UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000‑50345

Old Line Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maryland State or other jurisdiction of incorporation or organization	20‑0154352 (I.R.S. Employer Identification No.)
1525 Pointer Ridge Place Bowie, Maryland (Address of principal executive offices)	20716 (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Common stock, par value $0.01 per share	Name of exchange on which registered
(Title of each class)	The NASDQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes  ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes  ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒

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

Large accelerated filer ☐ Accelerated filer ☒ Non‑accelerated filer ☐
(Do not check if a
smaller reporting company) Smaller Reporting Company☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). ☐ Yes  ☒ No

The aggregate market value of the common equity held by non‑affiliates was $134.9 million as of June 30, 2015 based on a sales price of $16.70 per share of Common Stock, which is the sales price at which the Common Stock was last traded on June 30, 2015 as reported by the NASDAQ Stock Market LLC.

The number of shares outstanding of the issuer’s Common Stock was 10,802,560 as of March 1, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2016 Annual Meeting of Stockholders of Old Line Bancshares, Inc., to be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10‑K.

OLD LINE BANCSHARES, INC.

ANNUAL REPORT ON FORM 10‑K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	71
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	128
Item 9A.	Controls and Procedures	128
Item 9B.	Other Information	128
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	128
Item 11.	Executive Compensation	129
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	129
Item 13.	Certain Relationships and Related Transactions, and Director Independence	129
Item 14.	Principal Accounting Fees and Services	130
PART IV
Item 15.	Exhibits, Financial Statement Schedules	131

PART I

Item 1.

Cautionary Note About Forward Looking Statements

Some of the matters discussed in this annual report including under the captions “Business of Old Line Bancshares, Inc.,” “Business of Old Line Bank,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this annual report constitute forward looking statements. These forward‑looking statements include: (a) our objectives, expectations and intentions, including (i) market expansion, growth in particular geographic areas and the expected opening of our Rockville Town Center branch, (ii) statements regarding anticipated changes in certain non‑interest expenses and that net interest income will continue to increase during 2016, (iii) future levels of Pointer Ridge rental income, (iv) maintenance of the net interest margin, (v) our belief that we have identified any problem assets and that our borrowers will continue to remain current on their loans, (vi) expected losses on and our intentions with respect to our investment securities, (vii) earnings on bank owned life insurance, and (viii) continued use of brokered deposits for funding; (b) sources of and sufficiency of liquidity; (c) the adequacy of the allowance for loan losses; (d) expected loan, deposit, asset, balance sheet and earnings growth; (e) expectations with respect to the impact of pending legal proceedings; (f) improving earnings per share and stockholder value; (g) realization of the deferred tax asset; (h) the impact of recent accounting pronouncements; and (i) financial and other goals and plans.

Old Line Bancshares bases these statements on our beliefs, assumptions and on information available to us as of the date of this filing, which involves risks and uncertainties. These risks and uncertainties include, among others: our ability to retain key personnel; our ability to successfully implement our growth and expansion strategy; risk of loan losses; that the allowance for loan losses may not be sufficient; that changes in interest rates and monetary policy could adversely affect Old Line Bancshares; that changes in regulatory requirements and/or restrictive banking legislation may adversely affect Old Line Bancshares; that the market value of our investments could negatively impact stockholders’ equity; risks associated with or lending limit; expenses associated with operating as a public company; potential conflicts of interest associated with the interest in Pointer Ridge; deterioration in general economic conditions or a return to recessionary conditions; and changes in competitive, governmental, regulatory, technological and other factors which may affect us specifically or the banking industry generally; and other risks otherwise discussed in this report, including under “Item 1A. Risk Factors.”

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

Business

Old Line Bancshares, Inc.  was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares, Inc. is to own all of the capital stock of Old Line Bank.

We also have an investment in a real estate investment limited liability company named Pointer Ridge Office Investment, LLC (“Pointer Ridge”). We own 62.50% of Pointer Ridge.

Old Line Bank is a trust company chartered under Subtitle 2 of Title 3 of the Financial Institutions Article of the Annotated Code of Maryland. Old Line Bank was originally chartered in 1989 as a national bank under the title “Old Line National Bank.” In June 2002, Old Line Bank converted to a Maryland chartered trust company exercising the powers of a commercial bank, and received a Certificate of Authority to do business from the Maryland Commissioner of Financial Regulation (the “Commissioner”).

Old Line Bank is a Maryland chartered trust company (with all of the powers of a commercial bank). Old Line

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Bank does not exercise trust powers and its regulatory structure are the same as a Maryland chartered commercial bank.  Old Line Bank had previously been a member of the Federal Reserve System and its primary federal regulator was the Board of Governors of the Federal Reserve Board (the “Federal Reserve Board”). On March 6, 2015, Old Line Bank cancelled its stock in the Federal Reserve Bank of Richmond, thus terminating its status as a member of the Federal Reserve System.  As a result, its primary regulator is the Federal Deposit Insurance Corporation (“FDIC”) and as of that date it is subject to regulation, supervision and regular examination by the Commissioner and the FDIC.  Old Line Bank’s deposits are insured to the maximum legal limits by the FDIC.

We are headquartered in Bowie, Maryland, approximately 10 miles east of Andrews Air Force Base and 20 miles east of Washington, D.C. We engage in a general commercial banking business, making various types of loans and accepting deposits. We market our financial services to small to medium sized businesses, entrepreneurs, professionals, consumers and high net worth clients. Our current market area consists of the suburban Maryland counties of counties of Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s (Washington, D.C. suburbs) and Baltimore and Carroll (Baltimore City suburbs).

Our principal source of revenue is interest income and fees generated by lending and investing funds on deposit. We typically balance the loan and investment portfolio towards loans. Generally speaking, loans earn more attractive returns than investments and are a key source of product cross sales and customer referrals. Our loan and investment strategies balance the need to maintain adequate liquidity via excess cash or federal funds sold with opportunities to leverage our capital appropriately.

In June 2012, we established Old Line Financial Services as a division of Old Line Bank and hired an individual with over 25 years of experience to manage this division. Old Line Financial Services allows us to expand the services we provide our customers to include retirement planning and products. Additionally, this division offers investment services including investment management, estate and succession planning and allows our customers to directly purchase individual stocks, bonds and mutual funds. Through this division customers may also purchase life insurance, long term care insurance and key man/woman insurance.

Recent Mergers and Acquisitions

Regal Bancorp, Inc.  On December 4, 2015, Old Line Bancshares completed its acquisition of Regal Bancorp, Inc. (“Regal Bancorp”), the parent company of Regal Bank & Trust (“Regal Bank”).  Immediately thereafter Regal Bank was merged with and into Old Line Bank, with Old Line Bank the surviving bank.  We acquired Regal Bank’s three branches in the merger, facilitating Old Line Bank’s entry into the Baltimore County and Carroll County, Maryland markets.  The merger strengthened Old Line Bank’s status as the third largest independent commercial bank based in Maryland, with assets of more than $1.5 billion at closing and 23 full service branches serving eight Maryland counties.

Old Line Bancshares, Inc. is the surviving parent entity, and Regal has merged with and into Old Line, with Old Line being the surviving bank.

WSB Holdings, Inc.  On May 10, 2013, Old Line Bancshares acquired WSB Holdings, Inc. (“WSB Holdings”), the parent company of The Washington Savings Bank, F.S.B. (“WSB”). In connection with the acquisition, WSB was merged with and into Old Line Bank, with Old Line Bank the surviving bank.  We acquired five WSB branches, its headquarters building and its established mortgage origination group in this acquisition.  The mortgage origination group originates residential real estate loans for our portfolio and loans classified as held for sale to be sold in the secondary market.  Two of the acquired branches were closed on December 31, 2014. This acquisition increased Old Line Bancshares, Inc.’s total assets by more than $310 million immediately after closing.

Maryland Bankcorp, Inc.  On April 1, 2011, Old Line Bancshares acquired Maryland Bankcorp, Inc. (“Maryland Bankcorp”), the parent company of Maryland Bank & Trust Company, N.A. (“MB&T”). In connection with the acquisition, MB&T was merged with and into Old Line Bank, with Old Line Bank the surviving bank. The acquisition of MB&T’s ten full‑service branches expanded our market presence in Calvert and St. Mary’s Counties. The acquisition

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increased Old Line Bancshares’ total assets by more than $349 million immediately after closing to approximately $750 million.  Two of the acquired branches were closed on December 31, 2014.

For more information regarding our mergers and acquisitions, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mergers and Acquisitions” and Note 2—Acquisition of Regal Bancorp, Inc. in the Notes to our Consolidated Financial Statements.

Location and Market Area

We consider our current market area to consist of the suburban Maryland counties of Anne Arundel, Calvert, Charles, Prince George’s, Montgomery and St. Mary’s (Washington, D.C. suburbs) and Baltimore and Carroll (Baltimore City suburbs). The economy in our current market area has focused on real estate development, high technology, retail and the government sector.

Our headquarters and a branch are located at 1525 Pointer Ridge Place, Bowie, Prince George’s County, Maryland. A critical component of our strategic plan and future growth is a focus on Prince George’s and Montgomery Counties. Prince George’s County wraps around the eastern boundary of Washington, D.C. and offers urban, suburban and rural settings for employers and residents. There are several national and international airports less than an hour away, as is Baltimore City. We currently have one branch location in Montgomery County located in Rockville. As a result of the acquisition of WSB, we acquired the building located at 4201 Mitchellville Road, Bowie, Maryland which houses a branch and our mortgage group.  This loan production office primarily originates loans sold in the secondary market and has expanded our presence in the surrounding counties of the Washington D.C. metro area, including in Montgomery County, Maryland.

We opened a loan production office in Silver Spring, in Montgomery County, Maryland in 2013. We opened our first branch in Rockville, Maryland, in Montgomery County on November 10, 2015 and a second location, located in the Rockville Town Center, is scheduled to open in 2016.  Montgomery County is located just to the north of Washington, D.C., and is adjacent to Frederick, Howard and Prince George’s Counties in Maryland and Loudoun and Fairfax Counties in Virginia. Montgomery County is an important business and research center and is the third largest biotechnology cluster in the United States. The U.S. Department of Health and Human Services, the U.S. Department of Defense, and the U.S. Department of Commerce are among the top county employers. Several large firms are also based in the county, including Marriott International, Lockheed Martin, GEICO, Discovery Communications and the Travel Channel. Montgomery County has the 11th highest median household income in the U.S., and the second highest in the state of Maryland.

We currently have four branch offices and a loan production office located in Charles County, Maryland. Just 15 miles south of the Washington Capital Beltway, Charles County is the gateway to Southern Maryland. The northern part of Charles County is the “development district” where the commercial, residential and business growth is focused. Waldorf, White Plains and the planned community of St. Charles are located here.  Charles County has the 15th highest median household income in the U.S., and the third highest in the state of Maryland.

Four of our branch offices are located in Anne Arundel County, Maryland. We have one in Annapolis that we opened in September 2008 that we relocated and expanded to include a loan production office in 2011. We have another branch that we opened in Crofton in July 2009. We have two remaining branches that were acquired in the WSB acquisition, located in Millersville and Odenton.  Anne Arundel County borders the Chesapeake Bay and is situated in the high tech corridor between Baltimore and Washington, D.C. With over 534 miles of shoreline, it provides waterfront living for many residential communities. Annapolis, the State Capital and home to the United States Naval Academy, and Baltimore/Washington International Thurgood Marshal Airport (BWI) are located in Anne Arundel County. Anne Arundel County has one of the strongest economies in the State of Maryland and its unemployment rate is consistently below the national average.

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We have two branches and a loan production office in each of Calvert County and St. Mary’s County. The unemployment rates in Calvert and St. Mary’s Counties are among the lowest in the state of Maryland and also consistently rank below the national average. Calvert County, located approximately 25 miles southeast of Washington, D.C., is one of several Maryland counties that comprise the Washington Metropolitan Area and is adjacent to Anne Arundel, Prince George’s, St. Mary’s and Charles Counties. Major employers in Calvert County include municipal and government agencies and Constellation Energy. St. Mary’s County is located approximately 35 miles southeast of Washington, D.C. It is adjacent to Charles and Calvert Counties and is home to the Patuxent River Naval Air Station, a major naval air testing facility on the east coast of the United States. Calvert and St. Mary’s Counties have the 19th and 21st highest median household income in the U.S., respectively.

As a result of the Regal Bancorp acquisition, we have expanded our presence further north to Baltimore County and Carroll County, Maryland.  We added two branches in Baltimore County and one branch in Carroll County as a result of the Regal acquisition. The market area consists of Baltimore metropolitan statistical area, which comprises Baltimore City, Baltimore, Carroll, Howard, Harford, Anne Arundel, and Queen Anne counties. The economy of the Baltimore areas  constitutes diverse cross section of employment sectors, with a mix of services, manufacturing, wholesale/retail trade, federal and local government, health care facilities and finance related employment.  The largest employers in the Baltimore area include University System of Maryland, Johns Hopkins Hospital and Fort Meade.  The Baltimore region is the 20th most populous area in the United States. 

Lending Activities

General.  Our primary market focus is on making loans to small and medium size businesses, entrepreneurs, professionals, consumers and high net worth clients in our market area. Our lending activities consist generally of short to medium term commercial business loans, commercial real estate loans, real estate construction loans, home equity loans and consumer installment loans, both secured and unsecured.  We also originate residential loans for sale in the secondary market in addition to originating residential loans we maintain in our portfolio.

Credit Policies and Administration.  We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. Our lending staff follows pricing guidelines established periodically by our management team. In an effort to manage risk, prior to funding, the loan committee consists of four non-employeemembers of the board of directors and four executive officers.  Approval by a majority vote of the loan committee is required for all credit decisions in excess of a lending officer’s lending authority. Management believes that we employ experienced lending officers, secure appropriate collateral and carefully monitor the financial condition of our borrowers and the concentrations of loans in the portfolio.

In addition to the normal repayment risks, all loans in the portfolio are subject to risks stemming from the state of the economy and the related effects on the borrower and/or the real estate market. With the exception of loans provided to finance luxury boats, which we originated prior to 2008, generally longer term loans have periodic interest rate adjustments and/or call provisions. Senior management monitors the loan portfolio closely to ensure that we minimize past due loans and that we swiftly deal with potential problem loans.

Old Line Bank also engages an outside, independent firm to review the loan portfolio. This firm performs a detailed annual review and an interim update at least once a year. We use the results of the firm’s report to validate our internal loan ratings and we review their commentary on specific loans and on our loan administration activities in order to improve our operations.

Commercial and Industrial Lending.Our commercial and industrial lending consists of lines of credit, revolving credit facilities, accounts receivable financing, term loans, equipment loans, Small Business Administration (“SBA”) loans, standby letters of credit and unsecured loans.  We originate commercial loans for any business purpose including the financing of leasehold improvements and equipment, the carrying of accounts receivable, general working capital and acquisition activities. We have a diverse client base and we do not have a concentration of these types of loans in any

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specific industry segment. We generally secure commercial business loans with accounts receivable, equipment, deeds of trust and other collateral such as marketable securities, cash value of life insurance, and time deposits at Old Line Bank.

Commercial business loans have a higher degree of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the business. They may also involve higher average balances, increased difficulty monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business. To help manage this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring usually includes a review of the borrower’s annual tax returns and updated financial statements.

Commercial Real Estate Lending.  We finance commercial real estate for our clients, usually for owner occupied properties. We generally will finance owner occupied commercial real estate at a loan to value that does not exceed  80%. Our underwriting policies and processes focus on the clients’ ability to repay the loan as well as an assessment of the underlying real estate. We originate commercial real estate loans on a fixed rate or adjustable rate basis. Usually, these rates adjust during a three, five or seven year time period based on the then current treasury or prime rate index. Repayment terms generally include amortization schedules ranging from three years to 25 years with principal and interest payments due monthly and with all remaining principal due at maturity. We also make commercial real estate construction loans, primarily for owner‑occupied properties.

Commercial real estate lending entails significant additional risks as compared with residential mortgage lending. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate that may detrimentally impact the borrower’s ability to repay. We attempt to mitigate these risks by carefully underwriting these loans. Our underwriting generally includes an analysis of the borrower’s capacity to repay, the current collateral value, a cash flow analysis and review of the character of the borrower and current and prospective conditions in the market. We generally limit loans in this category to 75% - 80% of the value of the property and require personal and/or corporate guarantees. For loans of this type in excess of $250,000, we monitor the financial condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In addition, we will meet with the borrower and/or perform site visits as required.

Hospitality loans are segregated into a separate category under commercial real estate.  An individual review of these loans indicate that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout our market area.

Residential Real Estate Lending.  We offer a variety of consumer oriented residential real estate loans. A portion of our portfolio is made up of home equity loans to individuals with a loan to value not exceeding 80%. We also offer fixed rate home improvement loans. Our home equity and home improvement loan portfolio gives us a diverse client base. Although most of these loans are in our market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our home equity loans and lines of credit with a security interest in the borrower’s primary or secondary residence. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which generally may not exceed 43%. We also consider the borrower’s length of employment and prior credit history in the approval process. Typically,  we require borrowers to have a credit score of 640. We do not have any subprime residential real estate loans.

We obtain detailed loan applications to determine a borrower’s ability to repay and verify the more significant items on these applications through credit reports, financial statements and verifications. We also require appraisals of collateral and title insurance on secured real estate loans.

A portion of this segment of the loan portfolio consists of funds advanced for construction of custom single family residences, (where the home buyer is the borrower), financing to builders for the construction of pre‑sold homes, and loans for multi‑family housing. These loans generally have short durations, meaning maturities typically of 12 months or less. Residential houses, multi‑family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. The vast majority of these loans are concentrated in our market area.

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

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

Land Acquisition and Development Lending.  These loans usually include funding for the acquisition and development of unimproved properties to be used for residential or non‑residential construction. We may provide permanent financing on the same projects for which we have provided the construction financing.

Land acquisition and development lending, while providing higher yields, may also have greater risks of loss than long‑term residential mortgage loans on improved, owner‑occupied properties.

Old Line Bank generally makes land acquisition loans with terms of up to three years and loan to value ratios of up to 65%, and land development loans with terms of up to two years and loan‑to value ratios of up to 75%.

The primary loan‑specific risk in land and land development lending are: unemployment: deterioration of the business and/or collateral values, deterioration of the financial condition of the borrowers and/or guarantors creates a risk of default, and that an appraisal on the collateral is not reflective of the true property value. Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentrations of these types of loans.

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

Consumer loans may present greater credit risk than residential mortgage loans because many consumer loans are either unsecured or secured by rapidly depreciating assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower’s continuing financial stability. If a borrower

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suffers personal financial difficulties, the loan may not be repaid. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans.

Lending Limit.  As of December 31, 2015, our legal lending limit for loans to one borrower was approximately $20.0 million. As part of our risk management strategy, we may attempt to participate a portion of larger loans to other financial institutions. This strategy allows Old Line Bank to maintain customer relationships yet reduce its credit exposure. However, this strategy may not always be available.

Investments and Funding

We balance our liquidity needs based on loan and deposit growth via the investment portfolio, purchased funds, and short term borrowings. It is our goal to provide adequate liquidity to support our loan growth. In the event we have excess liquidity, we use investments to generate positive earnings. In the event deposit growth does not fully support our loan growth, we can use a combination of investment sales, federal funds, other purchased funds and short term borrowings to augment our funding position.

We actively monitor our investment portfolio and we usually classify investments in the portfolio as “available for sale.” In general, under such a classification, we may sell investment instruments as management deems appropriate. On a monthly basis, we “mark to market” the investment portfolio through an adjustment to stockholders’ equity net of taxes. Additionally, we use the investment portfolio to balance our asset and liability position. We invest in fixed rate or floating rate instruments as necessary to reduce our interest rate risk exposure.

Other Banking Products

We offer our customers safe deposit boxes, wire transfer services, debit cards, prepaid cards, automated teller machines at all of our branch locations, investment services and credit cards through a third party processor. Additionally, we provide Internet and mobile banking capabilities to our customers. With our Internet banking service, our customers may view their accounts online and electronically remit bill payments. Our commercial account services include direct deposit of payroll for our commercial clients’ employees, an overnight sweep service, lockbox services and remote deposit capture service. We also provide our customers investment services including investment management, estate and succession planning and brokerage services.

Deposit Activities

Deposits are the major source of our funding. We offer a broad array of deposit products that include demand, NOW, money market and savings accounts as well as certificates of deposit. We believe that we pay competitive rates on our interest bearing deposits. As a relationship oriented organization, we generally seek to obtain deposit relationships with our loan clients.

As our overall balance sheet position dictates, we may become more or less competitive in our interest rate structure. We do use brokered deposits as a funding mechanism. Our primary source of brokered deposits is the Promontory Interfinancial Network (Promontory). Through this deposit matching network and its certificate of deposit account and money market registry services, we have the ability to offer our customers access to FDIC insured deposit products in aggregate amounts exceeding current insurance limits. When we place funds through Promontory on behalf of a customer, we receive matching deposits through the network. At December 31, 2015, we also have  $14.0 million in brokered deposits from the WSB acquisition.   We did not purchase brokered deposits from any other source during 2015.

Competition

We face intense competition both in making loans and attracting deposits. We compete with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in our market area and elsewhere.

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We believe that we have effectively leveraged our talents, contacts and location to achieve a strong financial position. However, our market area is highly competitive and heavily branched. Competition in our market area for loans to small and medium sized businesses, entrepreneurs, professionals and high net worth clients is intense, and pricing is important. Many of our competitors have substantially greater resources and lending limits than we do and offer extensive and established branch networks and other services that we do not offer. Moreover, larger institutions operating in our market area have access to borrowed funds at a lower rate than is available to us. Deposit competition also is strong among institutions in our market area. As a result, it is possible that to remain competitive we may need to pay above market rates for deposits.

Employees

As of December 31, 2015, we had 233 full time and 15 part time employees. No collective bargaining unit represents any of our employees and we believe that relations with our employees are good.

Supervision and Regulation

Old Line Bancshares, Inc. and Old Line Bank are subject to extensive regulation under state and federal banking laws and regulations. These laws and regulations impose specific requirements and restrictions on virtually all aspects of operations and generally are intended to protect depositors, not stockholders. The following summary sets forth certain material elements of the regulatory framework applicable to Old Line Bancshares, Inc. and Old Line Bank. It does not describe all of the provisions of the statutes, regulations and policies that are identified. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business.

Old Line Bancshares, Inc.

Old Line Bancshares, Inc. is a Maryland corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). We are subject to regulation by the Federal Reserve Board and the Commissioner, and are required to file periodic reports and any additional information that the Federal Reserve Board and Commissioner may require. The Federal Reserve Board and the Commissioner regularly examine the operations and condition of Old Line Bancshares. In addition, the Federal Reserve Board and the Commissioner have enforcement authority over Old Line Bancshares, which includes the power to remove officers and directors and the authority to issue cease and desist orders to prevent Old Line Bancshares from engaging in unsafe or unsound practices or violating laws or regulations governing its business. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Under the Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board regulations or both. This doctrine is commonly known as the “source of strength” doctrine. The Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a non‑bank subsidiary (other than a non‑bank subsidiary of a bank) upon the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or non‑bank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

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The Federal Reserve Board must approve, among other things, the acquisition by a bank holding company of control of more than 5% of the voting shares, or substantially all the assets, of any bank or bank holding company or the merger or consolidation by a bank holding company with another bank holding company. In general, the Bank Holding Company Act limits the business of bank holding companies to banking, managing or controlling banks, furnishing services for its authorized subsidiaries, and engaging in activities that the Federal Reserve Board has determined, by order or regulation, to be so closely related to banking and/or managing or controlling banks as to be properly incident thereto. Some of the activities that the Federal Reserve Board has determined by regulation to be closely related to banking include servicing loans, performing certain data processing services, acting as a fiduciary, investment or financial advisor, and making investments in corporations or projects designed primarily to promote community welfare.

The Change in Bank Control Act and the related regulations of the Federal Reserve Board require any person, or persons acting in concert, to file a written notice with the Federal Reserve Board before the person or persons acquire direct or indirect “control” of a bank or bank holding company. As a general matter, a party is deemed to control a bank or bank holding company if the party owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a party may be presumed to control a bank or bank holding company if the investor owns or controls 10% or more of any class of voting stock. Ownership by affiliated parties, or parties acting in concert, is typically aggregated for these purposes. If a party’s ownership of Old Line Bancshares, Inc. were to exceed the above thresholds, the investor could be deemed to “control” Old Line Bancshares, Inc. for regulatory purposes. This could subject the investor to regulatory filings or other regulatory consequences.

The Federal Reserve Board has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk‑weighted assets. See “—Capital Adequacy Guidelines.” The Federal Reserve Board has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality, and overall financial condition.

The status of Old Line Bancshares as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to Maryland corporations generally, including, without limitation, certain provisions of the federal securities laws.

Old Line Bank

Old Line Bank is a Maryland chartered trust company (with all of the powers of a commercial bank).  Its primary federal regulator is the FDIC and it is subject to regulation, supervision and regular examination by the Commissioner and by the FDIC. The regulations of these agencies govern most aspects of Old Line Bank’s business, including required reserves against deposits, lending, investments, mergers and acquisitions, borrowing, dividends and location and number of branch offices. In addition, Old Line Bank is subject to numerous federal, state and local laws and regulations that set forth specific requirements with respect to extensions of credit, credit practices, disclosure of credit terms, and discrimination in credit transactions.

The FDIC and the Commissioner regularly examine the operations and condition of Old Line Bank, including, but not limited to, its capital adequacy, reserves, loans, investments, and management practices. These examinations are for the protection of Old Line Bank’s depositors and the Deposit Insurance Fund. In addition, Old Line Bank is required to furnish quarterly and annual reports to the FDIC. The enforcement authority of the FDIC and Commissioner include the power to remove officers and directors and the authority to issue cease‑and‑desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

The FDIC has adopted regulations regarding capital adequacy, which require member banks to maintain specified minimum ratios of capital to total assets and capital to risk‑weighted assets. See “—Capital Adequacy Guidelines.” FDIC

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regulations and State law limit the amount of dividends that Old Line Bank may pay to Old Line Bancshares, Inc. See “—Dividends.”

Capital Adequacy Guidelines

The federal bank regulatory agencies have adopted risk based capital adequacy guidelines by which they assess the adequacy of capital in examining and supervising banks and bank holding companies and in analyzing bank regulatory applications. Risk based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off balance sheet items. Pursuant to the Federal Deposit Insurance Corporation Improvement Act the agencies have established five capital tiers for depository institutions: well‑capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements could cause regulators to initiate certain discretionary, and under certain circumstances, mandatory, actions by regulators that could have a direct material adverse effect on Old Line Bank’s financial condition.

The capital adequacy guidelines include a minimum leverage ratio (tier 1 capital to average total assets) for banks and bank holding companies of not less than 4%.  In addition to the minimum leverage capital requirements, banks must maintain certain ratios of capital to regulatory risk-weighted assets, or “risk-based capital ratios.”  Risk-based capital ratios are determined by dividing common equity Tier 1, Tier 1 and total risk-based capital, respectively, by risk-weighted assets.  

There are two main categories of capital under the capital adequacy guidelines. Tier 1 capital generally consists of the sum of common stockholders’ equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stock) and, in certain circumstances and subject to certain limitations, minority investments in certain subsidiaries, less goodwill and other non-qualifying intangible assets, and certain other deductions. Tier 2 capital consists of perpetual preferred stock that is not otherwise eligible to be included as Tier 1 capital, hybrid capital instruments, term subordinated debt and intermediate‑term preferred stock and, subject to limitations, general allowances for credit losses. Tier 2 capital is limited to the amount of Tier 1 capital. Under rules that became effective January 1, 2015, accumulated other comprehensive income (positive or negative) must be reflected in regulatory capital; however, Old Line Bank was entitled to make a one-time, permanent election to continue to exclude accumulated other comprehensive income from regulatory capital on its Call Report for the first reporting period after January 1, 2015. Old Line Bank and Old Line Bancshares, Inc. each elected to exclude accumulated other comprehensive income in calculating regulatory capital in their first regulatory reports in 2015.

In addition to the minimum leverage requirements, banks and bank holding companies are expected to maintain minimum ratios of capital to risk-weighted assets, or “risk-based capital ratios.” Under the capital rules, risk-based capital ratios are calculated by dividing Tier 1 and total risk-based capital, respectively, by risk-weighted assets. In July 2013, the federal bank regulatory agencies issued a final rule implementing the capital standards of the Basel Committee on Banking Supervision and the minimum capital requirements and certain other provisions of the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd‑Frank Act”). The final rule, which became effective on January 1, 2015, applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $1 billion or more and top-tier savings and loan holding companies. Among other things, the rule established a new minimum common equity Tier 1 risk-based capital ratio requirement of 4.5%, a minimum Tier 1 risk-based capital ratio requirement of 6%, a minimum total risk-based capital ratio requirement of 8% and a minimum leverage ratio requirement of 4%. The new capital requirements also include changes in the risk-weights of certain assets to better reflect credit risk and other risk exposures. Additionally, subject to a transition schedule, the rule limits a banking organization’s ability to make capital distributions, engage in share repurchases and pay certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

Under federal prompt corrective action regulations, the bank regulatory agencies are authorized and, under certain circumstances, required to take various “prompt corrective actions” to resolve the problems of any bank subject to their jurisdiction that is not adequately capitalized. Under these regulations, as in effect through December 31, 2014, a bank was considered to be: (i) “well capitalized” if it had total risk-based capital of 10% or more, Tier 1 risk-based capital of 6.0% or more, Tier I leverage capital of 5% or more, and was not subject to any written capital order or directive; (ii) “adequately capitalized” if it had total risk-based capital of 8% or more, Tier I risk-based capital of 4.0% or more and Tier

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I leverage capital of 4% or more (3% under certain circumstances), and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it had total risk-based capital of less than 8%, Tier I risk-based capital of less than 4% or Tier I leverage capital of less than 4% (3% under certain circumstances); (iv) “significantly undercapitalized” if it had total risk-based capital of less than 6%, Tier I risk-based capital less than 3%, or Tier I leverage capital of less than 3%; and (v) “critically undercapitalized” if its ratio of tangible equity to total assets was equal to or less than 2%. Under certain circumstances, the bank regulatory agency may reclassify a well capitalized institution as adequately capitalized, and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the bank regulatory agency may not reclassify a significantly undercapitalized institution as critically undercapitalized).  As of December 31, 2015, Old Line Bank was “well capitalized” for this purpose and its capital exceeded all applicable requirements.

Under federal prompt corrective action regulations, the bank regulatory agencies are authorized and, under certain circumstances, required to take various “prompt corrective actions” to resolve the problems of any bank subject to their jurisdiction that is not adequately capitalized. Under these regulations, which were revised effective January 1, 2015, a bank is considered to be: (i) “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a common equity Tier 1 risk-based capital ratio of 6.5% or greater, and a Tier 1 leverage capital ratio of 5% or greater, and was not subject to any written capital order or directive; (ii) “adequately capitalized” if it had a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater,  a common equity Tier 1 risk-based capital ratio of 4.5% or greater, and a Tier 1 leverage capital ratio of 4% or more (3% under certain circumstances), and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it had a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%,  a common equity Tier 1 risk-based capital ratio of less than 4.5%, or a Tier 1 leverage capital ratio of less than 4% (3% under certain circumstances); (iv) “significantly undercapitalized” if it had a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, a common equity Tier 1 risk-based capital ratio of less than 3.0%, or a Tier 1 leverage capital ratio of less than 3%; and (v) “critically undercapitalized” if its ratio of tangible equity to total assets was equal to or less than 2%. Under certain circumstances, a bank regulatory agency may reclassify a well capitalized institution as adequately capitalized, and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the bank regulatory agency may not reclassify a significantly undercapitalized institution as critically undercapitalized). As of December 31, 2015, Old Line Bank was “well capitalized” for this purpose and its capital exceeded all applicable requirements.

As an additional means to identify problems in the financial management of depository institutions, the Federal Deposit Insurance Act (“FDIA”) requires federal bank regulatory agencies to establish certain non‑capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards.

Deposit Insurance Assessments

The deposits of Old Line Bank are insured up to applicable limits per insured depositor by the FDIC. The Dodd‑Frank Act permanently increased the FDIC deposit insurance coverage per separately insured depositor for all account types to $250,000. The FDIC assesses deposit insurance premiums on all insured depository institutions. Under the FDIC’s risk‑based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by FDIC regulations, with institutions deemed less risky to the deposit insurance fund paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2.5 to 45 basis points of each institution’s total assets less tangible capital. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking. The FDIC’s current system represents a change, required by the Dodd‑Frank Act, from its prior practice of basing the assessment on an institution’s aggregate deposits. Under the FDIA, the FDIC may terminate insurance of deposits upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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Maryland Regulatory Assessment

The Commissioner assesses state chartered banks to cover the expense of regulating banking institutions. Old Line Bank’s asset size determines the amount of the assessment. In 2015, we paid $122 thousand to the Commissioner.

Transactions with Affiliates and Insiders

Federal and Maryland law impose restrictions on certain transactions between Maryland commercial banks and their insiders and affiliates. Generally, under Maryland law, a director, officer or employee of a commercial bank may not borrow, directly or indirectly, any money from the bank, unless the loan has been approved by a resolution adopted by and recorded in the minutes of the board of directors of the bank, or the executive committee of the bank, if that committee is authorized to make loans. If the executive committee approves such a loan, the loan approval must be reported to the board of directors at its next meeting. Certain commercial loans made to directors of a bank and certain consumer loans made to non‑officer employees of the bank are exempt from the law’s coverage. Under federal law, section 22(h) of the Federal Reserve Act and the Federal Reserve Board’s Regulation O govern extensions of credit made by a bank to its directors, executive officers, and principal stockholders (“insiders”). Among other things, these provisions require that extensions of credit to insiders be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features. Further, such extensions may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank’s capital. Extensions of credit in excess of certain limits must be also be approved by the board of directors. All of Old Line Bank’s loans to its and Old Line Bancshares’ executive officers, directors and greater than 10% stockholders, and affiliated interests of such persons, comply with the requirements of Regulation O.

Section 23A of the Federal Reserve Act and the Federal Reserve Board’s Regulation W limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such bank’s capital stock and surplus. An affiliate of a bank is generally any company or entity that controls, is controlled by, or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank. The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees, and other similar transactions. In addition, loans or other extensions of credit by a bank to an affiliate are required to be collateralized in accordance with regulatory requirements and the bank’s transactions with affiliates must be consistent with safe and sound banking practices and may not involve the purchase by the bank of any low‑quality asset from an affiliate. Section 23B of the Federal Reserve Act applies to covered transactions as well as certain other transactions between a bank and its affiliates and Section 23B and Regulation W require that all such transactions be on terms substantially the same, or at least as favorable, to the bank as those provided to non‑affiliates. Regulation W generally excludes a bank subsidiary from treatment as an affiliate unless the subsidiary is a depository institution, a financial subsidiary, directly controlled by an affiliate or controlling shareholder of the bank, or unless the Federal Reserve Board or other appropriate federal regulator determines by regulation or order to treat the subsidiary as a bank affiliate. All of Old Line Bank’s transactions with its affiliates comply with the applicable provisions of Sections 23A and 23B and Regulation W.

We have entered into banking transactions with our directors and executive officers and the business and professional organizations in which they are associated in the ordinary course of business. We make such loans and loan commitments in accordance with all applicable laws.

Loans to One Borrower

Old Line Bank is subject to statutory and regulatory limits on the amount that it may lend to a single borrower or group of related borrowers. Generally, the maximum amount of total outstanding loans that Old Line Bank may have to any one borrower at any one time is 15% of Old Line Bank’s unimpaired capital and unimpaired surplus. Old Line Bank may lend an additional amount, equal to 10% of its unimpaired capital and surplus, if such loan is secured by readily marketable collateral, which is defined to include certain securities and bullion, but generally does not include real estate.

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Liquidity

Old Line Bank is subject to the reserve requirements imposed by the State of Maryland. A Maryland commercial bank is required to have at all times a reserve equaled to at least 15% of its demand deposits. Old Line Bank is also subject to the reserve requirements of Federal Reserve Board’s Regulation D, which applies to all depository institutions.  During 2015, amounts in transaction accounts above $14.5 million and up to $103.6 million were required to have reserves held against them in the ratio of 3% of such amounts. Amounts above $103.6 million required reserves of $2,673,000 plus 10% of the amount in excess of $103.6 million. The Federal Reserve Board changes its reserve requirements on an annual basis and Old Line Bank is subject to new requirements for 2016. Old Line Bank was in compliance with its reserve requirements at December 31, 2015 and is in compliance with its current reserve requirements.

