		58,123,433
Residential Real Estate
First Lien-Investment		72,436,816		28,371,587		100,808,403		69,121,743		31,534,452		100,656,195
First Lien-Owner Occupied		39,344,366		51,010,583		90,354,949		37,486,858		52,204,717		89,691,575
Residential Land and A&D		36,054,588		6,803,478		42,858,066		35,219,801		6,578,950		41,798,751
HELOC and Jr. Liens		24,187,944		4,135,414		28,323,358		24,168,289		4,350,956		28,519,245
Commercial and Industrial		109,726,705		8,485,869		118,212,574		105,963,233		9,519,465		115,482,698
Consumer		7,522,320		210,074		7,732,394		6,631,311		243,804		6,875,115
		951,340,058		229,025,613		1,180,365,671		912,960,157		237,709,843		1,150,670,000
Allowance for loan losses		(5,400,563)		(305,294)		(5,705,857)		(4,821,214)		(88,604)		(4,909,818)
Deferred loan costs, net		1,168,351		—		1,168,351		1,274,533		—		1,274,533
	$	947,107,846	$	228,720,319	$	1,175,828,165	$	909,413,476	$	237,621,239	$	1,147,034,715

(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, WSB Holdings Inc. , the parent company of The Washington Savings Bank (WSB), in May 2013, and Regal Bancorp, Inc. (“Regal”), the parent company of Regal Bank & Trust (Regal Bank), in December 2015, we have segmented the portfolio into two components, loans originated by Old Line Bank “Legacy” and loans acquired from MB&T, WSB and Regal Bank “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. 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, hospitality and land acquisition and development. Commercial real estate loans totaled $792.1 million and $767.7 million at March 31, 2016 and December 31, 2015, 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 on successful operation or management of the properties. We will generally finance owner occupied commercial real estate that does not exceed loan to value of 80% 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

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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, 2016, we had approximately $106.9 million of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

Residential Real Estate Loans

We offer a variety of consumer oriented residential real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on owner occupied and investment properties. Our residential loan portfolio amounted to $262.3 million and $260.7 million at March 31, 2016 and December 31, 2015. Although most of these loans are in our market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the borrower’s primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which generally may not exceed 43%, collateral value, length of employment and prior credit history. A credit score of 660 is required. We do not originate any subprime residential real estate loans.

This segment of our portfolio also consists of funds advanced for construction of custom single family residences homes (where the home buyer is the borrower) and financing to builders for the construction of pre-sold homes and multi‑family housing. These loans generally have short durations, meaning maturities typically of twelve months or less. Old Line Bank limits its construction lending risk through adherence to established underwriting procedures. These loans generally have short durations, meaning maturities typically of twelve 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 market area.

Construction lending also entails significant risk. These risks generally 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 “as is and as if” completed. An appraisal of the property estimates the value of the project prior to completion of construction. Thus, initial funds are advanced based on the current value of the property with the remaining construction funds advanced under a budget sufficient to successfully complete the project within the “as completed” loan to value. To further mitigate the risks, we generally limit loan amounts to 80% or less of appraised values and obtain first lien positions on the property.

We generally only 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. We may provide permanent financing on the same projects for which we have provided the construction financing.

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 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.

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

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investors on a servicing released basis and recorded as loans 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 high average balances, increased difficulty monitoring and a high risk of default. To help manage this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring generally includes a review of the borrower’s annual tax returns and updated financial statements.

Consumer Installment Lending

We offer various types of secured and unsecured consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. 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, a consumer’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 consumer may not repay the loan. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans. 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. As a result of the Regal Bancorp acquisition, we have expanded our presence further north to Baltimore County and Carroll County, Maryland.

Non‑Accrual and Past Due Loans

We consider 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 consistently 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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The table below presents an age analysis of the loans held for investment portfolio at March 31, 2016 and December 31, 2015.

Age Analysis of Past Due Loans


	March 31, 2016						December 31, 2015
	Legacy		Acquired		Total		Legacy		Acquired		Total
Current	$	942,519,175	$	222,928,491	$	1,165,447,666	$	907,545,764	$	230,336,630	$	1,137,882,394
Accruing past due loans:
30-89 days past due
Commercial Real Estate:
Owner Occupied		—		660,594		660,594		—		1,359,110		1,359,110
Investment		2,995,102		—		2,995,102		—		—		—
Land and A&D		455,986		—		455,986		459,655		157,866		617,521
Residential Real Estate:
First-Investment		411,308		109,616		520,924		288,747		1,253,005		1,541,752
First-Owner Occupied		241,014		1,068,367		1,309,381		241,445		2,124,416		2,365,861
Land and A&D		—		—		—		—		—		—
HELOC and Jr. Liens		—		—		—		—		—		—
Commercial		425,189		282,416		707,605		4,471		873,796		878,267
Consumer		—		5,635		5,635		—		2,039		2,039
Total 30-89 days past due		4,528,599		2,126,628		6,655,227		994,318		5,770,232		6,764,550
90 or more days past due
Commercial Real Estate:
Land and A&D		—		—		—		—		128,938		128,938
Residential Real Estate:
First-Investment		—		—		—		—		—		—
First-Owner Occupied		—		901,622		901,622		—		—		—
Land and A&D		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		499		499
Total 90 or more days past due		—		901,622		901,622		—		129,437		129,437
Total accruing past due loans		4,528,599		3,028,250		7,556,849		994,318		5,899,669		6,893,987
Recorded Investment Non-accruing loans:
Commercial Real Estate:
Owner Occupied		2,472,685		684,968		3,157,653		2,474,813		—		2,474,813
Investment		—		—		—		—		64,447		64,447
Land and A&D		—		297,046		297,046		—		261,700		261,700
Residential Real Estate:						—						—
First-Investment		—		397,367		397,367		102,443		580,696		683,139
First-Owner Occupied		—		815,695		815,695		—		566,701		566,701
Land and A&D		—		—		—		—		—		—
Commercial		1,819,599		873,796		2,693,395		1,842,819		—		1,842,819
Consumer		—		—		—		—		—		—
Total Recorded Investment
Non-accruing loans:		4,292,284		3,068,872		7,361,156		4,420,075		1,473,544		5,893,619
Total Loans	$	951,340,058	$	229,025,613	$	1,180,365,671	$	912,960,157	$	237,709,843	$	1,150,670,000

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. The tables below present our impaired loans at and for the periods ended March 31, 2016 and December 31, 2015.

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Impaired Loans

March 31, 2016


							Three months March 31, 2016
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	$	573,473	$	573,473	$	—	$	1,231,350	$	12,201
Investment		1,259,035		1,259,035		—		1,263,712		13,668
Residential Real Estate:
Owner Occupied		—		—	$	—	$	—		—
Commercial		1,102,134		1,102,134		—		3,904,239		30,877
With an allowance recorded:
Commercial Real Estate:
Owner Occupied		2,151,085		2,151,085		545,585		6,605,858		47,808
Commercial		831,565		831,565		415,346		1,429,507		18,477
Total legacy impaired		5,917,292		5,917,292		960,931		14,434,666		123,031

Acquired (1)
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied		982,368		718,231		—		998,085		—
Land and A&D		617,162		344,322		—		621,213		4,809
Residential Real Estate:
First-Owner Investment		423,997		261,348		—		424,196		—
First-Owner Occupied		1,204,822		1,204,822		—		2,471,487		31,497
Land and A&D		334,271		45,000		—		334,271		—
Commercial		952,977		952,977		—		5,410,826		34,455

First-Owner Investment		223,617		223,617		88,528		367,261		13,849
First-Owner Occupied		297,451		297,451		216,766		1,804,205		9,827
Commercial		—		—		—		—		—
Total acquired impaired		5,036,665		4,047,768		305,294		12,431,544		94,437
Total impaired	$	10,953,957	$	9,965,060	$	1,266,225	$	26,866,210	$	217,468

(1)

Generally accepted accounting principles require that we record acquired loans at fair value which includes a discount for loans with credit impairment. These purchase credit impaired loans are not performing according to their contractual terms and meet the definition of an 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.

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Impaired Loans

December 31, 2015


	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	$	575,562	$	575,562	$	—	$	1,232,306	$	13,147
Investment		1,264,141		1,264,141		—		1,264,141		56,959
Residential Real Estate:
First-Investment		102,443		102,443		—		330,106		—
Commercial		922,826		922,826		—		3,338,295		—

With an allowance recorded:
Commercial Real Estate:
Owner Occupied		2,153,214		2,153,214		119,199		6,605,858		—
Commercial		1,039,255		1,039,255		605,336		1,997,077		9,593
Consumer		—		—		—		—		—
Total legacy impaired		6,057,441		6,057,441		724,535		14,767,783		79,699

Acquired (1)
With no related allowance recorded:
Commercial Real Estate:
Investment		—		—		—		—		—
Land and A&D		267,113		261,700		—		490,977		—
Residential Real Estate:
First-Owner Occupied		528,964		518,243		—		1,062,798		28,477
Investment		—		—		—		—		—
Land and A&D		—		—		—		—		—
Commercial		—		—		—		—		—

With an allowance recorded:
Residential Real Estate:
First-Investment		223,617		219,225		88,604		367,261		—
Total acquired impaired		1,019,694		999,168		88,604		1,921,036		28,477
Total impaired	$	7,077,135	$	7,056,609	$	813,139	$	16,688,819	$	108,176

(1)

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, 2016 consisted of six loans for $866 thousand compared to five loans at December 31, 2015 for $711 thousand.

The following table includes the recorded investment in and number of modifications of TDRs for the three months ended March 31, 2016 and 2015. We report the recorded investment in loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge‑off of the principal balance prior to the modification. 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, 2016.

