FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

For the quarterly period ended June 30, 2007

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

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code: (301) 430-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer o      Non-accelerated filer þ

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

     Yes o No þ

As of July 31, 2007, the registrant had 4,254,598.5 shares of common stock outstanding.

 

 

Part I. Financial Information

Item 1. Financial Statements

Old Line Bancshares, Inc. & Subsidiary
Consolidated Balance Sheets

		June 30,				December 31,
		2007				2006
		(Unaudited)
Assets
Cash and due from banks		$	5,015,620			$	5,120,068
Federal funds sold			32,892,808				34,508,127
Total cash and cash equivalents			37,908,428				39,628,195
Investment securities available for sale			12,882,962				14,118,649
Investment securities held to maturity			2,301,993				2,802,389
Loans, less allowance for loan losses			171,355,281				150,417,217
Restricted equity securities at cost			1,630,250				1,575,550
Investment in real estate LLC			788,630				793,714
Bank premises and equipment			4,263,697				4,049,393
Accrued interest receivable			837,962				820,628
Income tax receivable			9,868				—
Deferred income taxes			255,299				226,873
Bank owned life insurance			7,602,020				3,458,065
Other assets			418,173				239,989
		$	240,254,563			$	218,130,662
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	35,430,789			$	37,963,066
Interest-bearing			145,883,630				131,708,780
Total deposits			181,314,419				169,671,846
Short-term borrowings			19,385,204				9,193,391
Long-term borrowings			3,000,000				3,000,000
Accrued interest payable			713,389				629,557
Income tax payable			—				334,496
Other liabilities			414,408				485,418
			204,827,420				183,314,708
Stockholders’ equity
Common stock, par value $.01 per share; authorized 15,000,000 shares; issued and outstanding 4,254,598.5 in 2007, and 4,253,698.5 in 2006			42,546				42,537
Additional paid-in capital			31,993,556				31,868,025
Retained earnings			3,557,239				3,077,313
			35,593,341				34,987,875
Accumulated other comprehensive income			(166,198	)			(171,921	)
			35,427,143				34,815,954
		$	240,254,563			$	218,130,662

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

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Interest revenue
Loans, including fees		$	2,970,722			$	2,106,543			$	5,851,279			$	3,950,716
U.S. Treasury securities			29,769				31,764				61,344				63,339
U.S. government agency securities			79,622				58,813				159,982				117,377
Mortgage backed securities			12,801				16,674				26,716				34,069
Tax exempt securities			26,966				28,315				53,944				56,092
Federal funds sold			381,489				380,634				754,954				761,967
Other			21,640				19,817				42,928				38,747
Total interest revenue			3,523,009				2,642,560				6,951,147				5,022,307
Interest expense
Deposits			1,402,699				722,063				2,763,213				1,350,115
Borrowed funds			133,052				130,378				239,296				228,941
Total interest expense			1,535,751				852,441				3,002,509				1,579,056
Net interest income			1,987,258				1,790,119				3,948,638				3,443,251
Provision for loan losses			30,000				140,000				86,000				270,000
Net interest income after provision for loan losses			1,957,258				1,650,119				3,862,638				3,173,251
Non-interest revenue
Service charges on deposit accounts			72,998				71,047				143,918				128,354
Marine division broker origination fees			135,284				67,432				212,958				191,783
Earnings on bank owned life insurance			89,288				37,500				156,638				71,642
Income (loss) on investment in real estate LLC			(6,000	)			—				3,768				246
Other fees and commissions			79,474				35,852				119,669				71,435
Total non-interest revenue			371,044				211,831				636,951				463,460
Non-interest expense
Salaries			800,866				668,205				1,555,037				1,274,811
Employee benefits			228,451				165,577				513,265				345,773
Occupancy			224,183				64,510				434,621				130,727
Equipment			56,956				33,752				118,402				64,610
Data processing			54,652				37,347				114,092				74,708
Other operating			356,566				286,012				689,224				570,821
Total non-interest expense			1,721,674				1,255,403				3,424,641				2,461,450
Income before income taxes			606,628				606,547				1,074,948				1,175,261
Income taxes			198,968				199,805				339,746				385,066
Net income		$	407,660			$	406,742			$	735,202			$	790,195
Basic earnings per common share		$	0.10			$	0.10			$	0.17			$	0.19
Diluted earnings per common share		$	0.10			$	0.10			$	0.17			$	0.19

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

Old Line Bancshares, Inc. & Subsidiary
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

																		Accumulated
										Additional								other
		Common stock								paid-in				Retained				comprehensive				Comprehensive
		Shares				Par value				capital				earnings				income				income
Balance, December 31, 2006			4,253,698.5			$	42,537			$	31,868,025			$	3,077,313			$	(171,921	)
Net income			—				—				—				735,202				—			$	735,202
Unrealized gain on securities available for sale, net of income taxes of $3,605			—				—				—				—				5,723				5,723
Comprehensive income																						$	740,925
Stock based compensation awards			—				—				119,290				—				—
Cash dividend $0.06 per share			—				—				—				(255,276	)			—
Stock options exercised, including tax benefit of $2,001			900.0				9				6,241				—				—
Balance, June 30, 2007			4,254,598.5			$	42,546			$	31,993,556			$	3,557,239			$	(166,198	)