Dividends

Old Line Bancshares, Inc. is a legal entity separate and distinct from Old Line Bank. Virtually all of Old Line Bancshares, Inc.’s revenue available for the payment of dividends on its common stock results from dividends paid to Old Line Bancshares, Inc. by Old Line Bank. Under Maryland law, Old Line Bank may declare a cash dividend, after providing for due or accrued expenses, losses, interest, and taxes, from its undivided profits or, with the prior approval of the Maryland Commissioner of Financial Regulation, from its surplus in excess of 100% of its required capital stock. Also, if Old Line Bank’s surplus is less than 100% of its required capital stock, then, until its surplus is 100% of its capital stock, Old Line Bank must transfer to its surplus annually at least 10% of its net earnings and may not declare or pay any cash dividends that exceed 90% of its net earnings. In addition to these specific restrictions, the FDIC have the ability to prohibit or limit proposed dividends if such regulatory agencies determine the payment of such dividends would result in Old Line Bank being in an unsafe and unsound condition.

Community Reinvestment Act

Old Line Bank is required to comply with the Community Reinvestment Act (“CRA”) regardless of its capital condition. The CRA requires that, in connection with its examinations of Old Line Bank, the FDIC evaluates the record of Old Line Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods, consistent with the safe and sound operation of the institution. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. These factors are considered in, among other things, evaluating mergers, acquisitions and applications to open a branch or facility. The CRA also requires all institutions to make public disclosure of their CRA ratings. Old Line Bank received a “Satisfactory” rating in its latest CRA examination.

Standards for Safety and Soundness

Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Anti‑Money Laundering and OFAC

Under federal law, financial institutions must maintain anti‑money laundering programs that include established internal policies, procedures and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification in their dealings with foreign financial institutions and foreign customers. Financial institutions

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must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions. Bank regulators routinely examine institutions for compliance with these obligations, and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed “cease and desist” orders and civil money penalty sanctions against institutions found to be violating these obligations.

The Office of Foreign Assets Control, or OFAC, is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC sends bank regulatory agencies lists of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If Old Line Bancshares or Old Line Bank finds a name on any transaction, account, or wire transfer that is on an OFAC list, they must freeze such account, file a suspicious activity report, and notify the appropriate authorities.

Consumer Protection Laws

Old Line Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy. These laws include the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act, and various state law counterparts. Further, the Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”), which has the responsibility for making rules and regulations under the federal consumer protection laws relating to financial products and services. The CFPB also has a broad mandate to prohibit unfair or deceptive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms. Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties. The FDIC will examine Old Line Bank for compliance with CFPB rules and will enforce CFPB rules with respect to Old Line Bank.

In addition, federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Further, under the “Interagency Guidelines Establishing Information Security Standards,” banks must implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer information. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

Sarbanes‑Oxley Act of 2002

The Sarbanes‑Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. We have prepared policies, procedures and systems designed to ensure compliance with the Sarbanes‑Oxley Act and related regulations.

Other Legislative and Regulatory Initiatives

In addition to the Dodd‑Frank Act and the regulations that have been or will be promulgated thereunder, new proposals may be introduced in the United States Congress and in the Maryland Legislature and before various bank regulatory authorities that would alter the powers of, and restrictions on, different types of banking organizations and which would restructure part or all of the existing regulatory framework for banks, bank holding companies and other providers of financial services. Moreover, other bills may be introduced in Congress which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the regulatory framework. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which any new regulation or statute may affect our business.

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Effect of Governmental Monetary Policies

Domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies affect our earnings. The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of financial institutions through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

Item 1A.  Risk Factors

You should consider carefully the following risks, along with other information contained in this Form 10‑K. The risks and uncertainties described below are not the only ones that may affect us. Additional risks and uncertainties also may adversely affect our business and operations including those discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Any of the following events, should they actually occur, could materially and adversely affect our business and financial results.

System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.  We rely heavily on communications and information systems to conduct our business. The computer systems and network infrastructure we use could be vulnerable to unforeseen hardware and cybersecurity issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure we use, including our Internet banking activities, against damage from physical break‑ins, cybersecurity breaches and other disruptive problems caused by Internet problems, other users or unrelated third parties. Such computer break‑ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us, subject us to additional regulatory scrutiny, damage our reputation, result in a loss of customers, and inhibit current and potential customers from using our Internet banking services, any or all of which could have a material adverse effect on our results of operations and financial condition. We periodically review our security protocols and, as necessary, add additional security measures to our computer systems and network infrastructure to mitigate the possibility of cybersecurity breaches, including firewalls and penetration testing.  These precautions may not, however, be effective in preventing such breaches, damage or failures. We continue to monitor developments in this area and consider whether additional protective measures are necessary or appropriate, and we have obtained insurance protection intended to cover losses due to network security breaches; there is no guarantee, however, that such insurance, would cover all costs associated with any breach, damage or failure of our computer systems and network infrastructure.

We rely on certain external vendors. Our business is dependent on the use of outside service providers that support our day-to-day operations including data processing and electronic communications.  Our operations are exposed to the risk that a service provider may not perform in accordance with established performance standards required in our agreements for any number of reasons including equipment or network failure, a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus.  While we have comprehensive policies and procedures in place to mitigate risk at all phases of service provider management from selection to performance monitoring and renewals, the failure of a service provider to perform in accordance with contractual agreements could be disruptive to our business, which could have a material adverse effect on our financial conditions and results of our operations. 

A worsening of economic conditions could adversely affect our results of operations and financial condition.  Changes in prevailing economic conditions, including declining real estate values, changes in interest rates that may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events may adversely affect our financial results. We continue to operate in a

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challenging and uncertain economic environment.  Economic growth continues to be slow and uneven.A return to recessionary conditions or prolonged stagnant or deteriorating economic conditions could significantly affect the markets in which we do business, the demand for our products and services, the value of our loans and investments, and our ongoing operations, costs and profitability.  In any case, we expect that the business environment in the State of Maryland and the entire United States will continue to present challenges for the foreseeable future. Further continuing economic uncertainty, including regarding concerns about U.S. debt levels and related governmental actions, including potential tax increases and cuts in government spending, may negatively impact economic conditions going forward. In addition, an increase in unemployment levels may result in higher than expected loan delinquencies, increases in our nonperforming and criticized classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations.

Although the adverse economic climate during the past several years has not severely impacted us due to our strict underwriting standards, any adverse changes in the economy going forward, including decreases in current real estate values, increased unemployment or the economy moving back into a recession, could have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

Furthermore, the Federal Reserve Board, in an attempt to help the overall economy, has among other things kept interest rates low through its targeted federal funds rate and the purchase of U.S. Treasury and mortgage-backed securities.  If the Federal Reserve Board increases the federal funds rate in the near term, overall interest rates will likely rise, which may negatively impact the housing markets and the U.S. economic growth.  In addition, deflationary pressures, while possibly lowering our operating costs, could have a negative impact on our borrowers, especially our business borrowers, and the values of collateral securing our loans, which could negatively affect our financial performance.

A worsening of credit markets and economic conditions could adversely affect our liquidity.  Old Line Bank must maintain sufficient liquidity to ensure cash flow is available to satisfy current and future financial obligations including demand for loans and deposit withdrawals, funding of operating costs and other corporate purposes. We obtain funding through deposits and various short term and long term wholesale borrowings, including federal funds purchased, unsecured borrowings, brokered certificates of deposits and borrowings from the Federal Home Loan Bank of Atlanta and others. Economic uncertainty and disruptions in the financial system may adversely affect our liquidity. Dramatic declines in the housing market and falling real estate prices coupled with increased foreclosures and unemployment, resulted in significant asset value write downs by financial institutions during and after the recent recession, including government sponsored entities and investment banks. These investment write downs have caused financial institutions to seek additional capital. Should we experience a substantial deterioration in our financial condition or should disruptions in the financial markets restrict our funding, it would negatively impact our liquidity. To mitigate this risk, we closely monitor our liquidity and maintain a line of credit with the Federal Home Loan Bank and have received approval to borrow from the Federal Reserve Bank of Richmond.

Our concentrations of loans in various categories may also increase the risk of credit losses.  We currently invest more than 25% of our capital in various loan types and industry segments, including commercial real estate loans and loans to the hospitality industry (hotels/motels). While declines in the local commercial real estate market following the most recent recession have not caused the collateral securing our loans to exceed acceptable loan to value ratios, a deterioration in the commercial real estate market could cause deterioration in the collateral securing these loans and/or a decline in our customers’ earning capacity. This could negatively impact us. Although we have made a large portion of our hospitality loans to long term, well established operators in strategic locations, a decline in the occupancy rate in these facilities could negatively impact their earnings. This could adversely impact their ability to repay their loan, which would adversely impact our net income.

Our need to comply with extensive and complex governmental regulation could have an adverse effect on our business and our growth strategy, and we may be adversely affected by changes in laws and regulations.  The banking industry is subject to extensive regulation by state and federal banking authorities. Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not stockholders. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy, ability to attract and retain personnel and many other aspects of our business. These requirements may constrain our rate of growth and changes in regulations could adversely affect us. The cost of compliance with regulatory requirements could adversely affect our ability to operate profitably. 

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Further, if we are not in compliance with such requirements, we could be subject to fines or other regulatory action that could restrict our ability to operate or otherwise have a material adverse effect on our business and financial condition.  Although we believe we are material compliance with all applicable regulations, it is possible there are violations of which we are unaware that could be discovered by our regulators in the course of an examination or otherwise, which could trigger such fines or other adverse consequences.

In addition, because regulation of financial institutions changes regularly and is the subject of constant legislative debate, we cannot forecast how federal or state regulation of financial institutions may change in the future and impact our operations. In light of the performance of and government intervention in the financial sector, there will be significant changes to the banking and financial institutions’ regulatory agencies in the future.  Changes in regulation and oversight, including in the form of changes to statutes, regulations or regulatory policies or changes in interpretation or implementation of statutes, regulations or policies, could affect the service and products we offer, increase our operating expenses, increase compliance challenges and otherwise adversely impact our financial performance and condition. In addition, the burden imposed by these federal and state regulations may place banks in general, and Old Line Bank specifically, at a competitive disadvantage compared to less regulated competitors.

Recently issued capital rules require insured depository institutions and their holding companies to hold more capital. The impact of the new rules on our financial condition and operations is uncertain but could be materially adverse.  In July 2013, the Federal Reserve adopted a final rule for the Basel III capital framework. These rules substantially amend the regulatory risk-based capital rules applicable to us. The rules phase in over a period of time that began in 2015 and will become fully effective in 2019. The rules apply to the Company as well as to the Bank. Beginning in 2015, our minimum capital requirements are (i) a common equity Tier 1 risk-based capital ratio of 4.5%, (ii) a Tier 1 risk-based capital (common Tier 1 capital plus Additional Tier 1 capital) ratio of 6% (up from 4%) and (iii) a total risk-based capital ratio of 8% (the current requirement). Our leverage ratio requirement will remain at the 4% level now required. Beginning in 2016, a capital conservation buffer will phase in over three years, ultimately resulting in a requirement of 2.5% on top of the common equity Tier 1, Tier 1 and total risk-based capital requirements, resulting in a required common equity Tier 1 risk-based capital ratio of 7%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. Failure to satisfy any of these three capital requirements will result in limits on paying dividends, engaging in share repurchases and paying discretionary bonuses. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.

Our internal controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met. Any (a) failure or circumvention of our controls and procedures, (b) failure to adequately address any internal control deficiencies, or (c) failure to comply with regulations related to controls and procedures could have a material effect on our business, consolidated financial condition and results of operations.

The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.

The FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.  Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.  A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution).  The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.  The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk

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assessment and monitoring through market analysis and stress testing. We have concluded that we have a concentration in commercial real estate lending under the foregoing standards because our balance in commercial real estate loans at December 31, 2015 represents more than 300% of total capital. While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us. 

We depend on the accuracy and completeness of information about clients and counterparties and our financial condition could be adversely affected if it relies on misleading information. In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify as a matter of course. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to customers, we may assume that a customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.  Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially misleading.

We may be adversely affected by the soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any such losses could have a material adverse effect on our financial condition and results of operations.

Regulations pursuant to the Dodd‑Frank Act may adversely impact our results of operations, liquidity or financial condition.  The Dodd-Frank Act represents a comprehensive overhaul of the U.S. financial services industry. The Dodd‑Frank Act required the CFPB and other federal agencies to issue many new and significant rules and regulations to implement its various provisions. There are a number of regulations under the Dodd‑Frank act that have not yet been fully adopted and implemented and we will not know the full impact of the Dodd‑Frank Act on our business until such regulations are fully implemented. As a result, we cannot predict the full extent to which the Dodd‑Frank Act will impact our business, operations or financial condition. However, compliance with these new laws and regulations may require us to make changes to our business and operations and will likely result in additional costs and a diversion of management’s time from other business activities, any of which may adversely impact our results of operations, liquidity or financial condition.

Because we serve a limited market area in Maryland, an economic downturn in our market area could more adversely affect us than it affects our larger competitors that are more geographically diverse.  Our current market area consists of the suburban Maryland counties of Anne Arundel, Baltimore, Calvert, Carroll, Charles, Montgomery, Prince George’s and St. Mary’s. We may expand in contiguous northern and western Counties, such as Howard County, Maryland. Broad geographic diversification, however, is not currently part of our community bank focus. Overall, during and following the most recent recession, the business environment has negatively impacted many businesses and households in the United States and worldwide. Although the economic decline has not impacted the suburban Maryland and Washington D.C. suburbs as adversely as other areas of the United States, it has caused an increase in unemployment and business failures and a decline in property values. As a result, if our market area should suffer another economic downturn, it may more severely affect our business and financial condition than it affects larger bank competitors. In particular, due to the proximity of our market area to Washington, D.C., decreases in spending by the Federal government could impact us more than banks that serve a larger or a different geographical area. Our larger competitors, for example, serve more geographically diverse market areas, parts of which may not be affected by the same economic conditions that may exist in our market area. Further, unexpected changes in the national and local economy may adversely affect our

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ability to attract deposits and to make loans. Such risks are beyond our control and may have a material adverse effect on our financial condition and results of operations and, in turn, the value of our securities.

We originate and retain in our portfolio residential mortgage loans. A downturn in the local real estate market and economy could adversely affect earnings.  Our loan portfolio includes residential mortgage loans that we originate. Although the local real estate market and economy in our market areas have performed better than many other markets during the past few years, a downturn could cause higher unemployment, more delinquencies, and could adversely affect the value of properties securing loans. In addition, the real estate market may take longer to recover or not recover to previous levels. These risks increase the probability of an adverse impact on our financial results as fewer borrowers would be eligible to borrow and property values could be below necessary levels required for adequate coverage on the requested loan.

New regulations may negatively impact our origination of mortgage loans for sale into the secondary market.  The Dodd‑Frank Act required the regulatory agencies to issue regulations that require securitizers of loans retain “not less than 5% of the credit risk for any asset that is not a qualified residential mortgage.”  The rule, issued in 2014, aligns the definition of “qualified residential mortgage” with the definition of “qualified mortgage” as defined by the CFPB for purposes of its regulations.  The final rule became effective on February 23, 2015.  Compliance with the final rule was required beginning December 24, 2015 with respect to asset-backed securities collateralized by residential mortgages, and is required beginning December 24, 2016 with respect to all other classes of asset-backed securities.  The new rule could have a significant effect on the secondary market for loans and the types of loans we originate, and restrict our ability to make such loans.

We depend on the services of key personnel. The loss of any of these personnel could disrupt our operations and our business could suffer. Our success depends substantially on the skills and abilities of our executive management team, including James W. Cornelsen, our President and Chief Executive Officer, Joseph E. Burnett, our Executive Vice President and Chief Lending Officer, John Miller, our Executive Vice President and Chief Credit Officer, and Mark A. Semanie, our Executive Vice President, Chief Operating Officer. Although we have entered into employment agreements with Messrs. Cornelsen, Burnett, Miller and Semanie, the existence of such agreements does not assure that we will retain their services. These executives provide valuable services to us and would be difficult to replace.

Also, our growth and success and our anticipated future growth and success, in a large part, is due and we anticipate will be due to the relationships maintained by our banking executives with our customers. The loss of services of one or more of these executives or of other key employees could have a material adverse effect on our operations and our business could suffer. The experienced commercial lenders that we have hired are not a party to any employment agreement with us and they could terminate their employment with us at any time and for any reason.

Our growth and expansion strategy may not be successful.  Our ability to grow depends upon our ability to attract new deposits, identify loan and investment opportunities and maintain adequate capital levels. We may also grow through acquisitions of existing financial institutions or branches thereof. There are no guarantees that our expansion strategies will be successful. Also, in order to effectively manage our anticipated and/or actual loan growth we have made and may continue to make additional investments in equipment and personnel, which could increase our non‑interest expense. If we grow too quickly and are not able to control costs and maintain asset quality, growth could materially and adversely affect our financial performance.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease.  We maintain an allowance for loan losses that we believe is adequate for absorbing any potential losses in our loan portfolio. Management, through a periodic review and consideration of the loan portfolio, determines the amount of the allowance for loan losses. Although we believe the allowance for loan losses is adequate to absorb probable losses in our loan portfolio, even under normal economic conditions, we cannot predict such losses with certainty. The unprecedented volatility experienced in the financial and capital markets during the last several years makes this determination even more difficult as processes we use to estimate the allowance for loan losses may no longer be dependable because they rely on complex judgments, including forecasts of economic conditions that may not be accurate. As a result, we cannot be sure that our allowance is or will be adequate in the future. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, our earnings will suffer.

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As of December 31, 2015, commercial and industrial and commercial real estate mortgage loans comprise approximately 66.72% of our loan portfolio. These types of loans are generally viewed as having more risk of default than residential real estate or consumer loans and typically have larger balances than residential real estate loans and consumer loans. A deterioration of one or a few of these loans could cause a significant increase in non‑performing loans. Such an increase could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge‑offs, all of which could have a material adverse effect on our financial condition and results of operations.

Our profitability depends on interest rates and changes in monetary policy may impact us.  Our results of operations depend to a large extent on our “net interest income,” which is the difference between the interest expense incurred in connection with our interest bearing liabilities, such as interest on deposit accounts, and the interest income received from our interest earning assets, such as loans and investment securities. Interest rates, because they are influenced by, among other things, expectations about future events, including the level of economic activity, federal monetary and fiscal policy, and geopolitical stability, are not predictable or controllable. Additionally, competitive factors heavily influence the interest rates we can earn on our loan and investment portfolios and the interest rates we pay on our deposits. Community banks are often at a competitive disadvantage in managing their cost of funds compared to the large regional, super regional or national banks that have access to the national and international capital markets. These factors influence our ability to maintain a stable net interest margin.

We seek to maintain a neutral position in terms of the volume of assets and liabilities that mature or reprice during any period so that we may reasonably predict our net interest margin. However, interest rate fluctuations, loan prepayments, loan production and deposit flows are constantly changing and influence our ability to maintain this neutral position. Generally speaking, our earnings are more sensitive to fluctuations in interest rates the greater the variance in the volume of assets and liabilities that mature and reprice in any period. The extent and duration of the sensitivity will depend on the cumulative variance over time, the velocity and direction of interest rates, and whether we are more asset than liability sensitive. Accordingly, we may not be successful in maintaining this neutral position and, as a result, our net interest margin may suffer.

We face substantial competition which could adversely affect our growth and operating results.  We operate in a competitive market for financial services and face intense competition from other financial institutions both in making loans and in attracting deposits. Many of these financial institutions have been in business for many years, are significantly larger, have established customer bases, have greater financial resources and lending limits than we do, and are able to offer certain services that we are not able to offer. There are also a number of smaller community-based banks that pursue operating strategies similar to ours.  Competitive pressures will also likely continue to build as the financial services industry continues to consolidate and as additional non-bank investment and financial services options for consumers become available and consumers become increasingly comfortable using such alternatives. If we cannot attract deposits and make loans at a sufficient level, our operating results will suffer, as will our opportunities for growth.

Consumers may decide not to use banks to complete their financial transactions.  Technology and other changes are allowing consumers to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that they have historically held as bank deposits in brokerage accounts, mutual funds or general‑purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, which may increase as consumers become more comfortable with these new technologies and offerings, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

We continually encounter technological change.  The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by new or modified products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.  Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these

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products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business and, in turn, our financial condition and results of operations.

The market value of our investments could negatively impact stockholders’ equity.  We have designated all of our investment securities portfolio (or 12.9% of total assets) at December 31, 2015 as available for sale. We “mark to market” temporary unrealized gains and losses in the estimated value of the available for sale portfolio and reflect this adjustment as a separate item in stockholders’ equity, net of taxes. As of December 31, 2015, we had temporary unrealized gains in our available for sale portfolio of $38 thousand (net of taxes). As a result of the recent economic recession and the continued economic slowdown, several municipalities continue to report budget deficits and companies continue to report lower earnings. These budget deficits and lower earnings could cause temporary and other than temporary impairment charges in our investment securities portfolio and cause us to report lower net income and a decline in stockholders’ equity.

Any future issuances of common stock in connection with acquisitions or otherwise could dilute your ownership of Old Line Bancshares.  We may use our common stock to acquire other companies or to make investments in banks and other complementary businesses in the future. We may also issue common stock, or securities convertible into common stock, through public or private offerings, in order to raise additional capital in connection with future acquisitions, to satisfy regulatory capital requirements or for general corporate purposes. Any such stock issuances would dilute your ownership interest in Old Line Bancshares and may dilute the per‑share value of the common stock.

Our future acquisitions, if any, may cause us to become more susceptible to adverse economic events.  While we currently have no agreements to acquire additional financial institutions, we may do so in the future if an attractive acquisition opportunity arises that is consistent with our business plan. Any future business acquisitions could be material to us, and the degree of success achieved in acquiring and integrating these businesses into Old Line Bancshares could have a material effect on the value of our common stock. In addition, any acquisition could require us to use substantial cash or other liquid assets or to incur debt. In those events, we could become more susceptible to future economic downturns and competitive pressures.

We face limits on our ability to lend.  The amount of our capital limits the amount that we can loan to a single borrower. Generally, under current law, we may lend up to 15% of our unimpaired capital and surplus to any one borrower. As of December 31, 2015, we were able to lend approximately $20.0 million to any one borrower. This amount is significantly less than that of many of our larger competitors and may discourage potential borrowers who have credit needs in excess of our legal lending limit from doing business with us. We generally try to accommodate larger loans by selling participations in those loans to other financial institutions, but this strategy is not always available. We may not be able to attract or maintain customers seeking larger loans and we may not be able to sell participations in such loans on terms we consider favorable.

Additional capital may not be available when needed or required by regulatory authorities.  Federal and state regulatory authorities require us to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance future acquisitions, if any, or we may otherwise elect or our regulators may require that we raise additional capital. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control. Current conditions in the capital markets may be such that traditional sources of capital may not be available to us on reasonable terms if we needed to raise additional capital. Accordingly, we may not be able to raise additional capital if needed or on terms that are favorable or otherwise not dilutive to existing stockholders. If we cannot raise additional capital when needed, or on desirable terms, it may have a material adverse effect on our financial condition, results of operations and prospects.

We may not have adequately assessed the fair value of the acquired assets and liabilities.  Current accounting guidance requires that we record assets and liabilities at their estimated fair values on the purchase date. The determination of fair value requires that we consider a number of factors including the remaining life of the acquired loans and deposits, estimated prepayments or withdrawals, estimated loss ratios, estimated value of the underlying collateral, and the net present value of expected cash flows. Actual deviations from these predicted cash flows, maturities or repayments or the

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underlying value of the collateral may mean that our present value determination is inaccurate. This may cause fluctuations in interest income, non‑interest income, provision expense, interest expense and non‑interest expense and negatively impact our results of operations.

We may fail to realize all of the anticipated benefits of the merger with Regal Bancorp.  As discussed above in “Item I- Business,” in December 2015 we acquired Regal Bancorp. The ultimate success of the merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining our business with Regal Bancorp.

It is possible that the continuing integration process could result in the loss of key employees, the loss of key depositors or other bank customers, the disruption of our ongoing businesses or inconsistencies in standard controls, procedures and policies that adversely affect our ability to maintain our relationships with our clients, customers, depositors and employees or to achieve the anticipated benefits of the merger.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

As of December 31, 2015, we operate a total of 23 branch locations and nine loan production offices. Our headquarters is located at 1525 Pointer Ridge Place, Bowie, Maryland in Prince George’s County. Pointer Ridge Office Investment, LLC, an entity in which we have an approximately $430thousand investment and a 62.50% ownership interest, owns this property. Frank Lucente, a director of Old Line Bancshares, Inc. and Old Line Bank controls 12.50% of Pointer Ridge and controls the manager of Pointer Ridge. We also own the property and building located at 4201 Mitchellville Road, Bowie, Maryland, which we acquired in the acquisition of WSB Holdings. The net book value of the land, buildings, furniture, fixtures and equipment owned by us was $36.2 million at December 31, 2015.

During the fourth quarter of 2015, we opened our first branch in Montgomery County, Maryland.  Also, as a result of the Regal Bancorp merger on December 4, 2015, three additional branch locations were added expanding our branch network into Baltimore and Carroll Counties.  During the first half of 2015, our Crofton Center property was sold.  We acquired this property in the WSB merger and it was closed as a result of branch consolidations that took place on December 31, 2014.

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Legacy Properties
Location	Address	Opened Date	Square Feet	Monthly Lease Amount		Term	Renewal Option
Accokeek	15808 Livingston Road Accokeek, Maryland	12/1995	1,218		Owned
Annapolis Suite 100	2530 Riva Road,         Annapolis, Maryland	9/2011	3,899	$	12,425	10yrs 7mos	(2) 5 years
Annapolis Suite 404	2530 Riva Road,  Annapolis, Maryland	6/2015	2,394	$	5,672	6yrs 1mos	n/a
Bowie                Suite 100	1525 Pointer Ridge Place Bowie, Maryland	6/2006	2,557	$	8,066	13 years	(2) 5years
Bowie                Suite 101	1525 Pointer Ridge Place Bowie, Maryland	1/2012	2,282	$	3,325	8yrs 5 mos	(2) 5years
Bowie                Suite 201B & 202	1525 Pointer Ridge Place Bowie, Maryland	7/2014	1,875	$	3,780	4yrs  10mos	(2) 5years
Bowie                Suite 201A & 204	1525 Pointer Ridge Place Bowie, Maryland	12/2014	1,692	$	2,961	4yrs  6mos	(2) 5years
Bowie                Suite 203, 205 $ & 207	1525 Pointer Ridge Place Bowie, Maryland	2/2015	5,513	$	9,686	4yrs  4mos	(2) 5years
Bowie                  Suite 300	1525 Pointer Ridge Place Bowie, Maryland	6/2006	5,449	$	15,051	13 years	(2) 5years
Bowie                  Suite 301	1525 Pointer Ridge Place Bowie, Maryland	1/2012	1,732	$	2,839	8yrs 5mos	(2) 5years
Bowie                  Suite 302, 303, 303a, 304 & 305	1525 Pointer Ridge Place Bowie, Maryland	12/2012	2,896	$	6,687	6yrs 6mos	(2) 5years
Bowie                Suite 400	1525 Pointer Ridge Place Bowie, Maryland	6/2006	11,053	$	30,046	13 years	(2) 5years
Clinton	7801 Old Branch Avenue Clinton, Maryland	9/2002	2,550	$	2,935	5 years	(2) 5years
College Park          1st Floor	9658 Baltimore Avenue  College Park, Maryland	3/2008	1,916	$	6,149	10 years	(2) 5 years
College Park          4th Floor	9658 Baltimore Avenue  College Park, Maryland	7/2005	2,230	$	4,785	10 years	(2) 5 years
Crain Highway	2995 Crain Highway      Waldorf, Maryland	6/1999	8,044		Owned
Crofton	1641 Maryland Route 3 North Crofton, Maryland	7/2009	2,420	$	7,904	10 years	(3) 5 years
Fairwood	12100 Annapolis Road Glen Dale, Maryland	10/2009	2,863		Owned
Greenbelt	6421 Ivy Lane        Greenbelt, Maryland	9/2009	33,000	$	10,063	30 years	(2) 10 years
Rockville Pike      Suite 100	1801 Rockville Pike    Rockville, Maryland	11/2015	3,251	$	9,482	5 years	(3) 5 years
Rockville Towne Center	196 East Montgomery Avenue Rockville, Maryland	2nd Qtr 2016	2,142		5,355	10 years	(2) 5 years
Silver Spring	12501 Prosperity Drive Silver Spring, Maryland	3/2013	2,131	$	4,024	3 years 2 mos	(1) 3 years

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Properties Acquired April 1, 2011
Location	Address	Opened Date	Square Feet	Monthly Lease Amount		Term	Renewal Option
Bryans Road	7175 Indian Head Highway Bryans Road, Maryland	5/1964	3,711		Owned
California	22741 Three Notch Road California, Maryland	4/1985	3,366	$	6,429	5 years	(2) 5 years
Callaway	20990 Point Lookout Road Callaway, Maryland	8/2005	1,795		Owned
Fort Washington	12740 Old Fort Road          Fort Washington, Maryland	2/1973	2,800	$	7,090	5 years	(1) 5 years
La Plata	101 Charles Street                 La Plata, Maryland	4/1974	2,910	$	8,992	15 years	(3) 10 years
Leonardtown Road	3135 Leonardtown Road Waldorf, Maryland	6/1963	7,076		Owned
Lexington Park (1)	46930 South Shangri La Drive Lexington Park, Maryland	6/1959	7,763	$	11,766	20 years	N/A
Prince Frederick	691 Prince Frederick Blvd. Prince Frederick, Maryland	8/1999	3,400	$	10,269	20 years	N/A
Solomons (1)	80 Holiday Drive         Solomons, Maryland	2/1998	2,194	$	4,833	20 years	N/A
Waldorf Operations	3220 Old Washington Road Waldorf, Maryland	12/1988	21,064		Owned

Properties Acquired May 10, 2013
Location	Address	Opened Date	Square Feet	Monthly Lease Amount		Term	Renewal Option
Bowie	4201 Mitchellville Road Bowie, Maryland	4/1997	43,600		Owned
Millersville	676 Old Mill Road Millersville, Maryland	8/2005	1,795	$	7,500	5 years	(2) 5 years
Odenton	1161 Annapolis Road Odenton, Maryland	2/1973	2,800	$	10,729	5 years	(1) 5 years
Waldorf (1)	3225 Crain Highway Waldorf, Maryland	4/1974	2,910	$	6,750	15 years	(3) 10 years
Properties Acquired December 4, 2015
Location	Address	Opened Date	Square Feet	Monthly Lease Amount		Term	Renewal Option
Hunt Valley	10620 York Road Hunt Valley, Maryland	6/2005	6,160	$	13591	20 years	(4) 5 years
Owings Mills            Suite 10	25 Crossroads Drive Owings Mills, Maryland	8/2011	1,500		4221	5 years	(3) 5 years
Owings Mills            Unit 1	11436 Cronhill Drive Owings Mills, Maryland	5/2007	7,612		8317	3 years	(2) 5 years
Westminster	1046 Baltimore Boulevard Westminster, Maryland	12/2001	3,391		7,888	20 years	(1) 10 years

(1) Closed offices effective December 31, 2014. Locations closed effective December 31, 2014.

Item 3.  Legal Proceedings

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

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Item 4.  Mine Safety Disclosures

Not applicable.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Prices

Our common stock trades on the Nasdaq Capital Market (“NASDAQ”) under the trading symbol “OLBK.” The table below shows the high and low sales prices of our common stock. The quotations reflect interdealer prices, without retail mark up, mark down, or commission, and may not represent actual transactions.

	Sale Price Range
2015	High		Low
First Quarter	$	16.04	$	14.31
Second Quarter		16.63		14.71
Third Quarter		17.00		15.24
Fourth Quarter		18.33		15.85
2014
First Quarter	$	18.00	$	14.25
Second Quarter		17.75		15.01
Third Quarter		15.87		13.58
Fourth Quarter		16.21		13.96

At December 31, 2015, there were 10,802,560 shares of our common stock issued and outstanding held by approximately 1,488 stockholders of record. There were 368,956 shares of common stock issuable on the exercise of outstanding stock options, 292,204 of which were issuable pursuant to options currently exercisable. The remaining shares are issuable pursuant to options that are exercisable as follows:

Date Exercisable	# of Shares
2/25/2016	11,265
2/26/2016	11,313
2/27/2016	10,330
9/10/2016	5,001
10/22/2016	1,667
2/25/2017	11,265
2/26/2017	11,313
10/22/2017	1,667
2/25/2018	11,265
10/22/2018	1,666
Total	76,752

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Dividends

We have paid the following dividends on our common stock during the years indicated:

	2015		2014
March	$	0.05	$	0.04
June		0.05		0.04
September		0.05		0.05
December		0.06		0.05
Total	$	0.21	$	0.18

Our ability to pay dividends in the future will depend on the ability of Old Line Bank to pay dividends to us. Old Line Bank’s ability to continue paying dividends will depend on Old Line Bank’s compliance with certain dividend regulations imposed upon us by bank regulatory authorities.

In addition, we will consider a number of other factors, including our income and financial condition, tax considerations, and general business conditions before deciding to pay additional dividends in the future. We can provide no assurance that we will continue to pay dividends to our stockholders.

Issuer Purchases of Equity Securities

As previously reported, on February 25, 2015, the board of directors approved the Company’s repurchase of up to 500,000 shares of its outstanding shares of common stock, and on March 4, 2015 the Company entered into a stock repurchase plan with a registered broker-dealer under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, pursuant to which the broker-dealer will have the authority to repurchase on the Company’s behalf up to 500,000 shares of its outstanding common stock through March 4, 2016, unless the repurchase plan is terminated earlier in accordance with its terms.  Such stock repurchases, if and when commenced, may be suspended or discontinued at any time.  Any repurchased shares of common stock will return to the status of authorized but unissued shares.  As of December 31, 2015, 339,237 shares have been repurchased at an average price of $15.73 per share.  This buyback activity more than offset the number of shares issued in the Regal Bancorp transaction, essentially allowing us to repurchase shares at an average price of $15.69 and then re-issued a portion of them at the equivalent of $17.97.  We did not repurchase any shares of our common stock during the fourth quarter of 2015.

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Item 6.  Selected Financial Data

The following table summarizes Old Line Bancshares, Inc.’s selected financial information and other financial data. The selected balance sheet and statement of income data are derived from our audited financial statements. You should read this information together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mergers and Acquisitions” and our financial statements and the related notes included elsewhere in this report. Results for past periods are not necessarily indicative of results that may be expected for any future period.

December 31,	2015			2014			2013			2012			2011
	(Dollars in thousands except per share data)
Earnings and dividends:
Interest income	$	51,453		$	45,603		$	44,263		$	38,222		$	32,321
Interest expense		4,864			3,900			4,202			5,058			5,219
Net interest income		46,589			41,703			40,061			33,164			27,101
Provision for loan losses		1,311			2,827			1,504			1,525			1,800
Non-interest income		6,845			5,957			8,870			3,708			2,741
Non-interest expense		36,276			35,046			36,077			25,162			20,884
Income taxes		5,382			2,694			3,602			2,720			1,927
Net income		10,464			7,093			7,747			7,465			5,232
Less: Net loss attributable to the non-controlling interest		(4)			(37)			(92)			(65)			(148)
Net income available to common stockholders		10,468			7,130			7,839			7,530			5,380
Per common share data
Basic earnings	$	0.98		$	0.66		$	0.87		$	1.10		$	0.86
Diluted earnings		0.97			0.65			0.86			1.09			0.86
Dividends paid		0.21			0.18			0.16			0.16			0.13
Common stockholders book value, period end		13.16			12.51			11.71			10.94			9.98
Common stockholders tangible book value, period end		11.85			11.38			10.50			10.30			9.28
Average common shares outstanding
Basic		10,647,986			10,786,017			9,044,844			6,828,512			6,223,057
Diluted		10,784,323			10,935,182			9,149,200			6,893,645			6,253,898
Common shares outstanding, period end		10,802,560			10,810,930			10,777,113			6,845,432			6,817,694
Balance Sheet Data:
Total assets	$	1,510,089		$	1,227,519		$	1,167,223		$	861,856		$	811,042
Total loans, less allowance for loan losses		1,147,035			931,121			849,263			595,145			539,298
Total investment securities		194,706			161,680			172,170			171,541			161,785
Total deposits		1,235,880			1,015,739			974,359			735,458			690,768
Stockholders’ equity		143,989			135,264			126,249			74,862			68,040
Performance Ratios:
Return on average assets		0.79	%		0.60	%		0.74	%		0.90	%		0.79	%
Return on average stockholders’ equity		7.54	%		5.45	%		7.80	%		11.17	%		9.37	%
Total ending equity to total ending assets		9.54	%		11.02	%		10.82	%		8.69	%		8.39	%
Net interest margin(1)		4.08	%		4.15	%		4.53	%		4.65	%		4.61	%
Dividend payout ratio for period		21.47	%		27.23	%		19.02	%		14.51	%		15.30	%
Asset Quality Ratios:
Allowance to period-end loans		0.43	%		0.46	%		0.58	%		0.66	%		0.69	%
Non-performing assets to total assets		0.38	%		0.65	%		1.27	%		1.12	%		1.22	%
Non-performing loans to allowance for loan losses		115.40	%		121.61	%		178.91	%		149.04	%		155.84	%
Capital Ratios:
Tier 1 risk-based capital		10.7	%		12.3	%		12.0	%		10.8	%		10.6	%
Total risk-based capital		11.1	%		12.7	%		12.5	%		11.4	%		11.3	%
Leverage capital ratio		9.1	%		9.9	%		9.3	%		7.9	%		7.8	%

(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operating—Reconciliation of Non‑GAAP Measures.”