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	Loans Modified as a TDR for the three months ended
	March 31, 2016					March 31, 2015
		Pre-		Post			Pre-		Post
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
Troubled Debt Restructurings—	# of	Recorded		Recorded		# of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial Real Estate	1		256,669		91,929	—		—		—
Residential Real Estate Non-Owner Occupied	1		136,173		66,453	—		—		—
Total Troubled Debt Restructurings	2	$	392,842	$	158,382	—	$	—	$	—

Acquired impaired loans

The following table documents changes in the accretable (premium) discount on acquired impaired loans during the three months ended March 31, 2016 and 2015, along with the outstanding balances and related carrying amounts for the beginning and end of those respective periods.



	March 31, 2016		March 31, 2015
Balance at beginning of period	$	276,892	$	(31,551)
Additions due to Regal acquisition		—		—
Accretion of fair value discounts		(28,288)		(189,886)
Reclassification from non-accretable (1)		—		191,171
Balance at end of period	$	248,604	$	(30,266)


	Contractually
	Required Payments
	Receivable		Carrying Amount
At March 31, 2016	$	14,245,799	$	11,062,671
At December 31, 2015		14,875,352		11,158,804
At March 31, 2015		9,872,653		7,887,269
At December 31, 2014		10,658,840		7,994,604

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

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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 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.

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The following tables outline the class of loans by risk rating at March 31, 2016 and December 31, 2015:


March 31, 2016	Account Balance
	Legacy		Acquired		Total
Risk Rating
Pass (1-5)
Commercial Real Estate:
Owner Occupied	$	189,396,519	$	48,968,508	$	238,365,027
Investment		315,779,859		53,672,568		369,452,427
Hospitality		94,708,645		9,414,715		104,123,360
Land and A&D		46,400,249		6,120,318		52,520,567
Residential Real Estate:
First-Investment		71,443,664		25,689,157		97,132,821
First-Owner Occupied		39,267,742		46,679,651		85,947,393
Land and A&D		33,996,850		5,377,749		39,374,599
HELOC and Jr. Liens		24,187,944		4,135,414		28,323,358
Commercial		105,771,806		7,409,344		113,181,150
Consumer		7,522,320		210,074		7,732,394
		928,475,598		207,677,498		1,136,153,096
Special Mention (6)
Commercial Real Estate:
Owner Occupied		2,844,753		4,710,582		7,555,335
Investment		4,017,284		1,806,459		5,823,743
Hospitality		1,355,719		1,429,201		2,784,920
Land and A&D		2,740,437		180,104		2,920,541
Residential Real Estate:
First-Investment		706,453		1,622,729		2,329,182
First-Owner Occupied		76,624		1,936,678		2,013,302
Land and A&D		2,057,738		856,247		2,913,985
Commercial		2,021,200		124,111		2,145,311
		15,820,208		12,666,111		28,486,319
Substandard (7)
Commercial Real Estate:
Owner Occupied		3,564,819		1,923,845		5,488,664
Investment		1,259,035		1,737,308		2,996,343
Land and A&D		—		45,000		45,000
Residential Real Estate:
First-Investment		286,699		1,059,701		1,346,400
First-Owner Occupied		—		2,394,254		2,394,254
Land and A&D		—		569,482		569,482
Commercial		1,933,699		952,414		2,886,113
		7,044,252		8,682,004		15,726,256
Doubtful (8)		—		—		—
Loss (9)		—		—		—
Total	$	951,340,058	$	229,025,613	$	1,180,365,671

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December 31, 2015	Account Balance
	Legacy		Acquired		Total
Risk Rating
Pass (1-5)
Commercial Real Estate:
Owner Occupied	$	187,470,038	$	50,432,486	$	237,902,524
Investment		296,144,038		54,124,835		350,268,873
Hospitality		91,440,548		9,346,283		100,786,831
Land and A&D		47,935,681		6,105,829		54,041,510
Residential Real Estate:
First-Investment		67,862,579		28,921,586		96,784,165
First-Owner Occupied		37,409,003		47,907,579		85,316,582
Land and A&D		33,611,213		5,810,524		39,421,737
HELOC and Jr. Liens		24,162,182		4,350,955		28,513,137
Commercial		102,721,919		8,367,518		111,089,437
Consumer		6,631,311		243,804		6,875,115
		895,388,512		215,611,399		1,110,999,911
Special Mention (6)
Commercial Real Estate:
Owner Occupied		2,863,922		4,843,163		7,707,085
Investment		1,025,908		1,821,487		2,847,395
Hospitality		—		1,430,277		1,430,277
Land and A&D		2,648,788		323,655		2,972,443
Residential Real Estate:
First-Investment		867,973		1,543,819		2,411,792
First-Owner Occupied		77,855		2,805,695		2,883,550
Land and A&D		1,608,588		1,022,872		2,631,460
HELOC and Jr. Liens		6,107		—		6,107
Commercial		1,279,234		198,578		1,477,812
		10,378,375		13,989,546		24,367,921
Substandard (7)
Commercial Real Estate:
Owner Occupied		3,575,859		1,936,948		5,512,807
Investment		1,264,141		1,803,055		3,067,196
Land and A&D		—		42,670		42,670
Residential Real Estate:
First-Investment		391,190		1,069,048		1,460,238
First-Owner Occupied		—		1,491,443		1,491,443
Land and A&D		—		812,364		812,364
Commercial		1,962,080		953,370		2,915,450
		7,193,270		8,108,898		15,302,168
Doubtful (8)		—		—		—
Loss (9)		—		—		—
Total	$	912,960,157	$	237,709,843	$	1,150,670,000

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The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2016 and 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


			Commercial		Residential
Three Months Ended March 31, 2016	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	1,168,529	$	3,046,714	$	682,962	$	11,613	$	4,909,818
General provision for loan losses		(181,950)		754,449		213,381		(7,269)		778,611
Recoveries		6,898		—		7,861		7,641		22,400
		993,477		3,801,163		904,204		11,985		5,710,829
Loans charged off		(4,472)		—		—		(500)		(4,972)
Ending Balance	$	989,005	$	3,801,163	$	904,204	$	11,485	$	5,705,857
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	415,346	$	545,585	$	—	$	—	$	960,931
Other loans not individually evaluated		573,659		3,255,578		598,910		11,485		4,439,632
Acquired Loans:
Individually evaluated for impairment		—		—		305,294		—		305,294
Ending balance	$	989,005	$	3,801,163	$	904,204	$	11,485	$	5,705,857


			Commercial		Residential
Three Months Ended March 31, 2015	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	696,371	$	2,558,368	$	926,995	$	100,001	$	4,281,835
General provision for loan losses		247,099		36,271		357,460		(74,099)		561,731
Recoveries		942		20		10,158		20,603		31,723
		944,412		2,594,659		1,294,613		41,605		4,875,289
Loans charged off		(182,741)		—		(56,500)		—		(239,241)
Ending Balance	$	761,671	$	2,594,659	$	1,238,113	$	41,605	$	4,636,048
Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	113,151	$	—	$	18,530	$	—	$	131,681
Other loans not individually evaluated		648,520		2,543,147		762,717		41,605		3,995,989
Acquired Loans:
Individually evaluated for impairment		—		51,512		456,866		—		508,378
Ending balance	$	761,671	$	2,594,659	$	1,238,113	$	41,605	$	4,636,048

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Our recorded investment in loans at March 31, 2016 and 2015 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:


			Commercial		Residential
March 31, 2016	Commercial		Real Estate		Real Estate		Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	831,565	$	2,151,085	$	—	$	—	$	2,982,650
Individually evaluated for impairment without specific reserve		1,102,134		1,832,508		—		—		2,934,642
Other loans not individually evaluated		107,793,006		658,083,726		172,023,714		7,522,320		945,422,766
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)		—		—		521,068		—		521,068
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)		952,977		1,599,530		1,963,090		—		4,515,597
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition)		—		—		—		—		—
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)		7,532,892		128,409,078		87,836,904		210,074		223,988,948
Ending balance	$	118,212,574	$	792,075,927	$	262,344,776	$	7,732,394	$	1,180,365,671


			Commercial		Residential
March 31, 2015	Commercial		Real Estate		Real Estate		Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	456,798	$	—	$	18,530	$	—	$	475,328
Individually evaluated for impairment without specific reserve		688,327		1,562,664		110,559		—		2,361,550
Other loans not individually evaluated		102,043,532		545,312,779		136,838,784		8,500,027		792,695,122
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)		—		55,501		1,054,178		—		1,109,679
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)		—		206,050		1,204,462		—		1,410,512
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)		8,375,068		81,422,709		78,900,859		308,374		169,007,010
Ending balance	$	111,563,725	$	628,559,703	$	218,127,372	$	8,808,401	$	967,059,201

5.OTHER REAL ESTATE OWNED

At March 31, 2016 and December 31, 2015, the fair value of other real estate owned was $2.7 million and $2.5 million, respectively. As a result of the acquisitions of MB&T, WSB and Regal Bank, we have segmented the other real estate owned (OREO) 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, WSB and Regal Bank or obtained as a result of

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loans originated by MB&T, WSB and Regal Bank (acquired). We are currently aggressively either marketing these properties for sale or improving them in preparation for sale.

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


Three Months Ended March 31, 2016	Legacy		Acquired		Total
Beginning balance	$	425,000	$	2,047,044	$	2,472,044
Real estate acquired through foreclosure of loans		—		261,700		261,700
Additional credit quality adjustment of real estate owned		—		(35,400)		(35,400)
Sales/deposit on sales		—		(4,208)		(4,208)
Net realized gain on sale of real estate owned		—		4,208		4,208
Ending balance	$	425,000	$	2,273,344	$	2,698,344

Residential Foreclosures and Repossessed Assets — Once all potential alternatives for reinstatement are exhausted, past due loans collateralized by residential real estate are referred for foreclosure proceedings in accordance with local requirements of the applicable jurisdiction. Once possession of the property collateralizing the loan is obtained, the repossessed property will be recorded within other assets either as other real estate owned or, where management has both the intent and ability to recover its losses through a government guarantee, as a foreclosure claim receivable. At March 31, 2016, residential foreclosures classified as other real estate owned totaled $772 thousand. Loans secured by residential real estate in process of foreclosure totaled $518 thousand at March 31, 2016 compared to $583 thousand at December 31, 2015.