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

Six Months Ended June 30,		2007				2006
Cash flows from operating activities
Interest received		$	6,925,518			$	5,019,416
Fees and commissions received			498,080				397,786
Interest paid			(2,918,677	)			(1,515,526	)
Cash paid to suppliers and employees			(3,418,998	)			(2,027,698	)
Income taxes paid			(706,268	)			(369,197	)
			379,655				1,504,781
Cash flows from investing activities
Purchase of investment securities
Held to maturity			—				(599,758	)
Proceeds from disposal of investment securities
Held to maturity at maturity or call			500,000				—
Available for sale at maturity or call			1,243,312				133,342
Loans made, net of principal collected			(21,013,675	)			(26,561,347	)
Purchase of equity securities			(54,700	)			(427,800	)
Investment in bank owned life insurance (BOLI)			(4,000,000	)			—
Return of principal from (investment in) real estate, LLC			8,852				—
Purchase of premises, equipment and software			(429,104	)			—
Proceeds from sale of premises and equipment			60,533				(630,695	)
			(23,684,782	)			(28,086,258	)
Cash flows from financing activities
Net increase (decrease) in
Time deposits			12,462,215				10,877,473
Other deposits			(819,642	)			3,276,727
Net increase in short-term borrowings			10,191,813				8,712,654
(Decrease) increase in long-term borrowings			—				(2,000,000	)
Proceeds from stock options exercised, including tax benefit			6,250				11,791
(Costs) proceeds from stock offering			—				(1,891	)
Dividends paid			(255,276	)			(233,726	)
			21,585,360				20,643,028
Net increase (decrease) in cash and cash equivalents			(1,719,767	)			(5,938,449	)
Cash and cash equivalents at beginning of year			39,628,195				39,961,380
Cash and cash equivalents at end of year		$	37,908,428			$	34,022,931

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

Six Months Ended June 30,		2007				2006
Reconciliation of net income to net cash provided (used) by operating activities
Net income		$	735,202			$	790,195
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation and amortization			171,149				85,572
Provision for loan losses			86,000				270,000
Loss on sale of equipment			(12,190	)			—
Change in deferred loan fees net of costs			(10,389	)			101,579
Amortization of premiums and discounts			2,094				1,352
Deferred income taxes			(32,026	)			(19,363	)
Stock based compensation awards			119,290				59,032
(Income) loss from investment in real estate LLC			(3,768	)			246
Increase (decrease) in
Accrued interest payable			83,832				63,530
Other liabilities			(405,506	)			251,835
Decrease (increase) in
Accrued interest receivable			(17,334	)			(105,822	)
Bank owned life insurance			(143,955	)			(65,920	)
Other assets			(192,744	)			72,545
		$	379,655			$	1,504,781

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

1.		ORGANIZATION AND DESCRIPTION OF BUSINESS
		Old Line Bancshares, Inc. was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares, Inc. is to own all of the capital stock of the Old Line Bank. Old Line Bancshares also has an approximately $789,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”).
		Old Line Bank is a full service commercial bank operating in the suburban Maryland (Washington, D.C. suburbs) counties of Prince George’s, Charles and northern St. Mary’s. Old Line Bank offers deposit services and loans to individuals, small businesses, associations and government entities. Other services include direct deposit of payroll and social security checks, automatic drafts from accounts, automated teller machine services, cash management services, safe deposit boxes, money orders and travelers cheques. Old Line Bank also offers credit card services and on-line account access with bill payer service.
		Basis of Presentation and Consolidation-The accompanying consolidated financial statements include the activity of Old Line Bancshares, Inc. and its wholly owned subsidiary, Old Line Bank. We have eliminated all significant intercompany transactions and balances.
		The foregoing consolidated financial statements are unaudited; however, in the opinion of management we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of December 31, 2006 from audited financial statements. These statements should be read in conjunction with Old Line Bancshares’ financial statements and accompanying notes included in Old Line Bancshares, Inc.’s Form 10-KSB for the year ended December 31, 2006. We have made certain reclassifications to the 2006 consolidated financial statement to conform to the 2007 presentation. We have made no significant changes to Old Line Bancshares’ accounting policies as disclosed in the Form 10-KSB.
		The accounting and reporting policies of Old Line Bancshares, Inc. conform to accounting principles generally accepted in the United States of America.
2.		INVESTMENT SECURITIES
		As Old Line Bancshares purchases securities, management determines if we should classify the securities as held to maturity, available for sale or trading. We record the securities which management has the intent and ability to hold to maturity at amortized cost which is cost adjusted for amortization of premiums and accretion of discounts to maturity. We classify securities which we may sell before maturity as available for sale and carry these securities at fair value with unrealized gains and losses included in stockholders’ equity on an after tax basis. Management has not identified any investment securities as trading.
		We record gains and losses on the sale of securities on the trade date and determine these gains or losses using the specific identification method. We amortize premiums and accrete discounts using the interest method.
3.		INCOME TAXES
		The provision for income taxes includes taxes payable for the current year and deferred income taxes. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. We allocate tax expense and tax benefits to the Bank and Bancshares based on their proportional share of taxable income.