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We operate a general commercial banking business, accepting deposits and making loans and investments.

In an economic and regulatory climate that continues to present challenges for our industry, we are pleased to report our accomplishments during the year and continued profitability. Net income available to common stockholders was $10.5 million or $0.98per basic and $0.97 per diluted common share for the year ending December 31, 2015 which represented a 46.82%increase over the prior year’s net income available to common stockholders of $7.1  million.

The following highlights contain financial data and events that have occurred during 2015:

· Total assets at December 31, 2015 increased $282.6  million from December 31, 2014.

· Net income of $10.5 million, or $0.98 per basic and $0.97 per diluted common share, included merger-related expenses of $1.4 million ($1.2 million after taxes).  Excluding these merger-related expenses, earnings were $1.09 per basic and $1.08 per diluted share for the twelve months ending December 31, 2015.

· Net loans held for investment increased $220.5 million during the twelve months ended December 31, 2015, to $1.1 billion at December 31, 2015, compared to $926.6 million at December 31, 2014.  Approximately $129.5 million, or 58.7%, of this increase was due to organic growth while the acquisition of the Regal Bank loan portfolio accounted for approximately $91.0 million, or 41.3%, of the growth in net loans held for investment.

· Non-performing assets decreased to 0.60% of total assets at December 31, 2015 compared to 0.65% of total assets at December 31, 2014. 

· Total deposits grew $220.2 million during the twelve months ending December 31, 2015.  Non-interest bearing deposits increased $67.6 million, or 25.93%, and interest bearing deposits grew $152.5 million, or 20.21%, during the twelve months ending December 31, 2015.  The increase in deposits is due to approximately $115.9 million in organic growth and $104.3 million resulting from the acquisition of Regal Bank’s deposit base.

· The provision for loan losses for the year ending December 31, 2015 was $1.3 million compared to $2.8 million for the year ending December 31, 2014.

· The net interest margin was 4.08% for 2015 compared to 4.15% for 2014.  The net interest margin in 2015 benefited from a higher level of accretion on acquired loans due to early payoffs on acquired loans with credit marks for the twelve months ending December 31, 2015 as compared to the same period in 2014.  Re-pricing in the loan portfolio and lower yields on new loans caused the average loan yield to decline. 

· For the twelve months ended December 31, 2015, return on average assets (ROAA) and return on average equity (ROAE) were 0.79% and 7.54%, respectively, compared to ROAA and ROAE of 0.60% and 5.45%, respectively, for the twelve months ended December 31, 2014.

· We ended 2015 with a book value of $13.16 per common share and a tangible book value of $11.85 per common share compared to $12.51 and $11.38, respectively, at December 31, 2014.

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

Additionally, the following branch developments occurred during 2015:

· On November 10, 2015, we opened our first branch in Rockville, Maryland, located in Montgomery County.  A second location in the Rockville Town Center is scheduled to open in 2016. 

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· We expanded our presence further north to include market areas of Baltimore County and Carroll County as a result of the Regal Bancorp merger in December 2015.  We added two branches to Baltimore County and one branch to Carroll County.  The branches are located in Hunt Valley, Owings Mills and Westminster, Maryland.

Strategic Plan

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

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

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

Although the current economic climate continues to present challenges for our industry, we have worked diligently towards our goal of becoming the premier community bank in the Washington, D.C. market, resulting in increased penetration into the Charles, Prince George’s, Anne Arundel and Montgomery County markets.  While we are uncertain about the pace of economic growth or the impact of the current political environment, and we believe that international concerns, including slowing growth in China’s economy, and the growing national debt will continue to dampen the economic climate, we remain cautiously optimistic that we have identified any problem assets, that our remaining borrowers will stay current on their loans and that we can continue to grow our balance sheet and earnings.

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

We also expect that salaries and benefits expenses and other operating expenses may be higher in 2016 than they were in 2015 due to Regal acquisition and the opportunity to add more business development talent.  We will continue to look for opportunities to reduce expense as we did with the closing of four branches in 2014.  We believe with our existing and planned branches, our lending staff, our corporate infrastructure and our solid balance sheet and strong capital position, we can continue to focus our efforts on improving earnings per share and enhancing stockholder value.

Mergers and Acquisitions

Regal Bancorp, Inc.  On December 4, 2015, Old Line Bancshares acquired Regal Bancorp, the parent company of Regal Bank.  Pursuant to the merger, each outstanding share of Regal Bancorp’s preferred stock was converted into the right to receive $2.00 in cash, and each outstanding share of Regal Bancorp’s common stock was converted into the right to receive, at the holder’s election, $12.68 in cash or 0.7718 shares of our common stock, with cash paid in lieu of fractional shares of our common stock. The total merger consideration was approximately $7.0 million, including the issuance of 230,633 shares of our common stock. 

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In accordance with accounting for business combinations, we recorded the acquired assets and liabilities of Regal Bank at their estimated fair value on December 4, 2015, the acquisition date. The determination of the fair value of the loans caused a significant write down in the value of certain loans, which we assigned to an accretable or non‑accretable discount. We recognize the accretable discount as interest income over the remaining term of the loan. The non‑accretable discount will be adjusted based on subsequent increases or decreases to the expected cash flows and will result in either an increase to accretion income or provisions for loan losses, respectively.

In conjunction with the merger, we also recorded the deposits acquired at their fair value and recorded a core deposit intangible of $723 thousand.

The former Regal Bank franchise is currently operating under the Old Line Bank name.

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

In accordance with accounting for business combinations, we recorded the acquired assets and liabilities of WSB at their estimated fair value on May 10, 2013, the acquisition date. The determination of the fair value of the loans caused a significant write down in the value of certain loans, which we assigned to an accretable or non‑accretable discount. We recognize the accretable discount as interest income over the remaining term of the loan. The non‑accretable discount will be adjusted based on subsequent increases or decreases to the expected cash flows and will result in either an increase to accretion income or provisions for loan losses, respectively. The accretion of the loan marks, along with other fair value adjustments, favorably impacted our net interest income by $361 thousand, $83 thousand and $682 thousand for the twelve months ended December 31, 2015, 2014 and 2013, respectively.

In conjunction with the merger, we also recorded the deposits acquired at their fair value and recorded a core deposit intangible of $2.4 million. The amortization of this intangible asset decreased net income by $276 thousand, $276 thousand and $180 thousand for the years ended December 31, 2015, 2014 and 2013, respectively.

Maryland Bankcorp, Inc.On April 1, 2011, Old Line Bancshares acquired Maryland Bankcorp, the parent company of Maryland Bank & Trust Company, N.A. In the merger, each share of common stock of Maryland Bankcorp was converted into the right to receive, at the holder’s election, $29.11 in cash or 3.4826 shares of our common stock, with cash paid cash for any fractional shares of our common stock.  The total merger consideration was $18.8 million, including cash consideration of $1.0 million.

In accordance with accounting for business combinations, we recorded the acquired assets and liabilities of Maryland Bankcorp at their estimated fair value on April 1, 2011, the acquisition date. The determination of the fair value of the loans caused a significant write down in the value of certain loans, which we assigned to an accretable or non‑accretable discount. We will recognize the accretable discount as interest income over the remaining term of the loan. The non‑accretable discount will be adjusted based on subsequent increases or decreases to the expected cash flows and will result in either an increase to accretion income or provisions for loan losses, respectively. The accretion of the loan marks, along with other fair value adjustments, related to MB&T favorably impacted our net interest income by $1.2 million, $838 thousand and $2.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.

In conjunction with the merger, we also recorded the deposits acquired at their fair value and recorded a core deposit intangible of $5.0 million. The amortization of this intangible asset decreased net income by $522 thousand, $591 thousand and $659 thousand for the years ended December 31, 2015, 2014 and 2013, respectively.

The former MB&T franchise is currently operating under the Old Line Bank name.

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Critical Accounting Policies and Estimates

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. They require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The following are the accounting policies that we believe are critical. For a discussion of recent accounting pronouncements, see Note 1—Summary of Significant Accounting Policies in the Notes to our Consolidated Financial Statements.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. We base these estimates, assumptions, and judgments on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third party sources, when available.

The most significant accounting policies that we follow are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how we value significant assets and liabilities in the financial statements and how we determine those values. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

Allowance for Loan Losses—We evaluate the adequacy of the allowance for loan losses based upon loan categories except for delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with loan collateral, which management evaluates separately and assigns loss amounts based upon the evaluation. We apply loss ratios to each category of loans, where we further divide the loans by risk rating and apply loss ratios by risk rating, to determine estimated loss amounts. Categories of loans are consumer loans, residential real estate, commercial real estate and commercial loans.  We further divide commercial real estate by owner occupied, investment, hospitality, land acquisition and development and junior liens.

The allowance for loan losses represents management’s best estimate of the losses known and inherent in the loan portfolio that are both probable and reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, estimated value of any underlying collateral, economic conditions (particularly as such conditions relate to Old Line Bank’s market area), regulatory guidance, peer statistics, management’s judgment, past due loans in the loan portfolio, loan charge off experience and concentrations of risk (if any). Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant estimates, assumptions, and judgments. The loan portfolio also represents the largest asset type on the consolidated balance sheets.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for loan losses, including in connection with the valuation of collateral and the financial condition of the borrower, and in establishing loss ratios and risk ratings. The establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance based upon the same volume and classification of loans.

Changes in allowance factors or in management’s interpretation of those factors will have a direct impact on the amount of the provision, and a corresponding effect on income and assets. Also, errors in management’s perception and

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assessment of the allowance factors could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge offs, which would adversely affect income and capital. For additional information regarding the allowance for loan losses, see the “Asset Quality” section of this annual report.

Other‑Than‑Temporary Impairment—Management systematically evaluates investment securities for other‑than‑temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) the structure of the security. A decline in the market value of any available for sale security below cost that is deemed other‑than‑temporary results in a charge to earnings and establishment of a new cost basis for that security.

Goodwill and Other Intangible Assets—Goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed related to the acquisitions of Maryland Bankcorp, WSB Holdings and Regal Bancorp. Core deposit intangibles represent the estimated value of long‑term deposit relationships acquired in these transactions. The core deposit intangible is being amortized over 18 years for Maryland Bankcorp, ten years for WSB Holdings, and eight years for Regal Bancorp, and the estimated useful lives are periodically reviewed for reasonableness.

Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The goodwill impairment analysis is a two‑step test. The first step, used to identify potential impairment, involves comparing the reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill assigned to that reporting unit is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment of goodwill assigned to that reporting unit.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. We have determined that Old Line Bancshares has one reporting unit.

We engaged an external valuation specialist to assist us in the goodwill assessment performed at September 30, 2015, our annual test date, and determined that no impairment charge was necessary for our goodwill at that date. Fair value of the reporting unit in 2015 was determined using three methods, one based on the prices paid for common shares of reasonably similar publically traded companies, another based on the prices paid for acquisition of control of reasonably similar companies, and lastly, a third method based on discounted cash flow models with estimated cash flows based on internal forecasts of net income. These three methods provided a range of valuations that we used in evaluating goodwill for possible impairment. Additionally, should Old Line Bancshares’ future earnings and cash flows decline and/or discount rates increase, an impairment charge to goodwill and other intangible assets may be required. There have been no events subsequent to the September 30, 2015 evaluation that caused us to perform an interim review of the carrying value of goodwill.

Business Combinations—Accounting principles generally accepted in the United States (U.S. GAAP) requires that the acquisition method of accounting, formerly referred to as purchase method, be used for all business combinations and that an acquirer be identified for each business combination. Under U.S. GAAP, the acquirer is the entity that obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. U.S. GAAP requires that the acquirer recognize the fair value of assets acquired, liabilities assumed, and any non‑controlling interest in the acquiree at the acquisition date.

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Acquired loans—These loans are recorded at fair value at the date of acquisition, and accordingly no allowance for loan losses is transferred to the acquiring entity in connection with purchase accounting. The fair values of loans with evidence of credit deterioration (purchased, credit‑impaired loans) are initially recorded at fair value, but thereafter accounted for differently than purchased, non‑credit‑impaired loans. For purchased, credit‑impaired loans, the excess of all cash flows estimated to be collectable at the date of acquisition over the purchase price of the purchase credit‑impaired loan is recognized as interest income, using a level‑yield basis over the life of the loan. This amount is referred to as the accretable yield. The purchased credit‑impaired loan’s contractually‑required payments receivable estimated to be in excess of the amount of its future cash flows expected at the date of acquisition is referred to as the non‑accretable difference, and is not reflected as an adjustment to the yield, in the form of a loss accrual or a valuation allowance.

If a loan that was previously rated a pass performing loan, from our acquisitions, deteriorates subsequent to the acquisition, the subject loan will be assessed for risk and, if necessary, evaluated for impairment.  If the risk assessment rating is adversely changed and the loan is determined to not be impaired, the loan will be placed in a migration category and the credit mark established for the loan will be compared to the general reserve allocation that would be applied using the current allowance for loan losses formula for General Reserves.  If the credit mark exceeds the allowance for loan losses formula for General Reserves, there will be no change to the allowance for loan losses.  If the credit mark is less than the current allowance for loan losses formula for General Reserves, the allowance for loan losses will be increased by the amount of the shortfall by a provision recorded in the income statement. If the loan is deemed impaired, the loan will be subject to evaluation for loss exposure and a specific reserve.  If the estimate of loss exposure exceeds the credit mark, the allowance for loan losses will be increased by the amount of the excess loss exposure through a provision.  If the credit mark exceeds the estimate of loss exposure there will be no change to the allowance for loan losses.  If a loan from the acquired loan portfolio is carrying a specific credit mark and a current evaluation determines that there has been an increase in loss exposure, the allowance for loan losses will be increased by the amount of the current loss exposure in excess of the credit mark.

Subsequent to the acquisition date, management continues to monitor cash flows on a quarterly basis, to determine the performance of each purchased, credit‑impaired loan in comparison to management’s initial performance expectations. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent significant increases in cash flows result in a reversal of the provision for loan losses to the extent of prior provisions, or a reclassification of amount from non‑accretable difference to accretable yield, with a positive impact on the accretion of interest income in future periods.

Acquired performing loans are accounted for using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Acquired performing loans are recorded as of the purchase date at fair value. Credit losses on the acquired performing loans are estimated based on analysis of the performing portfolio. A provision for loan losses is recognized for any further credit deterioration that occurs in these loans subsequent to the acquisition date.

Income taxes—The provision for income taxes includes taxes payable for the current year and deferred income taxes. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. If needed, we use a valuation allowance to reduce the deferred tax assets to the amount we expect to realize. We allocate tax expense and tax benefits to Old Line Bancshares and its subsidiaries based on their proportional share of taxable income.

Average Balances, Yields and Accretion of Fair Value Adjustments Impact

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

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Average Balances, Interest and Yields

	2015						2014						2013
	Average						Average						Average
Twelve Months Ended December 31,	balance		Interest		Yield		balance		Interest		Yield		balance		Interest		Yield
Assets:
Federal funds sold(1)	$	365,198	$	1,027	0.28	%	$	2,868,076	$	4,690	0.16	%	$	3,582,839	$	3,851	0.11	%
Interest bearing deposits		1,322,436		19	0.01			182,435		26	0.01			105,513		184	0.17
Investment securities(1)(2)
U.S. Treasury		3,000,357		11,195	0.37			2,573,685		22,241	0.86			1,279,948		3,218	0.25
U.S. government agency		38,414,019		552,033	1.44			37,714,591		600,513	1.59			39,298,327		569,019	1.45
Mortgage backed securities		78,253,923		1,502,468	1.92			72,303,901		1,498,353	2.07			72,334,100		1,464,994	2.03
Municipal securities		41,869,571		1,991,942	4.76			50,726,625		2,381,496	4.69			62,484,076		2,896,472	4.64
Other equity securities		4,807,916		238,859	4.97			4,621,253		321,113	6.95			4,297,264		259,738	6.04
Total investment securities		166,345,786		4,296,497	2.58			167,940,055		4,823,716	2.87			179,693,715		5,193,441	2.89
Loans:(1)
Commercial		138,609,896		5,351,764	3.86			128,569,150		5,307,598	4.13			110,993,664		5,222,223	4.70
Mortgage real estate		874,089,522		43,089,824	4.93			741,096,563		36,586,500	4.94			626,060,637		34,980,352	5.59
Consumer		8,442,865		456,501	5.41			10,805,560		612,991	5.67			9,982,711		678,167	6.79
Total loans		1,021,142,283		48,898,089	4.79			880,471,273		42,507,089	4.83			747,037,012		40,880,742	5.47
Allowance for loan losses		4,648,177		—				5,181,900		—				5,021,045		—
Total loans, net of allowance		1,016,494,106		48,898,089	4.81			875,289,373		42,507,089	4.86			742,015,967		40,880,742	5.51
Total interest earning assets(1)		1,184,527,526		53,195,632	4.49			1,046,279,939		47,335,521	4.52			925,398,034		46,078,218	4.98
Non-interest bearing cash		38,327,715						39,170,242						38,323,683
Premises and equipment		34,402,717						34,637,245						31,797,485
Other assets		66,766,197						74,338,941						62,398,528
Total assets(1)		1,324,024,155						1,194,426,367						1,057,917,730
Liabilities and Stockholders’ Equity:
Interest bearing deposits
Savings		91,645,292		111,385	0.12			89,318,027		137,903	0.15			113,376,972		137,293	0.12
Money market and NOW		331,201,292		723,666	0.22			318,892,874		715,626	0.22			221,007,993		614,402	0.28
Other time deposits		377,037,062		3,411,939	0.90			357,758,637		2,548,094	0.71			357,443,212		2,964,348	0.83
Total interest bearing deposits		799,883,646		4,246,990	0.53			765,969,538		3,401,623	0.44			691,828,177		3,716,043	0.54
Borrowed funds		101,832,108		617,308	0.61			45,538,504		498,101	1.09			44,045,931		486,209	1.10
Total interest bearing liabilities		901,715,754		4,864,298	0.54			811,508,042		3,899,724	0.48			735,874,108		4,202,252	0.57
Non-interest bearing deposits		274,917,333						241,513,993						212,947,837
		1,176,633,087						1,053,022,035						948,821,945
Other liabilities		8,220,112						10,386,539						8,275,798
Non-controlling interest		269,964						269,964						355,322
Stockholders’ equity		138,900,992						130,747,829						100,464,665
Total liabilities and stockholders’ equity	$	1,324,024,155					$	1,194,426,367					$	1,057,917,730
Net interest spread(1)					3.95						4.04						4.41
Net interest margin(1)			$	48,331,334	4.08	%			$	43,435,797	4.15	%			$	41,875,966	4.53	%

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

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

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Rate/Volume Analysis

The following table describes the impact on our interest income and expense resulting from changes in average balances and average rates for the periods indicated. The change in interest income due to both volume and rate is reported with the rate variance.

	Twelve Months Ended December 31,						Twelve Months Ended December 31,
	2015 compared to 2014						2014 compared to 2013
	Variance due to:						Variance due to:
	Total		Rate		Volume		Total		Rate		Volume
Interest earning assets:
Federal funds sold(1)	$	(3,663)	$	2,044	$	(5,707)	$	839	$	1,718	$	(879)
Interest bearing deposits		(7)		(42)		35		(158)		(238)		80
Investment Securities(1)
U.S. Treasury		(11,046)		(14,260)		3,214		19,023		13,446		5,577
U.S. government agency		(48,480)		(59,443)		10,963		31,494		55,084		(23,590)
Mortgage backed securities		4,115		(114,400)		118,515		33,359		33,971		(612)
Municipal securities		(389,554)		31,425		(420,979)		(514,976)		36,566		(551,542)
Other		(82,254)		(94,766)		12,512		61,375		40,811		20,564
Loans:
Commercial		44,166		(355,667)		399,833		85,375		(684,410)		769,785
Mortgage real estate		6,503,324		(52,880)		6,556,204		1,606,148		(4,363,240)		5,969,388
Consumer		(156,490)		(27,631)		(128,859)		(65,176)		(118,003)		52,827
Total interest income(1)		5,860,111		(685,620)		6,545,731		1,257,303		(4,984,295)		6,241,598
Interest bearing liabilities:
Savings		(26,518)		(30,028)		3,510		610		33,234		(32,624)
Money market and NOW		8,040		(19,149)		27,189		101,224		(134,149)		235,373
Other time deposits		863,845		720,367		143,478		(416,254)		(418,868)		2,614
Borrowed funds		119,207		(294,796)		414,003		11,892		(4,465)		16,357
Total interest expense		964,574		376,394		588,180		(302,528)		(524,248)		221,720
Net interest income(1)	$	4,895,537	$	(1,062,014)	$	5,957,551	$	1,559,831	$	(4,460,047)	$	6,019,878

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

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The fair value yield on loan accretion increased in 2015 due to anincreased level of payoffs on acquired loans with positive accretion as compared to payoffs in 2014.  The fair value accretion increased the net interest margin as follows:

	Twelve Months Ended December 31,
	2015				2014				2013
	Fair Value		% Impact on		Fair Value		% Impact on		Fair Value		% Impact on
	Accretion		Net Interest		Accretion		Net Interest		Accretion		Net Interest
	Dollars		Margin		Dollars		Margin		Dollars		Margin
Commercial loans	$	21,744	0.00	%	$	(13,229)	(0.00)	%	$	262,942	0.03	%
Mortgage loans		1,538,455	0.12			378,089	0.03			2,712,895	0.29
Consumer loans		22,946	—			21,868	—			19,103	—
Interest bearing deposits		151,123	0.01			534,119	0.04			461,590	0.05
Total Fair Value Accretion	$	1,734,268	0.13	%	$	920,847	0.07	%	$	3,456,530	0.37	%

Comparison of Operating Results for the Years Ended December 31, 2015 and 2014.

Net Interest Income.Net interest income before provision for loan losses for the year ended December 31, 2015 increased $4.9 million or 11.71% to $46.6 million from $41.7 million for the year ended December 31, 2014. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of an increase in total interest income resulting primarily from an increase in the level of our average loans, partially offset by an increase in interest expense resulting primarily from an increase in the average balance of our average interest bearing liabilities and an increase in the average interest paid on our time deposits. 

A continuing competitive rate environment and a low prime rate resulted in a slight decrease in the average yield on our interest earnings assets.  As loans reach their stated maturity dates, the re-pricing on these loans are lower than the original interest rate, reducing the average rate.  The competitive rate environment resulted in an increase in the rate paid on our time deposits, which resulted in an increase in the average rate paid on interest-bearing deposits and interest bearing liabilities despite a decrease in the average rates paid on our other interest bearing deposits.  Promotion time deposits with special rates were offered throughout the year.  These funds were used to fund new loan originations.Average rates on interest bearing liabilities decreased due to a lower rate paid on our borrowings.We continue to adjust the mix and volume of interest earning assets and interest bearing liabilities on the balance sheet to maintain a relatively strong net interest margin. 

We offset the effect on net interest income caused by the low rate environment primarily by growing total average interest earning assets $138.2 million or 13.22% to $1.2 billion for the year ended December 31, 2015 from $1.0 billion for the year ended December 31, 2014.  The growth in average interest earning assets derived from a $140.7 million increase in average total loans offsetting a decrease of $1.6 million in average investment securities.  The growth in average interest bearing liabilities, resulted primarily from the $33.9 million increase in average interest bearing deposits, which increased to $799.9 million for the year ended December 31, 2015 from $766.0 million for the year ended December 31, 2014.

The growth in both average interest earning assets and average interest bearing deposits was primarily a result of strong organic growth although our acquisition of Regal Bancorp also contributed slightly to this growth.

Our net interest margin was 4.08% for the year ended December 31, 2015 compared to 4.15% for the year ended December 31, 2014. The yield on average interest earning assets remained relatively stable, decreasing by only three basis points from 4.52% for the year ended December 31, 2014 to 4.49% for the year ended December 31, 2015. This slight decrease was primarily due to lower yields on new loans and re-pricing in the loan portfolio.  The net effect of fair value accretion/amortization on acquired loans affects our net interest income.  The fair value accretion/amortization is recorded on paydowns during the period recognized and the fair value accretion on loans increased to 12 basis points from 3 basis points in the prior year.  The net interest margin in 2015 benefited from a higher level of accretion on acquired loans due to early payoffs on acquired loans with credit marks.

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The increase in the average rate paid on interest bearing liabilities was the result of the increase in rates paid on time deposits, which itself was partially offset by a slight decrease in the rate paid on time deposits resulting from the accretion of fair value adjustments on certificates of deposit acquired from MB&T and WSB, partially offset by decreases in the rates paid on our borrowings and other categories of interest bearing deposits.   

As previously mentioned, our average deposits increased during the twelve months ended December 31, 2015 due to increases in the average balance of both interest bearing deposits and non-interest bearing deposits.  Interest bearing deposits increased $33.9 million to $799.9 million during the twelve months ended December 31, 2015 from $766.0 million during the twelve months ended December 31, 2014 while our non-interest bearing deposits increased $33.4 million to $274.9 million during the twelve months ended December 31, 2015 from $241.5 million during the twelve months ended December 31, 2014.  The increase in our average deposits is primarily due to organic growth generated from our enhanced presence in our market area and the surrounding areas as a result of our marketing efforts and continued efforts of our cash management and Financial Services Team.  The $104.0 million in deposits we acquired from Regal Bank had a minimal impact on average deposits during 2015 as these deposits were included in our balance sheet for less than one month during 2015.

Provision for loan losses.Provision for loan losses totaled $1.3 million for the year ended December 31, 2015, a decrease of $1.5 million, or 53.64%, from the 2014 amount of $2.8 million.  Management identified probable losses in the loan portfolio and recorded charge‑offs of $892 thousand for the year ended December 31, 2015, compared to $3.6 million for the year ended December 31, 2014. Recoveries of $209 thousand were recognized in 2015 compared to $115 thousand in 2014.   The primary reason for the decrease in charge-offs and hence the decrease in the provision for loan losses during 2015 was primarily due to one commercial/hotel loan that was placed on nonaccrual status during the first quarter of 2014 that required an additional provision of $1.4 million to the reserve in 2014.  The collateral was sold at foreclosure during the third quarter of 2014, and the charge-off was taken in that period.  Another factor contributing to the lower provision was the continued improvement in our overall asset quality. 

The allowance for loan losses to gross loans held‑for‑investment was 0.43%, and the allowance for loan losses to non‑accrual loans was 83.31%, at December 31, 2015.  

Non‑Interest Income.  Non‑interest income totaled $6.8  million for the year ended December 31, 2015, anincrease of $888 thousand or 14.91% from the 2014 amount of $6.0 million. Non‑interest income for the years ended December 31, 2015 and 2014 are as follows:

	Years Ended December 31,
	2015		2014		$ Change		% Change
Service charges on deposit accounts	$	1,729,773	$	1,904,063	$	(174,290)	(9.15)	%
Gain on sales or calls of investment securities		65,222		129,911		(64,689)	(49.79)
Gain on the sale of stock		—		96,993		(96,993)	100.00
Earnings on bank owned life insurance		1,009,653		988,204		21,449	2.17
Pointer Ridge rent and other revenue		95,067		227,274		(132,207)	(58.17)
Gain (loss) on disposal of assets		14,128		(30,131)		44,259	(146.89)
Rental Income		841,075		800,174		40,901	5.11
Gain on the sale of loans		2,019,313		771,815		1,247,498	161.63
Other fees and commissions		1,070,764		1,068,621		2,143	0.20
Total non-interest income	$	6,844,995	$	5,956,924	$	888,071	14.91	%

Non‑interest income for the years ended December 31, 2015 and 2014 included fee income from service charges on deposit accounts, gain on sales or calls of investment securities, earnings on bank owned life insurance, gain or loss on disposal of assets, rental income, income on marketable loans and other fees and commissions including revenues with respect to Pointer Ridge.  Non-interest income for the year ended December 31, 2014 also included gain on the sale of stock.  The primary reason for the increase in non‑interest income during 2015 was an increase in income on marketable loans, offsetting decreases in service charges on deposit accounts, Pointer Ridge rent and other revenue, gain on the sale of stock and gain on sales or calls of investment securities.

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Income on marketable loans consists of gain on the sale of loans and, during 2015, any fees we receive in connection with such sales.  Income on marketable loans increased $1.2 million to $2.0 million for the year ending December 31, 2015 from $772 thousand for the year ending December 31, 2014, primarily due to gains recorded on the sale of marketable loans primarily as a result of an increased volume of sales.  The residential mortgage division sold $103.2 million of loans in the secondary market during 2015 compared to the sale of $54.3 million of loans during 2014.  The increase in production was driven primarily by the environment for refinancing and new mortgage loans.  There were no significant changes to our mortgage department, staffing or strategy.

The $174 thousand decrease in service charges on deposit accounts is due to lower overdraft and ATM fees during the year ended December 31, 2015 compared to the prior year. 

Pointer Ridge rent and other revenue decreased $132 thousand during 2015 compared to the prior year as a result of a tenant that vacated space during 2015 and the resulting loss of rent during a portion of 2015.  We are now using this space for Old Line Bank staff.  Therefore, we expect Pointer Ridge rent and other revenues to remain below 2014 levels going forward.

The decrease in the gain on the sale of stock was due to the sale our Sallie Mae equity security sold during 2014 period.  This was a one-time gain on the sale of Sallie Mae stock valued at approximately $262 thousandthat we acquired in the acquisition of MB&T.  Therefore, we had no similar gain during 2015 and do not expect to have such gains in future periods.

Gain on sales or calls of investment securities decreased during 2015 because we sold a lower dollar amount of securities during the year ending December 31, 2015 as compared to the prior year.  The gain of $65 thousand during 2015 represents calls on five municipal bonds and one agency security that matured during 2015 compared to the sale of approximately $27 million of investment securities for a gain of $130 thousand during 2014.  We sold securities in 2014 in order to reallocate our holdings in the investment portfolio and minimize future prepayment risk.  We acquired an approximately $24 million investment portfolio in the Regal Bancorp merger.  We sold the portfolio immediately following the closing of the transaction, resulting, therefore, in no impact on the income statement.  The proceeds from the sale were immediately reinvested in securities that better fit our target investment mix.

The $174 thousand decrease in service charges on deposit accounts is due to lower overdraft and ATM fees compared to the same twelve month period last year.

Other fees and commissions remained stable for the year compared to the same period last year. 

Rental income increased during the year ending December 31, 2015 as a result of the inclusion during 2015 of a full year of rent from a tenant who moved into vacant space at our building located at 4201 Mitchellville Road in Bowie, Maryland, during mid-2014.

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Non‑Interest Expenses.Non‑interest expense increased $1.2 million or 3.51% for the year ended December 31, 2015 compared to the year ended December 31, 2014. The following chart outlines the amounts of and changes in non‑interest expenses during 2015 and 2014.

	Years ended December 31,
	2015		2014		$ Change		% Change
Salaries and benefits	$	17,237,222	$	17,831,394	$	(594,172)	(3.33)	%
Occupancy and equipment		5,775,874		6,268,593		(492,719)	(7.86)
Data processing		1,432,182		1,340,875		91,307	6.81
FDIC insurance and State of Maryland assessments		966,982		912,208		54,774	6.00
Merger and integration		1,420,570		29,167		1,391,403	4770.47
Core deposit premium amortization		792,351		866,704		(74,353)	(8.58)
Pointer Ridge other operating		201,966		202,889		(923)	(0.45)
Loss (gain) on sale of other real estate owned		49,717		(697,875)		747,592	(107.12)
OREO expense		430,559		554,057		(123,498)	(22.29)
Director fees		651,500		482,498		169,002	35.03
Network Services		699,649		743,751		(44,102)	(5.93)
Telephone		659,934		667,095		(7,161)	(1.07)
Other operating		5,957,177		5,844,979		112,198	1.92
Total non-interest expenses	$	36,275,683	$	35,046,335	$	1,229,348	3.51	%

The increase in non-interest expenses in 2015 as compared to 2014 was mainly attributable to an increase in merger and integration expenses, a decrease in the gain on the sale of other real estate owned and, to a lesser extent, increases in director fees, other operating expenses and data processing expense, offsetting decreases in salaries and benefits and occupancy and equipment expenses.  Merger and integration expenses increased $1.4 million as a result of the acquisition of Regal Bancorp.  These expenses were primarily legal fees, investment banking fees and charges associated with the termination of Regal Bank’s core data processing contract.  Loss on the sale of other real estate owned was $50 thousand during the year ended December 31, 2015 compared to a gain of $698 thousand during 2014; we sold five foreclosed properties during 2015 compared to 13 foreclosed properties during 2014. The loss recognized during 2015 is primarily due to a loss of $170 thousand on five properties offsetting a gain of $120 thousand reflecting payments made on loans that still had amounts owing after they were foreclosed and the collateral properties sold in prior years.  The gain recognized during 2014 is primarily due to a gain of $807 thousand on nine properties offsetting a $109 thousand loss on four properties. We expect that the sale of these properties will reduce future legal and maintenance costs.

The 35.03% increase in director fees during the year ended December 31, 2015 compared to the year ended December 31, 2014 is primarily due to additional committees to enhance our internal controls as well as increased fees paid to the directors.

Data processing costs increased due to enhancements in our data processing environment.

Salaries and benefits decreased by $594 thousand, or 3.33%, during the year ended December 31, 2015 when compared to the year ended December 31, 2014 primarily as a result of severance payments in the 2014 period that were associated with merger-related staffing reductions from our acquisition of WSB Holdings, offsetting increases in the cost of health insurance benefits and increase due to salaries and benefits as a result of the Regal merger.

Occupancy and equipment expenses decreased $493 thousand or 7.86% during the year ended December 31, 2015 compared to 2014 primarily as a result of additional expenditures we incurred in 2014 in connection with the closure of four of our branches on December 31, 2014.  The closure of these branches resulted in $462 thousand in occupancy and equipment expenses during 2014.

Income Taxes.Income tax expense was $5.4 million (33.97% of pre‑tax income) for the year ended December 31, 2015 compared to $2.7 million (27.53% of pre‑tax income) for 2014.   Taxes were higher in 2015 period primarily because income increased and the percentage of income related to tax-exempt securities was lower as compared to the year ended December 31, 2014.

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Net Income Available to Common Stockholders.Net income available to common stockholders was $10.5 million or $0.98 per basic and $0.97 per diluted common share for the year ending December 31, 2015 compared to net income available to common stockholders of $7.1 million or $0.66 per basic and $0.65 per diluted common share for the year ended December 31, 2014. The increase in net income available to common stockholders for 2015 was primarily the result of the $4.9 million increase in net interest income, the $1.5 million decrease in the provision for loan losses and the $888 thousand increase in non-interest income, offsetting an increase of $1.3 million in non-interest expenses.  Net income included merger-related expenses of $1.4 million, ($1.2 million net of taxes, or $0.11 per basic and diluted share). Excluding the $1.4 million ($1.2 million net of taxes, or $0.11 per basic and diluted share) of merger-related expenses, earnings were $1.09 per basic and $1.08 per diluted share for the year ended December 31, 2015.

Comparison of Operating Results for the Years Ended December 31, 2014 and 2013

Net Interest Income.Net interest income before provision for loan losses for the year ended December 31, 2014 increased $1.6 million or 4.11% to $41.7 million from $40.1 million for the year ended December 31, 2013. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result of a decline in interest paid on interest bearing liabilities and growth in average interest earning assets, partially offset by a decrease in the average yield on interest earning assets. A continuing competitive rate environment and a low prime rate resulted in decreases in both the rate paid on interest bearing liabilities and the yield on interest earning assets.

We offset the effect on net interest income caused by the low rate environment primarily by growing total average interest earning assets $120.9 million or 13.07% to $1.0 billion for the year ended December 31, 2014 from $925.4 million for the year ended December 31, 2013.  The growth in average interest earning assets derived from a $133.4 million increase in average total loans,  offsetting a decrease of $11.8 million in average investment securities.  The growth in average interest bearing liabilities, which we used to fund the growth in interest earning assets that resulted in the growth in net interest income, resulted primarily from the $74.1 million increase in average interest bearing deposits, which increased to $766.0 million for the year ended December 31, 2014 from $691.8 million for the year ended December 31, 2013.