6.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,
	2016	2015
Weighted average number of shares	10,802,560	10,807,366
Dilutive average number of shares	11,022,469	10,899,030

7.STOCK BASED COMPENSATION

For the three months ended March 31, 2016 and 2015, we recorded stock-based compensation expense of $114,432 and $91,902, respectively. At March 31, 2016, there was $891,270 of total unrecognized compensation cost related to non-vested stock options and restricted stock awards that we expect to realize over the next 2.5 years. As of March 31, 2016, there were 324,992 shares remaining available for future issuance under the 2010 equity incentive plan. The officers did not exercise any options during the three month periods ended March 31, 2016 and March 31, 2015.

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, 2015, have applied the assumptions set forth in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2015. During the three months ended March 31, 2016 and 2015, we granted 58,927 and 50,597 stock options, respectively. The weighted average grant date fair value of these 2016 stock options is $5.38 and was computed using the Black-Scholes option pricing model under similar assumptions.

During the three months ended March 31, 2016 and 2015, we granted 9,669 and 9,331 restricted common stock awards, respectively. The weighted average grant date fair value of these restricted stock awards is $17.75 at

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March 31, 2016. There were no restricted shares forfeited during the three month periods ending March 31, 2016 and 2015.

8.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, 2016 and year ended December 31, 2015, there were no transfers between levels.

At March 31, 2016, 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	At March 31, 2016 (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
Available-for-sale:
U.S. Treasury securities	$	2,996	$	2,996	$	—	$	—	$	—
U.S. government agency		35,471		—		35,471		—		—
Municipal securities		55,118		—		55,118		—		—
FHLMC MBS		21,151		—		21,151		—		—
FNMA MBS		47,925		—		47,925		—		—
GNMA MBS		28,088		—		28,088		—		—
Total recurring assets at fair value	$	190,749	$	2,996	$	187,753	$	—	$	—

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	At December 31, 2015 (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
Available-for-sale:
U.S. Treasury securities	$	3,000	$	3,000	$	—	$	—	$	—
U.S. government agency		36,607		—		36,607		—		—
Municipal securities		50,203		—		50,203		—		—
FHLMC MBS		21,763		—		21,763		—		—
FNMA MBS		49,101		—		49,101		—		—
GNMA MBS		29,418		—		29,418		—		—
SBA loan pools		4,614		—		4,614		—		—
Total recurring assets at fair value	$	194,706	$	3,000	$	191,706	$	—	$	—

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, 2016 and December 31, 2015 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, 2016 (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:	$	—	$	—	$	—	$	—
Acquired:		1,908		—		—		1,908
Total Impaired Loans		1,908		—		—		1,908

Other real estate owned:
Legacy:		—		—		—		—
Acquired:		262		—		—		262
Total other real estate owned:		262		—		—		262
Total	$	2,170	$	—	$	—	$	2,170

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	At December 31, 2015 (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:	$	5,333	$	—	$	—	$	5,333
Acquired:		1,958		—		—		1,958
Total Impaired Loans		7,291		—		—		7,291

Other real estate owned:
Legacy:		425		—		—		425
Acquired:		2,047		—		—		2,047
Total other real estate owned:		2,472		—		—		2,472
Total	$	9,763	$	—	$	—	$	9,763

As of March 31, 2016 and December 31, 2015, we estimated the fair value of impaired assets using Level 3 inputs to be $11.4 million and $9.8 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, WSB Holdings and Regal, 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, WSB and Regal Bank or obtained as a result of loans originated by MB&T, WSB and Regal Bank (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, 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.

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.

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.

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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, 2016 (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	$	35,585	$	35,585	$	35,585	$	—	$	—
Loans receivable, net		1,175,828		1,191,700		—		—		1,191,700
Loans held for sale		4,348		4,348		—		4,348		—
Investment securities available for sale		190,749		190,749		2,996		187,753		—
Equity Securities at cost		5,711		5,711		—		5,711		—
Accrued interest receivable		3,655		3,655		—		751		2,904

Liabilities:
Deposits:
Non-interest-bearing		328,798		328,798		—		328,798		—
Interest bearing		904,752		916,386		—		916,386		—
Short term borrowings		118,571		118,571		—		118,571		—
Long term borrowings		9,562		9,562		—		9,562		—
Accrued Interest payable		449		449		—		449		—

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	December 31, 2015 (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	$	43,701	$	43,701	$	43,701	$	—	$	—
Loans receivable, net		1,147,035		1,153,976		—		—		1,153,976
Loans held for sale		8,112		8,397		—		8,397		—
Investment securities available for sale		194,706		194,706		3,000		191,706		—
Equity Securities at cost		4,942		4,942		—		4,942		—
Accrued interest receivable		3,815		3,815		—		908		2,907

Liabilities:
Deposits:
Non-interest-bearing		328,549		328,549		—		328,549		—
Interest bearing		907,331		908,356		—		908,356		—
Short term borrowings		107,557		107,557		—		107,557		—
Long term borrowings		9,593		9,593		—		9,593		—
Accrued Interest payable		417		417		—		417		—

9.SHORT TERM BORROWINGS

Short term borrowings consist of promissory notes or overnight repurchase agreements sold to Old Line Bank’s customers, federal funds purchased and advances from the FHLB.

Securities Sold Under Agreements to Repurchase

To support the $29.6 million in repurchase agreements at March 31, 2016, we have provided collateral in the form of investment securities. At March 31, 2016 we have pledged $41.0 million in U.S. government agency securities and mortgage-backed securities to customers who require collateral for overnight repurchase agreements and deposits. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. As a result, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities in the event the collateral fair value falls below stipulated levels. We closely monitor the collateral levels to ensure adequate levels are maintained. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. We have the right to sell or re-pledge the investment securities. For government entity repurchase agreements, the collateral is held by Old Line Bank in a segregated custodial account under a tri-party agreement. The repurchase agreements totaling $29.6 million mature daily and will remain fully collateralized until the account has been closed or terminated.

10.REGAL ACQUISITION

On December 4, 2015, Old Line Bancshares completed its acquisition of Regal, the parent company of Regal Bank, through the merger of Regal with and into Bancshares (the “Merger”). The Merger was consummated pursuant to the Agreement and Plan of Merger dated as of August 5, 2015, by and between Old Line Bancshares and Regal, as amended (the “Merger Agreement”). This acquisition facilitates Old Line’s entry into the attractive markets of Baltimore County and Carroll County Maryland.

As a result of the Merger, each share of preferred stock of Regal was converted into the right to receive $2.00 in cash, and each share of common stock of Regal was converted into the right to receive, at the holder’s election, $12.68 in cash or 0.7718 shares of Old Line Bancshares’ common stock, provided that (i) cash was paid in lieu

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of any fractional shares of Old Line Bancshares common stock and (ii) no more than 59 % of the total consideration paid in the merger could consist of cash. As a result Old Line Bancshares issued approximately 230,640 shares of its common stock and paid approximately $2.9 million in cash in exchange for the shares of common stock and preferred stock of Regal in the Merger. The aggregate Merger consideration was approximately $7.0 million as calculated pursuant to the Merger Agreement.

In connection with the Merger, the parties have caused Regal Bank to merge with and into Old Line Bank, with Old Line Bank the surviving bank.

The acquired assets and assumed liabilities of Regal were measured at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the acquisition of Regal. 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. Management used quoted or current market prices to determine the fair value of investment securities, long‑term borrowings and trust preferred subordinated debentures that were assumed from Regal.

The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.


Purchase Price Consideration
Cash consideration	$	2,852,321
Purchase price assigned to shares exchanged for stock		4,144,601
Total purchase price for Regal acquisition		6,996,922





Fair Value of Assets Acquired
Cash and due from banks	$	6,344,304
Investment securities available for sale		23,832,038
Loans, net of deferred fees and costs		91,440,695
Premises and equipment		1,807,143
Accrued interest receivable		253,863
Deferred income taxes		502,320
Bank owned life insurance		4,309,770
Other real estate owned		808,150
Core deposit intangible		722,780
Other assets		603,020
Total assets acquired	$	130,624,083
Fair Value of Liabilities assumed
Deposits	$	103,975,043
Long term borrowings		16,090,182
Trust preferred subordinated debentures		3,716,838
Other liabilities		1,837,790
Total liabilities assumed	$	125,619,853
Fair Value of net assets acquired		5,004,230
Total Purchase Price		6,996,922

Goodwill recorded for Regal	$	1,992,692

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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 $428 thousand 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 98% 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), on May 10, 2013, we acquired WSB Holdings, Inc. (WSB Holdings), the parent company of The Washington Savings Bank, F.S.B. (WSB) and on December 4, 2015, we acquired Regal Bancorp, (Regal), the parent company of Regal Bank & Trust (Regal Bank). These acquisitions created the third largest independent commercial bank based in Maryland, with assets of more than $1.5 billion and with 23 full service branches serving eight counties at the time of the Regal acquisition.

Summary of Recent Performance and Other Activities

Net loans held–for-investment increased $28.8 million and deposits decreased $2.3 million during the three months ending March 31, 2016. Our net income available to common stockholders decreased $603 thousand, or 21.90% to $2.2 million for the three months ended March 31, 2016, compared to net income of $2.8 million for the three months ended March 31, 2015. Earnings were $0.20 per basic and diluted common share for the three months ended March 31, 2016 and $0.25 per basic and diluted common share for the same period in 2015. The decrease in net income is primarily the result of a $1.9 million increase in non-interest expenses and a $217 thousand increase in the provision for loan losses, offsetting increases of $1.2 million in net interest income and $152 thousand in non-interest income. Net income for the 2016 period included $359 thousand in non-deductible merger-related expenses, (or $0.03 per basic and $0.02 per diluted common share) in connection with the Regal acquisition. Excluding the merger related-expenses, earnings were $0.23 per basic and $0.22 per diluted share for the three months ending March 31, 2016 (these are non-GAAP financial measures).