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

4.		EARNINGS PER SHARE
		We determine basic earnings per common share by dividing net income by the weighted average number of shares of common stock outstanding giving retroactive effect to the stock dividends.
		We calculate diluted earnings per share by including the average dilutive common stock equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Weighted average number of shares			4,254,598.50				4,249,478.72				4,254,479.0				4,249,190.2
Dilutive average number of shares			10,232.00				19,676.00				13,565.0				21,811.0

5.		STOCK-BASED COMPENSATION
		We account for employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock-based compensation expense at the date of grant. In the first quarter of 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, under the modified prospective method. Statement 123R requires companies to recognize compensation expense related to stock-based compensation awards in their income statements over the period during which an individual is required to provide service in exchange for such award. For the six months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $119,290 and $59,032, respectively. For the three months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $36,097 and $23,303, respectively.
		Under SFAS 123R, a company may only recognize tax benefits for options that ordinarily will result in a tax deduction when the grant is exercised (non-qualified options). For the three and six months ended June 30, 2007, we recognized an $11,887 tax benefit associated with the portion of the expense that was related to the issuance of non-qualified options. There were no non-qualified options included in the expense calculation during the three and six months ended June 30, 2006.
		We have two stock option plans under which we may issue options, the 2001 Incentive Stock Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee administers the stock option plans. As the plans outline, the Compensation Committee approves stock option grants to directors and employees, determines the number of shares, the type of option, the option price, the term (not to exceed 10 years from the date of issuance) and the vesting period of options issued. The Compensation Committee has approved and we have issued grants with options vesting immediately as well as over periods of two, three and five years. We recognize the compensation expense associated with these grants over their respective vesting period. As of June 30, 2007, there were 152,480 shares remaining available for future issuance under the stock option plans.
		The intrinsic value of the 900 options that directors and officers exercised during the six months ended June 30, 2007 was $5,184. Directors and officers did not exercise any options during the three month period ended June 30, 2007.

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

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

		June 30,
		2007								2006
						Weighted								Weighted
		Number				average				Number				average
		of shares				exercise price				of shares				exercise price
Outstanding, beginning of year			182,820			$	8.91				172,620			$	8.60
Options granted			47,200				10.57				—				—
Options exercised			(900	)			4.72				(1,200	)			9.83
Options expired			—				—				—				—
Outstanding, June 30,			229,120			$	9.27				171,420			$	8.59

Information related to options as of June 30, 2007 follows:

		Outstanding options												Exercisable options
						Weighted				Weighted								Weighted
		Number				average				average				Number				average
Exercise		of shares at				remaining				exercise				of shares at				exercise
price		June 30, 2007				term				price				June 30, 2007				price
$3.33-$4.17			11,700				3.51			$	3.44				11,700			$	3.44
$4.18-$5.00			28,800				3.48				4.67				28,800				4.67
$5.01-$10.00			46,620				7.14				9.74				46,620				9.74
$10.01-$11.31			142,000				8.88				10.53				71,733				10.44
			229,120				7.57			$	9.27				158,853			$	8.68
Intrinsic value of outstanding options						$	109,978
Intrinsic value of exercisable options						$	169,973

6.		Retirement Plan
		Old Line Bank maintains a 401(k) profit sharing plan for employees who meet the eligibility requirements set forth in the plan. Pursuant to the plan, which was amended in March 2003 and effective January 1, 2003, Old Line Bank matches the first 3% of employee contributions to the plan and 50% of the next 2% of employee contributions, for a maximum required contribution of 4% of employee eligible compensation. This plan, which covers substantially all employees, allows for elective employee deferrals. Old Line Bank’s contributions to the plan for the six months ended June 30, 2007 and 2006 were $61,010, and $38,763, respectively. Old Line Bank’s contributions to the plan for the three months ended June 30, 2007 and 2006 were $27,711 and 19,687, respectively.
		Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive officers providing for retirement income benefits as well as pre-retirement death benefits. We accrue the present value of these benefits over the remaining number of years to the executives’ retirement dates. Old Line Bank’s expenses for the SERPs for the six months ended June 30, 2007 and 2006, were $48,970, and $46,956, respectively. The SERP expense for the three month period ended June 30, 2007 and 2006 was $25,492 and $23,478, respectively.
7.		Recent Accounting Standards
		In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS No. 115, to, among other things, require certain disclosures for amounts for which the fair value option is applied. Additionally, this standard provides that an entity may reclassify held-to-maturity and available-for-sale securities to the trading account, when the fair value option is elected for such securities, without calling into question the intent to hold other securities to maturity in the future. This standard is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or January 1, 2008. SFAS No. 159 permits early adoption as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. We have not elected early adoption of SFAS No. 159. We have not completed our assessment of SFAS No. 159, and the impact, if any, on our consolidated results of operations or financial position.
		In September 2006, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangement determining whether the postretirement benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in accordance with FASB Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (or Opinion 12, Omnibus Opinion-1967, if the arrangement does not constitute a plan). The Task Force concluded that for a split-dollar life insurance arrangement, an employer should recognize a liability for future benefits in accordance with Statement 106 or Opinion 12 (depending on whether a substantive plan is deemed to exist) based on the substantive agreement with the employee. We expect the adoption of EITF Issue No. 06-4, which is effective for fiscal years beginning after December 15, 2007, will not have a material impact on our consolidated results of operations or financial position.
		In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financials statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We do not expect the adoption of SFAS 157 will have a material impact on our consolidated results of operations or financial position.

