8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): April 1, 2011

Old Line Bancshares, Inc.

(Exact Name of Registrant as Specified in its Charter)

Maryland	000-50345	20-0154352
(State of Incorporation)	(Commission File Number)	(I.R.S. Employer 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

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

____              Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

____               Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CRF 240.14a-12)

____               Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

____               Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e- 4(c))

Section 2-Financial Information

Item 2.01 Completion of Acquisition or Disposition of Assets

As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2011, Old Line Bancshares, Inc. (“Bancshares”), the parent company of Old Line Bank, completed its acquisition of Maryland Bankcorp, Inc. (“Maryland Bankcorp”), the parent company of Maryland Bank & Trust Company, N.A., through the merger of Maryland Bankcorp with and into Bancshares (the “Merger”).

This Current Report on Form 8-K/A provides the historical financial statements of Maryland Bankcorp and pro forma financial information required under Items 9.01(a) and 9.01(b) of Form 8-K, which were not included in the Current Report on Form 8-K filed on April 1, 2011.

Section 9-Finanical Statement and Exhibits

Item 9.01 Financial Statements and Exhibits.

(a)   Financial statements of businesses acquired.

(1)   The audited financial statements of Maryland Bankcorp for the year ended December 31, 2010, are incorporated herein by reference to Exhibit 99.1 of this Current Report on Form 8-K.

(b)   Pro forma financial information.

(1)   Our unaudited consolidated pro forma combined financial statements as of March 31, 2011, for the years ended December 31, 2010 and 2009 and for the three months ended March 31, 2011 are incorporated herein by reference to Exhibit 99.2 of this Current Report on Form 8-K, and are based on the historical financial statements of Bancshares and Maryland Bankcorp after giving effect to the Merger.

(d)  Exhibits.

99.1 Audited financial statements of Maryland Bankcorp, Inc. for the year ended December 31, 2010.

99.2 Unaudited consolidated pro forma combined financial statements as of March 31, 2011, for the years ended December 31, 2010 and 2009 and for the three months ended March 31, 2011.

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 hereunto duly authorized.

	OLD LINE BANCSHARES, INC.
Date:  June 16, 2011	By:  /s/ Christine M. Rush
	Christine M. Rush, Chief Financial Officer

EX-99.1

Exhibit 99.1

CONSOLIDATED FINANCIAL STATEMENTS

AND INDEPENDENT AUDITORS’ REPORT

MARYLAND BANKCORP, INC.

AND SUBSIDIARY

DECEMBER 31, 2010 AND 2009

Maryland Bankcorp, Inc. and Subsidiary

TABLE OF CONTENTS

		PAGE
INDEPENDENT AUDITORS' REPORT		5
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS		6
CONSOLIDATED STATEMENTS OF OPERATIONS		7
CONSOLIDATED STATEMENTS OF CHANGES IN
	STOCKHOLDERS' EQUITY	8
CONSOLIDATED STATEMENTS OF CASH FLOWS		9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		10

 

INDEPENDENT AUDITORS’ REPORT

To the Stockholders and Board of Directors

Maryland Bankcorp, Inc.

We have audited the accompanying consolidated balance sheets of Maryland Bankcorp, Inc. and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Maryland Bankcorp, Inc.’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maryland Bankcorp, Inc. and Subsidiary at December 31, 2010 and 2009, and the results of their operations, their changes in stockholders’ equity and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Bank will continue as a going concern.  As discussed in note 20 to the financial statements, the Bank has not met its minimum capital ratios due to its deteriorating loan portfolio and poor economic conditions.  These conditions raise substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters are described in note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Baltimore, Maryland

May 6, 2011

www.reznickgroup.com

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Maryland Bankcorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

December 31, 2010 and 2009

ASSETS
	2010			2009
Cash and cash equivalents
Cash and due from banks	$	7,586,916		$	8,572,465
Federal funds sold		7,711,903			2,910,000
Total cash and cash equivalents		15,298,819			11,482,465
Interest-bearing deposits with banks		22,518,687			10,009,722
Investment securities available for sale		71,531,233			77,550,787
Federal Home Loan Bank stock, at cost		555,600			555,600
Federal Reserve Bank and other stock, at cost		767,639			677,939
Loans, net of allowance for loan losses of $6,925,590 and $6,191,001, respectively		210,116,844			226,203,937
Accrued interest receivable		1,219,049			1,461,226
Bank premises and equipment, net		3,510,967			3,786,332
Other real estate owned		5,042,730			1,938,715
Deferred tax asset					3,851,189
Other assets		12,302,701			14,238,573
Total assets	$	342,864,269		$	351,756,485
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	293,157,550		$	299,756,234
Other short-term borrowings		19,373,975			15,056,327
Line of credit		3,318,295			3,167,500
Due to affiliate		2,000,000			2,000,000
Accrued expenses and other liabilities		1,775,357			1,956,325
Deferred compensation and supplemental benefits		3,798,370			3,437,150
Capital lease obligations		11,471			55,091
Deferred income		202,622			231,350
Total liabilities		323,637,640			325,659,977
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share, 5,000,000 shares authorized as of
December 31, 2010 and 2009, and 0 shares outstanding as of
December 31, 2010 and 2009
Common stock, $.01 par value per share, 10,000,000 shares authorized; authorized; 646,626 shares issued and outstanding as of
December 31, 2010 and 2009		6,466			6,466
Additional paid-in capital		20,845,536			20,845,536
Retained earnings (deficit)		(263,809	)		5,618,726
Accumulated other comprehensive loss		(1,361,564	)		(374,220	)
Total stockholders' equity		19,226,629			26,096,508
Total liabilities and stockholders' equity	$	342,864,269		$	351,756,485

See notes to consolidated financial statements

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Maryland Bankcorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2010 and 2009

	2010			2009
INTEREST INCOME
Interest and fees on loans	$	13,937,710		$	13,882,947
Interest on investment securities		2,260,041			2,602,343
Interest on interest bearing deposits		33,220			17,538
Interest on federal funds sold		21,944			35,504
Total interest income		16,252,915			16,538,332
INTEREST EXPENSE
Interest on deposits		3,214,467			4,781,040
Interest on demand notes		373,439			231,455
Interest on federal funds purchased		77			637
Interest on capital leases		4,811			10,298
Total interest expense		3,592,794			5,023,430
Net interest income		12,660,121			11,514,902
Provision for loan losses		3,939,187			5,669,565
Net interest income after provision for loan losses		8,720,934			5,845,337
OTHER OPERATING INCOME
Service charges		1,450,298			1,541,142
Fees, commissions and miscellaneous		135,561			195,089
Gain on sale or call of investment securities		1,001,746			550,833
Total other operating income		2,587,605			2,287,064
OTHER OPERATING EXPENSES
Salaries and employee benefits		6,767,747			7,004,734
Occupancy and equipment expenses		1,827,885			1,832,534
Other expenses		4,231,440			4,150,875
Loss on other real estate owned		1,292,602			140,271
Total other operating expense		14,119,674			13,128,414
Loss before income taxes		(2,811,135	)		(4,996,013	)
Income tax expense (benefit)		3,071,400			(1,164,236	)
Net loss	$	(5,882,535	)	$	(3,831,777	)
Basic and diluted earnings per share of common stock		(9.10	)	$	(5.93	)

See notes to consolidated financial statements

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Maryland Bankcorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years ended December 31, 2010 and 2009

	Preferred Stock				Common Stock				Additional paid-in		Retained			Comprehen- sive income			Accumulated other comprehen- sive income
	Shares		Amount		Shares		Amount		Capital		earnings			(loss)			(loss)			Total
Balance, December 31, 2008		-	$	-		646,626	$	6,466	$	20,845,536	$	9,450,503					$	(1,044,605	)	$	29,257,900
Comprehensive income (loss)
Net income		-		-		-		-		-		(3,831,777	)	$	(3,831,777	)		-			(3,831,777	)
Other comprehensive income, net of tax
Pension plan adjustment		-		-		-		-		-		-			598,127			-			-
Change in unrealized gain on securities, net of tax		-		-		-		-		-		-			72,258			670,385			670,385
Total comprehensive loss		-		-		-		-		-		-		$	(3,161,392	)		-			-
Balance, December 31, 2009		-		-		646,626		6,466		20,845,536		5,618,726						(374,220	)		26,096,508
Comprehensive income (loss)
Net loss		-		-		-		-		-		(5,882,535	)	$	(5,882,535	)		-			(5,882,535	)
Other comprehensive income, net of tax
Pension plan adjustment															(175,655	)
Change in unrealized gain on securities, net of tax		-		-		-		-		-		-			(811,689	)		(987,344	)		(987,344	)
Total comprehensive loss		-		-		-		-		-		-			(6,869,879	)		-			-
Balance, December 31, 2010		-		-		646,626	$	6,466	$	20,845,536	$	(263,809	)				$	(1,361,564	)	$	19,226,629

See notes to consolidated financial statements

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Maryland Bankcorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2010 and 2009

	2010			2009
Cash flows from operating activities
Interest received	$	16,495,092		$	16,496,055
Other operating income received		3,073,808			1,851,303
Interest paid		(3,675,208	)		(5,052,913	)
Cash paid to suppliers and employees		(10,830,685	)		(16,542,700	)
Income taxes refund received (paid)		219,725			(275,646	)
Net cash provided by (used in) operating activities		5,282,732			(3,523,901	)
Cash flows from investing activities
Proceeds from maturities of investment securities held to maturity		-			200,000
Proceeds from sales, calls and maturities of investment securities available for sale		48,378,863			42,780,629
Purchase of investment securities available for sale		(42,973,153	)		(57,871,929	)
Proceeds from sale of other real estate owned		1,622,154			1,651,490
Net change in loans		6,396,871			(21,161,064	)
Net change in interest bearing deposits		(12,508,965	)		(5,712,188	)
Capital expenditures		(208,287	)		(854,570	)
Net provided by (used in) in investing activities		707,483			(40,967,632	)
Cash flows from financing activities
Net (decrease) increase in deposits		(6,598,684	)		38,590,747
Increase in short-term borrowings		4,317,648			6,458,090
Proceeds from line of credit and note payable		150,795			3,167,500
Federal funds sold		-			(1,767,000	)
Repayment of capital lease obligations		(43,620	)		(38,134	)
Net cash (used in) provided by financing activities		(2,173,861	)		46,411,203
NET INCREASE IN CASH
AND CASH EQUIVALENTS		3,816,354			1,919,670
Cash and cash equivalents, beginning of year		11,482,465			9,562,795
Cash and cash equivalents, end of year	$	15,298,819		$	11,482,465
Supplementary schedule of noncash investing activities
Loans transferred to other real estate owned	$	5,367,628		$	212,398

See notes to consolidated financial statements

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010 and 2009

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Maryland Bankcorp, Inc. (the Holding Company), was organized on September 28, 2001 at the direction of the Board of Directors of Maryland Bank & Trust Company, N.A. (the Bank) to acquire the stock of the Bank and to engage in such other business activities permitted by law for bank holding companies.  On September 28, 2001, after Board of Directors, shareholder and regulatory approval, each outstanding share of Bank common stock was exchanged for one share of Holding Company common stock.  As a result of the exchange of shares, the shareholders of the Bank became shareholders of the Holding Company and the Holding Company became the sole shareholder of the Bank.