The following highlights contain additional financial data and events that have occurred during the three month period ended March 31, 2016:

Net loans held-for-investment increased $28.8 million, or 2.51%, during the three months ended March 31, 2016, to $1.2 billion at March 31, 2016, compared to $1.1 billion at December 31, 2015, primarily as a result of organic growth within our market area. Average gross loans increased $85.1 million, or 7.83%, to $1.2 billion for the three month period ending March 31, 2016 compared to $1.1 billion for the three month period ended December 31, 2015. Average gross loans increased $217.9 million, or 22.82%, compared to $955 million for the three month period ended March 31, 2015. The growth for the first quarter this year as compared to the same quarter last year includes approximately $91.0 million in loans acquired in the Regal merger.

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Total assets increased $12.9 million, 0.86%, since December 31, 2015.

Net income decreased 21.90% to $2.2 million, or $0.20 per basic and diluted share, for the three month period ending March 31, 2016, from net income of $2.8 million, or $0.25 per basic and diluted share, for the first quarter of 2015.

The net interest margin was 3.85% compared to 4.32% for the same period in 2015. Total yield on interest earning assets decreased to 4.30% for the three months ending March 31, 2016, compared to 4.70% for the same three month period last year.

The first quarter Return on Average Assets (ROAA) and Return on Average Equity (ROAE) were 0.57% and 6.01%, respectively, compared to ROAA and ROAE of 0.89% and 8.27%, respectively, for the first quarter of 2015.

The first quarter of 2016 ended with a book value of $13.54 per common share and a tangible book value of $12.25 per common share compared to $13.32 and $12.02, respectively, at December 31 2015.

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, 2016 compared to same period in 2015 (figures in the table may not match those discussed in the balance of this section due to rounding).


	Three months ended March 31,
	(Dollars in thousands)
	2016			2015			$ Change		% Change

Net income available to common stockholders	$	2,151		$	2,754		$	(603)	(21.90)	%
Interest income		14,158			12,508			1,650	13.19
Interest expense		1,546			1,046			500	47.80
Net interest income before provision for loan losses		12,612			11,462			1,150	10.03
Provision for loan losses		779			562			217	38.61
Non-interest income		1,984			1,832			152	8.30
Non-interest expense		10,625			8,692			1,933	22.24
Average total loans		1,172,759			954,873			217,886	22.82
Average interest earning assets		1,367,283			1,115,529			251,754	22.57
Average total interest bearing deposits		908,510			772,839			135,671	17.55
Average non-interest bearing deposits		326,250			262,926			63,324	24.08
Net interest margin		3.85	%		4.32	%			(10.88)
Return on average equity		6.01	%		8.27	%			(27.33)
Basic earnings per common share	$	0.20		$	0.25		$	(0.05)	(20.00)
Diluted earnings per common share		0.20			0.25			(0.05)	(20.00)

Strategic Plan

We have based our strategic plan on the objective of enhancing stockholder value and growth through branching and operating profits. Our short term goals include continuing the growth of the loan and deposit portfolios, 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 few years, we have expanded organically in Montgomery County and both organically and through acquisitions in Charles, Prince George’s and Anne Arundel Counties, Maryland, and now with the Regal merger, we have expanded into Baltimore and Carroll Counties as well.

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

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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 continue to take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks or hire additional loan officers. We 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, WSB Holdings and Regal.

Although the current economic and regulatory climate continues to present challenges for our industry, we have worked diligently towards our goal of becoming the premier community bank in suburban Maryland, resulting in increased penetration into the Charles, Prince George’s, Anne Arundel and Montgomery County markets as well as expansion into the Baltimore County and Carroll County. While we are uncertain about the pace of economic growth or the impact of the current political environment, and we believe that international concerns, including slowing growth in China’s economy, and the 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.

If the Board of Governors of the Federal Reserve System maintains the federal funds rate at or near current levels and the economy remains stable, we believe that we can continue to grow total loans and can grow deposits during 2016. We also believe that we will be able to maintain a strong net interest margin during 2016. As a result of this growth and expected continued strength in the net interest margin, we expect that net interest income will increase during 2016, although there can be no guarantee that this will be the case.

We also expect that salaries and benefits expenses and other operating expenses will continue to be higher during 2016 than they were in 2015 due to the additional staff resulting from the Regal acquisition and our intention to add more business development talent as the opportunity to do so becomes available. We will continue to look for opportunities to reduce expenses as we did with the closing of four branches in 2014. We believe with our existing and planned 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, 2015, 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 combinations and accounting for acquired loans. There have been no material changes in our critical accounting policies during the three months ended March 31, 2016.

Results of Operations for the Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015.

Net Interest Income. Net interest income is the difference between income on interest earning assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, interest bearing deposits and federal funds sold. Cost of funds consists of interest paid on interest bearing deposits and other borrowings. Non-interest bearing deposits and capital are also funding sources. Changes in the volume and mix of earning assets and funding sources along with changes in associated interest rates determine changes in net interest income. Net interest income before provision for loan losses for the three months ended March 31, 2016 increased $1.2 million, or 10.03%, to $12.6 million from $11.5 million for the same period in 2015. As outlined in detail in the Rate/Volume Variance Analysis, this increase was the result of an increase in total interest income, resulting primarily from an increase in the volume of our average loans partially offset by a decrease in the yield on the loan portfolio, partially offset by an increase in interest expense resulting from an increase in the average rate on and, to a lesser extent, the average balance of, our interest-bearing liabilities, all as discussed further below. We continue to adjust the mix and volume of interest earning assets and liabilities on the balance sheet to maintain a relatively strong net interest margin.

Total interest income increased $1.7 million, or 13.19%, to $14.1 million during the three months ended March 31, 2016 compared to $12.5 million during the three months ended March 31, 2015, primarily as a result of a $1.4 million

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increase in interest and fees on loans. The increase in interest and fees on loans is the result of a $217.9 million increase in our average loans for the three months ended March 31, 2016 compared to the same period in 2015 as a result of strong organic loan growth and, to a lesser extent, the acquisition of Regal Bank, partially offset by a decrease in the average yield on loans. The average yield on the loan portfolio decreased to 4.56% for the three months ended March 31, 2016 from 5.03% during the three months ended March 31, 2015 due to a lower level of accretion on acquired loans, lower yields on new loans and re-pricing in the loan portfolio. The fair value accretion/amortization on acquired loans affects interest income, primarily due to payoffs on such acquired loans. Payoffs during the three months ended March 31, 2016 contributed a six basis point increase in interest income, as compared to 21 basis points for the three months ending March 31, 2015. In addition, a $178 thousand increase in interest earned on investment securities also impacted total interest income for the 2016 period. This increase was primarily related to increases in the interest earned on mortgage backed and municipal securities due to increases in both the average volume and the average yield of these securities.

Total interest expense increased $500 thousand, or 47.80%, to $1.5 million during the three months ended March 31, 2016 from $1.0 million for the same period in 2015, as a result of the increases in the average balance of and, to a lesser extent, the average rate paid on interest bearing liabilities. The average rate paid on interest bearing deposits increased to 0.56% during the three months ended March 31, 2016 from 0.48% the same three month period last year, primarily due to the increase in the rates paid on time deposits primarily as a result of higher rates paid on time deposits acquired in the Regal acquisition. The average interest rate paid on all interest bearing liabilities increased to 0.60% during the three months ended March 31, 2016 compared to 0.50% during the three months ended March 31, 2015, primarily due to higher rates paid on our borrowings, which includes the interest paid on our trust preferred securities, and to a lesser extent, the increase in the average rate paid on deposits. The fair value accretion recorded on acquired deposits also affects interest expense. The benefit from accretion on such deposits increased by two basis points as compared to the same three month period of 2015.

The average balance of interest bearing liabilities increased $192.4 million, or 22.75%, to $1.0 billion for the three months ended March 31, 2016 from $845.6 million for the three months ended March 31, 2015, primarily as a result of increases of $135.7 million, or 17.56%, in our average interest bearing deposits and $56.7 million, or 78.00%, in our average borrowings quarter over quarter. The increase in our average interest bearing deposits is primarily due to the deposits acquired in the Regal acquisition and, to a lesser extent, organic deposit growth. The increase in our average borrowings is due to our need for additional liquidity to fund new loan originations.

Non-interest bearing deposits allow us to fund growth in interest earning assets at minimal cost. As a result of the growth generated primarily from our branch network and also from the efforts of our commercial loan officers in working with loan clients to move their commercial deposits to Old Line Bank, average non-interest bearing deposits increased $63.3 million to $326.2 million for the three months ended March 31, 2016, compared to $262.9 million for the three months ended March 31, 2015.

Our net interest margin decreased to 3.85% for the three months ended March 31, 2016 from 4.32% for the three months ended March 31, 2015. The yield on average interest earning assets decreased 30 basis points for the period from 4.70% for the quarter ended March 31, 2015 to 4.30% for the quarter ended March 31, 2016 due to the decrease on the yield on our loan portfolio, and the average rate paid on our interest-bearing liabilities increased ten basis points as discussed above. The net interest margin in 2016 also was affected by lower levels of accretion on acquired loans due to a lower amount of early payoffs on acquired loans with credit marks for the three months ending March 31, 2016 as compared to the same three month period of 2015.

During the three months ended March 31, 2016 and 2015, we continued to successfully collect payments on acquired loans that we had recorded at fair value at the acquisition date, which resulted in a positive impact in interest income. Total accretion decreased by $335 thousand for the period ended March 31, 2016, as compared to 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.