The growth in both average interest earning assets and average interest bearing deposits was primarily a result of the acquisition of WSB in May 2013, and we also saw strong organic growth in both interest earning assets and interest bearing deposits.

Our net interest margin was 4.15% for the year ended December 31, 2014 compared to 4.53% for the year ended December 31, 2013. The yield on average interest earning assets decreased 46 basis points during the 12‑month period from 4.98% for the year ended December 31, 2013 to 4.52% for the year ended December 31, 2014. This decrease was primarily due to lower accretion on acquired loans with credit marks and re-pricing in the loan portfolio and lower yields on new loans.  This decrease was partially offset by a 9 basis point decline in the rate paid on interest bearing liabilities.  The net effect of fair value accretion/amortization on acquired loans affects our net interest income.  The fair value accretion/amortization is recorded on paydowns during the period recognized and the fair value accretion on loans decreased to 3 basis points from 32 basis points in the prior year.  The net interest margin in 2013 benefited from a higher level of accretion on acquired loans due to early payoffs on acquired loans with credit marks.

The decline in the yield on interest bearing liabilities was the result of a decline in rates paid on savings and other time deposits as well as an improvement in the mix of interest bearing liabilities. The accretion of fair value adjustments on certificates of deposits acquired from MB&T and WSB also slightly reduced the yield paid on other time deposits.

Non‑interest bearing deposits are a primary source of funding for our investment and loan portfolios. These deposits allow us to fund growth in interest earning assets at minimal cost. This was also a significant contributor to the improvement in the net interest margin as it allowed us to increase our level of interest earning assets, which allowed us to increase interest income without a corresponding increase in interest bearing liabilities and interest expense.

Our average deposits increased during the twelve months ended December 31, 2014 primarily due to an increase in average interest bearing deposits, which increased $74.1 million to $766.0 million during the twelve months ended December 31, 2014 from $691.8 million during the twelve months ended December 31, 2013.  Our non-interest bearing

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deposits, which increased $28.6 million to $241.5 million during the twelve months ended December 31, 2014 from $212.9 million during the twelve months ended December 31, 2013.  The increase in our average deposits is primarily due to organic growth generated from our enhanced presence in our primary market and the surrounding areas as a result of our marketing efforts and continued efforts of our cash management and Financial Services Team.  To a lesser extent, the inclusion in the average of WSB’s deposits for a full year, compared to only eight months for the year ending December 31, 2013, also impacted the average balance of our deposits.

Provision for Loan Losses.Provision for loan losses totaled $2.8 million for the year ended December 31, 2014 an increase of $1.3 million, or 87.97% from the 2013 amount of $1.5 million.  Management identified probable losses in the loan portfolio and recorded charge‑offs of $3.6 million for the year ended December 31, 2014, compared to $820 thousand for the year ended December 31, 2013. Recoveries of $115 thousand were recognized in 2014 compared to $280 thousand in 2013.   The primary reason for the increase in charge-offs and hence the increase in the provision for loan losses during 2014 was a $2.7 million charge-off for one commercial/hotel loan that was sold at foreclosure in the third quarter of 2014.  This loss had been fully reserved for under a specific reserve for this impaired loan at June 30, 2014 and no additional loss was recognized.  This charge-off impacted our historical loss factors used to determine our allowance for loan losses. 

Following the $2.7 million charge-off during 2014, we refined the methodology we use to estimate our allowance for loan losses to segregate our hospitality loans, previously combined into one category, into three separate categories based on the type of properties and the charge-off was applied to our loss history in the specific hospitality category that it related to.  The result of this change in methodology was an increase in the general reserve portion of our allowance for loan losses, an increase mainly caused by the charge-off discussed above.  We believe that this revised methodology has, and will continue to, assist us in reserving at the proper allowance level going forward. 

The allowance for loan losses to gross loans held‑for‑investment was 0.46%, and the allowance for loan losses to non‑accrual loans was 82.23%, at December 31, 2014.

Non‑Interest Income.Non‑interest income totaled $6.0 million for the year ended December 31, 2014, a decrease of $2.9 million or 32.84% from the 2013 amount of $8.9 million. Non‑interest income for the years ended December 31, 2014 and 2013 are as follows:

	Years Ended December 31,
	2014		2013		$ Change		% Change
Service charges on deposit accounts	$	1,904,063	$	1,607,931	$	296,132	18.42	%
Gain on sales or calls of investment securities		129,911		641,088		(511,177)	(79.74)
Gain on the sale of stock		96,993		—		—	100.00
Earnings on bank owned life insurance		988,204		840,028		148,176	17.64
Pointer Ridge rent and other revenue		227,274		332,951		(105,677)	(31.74)
Gain (loss) on disposal of assets		(30,131)		(104,639)		74,508	(71.20)
Rental Income		800,174		753,643		46,531	6.17
Gain on the sale of loans		771,815		3,890,029		(3,118,214)	(80.16)
Other fees and commissions		1,068,621		909,151		159,470	17.54
Total non-interest income	$	5,956,924	$	8,870,182	$	(3,010,251)	(32.84)	%

Non‑interest income for the years ended December 31, 2014 and 2013 included fee income from service charges on deposit accounts, gain on sales or calls of investment securities, earnings on bank owned life insurance, loss on disposal of assets, rental income, gain on the sale of loans and other fees and commissions including revenues with respect to Pointer Ridge.  The primary reason for the decrease in non‑interest income was decreases in gain on the sale of loans and to a lesser extent in the gain on sale of investment securities, offsetting increases in service charges on deposit accounts, earnings on bank owned life insurance, rental income and other fees and commissions.

Gain on the sale of loans decreased $3.1 million to $772 thousand for the year ending December 31, 2014 from $3.9 million for the year ending December 31, 2013 due to the 2013 fourth quarter sale of impaired loans that we acquired

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in our previous mergers with MB&T and WSB, which resulted in a $3.4 million gain on the sale of loans.  Gain on the sale of loans also includes gains on the sale of residential mortgage loans sold in the secondary market.   The gain on sale of loans related to residential mortgage loans in the secondary market was $481 thousand for the year ending December 31, 2013.  The increase is due to a full year of mortgage operations in 2014 as the mortgage operations business was acquired in the WSB merger in May 2013.

Gain on sales or calls of investment securities decreased during 2014 because we sold a lower dollar amount of securities during the year ending December 31, 2014 as compared to the same twelve months of 2013.  We sold securities in 2014 and 2013 in order to reallocate our holdings in the investment portfolio and minimize future prepayment risk.  The sold securities in 2013 were primarily investments that were acquired in the WSB Holdings acquisition.

The $148 thousand increase in earnings on bank owned life insurance is the result of the full year of earnings on the approximately $13.0 million of bank owned life insurance acquired in the WSB Holdings merger in May 2013 compared to eight months of such earnings during 2013.  The $296 thousand increase in service charges on deposit accounts is due to the increase in our deposits.  Other fees and commissions increased $256 thousand in 2014 compared to 2013 primarily due to fees collected on our marketable loans and letter of credit fees.  Rental income increased as a result of the receipt of a full year of rent on space occupied by tenants at the office space located at 4201 Mitchellville Road, Bowie, Maryland that was acquired in the WSB Holdings merger, partially offset by there being less rentable space in this building as we utilized space that had previously been rented out.  Loss on the disposal of assets decreased for 2014 compared to 2013 as we disposed of certain assets in connection with the WSB merger in 2013 that we did not experience in 2014.Pointer Ridge rent and other revenue decreased $106 thousand as a result of space that was previously rented out and was vacated.   

We had a $97 thousand gain on the sale of stock during the year ended December 31, 2014.  We did not have any stock sales in 2013.  As noted above, this was a one-time gain on the sale of Sallie Mae stock valued at approximately $262 thousandthat we acquired in the acquisition of MB&T. 

Non‑Interest Expense.Non‑interest expense decreased $1.0 million or 2.86% for the year ended December 31, 2014 compared to the year ended December 31, 2013. The following chart outlines the changes in non‑interest expenses for the period.

	Years ended December 31,
	2014		2013		$ Change		% Change
Salaries and benefits	$	17,831,394	$	16,617,920	$	1,213,474	7.30	%
Occupancy and equipment		6,268,593		5,353,300		915,293	17.10
Data processing		1,340,875		1,422,771		(81,896)	(5.76)
FDIC insurance and State of Maryland assessments		912,208		777,474		134,734	17.33
Merger and integration		29,167		3,518,945		(3,489,778)	(99.17)
Core deposit premium amortization		866,704		838,694		28,010	3.34
Pointer Ridge other operating		202,889		203,232		(343)	(0.17)
Gain on sale of other real estate owned		(697,875)		(144,934)		(552,941)	381.51
OREO expense		554,057		838,429		(284,372)	(33.92)
Network Services		743,751		582,533		161,218	27.68
Telephone		667,095		564,164		102,931	18.24
Other operating		6,327,477		5,504,761		822,716	14.95
Total non-interest expenses	$	35,046,335	$	36,077,289	$	(1,030,954)	(2.86)	%

The reduction in non‑interest expenses in 2014 as compared to 2013 was mainly attributable to decreases in merger and integration expenses, and to a lesser extent, an increase in the gain on sale of other real estate owned (“OREO”), decreased OREO expense and a decrease in Pointer Ridge other operating expenses, offsetting the increases in salaries and benefits, occupancy and equipment, other operating expenses.  Merger and integration expenses decreased $3.5 million, or 99.17%, during the year ended December 31, 2014 compared to the same period in 2013 as a result of the expenses we incurred during 2013 in connection with the acquisition of WSB Holdings in May 2013, primarily related to

44

legal fees, investment banker fees and termination and de-conversion charges associated with the termination of WSB’s core data processing contract; the merger and integration expenses during 2014 were also related to the WSB merger.

Gain on the sale of other real estate owned was $698 thousand during the year ended December 31, 2014 compared to a gain of $145 thousand during 2013; we sold 13 foreclosed properties during 2014 compared to nine foreclosed properties during 2013. The gain recognized during 2014 is primarily due to a gain of $807 thousand on nine properties offsetting a $109 thousand loss on four properties.  The gain recognized during 2013 is primarily due to a gain of $384 thousand on five properties offsetting a $239 thousand loss on four properties.

Cost associated with OREO expense, which includes taxes, maintenance and insurance related to OREO properties, decreased $285 thousand in 2014 compared to the same period of the prior year due to fewer OREO properties in our portfolio as a result of the sales discussed above. 

Salaries and benefits increased by $1.2 million, or 7.30%, during the year ended December 31, 2014 when compared to the year ended December 31, 2013 primarily as a result of a full year of salaries and benefits for employees added in the WSB Holdings merger, as well as severance payments totaling $793 thousand due to the WSB Holdings merger and branch closings.  The cost of health insurance benefits also increased in 2014 compared to 2013 due to an  increase in insurance rates and such expenses for a full year in 2014 associated with the acquisition of WSB Holdings.

Occupancy and equipment expenses increased $915 thousand or 17.10% during the year ended December 31, 2014 compared to 2013 primarily as a result of $462 thousand incurred during 2014 as a result of expenses associated with the closing of four branches.

Other operating expenses increased $823 thousand during the year ended December 31, 2014 compared to the year ended December 31, 2013, primarily as a result of approximately $275 thousand in foreclosure expenses, $182 thousand in internal audit expense as a result of our increase in size and complexity as well as additional regulatory requirements and $76 thousand in marketing and advertising. In addition, FDIC insurance and State of Maryland assessments increased as a result of the increase in deposits.

Network services increased $161 thousand and telephone expense increased $103 thousand for the twelve months ending December 31, 2014 compared to the year ending December 31, 2013 due to a full year of such expenses in 2014 associated with the acquisition of WSB Holdings.

Income Taxes.Income tax expense was $2.7 million (27.53% of pre‑tax income) for the year ended December 31, 2014 compared to $3.6 million (31.74% of pre‑tax income) for 2013.   Taxes were lower in 2014 period primarily because income decreased and a higher exclusion of certain income related to tax-exempt interest on certain commercial real estate loans and bank owned life insurance (“BOLI”).

Net Income Available to Common Stockholders.  Net income available to common stockholders was $7.1 million or $0.66 per basic and $0.65 per diluted common share for the year ending December 31, 2014 compared to net income available to common stockholders of $7.8 million or $0.87 per basic and $0.86 per diluted common share for the same period in 2013. The decrease in net income available to common stockholders for 2014 was primarily the result of decreases of $2.9 million in non-interest income, offsetting the $320 thousand increase in net interest income after provision for loan losses and the decrease of $1.0 million in non-interest expenses.

Comparison of Financial Condition at December 31, 2015 and 2014

Investment Securities.Our portfolio consists primarily of time deposits in other banks, investment grade securities including U.S. Treasury securities, U.S. government agency securities, U.S. government sponsored entity securities, securities issued by states, counties and municipalities, mortgage backed securities (“MBS”), and certain equity securities (recorded at cost) Federal Home Loan Bank stock, Maryland Financial Bank stock, and Atlantic Central Bankers Bank stock and previously included Federal Reserve Bank stock.  On March 6, 2015, Old Line Bank, cancelled its stock in the Federal Reserve Bank of Richmond, which resulted in the redemption of the stock.

We have prudently managed our investment portfolio to maintain liquidity and safety. The portfolio provides a

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source of liquidity, collateral for borrowings as well as a means of diversifying our earning asset portfolio. While we usually intend to hold the investment securities until maturity, currently we classify all of our investment securities as available for sale. This classification provides us the opportunity to divest of securities that may no longer meet our liquidity objectives. We account for investment securities at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders’ equity, net of income tax effects. Although we will occasionally sell a security, generally, we invest in securities for the yield they produce and not to profit from trading the securities. We continually evaluate our investment portfolio to ensure it is adequately diversified, provides sufficient cash flow and does not subject us to undue interest rate risk. There are no trading securities in our portfolio.

The investment securities at December 31, 2015 amounted to $194.7 million, an increase of $33.0 million, or 20.43%, from the December 31, 2014 amount of $161.7 million. As outlined above, at December 31, 2015, all securities were classified as available for sale.  The increase is the result of continued efforts to diversify our balance sheet.  While we acquired an approximately $24 million in investment securities as a result of the Regal Bancorp merger, we sold the portfolio immediately following closing, resulting, therefore, in no impact on the securities portfolio at December 31, 2015.  We used the proceeds of this sale to purchase mortgage backed securities and municipal bonds to provide liquidity and cash flow to the portfolio.

The fair value of available for sale securities included net unrealized gains of $63 thousand at December 31, 2015 (reflected as unrealized gains of $38 thousand in stockholders’ equity after deferred taxes) as compared to net unrealized losses of $243 thousand ($147 thousand net of taxes) at December 31, 2014.  The improvement in the value of the investment securities is due to a decrease in market interest rates which resulted in an increase in bond values.  We have evaluated securities with larger unrealized losses not backed by the U.S. Government and unrealized losses for an extended period of time and determined that these losses are temporary and at this point in time, we expect to hold them until maturity. We have no intent or plan to sell these securities, it is not likely that we will have to sell these securities and we have not identified any portion of the loss that is a result of credit deterioration in the issuer of the security. As the maturity date moves closer and/or interest rates decline, any unrealized losses in the portfolio is expected to decline or dissipate.

The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available for sale securities are reported at estimated fair value.

December 31,	2015		2014		2013
Available For Sale Securities
U.S. Treasury	$	3,000,000	$	3,006,150	$	1,249,987
U.S. government agency		36,606,663		37,656,332		40,735,132
Municipal securities		50,202,706		43,546,161		59,266,635
Mortgage backed		100,282,637		71,477,098		63,830,194
SBA loan pools		4,613,669		5,994,457		7,087,828
Total Available for Sale Securities	$	194,705,675	$	161,680,198	$	172,169,776
Equity securities	$	4,942,346	$	5,811,697	$	5,669,807

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The following table shows the maturities for the securities portfolio at December 31, 2015:

					Over one year to five				Over five years to ten
	Less than 1 year				years				years				Over ten years				Total Securities
			Weighted				Weighted				Weighted				Weighted						Weighted
	Amortized		Avg.		Amortized		Avg.		Amortized		Avg.		Amortized		Avg.		Amortized		Fair		Avg.
	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield		Cost		Value		Yield
U.S. Treasury	$	2,999,978	2.95	%	$	—	0	%	$	—	—	%	$	—	—	%	$	2,999,978	$	3,000,000	2.95	%
U.S. government agency		—	—			36,461,479	1.40			—	—			413,325	2.00			36,874,804		36,606,662	1.41
Municipal securities		—	—			1,081,715	2.18			15,999,298	2.84			32,049,618	2.89			49,130,631		50,202,707	2.87
Mortgage-backed securities		—	—			500,752	4.41			2,197,539	3.09			98,255,912	2.13			100,954,203		100,282,637	2.22
SBA loan pools		—	—			—	—			—	—			4,682,975	1.40			4,682,975		4,613,669	1.40
Total	$	2,999,978	2.95	%	$	38,043,946	1.47	%	$	18,196,837	2.87	%	$	135,401,830	2.27	%	$	194,642,591	$	194,705,675	2.14	%

We have pledged U.S. government and municipal securities to customers who require collateral for overnight repurchase agreements and deposits. While we classify MBS based on the maturity date, the contractual maturities of these securities are not reliable indicators of their expected life because mortgage borrowers have the right to prepay mortgages at any time. Additionally, the issuer may call the callable agency securities listed above prior to the contractual maturity.The weighted average yield in the table above does not include tax equivalent computation on tax exempt obligations.

Loans.Net of allowance, unearned fees and origination costs, loans held for investment increased $220.5 million or 23.80% to $1.1 billion at December 31, 2015 from $926.6 million at December 31, 2014. Commercial real estate loans increased by $166.9 million, residential real estate loans by $49.2 million, and commercial and industrial loans by $7.5 million and consumer loans decreased $2.5 million from their respective balances at December 31, 2014. The loan growth during the year was primarily due to new originations within our surrounding market area, primarily in our commercial real estate and construction permanent loan portfolios, as well as our acquisition of approximately $91.3 million in loans in the Regal Bank acquisition.

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

We made certain reclassifications to the loan portfolio in 2013 and the below presents the current classification for 2015 and 2014.  Years ending December 31, 2012 and 2011 are presented to conform to the loan classifications at that time.

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Major classifications of loans held for investment are as follows:

	December 31, 2015						December 31, 2014
	Legacy(1)		Acquired		Total		Legacy(1)		Acquired		Total
Commercial Real Estate
Owner Occupied	$	193,909,818	$	57,212,598	$	251,122,416	$	192,723,718	$	27,891,137	$	220,614,855
Investment		298,434,087		57,749,376		356,183,463		208,766,058		41,624,825		250,390,883
Hospitality		91,440,548		10,776,561		102,217,109		76,342,916		8,319,644		84,662,560
Land and A&D		50,584,469		7,538,964		58,123,433		40,260,506		4,785,753		45,046,259
Residential Real Estate
First Lien-Investment		69,121,743		31,534,452		100,656,195		49,578,862		24,185,571		73,764,433
First Lien-Owner Occupied		37,486,858		52,204,717		89,691,575		31,822,773		51,242,355		83,065,128
Residential Land and A&D		35,219,801		6,578,950		41,798,751		22,239,663		8,509,239		30,748,902
HELOC and Jr. Liens		24,168,289		4,350,956		28,519,245		20,854,737		3,046,749		23,901,486
Commercial and Industrial		105,963,233		9,519,465		115,482,698		98,310,009		9,694,782		108,004,791
Consumer		6,631,311		243,804		6,875,115		9,068,755		313,739		9,382,494
		912,960,157		237,709,843		1,150,670,000		749,967,997		179,613,794		929,581,791
Allowance for loan losses		(4,821,214)		(88,604)		(4,909,818)		(4,261,835)		(20,000)		(4,281,835)
Deferred loan costs, net		1,274,533		—		1,274,533		1,283,455		(9,923)		1,273,532
	$	909,413,476	$	237,621,239	$	1,147,034,715	$	746,989,617	$	179,583,871	$	926,573,488
	December 31, 2013
	Legacy(1)		Acquired		Total
Commercial Real Estate	$	163,105,356	$	30,102,731	$	193,208,087
Owner Occupied		162,188,671		54,091,676		216,280,347
Investment		67,291,387		8,546,239		75,837,626
Hospitality		40,595,806		8,399,178		48,994,984
Land and A&D
Residential Real Estate		45,294,434		28,364,096		73,658,530
First Lien-Investment		13,909,939		62,247,502		76,157,441
First Lien-Owner Occupied		19,845,291		13,724,942		33,570,233
Residential Land and A&D		18,302,560		3,359,063		21,661,623
HELOC and Jr. Liens		89,629,043		11,161,347		100,790,390
Commercial and Industrial		10,127,525		870,843		10,998,368
Consumer		630,290,012		220,867,617		851,157,629
		(4,397,552)		(531,661)		(4,929,213)
Allowance for loan losses		1,021,167		(993)		1,020,174
Deferred loan costs, net	$	626,913,627	$	220,334,963	$	847,248,590

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	December 31, 2012						December 31, 2011
	Legacy(1)		Acquired		Total		Legacy		Acquired			Total
Real estate
Commercial	$	279,489,013	$	65,396,469	$	344,885,482	$	200,955,448	$	72,145,634	$	273,101,082
Construction		48,603,640		4,174,751		52,778,391		42,665,407		8,997,131		51,662,538
Residential		38,901,489		52,069,937		90,971,426		31,083,835		65,639,873		96,723,708
Commercial		88,306,302		10,070,234		98,376,536		90,795,904		16,329,991		107,125,895
Consumer		9,944,466		1,059,991		11,004,457		11,652,628		2,021,397		13,674,025
		465,244,910		132,771,382		598,016,292		377,153,222		165,134,026		542,287,248
Allowance for loan losses		(3,648,723)		(316,624)		(3,965,347)		(3,693,636)		(47,635)		(3,741,271)
Deferred loan costs, net		1,093,983		—		1,093,983		751,689		—		751,689
	$	462,690,170	$	132,454,758	$	595,144,928	$	374,211,275	$	165,086,391	$	539,297,666

(1) As a result of the acquisitions of Maryland Bankcorp, the parent company of MB&T, in April 2011, WSB Holdings, the parent company of WSB, in May 2013, and Regal Bancorp, the parent company of Regal Bank, in December 2015, we have segmented the portfolio into two components, loans originated by Old Line Bank (legacy) and loans acquired from MB&T,WSB and Regal Bank (acquired).

The following table presents the maturities or re‑pricing periods of loans outstanding at December 31, 2015:

	Loan Maturity Distribution at December 31, 2015
	1 year or less		1 - 5 years		After 5 years		Total
	(Dollars in thousands)
Commercial Real Estate:
Owner occupied	$	51,548,747	$	169,492,957	$	33,665,643	$	254,707,347
Investment		71,777,841		180,007,920		104,131,700		355,917,461
Hospitality		12,716,629		75,129,518		11,569,527		99,415,674
Land and A & D		23,179,008		33,123,674		2,714,827		59,017,509
Real Estate:
Residential First-Investment		19,769,618		60,333,114		21,822,879		101,925,611
Residential First-Owner Occupied		7,263,499		13,101,159		67,431,053		87,795,711
Residential—Land and A&D		28,175,229		11,699,149		2,585,082		42,459,460
HELOC and Jr. Liens		27,437,068		1,188,109		242,891		28,868,068
Commercial		52,392,265		49,123,253		12,193,579		113,709,097
Consumer		681,949		1,626,500		4,545,613		6,854,062
Total Loans	$	294,941,853	$	594,825,353	$	260,902,794	$	1,150,670,000
Fixed Rates	$	33,021,111	$	121,423,889	$	210,774,585	$	365,219,585
Variable Rates		261,920,742		473,401,464		50,128,209		785,450,415
Total Loans	$	294,941,853	$	594,825,353	$	260,902,794	$	1,150,670,000

Bank owned life insurance.We have invested $36.6 million in life insurance policies on our executive officers, other officers of Old Line Bank, retired officers of MB&T and former officers of WSB and Regal Bank at December 31, 2015.  The BOLI investment increased $5.2 million during 2015 primarily due to $4.3 million of BOLI acquired in the Regal Bancorp acquisition. We anticipate that the earnings on these policies will help offset our employee benefit expenses as well as our obligations under our Salary Continuation Agreements and Supplemental Life Insurance Agreements that we entered into with our executive officers in January 2006 as well as that MB&T and WSB had entered into with their executive officers.  During 2015, the cash surrender value of the BOLI policies increased by $867 thousand as a result of earnings on these policies.  There are no post‑retirement death benefits associated with the BOLI policies owned by Old Line Bank prior to the acquisitions of MB&T, WSB and Regal.  We have accrued a $229 thousand liability associated with the post-retirement death benefits of the BOLI policies acquired from MB&T and there are no such benefits related to the BOLI policies acquired from WSB or Regal Bank.

Other real estate owned.As a result of the acquisitions of MB&T, WSB and Regal Bank, we have segmented the OREO into two components, real estate obtained as a result of loans originated by Old Line Bank (legacy) and other real estate acquired from MB&T, WSB and Regal Bank or obtained as a result of loans originated by MB&T, WSB and Regal Bank (acquired). We are currently aggressively either marketing these properties for sale or improving them in

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preparation for sale.  During the year ended December 31, 2015, we sold five properties and recorded a net loss on these sales of $50 thousand.

The following outlines the transactions in OREO during 2015.

December 31, 2015	Legacy		Acquired		Total
Beginning balance	$	475,291	$	1,976,629	$	2,451,920
Transferred in		—		820,725		820,725
Acquired from Regal Bank		—		808,150		808,150
Write down in value		(50,291)		(94,875)		(145,166)
Sales/deposits on sales		—		(1,413,868)		(1,413,868)
Net realized (loss) gain		—		(49,717)		(49,717)
Total end of period	$	425,000	$	2,047,044	$	2,472,044

Goodwill and Core Deposit Intangible.At December 31, 2015, goodwill was $9.8 million and consisted of $633,790 related to the MB&T acquisition in April 2011, $7.2 million related to the WSB acquisition in May 2013, and $2.0 million related to the Regal Bank acquisition in December 2015. As a result of the acquisitions of MB&T, WSB and Regal Bank, we recorded core deposit intangibles of $8.2 million. This amount represented the premium that we paid to acquire MB&T, WSB and Regal Bank’s core deposits over the fair value of such deposits. We are amortizing MB&T’s core deposit intangible on an accelerated basis over its estimated useful life of 18 years, WSB’s over its estimated useful life of ten years and Regal Bank’s over its estimated useful life of eight years. The core deposit intangible was $4.4 million at both December 31, 2015 and 2014.

Deposits.At December 31, 2015, the deposit portfolio had increased to $1.2 billion, a $220.1 million or 21.68% increase over the December 31, 2014 level of $1.0 billion. The increase includes $104.0 million in deposits acquired as a result of the Regal Bank acquisition.  Non‑interest bearing deposits increased $67.6 million during the year to $328.5 million from $260.9 million at December 31, 2014.  Interest bearing deposits increased $152.5 million to $907.3 million at December 31, 2015 from $754.8 million at December 31, 2014.  Our interest-bearing non-maturity deposits increased $57.9 million and our time deposits increased by $94.6 million during 2015.  These increases are due to the deposits acquired from Regal Bank and our enhanced presence in our market area and surrounding areas as a result of our marketing efforts and the continued efforts of our cash management and financial services teams.  The following table outlines the growth in interest bearing deposits during 2015:

	December 31,		December 31,
	2015		2014		$ Change		% Change
	(Dollars in thousands)
Certificates of deposit	$	443,463	$	348,900	$	94,563	27.10	%
Interest bearing checking		367,239		315,796		51,443	16.29
Savings		96,629		90,130		6,499	7.21
Total	$	907,331	$	754,826	$	152,505	20.20	%

We acquired brokered money market and certificate of deposits through the Promontory Interfinancial Network (Promontory). Through this deposit matching network and its certificate of deposit account registry service (CDARS) and money market account service, we have the ability to offer our customers access to FDIC‑ insured deposit products in aggregate amounts exceeding current insurance limits. When we place funds through Promontory on behalf of a customer, we receive matching deposits through the network’s reciprocal deposit program. We can also place deposits through this network without receiving matching deposits. At December 31, 2015, we had $43.5 million in CDARS and $97.0 million in money market accounts through Promontory’s reciprocal deposit program compared to $40.6 million and $85.3 million, respectively, at December 31, 2014.  

We currently have $14.0 million in brokered certificates of deposit that we acquired in the WSB acquisition. Old Line Bank did not obtain any additional brokered certificate of deposits during the year ended December 31, 2015.  We

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expect that we will continue to use brokered deposits as an element of our funding strategy when required to maintain an acceptable loan to deposit ratio.

The following is a summary of the maturity distribution of certificates of deposit as of December 31, 2015.

	Certificate of Deposit Maturity Distribution
	December 31, 2015
			Three Months
	Three Months		to		Over
	or		Twelve		Twelve
	Less		Months		Months		Total
	(Dollars in thousands)
Certificates of deposit
Time Certificates of deposit $100,000 or more	$	19,488	$	67,842	$	147,340	$	234,670
Other time deposits of $100,000 or more		19,989		22,193		—		42,182
Total	$	39,477	$	90,035	$	147,340	$	276,852

Borrowings.Our borrowings consist of unsecured short‑term promissory notes, securities sold under agreements to repurchase, a long‑term senior note, trust preferred subordinated debentures assumed in the Regal merger, and, from time to time, advances from the Federal Home Loan Bank of Atlanta (FHLB). At December 31, 2015, borrowings totaled $118.1 million, an increase of $51.1 million from December 31, 2014. The increase was primarily due to FHLB fixed rate advances.  The borrowings were used to fund new loan originations.

The following is a summary of our short‑term and long‑term borrowings at December 31, 2015, 2014 and 2013:

	December 31, 2015
					Maximum				Average
			Weighted		Amount				Interest
			Average		Outstanding at		Average		Rate
	Balance at End		Interest		Any Month		Balance		During
	of Year		Rate		End		During Year		Year
Short-term borrowings
Short-term promissory notes	$	—	—	%	$	—	$	—	—	%
Repurchase agreements		33,557,246	0.17			33,557,246		29,038,197	0.17
FHLB daily rate advance		34,000,000	0.49			64,000,000		18,756,567	0.38
FHLB adjustable rate advances		3,000,000	0.38			2,500,000		504,734	0.36
FHLB  fixed rate advances		37,000,000	0.39			87,500,000		47,059,726	0.21
Total short-term borrowings		107,557,246				187,557,246		95,359,224
Long-term borrowings
Senior note, fixed at 6.28%		5,874,560	6.28			5,978,771		5,926,602	6.28
Subordinated Debentures
Trust 1 - Floating 90-day LIBOR plus 2.85%, due 2034		4,000,000	3.18
Acquisition fair value adjustment		(1,647,400)
Trust 2 - Floating 90-day LIBOR plus 1.60%, due 2035		2,500,000	1.94
Acquisition fair value adjustment		(1,335,842)
Stock on subordinated debentures		202,000
Net carrying value		3,718,758	2.71			3,716,838		285,127	2.35
Total long-term borrowings	$	9,593,318				9,695,609		6,211,729
Total borrowings	$	117,150,564			$	197,252,855	$	101,570,953

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	December 31, 2014
					Maximum				Average
			Weighted		Amount				Interest
			Average		Outstanding at		Average		Rate
	Balance at End		Interest		Any Month		Balance		During
	of Year		Rate		End		During Year		Year
Short-term borrowings
Short-term promissory notes	$	—	—	%	$	8,272,074	$	4,104,963	0.13	%
Repurchase agreements		27,502,889	0.19			37,841,441		31,144,877	0.25
FHLB daily rate advance		33,500,000	0.36			45,000,000		4,250,137	0.36
FHLB advances		—	—			—		—	—
Total short-term borrowings		61,002,889				91,113,515		39,499,977
Long-term borrowings
Senior note, fixed at 6.28%		5,987,283	6.28			6,085,134		6,038,527	6.28
Total long-term borrowings		5,987,283				6,085,134		6,038,527
Total borrowings	$	66,990,172			$	97,198,649	$	45,538,504

	December 31, 2013
					Maximum				Average
			Weighted		Amount				Interest
			Average		Outstanding at		Average		Rate
	Balance at End		Interest		Any Month		Balance		During
	of Year		Rate		End		During Year		Year
Short-term borrowings
Short-term promissory notes	$	7,773,704	0.15	%	$	7,773,704	$	6,435,181	0.15	%
Repurchase agreements		29,756,421	0.10			31,784,710		25,940,598	0.10
FHLB daily rate advance		12,000,000	0.35			21,750,000		4,144,032	0.37
FHLB advances		—	—			—		1,387,349	3.02
Total short-term borrowings		49,530,125				61,308,414		37,907,160
Long-term borrowings
Senior note, fixed at 6.28%		6,093,074	6.28			6,184,947		6,139,058	6.28
Total long-term borrowings		6,093,074				6,184,947		6,139,058
Total borrowings	$	55,623,199			$	67,493,361	$	44,046,218

The Bank previously sold short term promissory notes to its customers. These notes re‑priced daily and had maturities of 270 days or less. This program terminated in 2014.  Short‑term borrowings from the FHLB have a remaining maturity of less than one year.

The senior note listed under long‑term borrowings is an obligation of Pointer Ridge. It has a ten‑year fixed interest rate of 6.28% and matures on September 5, 2016.

We acquired a trust preferred subordinated debentures totaling $3.7 million (net of $2.9 million fair value adjustment)  at December 31, 2015 as a result of the Regal Bancorp acquisition.  The trust preferred subordinated debentures, acquired in the Regal acquisition, consists of two trusts - Trust 1 in the amount of $4.0 million (fair value adjustment of $1.6 million) maturing on March 17, 2034 and Trust 2 in the amount of $2.0 (fair value adjustment of $1.3 million) maturing on December 14, 2035.

Old Line Bancshares has available a $5.0 million unsecured line of credit. In addition, Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks, totaling $33.5 million at December 31, 2015 and December 31, 2014. Old Line Bank has an additional secured line of credit from the FHLB of $397.3 million at December 31, 2015. As a condition of obtaining the line of credit from the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB. Prior to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line Bank provide collateral to support borrowings. Therefore, we have provided FHLB collateral to support up to $160.7 million of borrowings. We may increase availability by providing additional collateral.

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Stockholders’ equity.Our stockholders’ equity amounted to $144.0 million at December 31, 2015 and $135.5 million at December 31, 2014. We are considered “well capitalized” under the risk‑based capital guidelines adopted by the Federal Reserve Board. Stockholders’ equity increased during 2015 primarily due to the $10.5 million of net income available to common stockholders, the issuance of $418 thousand of stock based compensation awards, $815 thousand in proceeds from the exercise of stock options and an increase in after tax unrealized losses of $185 thousand on available for sale securities.  These items were partially offset by the $2.2 million paid in dividends on our common stock, $5.3 million expended to repurchase shares of our common stock and the issuance of $4.1 million of common stock in the Regal Bancorp acquisition during 2015. 

Asset Quality

Overview.Management performs reviews of all delinquent loans and directs relationship officers to work with customers to resolve potential credit issues in a timely manner. Management reports to the Loan Committee for their approval and recommendation to the Board of Directors on a monthly basis. The reports presented include information on delinquent loans and foreclosed real estate. We have formal action plans on criticized assets and provide status reports on OREO on a quarterly basis. These action plans include our actions and plans to cure the delinquent status of the loans and to dispose of the foreclosed properties. The Loan Committee consists of four non-employee directors and four executive officers.  Management generally classifies loans as non‑accrual when it does not expect collection of full principal and interest under the original terms of the loan or payment of principal or interest has become 90 days past due. Classifying a loan as non‑accrual results in our no longer accruing interest on such loan and reversing any interest previously accrued but not collected. We will generally restore a non‑accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non‑accrual loans only when received.

Substandard loans generally represent assets inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets have a well‑defined weakness, or weaknesses, that jeopardize liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss if deficiencies are not corrected. Special mentioned loans generally represent currently protected, but potentially weak assets that deserve management’s close attention. If left uncorrected, the potential weaknesses may, at some future date, result in deterioration of the repayment prospects for the loan. Special mention loans constitute an unwarranted credit risk, but do not expose Old Line Bank to sufficient risk to warrant adverse classification.

We classify loans as troubled debt restructurings (TDRs) when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. We only restructure loans for borrowers in financial difficulty that have presented a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation.

Loans on non‑accrual status at the date of modification are initially classified as non‑accrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as non‑accrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

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

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

Potential problem loans are loans that management has serious doubts as to the ability of the borrowers to comply with present repayment terms. Management has identified additional potential problem loans classified as TDRs totaling $712 thousand that are complying with their repayment terms, which are all acquired loans. Management has concerns either about the ability of the borrower to continue to comply with repayment terms because of the borrower’s potential operating or financial difficulties or the underlying collateral has experienced a decline in value. These weaknesses have caused management to heighten the attention given to these loans.