The Bank was originally incorporated in 1959 under the laws of the State of Maryland, and effective August 1, 1997, became a national bank.  The Bank provides a full range of banking services to individual and corporate customers primarily in Southern Maryland.  The Bank is subject to competition from other financial institutions and is subject to the regulations of certain Federal and State agencies.

As of March 31, 2006, the Holding Company operates as a bank holding company under section 4(c)8 of the Bank Holding Company Act and section 225.83 of Regulation Y.

On September 1, 2010, the Holding Company entered into a definitive merger agreement, as amended on September 30, 2010 (the Merger Agreement), with Old Line Bancshares, the holding company for Old Line Bank, pursuant to which the Holding Company will merge with and into Old Line Bancshares (the Merger), with Old Line Bancshares being the surviving corporation.  The Merger Agreement also provides that upon the consummation of the merger, the Bank will merge with and into Old Line Bank, with Old Line Bank as the surviving institution (the Bank Merger).  At the effective time of the Merger, the board of directors of Old Line Bancshares will be increased by two (2) directors and two (2) of the current directors of the Holding Company selected by the board of directors of the Holding Company, with the approval of Old Line Bancshares’ board of directors, will be added to the board of directors of Old Line Bancshares and Old Line Bank.

Under the terms of the Merger Agreement, stockholders of the Holding Company will receive stock of Old Line Bancshares or cash (subject to the proration) for each of their shares of the Holding Company with a value generally equal to the aggregate consideration to be paid in the merger ($20,000,000, subject to adjustment) divided by the number of outstanding shares of common stock of the Holding Company.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

On March 16, 2011, the Federal Reserve Bank of Richmond, acting under authority delegated by the Board of Governors of the Federal Reserve System and having considered the relevant statutory factors, approved the application by Old Line Bancshares, Inc., Bowie, Maryland, to acquire the Holding Company.

On April 1, 2011, Old Line Bancshares, Inc. the parent company of Old Line Bank, announced the completion of its acquisition of the Holding Company, the parent company of the Bank.

Basis of Presentation

The financial statements are presented on a consolidated basis.  All material intercompany transactions and balances have been eliminated in the consolidation.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheet and reported income and expenses for the reporting period.  The Parent only financial statements of the Holding Company accounts for its investment in the Bank using the equity method of accounting. (See note 19)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to current year presentation.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Concentration of Credit Risk

The Bank’s primary market areas are St. Mary’s, Calvert, Charles, and Prince George’s Counties.  At December 31, 2010, the majority of the total loan portfolio was to borrowers within this region.  Interest bearing deposits in banks are held in several financial institutions.  Deposits are likewise largely obtained from customers in those counties.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods.

Off-Balance Sheet Instruments

In the ordinary course of business, the Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Investment Securities

All of the Bank’s investment securities are classified as available for sale.

Investment securities classified as available for sale are those debt and equity securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity.  Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors.  Investment securities available for sale are carried at fair value.  Unrealized gains or losses are reported as increases or decreases in other comprehensive income, net of the related tax effect, on the consolidated statements of change in stockholders’ equity.  Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.  Reclassification adjustments are recorded when the Bank realizes a gain or loss on the sale or a call of investment securities that had previously recognized an unrealized gain or loss as increases or decreases in stockholders’ equity, net of the related tax effect.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The cost basis of individual securities is written down through a charge to earnings when declines in value below amortized cost are considered to be other than temporary.  In cases where fair value is less than amortized cost and the Bank intends to sell a debt security, it is more likely than not to be required to sell a debt security before recovery of its amortized cost basis, or if the Bank does not expect to recover the entire amortized cost basis of a debt security, an other-than-temporary impairment is considered to have occurred. If the Bank intends to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the debt security’s amortized cost basis and its fair value at the balance sheet date. If the Bank does not expect to recover the entire amortized cost basis of the security, the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is separated into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized in earnings while the amount related to other factors is recognized in other comprehensive income, net of applicable taxes. Subsequently, the Bank accounts for the other-than-temporarily impaired debt security as if the security had been purchased on the measurement date of the other-than-temporary impairment at an amortized cost basis equal to the previous amortized cost basis less the other-than-temporary impairment recognized in earnings. The cost basis of individual equity securities is written down to estimated fair value through a charge to earnings when declines in value below cost are considered to be other than temporary.

Loans

Loans are stated at their outstanding unpaid principal balances, net of participations sold, deferred fees and costs and the allowance for loan losses.

Interest income on loans is accrued over the term of the loans based on the principal amounts outstanding.

The Bank generally places loans on non-accrual when any portion of the principal and interest is ninety days past-due and collateral is insufficient to discharge the debt in full.  Interest accrual may also be discontinued earlier if, in management’s opinion, collection is unlikely.  All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income.  Interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying to return to accrual status.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Loans are considered impaired when, based on current information, it is probable that the Bank will not collect all principal and interest payments according to contractual terms.  Loans are considered impaired once principal and interest payments are past due and they are place on non-accrual status.  Management also considers the financial condition of the borrower, cash flows of the loan, and the value of the related collateral.  Generally, the Bank measures impairment of such loans by reference to the fair value of the collateral.  Income on impaired loans is recognized on a cash-basis, and payments are first applied against the principal balance outstanding.

Loan origination fees and direct loan origination costs are capitalized and recognized as an adjustment of the yield of the related loans.

Interest Bearing Deposits

Interest bearing deposits in banks have no maturity date and are carried at cost.

Allowance for Loan Losses

The Bank’s policy is to charge recognized loan losses to the allowance for loan losses and add recoveries on previously written off loans to the allowance.  The allowance is increased by provisions which are charged to operations.  The adequacy of the allowance for loan losses is determined by management after reviewing the composition and risk of the loan portfolio, trends in loan volume by category, delinquencies, economic conditions, the Bank’s previous loan loss experience and other related matters.  The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to pay.  The allowance for loan losses is based on estimates, and ultimate losses, if any, may vary from the current estimates.

Accounting principles generally accepted in the United States of America require that the impairment of loans that have been separately identified for evaluation be measured based on the present value of expected future cash flow or, alternatively, the observable market price of the loans or the fair value of the collateral.  For those loans that are collateral dependent (that is, if repayment of the loan is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment of those loans is based on the fair value of the collateral.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require additions to the allowance based on their judgments about information available to them at the time of their examination.

Bank Premises and Equipment

Bank premises and equipment are stated at cost.  Depreciation and amortization are computed principally by accelerated methods over the estimated useful lives of the properties.  The estimated useful lives for computing depreciation and amortiza­tion are as follows:

	Years
Land improvements	10
Buildings and improvements	15 to 40
Furnishings and equipment	3 to 10
Automobiles	3
Leasehold improvements	5 to 20

When properties are sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts with any resulting gain or loss reflected in income.  Expenditures for repairs, maintenance, and minor improvements are expensed in the year incurred.

Other Real Estate Owned

Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value less estimated costs to dispose at the date of foreclosure.  Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses.  After foreclosure, valuations are periodically performed by management and the real estate held for sale is carried at the lower of the new cost basis or fair value less cost to sell.  Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value.  Costs related to holding property are expensed.  Valuations are periodically performed by management, and any subsequent write-downs are recorded as a change of operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Advertising

Advertising costs are expensed as incurred.  Advertising expense was $70,955 and $68,997 for the years ended December 31, 2010 and 2009, respectively.

Deferred Income

Deferred income resulting from the sale of the Lexington Park Branch is being amortized over the life of the lease, which is 20 years.

Deferred Rent

Minimum rental payments and tenant allowances are recognized on a straight-line basis over the term of the lease, regardless of when payments are due.

Comprehensive Income (Loss)

General accounting principles for reporting comprehensive income, requires the reporting of comprehensive income in addition to net income from operations.  Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income or loss.

Income Taxes

The Bank accounts for income taxes using the liability method.  Income taxes are provided based on earnings reported for financial statement purposes adjusted for permanent differences between items of income or expense reported in the financial statements and those reported for tax purposes.  Under the liability method, deferred income taxes are recognized for the estimated future tax effects of temporary differences in the bases of assets and liabilities measured at the enacted tax rates. A valuation allowance is recorded if, based upon the evidence available, it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The Bank has analyzed its income tax position using the criteria required for uncertain tax positions and concluded that there is no cumulative effect relating to the adoption of the standard.  In addition the Bank determined that as of December 31, 2010 and 2009, it has no material uncertain tax positions and no interest or penalties have been accrued.

Repurchase Agreements

The Bank routinely enters into repurchase agreements with customers.  As part of the repurchase agreements, the Bank uses marketable investment securities from its investment portfolio as collateral for the customer agreements.  The repurchase agreements bear interest at a market rate.

Fair Value of Financial Instruments

The Bank measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Bank's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Fair value measurements are further discussed in note 18.

Earnings Per Share

Basic earnings per share is calculated by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share is calculated on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.  Weighted average common shares and diluted common shares outstanding in 2010 and 2009 were 646,626, respectively.

Transfers of Financial Instruments

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Bank, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

New Accounting Pronouncements

In January 2010, the FASB issued guidance that clarifies and requires new disclosures about fair value measurements.  The clarifications and requirement to disclose the amounts and reasons for significant transfers between Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy, were adopted by the Bank during 2010.  The new guidance also requires that purchases, sales, issuances, and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years, with early adoption permitted.  Note 18 - Fair Value Measurements reflects the amended disclosure requirements.  This new guidance only amends the disclosure requirements, and the adoption of this guidance did not have a significant impact on the Bank’s financial statements.

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.”  The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the Allowance for the period ending March 31, 2011.   The amendments in this ASU defer the effective date related to these disclosures, enabling creditors to provide those disclosures after the FASB completes its project clarifying the guidance for determining what constitutes a troubled debt restructuring.   Currently, that guidance is expected to be effective for interim and annual periods ending after June 15, 2011.  As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s statements of operations and financial condition.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.”  The provisions of ASU No. 2011-02 determine that in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both the restructuring constitutes a concession and the debtor is experiencing financial difficulties.  The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession and a creditor’s evaluation of whether a debtor is experiencing financial difficulties.  The adoption if this ASU will have no material impact on the Bank’s consolidated statements of operations and financial condition.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 2 - GOING CONCERN

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described herein create a substantial doubt about the Bank’s ability to continue as a going concern.