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The accretion positively impacted the yield on loans and increased the net interest margin during these periods as follows:


	Three months ended March 31,
	2016				2015
			% Impact on				% Impact on
	Accretion		Net Interest		Accretion		Net Interest
	Dollars		Margin		Dollars		Margin
Commercial loans	$	27,404	0.01	%	$	8,690	—	%
Mortgage loans		179,550	0.05			589,266	0.21
Consumer loans		11,553	—			11,390	—
Interest bearing deposits		92,833	0.03			37,263	0.01
Total accretion (amortization)	$	311,340	0.09	%	$	646,609	0.22	%

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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, 2016 and 2015, 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
	2016						2015
	Average						Average
Three months ended March 31,	balance		Interest		Yield		balance		Interest		Yield
Assets:
Federal funds sold (1)	$	961,230	$	1,130	0.47	%	$	593,602	$	177	0.12	%
Interest bearing deposits (1)		1,577,489		4	—			1,321,460		8	—
Investment securities (1)(2)
U.S. Treasury		3,015,919		4,001	0.05			3,000,627		2,773	0.37
U.S. government agency		35,935,659		132,979	1.49			38,427,608		141,045	1.49
Mortgage backed securities		101,177,759		513,305	2.04			76,487,119		373,010	1.98
Municipal securities		51,616,421		575,109	4.48			42,069,998		504,873	4.87
Other equity securities		5,290,636		101,484	7.71			3,253,469		64,697	8.06
Total investment securities		197,036,394		1,326,878	2.71			163,238,821		1,086,398	2.70
Loans(1)
Commercial		143,810,735		1,446,040	4.04			137,236,366		1,335,638	3.95
Mortgage real estate		1,021,690,765		11,756,514	4.63			808,034,807		10,371,988	5.21
Consumer		7,257,351		93,341	5.17			9,601,864		142,961	6.04
Total loans		1,172,758,851		13,295,895	4.56			954,873,037		11,850,587	5.03
Allowance for loan losses		5,050,728		—				4,498,086		—
Total loans, net of allowance		1,167,708,123		13,295,895	4.58			950,374,951		11,850,587	5.04
Total interest earning assets(1)		1,367,283,236		14,623,907	4.30			1,115,528,834		12,937,170	4.70
Non-interest bearing cash		43,812,578						34,422,919
Premises and equipment		36,161,678						34,373,914
Other assets		74,368,763						68,409,003
Total assets(1)		1,521,626,255						1,252,734,670
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		98,195,985		29,631	0.12			89,347,501		26,742	0.12
Money market and NOW		373,122,870		225,195	0.24			326,664,982		161,184	0.20
Other time deposits		437,191,264		1,015,594	0.93			356,826,302		723,031	0.82
Total interest bearing deposits		908,510,119		1,270,420	0.56			772,838,785		910,957	0.48
Borrowed funds		129,440,961		275,659	0.86			72,721,100		134,716	0.75
Total interest bearing liabilities		1,037,951,080		1,546,079	0.60			845,559,885		1,045,673	0.50
Non-interest bearing deposits		326,249,639						262,926,103
		1,364,200,719						1,108,485,988
Other liabilities		13,130,367						9,009,800
Non-controlling interest		256,330						258,240
Stockholders’ equity		144,038,839						134,980,642
Total liabilities and stockholders’ equity	$	1,521,626,255					$	1,252,734,670
Net interest spread(1)					3.70						4.20
Net interest margin(1)			$	13,077,828	3.85	%			$	11,891,497	4.32	%

(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, 2016 and 2015. 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,
	2016 compared to 2015
	Variance due to:
	Total		Rate		Volume

Interest earning assets:
Federal funds sold(1)	$	954	$	906	$	48
Interest bearing deposits		(4)		(7)		3
Investment Securities(1)
U.S. treasury		1,229		1,226		3
U.S. government agency		(8,067)		7,269		(15,336)
Mortgage backed securities		140,295		37,037		103,258
Municipal securities		70,236		62,716		7,520
Other		36,787		(928)		37,715
Loans:(1)
Commercial		110,402		75,908		34,494
Mortgage		1,384,525		(2,374,738)		3,759,263
Consumer		(49,620)		(34,994)		(14,626)
Total interest revenue (1)		1,686,737		(2,225,605)		3,912,342

Interest bearing liabilities
Savings		2,889		(259)		3,148
Money market and NOW		64,011		54,754		9,257
Other time deposits		292,563		206,095		86,468
Borrowed funds		140,943		58,244		82,699
Total interest expense		500,406		318,834		181,572

Net interest income(1)	$	1,186,331	$	(2,544,439)	$	3,730,770

(1)

Provision for Loan Losses. The provision for loan losses for the three months ended March 31, 2016 was $779 thousand, an increase of $217 thousand, or 38.61% compared to $562 thousand for the three months ended March 31, 2015. The increase for the three month period is the result of increase in our loan held-for-investment portfolio and an increase in our reserves on specific loans.

Management identified probable losses in the loan portfolio and recorded charge-offs of $5 thousand for the three months ended March 31, 2016 compared to $239 thousand for the three months ended March 31, 2015. Recoveries of $22 thousand were recognized for the three months ending March 31, 2016 compared to $32 thousand for the same three month period in 2015.

The allowance for loan losses to gross loans held-for-investment was 0.48% and 0.43%, and allowance for loan losses to non-accrual loans was 77.51% and 83.31%, at March 31, 2016 and December 31, 2015, respectively. The increase in the allowance for loan losses as a percentage of gross loans held-for-investment was the result of the increase in the loan portfolio balance and in our classified substandard and special mention loans within our Legacy loan portfolio. The decrease in the allowance for loan losses to non-accrual loans is primarily the result of an increase in the amount of non-

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accrual loans in the 2016 period as a result of five additional acquired non-accrual loans totaling $1.8 million during the quarter, which was partially offset by an increase of $796 thousand in the allowance.

Non-interest Income. Non-interest income totaled $2.0 million for the three months ended March 31, 2016, an increase of $152 thousand, or 8.28%, from the corresponding period of 2015 amount of $1.8 million.

The following table outlines the amount of and changes in non-interest income for the three month periods.


	Three months ended
	March 31,
	2016		2015		$ Change		% Change
Service charges on deposit accounts	$	411,337	$	415,202	$	(3,865)	(0.93)
Gain on sale of investment securities		76,998		60,694		16,304	26.86
Earnings on bank owned life insurance		282,186		248,384		33,802	13.61
Rental income		209,892		210,188		(296)	(0.14)
Gain/(loss) on sale of assets		—		19,975		(19,975)	(100.00)
Income on marketable loans		377,138		354,650		22,488	6.34
Other fees and commissions		626,102		522,816		103,286	19.76
Total non-interest revenue	$	1,983,653	$	1,831,909	$	151,744	8.28

Non-interest income increased during the 2016 period primarily as a result of increases in other fees and commissions, earnings on bank owned life insurance and income on marketable loans, offsetting the lack of any gain on disposal of assets compared to a $20 thousand gain during the comparable 2015 period.

Other fees and commissions increased primarily related to a one time incentive fee received for our check card program. The increase in earnings on bank owned life insurance is due to the bank owned life insurance we acquired in the Regal acquisition.

Income on marketable loans consists of gain on the sale of loans and any fees we receive in connection with such sales. Income on marketable loans increased $22 thousand during the three months ended March 31, 2016 compared to the same period last year primarily due to gains recorded on the sale of marketable loans as a result of an increased volume of sales. The residential mortgage division sold $16.7 million of residential mortgage loans sold in the secondary market during the first quarter of 2016 compared to $24.2 million for the same period last year. Premiums received on loans sold in secondary market were higher in 2016 as compared to the same period last year.

Non-interest Expense. Non-interest expense increased $1.9 million, or 22.24%, for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

The following chart outlines the amounts and changes in non-interest expenses for the periods.


	Three months ended
	March 31,
	2016		2015		$ Change		% Change
Salaries and benefits	$	5,376,552	$	4,217,370	$	1,159,182	27.49
Occupancy and equipment		1,724,553		1,399,877		324,676	23.19
Data processing		397,792		352,060		45,732	12.99
FDIC insurance and State of Maryland assessments		235,283		248,893		(13,610)	(5.47)
Merger and integration		359,481		—		359,481	100
Core deposit premium		226,241		210,117		16,124	7.67
(Gain) loss on sale of other real estate owned		(4,208)		134,754		(138,962)	(103.12)
OREO expense		154,966		120,201		34,765	28.92
Director Fees		168,800		170,000		(1,200)	(0.71)
Network services		136,895		181,663		(44,768)	(24.64)
Telephone		218,634		164,935		53,699	32.56
Other operating		1,629,530		1,491,744		137,786	9.24
Total non-interest expenses	$	10,624,519	$	8,691,614	$	1,932,905	22.24

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Non-interest expenses increased quarter over quarter primarily as a result of increases in salaries and benefits, occupancy and equipment, and merger-related expenses, partially offset by a gain on sale of other real estate owned properties compared to a loss during the 2015 period. Salaries and benefits increased $1.2 million primarily as a result of additional staff due to our acquisition of Regal Bank, the addition of two commercial lending officers in the third quarter of 2015, two commercial lending officers in the first quarter of 2016, and the additional staff for our new Rockville location that opened in November 2015. Occupancy and equipment increased $325 thousand as a result of the addition of the former Regal Bank branches and the additional of our new Rockville branch. Gain on the sale of other real estate owned was $4 thousand related to one property sold in a prior year compared to net losses of $135 thousand on the sale of three other real estate owned properties during the three months ended March 31, 2015. Merger-related expenses include approximately $140 thousand in severance payments associated with merger-related staff reductions.

Income Taxes. We had an income tax expense of $1.0 million (32.68% of pre-tax income) for the three months ended March 31, 2016 compared to an income tax expense of $1.3 million (32.06% of pre-tax income) for the same period in 2015. The effective tax rate increased slightly for the 2016 period due to an increase in our taxable income related to loan interest and a decline in interest on tax exempt municipal securities as a percentage of total pre-tax income compared to the same period last year.