We individually evaluate all acquired loans that we risk rated substandard subsequent to the acquisition, certain acquired special mention loans and all acquired TDRs for impairment. We also evaluate all loans acquired and recorded at fair value under ASC 310‑30 for impairment.

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

We recorded at fair value the loans acquired from MB&T in 2011, from WSB in 2013 and from Regal Bank on December 4, 2015.  The fair value of the acquired loans includes expected loan losses, and as a result there was no allowance for loan losses recorded for acquired loans at the time of acquisition. Accordingly, the existence of the acquired loans reduces the ratios of the allowance for loan losses to total gross loans and the allowance for loan losses to non‑accrual loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge offs are normally lower for acquired loans since we recorded these loans net of expected loan losses. Therefore, the ratio of net charge offs during the period to average loans outstanding is reduced as a result of the existence of acquired loans, and the measures are not directly comparable to prior periods. Other institutions may not have acquired loans, and therefore there may be no direct comparability of these ratios between and among other institutions when compared in total.

The accounting guidance also requires that if we experience a decrease in the expected cash flows subsequent to the acquisition date, we establish an allowance for loan losses for those acquired loans with decreased cash flows. At December 31, 2015 and 2014, there was an allowance for loan losses on acquired loans of $88 thousand and $20 thousand, respectively, as a result of a decrease in the expected cash flows subsequent to the acquisition dates.

Nonperforming Assets.  AtDecember 31, 2015, our nonperforming assets totaled $8.5 million and consisted of $5.9 million of non‑accrual loans, $129 thousand of loans 90 days or more past due and still accruing and other real estate

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owned of $2.5 million. The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

	Nonperforming Assets
	December 31, 2015						December 31, 2014						December 31, 2013
	Legacy		Acquired		Total		Legacy		Acquired		Total		Legacy		Acquired		Total
Accruing loans 90 or more days past due
Commercial Real Estate
Owner Occupied	$	—	$	—	c	—	$	—	$	305,323	$	305,323	$	—	$	309,767	$	309,767
Residential Real Estate:
First-Investment		—		—		—		—		—		—		—		—		—
First-Owner Occupied		—		—		—		—		—		—		—		429,144		429,144
Land and A&D		—		128,938		128,938		—		—		—		—		915,649		915,649
Consumer		—		499		499		—		—		—		—		—		—
Total accruing loans 90 or more days past due		—		129,437		129,437		—		305,323		305,323		—		1,654,560		1,654,560
Non-accrued loans:
Commercial Real Estate
Owner Occupied		2,474,813		—		2,474,813		1,849,685		55,707		1,905,392		1,849,685		—	$	1,849,685
Investment		—		64,447		64,447		—		—		—		—		376,050		376,050
Hospitality		—				—		—		—		—		4,473,345		—		4,473,345
Land and A&D		—		261,700		261,700		—		795,300		795,300		—		—		—
Residential Real Estate:
First-Investment		102,443		580,696		683,139		113,264		310,735		423,999		123,183		—		123,183
First-Owner Occupied		—		566,701		566,701		—		795,920		795,920		925,814		156,143		1,081,957
Land and A&D		—		—		—		—		—		—		—		130,532		130,532
Commercial		1,842,819		—		1,842,819		1,165,955		—		1,165,955		769,597		—		769,597
Consumer		—		—		—		120,641		—		120,641		14,426		—		14,426
Total non-accrued past due loans:		4,420,075		1,473,544		5,893,619		3,249,545		1,957,662		5,207,207		8,156,050		662,725		8,818,775
Other real estate owned (“OREO”)		425,000		2,047,044		2,472,044		475,291		1,976,629		2,451,920		475,291		3,836,051		4,311,342
Total non performing assets	$	4,845,075	$	3,650,025	$	8,495,100	$	3,724,836	$	4,239,614	$	7,964,450	$	8,631,341	$	6,153,336	$	14,784,677
Accruing Troubled Debt Restructurings
Residential Real Estate:
First-Owner Occupied	$	—	$	631,777	$	631,777	$	—	$	505,250	$	505,250	$	—	$	579,583	$	579,583
Commercial		—		79,574		79,574		—		83,261		83,261		—		87,387		87,387
Total Accruing Troubled Debt Restructurings	$	—	$	711,351	$	711,351	$	—	$	588,511	$	588,511	$	—	$	666,970	$	666,970

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	Nonperforming Assets
	December 31, 2012						December 31, 2011
	Legacy		Acquired		Total		Legacy		Acquired		Total
Accruing loans 90 or more days past due
Consumer	$	—	$	6,410	$	6,410	$	34,370	$	—	$	34,370
Total accruing loans 90 or more days past due		—		6,410		6,410		34,370		—		34,370
Non-accruing loans:
Commercial Real Estate:
Owner Occupied		—		771,190		771,190		—		2,288,900		2,288,900
Land and A&D		351,276		200,000		551,276		—		—		—
Residential Real Estate:
First Investment		138,708		925,696		1,064,404		—		—		—
First Owner-Occupied		453,165		1,818,051		2,271,216		1,169,337		2,204,088		3,373,425
Land and A&D		—		341,624		341,624		—		—		—
Commercial		874,735		35,392		910,127		77,975		90,039		168,014
Consumer		—		—		—		—		—		—
Total Non-accruing past due loans:		1,817,884		4,091,953		5,909,837		1,247,312		4,583,027		5,830,339
Other real estate owned (“OREO”)		1,651,228		2,068,221		3,719,449		1,871,832		2,132,777		4,004,609
Total non-performing assets	$	3,469,112	$	6,166,584	$	9,635,696	$	3,153,514	$	6,715,804	$	9,869,318
Accruing Troubled Debt Restructurings
Residential Real Estate:
First Owner-Occupied	$	499,122	$	604,326	$	1,103,448	$	5,037,879	$	—	$	5,037,879
Commercial		—		90,748		90,748		—		—		—
Consumer		—		—		—		142,671		154,088		296,759
Total Accruing Troubled Debt Restructurings	$	499,122	$	695,074	$	1,194,196	$	5,180,550	$	154,088	$	5,334,638

The table below reflects our ratios of our non‑performing assets at December 31, 2015 and 2014.

	December 31,
	2015		2014
Ratios, Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	0.55	%	0.40	%
Total nonperforming assets as a percentage of total assets	0.53	%	0.30	%
Total nonperforming assets as a percentage of total loans held for investment	0.55	%	0.38	%
Ratios, Including Acquired Assets
Total nonperforming assets as a percentage of total loans held for investment and OREO	0.80	%	0.85	%
Total nonperforming assets as a percentage of total assets	0.61	%	0.65	%
Total nonperforming assets as a percentage of total loans held for investment	0.80	%	0.86	%

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The table below outlines loans on non‑accrual status by loan category at December 31, 2015 and 2014:

	December 31, 2015							December 31, 2014
		Unpaid				Interest			Unpaid
	# of	Principal		Recorded		Not		# of	Principal		Recorded		Interest Not
	Contracts	Balance		Investment		Accrued		Contracts	Balance		Investment		Accrued
Legacy
Commercial Real Estate:
Owner Occupied	3	$	2,474,813	$	2,474,813	$	7,096	1	$	1,849,685	$	1,849,685	$	—
Residential Real Estate
First-Investment	—		102,443		102,443		—	1		113,264		113,264		—
First-Owner Occupied	—		—		—		—	—		—		—		—
Commercial	24		1,842,819		1,842,819		5,768	3		1,165,955		1,165,955		—
Consumer	1		—		—		—	1		120,641		120,641		3,934
Total non-accrual loans	28		4,420,075		4,420,075		12,864	6		3,249,545		3,249,545		3,934
Acquired(1)
Commercial Real Estate:
Owner Occupied	—		—		—		20,887	1		48,359		55,707		178,434
Investment	—		—		—		—	—		—		—		—
Land and A & D	1		267,113		261,700		7,442	3		1,532,904		795,300		89,026
Residential Real Estate
First-Investment	5		542,547		468,156		59,207	3		311,089		310,735		119,616
First-Owner Occupied	3		754,408		743,688		—	4		830,949		795,920		32,592
Total non-accrual loans	9	$	1,564,068	$	1,473,544	$	87,536	11	$	2,723,301	$	1,957,662	$	419,668
Total all non-accrual loans	37	$	5,984,143	$	5,893,619	$	100,400	17	$	5,972,846	$	5,207,207	$	423,602

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

Nonperforming legacy loans at December 31, 2015 increased $1.2 million from December 31, 2014 primarily because of loans to one large commercial borrower, consisting of two commercial real estate loans totaling $2.5 million and 21 commercial and industrial loans totaling $1.0 million, becoming nonperforming.  These loans are classified as impaired and have been adequately reserved for at December 31, 2015.

Nonperforming acquired loans at December 31, 2015 decreased $484 thousand from December 31, 2014 primarily due to two commercial land and acquisition and development loans moving out of the nonperforming loans category. 

The balance of OREO at December 31, 2015 increased $20 thousand from the balance at December 31, 2014, remaining at $2.5 million. Legacy OREO consists of one property which had an additional write down of $50 thousand applied during the third quarter of 2015.  Acquired OREO increased $70 thousand due to the transfer of six loans for a total of $820 thousand, partially offset by the sale of five acquired OREO properties for $1.3 million during the twelve month period ended December 31, 2015.  As a result of the Regal Bancorp acquisition, we acquired three additional OREO properties for a total of $808 thousand that is included in acquired real estate owned at December 31, 2015.

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Delinquent Loans.  The tables below present a breakdown of the recorded book balance of past due loans at December 31, 2015 and 2014:

	Past Due Loans
	Recorded Book Balance
	December 31, 2015						December 31, 2014
	Legacy		Acquired		Total		Legacy		Acquired		Total
Accruing past due loans:
30 - 89 days past due
Commercial Real Estate
Owner Occupied	$	—	$	—	$	—	$	—	$	—	$	—
Investment		—		—		—		—		572,565		572,565
Residential Real Estate:
First-Investment		—		—		—		297,221		189,739		486,960
First-Owner Occupied		—		—		—		—		1,423,752		1,423,752
Land and A&D		—		—		—		—		168,875		168,875
HELOC and Jr. Liens		—		—		—		—		87,703		87,703
Commercial		—		128,938		128,938		45,483		1,167,538		1,213,021
Consumer		—		499		499		—		9,308		9,308
Total 30 - 89 days past due		—		129,437		129,437		342,704		3,619,480		3,962,184
90 or more days past due
Commercial Real Estate
Owner Occupied		2,474,813		—		2,474,813		—		305,323		305,323
Land and A&D		—		261,700		261,700
Investment				64,447		64,447
Residential Real Estate:
First-Investment		102,443		580,696		683,139		—		—		—
First-Owner Occupied		—		566,701		566,701		—		—		—
Land and A&D		—				—		—		—		—
Commercial		1,842,819		—		1,842,819		—		—		—
Total 90 or more days past due		4,420,075		1,473,544		5,893,619		—		305,323		305,323
Total accruing past due loans	$	4,420,075	$	1,602,981	$	6,023,056	$	342,704	$	3,924,803	$	4,267,507

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

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

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In the event that our review of the adequacy of the allowance results in any unallocated amounts, we reallocate such amounts to our loan categories based on the percentage that each category represents to total gross loans. We have risk management practices designed to ensure timely identification of changes in loan risk profiles. However, undetected losses inherently exist within the portfolio. We believe that the allocation of the unallocated portion of the reserve in the manner described above is appropriate. Although we may allocate specific portions of the allowance for specific credits or other factors, the entire allowance is available for any credit that we should charge off. We will not create a separate valuation allowance unless we consider a loan impaired.

The loans classified in our held‑for‑sale portfolio consists of loans that have been committed to be purchased by investors in the secondary market at the balance sheet date and will be settled subsequent to that date. Only loans purchased by investors with recourse obligations are included in other liabilities.

We categorize loans as residential real estate loans, commercial real estate loans, commercial loans and consumer loans. We further divide commercial real estate loans by owner occupied, investment, hospitality and land acquisition and development. We also divide residential real estate by owner occupied, investment, land acquisition and development and junior liens. We evaluate delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with collateral separately and assign loss amounts based upon the evaluation.

All loan categories are divided by risk rating and loss factors and weighted by risk rating to determine estimated loss amounts.

Within each of the above loan categories, each portfolio is sorted by the risk assessment rating of each loan as Pass, Pass‑Watch, Special Mention or Substandard.

The Bank’s loss experience by category for each of the last 12 quarters is aggregated and that total is used to create a percentage of the loan portfolio as it existed at the beginning of the 12 quarter “look back.”The Bank’s loss experience (Loss Factor) is progressively tiered by risk category for Pass, Pass‑Watch, Special Mention and Substandard loans by applying a higher loss factor to higher risk rated categories. Loans rated “Doubtful” or “Loss” are, by definition, impaired and will be specifically reserved based upon Bank management’s best estimate of the loss exposure for each loan.

 Qualitative factors include: levels and trends in delinquencies and non‑accruals; trends in volumes and terms of loans; effects of any changes in lending policies; the experience, ability and depth of management; regional and local economic trends and conditions; peer group loan loss history; concentrations of credit; quality of Old Line Bank’s loan review system; external factors, such as competition, legal and regulatory requirements; and management’s collective assessment of the appropriateness of the allowance for loan losses in light of recent trends, events, political impact and other considerations.

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015, 2014, 2013, 2012 and 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.   During 2013, the loan segments were changed to align with our new allowance methodology, which resulted in balance transfers from prior loan categories and assignment to each new loan segment. 

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

			Commercial		Residential		Other
December 31, 2014	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	495,051	$	3,569,395	$	841,234	$	23,533	$	4,929,213
General provision for loan losses		206,558		1,668,877		843,810		108,052		2,827,297
Recoveries		12,342		122		75,149		27,319		114,932
		713,951		5,238,394		1,760,193		158,904		7,871,442
Loans charged off		(17,580)		(2,680,026)		(833,198)		(58,803)		(3,589,607)
Ending Balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	159,040	$	—	$	—	$	56,500	$	215,540
Other loans not individually evaluated		537,331		2,558,368		906,995		43,601		4,046,295
Acquired Loans:
Individually evaluated for impairment		—		—		20,000		—		20,000
Ending balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835

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

	Real						Other
December 31, 2012	Estate		Commercial		Boats		Consumer		Total
Beginning balance	$	2,123,068	$	922,310	$	565,240	$	130,653	$	3,741,271
Provision for loan losses		1,056,287		(181,118)		(224,359)		40,007		690,817
Provision for loan losses for loans acquired with deteriorated credit quality		584,928		249,255		—		—		834,183
Recoveries		32,636		82,260		—		107,260		222,156
		3,796,919		1,072,707		340,881		277,920		5,488,427
Loans charged off		(970,335)		(316,753)		(91,953)		(144,039)		(1,523,080)
Ending Balance	$	2,826,584	$	755,954	$	248,928	$	133,881	$	3,965,347
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	125,000	$	—	$	—	$	—	$	125,000
Other loans not individually evaluated		2,384,960		755,954		248,928		133,881		3,523,723
Acquired Loans:
Individually evaluated for impairment		316,624		—		—		—		316,624
Ending balance	$	2,826,584	$	755,954	$	248,928	$	133,881	$	3,965,347

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	Real						Other
December 31, 2011	Estate		Commercial		Boats		Consumer		Total
Beginning balance	$	1,748,122	$	417,198	$	294,723	$	8,433	$	2,468,476
Provision for loan losses		967,036		303,839		317,778		130,544		1,719,197
Provision for loan losses for loans acquired with deteriorated credit quality		—		80,803		—		—		80,803
Recoveries		13,701		154,523		—		66,834		235,058
		2,728,859		956,363		612,501		205,811		4,503,534
Loans charged off		(605,791)		(34,053)		(47,261)		(75,158)		(762,263)
Ending Balance	$	2,123,068	$	922,310	$	565,240	$	130,653	$	3,741,271
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	175,118	$	77,976	$	70,000	$	—	$	323,094

The following table provides our ratio of allowance for loan losses:

	At December 31,
	2015		2014		2013		2012		2011
Ratio of allowance for loan losses to:
Total gross loans held for investment	0.43	%	0.46	%	0.58	%	0.66	%	0.69	%
Non-accrual loans	83.31	%	82.23	%	60.71	%	67.10	%	64.17	%
Net charge-offs to average loans	0.07	%	0.39	%	0.07	%	0.23	%	0.11	%

The following tables provide a breakdown of the allowance for loan losses. The loan portfolio prior to 2013 waslabeled in different loan categories, of which were changed to align with our revised 2013 allowance methodology which resulted in balance transfers from prior loan categories and assigned to each new loan segment.

	Allocation of Allowance for Loan Losses
	December 31, 2015				December 31, 2014				December 31, 2013
			% of Loans				% of Loans				% of Loans
			in Each				in Each				in Each
	Amount		Category		Amount		Category		Amount		Category
Commercial	$	1,161,318	10.04	%	$	696,371	11.62	%	$	495,051	11.34	%
Commercial Real Estate		3,053,925	66.71			2,558,368	64.62			3,569,395	62.78
Residential Real Estate		682,962	22.65			926,995	22.75			841,234	24.09
Consumer		11,613	0.60			100,101	1.01			23,533	1.29
Total	$	4,909,818	100.00	%	$	4,281,835	100.00	%	$	4,929,213	100.00	%

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	Allocation of Allowance for Loan Losses
	December 31,
	2012				2011
			% of				% of
			Loans				Loans
			in Each				in Each
	Amount		Category		Amount		Category
Consumer	$	133,881	0.67	%	$	130,653	0.89	%
Boat		248,928	1.17			565,240	1.63
Mortgage		2,826,584	81.71			2,123,068	77.73
Commercial		755,954	16.45			922,310	19.75
Total	$	3,965,347	100.00	%	$	3,741,271	100.00	%

We have no exposure to foreign countries or foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our portfolio.

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

Liquidity and Capital Resources

Our overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff. Our management monitors the liquidity position daily in conjunction with Federal Reserve guidelines. As outlined in the borrowing section of this report, we have credit lines, unsecured and secured, available from several correspondent banks totaling $33.5 million. Additionally, we may borrow funds from the FHLB and the Federal Reserve Bank of Richmond. We can use these credit facilities in conjunction with the normal deposit strategies, which include pricing changes to increase deposits as necessary. We can also sell available for sale investment securities or pledge investment securities as collateral to create additional liquidity. From time to time we may sell or participate out loans to create additional liquidity as required. Additional sources of liquidity include funds held in time deposits and cash from the investment and loan portfolios.

Our immediate sources of liquidity are cash and due from banks, federal funds sold and time deposits in other banks. On December 31, 2015, we had $40.2 million in cash and due from banks, $1.1 million in interest bearing accounts, and $2.3 million in federal funds sold. As of December 31, 2014, we had $23.6 million in cash and due from banks, $1.2 millionin interest bearing accounts, and $601 thousand in federal funds sold.

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

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

Old Line Bancshares has available a $5.0 million unsecured line of credit. In addition, Old Line Bank has available lines of credit, including overnight federal funds and repurchase agreements from its correspondent banks, totaling $28.5 million at December 31, 2015. Old Line Bank has an additional secured line of credit from the FHLB of

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$397.3 million at December 31, 2015. As a condition of obtaining the line of credit from the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB. Prior to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line Bank provide collateral to support borrowings. Therefore, we have provided FHLB collateral to support up to $160.7 million of borrowings. We may increase availability by providing additional collateral. Additionally, we have provided collateral in the form of investment securities to support the $33.5 million repurchase agreement.

The following table shows Old Line Bancshares, Inc.’s regulatory capital ratios and the minimum capital ratios currently required by its banking regulator to be “well capitalized.” For a discussion of these capital requirements, see “Supervision and Regulation—Capital Adequacy Guidelines.”

Risk Based Capital Analysis

(Dollars in thousands)

December 31,	2015		2014		2013
Tier 1 Capital
Common stock	$	108	$	108	$	108
Additional paid-in capital		105,294		105,235		104,622
Retained earnings		38,291		30,068		24,879
Less: disallowed assets		11,526		12,214		13,081
Less: deferred assets		5,497		5,447		10,848
Total Tier 1 Capital		126,670		117,750		105,680
Tier 2 Capital:
Unrealized gains (45%) equity securities		—		—		68
Less: deductions		—		327		421
Allowance for loan losses		5,133		4,477		5,115
Total Risk Based Capital	$	131,803	$	121,900	$	110,442
Risk weighted assets	$	1,189,816	$	958,224	$	883,921

							Regulatory		To be Well
December 31,	2015		2014		2013		Minimum		Capitalized
Capital Ratios:
Tier 1 risk based capital ratio	10.7	%	12.3	%	12.0	%	6	%	8	%
Total risk based capital ratio	11.1	%	12.7	%	12.5	%	8	%	10	%
Leverage ratio	9.1	%	9.9	%	9.3	%	4	%	5	%
Common Equity Tier 1	10.7	%	—	%	—	%	4.5	%	6.5	%

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

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

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Outstanding loan commitments and lines and letters of credit at December 31, 2015 and 2014 are as follows:

December 31,	2015		2014
	(Dollars in thousands)
Commitments to extend credit and available credit lines:
Commercial	$	82,875	$	69,347
Construction		43,079		57,878
Consumer		19,567		15,725
	$	145,521	$	142,950
Standby letters of credit	$	17,442	$	15,725

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

Commitments for real estate development and construction, which totaled $43.1 million, or 29.61% of the $145.5 million at December 31, 2015, are generally short term and turn over rapidly, with principal repayment from permanent financing arrangements upon completion of construction or from sales of the properties financed.

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

We have various financial obligations, including contractual obligations and commitments. The following table presents, as of December 31, 2015, significant fixed and determinable contractual obligations to third parties by payment date.

Contractual Obligations

(Dollars in thousands)

	Within		One to		Three to		Over
	one year		three years		five years		five years		Total
Non-interest bearing deposits	$	328,549	$	—	$	—	$	—	$	328,549
Interest bearing deposits		652,848		176,727		77,756		—		907,331
Short term borrowings		107,557		—		—		—		107,557
Long term borrowings		5,875		—		—		3,718		9,593
Purchase obligations		3,412		6,308		6,601		3,028		19,349
Operating leases		2,509		5,697		944		4,955		14,105
Total	$	1,100,750	$	188,732	$	85,301	$	11,701	$	1,386,484

Our operating lease obligations represent rental payments for 19branches, six loan production offices and our main office. We lease our main office and our Bowie branch location from Pointer Ridge. We have excluded 62.50% of

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these lease payments in consolidation. The interest bearing obligations include accrued interest. Purchase obligations amounts represent estimated obligations under agreements to purchase goods or services that are enforceable and legally binding. The purchase obligations amounts include estimated obligations under data processing and network servicing and installation contracts, income tax payable, pension obligations and accounts payable for goods and services.

Reconciliation of Non‑GAAP Measures

Below is a reconciliation of the Federal Tax Exempt adjustments and the GAAP basis information presented in this report:

Twelve Month Ended December 31, 2015

					Net
	Net Interest				Interest
	Income		Yield		Spread
GAAP net interest income	$	46,588,496	3.95	%	3.82	%
Tax equivalent adjustment
Federal funds sold		5	—		—
Investment securities		793,155	0.06		0.06
Loans		949,678	0.07		0.07
Total tax equivalent adjustment		1,742,838	0.13		0.13
Tax equivalent interest yield	$	48,331,334	4.08	%	3.95	%

Twelve Month Ended December 31, 2014

					Net
	Net Interest				Interest
	Income		Yield		Spread
GAAP net interest income	$	41,703,523	3.99	%	3.88	%
Tax equivalent adjustment
Federal funds sold		1	—		—
Investment securities		948,561	0.09		0.09
Loans		783,712	0.07		0.07
Total tax equivalent adjustment		1,732,274	0.16		0.16
Tax equivalent interest yield	$	43,435,797	4.15	%	4.04	%

Twelve Month Ended December 31, 2013

					Net
	Net Interest				Interest
	Income		Yield		Spread
GAAP net interest income	$	40,060,585	4.33	%	4.21	%
Tax equivalent adjustment
Federal funds sold		3	—		—
Investment securities		1,141,014	0.12		0.12
Loans		674,364	0.08		0.08
Total tax equivalent adjustment		1,815,381	0.20		0.20
Tax equivalent interest yield	$	41,875,966	4.53	%	4.41	%

We also presented in this annual report net income available to common stockholders and net income per share information excluding the after-tax $1.2 million in merger-related expenses incurred during 2015, which are non-GAAP financial measures.  Management believes that these non-GAAP financial measures provide additional useful information that allows readers to evaluate our ongoing performance of and provide meaningful comparison to our peers.  These non-GAAP financial measures should not be consider as an alternative to any measure of our performance or financial condition

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as promulgated under U.S. GAAP, and investors should consider Old Line Bancshares’ performance and financial condition as reported under U.S. GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under U.S. GAAP.

Reconciliation of Non-GAAP measures (Unaudited)	Twelve Months ending December 31, 2015
	Net Interest
	Income
Net Income (GAAP)	$	10,464,434
Merger-related expenses, net of tax		1,200,825
Operating Net Income (non-GAAP)	$	11,665,259
Net income available to common shareholders	$	10,468,586
Merger-related expenses, net of tax		1,200,825
Operating earnings	$	11,669,411
Earnings per weighted average common shares, basic (GAAP)	$	0.98
Merger-related expenses, net of tax		0.11
Operating earnings per weighted average common share basic (non GAAP)	$	1.09
Earnings per weighted average common shares, diluted (GAAP)	$	0.97
Merger-related expenses, net of tax		0.11
Operating earnings per weighted average common share basic (non-GAAP)	$	1.08
Summary Operating Results (non-GAAP)
Noninterest expense (GAAP)	$	36,275,682
Merger-related expenses		1,200,825
Operating noninterest expense (non-GAAP)	$	35,074,857
Operating efficiency ratio (non-GAAP)		65.64
Operating noninterest expense as a % of average assets		2.65
Return on average assets
Net income	$	10,464,434
Merger-related expenses, net of tax		1,200,825
Operating net income	$	11,665,259
Adjusted return on average assets		0.88
Return on average common equity
Net income available to common shareholders	$	10,468,586
Merger-related expenses, net of tax		1,200,825
Operating earnings (non-GAAP)	$	11,669,411
Adjusted return on average common equity (non-GAAP)		8.40

Impact of Inflation and Changing Prices and Seasonality

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

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Unlike industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, and may frequently reflect government policy initiatives or economic factors not measured by price index. As discussed in Item 7A, we strive to manage our interest sensitive assets and liabilities in order to offset the effects of rate changes and inflation.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. Various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices, may cause these changes. We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets and liabilities. Foreign exchange rates, commodity prices, or equity prices do not pose significant market risk to us.

Interest Rate Sensitivity Analysis and Interest Rate Risk Management

A principal objective of Old Line Bank’s asset/liability management policy is to minimize exposure to changes in interest rates by an ongoing review of the maturity and re‑pricing of interest earning assets and interest bearing liabilities. The Asset and Liability Committee of the Board of Directors oversees this review.

The Asset and Liability Committee establishes policies to control interest rate sensitivity. Interest rate sensitivity is the volatility of a bank’s earnings resulting from movements in market interest rates. Management monitors rate sensitivity in order to reduce vulnerability to interest rate fluctuations while maintaining adequate capital levels and acceptable levels of liquidity. Monthly financial reports supply management with information to evaluate and manage rate sensitivity and adherence to policy. Old Line Bank’s asset/liability policy’s goal is to manage assets and liabilities in a manner that stabilizes net interest income and net economic value within a broad range of interest rate environments. Adjustments to the mix of assets and liabilities are made periodically in an effort to achieve dependable, steady growth in net interest income regardless of the behavior of interest rates in general.

As part of the interest rate risk sensitivity analysis, the Asset and Liability Committee examines the extent to which Old Line Bank’s assets and liabilities are interest rate sensitive and monitors the interest rate sensitivity gap. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. The interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities scheduled to mature or reprice within such time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of declining interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If repricing of assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

Old Line Bank currently has a negative gap, which suggests that the net interest income on interest earning assets may decrease during periods of rising interest rates. However, a simple interest rate “gap” analysis by itself may not be an accurate indicator of how changes in interest rates will affect net interest income. Changes in interest rates may not uniformly affect income associated with interest earning assets and costs associated with interest bearing liabilities. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. Although certain assets and liabilities may have similar maturities or periods of re‑pricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In the event of a change in interest rates, prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest rate increase.

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

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

Quarterly Data (unaudited)

	First		Second		Third		Fourth
Year Ended December 31, 2015:	Quarter		Quarter		Quarter		Quarter
Interest income	$	12,508	$	12,352	$	13,007	$	13,624
Interest expense		1,046		1,181		1,259		1,378
Net interest income		11,462		11,171		11,748		12,246
Provision for loan losses		562		86		264		400
Net interest income after provision for loan losses		10,900		11,085		11,484		11,845
Income before income taxes		4,040		3,797		4,720		3,289
Income tax expense		1,295		1,195		1,605		1,287
Net income		2,745		2,602		3,115		2,002
Less: Net income (loss) attributable to the non-controlling interest		(9)		1		3		1
Net income available to common stockholders		2,754		2,601		3,112		2,001
Basic earnings per common share		0.25		0.25		0.30		0.19
Diluted earnings per common share		0.25		0.24		0.29		0.19

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	First		Second		Third		Fourth
Year Ended December 31, 2014:	Quarter		Quarter		Quarter		Quarter
Interest income	$	11,372	$	11,617	$	11,118	$	11,496
Interest expense		1,013		1,005		963		919
Net interest income		10,359		10,612		10,155		10,577
Provision for loan losses		270		1,544		555		458
Net interest income after provision for loan losses		10,089		9,068		9,600		10,119
Income before income taxes		2,505		2,443		2,377		2,462
Income tax expense		691		688		636		679
Net income		1,814		1,755		1,741		1,783
Less: Net income (loss) attributable to the non-controlling interest		(21)		(14)		(4)		2
Net income available to common stockholders		1,835		1,769		1,745		1,781
Basic earnings per common share		0.17		0.16		0.16		0.17
Diluted earnings per common share		0.17		0.16		0.16		0.16

	First		Second		Third		Fourth
Year Ended December 31, 2013:	Quarter		Quarter		Quarter		Quarter
Interest income	$	8,817	$	10,308	$	12,559	$	12,580
Interest expense		970		1,105		1,083		1,046
Net interest income		7,847		9,203		11,476		11,534
Provision for loan losses		200		200		590		514
Net interest income after provision for loan losses		7,647		9,003		10,886		11,020
Income (loss) before income taxes		1,795		(379)		3,174		6,760
Income tax expense/(benefit)		522		(283)		971		2,393
Net income (loss)		1,273		(96)		2,203		4,367
Basic earnings per common share		0.19		(0.01)		0.22		0.47
Diluted earnings per common share		0.19		(0.01)		0.22		0.46

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Item 8.  Financial Statements

The following consolidated financial statements are filed with this report:

Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets—December 31, 2015 and 2014	74
Consolidated Statements of Income—for the years ended December 31, 2015, 2014 and 2013	75
Consolidated Statements of Comprehensive Income‑for the years ended December 31, 2015, 2014 and 2013	76
Consolidated Statements of Changes in Stockholders’ Equity—for the years ended December 31, 2015, 2014 and 2013	77
Consolidated Statements of Cash Flows—for the years ended December 31, 2015, 2014 and 2013	78
Notes to Consolidated Financial Statements	80

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Old Line Bancshares, Inc.

We have audited Old Line Bancshares, Inc. and Subsidiaries (the Company’s) internal control overfinancial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control overfinancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.    A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Old Line Bancshares, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Old Line Bancshares, Inc. and Subsidiaries as of December 31, 2015 and 2014, and for each of the years in the three-year period ended December 31, 2015, and our report dated March 11, 2016, expressed an unqualified opinion on those consolidated financial statements.

/s/ Dixon Hughes Goodman LLP

Atlanta, Georgia

March 11, 2016

72

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Old Line Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of Old Line Bancshares, Inc. and Subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 Old Line Bancshares, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Old Line Bancshares, Inc.’s internal controls over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 11, 2016, expressed an unqualified opinion thereon.