The Bank has not achieved the required capital levels mandated by the Formal Agreement. To date the Bank’s capital preservation activities have included balance sheet restructuring that has included curtailed lending activity; reorganizing the securities portfolio to minimize the risk and related capital requirements; and reducing salaries and certain other noninterest expenses; the Bank has engaged external advisors and has pursued various capital enhancing transactions and strategies throughout 2009 and 2010. The operating loss for the year ended December 31, 2010 and the continuing level of problem loans have further eroded capital levels from December 31, 2009. There can be no assurance that any capital raising activities or other measures will allow the Bank to meet the capital levels required in the Formal Agreement. Banking regulators classify a bank as “critically undercapitalized” if it fails to meet a 2% capital leverage ratio. Under “prompt corrective action”, a critically undercapitalized bank must be placed in conservatorship or receivership within 90 days of such determinations unless the FDIC and appropriate regulators determine that other action would protect the deposit insurance fund. Noncompliance with the capital requirements of the Formal Agreement and the continued erosion of capital in the year ended December 31, 2010 may cause the Bank to be subject to further enforcement actions by the Regulators or the Commissioner, including potential regulatory receivership.

The financial statements do not include any adjustments that might be necessary if the Bank is unable to continue as a going concern.

NOTE 3 - CASH AND DUE FROM BANKS

The Bank is required by Regulation D of the Federal Reserve Act to maintain reserve balances with the Federal Reserve Bank principally based on deposits.  Balances maintained are included in cash and due from banks.  At December 31, 2010 and 2009, the required reserve balance was $67,000 and $4,395,000, respectively.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 4 - INVESTMENT SECURITIES

The amortized cost, unrealized holding gains and losses, and the fair value of investment securities at December 31, 2010 and 2009 are summarized as follows:

			December 31, 2010
	Amortized cost		Unrealized Gains		Unrealized  Losses			Fair value
Investment Securities      available for sale
U.S. Treasury Securities	$	1,400,554	$	1,360	$	-		$	1,401,914
Obligations of U.S.           Government Agencies		13,329,957		7,891		(99,306	)		13,238,542
Obligations of States and           Political Subdivisions		18,366,192		65,197		(364,562	)		18,066,827
Mortgage Backed           Securities		38,814,522		181,556		(172,128	)		38,823,950
Total	$	71,911,225	$	256,004	$	(635,996	)	$	71,531,233

			December 31, 2009
	Amortized cost		Unrealized Gains		Unrealized  Losses			Fair value
Investment Securities      available for sale
U.S. Treasury Securities	$	1,399,326	$	4,322	$	-		$	1,403,648
Obligations of U.S.           Government Agencies		16,764,615		181,643		(32,433	)		16,913,825
Obligations of States and           Political Subdivisions		16,577,742		157,178		(39,584	)		16,695,336
Mortgage Backed Securities		42,155,017		442,648		(59,687	)		42,537,978
Total	$	76,896,700	$	785,791	$	(131,704	)	$	77,550,787

For the years ended December 31, 2010 and 2009, the Bank recognized gross realized gains on calls and sales of investment securities of $1,001,746 and $550,833, respectively.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The amortized cost and fair value of available for sale securities at December 31, 2010 and 2009, by contractual maturity, are shown below:

	December 31, 2010				December 31, 2009
		Amortized cost	Fair value			Amortized cost	Fair value
Due in one year or less	$	8,882,329	$	8,671,240	$	13,262,780	$	13,318,889
Due after one year              through five years		36,892,295		37,169,678		34,805,314		35,332,596
Due after five years      through ten years		19,912,401		19,693,916		18,096,301		18,151,015
Due after ten years		6,224,200		5,996,399		10,732,305		10,748,287
Total	$	71,911,225	$	71,531,233	$	76,896,700	$	77,550,787

At December 31, 2010 other investments included Federal Home Loan Bank stock of $555,600, Federal Reserve Bank stock of $549,700, Atlantic Central Bankers Bank shares of $207,500 and other association shares of $10,439. At December 31, 2009 other investments included Federal Home Loan Bank stock of $555,600, Federal Reserve Bank stock of $460,000, Atlantic Central Bankers Bank shares of $207,500 and other association shares of $10,439.

At December 31, 2010 and 2009, investment securities having an amortized cost of $29,154,443 and $24,056,586, respectively, were pledged as collateral for borrowings and certain government deposits as required by law.

The following table is a presentation of the aggregate amount of unrealized loss in investment securities as of December 31, 2010 and 2009.  The aggregate is determined by summation of all the related securities that have continuous loss at year end, and the length of

time that the net loss has been realized is shown by terms of “less than 12 months” and “12 months and more.”  The fair value is the approximate market value as of year-end.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

		December 31, 2010
		Less than 12 months				12 months or more
		Fair Value	Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury Securities	$	-	$	-		$	-	$	-
Obligations of U.S. Government Agencies		10,211,826		(99,306	)		-		-
Obligations of States and Political Subdivisions		9,501,698		(364,562	)		-		-
Mortgage Backed Securities		14,825,057		(168,538	)		1,020,530		(3,590	)
Total temporarily impaired investment secruities	$	34,538,581	$	(632,406	)	$	1,020,530	$	(3,590	)

		December 31, 2009
		Less than 12 months				12 months or more
		Fair Value	Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury Securities	$	-	$	-		$	-	$	-
Obligations of U.S. Government Agencies		3,459,295		(32,433	)		-		-
Obligations of States and Political Subdivisions		2,725,007		(26,483	)		389,553		(13,101	)
Mortgage Backed Securities		9,672,154		(58,741	)		370,968		(947	)
Total temporarily impaired investment secruities	$	15,856,456	$	(117,657	)	$	760,521	$	(14,048	)

There are a total of 31 investment securities that have an unrealized loss as of December 31, 2010:  6 U.S. Government Agency Obligations, 15 Municipal Securities, and 10 Mortgage Backed Securities.  There were a total of 17 investment securities that had an unrealized loss as of December 31, 2009:  2 U.S. Government Agency Obligations, 6 Municipal Securities, and 9 Mortgage Backed Securities.    These unrealized losses relate principally to interest rate market conditions and do not reflect on the ability of the issuers to repay the obligations.  The Bank has the intent and the ability to hold these securities, classified as available-for-sale, for a period of time sufficient to allow for any anticipated recovery.  Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these mortgage backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporarily impaired at December 31, 2010 and 2009.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Management evaluates securities for other than temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such an evaluation.  Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

NOTE 5 - LOANS

At December 31, 2010 and 2009, loans consisted of the following:

	2010			2009
Real estate
Construction	$	18,382,536		$	18,888,174
Mortgages		187,518,834			197,487,210
Commercial		23,509,344			27,299,567
Consumer installment		4,774,913			5,277,883
		234,185,627			248,952,834
Less
Loan participations sold		17,846,104			17,644,214
Deferred loan fees (costs), net		(702,911	)		(1,086,318	)
Allowance for loan losses		6,925,590			6,191,001
		24,068,783			22,748,897
Loans, net	$	210,116,844		$	226,203,937

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Changes in the allowance for loan losses for the years ended December 31, 2010 and 2009 follow:

	2010			2009
Balance, beginning of year	$	6,191,001		$	2,589,790
Provision for loan losses		3,939,187			5,669,565
Loans charged off		(3,292,492	)		(2,583,388	)
Recoveries of loans charged off		87,894			515,034
Balance, end of year	$	6,925,590		$	6,191,001

Information about impaired loans as of and for the years ended December 31, 2010 and 2009, is as follows:

	2010		2009
Recorded investment in impaired loans not requiring an allowance for loan losses	$	13,845,630	$	3,937,906
Recorded investment in impaired loans requiring an allowance for loan losses		2,736,445		9,612,000
Recorded investment in impaired loans	$	16,582,075	$	13,549,906
Related allowance for loan losses	$	852,178	$	2,011,000
		2010		2009
Average impaired loans	$	14,417,402	$	12,594,569
Interest income recognized on impaired loans		333,060		373,436
Interest income recognized on a cash basis on impaired loans		-		-

Nonaccrual loans amounted to $14,972,147 and $9,723,309 at December 31, 2010 and 2009, respectively.  Loss of income from nonaccrual loans approximated $1,139,180 and $683,544 for the years ended December 31, 2010 and 2009, respectively.  Accruing loans, which were 90 days or more past due, totaled $0 and $273,949, as of December 31, 2010 and 2009, respectively.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Loans Modified in a Troubled Debt Restructuring

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when due to a borrower’s financial difficulties; the Bank makes certain concessions to the borrower that it would not otherwise consider.  Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.  Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan.  However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the loan modification or after a shorter performance period.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.

As of December 31, 2009, the Bank did not have any loans that were modified in a TDR.  The Bank had three mortgage loans whose terms had been modified in a TDR of $3,805,045 as of December 31, 2010.  The loans modified in a TDR were primarily the result of either a modification of interest rates or an extension of maturity dates.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 6 - BANK PREMISES AND EQUIPMENT

Bank premises and equipment consist of the following at December 31, 2010 and 2009:

	2010		2009
Land and land improvements	$	593,606	$	593,606
Buildings and improvements		3,418,215		2,975,261
Furnishings and equipment		5,708,016		5,513,881
Automobiles		37,518		37,518
Leasehold improvements		1,237,555		1,228,327
Capitalized lease - building		278,394		278,394
Construction-in-progress		-		438,030
		11,273,304		11,065,017
Less accumulated depreciation		7,505,986		7,054,596
Less accumulated amortization		256,351		224,089
Bank premises and equipment, net	$	3,510,967	$	3,786,332

During 2010 and 2009, the Bank incurred amortization on the capitalized lease - building of $32,262 and $38,133, respectively.

NOTE 7 - OTHER REAL ESTATE OWNED

During 2010, the Bank foreclosed on three real estate properties originating from three borrowers. The outstanding principal balances of the loans totaled $7,091,352 at the time of their foreclosures. The Bank charged $1,723,724 to reduce the carrying value of the other real estate owned to their approximate fair values less costs to sell.

During 2010, the Bank sold eight of its foreclosed assets for $1,622,154.  There was a gain of $71,000 recorded on these sales. As of December 31, 2010 the Bank is pursuing opportunities to market the remaining foreclosed collateral for sale.

During 2009, the Bank foreclosed on four real estate properties originating from three borrowers. The outstanding principal balances of the loans totaled $3,215,126 at the time of their foreclosures. The Bank charged $1,394,034 to reduce the carrying value of the other real estate owned to their approximate fair values less costs to sell.