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

Introduction

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

Overview

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

     Our primary business is to own all of the capital stock of Old Line Bank. We also have an approximately $789,000 investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”). We own 50% of Pointer Ridge. Frank Lucente, one of our directors and a director of Old Line Bank, controls 25% of Pointer Ridge and controls the manager of Pointer Ridge. The purpose of Pointer Ridge is to acquire, own, hold for profit, sell, assign, transfer, operate, lease, develop, mortgage, refinance, pledge and otherwise deal with real property located at the intersection of Pointer Ridge Road and Route 301 in Bowie, Maryland. Pointer Ridge has acquired the property and has completed the construction of a commercial office building containing approximately 40,000 square feet. On July 10, 2006, we began leasing approximately 50% of this building for our main office (moving our existing main office from Waldorf, Maryland) and operating a branch of Old Line Bank from this address.

Summary of Recent Performance and Other Activities

     We are pleased to report sound financial performance for the first six months and the second quarter of 2007. Net income was $407,660 or $0.10 per basic and diluted common share for the three month period ending June 30, 2007. This was comparable to net income of $406,742 or $0.10 per basic and diluted common share for the same period in 2006. Net income for the six month period ended June 30, 2007 was $735,202 or $0.17 per basic and diluted common share. This represented a decrease of $54,993 or 6.96% compared to net income of $790,195 or $0.19 basic and diluted per common share for the six months ended June 30, 2006.

     During the first six months of 2007, the following events occurred.

	•		In June, we opened our 6th branch location at 6301 Ivy Lane, Greenbelt, Maryland.
	•		We grew the loan portfolio $21.0 million or 13.96%.
	•		We maintained asset quality, collected full payment on the one non-accrual loan that we held at the end of the 1st quarter of 2007 in the amount of $60,000 and had no loans past due more than 90 days.
	•		We invested an additional $4 million in bank owned life insurance which will improve non-interest revenue and provide tax benefits.
	•		We grew total deposits $11.6 million or 6.84%.
	•		As a result of high gas prices, adverse weather conditions and difficult market conditions, the marine division experienced a $66,000 pre-tax loss during the six month period compared to a $15,000 pre-tax profit for the first six months of 2006.
	•		We appointed a new individual to our Board of Directors.
	•		We hired a new commercial lender to service the Anne Arundel County market.

     We believe that it was an accomplishment to maintain earnings while incurring the expenses associated with the opening of the Greenbelt branch during the second quarter as well as the costs incurred from our investments in infrastructure during the 2^nd and 3^rd quarters of 2006, and continued softness in the marine industry. The following summarizes the highlights of our financial performance for the three month period ended June 30, 2007 compared to the three month period ended June 30, 2006.

Three months ended June 30,
(Dollars in thousands)

		2007				2006				$ Change				% Change
Net income		$	408			$	407			$	1				0.25	%
Interest revenue			3,523				2,643				880				33.30
Interest expense			1,536				852				684				80.28
Net interest income after provision for loan losses			1,957				1,650				307				18.61
Non-interest revenue			371				212				159				75.00
Non-interest expense			1,722				1,255				467				37.21
Earnings per share basic		$	0.10			$	0.10			$	—				0.00	%
Earnings per share diluted			0.10				0.10				—				0.00	%

The following outlines the highlights of our financial performance for the six month period ended June 30, 2007 compared to the six month period ended June 30, 2006.

Three months ended June 30,
(Dollars in thousands)

		2007				2006				$ Change				% Change
Net income		$	735			$	790			$	(55	)			(6.96	)%
Interest revenue			6,951				5,022				1,929				38.41
Interest expense			3,003				1,579				1,424				90.18
Net interest income after provision for loan losses			3,863				3,173				690				21.75
Non-interest revenue			637				463				174				37.58
Non-interest expense			3,425				2,461				964				39.17
Average interest earning assets			204,327				163,904				40,423				24.66
Average non-interest bearing deposits			35,415				34,291				1,124				3.28
Average gross loans			158,690				113,382				45,308				39.96
Average interest bearing deposits			137,302				92,769				44,533				48.00
Net interest margin (1)			3.95	%			4.30	%
Return on average equity			4.20	%			4.68	%
Earnings per share basic		$	0.17			$	0.19			$	(0.02	)			(10.53	%)
Earnings per share diluted			0.17				0.19				(0.02	)			(10.53	%)

Growth Strategy

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

     Expansion

     We believe a natural evolution of a community-focused bank like Old Line Bank is to expand the delivery channels via the branch network. We plan to expand in Prince George’s County and Anne Arundel County, Maryland, and may expand in Charles County and contiguous northern and western counties, such as Montgomery County and Howard County, Maryland.

     In July 2006, we moved our headquarters to 1525 Pointer Ridge Place, Bowie, Maryland (from our existing main office in Waldorf, Maryland) and we opened a new branch in this building. We hired the majority of the staff for this branch during the 2^nd quarter of 2006.

     In June 2007, we opened a new branch in Greenbelt (Prince George’s County), Maryland. Initially, we opened this branch on the 1^st floor of an office building located at 6301 Ivy Lane, Greenbelt, Maryland. Upon completion of construction of new a bank building, we plan to move this branch to the southwest corner of the intersection of Kenilworth Avenue and Ivy Lane, Greenbelt, Maryland. In April 2007, we hired the Branch Manager for this location and hired the remainder of the staff in May and June of 2007.

     In 2005, we announced plans to open a new branch in College Park (Prince George’s County), Maryland in the same building as the loan production office that houses our team of loan officers. Our lease provides that we will lease the branch space in January 2008 when the existing branch of a large southeastern regional bank moves from the space. We plan to hire a Branch Manager and the staff for this location during the 3^rd and 4^th quarters of 2007.