/s/ Dixon Hughes Goodman LLP

Atlanta, Georgia

March 11, 2016

73

Part 1. Financial Information

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Balance Sheets

	December 31,		December 31,
	2015		2014
Assets
Cash and due from banks	$	40,239,384	$	23,572,613
Interest bearing deposits in other financial institutions		1,135,263		1,230,864
Federal funds sold		2,326,045		601,259
Total cash and cash equivalents		43,700,692		25,404,736
Investment securities available for sale-at fair value		194,705,675		161,680,198
Loans held for sale, fair value of $8,277,775 and $4,753,995		8,112,488		4,548,106
Loans held for investment (net of allowance for loan losses of $4,909,818 and $4,281,835, respectively)		1,147,034,715		926,573,488
Equity securities at cost		4,942,346		5,811,697
Premises and equipment		36,174,978		34,300,375
Accrued interest receivable		3,814,546		3,218,428
Deferred income taxes		13,820,679		16,106,498
Bank owned life insurance		36,606,105		31,429,747
Other real estate owned		2,472,044		2,451,920
Goodwill		9,786,357		7,793,665
Core deposit intangible		4,351,226		4,420,796
Other assets		4,567,038		3,779,350
Total assets	$	1,510,088,889	$	1,227,519,004
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	328,549,405	$	260,913,521
Interest bearing		907,330,561		754,825,885
Total deposits		1,235,879,966		1,015,739,406
Short term borrowings		107,557,246		61,002,889
Long term borrowings		9,593,318		5,987,283
Supplemental executive retirement plan		5,336,509		5,095,141
Income taxes payable		3,615,677		—
Other liabilities		4,117,284		4,167,648
Total liabilities		1,366,100,000		1,091,992,367
Stockholders’ equity
Common stock, par value $0.01 per share; 25,000,000 shares authorized; issued and outstanding10,802,560 for 2015 and 10,810,930 for 2014		108,026		108,110
Additional paid-in capital		105,293,606		105,235,646
Retained earnings		38,290,876		30,067,798
Accumulated other comprehensive income (loss)		38,200		(147,250)
Total Old Line Bancshares, Inc. stockholders’ equity		143,730,708		135,264,304
Non-controlling interest		258,181		262,333
Total stockholders’ equity		143,988,889		135,526,637
Total liabilities and stockholders’ equity	$	1,510,088,889	$	1,227,519,004

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

74

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Income

Years Ended December 31,	2015		2014		2013
Interest Income
Loans, including fees	$	47,948,411	$	41,723,378	$	40,206,378
Interest and dividends on taxable investments:
U.S. Treasury securities		10,520		21,680		3,043
U.S. government agency securities		521,947		567,785		538,007
Mortgage backed securities		1,502,468		1,498,353		1,464,994
Municipal securities		1,239,290		1,479,292		1,797,449
Federal funds sold		1,022		4,689		3,848
Other		229,136		308,069		249,119
Total interest income		51,452,794		45,603,246		44,262,838
Interest expense
Deposits		4,246,990		3,401,622		3,716,044
Borrowed funds		617,308		498,101		486,209
Total interest expense		4,864,298		3,899,723		4,202,253
Net interest income		46,588,496		41,703,523		40,060,585
Provision for loan losses		1,310,984		2,827,297		1,504,190
Net interest income after provision for loan losses		45,277,512		38,876,226		38,556,395
Non-interest income
Service charges on deposit accounts		1,729,773		1,904,063		1,607,931
Gains on sales or calls of investment securities		65,222		129,911		641,088
Gain on the sale of stock		—		96,993		—
Earnings on bank owned life insurance		1,009,653		988,204		840,028
Gain (loss) on disposal of assets		14,128		(30,131)		(104,639)
Income on marketable loans		2,019,313		771,815		3,890,029
Other fees and commissions		2,006,906		2,096,069		1,995,745
Total non-interest income		6,844,995		5,956,924		8,870,182
Non-interest expense
Salaries and benefits		17,237,222		17,831,394		16,617,920
Occupancy and equipment		5,775,874		6,268,593		5,353,300
Data processing		1,432,182		1,340,875		1,422,771
FDIC insurance and State of Maryland assessments		966,982		912,208		777,474
Merger and integration		1,420,570		29,167		3,518,945
Core deposit premium amortization		792,351		866,704		838,694
Loss (gain) on sales of other real estate owned		49,717		(697,875)		(144,934)
OREO expense		430,559		554,057		838,429
Director Fees		651,500		482,498		388,100
Network services		699,649		743,751		582,533
Telephone		659,934		667,095		564,164
Other operating		6,159,143		6,047,868		5,319,893
Total non-interest expense		36,275,683		35,046,335		36,077,289
Income before income taxes		15,846,824		9,786,815		11,349,288
Income tax expense		5,382,390		2,694,104		3,602,083
Net income		10,464,434		7,092,711		7,747,205
Less: Net loss attributable to the non-controlling interest		(4,152)		(37,589)		(91,624)
Net income available to common stockholders	$	10,468,586	$	7,130,300	$	7,838,829
Basic earnings per common share	$	0.98	$	0.66	$	0.87
Diluted earnings per common share	$	0.97	$	0.65	$	0.86
Dividend per common share	$	0.21	$	0.18	$	0.16

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

75

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31,	2015		2014		2013
Net income	$	10,464,434	$	7,092,711	$	7,747,205
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities available for sale, net of taxes of $146,528,  2,143,885 and ($3,544,461), respectively.		224,945		3,291,241		(5,441,370)
Reclassification adjustment for realized gain on securities available for sale included in net income, net of taxes of $25,727,  $51,243 and $252,877, respectively.		(39,495)		(78,668)		(388,211)
Other comprehensive income (loss)		185,450		3,212,573		(5,829,581)
Comprehensive Income		10,649,884		10,305,284		1,917,624
Comprehensive (loss) attributable to the non-controlling interest		(4,152)		(37,589)		(91,624)
Comprehensive income available to common stockholders	$	10,654,036	$	10,342,873	$	2,009,248

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

76

Old Line Bancshares, Inc. & Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

								Accumulated
				Additional				other		Non-		Total
	Common stock			paid-in		Retained		comprehensive		controlling		stockholders’
	Shares	Par value		capital		earnings		Income/ (loss)		interest		equity
Balance, December 31,  2012	6,845,432	$	68,454	$	53,792,015	$	18,531,387	$	2,469,758	$	391,547	$	75,253,161
Net income attributable to Old Line Bancshares, Inc.	—		—		—		7,838,829		—		—		7,838,829
Acquisition of WSB Holdings, Inc.	2,909,486		29,095		37,617,967		—		—		—		37,647,062
Unrealized gain on securities available for sale, net of income tax benefit of $3,797,338	—		—		—		—		(5,829,581)		—		(5,829,581)
Net loss attributable to non-controlling interest	—		—		—		—		—		(91,625)		(91,624)
Stock based compensation awards	—		—		230,743		—		—		—		230,743
Private placement—common stock	936,695		9,367		12,168,201		—		—		—		12,177,568
Common stock cash dividend $0.16 per share	—		—		—		(1,490,941)		—		—		(1,490,941)
Stock options exercised including tax benefit of $113,280	79,149		792		813,309		—		—		—		814,101
Restricted stock issued	8,382		84		(84)		—		—		—		—
Forfeiture of shares	(2,031)		(20)		20		—		—		—		—
Balance, December 31, 2013	10,777,113	$	107,772	$	104,622,171	$	24,879,275	$	(3,359,823)	$	299,922	$	126,549,318
Net income attributable to Old Line Bancshares, Inc.	—		—		—		7,130,300		—		—		7,130,300
Unrealized gain on securities available for sale, net of income tax benefit of $2,092,642	—		—		—		—		3,212,573		—		3,212,573
Net loss attributable to non-controlling interest	—		—		—		—		—		(37,589)		(37,589)
Stock based compensation awards	—		—		336,652		—		—		—		336,652
Common stock cash dividend $0.18 per share	—		—		—		(1,941,777)		—		—		(1,941,777)
Stock options exercised including tax benefit of $23,934	25,560		256		276,905		—		—		—		277,161
Restricted stock issued	8,257		82		(82)		—		—		—		—
Balance, December 31, 2014	10,810,930	$	108,110	$	105,235,646	$	30,067,798	$	(147,250)	$	262,333	$	135,526,637
Net income attributable to Old Line Bancshares, Inc.	—		—		—		10,468,586		—		—		10,468,586
Acquisition of Regal Bancorp	230,640		2,306		4,142,295		—		—		—		4,144,601
Unrealized gain on securities available for sale, net of income tax benefit of $120,801	—		—		—		—		185,450		—		185,450
Net loss attributable to non-controlling interest	—		—		—		—		—		(4,152)		(4,152)
Stock based compensation awards	—		—		418,419		—		—		—		418,419
Stock options exercised including tax benefit of $94,185	69,500		695		815,158		—		—		—		815,853
Restricted stock issued	30,727		307		(307)		—		—		—		—
Stock buyback	(339,237)		(3,392)		(5,317,605)								(5,320,997)
Common stock cash dividend $0.21 per share	—		—		—		(2,245,508)		—		—		(2,245,508)
Balance, December 31, 2015	10,802,560	$	108,026	$	105,293,606	$	38,290,876	$	38,200	$	258,181	$	143,988,889

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

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Consolidated Statements of Cash Flows

Years Ended December 31,	2015		2014		2013
Cash flows from operating activities
Interest received	$	52,019,926	$	46,498,072	$	45,688,813
Fees and commissions received		3,943,589		3,407,770		3,473,068
Interest paid		(4,735,946)		(3,898,507)		(4,495,597)
Cash paid to suppliers and employees		(34,076,151)		(32,110,815)		(30,225,850)
Originations of loans held for sale		(103,508,482)		(54,257,289)		(31,959,210)
Proceeds from the sale of loans held for sale		99,944,100		51,723,894		33,834,528
Income taxes paid		415,220		(1,156,324)		(714,783)
		14,002,256		10,206,801		15,600,969
Cash flows from investing activities
Cash and cash equivalents of acquired bank		6,344,304		—		38,846,599
Acquisition cash consideration		(2,852,321)		—		(16,966,208)
Purchase of investment securities—available for sale		(51,567,606)		(28,384,137)		(27,016,236)
Proceeds from disposal of investment securities
Available for sale at maturity, call and paydowns		—		16,528,134		34,988,433
Available for sale sold		41,835,214		26,999,085		60,349,897
Loans made, net of principal collected		(129,132,289)		(82,548,387)		(91,899,866)
Proceeds from sale of other real estate owned		1,413,869		3,978,662		4,610,789
Investment in improvements other real estate owned		—		—		—
Redemption (purchase) of equity securities		869,351		(233,973)		(1,970,233)
Proceeds from sale of premises and equipment		14,128		(30,131)		(104,639)
Purchase of premises, equipment and software		(2,399,547)		(1,251,894)		(1,554,461)
		(135,474,897)		(64,942,641)		16,250,283
Cash flows from financing activities
Net increase (decrease) in
Time deposits		94,563,356		(17,535,593)		55,663,499
Other deposits		21,602,161		58,915,512		(32,956,546)
Short term borrowings		46,554,357		11,472,764		(48,625,910)
Long term borrowings		(16,200,985)		(105,791)		(99,276)
Proceeds from stock options exercised, including tax benefit		816,213		277,161		814,101
Private placement-common stock		—		—		12,177,568
Purchase of stock buyback		(5,320,997)		—		—
Cash dividends paid-common stock		(2,245,508)		(1,941,777)		(1,490,941)
		139,768,597		51,082,276		(31,483,713)
Net increase (decrease) in cash and cash equivalents		18,295,956		(3,653,564)		367,539
Cash and cash equivalents at beginning of year		25,404,736		29,058,300		28,690,761
Cash and cash equivalents at end of year	$	43,700,692	$	25,404,736	$	29,058,300

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

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Consolidated Statements of Cash Flows (Continued)

Years Ended December 31,	2015		2014		2013
Reconciliation of net income to net cash provided (used) by operating activities
Net income	$	10,464,434	$	7,092,711	$	7,747,205
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		2,332,087		2,264,380		1,850,659
Provision for loan losses		1,310,984		2,827,297		1,504,190
Amortization of intangible		792,351		866,704		838,694
Change in loans held for sale		(3,564,382)		(2,533,395)		1,875,318
(Gain)/loss on marketable loans		(2,019,313)		(771,815)		(3,890,029)
(Gain) loss on sale of other real estate owned		49,717		(697,875)		(144,934)
Write down of other real estate owned		145,165		—		334,040
Gain on sale of equity securities		—		(96,993)		—
(Gain) loss on sale of equipment		(14,128)		30,131		104,639
(Gain) loss on sale of securities		(65,222)		(129,911)		(641,088)
Amortization of premiums and discounts		910,426		933,688		1,259,194
Deferred loan fees net of costs		(1,039)		(253,358)		73,809
Deferred income taxes		2,496,521		(2,107,312)		740,985
Stock based compensation awards		418,419		336,652		230,743
Increase (decrease) in:
Accrued interest payable		128,352		1,216		(293,344)
Income tax payable		3,130,242		(2,071,174)		2,321,286
Supplemental executive retirement plan		241,368		173,900		305,542
Other liabilities		(1,531,062)		467,726		(2,034,253)
Decrease (increase) in:
Accrued interest receivable		(342,255)		214,496		92,972
Bank owned life insurance		(866,588)		(852,560)		(721,063)
Other assets		(13,821)		4,512,293		4,046,404
	$	14,002,256	$	10,206,801	$	15,600,969

	2015		2014		2013
Fair value of assets and liabilities from acquisition:
Fair value of tangible assets acquired	$	129,901,303	$	—	$	324,808,164
Other intangible assets acquired		2,715,463		—		9,594,598
Fair value of liabilities assumed		(125,619,844)		—		(279,789,492)
Total merger consideration		6,996,922		—		54,613,270
Supplemental disclosure of noncash activities:
Transfer to loans from other real estate owned	$	820,725	$	1,421,365	$	1,159,308

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

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Old Line Bancshares, Inc. & Subsidiaries

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Organization and Description of Business—Old Line Bancshares, Inc. (Bancshares) is the holding company for Old Line Bank (Bank). We provide a full range of banking services to customers located in Anne Arundel, Baltimore, Calvert, Charles, Carroll, Prince George’s and St. Mary’s Counties in Maryland and surrounding areas.

Basis of Presentation and Consolidation—The accompanying consolidated financial statements include the activity of Bancshares, its wholly owned subsidiary, Old Line Bank, and its majority owned membership interest in Pointer Ridge Office Investment, LLC (“Pointer Ridge”). We have eliminated all significant intercompany transactions and balances.

We report the non‑controlling interests in Pointer Ridge separately in the consolidated balance sheets. We report the income of Pointer Ridge attributable to Bancshares from the date of our acquisition of majority interest on the consolidated statements of income.

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

Cash and Cash Equivalents—For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits and federal funds sold. Generally, we purchase and sell federal funds for one day periods.

Investment Securities—As we purchase securities, management determines if we should classify the securities as held to maturity, available for sale or trading. We record the securities which management has the intent and ability to hold to maturity at amortized cost which is cost adjusted for amortization of premiums and accretion of discounts to maturity. We classify securities which we may sell before maturity as available for sale and carry these securities at fair value with unrealized gains and losses included in stockholders’ equity on an after tax basis. Management has not identified any investment securities as trading.

We record gains and losses on the sale of securities on the trade date and determine these gains or losses using the specific identification method. We amortize premiums and accrete discounts using the interest method.

Management systematically evaluates investment securities for other‑ than‑temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) the structure of the security. A decline in the market value of any available for sale security below cost that is deemed other‑than‑temporary results in a charge to earnings and establishment of a new cost basis for that security.

Stock Based Compensation Awards—The cost of employee services received in exchange for equity instruments, including stock options and restricted stock awards, is generally measured at fair value on the grant date. A Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Equity Securities—Equity securities include stock from Federal Home Loan Bank, Atlantic Central Bankers Bank, Maryland Financial Bank, which are carried at cost which approximates fair value.

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Notes to Consolidated Financial Statements

(Continued)

Premises and Equipment—We record premises and equipment at cost less accumulated depreciation. Generally, we compute depreciation using the straight line method over the estimated useful life of the assets. Estimated useful life for our buildings is five to 50 years. Estimated useful life for our leasehold improvements is three to 30 years. Estimated useful life for our furniture and equipment is three to 23 years.

Other Real Estate Owned—Other real estate owned consists of properties obtained through foreclosure proceedings or acceptance of a deed in lieu of foreclosure, and is reported on an individual asset basis at net realizable value. Net realizable value equals fair value and is determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources less estimated selling costs. While initial fair value is determined by independent third parties, management may subsequently reassess these valuations and apply additional discounts if necessary. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is recognized and charged to the allowance for loan losses. Subsequent write‑downs are charged to a separate allowance for losses pertaining to real estate owned, established through provisions for estimated losses on other real estate owned charged to operations. Based upon management’s evaluation of the real estate acquired through foreclosure, additional expense is recorded when necessary in an amount sufficient to reflect any estimated declines in fair value. Gains and losses recognized on the disposition of the properties are also recorded in non‑interest expense in the consolidated statements of income. Costs of improvements to real estate are capitalized, while costs associated with holding the real estate are charged to operations.

Mortgage Banking Activities—As part of normal business operations, we originate residential mortgage loans that have been pre‑approved by secondary investors. The terms of the loans are set by the secondary investors, and the purchase price that the investor will pay for the loan is agreed to prior to the commitment of the loan. Generally, within three weeks after funding, the loans are transferred to the investor in accordance with the agreed‑upon terms. On the settlement date of these loans, we record the gains from the sale of these loans equal to the difference between the proceeds to be received and the carrying amount of the loan.

Goodwill and Other Intangible Assets—Goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed related to the acquisitions of Maryland Bankcorp, Inc., WSB Holdings, Inc. and Regal Bancorp, Inc. Core deposit intangibles represent the estimated value of long‑term deposit relationships acquired in these transactions. The core deposit intangible is being amortized over 18 years for Maryland Bankcorp, Inc., ten years for WSB Holdings, Inc., and eight years for Regal Bancorp, Inc. and the estimated useful lives are periodically reviewed for reasonableness.

Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The goodwill impairment analysis is a two‑step test. The first step, used to identify potential impairment, comparing the reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill assigned to that reporting unit is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment of goodwill assigned to that reporting unit.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. We have determined that Bancshares has one reporting unit.

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Notes to Consolidated Financial Statements

(Continued)

We evaluated the carrying value of goodwill as of September 30, 2015, our annual test date, and determined that no impairment charge was necessary. Additionally, should Bancshares’ future earnings and cash flows decline and/or discount rates increase, an impairment charge to goodwill and other intangible assets may be required. There have been no events subsequent to the September 30, 2015 evaluation that caused us to perform an interim review of the carrying value of goodwill.

Business Combinations—Accounting principles generally accepted in the United States (U.S. GAAP) requires that the acquisition method of accounting be used for all business combinations and that an acquirer be identified for each business combination. Under U.S. GAAP, the acquirer is the entity that obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. U.S. GAAP requires that the acquirer recognize the fair value of assets acquired, liabilities assumed, and any non‑controlling interest in the acquiree at the acquisition date.

Loans and Interest Income—We report loans at face value plus deferred origination costs, less deferred origination fees and the allowance for loan losses. We accrue interest on loans based on the principal amounts outstanding. We amortize origination fees and costs to income over the terms of the loans using an approximate interest method.

We discontinue the accrual of interest when any portion of the principal or interest is 90 days past due and collateral is insufficient to discharge the debt in full. Based on current information, we consider loans impaired when management determines that it is unlikely that the borrower will make principal and interest payments according to contractual terms. Generally, we do not review loans for impairment until we have discontinued the accrual of interest. We consider several factors in determining impairment including payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Generally, we do not classify loans that experience insignificant payment delays and payment shortfalls as impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis. We consider all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. We measure impairment on a loan by loan basis for commercial and real estate loans by determining either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. If it is doubtful that we will collect principal, we apply all payments to principal.

We collectively evaluate large groups of smaller balance homogeneous loans for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment unless such loans are the subject of a restructuring agreement or the borrower has filed bankruptcy.

Acquired Loans—These loans are recorded at fair value at the date of acquisition, and accordingly no allowance for loan losses is transferred to the acquiring entity in connection with purchase accounting. The fair values of loans with evidence of credit deterioration (purchased, credit‑impaired loans) are initially recorded at fair value, but thereafter accounted for differently than purchased, non‑credit‑impaired loans. For purchased, credit‑impaired loans, the excess of all cash flows estimated to be collectable at the date of acquisition over the purchase price of the purchase credit‑impaired loan is recognized as interest income, using a level‑yield basis over the life of the loan. This amount is referred to as the accretable yield. The purchased credit‑impaired loan’s contractually‑required payments receivable estimated to be in excess of the amount of its future cash flows expected at the date of acquisition is referred to as the non‑accretable difference, and is not reflected as an adjustment to the yield, in the form of a loss accrual or a valuation allowance.

Subsequent to the acquisition date, management continues to monitor cash flows on a quarterly basis, to determine the performance of each purchased, credit‑impaired loan in comparison to management’s initial performance expectations. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent significant increases in cash flows result in a reversal of the provision for loan losses to the extent of prior provisions or a reclassification of amount from non‑accretable difference to accretable yield, with a positive impact on the accretion of interest income in future periods.

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Notes to Consolidated Financial Statements

(Continued)

Acquired performing loans are accounted for using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Acquired performing loans are recorded as of the purchase date at fair value. Credit losses on the acquired performing loans are estimated based on analysis of the performing portfolio. A provision for loan losses is recognized for any further credit deterioration that occurs in these loans subsequent to the acquisition date.

Loans Held‑for‑Sale—The loans classified in the held‑for‑sale portfolio consists of loans that have been committed to be purchased by investors in the secondary market at December 31, 2015 and will be settled subsequent to that date. Only loans purchased by investors with recourse obligations are included in other liabilities.

Allowance for Loan Losses—The allowance for loan losses represent an amount which, in management’s judgment, will be adequate to absorb probable losses on existing loans and other extensions of credit that may become uncollectible. Management bases its judgment in determining the adequacy of the allowance on evaluations of the collectability of loans. Management takes into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers’ ability to pay, overall portfolio quality, and review of specific problem areas. If the current economy or real estate market continues to suffer a severe downturn, we may need to increase the estimate for uncollectible accounts. We charge off loans which we deem uncollectible and deduct them from the allowance. We add recoveries on loans previously charged off to the allowance.

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

Within each of the above loan types, each portfolio is sorted by the risk assessment rating of each loan as Pass, Pass‑Watch, Special Mention or Substandard.  The Bank’s loss experience (Loss Factor) is progressively tiered by risk category for Pass, Pass‑Watch, Special Mention and Substandard loans by applying a higher loss factor to higher risk rated categories. Loans rated “Doubtful” or “Loss” are, by definition, impaired and will be specifically reserved based upon Bank management’s best estimate of the loss exposure for each loan.

The Bank’s loss experience for each of the last 12 quarters is aggregated and that total is used to create a percentage of the loan portfolio as it existed at the beginning of the 12 quarter “look back.”  We collectively evaluate large groups of smaller balance homogeneous loans for impairment.  Accordingly, we do not separately identify individual consumer and residential loans for impairment unless such loans are the subject of a restructuring agreement or the borrower has filed bankruptcy.

Qualitative factors include: levels and trends in delinquencies and non‑accruals; trends in volumes and terms of loans; effects of any changes in lending policies; the experience, ability and depth of management; regional and local economic trends and conditions; Peer Group loan loss history; concentrations of credit; quality of the bank’s loan review system; external factors, such as competition, legal and regulatory requirements; and, management’s collective assessment of the appropriateness of the allowance for loan losses in light of recent trends, events, political impact and other considerations.

Advertising—We expense advertising costs over the life of ad campaigns. We expense general purpose advertising as we incur it.

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Notes to Consolidated Financial Statements

(Continued)

Income Taxes—The provision for income taxes includes taxes payable for the current year and deferred income taxes. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. If needed, we use a valuation allowance to reduce the deferred tax assets to the amount we expect to realize. We allocate tax expense and tax benefits to Bancshares and its subsidiaries based on their proportional share of taxable income.

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

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

	Years Ended December 31,
	2015		2014		2013
Net Income	$	10,468,586	$	7,130,300	$	7,838,829
Denominator:
Weighted average common shares outstanding		10,647,986		10,786,017		9,044,844
Effect of Diluted Shares		136,337		149,165		104,356
Diluted shares		10,784,323		10,935,182		9,149,200
Net income per share:
Basic	$	0.98	$	0.66	$	0.87
Diluted	$	0.97	$	0.65	$	0.86

Comprehensive Income—Comprehensive income includes net income attributable to Bancshares and the unrealized gain (loss) on investment securities available for sale net of related income taxes and unrealized gain (loss) on the pension plan. The line item affected in the consolidated statements of income by the re‑classified amounts is gain on sales or calls of investment securities.

Reclassifications—We have made certain reclassifications to the 2014 and 2013 financial presentation to conform to the 2015 presentation.

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

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU No. 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date.

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Notes to Consolidated Financial Statements

(Continued)

The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date.  The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company is currently evaluating the provisions of this amendment to determine the potential impact the new standard will have on the Company's consolidated financial statements as it relates to future business combinations.

In August 2014, the FASB issued ASU No. 2014-14- Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, to address the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. HUD, FHA, VA).  The ASU outlines certain criteria and provides that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  This ASU was effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period.  The adoption of ASU No. 2014-14 did not have a material impact on our consolidated financial statements and the required disclosures have been included in Note 6.

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

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

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments –  Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by: requiring equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair

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value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU permits early adoption of the instrument-specific credit risk provision. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

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

2. Acquisition of Regal Bancorp, Inc.

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

           As a result of the Merger, each share of preferred stock of Regal was converted into the right to receive $2.00 in cash, and each share of common stock of Regal was converted into the right to receive, at the holder’s election, $12.68 in cash or 0.7718 shares of Bancshares’ common stock, provided (i) cash was paid in lieu of any fractional shares of Bancshares common stock and (ii) no more than 59 % of the total consideration paid in the merger could consist of cash.  As a result Bancshares issued approximately 230,640 shares of its common stock and paid approximately $2.9 million in cash in exchange for the shares of common stock and preferred stock of Regal in the Merger.  The aggregate Merger consideration was approximately $7.0 million as calculated pursuant to the Merger Agreement.

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

The acquired assets and assumed liabilities of Regal Bancorp were measured at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the acquisition of Regal Bancorp. Management judgmentally assigned risk ratings to loans based on appraisals and estimated collateral values, expected cash flows, prepayment speeds and estimated loss factors to measure fair values for

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loans. Management used quoted or current market prices to determine the fair value of investment securities, long‑term borrowings and trust preferred subordinated debentures that were assumed from Regal Bancorp.

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

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

Fair Value of Assets Acquired
Cash and due from banks	$	6,344,304
Investment securities available for sale		23,832,038
Loans, net of deferred fees and costs		91,440,695
Premises and equipment		1,807,143
Accrued interest receivable		253,863
Deferred income taxes		502,320
Bank owned life insurance		4,309,770
Other real estate owned		808,150
Core deposit intangible		722,780
Other assets		603,020
Total assets acquired	$	130,624,083
Fair Value of Liabilities assumed
Deposits	$	103,975,043
Long term borrowings		16,090,182
Trust preferred subordinated debentures		3,716,838
Other liabilities		1,837,790
Total liabilities assumed	$	125,619,853
Fair Value of net assets acquired		5,004,230
Total Purchase Price		6,996,922
Goodwill recorded for Regal	$	1,992,692

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Pro forma financial information is not provided because such amounts are not meaningful to the Company’s consolidated financial statements.

The following is an outline of the expenses that we have incurred during the years ended December 31, 2015 in conjunction with the Regal Bancorp merger:

Years ended December 31,	2015
Data processing	$	435,942
Salaries		146,715
Advisory & legal fees		631,667
Other		206,246
	$	1,420,570

3. Goodwill and Other Intangible Assets

The following is a summary of changes in the carrying amounts of goodwill as well as the gross carrying amounts and accumulated amortization of core deposit intangibles:

	December 31,
	2015		2014
Goodwill:
Carrying amount at beginning of year	$	7,793,665	$	7,793,665
Goodwill from Regal acquisition		1,992,692		-
Carrying amount at end of year	$	9,786,357	$	7,793,665
Core deposit intangible:
Core deposit intangible	$	7,437,640	$	7,437,640
Acquired during the year		722,780		-
Less accumulated amortization		(3,809,194)		(3,016,844)
Carrying amount at end of year	$	4,351,226	$	4,420,796

We recorded amortization expense related to the core deposit intangible of $792,351, $866,704 and $838,694 for the years ended December 31, 2015, 2014 and 2013, respectively. Core deposit intangibles are being amortized as follows:

	Core Deposit
Years ended December 31,	Premium
2016		830,257
2017		742,900
2018		662,724
2019		581,196
2020		494,587
Thereafter		1,039,562
Total	$	4,351,226

4. Cash and Cash Equivalents

The Bank may carry balances with other banks that exceed the federally insured limit. We did not have any accounts that exceeded the federally insured limit in 2015 or 2014.  The Bank also sells federal funds on an unsecured

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basis to the same banks. The average balance sold was $365 thousand and  $2.9million in 2015 and 2014, respectively. Federal banking regulations require banks to carry non‑interest bearing cash reserves at specified percentages of deposit balances. The Bank’s normal amount of cash on hand and on deposit with other banks is sufficient to satisfy the reserve requirements.

5. Investment Securities

Investment securities are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
December 31, 2015
Available for sale
U. S. treasury	$	2,999,978	$	118	$	(96)	$	3,000,000
U.S. government agency		36,874,804		10,283		(278,424)		36,606,663
Municipal securities		49,130,632		1,092,044		(19,970)		50,202,706
Mortgage backed securities:
FHLMC certificates		21,734,289		55,218		(26,350)		21,763,157
FNMA certificates		49,461,464		22,916		(382,909)		49,101,471
GNMA certificates		29,758,449		48,759		(389,199)		29,418,009
SBA loan pools		4,682,975		—		(69,306)		4,613,669
	$	194,642,591	$	1,229,338	$	(1,166,254)	$	194,705,675
December 31, 2014
Available for sale
U. S. treasury	$	3,000,690	$	5,460	$	—	$	3,006,150
U.S. government agency		38,594,843		15,851		(954,362)		37,656,332
Municipal securities		42,662,399		980,452		(96,690)		43,546,161
Mortgage backed securities
FHLMC certificates		20,323,394		150,735		(3,182)		20,470,947
FNMA certificates		17,898,497		61,472		(93,163)		17,866,806
GNMA certificates		33,266,203		145,451		(272,309)		33,139,345
SBA loan pools		6,177,339		—		(182,882)		5,994,457
	$	161,923,365	$	1,359,421	$	(1,602,588)	$	161,680,198

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The table below summarizes investment securities with unrealized losses and the length of time the securities have been in an unrealized loss position as of December 31, 2015 and 2014:

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

	December 31, 2014
	Less than 12 months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
U.S. government agency	$	1,492,650	$	6,543	$	32,497,194	$	947,819	$	33,989,844	$	954,362
Municipal securities		2,054,635		19,397		4,617,972		77,293		6,672,607		96,690
Mortgage backed securities
FHLMC certificates		2,593,796		3,182		—		—		2,593,796		3,182
FNMA certificates		3,709,183		4,547		7,357,452		88,616		11,066,635		93,163
GNMA certificates		2,664,358		3,653		21,651,864		268,656		24,316,222		272,309
SBA loan pools		—		—		5,994,457		182,882		5,994,457		182,882
	$	12,514,622	$	37,322	$	72,118,939	$	1,565,266	$	84,633,561	$	1,602,588

At December 31, 2015, we had 70 investment securities that were in an unrealized loss position for less than 12 months and 23 investment securities in an unrealized loss position for 12 months or more. 

We consider all unrealized losses on securities as of December 31, 2015 to be temporary losses because we will redeem each security at face value at or prior to maturity. We have the ability and intent to hold these securities until recovery or maturity. As of December 31, 2015, we do not have the intent to sell any of the securities classified as available for sale with unrealized losses and believe that it is more likely than not that we will not have to sell any such securities before a recovery of cost. In most cases, market interest rate fluctuations cause a temporary impairment in value. We expect the fair value to recover as the investments approach their maturity date or re‑pricing date or if market yields for these investments decline. We do not believe that credit quality caused the impairment in any of these securities. Because we believe these impairments are temporary, we have not recognized any other than temporary impairment loss in our consolidated statement of income.

During the year ended December 31, 2015, exclusive of the sale of investments acquired in the Regal merger of $24 million, we received $6.0 million in proceeds from sales, maturities or calls and principal pay-downs on investment securities and realized gains of $69 thousand and realized losses of $4 thousand for total realized net gain of $65 thousand. During the year ended December 31, 2014, we received $43.5 million in proceeds from sales, maturities or calls and principal pay-downs on investment securities and realized gains of $239 thousand and realized losses of $109 thousand for a total net gain of $130 thousand.  As a result of the Regal acquisition, we acquired $24 million in investment securities, which consisted of longer duration MBS that we sold immediately for no effect on the income statement.  Proceeds from the sale of this portfolio was used to purchase shorter duration 15 year MBS and municipal bonds.

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Contractual maturities and pledged securities at December 31, 2015 and 2014 are shown below. Actual maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties. In addition, we classify mortgage backed securities based on maturity date, although the Bank receives payments on a monthly basis. We have pledged securities to customers who have funds invested in overnight repurchase agreements and deposits.

	2015				2014
	Amortized		Fair		Amortized		Fair
December 31,	cost		value		cost		value
Maturing
Within one year	$	2,999,978	$	3,000,000	$	3,544,342	$	3,634,258
Over one to five years		38,043,946		37,821,084		62,179,718		62,121,507
Over five to ten years		18,196,837		18,530,454		33,569,550		33,063,305
Over ten years		135,401,830		135,354,137		62,629,755		62,861,128
	$	194,642,591	$	194,705,675	$	161,923,365	$	161,680,198
Pledged securities	$	42,610,016	$	42,385,435	$	53,569,275	$	53,320,790

6. Loans and Allowance for Loan Losses

Major classifications of loans are as follows:

	December 31, 2015						December 31, 2014
	Legacy(1)		Acquired		Total		Legacy(1)		Acquired		Total
Commercial Real Estate
Owner Occupied	$	193,909,818	$	57,212,598	$	251,122,416	$	192,723,718	$	27,891,137	$	220,614,855
Investment		298,434,087		57,749,376		356,183,463		208,766,058		41,624,825		250,390,883
Hospitality		91,440,548		10,776,561		102,217,109		76,342,916		8,319,644		84,662,560
Land and A&D		50,584,469		7,538,964		58,123,433		40,260,506		4,785,753		45,046,259
Residential Real Estate
First Lien—Investment		69,121,743		31,534,452		100,656,195		49,578,862		24,185,571		73,764,433
First Lien—Owner Occupied		37,486,858		52,204,717		89,691,575		31,822,773		51,242,355		83,065,128
Residential Land and A&D		35,219,801		6,578,950		41,798,751		22,239,663		8,509,239		30,748,902
HELOC and Jr. Liens		24,168,289		4,350,956		28,519,245		20,854,737		3,046,749		23,901,486
Commercial and Industrial		105,963,233		9,519,465		115,482,698		98,310,009		9,694,782		108,004,791
Consumer		6,631,311		243,804		6,875,115		9,068,755		313,739		9,382,494
		912,960,157		237,709,843		1,150,670,000		749,967,997		179,613,794		929,581,791
Allowance for loan losses		(4,821,214)		(88,604)		(4,909,818)		(4,261,835)		(20,000)		(4,281,835)
Deferred loan costs, net		1,274,533		—		1,274,533		1,283,455		(9,923)		1,273,532
	$	909,413,476	$	237,621,239	$	1,147,034,715	$	746,989,617	$	179,583,871	$	926,573,488

(1) As a result of the acquisitions of Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A. (MB&T), in April 2011,  WSB Holdings, the parent company of WSB, in May 2013 and Regal Bancorp, Inc., the parent company of Regal Bank in December 2015, we have segmented the portfolio into two components, loans originated by the Bank (legacy) and loans acquired from MB&T, WSB and RegalBank (acquired).

Credit Policies and Administration

We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote a complete banking relationship rather than a transactional relationship. In an effort to manage risk, prior to funding, the loan committee consisting of the Executive Officers and seven members of the Board of Directors must approve by a majority vote all credit decisions in excess of a lending officer’s lending authority.

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Management believes that it employs experienced lending officers, secures appropriate collateral and carefully monitors the financial condition of its borrowers and loan concentrations.

In addition to the internal business processes employed in the credit administration area, the Bank retains an outside independent firm to review the loan portfolio. This firm performs a detailed annual review and an interim update. We use the results of the firm’s report to validate our internal ratings and we review the commentary on specific loans and on our loan administration activities in order to improve our operations.

Commercial Real Estate Loans

We finance commercial real estate for our clients, for owner occupied and investment properties. Commercial real estate loans totaled $767.6 million and $600.7 million at December 31, 2015 and 2014. This lending has involved loans secured by owner‑occupied commercial buildings for office, storage and warehouse space, as well as non‑owner occupied commercial buildings. Our underwriting criteria for commercial real estate loans include maximum loan‑to‑value ratios, debt coverage ratios, secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial real estate may be large in size and may involve a greater degree of risk than one‑to‑four family residential mortgage loans. Payments on such loans are often dependent of successful operation or management of the properties. We will generally finance owner occupied commercial real estate that does not exceed loan to value of 80% and investor real estate at a maximum loan to value of 75%.

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

At December 31, 2015 and 2014, we had approximately $102.2 million and $84.7 million, respectively, of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region.

Residential Real Estate Loans

We offer a variety of consumer oriented residential real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on investment properties. Our residential loan portfolio amounted to $260.7 millionand $211.5 million at December 31, 2015 and 2014. Although most of these loans are in our market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the borrower’s primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis of the borrower’s debt/income ratio which generally may not exceed 43%, collateral value, length of employment and prior credit history. A credit score of 660 is required. We do not originate any subprime residential real estate loans.

This segment of our portfolio also consists of funds advanced for construction of custom single family residences homes (where the home buyer is the borrower) and financing to builders for the construction of pre-sold homes and multi‑family housing. These loans generally have short durations, meaning maturities typically of twelve months or less.  The Bank limits its construction lending risk through adherence to established underwriting procedures. These loans generally have short durations, meaning maturities typically of twelve months or less. Residential houses, multi‑family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. The vast majority of these loans are concentrated in our market area.

Construction lending also entails significant risk. These risks generally involve larger loan balances concentrated with single borrowers with funds advanced upon the security of the land or the project under construction. An appraisal of the property estimates the value of the project “as is” and “as if completed.” An appraisal of the property estimates the

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

We generally only offer real estate construction financing only to experienced builders, commercial entities or individuals who have demonstrated the ability to obtain a permanent loan “take‑out” (conversion to a permanent mortgage upon completion of the project). We also perform a complete analysis of the borrower and the project under construction. This analysis includes a review of the cost to construct, the borrower’s ability to obtain a permanent “take‑out” the cash flow available to support the debt payments and construction costs in excess of loan proceeds, and the value of the collateral. During construction, we advance funds on these loans on a percentage of completion basis. We inspect each project as needed prior to advancing funds during the term of the construction loan.  We may provide permanent financing on the same projects for which we have provided the construction financing.

We also offer fixed rate home improvement loans.  Our home equity and home improvement loan portfolio gives us a diverse client base.  Although most of these loans are in our market area, the diversity of the individual loans in the portfolio reduces our potential risk.  Usually, we secure our home equity loans and lines of credit with a security interest in the borrower’s primary or secondary residence.

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

Commercial and Industrial Lending

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

Commercial business loans have a higher degree of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the business. They may also involve high average balances, increased difficulty monitoring and a high risk of default. To help manage this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring generally includes a review of the borrower’s annual tax returns and updated financial statements.

Consumer Loans

We offer various types of secured and unsecured consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. This category includes our luxury boat loans, which we

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(Continued)

made prior to 2008 and that remain in our portfolio.  Consumer loans, however, are not a focus of our lending activities.  The underwriting standards for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan. As a general guideline, a consumer’s total debt service should not exceed 40% of his or her gross income.

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

Concentrations of Credit

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

Non‑Accrual and Past Due Loans

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

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The table below presents an aging analysis of the loan held for investment portfolio at December 31, 2015 and 2014.