During 2009, the Bank sold two of its foreclosed assets for $1,651,490.  There were no gains or losses on these sales. As of December 31, 2009 the Bank is pursuing opportunities to market the remaining foreclosed collateral for sale.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 8 - DEPOSITS

Customer deposits at December 31, 2010 and 2009, consist of the following:

	2010		2009
Demand - noninterest bearing	$	94,393,246	$	89,578,462
Savings and NOW accounts
Interest checking		17,774,897		14,616,894
Money market demand deposits		14,811,429		13,440,559
Savings		48,713,051		44,158,883
		81,299,377		72,216,336
Certificates of deposit less than $100,000		51,653,448		61,449,929
Certificates of deposit over $100,000		43,739,611		54,303,656
		95,393,059		115,751,585
Other time deposits		22,071,868		22,207,851
Total interest bearing deposits		198,764,304		210,177,772
Total	$	293,157,550	$	299,756,234

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

At December 31, 2010, the expected scheduled maturities of certificate of deposits and other time deposits are as follows (in thousands):

2011	$	65,828
2012		35,684
2013		8,957
2014		6,990
Thereafter		6
	$	117,465

NOTE 9 - OTHER SHORT TERM BORROWINGS

Other short-term borrowed funds consist of overnight repurchase agreements which are obligations to the Bank’s cash management customers.  As of December 31, 2010 and 2009, overnight repurchase agreements equaled $19,373,975 and $15,056,327, respectively.

NOTE 10 - INCOME TAXES

The components of income tax expense (benefit) for 2010 and 2009, are as follows:

	2010			2009
Current provision
Federal	$	(189,033	)	$	125,070
State		(25,267	)		6,837
		(214,300	)		131.907
Deferred taxes
Federal		2,618,044			(1,060,245	)
State		667,656			(235,898	)
		3,285,700			(1,296,143	)
	$	3,071,400		$	(1,164,236	)

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The principal components of net deferred tax assets (liabilities) at December 31, 2010 and 2009, are as follows:

	2010			2009
Net operating loss carryforward	$	774,425		$	482,253
Bad debt deduction		2,303,770			2,420,318
Premium amortization		(2,663	)		(2,531	)
Deferred compensation		1,454,380			1,681,455
Deferred gain on sale of bank premises		81,043			90,443
Straight line rent		183,975			183,717
Nonaccrual interest income		284,138			133,798
Depreciation		183,127			84,126
Tax effect of unrealized gain on securities
available for sale		-			(222,390	)
Other Real Estate Owned		281,029			-
Total temporary differences		5,543,224			4,851,189
Valuation allowance		(5,543,224	)		(1,000,000	)
Net deferred tax asset	$	-		$	3,851,189

The Bank has a net operating loss carry-forward available for income tax purposes of $1,926,007, which will begin to expire in 2030.

NOTE 11 - PENSION AND PROFIT-SHARING PLANS

The Bank sponsored a noncontributory, defined benefit pension plan, a defined contribution profit-sharing plan covering all of its qualified employees and a supplemental retirement benefit plan.  The Bank’s funding policy was to contribute amounts to the plans when deductible for Federal income tax purposes.

Pension Plan

The Pension Plan covered substantially all employees of the Bank who had completed one year of service and reached twenty-one years of age.  Employees with five or more years of vested service were entitled to annual pension benefits beginning at normal retirement age of sixty-five equal to the sum of .75% of final average earnings plus .60% of final average earnings in excess of covered compensation, multiplied by credited service not greater than thirty years.  The Pension Plan permitted early retirement at age 55 or over with the completion of five years of vesting service.  The annual early retirement benefit is the deferred vested benefit, reduced by one-half of 1% for each month the actual retirement date precedes the normal retirement date.  The normal form of pension benefit was a benefit payable during the lifetime of the retired participant and surviving spouse beneficiary.  As of December 31, 2010 and 2009, the Pension Plan owns 10,325 shares of the Holding Company valued at $271,031 and $162,619, respectively.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

On June 9, 2003, the Plan was amended so that all benefits accrued as of June 9, 2003 shall be frozen and no additional benefits shall accrue for any participants in the Plan.

Net periodic pension cost (income) for the Pension Plan is as follows:

	2010			2009
Net periodic pension (income) cost	$	(96,069	)	$	19,545

The amounts of contributions and benefits paid from the Pension Plan are as follows:

	2010		2009
Employer contributions	$	-	$	-
Benefits paid	$	152,568	$	149,528
Projected benefitobligation	$	3,740,701	$	3,659,676
Plan assets at fair value		5,056,343		4,790,535
Funded status as of December 31	$	1,315,642	$	1,130,859
Accrued benefit recognized as other assets      in the consolidated balance sheets		N/A		N/A

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Items not yet recognized as a component of net periodic pension costs:

	2010		2009
Transition obligation	$	-	$	-
Prior service cost		-		-
Net loss		974,823		1,063,537
	$	974,823	$	1,063,537

Assumptions used in determining net periodic pension costs for 2010 and 2009, are as follows:

	2010			2009
Discount rate		6.00	%		6.00	%
Earnings rate on invested assets		N/A			N/A
Rate of salary progression		N/A			N/A

Profit-Sharing Plan

The Profit-Sharing Plan covers all full-time employees of the Bank who have completed at least 1,000 hours of service.  The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).  Upon termination of service, a participant may elect to receive a lump-sum amount equal to the value of his or her account.  No contributions were made to this Plan for the years ended December 31, 2010 and 2009.  As of December 31, 2002, all benefits, rights and features of the Profit-Sharing Plan were merged into the Employee Stock Ownership Plan (see note 12).  Each participant’s closing account balance was merged into the Employee Stock Ownership Plan and the Profit-Sharing Plan ceased to exist.  As of December 31, 2010 and 2009, the Plan owns 8,584 shares of the Holding Company’s common stock valued at $225,330 and $135,198, respectively, and as of December 31, 2010 and 2009, the Plan invested $13,259 and $15,401, respectively, in a money market account with the Bank.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Supplemental Retirement Benefit Plan

The Bank has entered into a noncontributory, nonqualified supplemental retirement benefit plan with two executives of the Bank and one member of the Board of Directors.  In accordance with the supplemental retirement plans, the two executives and the director are entitled to an annual benefit upon retirement.  The annual benefit is adjusted based upon a comparison of the date of their retirement and the normal retirement age of sixty-five.

The net periodic pension costs, the amount of contributions and benefits paid as of December 31, 2010 and 2009 are as follows:

	2010		2009
Net periodic benefit cost	$	214,897	$	372,692
Participant contributions	$	-	$	-
Employer contributions	$	-	$	-
Benefit payments	$	-	$	-

The following table provides the amounts recognized in the consolidated statements of income and the funded status as of December 31, 2010 and 2009:

	2010			2009
Accrued benefit liability	$	(2,011,312	)	$	(1,830,997	)
Intangible asset		N/A			N/A
Accumulated other
comprehensive income		214,453			249,035
Net amount recognized	$	(1,796,859	)	$	(1,581,962	)
Projected benefit obligation	$	2,011,312		$	1,830,997
Unfunded status as of December 31	$	(2,011,312	)	$	(1,830,997	)

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Items not yet recognized as a component of net periodic pension costs:

	2010		2009
Prior service cost	$	91,613	$	125,968
Net loss		122,840		123,067
	$	214,453	$	249,035

Assumptions used in determining net periodic pension costs for 2010 and 2009 are as follows:

	2010			2009
Discount rate		6.00	%		6.00	%
Earnings rate on invested assets		N/A			N/A
Rate of salary progression		N/A			N/A

- 33 -

Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN

On January 1, 1995, the Bank adopted an Employee Stock Ownership Plan (the Plan).  The purpose of the Plan is to enable full-time employees who have completed at least 1,000 hours of service, are at least 21 years of age and have been employed for at least one year to acquire stock ownership in the Bank.  Vesting in the Plan is based upon years of service under a schedule outlined in the Plan document, with full vesting reached upon 7 years of service.  Effective January 1, 2003, the Plan was amended in its entirety and is known as Maryland Bankcorp, N.A. KSOP (the KSOP).  The amendment provides the participants of the KSOP the opportunity to make elective salary deferrals.  All employees with a minimum of one year of service and 1,000 hours are eligible to participate in the KSOP.  Employees may contribute up to the maximum amount allowed by federal tax laws.  The Bank contributes 3 percent of the employees’ compensation (the Safe Harbor Contribution), regardless of the employees’ elective deferral.  In addition, the Bank will make matching contributions (the Matching Contribution) equal to $.40 for each dollar contributed by the employee up to a maximum of 5% of the employees’ pay.  The Safe Harbor Contribution for eligible employees is vested immediately.  The Matching Contribution vests to employees over a six year period.  The Bank may also make an additional discretionary contribution which will be allocated to eligible employees who complete at least 1,000 hours in the current plan year and are employed as of December 31, 2010.  This contribution is allocated to the Participants based on a formula in the KSOP’s plan documents.  The additional discretionary contribution vests to eligible employees over a seven year period.   Forfeitures of the matching contribution will be used to reduce the Bank’s contribution the following year.

In addition, the assets of the Plan as of January 1, 2003 were transferred over to the KSOP.  Each eligible Participant has a separate company stock account based upon their balance as of January 1, 2003.  The Participant’s balance is adjusted for additional purchases of stock, earnings on the Plan’s investments, and forfeitures of Bank stock for nonvested employees.

For the years ended December 31, 2010 and 2009, the Bank made contributions of $189,092 and $212,937, respectively, to the KSOP.

In the event a terminated KSOP participant desires to sell his or her shares of the Holding Company’s stock, the KSOP may be requested to purchase the shares from the participant at their fair value.  As of December 31, 2010 and 2009, the KSOP owns 53,742 and 55,257 shares, respectively, of the Holding Company’s common stock valued at $1,410,728 and $870,298, respectively, based upon the appraised fair market value, and the remaining funds of the KSOP, approximately $41,362 at December 31, 2010 and $48,938 at December 31, 2009, were invested in a money market account and certificate of deposit with the Bank.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 13 - PREFERRED STOCK

At a Special Shareholders Meeting held on December 3, 2008 the shareholders approved, by proxy or in person, an Amended and Restated Articles of Incorporation to authorize 5,000,000 shares of Preferred Stock, par value $0.01 per share and eliminate preemptive rights for holders of the Preferred Stock.  The primary objective in establishing a class of Preferred Stock and eliminating preemptive right for holders of Preferred Stock was to provide maximum flexibility with respect to a future financing transaction, including, but not limited to, the preparation for the possible participation in the Capital Purchase Program (CPP) established by the U.S. Treasury Department pursuant to the Emergency Economic Stabilization Act of 2008.  Maryland Bankcorp, Inc. initially filed an application to participate in the CPP but subsequently, the Board of Directors has elected to withdraw the application due to the emergence of details of the government investment program. As of December 31, 2010 and 2009, there are no shares of Preferred Stock issued or outstanding.