     As expected, the opening of the new Bowie and Greenbelt branches and the establishment of our new headquarters in July 2006 caused a $357,686 or 183% increase in occupancy and equipments costs during the six month period and a $182,877 or 186% increase during the three month period. Because of the new branches, we anticipate salaries and benefits expenses and other operating expenses will increase. We anticipate that, over time, income generated from the branches will offset any increase in expenses.

     Expansion of Commercial, Construction and Commercial Real Estate Lending

     In April 2007, we hired a new Senior Vice President of Commercial Lending. This individual is a skilled commercial lender who has worked in the Anne Arundel and Prince George’s County markets for over 25 years. We believe that with his qualifications and through his long term associations with businesses and prominent individuals, he will develop new lending and deposit opportunities for us in these markets. Initially, he will work from our Bowie headquarters.

     We hired a Senior Vice President of Commercial Lending, in August 2006, who has over 30 years of lending experience and is a significant addition to our lending team. This individual operates from a loan production office in Gaithersburg (Montgomery County), Maryland. This lender’s expertise and market knowledge have allowed us to expand our presence into southern Montgomery County and the District of Columbia. We anticipate that as a result of this person’s efforts, we will continue to expand in these markets.

     In July 2006, we hired a Vice President of Business Development who was formerly Executive Director of the Prince George’s County Chamber of Commerce. This individual works from our Bowie main office. We believe this individual’s expertise and market knowledge have allowed us to continue to enhance our presence in the Prince George’s County market and beyond.

     As we expected, the increase in personnel during the second half of 2006 and in 2007 caused an increase in salary and benefit expenses in the second quarter of 2007 compared to the second quarter of 2006 and for the six month period ended June 30, 2007 compared to the same period in 2006. These individuals also contributed to our loan and deposit growth. As a result of their efforts, we anticipate the bank will experience continued improvement in loan growth during 2007 and beyond. We plan to continue to identify and establish new branch locations that will support our long term growth plans.

     Old Line Marine Division

     In February 2005, we established Old Line Marine as a division of Old Line Bank to serve as a luxury boat loan broker and to originate loans for Old Line Bank. We hired a veteran in the marine lending industry with over 27 years of experience to head this division. Since that time, we have hired three additional sales representatives. Currently we have sales representatives in Annapolis, Maryland, Virginia Beach, Virginia and Wilmington, North Carolina. These representatives service the market from New York to Florida. Prior to joining us, each of these individuals operated as brokers in these markets. We conduct secondary market activity in our marine division as a broker and we earn a fee. In addition to increasing our non-interest income, we expect to capitalize on our relationships with high net worth individuals through this division.

     Although we experienced improvement in the marine division’s performance during the second quarter of 2007 relative to the second quarter of 2006, the high gasoline prices, adverse weather conditions and general concerns about the economy continued to cause weakness in the marine industry. This weakness caused volume and earnings per originator to decline. As a result, the marine division experienced an approximately $23,000 pre-tax loss during the quarter compared to a pre-tax loss of $37,000 during the second quarter of 2006. For the six month period, the division posted a pre-tax loss of approximately $66,000 versus a pre-tax profit of $15,000 for the six months ended June 30, 2006. We plan to continue to monitor the market, expand our market focus, and make any other necessary adjustments to help this division attain and maintain profitability for the remainder of 2007, though there can be no assurance that we will be able to do so.

     Bank owned life insurance

     We increased our investment in Bank Owned Life Insurance (“BOLI”) in February 2007 by $4 million. In June 2005, we purchased $3.3 million of BOLI on the lives of our executive officers, Messrs. Cornelsen and Burnett and Ms. Rush. With the new investment made in February, we increased the insurance on Messrs. Cornelsen and Burnett and expanded the coverage of the insurance policies to insure the lives of several other officers of Old Line Bank. We anticipate the earnings on these policies will pay for our employee benefit expenses as well as our obligations under our Salary Continuation Agreements and Supplemental Life Insurance Agreements that we entered into with our executive officers in January 2006.

     Other Opportunities

     We use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology, telephone banking and Internet banking with on-line account access and bill payer service. We will continue to evaluate cost effective ways that technology can enhance our management, products and services. In 2007, we plan to offer to selected commercial customers the ability to remotely capture their deposits and electronically transmit them to us. We anticipate that this service will modestly increase equipment cost, reduce courier fees, and positively impact deposit growth. We continually evaluate new products and services that may enhance the service we provide our customers.

     We plan to take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. For example, we may purchase branches that other banks close or lease branch space from other banks. We currently have no specific plans regarding acquisitions of existing financial institutions or branches thereof.

Results of Operations

   Net Interest Income

     Net interest income is the difference between income on interest earning assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, and federal funds sold; interest-bearing deposits and other borrowings make up the cost of funds. 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.

     Three months ended June 30, 2007 compared to three months ended June 30, 2006

     Net interest income after provision for loan losses for the three months ended June 30, 2007 increased $307,139 or 18.61% to $2.0 million from $1.7 million for the same period in 2006. The increase was primarily attributable to an increase in total average interest earning assets. A decrease in Federal Funds and deposit growth funded the loan growth. This loan growth caused the increase in average interest earning assets.

     Interest revenue increased from $2.6 million for the three months ended June 30, 2006 to $3.5 million for the same period in 2007. Interest expense for all interest bearing liabilities amounted to $1.5 million for the three months ended June 30, 2007 versus $852,441 for the three months ended June 30, 2006. These changes were a result of loan and deposit growth that originated from all areas of the bank.