Net Income Available to Common Stockholders. Net income available to common stockholders was $2.2 million or $0.20 per basic and diluted common share for the three month period ending March 31, 2016 compared to $2.8 million, or $0.25 per basic and diluted common share, for the same period in 2015. The decrease in net income is primarily the result of the $1.9 million increase in non-interest expenses and the $217 thousand increase in the provision for loan losses, offsetting increases of $1.2 million in net interest income and $152 thousand in non-interest income. Excluding the merger-related expenses as discussed above, earnings were $0.23 per basic and $0.22 per diluted share for the three months ending March 31, 2016 (these per-share earnings figures are non-GAAP financial measures).

Analysis of Financial Condition

Investment Securities. Our portfolio consists primarily of time deposits in other banks, investment grade securities including U.S. Treasury securities, U.S. government agency securities, U.S. government sponsored entity securities, securities issued by states, counties and municipalities, mortgage backed securities, and certain equity securities (recorded at cost) Federal Home Loan Bank stock, Maryland Financial Bank stock, and Atlantic Central Bankers Bank stock.

We have prudently managed our investment portfolio to maintain liquidity and safety. 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 investment securities at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects. 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. We continually evaluate our investment portfolio to ensure it is adequately diversified, provides sufficient cash flow and does not subject us to undue interest rate risk. There are no trading securities in our portfolio.

The investment securities at March 31, 2016 amounted to $190.7 million, a decrease of $4.0 million, or 2.03%, from the December 31, 2015 amount of $194.7 million. As outlined above, at March 31, 2016, all securities are classified as available for sale.

The fair value of available for sale securities included net unrealized gains of $1.2 million at March 31, 2016 (reflected as $718 thousand in stockholders’ equity after deferred taxes) as compared to net unrealized gains of $63 thousand (reflected as $38 thousand net of taxes) at December 31, 2015. The improvement in the value of the investment securities is due to a decrease in market interest rates, which resulted in an increase in bond values. We have evaluated securities with unrealized losses for an extended period of time and determined that all such 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.

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Loan Portfolio. Net of allowance, unearned fees and origination costs, loans held for investment increased $28.8 million or 2.51% to $1.2 billion at March 31, 2016 from $ 1.1 billion at December 31, 2015. Commercial real estate loans increased by $24 million, residential real estate loans increased by $1.2 million, commercial and industrial loans increased by $2.7 million and consumer loans increased $860 thousand from their respective balances at December 31, 2015. The loan growth during the period was primarily due to the new commercial real estate originations resulting from our enhanced presence in our market area. The decrease in our consumer loans is the result of loan pay-downs during the period.

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. Due to the recent acquisition of Regal Bank, our lending activity has expanded to include Baltimore and Carroll Counties.

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


	March 31, 2016						December 31, 2015
	Legacy (1)		Acquired		Total		Legacy (1)		Acquired		Total

Commercial Real Estate
Owner Occupied	$	195,806,091	$	55,602,935	$	251,409,026	$	193,909,818	$	57,212,598	$	251,122,416
Investment		321,056,178		57,216,335		378,272,513		298,434,087		57,749,376		356,183,463
Hospitality		96,064,364		10,843,916		106,908,280		91,440,548		10,776,561		102,217,109
Land and A&D		49,140,686		6,345,422		55,486,108		50,584,469		7,538,964		58,123,433
Residential Real Estate
First Lien-Investment		72,436,377		28,371,587		100,807,964		69,121,743		31,534,452		100,656,195
First Lien-Owner Occupied		39,344,366		51,010,583		90,354,949		37,486,858		52,204,717		89,691,575
Residential Land and A&D		36,054,588		6,803,478		42,858,066		35,219,801		6,578,950		41,798,751
HELOC and Jr. Liens		24,187,944		4,135,414		28,323,358		24,168,289		4,350,956		28,519,245
Commercial and Industrial		109,726,705		8,485,869		118,212,574		105,963,233		9,519,465		115,482,698
Consumer		7,522,759		210,074		7,732,833		6,631,311		243,804		6,875,115
		951,340,058		229,025,613		1,180,365,671		912,960,157		237,709,843		1,150,670,000
Allowance for loan losses		(5,400,563)		(305,294)		(5,705,857)		(4,821,214)		(88,604)		(4,909,818)
Deferred loan costs, net		1,168,351		—		1,168,351		1,274,533		—		1,274,533
	$	947,107,846	$	228,720,319	$	1,175,828,165	$	909,413,476	$	237,621,239	$	1,147,034,715

(1)

As a result of the acquisitions of Maryland Bankcorp, WSB Holdings, and Regal, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T, WSB and Regal Bank (acquired).

Bank owned life insurance. At March 31, 2016, we have invested $36.8 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 and Regal Bank. This represents a $238 thousand increase from December 31, 2015 as a result of interest earned on these policies.

Deposits. The deposit portfolio decreased $2.3 million, or 0.19%, during the three month period ending March 31, 2016, remaining at $1.2 billion at March 31, 2016 and December 31, 2015. The deposit decline was comprised of a $2.6 million, or 0.28%, decrease in interest bearing deposits, offsetting an increase of $248 thousand, or 0.08%, in non-interest bearing deposits. Non-interest bearing deposits increased to $328.8 million from $328.5 million and interest bearing deposits decreased to $904.8 million from $907.3 million. The decline in our deposit base was due to a commercial customer withdrawing the funds from its commercial checking account to pay off its loan with Old Line Bank.

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The following table outlines the changes in interest bearing deposits:


	March 31,		December 31,
	2016		2015		$ Change		% Change
	(Dollars in thousands)
Certificates of deposit	$	426,993	$	443,463	$	(16,470)	(3.71)	%
Interest bearing checking		377,584		367,239		10,345	2.82
Savings		100,175		96,629		3,546	3.67
Total	$	904,752	$	907,331	$	(2,579)	(0.28)	%

We acquire brokered certificates of deposit and money market accounts 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, 2016, we had $39.0 million in CDARS and $96.8 million in money market accounts through Promontory’s reciprocal deposit program compared to $43.5 million and $97.0 million, respectively, at December 31, 2015. During 2013, we acquired $18.0 million in brokered certificates of deposit in the WSB acquisition. At December 31, 2015, the balance of brokered deposits was $14.0 million. A $2.8 million brokered certificate of deposit matured during the three months ended March 31, 2016 and brought the remaining balance at March 31, 2016 to $11.2 million. This balance will continue to decrease as brokered certificates of deposit mature. 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 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 and are secured by investments. At March 31, 2016, we had $89.0 million outstanding in short term FHLB borrowings, compared to $74.0 million at December 31, 2015. At March 31, 2016 and December 31, 2015, we had no unsecured promissory notes and $39.0 million and $43.5 million, respectively, in secured promissory notes.

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 $5.8 million and $5.9 million, respectively, at March 31, 2016 and December 31, 2015. The note has a 10 year fixed interest rate of 6.28% and matures on September 5, 2016. Also included in long-term borrowings are trust preferred subordinated debentures we acquired in the Regal acquisition, which consist of two trusts - Trust 1 in the amount of $4.0 million (fair value adjustment of $1.6 million) maturing in 2034 and Trust 2 in the amount of $2.0 (fair value adjustment of $1.3 million) maturing in 2035.

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 regulatory guidelines. As further discussed below, we have credit lines, unsecured and secured, available from several correspondent banks totaling $33.5 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 flow 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, 2016, we had $34.1 million in cash and due from banks, $1.2 million in interest bearing accounts, and $326 thousand in federal funds sold. As of December 31, 2015, we had $40.2 million in cash and due from banks, $1.1 million in interest bearing accounts, and $2.3 million in federal funds sold.

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

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aware of any demands, trends, commitments, or events that would result in Old Line Bank’s inability to meet anticipated or unexpected liquidity needs.

We had a non-recurring withdrawal on a large depositor account for $25 million during the first quarter of 2016. This resulted in our borrowing from the FHLB. These funds had previously been deposited following the sale of property from an estate and the funds are now being distributed to pay the obligations of the estate. As noted above we also had a commercial borrower use the funds in its account to pay off its loan during the quarter. We did not have any other unusual liquidity requirements during the three months ended March 31, 2016. 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 $28.5 million at March 31, 2016. Old Line Bank has an additional secured line of credit from the FHLB of $361.9 million at March 31, 2016. 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 $170.0 million in lendable collateral value for FHLB borrowings. We may increase availability by providing additional collateral. Additionally, we have overnight repurchase agreements sold to Old Line Bank’s customers and have provided collateral in the form of investment securities to support the $39.0 million in repurchase agreements.

The Board of Governors of the Federal Reserve System and FDIC approved the final rules implementing the Basel III. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital for risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The capital conservation buffer is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.

Old Line Bank has elected to permanently opt out of the inclusion of accumulated other comprehensive income in our capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital levels.

The phase-in period for the final rules became effective for Old Line Bancshares and Old Line Bank on January 1, 2015, with full compliance with all of the final rule requirements phased in over a multi-year schedule, to be fully phased in by January 1, 2019. As of March 31, 2016, Old Line Bancshares’ capital levels remained characterized as “well-capitalized” under the new rules.

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 decreases of $718 thousand and $1.2 million, respectively, which represents unrealized gains (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 $5.7 million for the general loan loss reserve during the three months ended March 31, 2016.

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As of March 31, 2016, Old Line Bank met all capital adequacy requirements to be considered well capitalized. There were no conditions or events since the end of the first quarter of 2016 that management believes have changed Old Line Bank’s classification as well capitalized.

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, 2016.


					Minimum capital				To be well
	Actual				adequacy				capitalized
March 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in 000’s)
Common equity tier 1 (to risk-weighted assets)	$	127,552	10.18	%	$	56,367	4.5	%	$	81,418	6.5	%
Total capital (to risk weighted assets)	$	133,505	10.66	%	$	100,207	8	%	$	125,259	10	%
Tier 1 capital (to risk weighted assets)	$	127,552	10.18	%	$	75,156	6	%	$	100,207	8	%
Tier 1 leverage (to average assets)	$	127,552	8.52	%	$	60,594	4	%	$	75,742	5	%

On February 25, 2015, Old Line Bancshares’ board of directors approved the repurchase of up to 500,000 shares of its outstanding common stock. As of March 31, 2016, 339,237 shares have been repurchased at an average price of $15.73 per share. The repurchased shares have been returned to the status of authorized but unissued shares. We have repurchased shares for a total cost of approximately $5.3 million since the board of directors authorized such transactions.