NOTE 14 - LEASE OBLIGATIONS

As of December 31, 2010, the Bank leases eight locations from which it conducts business.  In 1998, the Bank sold three bank branches which were subsequently leased back to the Bank under a sale-leaseback agreement.  The Bank sold the Lexington Park, Solomons Island and Bryans Road branch locations for $750,000, $450,000 and $450,000, respectively.  The Bank incurred a gain of $574,561 on the sale of the Lexington Park branch, which has been deferred and is being amortized over the lease term of twenty years.  The Bank incurred a loss on the sale of the Solomons Island and Bryans Road branches of $196,846, and $20,000 of such loss, representing the difference between the appraised value and sales price of the Bryans Road branch, has been deferred.  The three leases entered into in 1998 were operating leases that call for monthly lease payments of $11,068, $4,556 and $7,707, respectively, and expire in 2018.  In August 2007, the Bank executed a five-year lease agreement extension for the Fort Washington branch location.  Monthly payments of $5,367, with annual increases, are due through August 2012.  In March 2005, after completion of rebuilding the LaPlata Branch property that was destroyed in the 2002 tornado, the Bank entered into a lease that requires initial monthly payments of $6,062, adjusted annually for CPI and reimbursement of CAM charges, which expires in 2020.  The California branch is under a written agreement which is considered a capital lease.  The capital lease is payable at $4,036 monthly and expires April 2011.  The interest rate implicit in the capital lease is 13.52%.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

On June 1, 2000, the Bank sold the Prince Frederick branch, which was subsequently leased back to the Bank under a sale-leaseback agreement.  The branch location was sold for $950,000 and the Bank realized a gain of $6,055, which will be deferred over the life of the lease.  The lease entered into is being accounted for as an operating lease that calls for monthly lease payments of $9,513 and expires May 31, 2020.

On January 24, 2001, the Bank commenced a lease for a branch with Wal-Mart Corporation in LaPlata, Maryland.  The initial term of the lease is for five years with monthly payments of $1,000.  The lease has two optional five-year renewals.  In January 2006, the Bank renewed the lease for a period of five years.  The lease is being accounted for as an operating lease.  On December 27, 2010 the lease agreement was extended to April 30, 2011, and the branch will be closed for operations at that time.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Future minimum payments under capital leases and noncancelable operating leases at December 31, 2010, for the following five years and thereafter, are as follows:

	Capital lease			Operating leases
2011	$	11,726		$	555,781
2012		-			566,486
2013		-			506,465
2014		-			519,147
2015		-			532,207
Thereafter		-			1,943,179
Total minimum lease payments	$	11,726		$	4,623,265
Less amount representing interest		(255	)
Present value of net minimum lease payments	$	11.471

Rent expense was $576,666 and $566,078 for 2010 and 2009, respectively.

NOTE 15 - LINE OF CREDIT

On December 30, 2009, the Holding Company obtained a line of credit note of $3,500,000 from Atlantic Central Bankers Bank. This line of credit is secured by capital stock of the Bank and accrues interest equal to the greater of 4.75% or the prime rate charged by large commercial banks as reported in the Wall Street Journal. Monthly payments of interest only commence on February 1, 2010 and the principal balance matures on December 30, 2011, with the option to extend an additional year.  As of December 31, 2010 and 2009, the amount drawn on the line of credit totals $3,318,295 and $3,167,500, respectively.

NOTE 16 - RELATED PARTY TRANSACTIONS

In the ordinary course of business, loans are made to Directors, Officers, and employees of the Bank and their affiliates.  In management’s opinion, these loans are consistent with sound banking practices, are within regulatory lending limitations and do not involve more than normal risk of collectability.  Loans outstanding, both direct and indirect, to Directors and policy-making Officers and employees total $4,859,117 and $5,790,429 at December 31, 2010 and 2009, respectively.  The Directors, Officers, and employees maintained deposits with the Bank of approximately $13,362,098 and $15,323,256 at December 31, 2010 and 2009, respectively.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Included in the lease discussion in note 14 are leases in four branch offices from entities in which Directors have beneficial interests.  One lease is classified as a capital lease in the financial statements and requires annual payments of $48,432 for the years 1993 through 2011.  The other three leases are operating leases and require annual payments as follows: $125,158 through year 2018, $51,351 through year 2018 and $114,152 through year 2020, respectively.  In management’s opinion, the annual rental and lease fees are competitive with prevailing costs for similar office space.

On December 15, 2008, the Holding Company received a $2,000,000 unsecured loan from an affiliated shareholder.  The loan is for five years with a maturity date of December 15, 2013 at which time a “balloon payment” of the entire indebtedness then remaining unpaid is required.  The rate of interest is equal to 7% with interest payable semi-annually.  Interest expense for the year ended December 31, 2010 and 2009 was $139,162 and $140,365, respectively.

NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business.  These financial instruments include mortgage loan commitments, unfunded construction loans, undisbursed lines of credit, unused lines of credit related to check loans, and standby letters of credit.  These instruments involve, to various degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument is represented by the contract or notational amount of the financial instrument.  The Bank uses the same credit policies in making commitments for off-balance sheet financial instruments as it does for on-balance sheet financial instruments.  Financial instruments with off-balance sheet risk are as follows at December 31, 2010 and 2009:

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

	2010		2009
Mortgage loan commitments	$	914,066	$	1,139,424
Construction loans to be funded		6,717,506		12,862,996
Undisbursed lines of credit		3,332,181		9,231,098
Undisbursed lines of credit-check      loans including home equity		4,299,391		4,441,323
Standby letters of credit		3,721,507		2,686,136
	$	18,984,651	$	30,360,977

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.  Commitments generally have fixed expiration dates or other termination clauses.  The Bank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management’s credit evaluation of the counter-party.  Collateral held varies but generally may include cash, marketable securities, and property.

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The framework for measuring fair value requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

The valuation techniques required by the new provisions are based upon observable and unobservable inputs.  Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s assumptions about market participant assumptions based on best information available.  Observable inputs are the preferred source of values.  These two types of inputs create the following fair value hierarchy:

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Securities Available for Sale - U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Bank obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The following table summarizes the Bank’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009 respectively, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Quoted Prices in  Active Markets  (Level 1)		Significant Other  Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)		Total Fair Value
2010
Securities available for sale	$	1,401,914	$	70,129,319	$	-	$	71,531,233
2009
Securities available for sale	$	1,403,648	$	76,147,139	$	-	$	77,550,787

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and liabilities measured at fair value on a nonrecurring basis include the following as of December 31, 2010 and 2009, respectively:

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
2010
Impaired loans	$	-	$	2,736,445	$	-	$	2,736,445
Other real estate owned, net	$	-	$	5,042,730	$	-	$	5,042,730
2009
Impaired loans	$	-	$	9,612,000	$	-	$	9,612,000
Other real estate owned, net	$	-	$	1,257,000	$	681,715	$	1,938,715

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Impaired Loans - Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.  During 2010 and 2009, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for possible loan losses based upon the fair value of the underlying collateral.

Other Real Estate Owned - Foreclosed real estate assets have been valued using a market approach. The values were determined using market prices of similar real estate assets and were valued in accordance with standards for accounting for the impairment or disposal of long-lived assets. Foreclosed real estate assets which have been valued using a market approach and subsequently adjusted for estimated market changes are valued under Level 3.

Generally accepted accounting principles for fair value of financial instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above.  The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies.  The methodologies for other financial assets and financial liabilities are discussed below:

Cash and Cash Equivalents - The carrying amounts of cash and short-term instruments approximate their fair value.

Federal Funds Sold - The carrying amounts of federal funds sold approximate their fair value.

Investment Securities - Fair value for investment securities are based on quoted market prices or dealer quotes.

Loans - The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk.  The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.  Nonperforming loans, if any, would have an assumed interest rate of 0%.  An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

Accrued interest receivable - The carrying amount approximates the fair value of accrued interest, considering the short-term nature of the receivable and its expected collection.

Deposits - The estimated fair value approximates carrying value for demand deposits. The fair value of fixed-rate deposit liabilities with defined maturities is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. While the Bank’s core deposits provide a relatively stable, low-cost funding source that has a substantial intangible value separate from the value of the deposit balances, these estimated fair values do not include the intangible value of core deposit relationships, which comprise a significant portion of the Bank’s deposit base.

Short Term Borrowings - The estimated fair value approximates carrying value for short-term borrowings due to their variable interest rates.

Accrued Interest Payable and Other Liabilities - The carrying amount approximates the fair value of accrued interest payable and other liabilities, considering the short-term nature of the payable and expected payment.

Off-Balance Sheet Instruments - Fair value for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

For the off-balance sheet financial instruments described above, there is no difference between the fair value and the estimated exposure value.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

The estimated fair value of the Holding Company’s financial instruments as of December 31, 2010 and 2009 is as follows:

	December 31, 2010 Amounts in thousands				December 31, 2009 Amounts in thousands
	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets
Cash and cash equivalents	$	7,587	$	7,587	$	8,572	$	8,572
Fed funds sold		7,712		7,712		2,910		2,910
Interest-bearing deposits		22,519		22,519		10,010		10,010
Investment securities		72,854		72,854		78,784		78,784
Loans, net		210,117		218,423		226,204		234,800
	$	320,789	$	329,095	$	326,480	$	335,076

	December 31, 2010 Amounts in thousands				December 31, 2009 Amounts in thousands
	Carrying amount		Fair value		Carrying amount		Fair value
Financial liabilities
Deposits	$	293,158	$	294,096	$	299,756	$	301,284
Short-term borrowings		19,374		19,368		15,056		15,056
Line of credit		3,318		3,318		3,168		3,168
Due to affiliate		2,000		2,000		2,000		2,000
Capital lease obligations		11		11		55		60
	$	317,861	$	318,793	$	320,035	$	321,568

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION

Financial information pertaining only to Maryland Bankcorp, Inc. is as follows:

BALANCE SHEETS

	December 31, 2010		December 31, 2009
ASSETS
Cash held at bank subsidiary	$	25,715	$	749,474
Investments in subsidiary		24,525,212		30,514,534
Other assets		-		6,629
Due from subsidiary		-		250
Total assets	$	24,550,927	$	31,270,887

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Dividend payable	$	-		$	37
Line of credit		3,318,295			3,167,500
Due to affiliate		2,000,000			2,000,000
Interest payable		6,003			6,610
Accrued expenses		-			232
STOCKHOLDERS' EQUITY		19,226,629			26,096,508
Total liabilities and stockholders' equity	$	24,550,927		$	31,270,887
STATEMENTS OF OPERATIONS
	Year ended December 31, 2010			Year ended December 31, 2009
Equity in undistributed income of subsidiary	$	(5,571,973	)	$	(3,724,400	)
Other expense		(310,556	)		(107,377	)
Net (loss) income	$	(5,882,529	)	$	(3,831,777	)