     Six months ended June 30, 2007 compared to six months ended June 30, 2006

     Net interest income after provision for loan losses for the six months ended June 30, 2007 amounted to $3.9 million, which was $689,387 or 21.72% greater than the 2006 level of $3.2 million. The increase was primarily attributable to a $40.4 million increase in total average interest earning assets to $204.3 million for the six months ended June 30, 2007 from $163.9 million for the six months ended June 30, 2006. Interest expense for all interest bearing liabilities was $3.0 million for the six months ended June 30, 2007 versus $1.6 million for the six months ended June 30, 2006. The increase in earnings assets was a result of increased business development efforts from the entire Old Line Bank lending team. Additionally, we believe that the move to our new Bowie headquarters and the opening of the Bowie and Greenbelt branches provided us with increased name recognition that also contributed to our growth.

     Our net interest margin was 3.95% for the six months ended June 30, 2007, as compared to 4.30% for the six months ended June, 2006. The decrease in the net interest margin is the result of several components. The yield on average interest-earning assets improved during the period 67 basis points from 6.24% in 2006 to 6.91% in 2007, and average interest-earning assets grew by $40.4 million. A 106 basis point increase of the yield on average interest-bearing liabilities from 2.98% in 2006 to 4.04% in 2007, and a $43.1 million increase in interest bearing liabilities offset these improvements.

     The yield on average interest-earning assets improved and the cost of interest bearing liabilities increased because of increases in market interest rates. On January 1, 2006, the prime rate was 7.50%. By June 30, 2007, it had increased to 8.25%. The yield also improved because loans, net of allowance comprised 77.00% of total average interest earning assets in 2007 versus 68.48% in 2006.

     The increased interest rates allowed us to earn a 60 basis point higher average yield on our federal funds and a 41 basis point higher average yield on our loan portfolio. Increases in market interest rates and an increase in the percentage of average balances maintained in interest bearing deposits relative to total deposits caused the cost of average interest bearing liabilities to increase 106 basis points during the period. We expect improvement in our net interest margin during 2007 because we expect the volume of and rates on loans to grow at a faster rate than the volume of and rates on interest bearing liabilities. We will offer promotional campaigns to attract deposits throughout the year or seek brokered deposits, if required, to maintain an acceptable loan to deposit ratio.

     Because of the three loan officers in the College Park loan production office, increased recognition in the Prince George’s County market, the new loan officer in Anne Arundel County, the addition of the Bowie and Greenbelt branches, the loan production office in Gaithersburg, the new addition to the Board of Directors and with continued growth in deposits, we anticipate that we will continue to grow earning assets during 2007. We believe that the anticipated growth in earning assets, the change in the composition of earning assets as more funds are deployed to loans and the relatively low cost of funds will result in an increase in our net interest income, although there is no assurance that this will be the case.

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

Average Balances, Interest and Yields

Six Months Ended June 30,		2007												2006
		Average												Average
		balance				Interest				Yield				balance				Interest				Yield
Assets:
Federal funds sold(1)		$	28,988,555			$	774,054				5.38	%		$	32,982,867			$	781,907				4.78	%
Interest bearing deposits			—				—								3,536				23				1.30
Investment securities(1)(2)
U.S. Treasury			3,872,978				64,315				3.35				4,000,251				66,407				3.35
U.S. Government agency			8,036,855				167,731				4.21				7,398,297				123,062				3.35
Mortgage-backed securities			1,362,224				26,716				3.95				1,733,894				34,069				3.96
Tax exempt securities			3,228,427				78,446				4.90				3,382,629				79,282				4.73
Other			1,502,068				43,765				5.88				2,162,678				39,436				3.68
Total investment securities			18,002,552				380,973				4.27				18,677,749				342,256				3.70
Loans:(3)
Commercial			39,573,748				1,663,362				8.48				22,697,353				937,335				8.33
Mortgage			98,064,317				3,644,152				7.49				68,095,417				2,428,314				7.19
Installment			21,051,455				543,765				5.21				22,589,417				585,067				5.22
Total loans			158,689,520				5,851,279				7.44				113,382,187				3,950,716				7.03
Allowance for loan losses			1,353,354				—								1,142,108				—
Total loans, net of allowance			157,336,166				5,851,279				7.50				112,240,079				3,950,716				7.10
Total interest earning assets(1)			204,327,273				7,006,306				6.91				163,904,231				5,074,902				6.24
Non-interest bearing cash			3,872,730												3,826,617
Premises and equipment			4,099,803												2,411,419
Other assets			9,469,549												5,661,513
Total assets(1)		$	221,769,355											$	175,803,780
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		$	8,812,237			$	29,200				0.67			$	8,149,794			$	29,197				0.72
Money market and NOW			24,428,931				240,314				1.98				22,218,212				149,533				1.36
Other time deposits			104,060,965				2,493,699				4.83				62,401,003				1,171,385				3.79
Total interest-bearing deposits			137,302,133				2,763,213				4.06				92,769,009				1,350,115				2.93
Borrowed funds			12,507,453				239,296				3.86				13,925,362				228,941				3.32
Total interest bearing liabilities			149,809,586				3,002,509				4.04				106,694,371				1,579,056				2.98
Non-interest bearing deposits			35,415,159												34,291,269
			185,224,745												140,985,640
Other liabilities			1,225,693												750,107
Stockholders’ equity			35,318,917												34,068,033
Total liabilities and stockholders’ equity		$	221,769,355											$	175,803,780
Net interest spread(1)											2.87												3.26
Net interest income and Net interest margin(1)						$	4,003,797				3.95	%						$	3,495,846				4.30	%