	Age Analysis of Past Due Loans
	December 31, 2015						December 31, 2014
	Legacy		Acquired		Total		Legacy		Acquired		Total
Current	$	907,545,764	$	230,336,630	$	1,137,882,394	$	746,375,748	$	173,731,329	$	920,107,077
Accruing past due loans:
30 - 89 days past due
Commercial Real Estate:
Owner Occupied		—		1,359,110		1,359,110		—		—		—
Investment		—		—		—		—		572,565		572,565
Land and A&D		459,655		157,866		617,521		—		—		—
Residential Real Estate:
First-Investment		288,747		1,253,005		1,541,752		297,221		189,739		486,960
First-Owner Occupied		241,445		2,124,416		2,365,861		—		1,423,752		1,423,752
Land and A&D		—		—		—		—		168,875		168,875
HELOC and Jr. Liens		—		—		—		—		87,703		87,703
Commercial		4,471		873,796		878,267		45,483		1,167,538		1,213,021
Consumer		—		2,039		2,039		—		9,308		9,308
Total 30 - 89 days past due		994,318		5,770,232		6,764,550		342,704		3,619,480		3,962,184
90 or more days past due
Commercial Real Estate:
Land and A&D		—		128,938		128,938		—		—		—
Residential Real Estate:
First-Owner Occupied		—		—		—		—		305,323		305,323
Consumer		—		499		499		—		—		—
Total 90 or more days past due		—		129,437		129,437		—		305,323		305,323
Total accruing past due loans		994,318		5,899,669		6,893,987		342,704		3,924,803		4,267,507
Recorded Investment Non-accruing loans:
Commercial Real Estate:
Owner Occupied		2,474,813		—		2,474,813		1,849,685		55,707		1,905,392
Investment		—		64,447		64,447		—		—		—
Land and A&D		—		261,700		261,700		—		—		—
Residential Real Estate:
First-Investment		102,443		580,696		683,139		113,264		310,735		423,999
First-Owner Occupied		—		566,701		566,701		—		795,920		795,920
Land and A&D		—		—		—		—		795,300		795,300
Commercial		1,842,819		—		1,842,819		1,165,955		—		1,165,955
Consumer		—		—		—		120,641		—		120,641
Total Recorded Investment
Non-accruing past due loans:		4,420,075		1,473,544		5,893,619		3,249,545		1,957,662		5,207,207
Total Loans	$	912,960,157	$	237,709,843	$	1,150,670,000	$	749,967,997	$	179,613,794	$	929,581,791

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

We individually evaluate all legacy substandard loans risk rated seven, certain legacy special mention loans risk rated six and all legacy TDRfor impairment. We individually evaluate all acquired loans that we risk rated substandard seven subsequent to the acquisition, certain acquired special mention loans risk rated six and all acquired TDRs for impairment. We also evaluate all loans acquired and recorded at fair value under ASC 310‑30 for impairment.

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The table below presents our impaired loans at December 31, 2015.

Impaired Loans Twelve months ended December 31, 2015
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	$	575,562	$	575,562	$	—	$	1,232,306	$	13,147
Investment		1,264,141		1,264,141		—		1,264,141		56,959
Residential Real Estate:
First-Investment		102,443		102,443		—		330,106		—
Commercial		922,826		922,826		—		3,338,295		—
With an allowance recorded:
Commercial Real Estate:
Owner Occupied		2,153,214		2,153,214		119,199		6,605,858		—
Commercial		1,039,255		1,039,255		605,336		1,997,077		9,593
Consumer		—		—		—		—		—
Total legacy impaired		6,057,441		6,057,441		724,535		14,767,783		79,699
Acquired(1)
With no related allowance recorded:
Commercial Real Estate:
Investment		—		—		—		—		—
Land and A&D		267,113		261,700		—		490,977		—
Residential Real Estate:
First-Owner Occupied		528,964		518,243		—		1,062,798		28477
First-Investment		—		—		—		—		—
Land and A&D		—		—		—		—		—
Commercial		—		—		—		—		—
With an allowance recorded:
Residential Real Estate:
First-Investment		223,617		219,225		88,604		367,261		—
Total acquired impaired		1,019,694		999,168		88,604		1,921,036		28,477
Total impaired	$	7,077,135	$	7,056,609	$	813,139	$	16,688,819	$	108,176

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

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The table below presents our impaired loans at December 31, 2014.

Impaired Loans Twelve months ended December 31, 2014
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied	$	2,113,173	$	2,113,173	$	—	$	2,111,733	$	18,318
Investment		1,319,280		1,319,280		—		1,315,243		58,664
Residential Real Estate:
First-Investment		113,264		113,264		—		112,027		—
Commercial		979,039		979,039		—		975,224		4,767
With an allowance recorded:
Commercial		375,450		375,450		159,040		365,860		13,101
Consumer		120,641		120,641		56,500		120,641		1,038
Total legacy impaired		5,020,847		5,020,847		215,540		5,000,728		95,888
Acquired(1)
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied		48,359		55,706		—		48,359		1,742
Land and A&D		1,309,568		595,300		—		1,201,246		8,357
Residential Real Estate:
First-Owner Occupied		1,058,125		1,016,765		—		1,055,774		17,782
First-Investment		311,089		310,735		—		311,089		14,866
Land and A&D		—		—		—		—		—
Commercial		83,857		83,857		—		83,717		4,512
With an allowance recorded:
Commercial Real Estate:
Land and A&D		223,336		200,000		20,000		223,536		10,529
Residential Real Estate:
First-Owner Occupied		—		—		—		—		—
Land and A&D		—		—		—		—		—
Total acquired impaired		3,034,334		2,262,363		20,000		2,923,721		57,788
Total impaired	$	8,055,181	$	7,283,210	$	235,540	$	7,924,449	$	153,676

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

We consider a loan a TDR when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Restructured loans at December 31, 2015 consisted of five loans for $711thousand compared to four loans at December 31, 2014 for $589 thousand.

The following table includes the recorded investment and number of modifications for TDRs for the years ended December 31, 2015 and 2014. We report the recorded investment in loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge‑off of the principal balance prior to the modification.

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	Loans Modified as a TDR for the twelve months ended
	December 31, 2015					December 31, 2014
		Pre-		Post			Pre-		Post
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
Troubled Debt Restructurings—	# of	Recorded		Recorded		# of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment		Contracts	Investment		Investment
Acquired
Residential Real Estate Owner Occupied	2		416,012		416,012	—		—		—
Total Troubled Debt Restructurings	2	$	416,012	$	416,012	—	$	—	$	—

There were no loans that were modified as TDRs during the previous 12 months and for which there was a payment default during the years ended December 31, 2015 or 2014.  One residential real estate loan for $232 thousand was modified as a TDR at maturity and extended for a five year term. 

For our acquisition of Regal on December 4, 2015, we recorded all loans acquired at the estimated fair value on their purchase date with no carryover of the related allowance for loan losses.  On the acquisition date, we segregated the loan portfolio into two loan pools, performing and non-performing. 

We had an independent third party determine the net discounted value of cash flows on 318 performing loans totaling $88.2 million.  The valuation took into consideration the loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining balances.  These performing loans were segregated into pools based on loan and payment type and in some cases, risk grade.  The effect of this fair valuation process was a net discount of $675 thousand at acquisition.  We then adjusted these values for inherent credit risk within each pool, which resulted in a total credit adjustment of $1.2 million. 

We also individually evaluated 25 impaired loans totaling $7.5 million to determine the fair value as of the December 4, 2015 measurement date.  In determining the fair value for each individually evaluated impaired loan, we considered a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral and net present value of cash flows we expect to receive, among others. 

We established a credit related non-accretable difference of $2.1 million relating to these purchased credit impaired loans, reflected in the recorded net fair value.  We further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $303 thousand on the acquisition date relating to these impaired loans.

The following table outlines the contractually required payments receivable, cash flows we expect to receive, non-accretable credit adjustments and the accretable yield for all Regal impaired loans as of the acquisition date, December 4, 2015.

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	Purchased
	Credit
	Impaired
Contractually required principal at acquisition	$	7,471,627
Contractual cash flows not expected to be collected (non accretable difference)		(2,125,940)
Expected cash flows at acquisition		5,345,687
Accretable difference		(303,288)
Basis in purchased credit impaired loans at acquisition - estimated fair value	$	5,042,399

The following table documents changes in the accretable discount on all purchased credit impaired loans during the periods ended December 31, 2015 and 2014, along with the outstanding balances and related carrying amounts for the beginning and end of those respective periods.

	December 31,
	2015		2014
Balance at beginning of period	$	(31,551)	$	40,771
Additions due to Regal acquisition		303,288		—
Accretion of fair value discounts		(251,595)		(1,018,309)
Reclassification from non-accretable (1)		256,750		945,987
Balance at end of period		276,892		(31,551)
	Contractually
	Required
	Payments		Carrying
	Receivable		Amount
At December 31, 2015	$	14,875,352	$	10,675,943
At December 31, 2014		10,658,840		7,994,604

(1) Represents amounts paid in full on loans, payments on loans with zero balances and an increase in cash flows expected to be collected.

Credit Quality Indicators

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

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

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With respect to commercial loans, management assigns a risk rating of one through nine as follows:

· Risk rating 1 (Highest Quality)—This category has the highest relative probability of repayment. Borrowers in this category would normally be investment grade risks, meaning entities having access (or capable of access) to the public capital markets and the supporting loan underwriting conforms to the standards of institutional credit providers. Credit risk is virtually absent due to the borrower’s substantial financial capacity, superior liquidity, and outstanding debt service coverage. This rating is generally reserved for the strongest customers of the Bank, or for loans that are secured by a perfected security interest in U. S. Government securities, investment grade government sponsored entities bonds, investment grade municipal bonds, insured savings accounts and insured certificates of deposit drawn on Old Line Bank or other high quality financial institutions. Loans to individuals of vast financial capacity, or those supported by conservatively margined liquid collateral, may warrant this Highest Quality rating.

· Risk rating 2 (Very Good Quality) is normally assigned to a loan with a very high probability of repayment. Borrowers in this category may have access to alternative sources of financing. Credit risk is minimal due to the borrower’s sound primary and secondary repayments sources, strong debt capacity and coverage and good management in all key positions. This rating is generally reserved for strong customers of the Bank, or for loans secured by a properly margined portfolio of high quality traded stocks, lower grade municipal bonds and uninsured certificates of deposit at other financial institutions. Loans to individuals of substantial financial capacity, exhibiting significant liquidity, low leverage and a well‑defined source of repayment may warrant this Very Good Quality rating.

· Risk rating 3 (Good Quality) is normally assigned to a loan with a sound primary and secondary source of repayment. This category represents a below average degree of risk as to repayment with no loss potential indicated. Borrowers in this category represent a reasonable credit risk with demonstrated ability to repay the debt from normal business operations. Borrowers should have a sound balance sheet, modest leverage, good liquidity and above average debt service coverage. There should be no significant departure from the intended source and timing of repayment and no undue reliance on secondary sources of repayment. To the extent that some variance exists in one or more criteria being measured, it may be offset by the relative strength of other factors and/or collateral pledged to secure the transaction. Loans to individuals of strong financial capacity, exhibiting good liquidity, reasonable leverage and defined primary and secondary sources of repayment may warrant this Good Quality rating.

· Risk rating 4 (Average Quality)—This category represents an average degree of risk as to repayment with minimal to no loss potential indicated. Borrowers in this category exhibit generally stable operating trends. Borrowers should have a satisfactory balance sheet, manageable leverage, moderate liquidity and average debt service coverage. There should be no adverse departure from the intended source and timing of repayment and secondary sources of repayment should be readily available. Loans to individuals with adequate to strong net worth and some liquidity may warrant an Average Quality rating.

· Risk rating 5 (Pass/Watch)—Borrowers in this category generally exhibit characteristics of an Average Quality credit, but may be experiencing income volatility, negative operating trends and a more highly leveraged balance sheet, thus warranting more than the normal level of supervision. Loans to borrowers with industry volatility, declining market share, marginal or new management, weak internal reporting systems, inadequate financial reporting to the Bank and loans to start‑up businesses or businesses with untested management generally warrant a “Watch” designation; provided, however, that events or circumstances prompting this rating do not constitute an undue or unwarranted credit risk. Credits that require additional monitoring such as construction loans, asset based loans and loans granted under certain government lending programs (i.e. U. S. Small Business Administration—“SBA”) may be carried in this category where the risk or monitoring needs may be higher than the norm. Additionally, credits may be placed in this category

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because of an adverse event that has not weakened the credit, but which should be followed to assure that resolution occurs without material impact on the borrower.

· Risk rating 6 (Special Mention)—Loans in this category generally represent currently protected, but potentially weak assets that deserve management’s close attention. If left uncorrected, the potential weaknesses may, at some future date, result in deterioration of the repayment prospects for the loan or in the Bank’s credit position. These loans constitute an unwarranted credit risk, but do not expose the Bank to sufficient risk to warrant adverse classification. Loans in this category may include credits that the Bank may be unable to supervise properly because of a lack of expertise, inadequate loan agreement, outdated and /or incomplete financial reporting, the condition of and control over collateral, failure to obtain proper documentation, or any other deviations from prudent lending practices. Economic or market conditions that may, in the future, affect the borrower, an adverse trend in the borrower’s operations or an imbalanced position in the balance sheet that has not reached a point where liquidation is jeopardized may warrant this Special Mention designation.

· Risk rating 7 (Substandard)—Loans in this category represent assets inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets have a well‑defined weakness, or weaknesses, that jeopardize liquidation of the debt and are characterized by the distinct possibility that the Bank will sustain some loss if deficiencies are not corrected. Loss potential, while existing in the aggregate amount of Substandard credits, does not have to exist in individual extensions of credit classified Substandard. Loans in this category are subject to impairment analysis, may require a specific reserve allocation and may be placed on non‑accrual status.

· Risk rating 8 (Doubtful)—Loans in this category have all the weaknesses inherent in a Substandard credit with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly improbable. The key issue that makes a loan Doubtful is the potential for loss. The possibility for some degree of loss is extremely high, but because of certain important and reasonably specific pending factors that may be advantageous and strengthen the credit, a classification as an estimated loss is deferred until a more exact status can be determined. Such pending factors could include a proposed merger, acquisition or liquidation procedures, additional capital injection, perfection of liens on additional collateral and refinancing plans. Doubtful assets are subject to impairment analysis, a specific reserve allocation and must be placed on non‑accrual status.

· Risk rating 9 (Loss) is assigned to charged‑off loans. We consider assets classified as loss as uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has no recovery value, but that it is not practical to defer writing off the worthless assets, even though partial recoveries may occur in the future. Loans are charged off within the period in which they are determined to be uncollectible.

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

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

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

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(Continued)

The following tables outline the allocation of the loan portfolio by risk rating at December 31, 2015 and 2014.

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

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(Continued)

	Account Balance
December 31, 2014	Legacy		Acquired		Total
Risk Rating
Pass(1 - 5)
Commercial Real Estate:
Owner Occupied	$	189,360,330	$	24,816,057	$	214,176,387
Investment		205,395,067		40,023,958		245,419,025
Hospitality		76,342,916		8,319,644		84,662,560
Land and A&D		37,227,339		4,419,829		41,647,168
Residential Real Estate:
First-Investment		48,263,092		22,746,166		71,009,258
First-Owner Occupied		31,740,158		47,472,349		79,212,507
Land and A&D		20,601,936		6,396,128		26,998,064
HELOC and Jr. Liens		20,847,571		3,046,749		23,894,320
Commercial		94,818,009		6,847,628		101,665,637
Consumer		9,272,091		313,739		9,585,830
		733,868,509		164,402,247		898,270,756
Special Mention(6)
Commercial Real Estate:
Owner Occupied		357,092		2,444,375		2,801,467
Investment		1,731,771		846,789		2,578,560
Hospitality		—		—		—
Land and A&D		3,033,167		365,924		3,399,091
Residential Real Estate:
First-Investment		1,202,506		649,375		1,851,881
First-Owner Occupied		82,616		2,367,157		2,449,773
Land and A&D		1,637,727		710,163		2,347,890
HELOC and Jr. Liens		7,166		—		7,166
Commercial		2,147,102		1,871,103		4,018,205
Consumer		—		—		—
		10,199,147		9,254,886		19,454,033
Substandard(7)
Commercial Real Estate:
Owner Occupied		3,006,294		630,707		3,637,001
Investment		1,315,243		754,079		2,069,322
Hospitality		—		—		—
Land and A&D		—		—		—
Residential Real Estate:
First-Investment		113,264		790,030		903,294
First-Owner Occupied		—		1,402,848		1,402,848
Land and A&D		—		1,402,947		1,402,947
HELOC and Jr. Liens		—		—		—
Commercial		1,344,899		976,050		2,320,949
Consumer		120,641		—		120,641
		5,900,341		5,956,661		11,857,002
Doubtful(8)		—		—		—
Loss(9)		—		—		—
Total	$	749,967,997	$	179,613,794	$	929,581,791

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(Continued)

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015 and 2014.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

			Commercial		Residential
December 31, 2015	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835
Provision for loan losses		675,598		495,537		282,398		(142,549)		1,310,984
Recoveries		16,068		20		135,908		58,105		210,101
		1,388,037		3,053,925		1,345,301		15,657		5,802,920
Loans charged off		(226,719)		—		(662,339)		(4,044)		(893,102)
Ending Balance	$	1,161,318	$	3,053,925	$	682,962	$	11,613	$	4,909,818
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	605,336	$	119,199	$	—	$	—	$	724,535
Other loans not individually evaluated		555,982		2,934,726		594,358		11,613		4,096,679
Acquired Loans:
Individually evaluated for impairment		—		—		88,604		—		88,604
Ending balance	$	1,161,318	$	3,053,925	$	682,962	$	11,613	$	4,909,818

			Commercial		Residential
December 31, 2014	Commercial		Real Estate		Real Estate		Consumer		Total
Beginning balance	$	495,051	$	3,569,395	$	841,234	$	23,533	$	4,929,213
Provision for loan losses		206,558		1,668,877		843,810		108,052		2,827,297
Recoveries		12,342		122		75,149		27,319		114,932
		713,951		5,238,394		1,760,193		158,904		7,871,442
Loans charged off		(17,580)		(2,680,026)		(833,198)		(58,803)		(3,589,607)
Ending Balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835
Amount allocated to:
Legacy Loans:
Individually evaluated for impairment	$	159,040	$	—	$	—	$	56,500	$	215,540
Other loans not individually evaluated		537,331		2,558,368		906,995		43,601		4,046,295
Acquired Loans:
Individually evaluated for impairment		—		—		20,000		—		20,000
Ending balance	$	696,371	$	2,558,368	$	926,995	$	100,101	$	4,281,835

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Our recorded investment in loans as of December 31, 2015 and 2014 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

			Commercial		Residential
December 31, 2015	Commercial		Real Estate		Real Estate		Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	1,039,255	$	2,153,214	$	—	$	—	$	3,192,469
Individually evaluated for impairment without specific reserve		2,186,966		575,562		102,443		—		2,864,971
Other loans not individually evaluated		102,737,011		631,640,146		165,894,248		6,631,311		906,902,716
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)		—		—		219,225		—		219,225
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)		—		261,700		518,244		—		779,944
Individually evaluated for impairment with specific reserve (ASC 310-30 at acquisition)		—		—		—		—		—
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)		9,519,466		133,015,800		93,931,605		243,804		236,710,675
Ending balance	$	115,482,698	$	767,646,422	$	260,665,765	$	6,875,115	$	1,150,670,000

			Commercial		Residential
December 31, 2014	Commercial		Real Estate		Real Estate		Consumer		Total
Legacy loans:
Individually evaluated for impairment with specific reserve	$	375,450	$	—	$	—	$	120,641	$	496,091
Individually evaluated for impairment without specific reserve		979,039		3,432,453		113,264		—		4,524,756
Other loans not individually evaluated		96,943,910		514,660,746		124,382,772		8,948,114		744,935,542
Acquired loans:
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition)		—		—		—		—		—
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition)		83,857		651,006		1,327,500		—		2,062,363
Individually evaluated for impairment with specific reserve (ASC 310-30 at acquisition)		—		200,000		—		—		200,000
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition)		9,622,535		81,770,352		85,656,413		313,739		177,363,039
Ending balance	$	108,004,791	$	600,714,557	$	211,479,949	$	9,382,494	$	929,581,791

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The following table outlines the maturity and rate re‑pricing distribution of the loan portfolio. For purposes of this disclosure, we have classified non‑accrual loans as immediately re‑pricing or maturing.

December 31,	2015		2014
Within one year	$	294,941,852	$	246,286,107
Over one to five years		594,825,353		537,027,145
Over five years		260,902,795		146,268,539
	$	1,150,670,000	$	929,581,791

As of December 31, 2015, the Bank has pledged loans totaling $160.7 million support Federal Home Loan Bank borrowings.

The Bank makes loans to customers located in the Maryland suburbs and the surrounding Baltimore area. Residential and commercial real estate secure substantial portions of the Bank’s loans. Although the loan portfolio is diversified, the regional real estate market and economy will influence its performance.

7. Equity Securities

We own the following equity securities:

December 31,	2015		2014
Federal Reserve Bank stock	$	—	$	2,919,700
Atlantic Central Bankers Bank stock		219,500		189,500
Federal Home Loan Bank stock		4,366,600		2,550,000
ICBA Stock		1,750		—
Maryland Financial Bank stock		152,496		152,497
Investment in Maryland Statutory Trust		202,000		—
Total	$	4,942,346	$	5,811,697

We carry these securities at cost and have evaluated them for other than temporary impairment. In 2015 and 2014, we did not record any such impairment.

8. Pointer Ridge Office Investment, LLC

We own 62.5% of Pointer Ridge and consolidate its results of operations with ours. The following table summarizes the condensed Balance Sheets and Statements of Income information for Pointer Ridge.

Pointer Ridge Office Investment, LLC

December 31,	2015		2014		2013
Condensed Balance Sheets
Current assets	$	281,441	$	269,314	$	286,206
Non-current assets		6,281,601		6,433,380		6,622,560
Liabilities		5,874,560		6,003,139		6,108,972
Equity		688,484		699,555		799,794
Condensed Statements of Income
Revenue	$	985,480	$	944,022	$	909,312
Expenses		996,552		1,044,261		1,153,644
Net loss	$	(11,072)	$	(100,239)	$	(244,332)

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(Continued)

9. Premises and Equipment

A summary of our premises and equipment and the related depreciation expense follows:

December 31,	2015		2014
Land	$	5,825,061	$	5,905,061
Building		29,662,308		26,280,921
Leasehold improvements		5,870,113		5,308,510
Furniture and equipment		8,277,557		6,030,526
		49,635,039		43,525,018
Accumulated depreciation		13,460,061		9,224,643
Net premises and equipment	$	36,174,978	$	34,300,375
Depreciation expense	$	2,134,286	$	1,980,807

10. Deposits

Major classifications of interest bearing deposits are as follows:

December 31,	2015		2014
Money market and NOW	$	367,238,001	$	315,796,421
Savings		96,629,323		90,129,603
Time deposits that meet or exceed the FDIC insured limit		59,932,692		48,769,745
Other time deposits		383,530,545		300,130,116
	$	907,330,561	$	754,825,885

Time deposits mature as follows:

December 31,	2015		2014
Within three months	$	72,207,928	$	78,934,081
Over three to twelve months		148,980,683		120,637,956
Over one to three years		144,518,165		110,181,433
Over three to five years		77,756,461		39,146,391
	$	443,463,237	$	348,899,861

Interest on deposits for the years ended December 31, 2015, 2014 and 2013, consisted of the following:

December 31,	2015		2014		2013
Money market and NOW	$	723,666	$	715,626	$	614,402
Savings		111,385		137,903		137,293
Other time deposits		3,411,939		2,548,093		2,964,349
	$	4,246,990	$	3,401,622	$	3,716,044

11. Short Term Borrowings

Bancshares has available an unsecured $5.0 million line of credit. The Bank has available lines of credit including overnight federal funds and reverse repurchase agreements from its correspondent banks totaling $33.5 million as of December 31, 2015.  The Bank has an additional secured line of credit from the Federal Home Loan Bank of Atlanta (FHLB) of $397.3 million.  Prior to allowing the Bank to borrow under the line of credit, the FHLB requires that the Bank

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(Continued)

provide collateral to support borrowings.  This collateral consists primarily of our commercial real estate loans, residential real estate loans and our multi‑family loans.  At December 31, 2015, we had provided $160.7 million in lendable collateral value and as outlined below have borrowed $74.0 million.  We have additional available borrowing capacity of $86.7 million. We may increase this availability by pledging additional collateral.  As a condition of obtaining the line of credit from the FHLB, the FHLB also requires that the Bank purchase shares of capital stock in the FHLB.

Securities Sold Under Agreements to Repurchase

To support the $33.5 million in repurchase agreements at December 31, 2015, we have provided collateral in the form of investment securities.  At December 31, 2015, we have pledged $42.6 million in U.S. government agency securities and mortgage-backed securities to customers who require collateral for overnights repurchase agreements and deposits.  Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction.  As a result, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.  We monitor collateral levels on a continuous basis.  We may be required to provide additional collateral based on the fair value of the underlying securities in the event the collateral fair value falls below stipulated levels.  We closely monitor the collateral levels to ensure adequate levels are maintained. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.  We have the right to sell or re-pledge the investment securities.  For government entity repurchase agreements, the collateral is held by Old Line Bank in a segregated custodial account under a tri-party agreement.  The repurchase agreements totaling $33.5 million mature daily and will remain fully collateralized until the account has been closed or terminated.

At December 31, 2015, the book and market values of securities pledged as collateral for repurchase agreements were $42,610,016 and $42,385,435, respectively

The Bank previously sold short term promissory notes to its customers. These notes re‑priced and matured on a daily basis. This program terminated in 2014.  Federal funds purchased are unsecured, overnight borrowings from other financial institutions. Short‑term borrowings from the FHLB have a remaining maturity of less than one year.

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Information related to short term borrowings is as follows:

	2015						2014
					Maximum Amount						Maximum Amount
					Borrowed During						Borrowed During
					Any Month End						Any Month End
December 31,	Amount		Rate		Period		Amount		Rate		Period
Short term promissory notes	$	—	—	%	$	—	$	—	—	%	$	—
Repurchase agreements		33,557,246	0.17			33,557,246		27,502,889	0.19			37,841,441
FHLB daily rate advances		34,000,000	0.49			64,000,000		33,500,000	0.36			45,000,000
FHLB adjustable rate advances		3,000,000	0.38			2,500,000		—	—			—
FHLB fixed rate advances		37,000,000	0.39			87,500,000		—	—			—
Total short term borrowings	$	107,557,246			$	187,557,246	$	61,002,889			$	82,841,441
Average for the year
Short term promissory notes	$	—	—	%			$	4,104,963	0.15	%
Repurchase agreements		29,038,197	0.17					31,144,877	0.25
FHLB daily rate advances		18,756,567	0.38					4,250,137	0.35
FHLB adjustable rate advances		504,734	0.36					—	—
FHLB fixed rate advances		47,059,726	0.21					—	—
Total	$	95,359,224					$	39,499,977

12. Long Term Borrowings

The table below presents Bancshares’ long term borrowings at December 31, 2015 and 2014.  The senior note is an obligation of Pointer Ridge. It has a 10 year fixed interest rate of 6.28% and matures on September 5, 2016.  The trust preferred subordinated debentures, acquired in the Regal acquisition, consists of two trusts - Trust 1 in the amount of $4.0

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(Continued)

million (fair value adjustment of $1.6 million) maturing in 2034 and Trust 2 in the amount of $2.0 (fair value adjustment of $1.3 million) maturing in 2035.

	2015				2014
December 31,	Amount		Rate		Amount		Rate
Amount outstanding at year end
Senior note	$	5,874,560	6.28	%	$	5,987,283	6.28	%
Subordinated Debentures
Trust 1 - Floating 90-day LIBOR plus 2.85%, due 2034		4,000,000	3.18
Acquisition fair value adjustment		(1,647,400)
Trust 2 - Floating 90-day LIBOR plus 1.60%, due 2035		2,500,000	1.94
Acquisition fair value adjustment		(1,335,842)
Stock on subordinated debentures		202,000
Net carrying value		3,718,758	2.71	(1)
Total	$	9,593,318			$	5,987,283
Average for the year
Senior note, fixed at 6.28%	$	5,926,602	6.28	%	$	6,038,527	6.28	%
Trust preferred subordinated debentures		285,127	2.35			—	—
Total	$	6,211,729			$	6,038,527

(1)The effective yield of the acquired subordinated debentures

Principal payments on long term debt obligations are due as follows:

Year	Amount
2016		5,874,560
over 10 years		3,718,758
	$	9,593,318

13. Related Party Transactions

The Bank has entered into various transactions with firms in which owners are also members of the Board of Directors. Fees charged for these services are at similar rates charged by unrelated parties for similar work. Amounts paid to these related parties totaled $276,618, $275,530 and $266,059, during the years ended December 31, 2015, 2014 and 2013, respectively.

Effective November 1, 2008, we purchased Chesapeake Custom Homes, L.L.C.’s 12.5% membership interest in Pointer Ridge for the book value of $205,000. This purchase increased Bancshares’ membership interest from 50.0% to 62.5%. A director of Bancshares and the Bank, is the President and 52.0% stockholder of Lucente Enterprises, Inc. Lucente Enterprises, Inc. is the manager and majority member of Chesapeake Custom Homes, L.L.C. Lucente Enterprises has retained its 12.5% membership interest in Pointer Ridge. In 2015, 2014 and 2013, the Bank paid Pointer Ridge $897,333, $794,453 and $738,576, respectively, in lease payments.The directors, executive officers and their affiliated companies maintained deposits with the Bank of $9,421,751 and $11,986,023 at December 31, 2015 and, 2014, respectively.

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The schedule below summarizes changes in amounts of loans outstanding to directors and executive officers or their affiliated companies:

December 31,	2015		2014
Balance at beginning of year	$	792,900	$	4,744,365
Additions		1,848,429		311,000
Resignation of Director		—		(4,227,654)
Repayments		(169,380)		(34,811)
Balance at end of year	$	2,471,949	$	792,900

In addition to the outstanding balances, the directors and executive officers or affiliated companies have $212,500 in unused commitments as of December 31, 2015.  In the opinion of management, these transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties.

.

14. Income Taxes

The components of income tax expense are as follows:

December 31,	2015		2014		2013
Current
Federal	$	2,221,756	$	4,598,625	$	2,147,375
State		664,113		202,791		713,723
		2,885,869		4,801,416		2,861,098
Deferred
Federal		1,993,829		(2,551,506)		—
State		502,692		444,194		740,985
		2,496,521		(2,107,312)		740,985
	$	5,382,390	$	2,694,104	$	3,602,083

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(Continued)

The components of deferred income taxes are as follows:

December 31,	2015		2014		2013
Provision for loan losses	$	(247,708)	$	21,173	$	(555,836)
Non-accrual interest		127,487		(44,874)		(122,216)
Impairment losses and expenses on other real estate owned		668,696		—		1,035,745
Director stock options		37,010		(50,658)		37,074
Deferred compensation plans		(100,931)		(67,673)		(116,672)
Deferred loan origination costs, net		80,618		161,565		126,019
Depreciation		—		(205,139)		(4,948)
Mark-to-market tax accounting for acquired securities		—		714,510		186,939
Net operating loss carryover		2,559,903		—		682,887
Accretion of fair value adjustments for acquired assets and liabilities		(803,424)		466,554		—
Non-compete and consulting agreements		9,205		(2,301)		(36,815)
Core deposit intangible amortization		312,542		(341,872)		(330,822)
Defined benefit plan		—		—		(85,784)
Other		759,489		(2,758,597)		(74,586)
AMT		(906,366)		—		—
	$	2,496,521	$	(2,107,312)	$	740,985

The provision for income taxes includes taxes payable for the current year and deferred income taxes. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. We allocate tax expense and tax benefits to the Bank and Bancshares based on their proportional share of taxable income.

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The components of net deferred tax assets and liabilities are as follows:

December 31,	2015		2014
Deferred tax assets
Allowance for loan losses	$	3,019,305	$	1,688,970
Non-accrual interest		134,435		167,090
Impairment losses and expenses on other real estate owned		429,483		3,429,286
Director stock options		6,667		67,167
Deferred compensation plans		2,043,773		1,917,273
Net operating loss carryover		7,628,214		5,882,452
AMT Credit Carryover		1,764,687		—
Fair value adjustments for acquired assets and liabilities		4,848,713		5,023,533
Investment impairment loss		48,320		48,320
Non-compete agreements		94,340		103,543
Other		2,077,428		2,214,192
Net unrealized loss on securities available for sale		(24,883)		95,917
	$	22,070,482	$	20,637,743
Deferred tax liabilities
Deferred loan origination costs, net	$	219,033	$	138,415
Depreciation		2,927,779		2,649,047
Core deposit intangible amortization		1,716,341		1,743,783
		4,863,153		4,531,245
Net deferred tax asset before valuation allowance		17,207,329		16,106,498
Valuation allowance for deferred tax asset		(3,386,650)		—
Net deferred tax asset	$	13,820,679	$	16,106,498

Maryland Bankcorp had net operating loss (NOL) carryovers of $3.54 million at the time of our business combination. We succeed to these carryovers and may take limited annual deductions allowed by the Internal Revenue Code. We will be able to deduct $779,812 every year the Bank has taxable income until the NOL is fully utilized.  The amount we may deduct in any year will be reduced if we recognize a built in loss in such year or if our taxable income is lower than the statutory NOL deduction. If the NOL is not used by the limited annual deductions, any remaining amount of NOL carryforward will expire in 2030.

WSB Holdings, Inc. had NOL carryovers of $12.1 million at the time of our business combination in May 2013. We succeed to these carryovers and may take limited annual deductions allowed by the Internal Revenue Code.  We will be able to deduct $1,477,746 every year the Bank has taxable income until the NOL is fully utilized.  The amount we may deduct in any year will be reduced if we recognize a built in loss in such year or if our taxable income is lower than the statutory NOL deduction.  If the NOL is not used by the limited annual deductions, any remaining amount of NOL carryforward will expire in 2033.

Regal Bancorp had NOL carryovers of $8.7 million at the time of our business combination in December 2015.  We succeed to these carryovers and may take limited annual deductions allowed by the Internal Revenue Service Code.  We will be able to deduct $182,620 every year the Bank has taxable income until the NOL is fully utilized.  The amount we may deduct in any year will be reduced if we recognize a built in loss in such year or if our taxable income is lower than the statutory NOL deduction. If the NOL is not used by the limited annual deductions, any remaining amount of NOL carryforward will expire in 2035. Additionally, the deferred tax asset was increased by $3.6 million at the time of acquisition that will be analyzed for utilization in future years.

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(Continued)

We classify interest and penalties related to income tax assessments, if any, in income tax expense in the consolidated statements of operations. Bancshares and its subsidiaries file a consolidated U.S. federal tax return and both Bancshares and the Bank file a Maryland state income tax return. These returns are subject to examination by taxing authorities for all years after 2009. We had no material uncertain tax positions at December 31, 2015 or 2014 and there was no unrecognized tax benefit as of December 31, 2015 or 2014.

The following table reconciles the differences between the federal income tax rate of 34 percent and our effective tax rate:

December 31,	2015		2014		2013
Statutory federal income tax rate	34	%	34	%	34	%
Increase (decrease) resulting from State income taxes, net of federal income tax benefit	4.7		4.3		4.9
Bank owned life insurance	(1.9)		(2.9)		(2.1)
Other tax exempt income	(5.7)		(9.1)		(8.1)
Stock based compensation awards	0.6		0.6		0.4
Other non-deductible expenses	1.2		0.5		2.7
Other	1.0		—		—
Net income attributable to the non-controlling interest	—		—		—
Effective tax rate	33.9	%	27.4	%	31.8	%

15. Employee Benefits

Eligible employees participate in a profit sharing plan that qualifies under Section 401(k) of the Internal Revenue Code. The plan allows for elective employee deferrals and the Bank makes matching contributions of up to 4% of eligible employee compensation. Our contributions to the plan, included in employee benefit expenses, were $506,325, $474,028 and $439,647 for 2015, 2014, and 2013, respectively.

The Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive officers providing for retirement income benefits. We accrue the present value of the SERPs over the remaining number of years to the executives’ expected retirement dates. The combined accrued liability for these plans at December 31, 2015 and 2014 was $5.3 million and $5.1 million, respectively. The Bank’s expenses for the SERPs were $617,888, $535,331 and $608,890 in 2015, 2014, and 2013, respectively.

MB&T had an employee benefit plan entitled the Maryland Bankcorp, N.A. KSOP (KSOP). The KSOP included a profit sharing plan that qualified under section 401(k) of the Internal Revenue Code as an employee stock ownership plan. We have discontinued any future contributions to the employee stock ownership plan. At December 31, 2015, the employee stock ownership plan owned 71,904 shares of Bancshares’ stock, had $19,073 invested in Old Line Bank certificates of deposit, and $54,535 in an Old Line Bank money market account. We have transferred the MB&T KSOP assets into the Bank’s 401(k) plan discussed above.