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

	Year ended December 31, 2010			Year ended December 31, 2009
Cash flows from operating activities
Net (loss) income	$	(5,882,529	)	$	(3,831,777	)
Equity in undistributed income of subsidiary		5,571,973			3,724,400
Decrease in due from subsidiary		250			355
Decrease in other assets		6,629			3,725
Decrease in accrued expenses		(840	)		(3,510	)
Net cash used in operating activities		(304,517	)		(106,807	)
Cash flows from investing activities
Proceeds from maturities of time deposit		-			2,315,000
Purchase of Maryland Bank and Trust stock		(570,000	)		(4,819,766	)
Cash dividends paid on common stock		(37	)		(568	)
Net cash used in investing activities		(570,037	)		(2,505,334	)
Cash flows from financing activities Proceeds from note payable		150,795			3,167,500
Net cash provided by financing activities		150,795			3,167,500
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS		(723,759	)		555,359
Cash and cash equivalents at beginning of year		749,474			194,115
Cash and cash equivalents at end of year	$	25,715		$	749,474

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 20 - REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by Federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct and material effect on the Bank’s financial statements.  The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Tier 1, risk-based capital to total average assets, and minimum ratios of Tier 1, total risk-based capital to risk-weighted assets.  Risk-based capital standards have been supplemented with requirements for a minimum Tier 1 capital to assets ratio (leveraged ratio).  The Bank’s required and actual capital ratios at December 31, 2010 and 2009, are presented in the following table:

	2010						2009
	Actual			Minimum  requirements			Actual			Minimum requirements
Tier 1 risk-based capital		12.01	%		12.00	%		13.20	%		12.00	%
Total risk-based capital		13.28	%		14.00	%		14.47	%		14.00	%
Tier 1 leverage capital		7.40	%		8.00	%		8.93	%		8.00	%

During 2005, the Bank underwent an examination conducted by the Office of the Comptroller of the Currency (the OCC).  The final written report of examination has been received by management of the Bank and has been reviewed and signed by its Board of Directors.

As a result of that examination, the Bank formally agreed to among other things, improve credit administration process, commercial loan underwriting and loan asset quality, conforming loan risk rating classifications to the regulatory commercial credit classification definitions and evaluating the allowance for loan losses due to changes in classifications, improving compliance with regulatory and policy requirements (Bank Secrecy Act and Regulation O issues) and improving Board committee structure and processes and personnel management.  Management and the Board will report to the regulators throughout the year on the progress of each specific recommendation.  The Formal Agreement was signed by the Board of Directors on February 10, 2006.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

As a result of the Formal Agreement, the Bank is required to immediately and thereafter maintain higher than normal risk-based and leverage capital minimums as follows: Tier 1 risk-based capital of 12.00%; Total risk-based capital of 14.00% and Tier 1 leverage capital of 8.00%.  Due to these minimum requirements, the Bank is no longer designated as well capitalized.  As of December 31, 2010 the Bank is below the minimum requirements for total risk based capital and Tier 1 leverage capital.  See note 24 for discussion of merger.  In addition, further examinations have also indicated noncompliance with certain terms of the Formal Agreement.

NOTE 21 - CONCENTRATIONS

In accordance with the Concentrations in Commercial Real Estate (CRE) Lending Sound Risk Management Practices Guideline dated January 9, 2006, the Bank has a concentration in CRE.  For year-end December 31, 2010 at 105.06% the Bank’s total for construction, land development and other land exceeds the 100% of Capital guideline.  In addition, at 351.95% the Bank’s total secured by multifamily and nonresidential properties and loans for construction/land development exceeds the 300% of Capital guideline.

NOTE 22 - COMMITMENTS AND CONTINGENCIES

The Bank has a deferred compensation agreement with two executive officers, which provides benefits payable through 2021 and 2027, respectively.  During the year ended December 31, 2010 and 2009, the present value of the deferred compensation payable which has been accrued under this agreement is $717,013 and $755,667, respectively.  During 1998, the Board of Directors approved supplemental pensions for three additional officers.  During the years ended December 31, 2010 and 2009, the present value of the supplemental pensions which has been accrued under these agreements is $1,171,252 and $1,081,156, respectively.

Financial instruments, which potentially subject the Bank to concentration of credit risk, consist principally of loans.  With respect to the loans, the Bank has loans totaling approximately $60,204,964 to residential real estate owners, $19,269,339 to lessors of residential real estate, and $16,187,192 to lessors of nonresidential buildings activities principally occurring in St. Mary’s, Charles and Calvert Counties, Maryland.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

On September 1, 2010, the Holding Company entered into a definitive merger agreement, as amended on September 30, 2010 (the Merger Agreement), with Old Line Bancshares, the holding company for Old Line Bank, pursuant to which the Holding Company will merge with and into Old Line Bancshares (the Merger), with Old Line Bancshares being the surviving corporation.  The Merger Agreement also provides that upon the consummation of the merger, the Bank will merge with and into Old Line Bank, with Old Line Bank as the surviving institution (the Bank Merger).  At the effective time of the Merger, the board of directors of Old Line Bancshares will be increased by two (2) directors and two (2) of the current directors of the Holding Company selected by the board of directors of the Holding Company, with the approval of Old Line Bancshares’ board of directors, will be added to the board of directors of Old Line Bancshares and Old Line Bank.

Under the terms of the Merger Agreement, stockholders of the Holding Company will receive stock of Old Line Bancshares or cash (subject to the proration) for each of their shares of the Holding Company with a value generally equal to the aggregate consideration to be paid in the merger ($20,000,000, subject to adjustment) divided by the number of outstanding shares of common stock of the Holding Company.

NOTE 23 - RISKS AND UNCERTAINTIES

In the normal course of its business the Bank encounters two significant types of risk: economic and regulatory.  There are three main components of economic risk: interest rate risk, credit risk and market risk.  The Bank is subject to interest rate risk to the degree that its interest-bearing liabilities mature or re-price at different speeds, or on different bases, than its interest-earning assets.  Credit risk is the risk of default on the Bank’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects changes in the value of collateral underlying loans and investments.

The Bank is subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Bank will also undergo periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuation, amounts of required loss allowances and operating restrictions resulting from regulators’ judgments based on information available to them at the time of their examinations.

In the normal course of business, the Holding Company and its subsidiary are involved in various legal proceedings.  The Bank is currently in litigation with a customer who contends to having materially false representations made to him by the Bank and its representatives.  In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Holding Company’s consolidated financial statements.

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Maryland Bankcorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2010 and 2009

NOTE 24 - SUBSEQUENT EVENTS

Events that occur after the consolidated balance sheet date but before the consolidated financial statements were available to be issued must be evaluated for recognition or disclosure.  The effects of subsequent events that provide evidence about conditions that existed at the consolidated balance sheet date are recognized in the accompanying consolidated financial statements.  Subsequent events which provide evidence about conditions that existed after the consolidated balance sheet date require disclosure in the accompanying notes.  Management evaluated the activity ofMaryland Bankcorp, Inc. and Subsidiarythrough May 6, 2011 (the date the financial statements were available to be issued) and concluded that no subsequent events, other than those noted below have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

On March 16, 2011, the Federal Reserve Bank of Richmond, acting under authority delegated by the Board of Governors of the Federal Reserve System and having considered the relevant statutory factors, approved the application by Old Line Bancshares, Inc., Bowie, Maryland, to acquire the Holding Company.

On April 1, 2011, Old Line Bancshares, Inc. the parent company of Old Line Bank, announced the completion of its acquisition of the Holding Company, the parent company of the Bank.

 - 50 -

EX-99.2

Exhibit 99.2

FINANCIAL STATEMENTS

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME

The following unaudited pro forma combined balance sheets at March 31, 2011 and unaudited pro forma condensed combined statements of income for the three months ended March 31, 2011 and twelve months ended December 31, 2010 and 2009, respectively illustrate the effect of the proposed merger.  We have based the unaudited pro forma combined financial statements on the unaudited balance sheets at March 31, 2011 and the unaudited consolidated statements of income for the three months ended March 31, 2011 and the audited statements of income for the twelve months ended December 31, 2010 and 2009 of Maryland Bankcorp and Old Line Bancshares.

As required by FASB ASC Topic 805-Business combinations, we have used the acquisition method of accounting and adjusted the acquired assets and liabilities of Maryland Bankcorp to fair value as of the balance sheet date.  Under this method, we will record Maryland Bankcorp.’s assets and liabilities as of April 1, 2011, the date of the acquisition, at their respective fair values and add them to those of Old Line Bancshares.  We will record in goodwill any difference between the purchase price for Maryland Bankcorp and the fair value of the identifiable net assets acquired (including core deposit intangibles).  We will not expense the amortization of the goodwill that results from the acquisition, if any, but will review it for impairment at least annually.  To the extent there is an impairment of the goodwill, we will expense the impairment.  We will amortize to expense core deposit and other intangibles with definite useful lives that we record in conjunction with the merger.  Financial statements that Old Line Bancshares issues after the acquisition will reflect the results attributable to the acquired operations of Maryland Bankcorp beginning on April 1, 2011, the date of completion of the acquisition.

In connection with the acquisition, Old Line Bancshares is currently working to consolidate the operations of Maryland Bankcorp, Inc.  We continue to assess the two companies’ personnel, benefit plans, premises, equipment, computer systems and service contracts to determine where we may take advantage of redundancies.  We will record any additional cost associated with such decisions as incurred and have not included them in the pro forma adjustments to the pro forma consolidated statements of income.  For the three months ended March 31, 2011, Old Line Bancshares, Inc. has incurred $90,060 and Maryland Bank and Trust Co. has incurred $365,140 of merger and integration expenses.  For the twelve months ended December 31, 2010, Old Line Bancshares has incurred $574,369 of merger and integration expenses and Maryland Bank & Trust Co. has incurred $369,303.  We anticipate that we can reduce consolidated operating expenses by 25% to 35%.  We have not included these savings in the pro forma consolidated statements of income and there are no assurances that we will realize these reductions.

We have provided the unaudited pro forma information for information purposes only.  The pro forma financial information presented is not necessarily indicative of the actual results that we would have achieved had we consummated the merger on the dates or at the beginning of the periods presented, and it is not necessarily indicative of future results.  You should read the unaudited pro forma financial information in conjunction with notes thereto and the audited consolidated financial statements and the notes thereto of Old Line Bancshares and Maryland Bankcorp.  Actual results may be materially different than the pro forma data presented.

We have made certain reclassification adjustments to the pro forma financial statements to conform to Old Line Bancshares’ financial statement presentation.