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

Rate/Volume Variance Analysis

		Six months Ended June 30,
		2007 compared to 2006
		Variance due to:
		Total				Rate				Volume
Interest Earning Assets:
Federal funds sold(1)		$	(7,853	)		$	123,050			$	(130,903	)
Interest bearing deposits			(23	)			—				(23	)
Investment Securities(1)
U.S. Treasury			(2,092	)			43				(2,135	)
U.S. Government agency			44,669				38,242				6,427
Mortgage-backed securities			(7,353	)			(127	)			(7,226	)
Tax exempt securities			(836	)			3,956				(4,792	)
Other			4,329				22,676				(18,347	)
Loans:
Commercial			726,027				33,425				692,602
Mortgage			1,215,838				196,511				1,019,327
Installment			(41,302	)			(3,052	)			(38,250	)
Total interest revenue (1)			1,931,404				414,724				1,516,680
Interest-bearing liabilities
Savings			3				(3,086	)			3,089
Money market and NOW			90,781				82,015				8,766
Other time deposits			1,322,314				601,874				720,440
Borrowed funds			10,355				43,547				(33,192	)
Total interest expense			1,423,453				724,350				699,103
Net interest income(1)		$	507,951			$	(309,626	)		$	817,577

     Provision for Loan Losses

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

     The provision for loan losses was $30,000 for the three months ended June 30, 2007, as compared to $140,000 for the three months ended June 30, 2006, a decrease of $110,000 or 78.57%. The provision for the six month period was $86,000. This represented a $184,000 or 68.15% decline as compared to the six months ended June 30, 2006. For the 2007 period, we decreased the provision for loan losses because for over seven years we have had minimal past dues and charge-offs and we currently have $0 in non-accruals. Loan growth during the quarter was 13.92% with a significant percentage of that growth occurring in the last 10 days of the quarter. After completing the analysis outlined below, we determined that we have had no significant changes in economic factors, personnel, policies or practices during the period to warrant a higher provision. We further determined that we have completed two years of experience with new lending personnel and a higher legal lending limit and have not experienced any change in our delinquency patterns. Based on this analysis, we determined that it was prudent to reduce our provision during the quarter.

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

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

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

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

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

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

     We will not create a separate valuation allowance unless we consider a loan impaired under SFAS No. 114 and SFAS No. 118. At June 30, 2007 and 2006, we had $0 in impaired loans.

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

     The allowance for loan losses represents 0.79% of total loans at June 30, 2007 and 0.85% at December 31, 2006. We have no exposure to foreign countries or foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our portfolio.

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

		Six Months Ended								Year Ended
		June 30,								December 31,
		2007				2006				2006
Balance, beginning of period		$	1,280,396			$	954,706			$	954,706
Provision for loan losses			86,000				270,000				339,000
Chargeoffs:
Commercial			(4,979	)			(658	)			(15,772	)
Mortgage			—				—				—
Installment			—				(2,027	)			(2,685	)
Total chargeoffs			(4,979	)			(2,685	)			(18,457	)
Recoveries:
Commercial			—				—				—
Mortgage			—				—				—
Installment			306				354				5,147
Total recoveries			306				354				5,147
Net (chargeoffs) recoveries			(4,673	)			(2,331	)			(13,310	)
Balance, end of period		$	1,361,723			$	1,222,375			$	1,280,396
Allowance for loan losses to gross loans			0.79	%			0.93	%			0.85	%
Ratio of net-chargeoffs during period to average loans outstanding during period			(0.00	%)			(0.00	%)			0.01	%

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

Allocation of Allowance for Loan Losses

		June 30,																December 31,
		2007								2006								2006
						% of Loans								% of Loans								% of Loans
						in Each								in Each								in Each
		Amount				Category				Amount				Category				Amount				Category
Installment & others		$	11,254				0.56	%		$	8,098				0.51	%		$	8,939				0.45	%
Boat			127,841				11.02				144,487				15.99				169,093				14.29
Mortgage			902,839				64.42				692,166				63.06				869,101				61.55
Commercial			319,789				24.00				377,624				20.44				233,263				23.71
Total		$	1,361,723				100.00	%		$	1,222,375				100.00	%		$	1,280,396				100.00	%

     Non-interest Revenue

     Three months ended June 30, 2007 compared to three months ended June 30, 2006

     Non-interest revenue totaled $371,044 for the three months ended June 30, 2007, an increase of $159,213 or 75.16% from the 2006 amount of $211,831. Non-interest revenue for the three months ended June 30, 2007 and June 30, 2006 included fee income from service charges on deposit accounts, broker origination fees from the marine division, earnings on bank owned life insurance, income from our investment in real estate LLC (Pointer Ridge) and other fees and commissions.