Stock Options and Restricted Stock

We maintain the Old Line Bancshares, Inc. 2010 Equity Incentive Plan (the “Plan”) under which we may grant, among other awards, options to purchase Bancshares’ common stock and restricted shares of common stock. The Compensation Committee of the Board of Directors administers the Plan. As the Plans outlines, the Compensation Committee approves stock option grants to directors and employees, determines the number of shares, the type of option, the option price, the term (not to exceed 10 years from the date of issuance) and the vesting period of options granted. The Compensation Committee has approved and we have granted options vesting immediately as well as over periods of two, three and five years. We recognize the compensation expense associated with these grants over their respective vesting

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periods. In 2013, stockholders approved an amendment to increase the number of shares issuable under the Plan by 450,000 shares. As of December 31, 2015, there were 427,548 shares remaining available for future issuance under the Plan. Shares issued upon exercise of options are issued from authorized but unissued shares.

The intrinsic value of the options that directors and officers exercised for the years ended December 31, 2015, 2014 and 2013 was $411,743, $113,230 and $290,129, respectively.

A summary of the status of outstanding options follows:

	2015			2014			2013
		Weighted			Weighted			Weighted
		average			average			average
	Number	exercise		Number	exercise		Number	exercise
	of shares	price		of shares	price		of shares	price
Outstanding, beginning of year	393,162	$	10.14	362,983	$	9.19	398,958	$	8.71
Options granted	50,594		14.38	50,739		16.76	57,712		12.15
Options exercised	(74,800)		10.34	(20,560)		9.65	(79,148)		8.83
Options forfeited	—		—	—		—	(14,539)		9.7
Options expired	—		—	—		—	—		—
Outstanding, end of year	368,956	$	9.82	393,162	$	10.14	362,983	$	9.19

		Outstanding Options			Exercisable Options
	Number of	Weighted			Number of
	shares at	average	Weighted		shares at	Weighted
	December 31,	remaining term	average		December 31,	average
Exercise price	2015	in years	exercise price		2015	exercise price
$6.30 - 9.04	207,030	5.15	$	7.25	173,236	$	7.28
$9.05 - 11.79	45,200	1.78		10.19	40,199		10.55
$11.80 - 14.54	65,987	4.96		13.21	50,657		13.21
$14.54 - 17.00	50,739	7.90		16.76	28,112		16.76
	368,956	4.95	$	9.82	292,204	$	9.25

Intrinsic value of vested exercisable options where the market value exceeds the exercise price	$	2,308,035
Intrinsic value of outstanding options where the market value exceeds the exercise price	$	2,859,559

At December 31, 2015, there was $560,957 of total unrecognized compensation cost related to non‑vested stock options that we expect to realize over the next three years. The following table summarizes the fair values of the options granted and weighted‑average assumptions used to calculate the fair values. We used the Black‑Scholes option pricing model.

Years Ended December 31,	2015			2014			2013
Expected dividends		1.00	%		1.00	%		1.00	%
Risk free interest rate		0.39	%		0.39	%		0.80	%
Expected volatility		30.76	%		30.60	%		32.20	%
Weighted average volatility		10.65	%		10.13	%		28.91	%
Expected life in years		5.50-6.00			5.50-6.00			6.50
Weighted average fair value of options granted	$	5.09		$	2.63		$	2.37

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During the year ended December 31, 2015, we granted 30,726restricted common stock awards under the Plan.

The following table outlines the vesting schedule of the unvested restricted stock awards.

Vesting Schedule of Unvested Restricted Stock
Awards December 31, 2015
	# of Restricted
Vesting Date	Shares
2/26/2016	1,353
2/25/2018	5,128
7/2/2018	21,397
Total Issued	27,878

At December 31, 2015, there is$358,222 unrecognized compensation cost related to non‑vested restricted stock awards that we expect to realize over the next three years. A summary of the restricted stock awards during the year follows:

	December 31, 2015				December 31, 2014				December 31, 2013
			Weighted				Weighted				Weighted
			average				average				average
	Number of		grant date		Number of		grant date		Number of		grant date
	shares		fair value		shares		fair value		shares		fair value
Nonvested, beginning of period		8,522	$	13.35		9,436	$	9.57		16,210	$	7.70
Restricted stock granted		30,725		15.31		8,257		16.76		8,382		12.04
Restricted stock vested		(11,369)		11.19		(9,171)		12.53		(13,125)		8.86
Restricted stock forfeited		—		—		—		—		(2,031)		9.44
Nonvested, end of period		27,878	$	15.52		8,522	$	13.35		9,436	$	9.57
Total fair value of shares vested	$	148,630			$	114,878			$	141,263
Intrinsic value of non-vested restricted stock awards where the market value exceeds the exercise price			$	489,816			$	134,818			$	136,822
Intrinsic value of vested restricted stock awards where the market value exceeds the exercise price			$	199,753			$	145,085			$	190,313

16. Capital Standards

The Federal Deposit Insurance Corporation and the Federal Reserve Board have adopted risk based capital standards for banking organizations. These standards require ratios of capital to assets for minimum capital adequacy and to be classified as well capitalized under prompt corrective action provisions. Under the amended prompt corrective action regulations, effective January 1, 2015, a bank is considered “well capitalized” if it: (i) has a total risk-based capital ratio of 10.0% or greater; (ii) a Tier 1 risk-based capital ratio of 8.0% or greater; (iii) a common Tier 1 equity ratio of at least 6.5% or greater; (iv) a leverage capital ratio of 5.0% or greater; and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.

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As of December 31, 2015 and 2014, the capital ratios and the capital requirements to remain adequately and well capitalized are as follows:

					Minimum capital				To be well
	Actual				adequacy				capitalized
December 31, 2015	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in 000’s)
Total capital (to risk weighted assets)
Consolidated	$	131,803	11.1	%	$	95,185	8	%	$	118,982	10	%
Old Line Bank	$	133,780	11.3	%	$	95,062	8	%	$	118,828	10	%
Tier 1 capital (to risk weighted assets)
Consolidated	$	126,670	10.7	%	$	71,389	6	%	$	95,185	8	%
Old Line Bank	$	128,648	10.8	%	$	71,297	6	%	$	95,062	8	%
Tier 1 capital (to average assets)
Consolidated	$	126,670	9.1	%	$	55,600	4	%	$	69,500	5	%
Old Line Bank	$	128,648	9.3	%	$	55,600	4	%	$	69,500	5	%
Common Equity Tier 1 (to risk-weighted assets)
Consolidated	$	126,670	10.7	%	$	53,542	4.5	%	$	77,338	6.5	%
Old Line Bank	$	128,648	10.8	%	$	53,473	4.5	%	$	77,238	6.5	%

					Minimum capital				To be well
	Actual				adequacy				capitalized
December 31, 2014	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Consolidated	$	121,900	12.7	%	$	76,658	8	%	$	95,822	10	%
Old Line Bank	$	115,896	12.1	%	$	68,529	8	%	$	85,661	10	%
Tier 1 capital (to risk weighted assets)
Consolidated	$	117,750	12.3	%	$	38,329	4	%	$	57,493	6	%
Old Line Bank	$	111,942	11.7	%	$	34,264	4	%	$	51,397	6	%
Tier 1 capital (to average assets)
Consolidated	$	117,750	9.9	%	$	47,800	4	%	$	59,750	5	%
Old Line Bank	$	111,942	9.4	%	$	47,800	4	%	$	59,753	5	%

Tier 1 capital consists of common stock, additional paid‑in capital and retained earnings. Total capital includes a limited amount of the allowance for loan losses. In calculating risk weighted assets, specified risk percentages are applied to each category of asset and off balance sheet items.

Failure to meet the capital requirement could affect our ability to pay dividends and accept deposits and may significantly affect our operations.

In the most recent regulatory report, we were categorized as well capitalized under the prompt corrective action regulations. Management knows of no events or conditions that should change this classification.

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17. Commitments and Contingencies

The Bank is party to financial instruments with off balance sheet risk in the normal course of business in order to meet the financing needs of customers. These financial instruments include commitments to extend credit, available credit lines and standby letters of credit.

December 31,	2015		2014
Commitments to extend credit and available credit lines:
Commercial	$	82,874,665	$	69,346,793
Construction		43,078,641		57,878,474
Residential Real Estate		—		—
Consumer		19,577,622		15,725,495
	$	145,530,928	$	142,950,762
Standby letters of credit	$	17,442,148	$	15,725,495

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

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Our exposure to credit loss in the event of non‑performance by the customer is the contract amount of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

We have recognized a reserve in the amount of $22,461, $23,449 and $13,900 for loans sold in the secondary market with recourse obligations as of December 31, 2015, 2014 and 2013. In addition, a reserve in the amount of $222,729, $195,219 and $185,810 has been established for the unfunded portion of loan commitments at December 31, 2015, 2014 and 2013, respectively. Both reserves are included in other liabilities.

As of December 31, 2015, we leased 16 branch locations and six loan production offices from non‑related parties under lease agreements expiring through 2040. We lease our corporate headquarters and one branch location from Pointer Ridge. Each of the leases provides extension options. 

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The approximate future minimum lease commitments under the operating leases as of December 31, 2015, are presented below. We have eliminated 62.5% of lease commitments to Pointer Ridge in consolidation.

Year	Amount (in thousands)
2016	$	2,509
2017		2,296
2018		1,925
2019		1,476
2020		944
Remaining		4,955
	$	14,105

Rent expense was $1,746,170, $2,066,656 and $1,864,738 for the years ended December 31, 2015, 2014, and 2013, respectively.

On August 25, 2006, Pointer Ridge entered into a loan agreement with an unrelated bank, in an original principal amount of $6.6 million to finance the commercial office building located at 1525 Pointer Ridge Place, Bowie, Maryland. We lease approximately 95% of this building for our main office and operate a branch from this address. Pursuant to the terms of a guaranty between the bank and Bancshares dated August 25, 2006, Bancshares has guaranteed up to 62.5% of the loan amount plus costs incurred by the lender resulting from any acts, omissions or alleged acts or omissions.

18. Fair Value Measurement

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

The fair value hierarchy established by accounting standards defines three input levels for fair value measurement. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1 is based on quoted market prices in active markets for identical assets. Level 2 is based on significant observable inputs other than Level 1 prices. Level 3 is based on significant unobservable inputs that reflect a company’s own assumptions about the assumption that market participants would use in pricing an asset or liability. We evaluate fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. For the years ended December 31, 2015 and 2014, there were no transfers between levels.

At December 31, 2015, Bancshares holds, as part of its investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S. government sponsored entities and mortgage‑backed securities. The fair value of the majority of these securities is determined using widely accepted valuation techniques including matrix pricing and broker‑quote based applications. Inputs include benchmark yields, reported trades, issuer spreads, prepayments speeds and other relevant items. These are inputs used by a third‑party pricing service used by us. To validate the appropriateness of the valuations provided by the third party, we regularly update the understanding of the inputs used and compare valuations to an additional third party source. We classify all our investment securities available for sale in Level 2 of the fair value hierarchy, with the exception of treasury securities which fall into Level 1.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

	At December 31, 2015 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
			Identical Assets		Inputs		Inputs		Included in
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Available-for-sale:
Treasury securities	$	3,000	$	3,000	$	—	$	—	$	—
U.S. government agency		36,607		—		36,607		—		—
Municipal securities		50,203		—		50,203		—		—
FHLMC MBS		21,763		—		21,763		—		—
FNMA MBS		49,101		—		49,101		—		—
GNMA MBS		29,418		—		29,418		—		—
SBA loan pools		4,614		—		4,614		—		—
Total recurring assets at fair value		194,706		3,000		191,706		—		—

	At December 31, 2014 (In thousands)
			Quoted Prices in		Other		Significant		Total Changes
			Active Markets for		Observable		Unobservable		in Fair Values
			Identical Assets		Inputs		Inputs		Included in
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Period Earnings
Available-for-sale:
Treasury securities	$	3,006	$	3,006	$	—	$	—	$	—
U.S. government agency		37,656		—		37,656		—		—
Municipal securities		43,546		—		43,546		—		—
FHLMC MBS		20,471		—		20,471		—		—
FNMA MBS		17,867		—		17,867		—		—
GNMA MBS		33,139		—		33,139		—		—
SBA loan pools		5,995		—		5,995		—		—
Total recurring assets at fair value		161,680		3,006		158,674		—		—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We may be required from time to time, to measure certain assets at fair value on a non‑recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost

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(Continued)

or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.

	At December 31, 2015 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Legacy:	$	5,333		—		—	$	5,333
Acquired:		1,958		—		—		1,958
Total Impaired Loans		7,291		—		—		7,291
Other real estate owned:
Legacy:	$	425		—		—	$	425
Acquired:		2,047		—		—		2,047
Total other real estate owned:		2,472		—		—		2,472
Total	$	9,763	$	—	$	—	$	9,763

	At December 31, 2014 (In thousands)
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Legacy	$	4,805		—		—	$	4,805
Acquired		2,242		—		—		2,242
Total Impaired Loans		7,047		—		—		7,047
Other real estate owned:
Legacy	$	475		—		—	$	475
Acquired		1,977		—		—		1,977
Total other real estate owned:		2,452		—		—		2,452
Total	$	9,499	$	—	$	—	$	9,499

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect write‑downs that are based on the market price or current appraised value of the collateral, adjusted to reflect local market conditions or other economic factors. After evaluating the underlying collateral, the fair value of the impaired loans is determined by allocating specific reserves from the allowance for loan losses to the loans. Thus, the fair value reflects the loan balance as adjusted by partial charge‑offs less the specifically allocated reserve. Certain collateral‑dependent impaired loans are reported at the fair value of the underlying collateral.

Impairment is measured based on the fair value of the collateral, which is typically derived from appraisals that take into consideration prices in observed transactions involving similar assets and similar locations. Discounts applied to appraisals have been in the range of 0% to 50%. Each appraisal is updated on an annual basis, either through a new appraisal or through our internal review process. Appraised values are reviewed and monitored internally and fair value is re‑assessed at least quarterly or more frequently when circumstances occur that indicate a change in fair value. The fair

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value of impaired loans that are not collateral dependent is measured using a discounted cash flow analysis considered to be a Level 3 input.

The fair value of other real estate owned (“OREO”) is based on property appraisals adjusted at management’s discretion to reflect a further decline in the fair value of properties since the time the appraisal analysis was performed. Discounts applied to appraisals have predominantly been in the range of 0% to 50%; however, in certain cases have ranged up to 75%which include estimated costs to sell or other reductions based on market expectations or an executed sales contract. Appraised values are reviewed and monitored internally and fair value is re‑assessed at least quarterly or more frequently when circumstances occur that indicate a change in fair value. Therefore, the inputs used to determine the fair value of OREO and repossessed assets fall within Level 3. We may include within OREO other repossessed assets received as partial satisfaction of a loan. These assets are not material and do not typically have readily determinable market values and are considered Level 3 inputs. As a result of the acquisition of Maryland Bankcorp, WSB Holdings and Regal, we have segmented the other real estate owned into two components, real estate obtained as a result of loans originated by the Bank (legacy) and other real estate acquired from MB&T,  WSB and Regal Bank or obtained as a result of loans originated by MB&T,WSB, and RegalBank (acquired). The increase in level 3 is due to an increase in our legacy non‑accrual loans, and acquired other real estate owned.

The following methods and assumptions were used to estimate the fair value for each class of our financial instruments.

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

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

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

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

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

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

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

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

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

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

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

The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of ASC 825, “Disclosures about Fair Value of Financial Instruments”. We have determined the fair value amounts by using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	December 31, 2015 (In thousands)
					Quoted Prices		Significant		Significant
			Total		in Active		Other		Other
	Carrying		Estimated		Markets for		Observable		Unobservable
	Amount		Fair		Identical Assets		Inputs		Inputs
	(000’s)		Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	43,701	$	43,701	$	43,701	$	—	$	—
Loans receivable, net		1,147,035		1,153,976		—		—		1,153,976
Loans held for sale		8,112		8,397		—		8,397		—
Investment securities available for sale		194,706		194,706		3,000		191,706		—
Equity Securities at cost		4,942		4,942		—		4,942		—
Bank Owned Life Insurance		36,606		36,606		—		36,606		—
Accrued interest receivable		3,815		3,815		—		908		2,907
Liabilities:
Deposits:
Non-interest-bearing		328,549		328,549		—		328,549		—
Interest bearing		907,331		908,356		—		908,356		—
Short term borrowings		107,557		107,557		—		107,557		—
Long term borrowings		9,593		9,593		—		9,593		—
Accrued Interest payable		417		417		—		417		—

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Old Line Bancshares, Inc. & Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

	December 31, 2014 (In thousands)
					Quoted Prices		Significant		Significant
			Total		in Active		Other		Other
	Carrying		Estimated		Markets for		Observable		Unobservable
	Amount		Fair		Identical Assets		Inputs		Inputs
	(000’s)		Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	25,405	$	25,405	$	25,405	$	—	$	—
Loans receivable, net		926,573		935,397		—		—		935,397
Loans held for sale		4,548		4,754		—		4,754		—
Investment securities available for sale		161,680		161,680		3,006		158,674		—
Equity Securities at cost		5,812		5,812		—		5,812		—
Bank Owned Life Insurance		31,430		31,430		—		31,430		—
Accrued interest receivable		3,218		3,218		—		883		2,335
Liabilities:
Deposits:
Non-interest-bearing		260,914		260,914		—		260,914		—
Interest bearing		754,826		760,503		—		760,503		—
Short term borrowings		61,003		61,003		—		61,003		—
Long term borrowings		5,987		5,987		—		5,987		—
Accrued Interest payable		266		266		—		266		—

19. Other Operating Expenses

Other operating expenses that are significant are as follows:

December 31,	2015		2014			2013
Legal Expenses	$	337,033	$	458,672		$	391,301
Pointer Ridge other operating		201,966		202,889			409,071
Other		5,620,144		5,386,307			4,519,521
Total	$	6,159,143	$	6,047,868	—	—	5,319,893

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Old Line Bancshares, Inc. & Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

20. Parent Company—Condensed Financial Information

The condensed balance sheets, statements of income, and statements of cash flows for Bancshares (Parent Company) follow:

Old Line Bancshares, Inc.

Condensed Balance Sheets

December 31,	2015		2014
Assets
Cash and due from banks	$	268,607	$	4,450,013
Investment in Real Estate LLC		430,302		437,222
Investment in MD Statutory Trust		202,000		—
Investment in Old Line Bank		146,669,645		129,455,610
Other assets		107,717		402,528
	$	147,678,271	$	134,745,373
Liabilities and Stockholders’ Equity
Accounts payable	$	228,805	$	(518,931)
Borrowings		3,718,758		—
Stockholders’ equity
Common stock		108,026		108,110
Additional paid-in capital		105,293,606		105,235,646
Retained earnings		38,290,876		30,067,798
Accumulated other comprehensive income (loss)		38,200		(147,250)
		143,730,708		135,264,304
	$	147,678,271	$	134,745,373

Old Line Bancshares, Inc.

Condensed Statements of Income

Years Ended December 31,	2015		2014		2013
Interest and dividend income (expense)
Dividend from Old Line Bank	$	2,245,508	$	1,941,777	$	1,490,941
Interest income on money market and certificates of deposit		1,581		10,109		2,869
Interest expense on loans		(9,081)		(9,483)		—
Total interest and dividend income		2,238,008		1,942,403		1,493,810
Non-interest income (loss)		(6,920)		12,351		(50,326)
Non-interest expense		982,216		611,425		943,022
Income before income taxes		1,248,872		1,343,329		500,462
Income tax expense (benefit)		(184,871)		(203,472)		(97,767)
		1,433,743		1,546,801		598,229
Undistributed net income of Old Line Bank		9,034,843		5,583,499		7,240,600
Net income	$	10,468,586	$	7,130,300	$	7,838,829

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Old Line Bancshares, Inc. & Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

Old Line Bancshares, Inc.

Statements of Cash Flows

Years Ended December 31,	2015		2014		2013
Cash flows from operating activities
Interest and dividends received	$	2,247,089	$	1,951,886	$	1,493,810
Reimbursement received (cash paid) for operating expenses		(305,388)		(494,806)		(643,211)
		1,941,701		1,457,080		850,599
Cash flows from investing activities
Cash and cash equivalents of acquired company		(2,646,577)		—		(10,000,000)
		(2,646,577)		—		(10,000,000)
Cash flows from financing activities
Proceeds from stock options exercised, including tax benefit		815,843		277,161		814,101
Proceeds from issuance of common stock		(4,899,186)		—		12,177,568
Acquisition cash consideration		2,852,321		—		2,098,535
Cash dividends paid-common stock		(2,245,508)		(1,941,777)		(1,490,941)
		(3,476,530)		(1,664,616)		13,599,263
Net increase (decrease) in cash and cash equivalents		(4,181,406)		(207,536)		4,449,862
Cash and cash equivalents at beginning of year		4,450,013		4,657,549		207,687
Cash and cash equivalents at end of year	$	268,607	$	4,450,013	$	4,657,549
Reconciliation of net income to net cash provided by operating activities
Net income	$	10,468,586	$	7,130,300	$	7,838,829
Adjustments to reconcile net income to net cash provided by operating activities
Undistributed net income of Old Line Bank		(9,034,843)		(5,583,499)		(7,240,600)
Stock based compensation awards		418,419		336,652		230,743
(Income) loss from investment in real estate LLC		6,920		62,649		152,707
Increase (decrease) in other liabilities		(212,192)		(874,776)		315,874
(Increase) decrease in other assets		294,811		385,754		(446,954)
	$	1,941,701	$	1,457,080	$	850,599

21. Litigation

From time to time we may be involved in ordinary routine litigation incidental to our business. We are not, however, involved in any legal proceedings the outcome of which, in management’s opinion, would be material to our financial condition.

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Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

There were no disagreements with accountants on accounting matters and financial disclosures for the reporting periods presented.

Item 9A.  Controls and Procedures

As of the end of the period covered by this annual report on Form 10‑K, Old Line Bancshares’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Old Line Bancshares, Inc.’s disclosure controls and procedures. Based upon that evaluation, Old Line Bancshares, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that Old Line Bancshares, Inc.’s disclosure controls and procedures are effective as of December 31, 2015. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Old Line Bancshares, Inc. in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In addition, there were no changes in Old Line Bancshares, Inc.’s internal control over financial reporting (as defined in Rule 13a‑15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, Old Line Bancshares, Inc.’s internal control over financial reporting.

Management’s Report On Internal Control Over Financial Reporting

The management of Old Line Bancshares, Inc. (“the Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management has conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, utilizing the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2015 is effective.

Dixon Hughes Goodman LLP, the registered public accounting firm that audited the Company’s financial statements included in this report as of December 31, 2015 and 2014 and for the three-year period ended December 31, 2015, has issued an attestation report on the Company’s internal control over financial reporting that is included elsewhere in this report.

Item 9B.  Other Information

None

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Code of Ethics

Old Line Bancshares, Inc.’s Board of Directors has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. That Code of Ethics for Senior Financial Officers is posted on Old Line Bancshares, Inc.’s internet website at

128

www.oldlinebank.com. A copy of the Code of Conduct that applies to all of Old Line Bancshares’ and Old Line Bank’s officers, directors and employees is also available on Old Line Bancshares, Inc.’s internet website.

The remaining information required by this Item 10 is incorporated by reference to the information appearing under the captions “Election of Directors,” “Board Meetings and Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the 2016 Annual Meeting of Stockholders of Old Line Bancshares, Inc.

Item 11.  Executive Compensation

The information required by this Item 11 is incorporated by reference to the information appearing under the captions “Director Compensation,” “Executive Compensation” and “Board Meetings and Committees” in the Proxy Statement for the 2016 Annual Meeting of Stockholders of Old Line Bancshares, Inc.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized For Issuance Under Equity Compensation Plans

The following table sets forth certain information as of December 31, 2015, with respect to compensation plans under which equity securities of Old Line Bancshares are authorized for issuance.

Equity Compensation Plan Information

December 31, 2015

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under Equity compensation plans
Equity compensation plans approved by security holders(1)	292,204	$	9.82	427,548

(1) Includes the 2004 Equity Incentive Plan and the 2010 Equity Incentive Plan.

The remaining information required by this Item 12 is incorporated by reference to the information appearing under the caption “Ownership of Old Line Bancshares Common Stock” in the Proxy Statement for the 2016 Annual Meeting of Stockholders of Old Line Bancshares, Inc.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated by reference to the information appearing under the captions “Certain Relationships and Related Transactions” and “Election of Directors” in the Proxy Statement for the 2016 Annual Meeting of Stockholders of Old Line Bancshares, Inc.

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Item 14.  Principal Accounting Fees and Services

Audit and Non‑Audit Fees

The following table presents combined fees for professional audit services rendered by Dixon Hughes Goodman LLP for the audit of Old Line Bancshares, Inc.’s annual consolidated financial statements for the years ended December 31, 2015 and 2014 and fees billed for other services rendered by Dixon Hughes Goodman LLP.

	Years Ended
	December 31,
	2015		2014
Audit fees(1)	$	251,050	$	211,774
Tax fees(2)		32,250		26,575
Total	$	283,300	$	238,349

(1) Audit fees consist of fees billed for professional services rendered for the audit of the Old Line Bancshares, Inc.’s consolidated (or Old Line Bank’s) annual financial statements and review of the interim consolidated financial statements included in quarterly reports, audits for the 401K plan and Housing and Urban Development programs as well as services that Dixon Hughes Goodman LLP normally provides in connection with statutory and regulatory filings or engagements.

(2) Tax fees consist of fees billed for professional services rendered for federal and state tax compliance, tax advice and tax planning.

Policy on Audit Committee Pre‑Approval of Audit and Non‑Audit Services of Independent Auditor

Old Line Bancshares, Inc.’s audit committee approves the engagement before Old Line Bancshares, Inc. or Old Line Bank engages the independent auditor to render any audit or non‑audit services.

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PART IV

Item 15.  Exhibits, Financial Statement Schedules

Exhibit No.	Description of Exhibits
2.1(V)	Agreement and Plan of Merger by and between Old Line Bancshares, Inc. and Maryland Bankcorp, Inc., dated as of September 1, 2010, and Amendment No. 1 thereto
2.2(R)	Agreement and Plan of Merger by and between Old Line Bancshares, Inc. and WSB Holdings, Inc., dated as of September 10, 2012, and Amendment No. 1 thereto
2.2(EE)	Agreement and Plan of Merger, dated as of August 5, 2015, by and between Old Line Bancshares, Inc. and Regal Bancorp, Inc.
3.1(A)	Articles of Amendment and Restatement of Old Line Bancshares, Inc.
3.1.1(L)	Articles of Amendment of Old Line Bancshares, Inc.
3.1.2(L)	Articles of Amendment of Old Line Bancshares, Inc.
3.1.3(AA)	Articles of Amendment of Old Line Bancshares, Inc.
3.2(A)	Amended and Restated Bylaws of Old Line Bancshares, Inc.
3.2.1(B)	Amendment to the Amended and Restated Bylaws of Old Line Bancshares, Inc.
3.2.2(C)	Second Amendment to the Amended and Restated Bylaws of Old Line Bancshares, Inc.
4(Y)	Specimen Stock Certificate for Old Line Bancshares, Inc.
10.1*	Second Amended and Restated Executive Employment Agreement between Old Line Bank and James W. Cornelsen dated December 10, 2015
10.3(K)*	Salary Continuation Agreement dated January 3, 2006 between Old Line Bank and James W. Cornelsen
10.4(O)*	First Amendment dated December 31, 2007 to the Salary Continuation Agreement between Old Line Bank and James W. Cornelsen
10.5(K)*	Supplemental Life Insurance Agreement dated January 3, 2006 between Old Line Bank and James W. Cornelsen
10.6(O)*	First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement between Old Line Bank and James W. Cornelsen
10.7(W)*	Amended and Restated Executive Employment Agreement dated January 28, 2011 between Old Line Bank and Joseph Burnett
10.8(I)*	Second Amendment to Amended and Restated Employment Agreement between Old Line Bank and Joseph Burnett dated as of May 9, 2013
10.9(K)*	Salary Continuation Agreement dated January 3, 2006 between Old Line Bank and Joseph Burnett

131

Exhibit No.	Description of Exhibits
10.10(O)*	First Amendment dated December 31, 2007 to the Salary Continuation Agreement between Old Line Bank and Joseph Burnett
10.11(K)*	Supplemental Life Insurance Agreement dated January 3, 2006 between Old Line Bank and Joseph Burnett
10.12(O)*	First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement between Old Line Bank and Joseph Burnett
10.13(DD)*	Salary Continuation Plan Agreement (2014) by and between Old Line Bank and Mark Semanie dated as of March 27, 2014
10.18(O)*	First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement between Old Line Bank and Christine Rush
10.19(E)*	2004 Equity Incentive Plan
10.20(G)*	Form of Incentive Stock Option Agreement for 2004 Equity Incentive Plan
10.21(X)*	Form of Nonqualified Stock Option Agreement for 2004 Equity Incentive Plan
10.22(U)*	Form of Restricted Stock Agreement for the 2004 Equity Incentive Plan
10.23(G)*	Old Line Bancshares, Inc. and Old Line Bank Director Compensation Policy
10.24(F)	Operating Agreement for Pointer Ridge Office Investment, LLC among J. Webb Group, Inc., Michael M. Webb, Lucente Enterprises, Inc., Chesapeake Custom Homes, L.L.C. and Old Line Bancshares, Inc., all as Members and Chesapeake Pointer Ridge Manager, LLC.
10.25(H)*	Incentive Plan Model and Stock Option Model
10.26(N)	Deed of Trust note dated November 3, 2005 between Pointer Ridge Office Investment, LLC and Manufacturers and Traders Trust Company
10.27(N)	Completion Guaranty Agreement dated November 3, 2005 between Pointer Ridge Office Investment, LLC and Manufacturers and Traders Trust Company
10.28(L)	Indemnity Agreement between Old Line Bancshares, Inc. and Prudential Mortgage Capital Company, LLC dated August 25, 2006
10.29(S)	Third Amendment to Operating Agreement For Pointer Ridge Office Investment, LLC by and between Old Line Bancshares, Inc. J. Webb, Inc., Michael M. Webb Revocable Trust, and Lucente Enterprises, Inc. dated as of November 1, 2008
10.30(BB)*	Old Line Bancshares, Inc. 2010 Equity Incentive Plan
10.31(Z)*	Form of Restricted Stock Agreement under 2010 Equity Incentive Plan
10.32(Z)*	Form of Non‑Qualified Stock Option Grant Agreement under 2010 Equity Incentive Plan

132

Exhibit No.	Description of Exhibits
10.33(Z)*	Form of Incentive Stock Option Grant Agreement under 2010 Equity Incentive Plan
10.34(W)*	Employment Agreement dated January 28, 2011 between Old Line Bank and Sandra F. Burnett
10.35(D)*	First Amendment to Amended and Restated Employment Agreement between Old Line Bank and Sandra F. Burnett dated as of January 1, 2012
10.36(W)*	Salary Continuation Plan Agreement (2010 Plan) by and between Old Line Bank and Sandra Burnett dated as of February 14, 2011
10.37(P)*	Non‑Compete Agreement by and between Old Line Bancshares, Inc. and G. Thomas Daugherty dated April 11, 2011
10.38(J)	Agreement of Lease by and between Pointer Ridge Office Investment, LLC, a Maryland limited liability company (Landlord) and Old Line Bank (Tenant) dated December 29, 2011 (Suite 101)
10.39(J)	Agreement of Lease by and between Pointer Ridge Office Investment, LLC, a Maryland limited liability company (Landlord) and Old Line Bank (Tenant) dated December 29, 2011 (Suite 301)
10.40(M)*	Salary Continuation Plan Agreement (2012‑A Plan) by and between Old Line Bank and James W. Cornelsen dated as of October 1, 2012, and form of Change in Control Benefit Election Form thereunder
10.41(M)*	Salary Continuation Plan Agreement (2012‑B Plan) by and between Old Line Bank and James W. Cornelsen dated as of October 1, 2012, and form of Change in Control Benefit Election Form thereunder
10.42(T)*	Salary Continuation Plan Agreement (2010 Plan) by and between Old Line Bank and James W. Cornelsen dated as of February 26, 2010
10.43(T)*	Salary Continuation Plan Agreement (2010 Plan) by and between Old Line Bank and Joseph E. Burnett dated as of February 26, 2010
10.45(CC)*	Employment Agreement between Old Line Bank and Mark A. Semanie dated as of May 13, 2013
10.46(FF)*	Employment Agreement between Old Line Bank and Martin John Miller dated as of February 26, 2014
21(A)	Subsidiaries of Registrant
23.1	Consent of Dixon Hughes Goodman LLP
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑ Oxley Act of 2002

133

Exhibit No.	Description of Exhibits
99.1(A)	Agreement and Plan of Reorganization between Old Line Bank and Old Line Bancshares, Inc., including form of Articles of Share Exchange attached as Exhibit A thereto
101	Interactive Data Files pursuant to Rule 405 of Regulation S‑T

*Management compensatory plan, contract or arrangement.

(A) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Registration Statement on Form 10‑SB, as amended, under the Securities Exchange Act of 1934, as amended (File Number 000‑50345).

(B) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on March 24, 2011.

(C) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑Q filed on August 10, 2012.

(D) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2012, filed on March 30, 2012.

(E) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Registration Statement on Form S‑8, under the Securities Act of 1933, as amended (File Number 333‑116845).

(F) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑QSB filed on November 8, 2004.

(G) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on January 5, 2005.

(H) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑QSB filed on August 10, 2005.

(I) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑Q filed on August 14, 2013.

(J) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on January 4, 2012.

(K) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on January 6, 2006.

(L) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑QSB filed on November 9, 2006.

(M) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on October 4, 2012.

(N) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Annual Report on Form 10‑KSB filed on March 28, 2006.

(O) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on January 7, 2008.

(P) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑Q filed on August 15, 2011.

134

(Q) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from, Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on February 2, 2010.

(R) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from, Annex A to Old Line Bancshares, Inc.’s Registration Statement on Form S‑4 under the Securities Act of 1933, as amended (File Number 333‑184924).

(S) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on November 19, 2008.

(T) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Amendment No. 1 to Old Line Bancshares, Inc.’s Registration Statement on Form S‑4 under the Securities Act of 1933, as amended (File Number 333‑184924).

(U) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed on January 28, 2010.

(V) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Annex A to Old Line Bancshares, Inc.’s Registration Statement on Form S‑4 under the Securities Act of 1933, as amended (File Number 333‑170464).

(W) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2010 filed on March 30, 2011.

(X) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2009, filed on March 27, 2010.

(Y) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Pre‑Effective Amendment No. 1 on Form S‑8 to Registration Statement on Form S‑4 (File Number 333‑184924) filed on May 20, 2013.

(Z) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Appendix A Old Line Bancshares, Inc.’s Proxy Statement on Schedule 14A, filed with the Commission on April 19, 2010.

(AA) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Quarterly Report on Form 10‑Q, filed with the Commission on November 14, 2013.

(BB) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Appendix B of Old Line Bancshares, Inc.’s Proxy Statement on Schedule 14A, filed with the Commission on July 12, 2013.

(CC) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Current Report on Form 8‑K filed with the Commission on May 13, 2013.

(DD) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on May 9, 2014.

(EE) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Amendment No. 1 to Current Report on Form 8‑K filed with the Commission on August 5, 2015.

(FF) Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from Old Line Bancshares, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2014, filed on March 11, 2015.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Old Line Bancshares, Inc.
Date: March 11, 2016	By:	/s/ James W. Cornelsen
		James W. Cornelsen, President (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ James W. Cornelsen	Director, President and Chief Executive Officer (Principal	March 11, 2016
James W. Cornelsen	Executive Officer)
/s/ Elise M. Hubbard	Chief Financial Officer (Principal Accounting and Financial	March 11, 2016
Elise M. Hubbard	Officer)
/s/ Craig E. Clark	Director and Chairman of the Board	March 11, 2016
Craig E. Clark
/s/ G. Thomas Daugherty	Director	March 11, 2016
G. Thomas Daugherty
/s/ James F. Dent	Director	March 11, 2016
James F. Dent
/s/ Andre’ J. Gingles	Director	March 11, 2016
Andre’ J. Gingles
/s/ Thomas H. Graham	Director	March 11, 2016
Thomas H. Graham
/s/ William J. Harnett	Director	March 11, 2016
William J. Harnett
/s/ Frank Lucente, Jr.	Director	March 11, 2016
Frank Lucente, Jr.
/s/ Gail D. Manuel	Director	March 11, 2016
Gail D. Manuel
/s/ Carla Hargrove McGill	Director	March 11, 2016
Carla Hargrove McGill
/s/ Gregory S. Proctor, Jr.	Director	March 11, 2016
Gregory S. Proctor, Jr.

136

Name	Title	Date
/s/ Jeffrey A. Rivest	Director	March 11, 2016
Jeffrey A. Rivest
/s/ Suhas R. Shah	Director	March 11, 2016
Suhas R. Shah
/s/ John M. Suit, II	Director	March 11, 2016
John M. Suit, II
/s/ Frank E. Taylor	Director	March 11, 2016
Frank E. Taylor

137