 Old Line Bancshares, Inc.

 Consolidated Proforma Balance Sheets with Maryland Bankcorp

 (Unaudited)

	Old Line Bancshares, Inc. March 31, 2011	Maryland Bankcorp, Inc. March 31, 2011	Proforma Adjustments March 31, 2011		Proforma Combined March 31, 2011
Assets
Cash and due from banks	$         8,512,884	$         7,130,700	$       (6,404,723)	(1)(9)	$         9,238,861
Interest bearing accounts	115,680	34,005,408	-		34,121,088
Federal funds sold	558,214	7,235,797	-		7,794,011
Total cash and cash equivalents	9,186,778	48,371,905	(6,404,723)		51,153,960
Time deposits in other banks	99,000	-	-		99,000
Investment securities available for sale	37,658,830	71,770,789	(648,405)	(4)	108,781,214
Investment securities held to maturity	20,267,496	-	-		20,267,496
Loans, net of deferred fees and costs	308,778,404	209,119,318	(20,354,277)	(5)(6)	497,543,445
Allowance for loan losses	(2,124,439)	(7,041,343)	7,041,343	(6)	(2,124,439)
Restricted equity securities at cost	2,596,650	1,323,239	251,945		4,171,834
Premises and equipment	16,703,016	3,390,192	1,066,894	(12)	21,160,102
Accrued interest receivable	1,239,489	1,128,988	-		2,368,477
Prepaid income taxes	-	1,231,029	-		1,231,029
Deferred income taxes	190,186	138,183	9,825,882	(4)(11)	10,154,251
Bank owned life insurance	8,765,616	7,504,351	-		16,269,967
Prepaid pension costs	-	1,315,642	-		1,315,642
Other real estate owned	1,976,516	5,394,870	(3,047,419)	(7)	4,323,967
Goodwill	-	-	131,695	(1)	131,695
Other intangible assets, net	-	-	5,002,917	(3)	5,002,917
Other assets	2,214,039	2,319,118	513,300	(10)	5,046,457
Total assets	$     407,551,581	$     345,966,281	$       (6,620,848)		$     746,897,014
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing	$       56,827,155	$     117,009,956	$                     -		$     173,837,111
Interest bearing	281,811,895	182,567,452	738,172	(8)	465,117,519
Total deposits	338,639,050	299,577,408	738,172		638,954,630
Short term borrowings	6,584,128	21,947,607	(5,363,607)	(9)	23,168,128
Long term borrowings	16,349,219	-	-		16,349,219
Accrued interest payable	363,763	101,058	(40,276)	(9)	424,545
Deferred compensation and supplemental benefits	711,653	3,330,390	-		4,042,043
Other liabilities	565,476	2,525,783	(567,885)	(10)	2,523,374
Total liabilities	363,213,289	327,482,246	(5,233,596)		685,461,939
Stockholders' equity
Common stock	46,774	6,466	14,856	(1)(2)	68,096
Additional paid-in capital	35,582,975	20,845,536	(3,039,860)	(1)(2)	53,388,651
Retained earnings	7,917,628	(1,369,514)	1,369,514	(1)(2)	7,917,628
Accumulated other comprehensive income (loss)	208,879	(998,453)	268,238	(1)(2)	(521,336)
Total stockholders' equity	43,756,256	18,484,035	(1,387,252)		60,853,039
Non-controlling interest	582,036	-	-		582,036
Total stockholders' equity	44,338,292	18,484,035	(1,387,252)		61,435,075
Total liabilities and stockholders' equity	$     407,551,581	$     345,966,281	$       (6,620,848)		$     746,897,014

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

F-2

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Proforma Statement of Income with Maryland Bankcorp

(Unaudited)

	Old Line Bancshares, Inc. March 31, 2011	Maryland Bankcorp, Inc. March 31, 2011	Proforma Adjustments March 31, 2011		Proforma Combined March 31, 2011
Interest revenue
Loans, including fees	$           4,195,866	$           3,067,764	$              637,500	(5),(6)	$           7,901,130
U.S. Treasury securities	-	2,296	-		2,296
U.S. government agency securities	26,117	32,525	-	(4)	58,642
Mortgage backed securities	379,418	264,471	(57,250)		586,639
Municipal securities	19,704	195,508	-		215,212
Federal funds sold	1,831	5,497	-		7,328
Other	24,926	20,366	-		45,292
Total interest revenue	4,647,862	3,588,427	580,250		8,816,539
Interest expense
Deposits	875,976	561,458	(40,000)	(8)	1,397,434
Borrowed funds	184,623	103,863	-		288,486
Total interest expense	1,060,599	665,321	(40,000)		1,685,920
Net interest income	3,587,263	2,923,106	620,250		7,130,619
Provision for loan losses	150,000	600,000	-		750,000
Net interest income after provision for loan losses	3,437,263	2,323,106	620,250		6,380,619
Non-interest revenue
Service charges on deposit accounts	82,450	321,169	-		403,619
Gains on sales of investment securities	38,070	4,305	-		42,375
Gain on sale of other real estate owned	2,985	-	-		2,985
Earnings on bank owned life insurance	79,038	57,603	-		136,641
Other fees and commissions	122,337	51,354	-		173,691
Total non-interest revenue	324,880	434,431	-		759,311
Non-interest expense
Salaries	1,133,787	1,272,776	-		2,406,563
Employee benefits	366,924	444,678	-		811,602
Occupancy & equipment	459,914	430,657	6,750	(12)	897,321
Data processing	129,750	220,364	-		350,114
FDIC insurance and State of Maryland assessments	151,504	205,334	-		356,838
Merger and integration expenses	90,060	365,140	-		455,200
Other operating	595,235	973,178	194,750	(3)	1,763,163
Total non-interest expense	2,927,174	3,912,127	201,500		7,040,801
Income before income taxes	834,969	(1,154,590)	418,750		99,129
Income taxes (benefit)	335,243	(429,439)	142,375	(11)	48,179
Net income	499,726	(725,151)	276,375		50,950
Less:  Net income (loss) attributable to the non-controlling interest	(22,956)	-	-		(22,956)
Net income attributable to Old Line Bancshares, Inc.	$              522,682	$             (725,151)	$              276,375		$                73,906
Basic earnings (loss) per common share	$                    0.12	$                   (1.67)			$                    0.01
Diluted earnings (loss) per common share	$                    0.12	$                   (1.67)			$                    0.01
Dividend per common share	$                    0.03	$                        -			$                    0.03

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

F-3

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Proforma Statement of Income with Maryland Bankcorp

	Old Line Bancshares, Inc. December 31, 2010 Audited	Maryland Bankcorp, Inc. December 31, 2010 Audited	Proforma Adjustments December 31, 2010 Unaudited		Proforma Combined December 31, 2010 Unaudited
Interest revenue
Loans, including fees	$         16,599,612	$         13,937,710	$           2,550,000	(5),(6)	$         33,087,322
U.S. Treasury securities	-	9,880	-		9,880
U.S. government agency securities	163,787	364,092	-	(4)	527,879
Mortgage backed securities	1,399,979	1,243,241	(229,000)		2,414,220
Municipal securities	79,758	607,223	-		686,981
Federal funds sold	7,255	21,944	-		29,199
Other	258,440	68,825	-		327,265
Total interest revenue	18,508,831	16,252,915	2,321,000		37,082,746
Interest expense
Deposits	3,920,338	3,214,467	(160,000)	(8)	6,974,805
Borrowed funds	1,022,425	378,327	-		1,400,752
Total interest expense	4,942,763	3,592,794	(160,000)		8,375,557
Net interest income	13,566,068	12,660,121	2,481,000		28,707,189
Provision for loan losses	1,082,000	3,939,187	-		5,021,187
Net interest income after provision for loan losses	12,484,068	8,720,934	2,481,000		23,686,002
Non-interest revenue
Service charges on deposit accounts	306,548	1,450,298	-		1,756,846
Gains on sales of investment securities	-	1,001,746	-		1,001,746
Gain on sale of other real estate owned	192,724	-	-		192,724
Earnings on bank owned life insurance	336,834	234,634	-		571,468
Other fees and commissions	515,896	135,561	-		651,457
Total non-interest revenue	1,352,002	2,822,239	-		4,174,241
Non-interest expense
Salaries	4,681,679	5,043,841	-		9,725,520
Employee benefits	1,284,993	1,958,540	-		3,243,533
Occupancy & equipment	1,712,182	1,827,885	27,000	(12)	3,567,067
Data processing	452,675	719,788	-		1,172,463
FDIC insurance and State of Maryland assessments	527,807	515,438	-		1,043,245
Merger	574,369	369,303	-		943,672
Loss on other real estate owned	-	1,292,602
Other operating	2,175,800	2,626,911	779,000	(3)	5,581,711
Total non-interest expense	11,409,505	14,354,308	806,000		26,569,813
Income before income taxes	2,426,565	(2,811,135)	1,675,000		1,290,430
Income taxes (benefit)	996,750	3,071,400	569,500	(11)	4,637,650
Net income	1,429,815	(5,882,535)	1,105,500		(3,347,220)
Less:  Net income (loss) attributable to the non-controlling interest	(72,849)	-	-		(72,849)
Net income attributable to Old Line Bancshares, Inc.	$           1,502,664	$          (5,882,535)	$           1,105,500		$          (3,274,371)
Basic earnings (loss) per common share	$                    0.39	$                   (0.86)	$                        -		$                   (0.48)
Diluted earnings (loss) per common share	$                    0.38	$                   (0.86)	$                        -		$                   (0.48)
Dividend per common share	$                    0.12	$                        -	$                        -		$                    0.12

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

F-4

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Proforma Statement of Income with Maryland Bankcorp