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 an economic downturn 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 four executive officers and four non-employee members of the board of directors.

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.

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of a borrower has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. These loans do not meet the criteria for, and are therefore not included in, non-performing assets.

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Management, however, classifies potential problem loans as either special mention, watch, or substandard. These loans were considered in determining the adequacy of the allowance for loan losses and are closely and regularly monitored to protect our interests. Potential problem loans, which are not included in non-performing assets, amounted to $36.9 million at March 31, 2016 compared to $33.8 million at December 31, 2015. At March 31, 2016, we had $18.6 million and $18.3 million, respectively, of potential problem loans attributable to our legacy and acquired loan portfolios, compared to $13.2 million and $20.6 million, respectively, at December 31, 2015.

Acquired Loans. Loans acquired in mergers 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.

All acquired loans from MB&T, WSB and Regal Bank were recorded 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 of a loan subsequent to the acquisition date, we establish an allowance for loan losses for those acquired loans with decreased cash flows. At March 31, 2016, there was $305 thousand of allowance reserved for potential loan losses on acquired loans compared to $89 thousand at December 31, 2015.

Nonperforming Assets. As of March 31, 2016, our nonperforming assets totaled $11.0 million and consisted of $7.4 million of nonaccrual loans, $902 thousand in loans past 90 days and still accruing, and other real estate owned of $2.7 million.

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The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.


	Nonperforming Assets
	March 31, 2016						December 31, 2015
	Legacy		Acquired		Total		Legacy		Acquired		Total
Accruing loans 90 or more days past due
Commercial Real Estate
Land and A&D	$	—	$	—	$	—	$	—	$	128,938	$	128,938
Residential Real Estate:
First-Owner Occupied		—		901,622		901,622		—		—		—
Consumer		—		—		—		—		499		499
Total accruing loans 90 or more days past due		—		901,622		901,622		—		129,437		129,437
Non-accruing loans:
Commercial Real Estate
Owner Occupied	$	2,472,685	$	684,968	$	3,157,653	$	2,474,813	$	—	$	2,474,813
Investment		—		—		—		—		64,447		64,447
Land and A&D		—		297,046		297,046		—		261,700		261,700
Residential Real Estate:
First-Investment		—		397,367		397,367		102,443		580,696		683,139
First-Owner Occupied		—		815,695		815,695		—		566,701		566,701
Commercial		1,819,599		873,796		2,693,395		1,842,819		—		1,842,819
Consumer		—		—		—		—		—		—
Total Non-accruing loans:		4,292,284		3,068,872		7,361,156		4,420,075		1,473,544		5,893,619

Other real estate owned (“OREO”)		425,000		2,273,344		2,698,344		425,000		2,047,044		2,472,044

Total non performing assets	$	4,717,284	$	6,243,838	$	10,961,122	$	4,845,075	$	3,650,025	$	8,495,100

Accruing Troubled Debt Restructurings
Residential Real Estate:
Land and A&D	$	—	$	91,929	$	91,929	$	—	$	—	$	—
First-Investment		—		66,453		66,453		—		—		—
First-Owner Occupied		—		675,926		675,926		—		631,777		631,777
Commercial		—		78,619		78,619		—		79,574		79,574
Total Accruing Troubled Debt Restructurings	$	—	$	912,927	$	912,927	$	—	$	711,351	$	711,351

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The table below reflects our ratios of our non-performing assets at March 31, 2016 and December 31, 2015.


	March 31,		December 31,
	2016		2015
Ratios, Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	0.50	%	0.55	%
Total nonperforming assets as a percentage of total assets	0.37	%	0.53	%
Total nonperforming assets as a percentage of total loans held for investment	0.50	%	0.55	%

Ratios, Including Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	1.00	%	0.80	%
Total nonperforming assets as a percentage of total assets	0.78	%	0.61	%
Total nonperforming assets as a percentage of total loans held for investment	1.00	%	0.80	%

The table below presents a breakdown of the recorded book balance of non-accruing loans at March 31, 2016 and December 31, 2015.


	March 31, 2016							December 31, 2015
		Unpaid				Interest			Unpaid
	# of	Principal		Recorded		Not		# of	Principal		Recorded		Interest Not
	Contracts	Balance		Investment		Accrued		Contracts	Balance		Investment		Accrued
Legacy
Commercial Real Estate:
Owner Occupied	3	$	2,472,685	$	2,472,685	$	56,032	3	$	2,474,813	$	2,474,813	$	7,096
Land	—		—		—		—	—		—		—		—
Residential Real Estate
First-Investment							—	1		102,443		102,443		—
First-Owner Occupied	—		—		—		—	—		—		—		—
Commercial	24		1,819,599		1,819,599		202,210	24		1,842,819		1,842,819		5,768
Consumer	—		—		—		—	—		—		—		—
Total non-accrual loans	27		4,292,284		4,292,284		258,242	28		4,420,075		4,420,075		12,864

Acquired (1)
Commercial Real Estate:
Investment	—		—		—		—	—		—		—		—
Owner Occupied	1		982,368		684,968		1,603	—		—		—		—
Land and A & D	2		360,494		252,046		22,542	1		267,113		261,700		7,442
Residential Real Estate
First-Investment	3		826,414		815,695		66,986	5		542,547		468,156		59,207
First-Owner Occupied	5		511,441		397,367		60,437	3		754,408		743,688		20,887
Land and A & D	1		334,271		45,000		129,993	—		—		—		—
Commercial	1		873,796		873,796		—	—		—		—		—
Total non-accrual loans	13	$	3,888,784	$	3,068,872	$	281,561	9	$	1,564,068	$	1,473,544	$	87,536
Total all non-accrual loans	40	$	8,181,068	$	7,361,156	$	539,803	37	$	5,984,143	$	5,893,619	$	100,400

(1)

Generally accepted accounting principles require that we record acquired loans at fair value at acquisition 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 $128 thousand from December 31, 2015 primarily due to one residential investment real estate loan that paid off during the quarter.

Non-performing acquired loans increased $1.6 million from December 31, 2015 primarily due to the addition of one commercial real estate loan, one residential real estate land and acquisition loan and one commercial loan.

At March 31, 2016, legacy OREO consisted of one property.

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At March 31, 2016, acquired OREO increased by $226 thousand from December 31, 2015. The increase in acquired OREO was driven by the foreclosure on the property securing a loan and the transfer of the value of such property, or $271 thousand, to OREO, partially offset by a credit adjustment on one acquired property from the Regal merger.

We recorded net gain on OREO of $4 thousand during the three month period ended March 31, 2016 compared to a net loss of $135 thousand during the three month period ended March 31, 2015. This gain is the result of previously-sold OREO property on which we received payment in the 2016 period.

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.

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:


			Commercial		Residential
Three Months Ended March 31, 2016	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	1,168,529	$	3,046,714	$	682,962	$	11,613	$	4,909,818
General provision for loan losses		(181,950)		754,449		213,381		(7,269)		778,611
Recoveries		6,898		—		7,861		7,641		22,400
		993,477		3,801,163		904,204		11,985		5,710,829
Loans charged off		(4,472)		—		—		(500)		(4,972)
Ending Balance	$	989,005	$	3,801,163	$	904,204	$	11,485	$	5,705,857
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	415,346	$	545,585	$	—	$	—	$	960,931
Other loans not individually evaluated		573,659		3,255,578		598,910		11,485		4,439,632
Acquired Loans:
Individually evaluated for impairment		—		—		305,294		—		305,294
Ending balance	$	989,005	$	3,801,163	$	904,204	$	11,485	$	5,705,857

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			Commercial		Residential		Other
December 31, 2015	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835
Provision for loan losses		675,598		495,537		282,398		(142,549)		1,310,984
Recoveries		16,068		20		135,908		58,105		210,101
		1,388,037		3,053,925		1,345,301		15,657		5,802,920
Loans charged off		(226,719)		—		(662,339)		(4,044)		(893,102)
Ending Balance	$	1,161,318	$	3,053,925	$	682,962	$	11,613	$	4,909,818
Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	605,336	$	119,198	$	—	$	—	$	724,534
Other loans not individually evaluated		555,982		2,934,727		594,358		11,613		4,096,680
Acquired Loans:
Individually evaluated for impairment		—		—		88,604		—		88,604
Ending balance	$	1,161,318	$	3,053,925	$	682,962	$	11,613	$	4,909,818

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


	March 31, 2016		December 31, 2015
Ratio of allowance for loan losses to:
Total gross loans held for investment	0.48	%	0.43	%
Non-accrual loans	77.51	%	83.31	%
Net charge-offs to average loans	0.00	%	0.07	%

During the three months ended March 31, 2016, we charged-off $5 thousand in loans through the allowance for loan losses for one legacy loan for $4,500 and one acquired loan for $500. The legacy loan was a commercial loan. The acquired loan was a consumer loan.