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

		June 30,				June 30,
		2007				2006				$ Change				% Change
Service charges on deposit accounts		$	72,998			$	71,047			$	1,951				2.75	%
Marine division broker origination fees			135,284				67,432				67,852				100.62
Earnings on bank owned life insurance			89,288				37,500				51,788				138.10
Income (loss) on investment in real estate LLC			(6,000	)			—				(6,000	)
Other fees and commissions			79,474				35,852				43,622				121.67
Total non-interest revenue		$	371,044			$	211,831			$	159,213				75.16	%

     Service charges on deposit accounts increased due to increases in the number of customers and the services they used. Although marine division broker origination fees increased, this was largely the result of increased originators for the three months ended June 30, 2007 compared to the three months ended June 30, 2006. As a result of high gasoline prices and general concerns about the economy, the marine industry experienced declining sales per originator during the second quarter of 2007. Earnings on bank owned life insurance increased primarily because we invested an additional $4 million in February 2007. Pointer Ridge began leasing its building to tenants in June 2006 and it had minimal income and expenses prior to that time. Therefore, it had no income during the second quarter of 2006. As a result of costs associated with leasing the building, it experienced a loss during the three months ended June 30, 2007. Other fees and commissions increased $43,622 primarily because we leased the Waldorf office space that we vacated in July 2006 and because of increases in miscellaneous and loan income received from the increased volume of closings on loans and letters of credit.

     Six months ended June 30, 2007 compared to six months ended June 30, 2006

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

		June 30,				June 30,
		2007				2006				$ Change				% Change
Service charges on deposit accounts		$	143,918			$	128,354			$	15,564				12.13	%
Marine division broker origination fees			212,958				191,783				21,175				11.04
Earnings on bank owned life insurance			156,638				71,642				84,996				118.64
Income (loss) on investment in real estate LLC			3,768				246				3,522				1431.71
Other fees and commissions			119,669				71,435				48,234				67.52
Total non-interest revenue		$	636,951			$	463,460			$	173,491				37.43	%

     Service charges on deposit accounts increased due to increases in the number of customers and the services they use. Primarily due to the increase in the number of originators and referral sources we used for the marine division, the division’s broker origination fees increased. Earnings on bank owned life insurance increased because we invested an additional $4 million in February 2007. Pointer Ridge began leasing its building to tenants in June 2006 and it did not have any income or expenses prior to that time. Therefore, it had minimal income in 2006. As a result of tenant income exceeding expenses, it experienced a profit during the six months ended June 30, 2007. Other fees and commissions increased $48,324 primarily because we leased the Waldorf office space that we vacated in July 2006 and because of increases in miscellaneous and loan income received from the increased volume of closings on loans and letters of credit.

     Because of the new lenders we have hired and the new Bowie and Greenbelt branches that we have opened, we expect that customer relationships will continue to grow during the remainder of 2007. We anticipate this growth will cause an increase in service charges on deposit accounts. We anticipate that we will see improvement in fee income from the marine division during the 3rd quarter of 2007. We believe the demand in the commercial real estate market will remain stable and we will have an additional number of opportunities to provide financing of these facilities. Therefore, other loan fees which are included in other fees and commissions should remain constant. We expect our earnings on bank owned life insurance will continue to increase during the remainder of 2007 primarily because of the additional $4 million investment in February 2007. We anticipate the income from Pointer Ridge will stabilize during the year and will produce break-even profitability. As a result, we expect our earnings in Pointer Ridge during 2007 will be nominal.

     Non-interest Expense

     Three months ended June 30, 2007 compared to three months ended June 30, 2006

     Non-interest expense for the three months ended June 30, 2007 was $1.7 million versus $1.3 million for the same period in 2006. The following chart outlines the changes in non-interest expenses for the period.

		June 30,				June 30,
		2007				2006				$ Change				% Change
Salaries		$	800,866			$	668,205			$	132,661				19.85	%
Employee benefits			228,451				165,577				62,874				37.97
Occupancy			224,183				64,510				159,673				247.52
Equipment			56,956				33,752				23,204				68.75
Data processing			54,652				37,347				17,305				46.34
Other operating			356,566				286,012				70,554				24.67
Total non-interest expenses		$	1,721,674			$	1,255,403			$	466,271				37.14	%

     Salary and benefit expenses increased because of general salary increases and because of the new staff for the Bowie and Greenbelt branches, two new loan officers, the new business development officer and additions to corporate and branch staff. Stock based compensation expense also contributed to the increase and was approximately $13,000 higher during the 2nd quarter of 2007 than the 2nd quarter of 2006 because there were more vested options outstanding to an increased number of directors and employees.

     Occupancy expense increased because of the new corporate headquarters, the addition of the new Bowie branch in July 2006 and the new Greenbelt branch in June 2007. Data processing increased because of the new locations, new services provided by our data processor, and contractual increases. Other operating expenses increased because janitorial, business development, advertising, stationery, office, and marine division origination costs increased during the period.

     Six months ended June 30, 2007 compared to six months ended June 30, 2006

     Non-interest expense for the six months ended June 30, 2007 was $3.4 million as compared to $2.5 million for the same period in 2006. The following chart outlines the changes in non-interest expenses for the period.

		June 30,				June 30,
		2007				2006				$ Change				% Change
Salaries		$	1,555,037			$	1,274,811			$	280,226				21.98	%
Employee benefits			513,265				345,773				167,492				48.44
Occupancy			434,621				130,727				303,894				232.46
Equipment			118,402				64,610				53,792				83.26
Data processing			114,092				74,708				39,384				52.72
Other operating			689,224				570,821				118,403				20.74
Total non-interest expenses		$	3,424,641			$	2,461,450			$	963,191				39.13	%