	Old Line Bancshares	Maryland Bankcorp	Proforma                   Adjustments		Proforma Combined
	December 31,	December 31,	December 31,		December 31,
	2009 Audited	2009 Audited	2009 Unaudited		2009 Unaudited
Interest revenue
Loans, including fees	$              15,304,608	$              13,882,947	$               2,550,000	(5)(6)	$              31,737,555
U.S. Treasury securities	7,230	28,081	-		35,311
U.S. government agency securities	296,560	564,048	-		860,608
Mortgage backed securities	1,059,386	1,237,582	(229,000)	(4)	2,067,964
Municipal securities	84,797	727,985	-		812,782
Federal funds sold	1,148	35,504	-		36,652
Other	342,127	62,185	-		404,312
Total interest revenue	17,095,856	16,538,332	2,321,000		35,955,188
Interest expense
Deposits	4,553,099	4,781,040	(160,000)	(8)	9,174,139
Borrowed funds	1,026,755	242,390	-		1,269,145
Total interest expense	5,579,854	5,023,430	(160,000)		10,443,284
Net interest income	11,516,002	11,514,902	2,481,000		25,511,904
Provision for loan losses	900,000	5,669,565	-		6,569,565
Net interest income after provision for loan losses	10,616,002	5,845,337	2,481,000		18,942,339
Non-interest revenue
Service charges on deposit accounts	307,012	1,541,142	-		1,848,154
Gains on sales of investment securities	158,551	550,833	-		709,384
Earnings on bank owned life insurance	376,165	223,647	-		599,812
Other fees and commissions	978,039	195,089	-		1,173,128
Total non-interest revenue	1,819,767	2,510,711	-		4,330,478
Non-interest expense
Salaries	4,037,027	5,417,894	-		9,454,921
Employee benefits	1,012,014	1,810,487	-		2,822,501
Occupancy & equipment	1,440,299	1,832,534	27,000	(12)	3,299,833
Data processing	340,870	646,138	-		987,008
FDIC insurance and State of Maryland assessments	561,850	113,409	-		675,259
Other operating	1,864,821	3,531,599	779,000	(3)	6,175,420
Total non-interest expense	9,256,881	13,352,061	806,000		23,414,942
Income before income taxes	3,178,888	(4,996,013)	1,675,000		(142,125)
Income taxes	1,055,522	(1,164,236)	569,500	(11)	460,786
Net Income	2,123,366	(3,831,777)	1,105,500		(602,911)
Less: Net Income  (loss) attributable to the         noncontrolling interest	87,216	-	-		87,216
Net Income	2,036,150	(3,831,777)	1,105,500		(690,127)
Preferred stock dividends and discount accretion	485,993	-	-		485,993
Net income available to common stockholders	$                 1,550,157	$              (3,831,777)	$                 1,105,500		$                (1,176,120)
Basic earnings (loss) per common share	$                          0.40	$                        (5.93)	$                               -		$                         (0.17)
Diluted earnings (loss) per common share	$                          0.40	$                        (5.93)	$                               -		$                         (0.17)
Dividend per common share	$                          0.12	$                                 -	$                               -		$                            0.12

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

F-5

NOTES TO THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME

1. Old Line Bancshares issued shares of its stock to stockholders of Maryland Bankcorp to effect the acquisition.  The exchange ratio was based on a pricing mechanism that adjusted based on the average price as defined in the merger agreement.  The unaudited pro forma combined financial information assumes that Old Line Bank exchanged each share of Maryland Bankcorp stock for 3.4826 shares of Old Line Bank common stock and repurchased all fractional shares that resulted from the share exchange.

Maryland Bankcorp stockholders own approximately 31.31% of the voting stock of the combined company after the acquisition.  The shares of Old Line Bancshares’ common stock illustrated in this pro forma were recorded at $8.3608 per share, the ninety day average sales price of Old Line Bancshares five days prior to the effective date of the merger.  The pro forma financial statements include payment to Maryland Bankcorp stockholders who elected to receive cash consideration for a total cash payment of $1 million.

Old Line Bancshares will determine the final allocation of the purchase price after we have completed additional analysis to determine the fair values of Maryland Bankcorp tangible and identifiable intangible assets and liabilities as of the date of the acquisition.  Changes in the fair value of the net assets of Maryland Bankcorp as of the date of the acquisition will likely change the amount of the purchase price allocable to goodwill. The further refinement of transaction costs and fair valuations will likely change the amount of goodwill recorded.  The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.  Old Line Bancshares has prepared the pro forma financial information to include the estimated adjustments necessary to record the assets and liabilities of Maryland Bank & Trust Co. at their respective fair values and represents management’s best estimate based upon the information available at this time.  The pro forma adjustments included herein are subject to change as additional information becomes available and as we perform additional analyses.  The final acquisition accounting adjustments may be materially different from the pro forma adjustment presented herein.  Increases or decreases in the fair value of certain balance sheet amounts including loans, securities, deposits and related intangibles and debt will result in adjustments to the balance sheet and statement of operations.  Such adjustments, when compared to the information shown in this document, may change the amount of the purchase price allocated to goodwill while changes to other assets and liabilities may impact the statement of income due to adjustments in the yield and/or amortization/accretion of the adjusted assets and liabilities.  The unaudited pro forma combined financial information presented herein does not necessarily provide an indication of the combined results of operations or the combined financial position, nor is it indicative of the results of operations in future periods or the future financial position of the combined company.

The total purchase price for the purpose of this pro forma financial information is $18.8 million.  The following table provides the calculation and allocation of the purchase price used in the pro forma financial statements and a reconcilement of pro forma shares outstanding after adjustment for the Maryland Bankcorp stockholders who elected to receive cash consideration for a total cash payment of $1 million and the redemption of fractional shares.

F-6

Summary of Purchase Price Calculation and Goodwill Resutling from Merger

And Reconciliation of Pro Forma Shares Outstanding at March 31, 2011

($ in thousands except share and per share data)

				March 31, 2011
Purchase Price Consideration-Common Stock
Maryland Bankcorp shares outstanding exchanged for stock		612,253
Exchange ratio		3.4826
Old Line Bancshare shares issued to Maryland Bankcorp stockholders		2,132,231
Purchase price per Maryland Bankcorp common share	$	30.9298
Cash consideration	$	1,000
Purchase price assigned to shares exchanged for stock	$	17,828
Total purchase price				$	18,828
Maryland Bankcorp stockholders' equity, excluding accumulated other comprehensive income	$	19,482
Estimated adjustments to reflect assets acquired at fair value:
Investments and accumulated other comprehensive income		(916	)
Loans		(20,354	)
Allowance for loan losses		7,041
Restricted equity securities		252
Premises and equipment		1,067
Deferred income taxes		9,826
Other real estate owned		(3,047	)
Other intangible assets (Core deposit premium)		5,003
Other assets		513
Estimated adjustments to reflect liabilities acquired at fair value:
Interest bearing deposits		(738	)
Other liabilities		568
					18.697
Goodwill resulting from merger				$	131

Reconcilement of Pro Forma Shares Outstanding
Maryland Bankcorp shares outstanding	646,626
Less cash consideration & fractional	(34,373	)
Maryland Bankcorp shares converted	612,253
Exchange ratio	3.4826
Old Line Bancshares shares issued to Maryland Bankcorp stockholders	2,132,231
Old Line Bancshares shares outstanding	4,677,363
Pro forma Old Line Bancshares shares outstanding	6,809,594
Pro forma % ownership by Maryland Bankcorp	31.31	%

2. Adjustment to reflect the issuance of common shares of Old Line Bancshares common stock with a $0.01 par value in connection with the merger and the adjustments to stockholders’ equity for the reclassification of Maryland Bankcorp’s historical equity accounts.

3. Adjustment of $5.0 million to core deposit intangible to reflect the fair value of this asset and the related amortization adjustment based upon an expected life of 18 years and using an accelerated method.  We expect the amortization of the core deposit intangible to increase pro forma before tax non-interest expense by approximately $779 thousand in the first year following consummation.   We determined the value of the core deposit intangible asset based on an analysis that incorporated the expected useful life of the core deposit base, the cost of the core deposit base versus the cost of alternative funds and an appropriate discount rate.

F-7

4. This amount reflects an adjustment to the fair value of the investment securities based on market prices at acquisition date and the elimination of the accumulated other comprehensive income related to Maryland Bank & Trust owned securities.  The statement of income adjustment reflects accretion of the $916 thousand investment premium.  We expect this adjustment to decrease pro forma before tax interest revenue by approximately $229 thousand in the first year following consummation.

5. Adjustment of $3.1 million to increase the fair values of loans based on current interest rates of similar loans.  We will recognize this adjustment using the level yield amortization method based upon the expected life of the loans.  We expect this adjustment will decrease pro forma before tax interest revenue by approximately $850 thousand in the first year following consummation.  The fair value was calculated based on loans with similar maturities using interest rates currently in effect.

6. Adjustments to reflect the fair value of loans include:

·   An adjustment of $7.0 million to reflect the removal of the allowance for loan losses in connection with applying acquisition accounting under ASC 805. We expect this adjustment will increase pro forma before tax interest revenue by approximately $1.4 million in the first year following consummation of the merger.

·   An adjustment of $500,000 for loans within the scope of ASC 310-30 (ASC 310-30 occurs as a result of the accounting for the differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans, including those acquired in a business combination, if those differences are attributable, at least in part, to credit quality considerations). Old Line Bank’s management and independent loan review personnel determined this amount based on a review of Maryland Bankcorp’s loans. This review considered payment history, relevant collateral values, debt service coverage ratios and other factors.  There is no estimated accretion for this credit quality adjustment in the pro forma statement of income.

·   An adjustment of $16.0 million for loans determined not to be within the scope of ASC 310-30.  To determine the fair value of the loans that are not within the scope of ASC 310-30, Old Line Bank’s management and independent loan review personnel evaluated Maryland Bankcorp’s loan portfolio and considered the risk characteristics inherent within the remaining portfolio.  This review included payment history, concentrations, quality of underwriting, and economic weaknesses.  We will recognize this credit quality adjustment based on the difference between the expected cash flows and the net present value of expected cash flows with such difference accreted into earnings using the effective yield method over the term of the loans.  We estimate accretion for this difference of approximately $2.0 million the first year.

7. An adjustment of $3.0 million to reflect the fair value of other real estate owned, based on Old Line Bank management’s detailed analysis of these assets that included site visits where possible, review of appraisals by a certified appraiser, and current tax assessed values.

8. Adjustment of $738,172 to reflect the fair values of interest bearing time deposit liabilities based on current interest rates for similar instruments.  We will recognize this adjustment using a level yield amortization method based upon the maturities of the deposit liabilities.  We expect this adjustment will decrease pro forma before tax interest expense by approximately $160 thousand the first year following consummation.

9. Adjustment of $5.3 million to reflect the repayment of short term borrowings by Maryland Bankcorp concurrent with the merger.

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10. Adjustment relates to recognition of estimated liabilities incurred by Maryland Bankcorp, Inc. prior to merger and assets adjusted during the fair value process.   The adjustments have no impact on the income statement.

11. Adjustment to reflect the net deferred tax at a rate of 39.5% related to fair value adjustments on the balance sheet and a statutory tax rate of 39.5% for book tax expense.  We have not taken a tax benefit for certain merger obligations and cost that we do not consider tax deductible.  This adjustment also includes the removal of a $5.3 million valuation allowance recorded by Maryland Bankcorp which we believe will be recoverable after the merger.  We assumed an effective tax rate of 34% for income statement adjustments.

12. Adjustment of $1.1 million to reflect the increase in fair value for premises and equipment.  We have presented the amortization of the fair value adjustment over a 40 year period.  We expect this adjustment to increase pro forma occupancy and equipment expense by $27 thousand in the first year of consummation.

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