The allowance for loan losses represented 0.48% and 0.43% of gross loans held for investment at March 31, 2016 and December 31, 2015, respectively and 0.60% and 0.54% of legacy loans at March 31, 2016 and December 31, 2015, 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.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

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

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Outstanding loan commitments and lines and letters of credit at March 31, 2016 and December 31, 2015, are as follows:


	March 31,		December 31,
	2016		2015
	(Dollars in thousands)

Commitments to extend credit and available credit lines:
Commercial	$	86,338	$	82,875
Real estate-undisbursed development and construction		57,866		43,079
Consumer		12,879		19,577
	$	157,083	$	145,531
Standby letters of credit	$	18,239	$	17,442

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Old Line Bancshares generally requires collateral to support financial instruments with credit risk on the same basis as it does for on balance sheet instruments. The collateral is based on management’s credit evaluation of the counter party. Commitments generally have interest rates fixed at current market rates, expiration dates or other termination clauses and may require payment of a fee. Available credit lines represent the unused portion of lines of credit previously extended and available to the customer so long as there is no violation of any contractual condition. These lines generally have variable interest rates. Since many of the commitments are expected to expire without being drawn upon, and since it is unlikely that all customers will draw upon their lines of credit in full at any time, the total commitment amount or line of credit amount does not necessarily represent future cash requirements. We evaluate each customer’s credit worthiness on a case by case basis. We regularly reevaluate many of our commitments to extend credit. Because we conservatively underwrite these facilities at inception, we generally do not have to withdraw any commitments. We are not aware of any loss that we would incur by funding our commitments or lines of credit.

Commitments for real estate development and construction, which totaled $57.9 million, or 36.8% of the $157.1 million of outstanding commitments at March 31, 2016, 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.

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Reconciliation of Non-GAAP Measures

As the magnitude of the merger expenses incurred during the three months ended March 31, 2016 distorts the operational results of the Company, we present the reconciliation of non-GAAP financial measures below, which includes certain performance ratios excluding the effect of the merger expenses during the three month period ended March 31, 2016.


Reconciliation of Non-GAAP measures (Unaudited)	Three Months ending March 31, 2016			Twelve Months ending December 31, 2015
	Net Interest			Net Interest
	Income			Income
Net Income (GAAP)	$	2,149,403		$	10,464,434
Merger-related expenses, net of tax		306,003			1,200,825
Operating Net Income (non-GAAP)	$	2,455,406		$	11,665,259

Net income available to common shareholders	$	2,151,070		$	10,468,586
Merger-related expenses, net of tax		306,003			1,200,825
Operating earnings	$	2,457,073		$	11,669,411


Earnings per weighted average common shares, basic (GAAP)	$	0.20		$	0.98
Merger-related expenses, net of tax		0.03			0.11
Operating earnings per weighted average common share basic (non GAAP)	$	0.23		$	1.09


Earnings per weighted average common shares, diluted (GAAP)	$	0.20		$	0.97
Merger-related expenses, net of tax		0.02			0.11
Operating earnings per weighted average common share basic (non-GAAP)	$	0.22		$	1.08

Summary Operating Results (non-GAAP)
Noninterest expense (GAAP)	$	10,624,519		$	36,275,682
Merger-related expenses, net of tax		306,003			1,200,825
Operating noninterest expense (non-GAAP)		10,318,516		$	35,074,857

Operating efficiency ratio (non-GAAP)		70.33	%		65.64	%

Operating noninterest expense as a % of average assets		2.71	%		2.65	%

Return on average assets
Net income	$	2,149,403		$	10,464,434
Merger-related expenses, net of tax		306,003			1,200,825
Operating net income	$	2,455,406		$	11,665,259

Adjusted return on average assets		0.66	%		0.88	%

Return on average common equity
Net income available to common shareholders	$	2,151,070		$	10,468,586
Merger-related expenses, net of tax		306,003			1,200,825
Operating earnings (non-GAAP)	$	2,457,073		$	11,669,411

Adjusted return on average common equity (non-GAAP)		7.01	%		8.40	%

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

Three months ended March 31, 2016



					Net
	Net Interest				Interest
	Income		Yield		Spread
GAAP net interest income	$	12,612,246	3.71	%	3.56	%
Tax equivalent adjustment
Federal funds sold		5	—		—
Investment securities		226,861	0.07		0.07
Loans		238,716	0.07		0.07
Total tax equivalent adjustment		465,582	0.14		0.14
Tax equivalent interest yield	$	13,077,828	3.85	%	3.70	%

Three months ended March 31, 2015



					Net
	Net Interest				Interest
	Income		Yield		Spread
GAAP net interest income	$	11,461,904	4.17	%	4.05	%
Tax equivalent adjustment
Federal funds sold		1	—		—
Investment securities		200,498	0.07		0.11
Loans		229,094	0.08		0.04
Total tax equivalent adjustment		429,593	0.15		0.15
Tax equivalent interest yield	$	11,891,497	4.32	%	4.20	%

Non-GAAP financial measures included in this quarterly report should be read along with these tables providing a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management believes that the non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company and provide meaningful comparison to its peers. Non-GAAP financial measures should not be consider as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

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 expanding fee income, increases in net interest income, maintenance of the net interest margin, increases in non-interest expenses, hiring and acquisition possibilities, our belief that we have identified any problem assets and that our borrowers will remain current on their loans, the 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 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 generally, 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; that the market value of investments could negatively impact stockholders’ equity; risks associated with our lending limit; potential conflicts of interest associated with the interest in Pointer Ridge; deterioration in general economic conditions or a return to recessionary conditions; 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, 2015.

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. Various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices, may cause these changes. We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets and liabilities. Foreign exchange rates, commodity prices, or equity prices do not pose significant market risk to us. Due to the nature of our operations, only interest rate risk is significant to our consolidated results of operations or financial position. We have no material changes in our quantitative and qualitative disclosures about market risk as of March 31, 2016 from that presented in our Annual Report on Form 10-K for the year ended December 31, 2015.

Interest Rate Sensitivity Analysis and Interest Rate Risk Management

A principal objective of Old Line Bank’s asset/liability management policy is to minimize exposure to changes in interest rates by an ongoing review of the maturity and re-pricing of interest earning assets and interest bearing liabilities.

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The tables below present Old Line Bank’s interest rate sensitivity at March 31, 2016 and December 31, 2015. Because certain categories of securities and loans are prepaid before their maturity date even without regard to interest rate fluctuations, we have made certain assumptions to calculate the expected maturity of securities and loans.


	Interest Sensitivity Analysis
	March 31, 2016
	Maturing or Repricing
	Within			4 - 12			1 - 5			Over
	3 Months			Months			Years			5 Years			Total
	(Dollars in thousands)
Interest Earning Assets:
Interest bearing accounts	$	30		$	—		$	—		$	—		$	30
Time deposits in other banks		—			—			—			—			—
Federal funds sold		327			—			—			—			327
Investment securities		—			1,499			38,173			151,078			190,750
Loans		231,941			72,023			614,128			266,422			1,184,514
Total interest earning assets		232,298			73,522			652,301			417,500			1,375,621
Interest Bearing Liabilities:
Interest-bearing transaction deposits		251,825			125,758			—			—			377,583
Savings accounts		33,392			33,392			33,392			—			100,176
Time deposits		67,183			139,610			220,200			—			426,993
Total interest-bearing deposits		352,400			298,760			253,592			—			904,752
FHLB advances		89,000			—			—			—			89,000
Other borrowings		29,571			—			5,845			3,717			39,133
Total interest-bearing liabilities		470,971			298,760			259,437			3,717			1,032,885
Period Gap	$	(238,673)		$	(225,238)		$	392,864		$	413,783		$	342,736
Cumulative Gap	$	(238,673)		$	(463,911)		$	(71,047)		$	342,736
Cumulative Gap/Total Assets		(19.44)	%		(37.79)	%		(5.79)	%		27.92	%


	Interest Sensitivity Analysis
	December 31, 2015
	Maturing or Repricing
	Within			4 - 12			1 - 5			Over
	3 Months			Months			Years			5 Years			Total
	(Dollars in thousands)
Interest Earning Assets:
Interest bearing accounts	$	30		$	—		$	—		$	—		$	30
Time deposits in other banks		—			—			—			—			—
Federal funds sold		2,326			—			—			—			2,326
Investment securities		1,500			1,500			37,821			153,885			194,706
Loans		210,191			92,863			594,825			260,903			1,158,782
Total interest earning assets		214,047			94,363			632,646			414,788			1,355,844
Interest Bearing Liabilities:
Interest-bearing transaction deposits		244,826			122,413			—			—			367,239
Savings accounts		32,210			32,210			32,210			—			96,630
Time deposits		72,208			148,981			222,274			—			443,463
Total interest-bearing deposits		349,244			303,604			254,484			—			907,332
FHLB advances		74,000			—			—			—			74,000
Other borrowings		33,557			—			5,875			3,717			43,149
Total interest-bearing liabilities		456,801			303,604			260,359			3,717			1,024,481
Period Gap	$	(242,754)		$	(209,241)		$	372,287		$	411,071		$	331,363
Cumulative Gap	$	(242,754)		$	(451,995)		$	(79,708)		$	331,363
Cumulative Gap/Total Assets		(19.78)	%		(36.82)	%		(6.49)	%		26.99	%

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Item 4.Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, Old Line Bancshares’ Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Old Line Bancshares’ disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, Old Line Bancshares’ Chief Executive Officer and Chief Financial Officer concluded that Old Line Bancshares’ disclosure controls and procedures are effective as of March 31, 2016. 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.

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, 2016, 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, 2015.

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

(a)

Not applicable

(b)

Not applicable

(c)

The following table present a summary of the Company’s share repurchase during the quarter ended March 31, 2016:


Shares Purchased during the period:	Total number of shares repurchased	Average Price paid per share	Total number of share purchased as part of publicly announced program(1)	Maximum number of shares that may yet be purchased under the program (1)

Jan 1 - March 31, 2016	0		339,237	160,763

(1)

On February 25, 2015, Old Line Bancshares’ board of directors approved the repurchase of up to 500,000 shares of our outstanding common stock. As of March 31, 2016, 339,237 shares have been repurchased at an average price of $15.77 per share or a total cost of approximately $5.3 million.

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

Not applicable

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Item 5.Other Information

None

Item 6.Exhibits

2



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 6, 2016	By:	/s/ James W. Cornelsen
		James W. Cornelsen, President and Chief Executive Officer
		(Principal Executive Officer)


Date: May 6, 2016	By:	/s/ Elise M. Hubbard
		Elise M. Hubbard, Senior Vice President and Chief Financial Officer
		(Principal Accounting and Financial Officer)

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