Annapolis Bancorp Announces Profitable Third Quarter

Third quarter net income available to common shareholders after accruing for preferred stock dividends was $103,000 ($0.03 per basic and diluted common share) compared to $299,000 ($0.08 per basic and diluted common share) in the third quarter of 2008.

Results for the quarter ended September 30, 2009 included a provision for credit losses of $1.1 million compared to provisions for credit losses of $0.9 million in the third quarter of last year and $3.8 million in the second quarter of 2009. The Company increased its allowance for credit losses to $9,092,000 (3.26% of total gross loans) at September 30, 2009, compared to $4,123,000 (1.54% of total gross loans) at December 31, 2008.

"At a time of distress in the banking industry, we are pleased to report that Annapolis Bancorp earned a profit in the third quarter while continuing to fortify its reserves for credit losses," said Richard M. Lerner, Chairman and CEO of Annapolis Bancorp, Inc. and BankAnnapolis.

Nonperforming assets at September 30, 2009 amounted to $16.2 million or 5.80% of total gross loans compared to $11.5 million or 4.20% of total gross at June 30, 2009 and $6.5 million or 2.42% of total gross loans at December 31, 2008. The third quarter increase in nonperforming assets is principally attributable to the transfer of one $4.6 million commercial loan to nonaccrual status. Payments on the loan continue to be made under the terms of a forbearance agreement, and will be recognized by the Bank on a cash basis pending further developments.

The allowance for credit losses at September 30, 2009 provided 56.2% coverage of nonperforming assets compared to 63.6% at year-end 2008. The Company recorded net charge-offs of $1.1 million for the nine months ended September 30, 2009.

The Company's total assets grew to $445.5 million at September 30, 2009 from $394.9 million at December 31, 2008, bolstered by a $45.7 million or 49.4% increase in total savings account balances since year-end 2008.

Total gross loans increased by $6.7 million or 2.5% in the third quarter and through the first nine months of 2009 the Bank's loan portfolio grew by $10.9 million or 4.1%. "Despite challenging economic conditions, BankAnnapolis is delivering on its commitment to extend credit in the communities it serves," said Lerner. "We are encouraged by the recent uptick in loan demand and are actively seeking new lending opportunities."

At September 30, 2009, Annapolis Bancorp, Inc. exceeded all federal regulatory requirements for a well-capitalized institution, with a Tier 1 capital ratio of 12.6%, a total capital ratio of 13.9%, and a Tier 1 leverage ratio of 8.5%. Stockholders' equity totaled $32.7 million at September 30, 2009 compared to $26.8 million at December 30, 2008. Book value per common share at September 30, 2009 was $6.41.

In the quarter just ended, net interest income increased by $400,000 or 11.8% compared to the same period in 2008. The net interest margin decreased to 3.52% from 3.79% in the third quarter of last year, but showed a 46 basis point improvement from 3.06% in the second quarter of 2009.

Interest income decreased by $69,000 or 1.3% in the three months just ended compared to the same period last year. A 109 basis point drop in the Company's yield on earning assets was substantially offset by a $70.9 million or 19.9% increase in average earning assets compared to the third quarter of 2008.

Interest expense for the quarter ended September 30, 2009 decreased by $469,000 or 22.6%, as the overall cost of interest-bearing liabilities fell by 95 basis points to 1.71% from 2.66% in the same three month period last year.

Noninterest income increased 10.3% to $482,000 in the third quarter of 2009 from $437,000 in last year's comparable period due to the Company's expanded mortgage banking activity and gains on the sale of repossessed assets.

Noninterest expense increased by $351,000 or 14.3% in the quarter just ended compared to the same period in 2008, reflecting strategic investments in personnel and higher legal, consulting and other costs associated with the collection of delinquent loans and the management of nonperforming assets, as well as higher operating expenses related to a new branch opened in the fourth quarter of 2008.

Through the first three quarters of 2009, the Company's net loss totaled $2,088,000. The year-to-date net loss available to common shareholders after accruing for preferred stock dividends was $2,410,000 ($0.63 per basic and diluted common share) compared to net income available to common shareholders of $1,282,000 ($0.33 per basic and $0.32 per diluted common share) for the same period in 2008. The Bank recorded provisions for credit losses of $6.1 million and $1.4 million for the respective nine month periods ended September 30, 2009 and 2008.

BankAnnapolis serves the banking needs of small businesses, professional concerns, and individuals through eight community banking offices located in Anne Arundel and Queen Anne's Counties in Maryland. The Bank's headquarters building and main branch are located at 1000 Bestgate Road, directly across from the Westfield Annapolis Mall.

Certain statements contained in this release, including without limitation, statements containing the words "believes," "plans," "expects," "anticipates," and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Annapolis Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
as of September 30, 2009 and December 31, 2008
($000)
                                              (Unaudited)      (Audited)
                                              September 30,    December 31,
                                                    2009             2008
Assets
Cash and due from banks                       $     7,205      $     4,346
Interest bearing deposits with banks                7,000            1,000
Federal funds sold                                  15,631           23,768
Investment securities, available for sale           125,335          83,685
Loans, net of allowance of $9,092 and $4,123        269,482          263,749
Loans held for sale                                 570              344
Accrued interest receivable                         1,827            1,768
Deferred income taxes                               3,845            1,747
Premises and equipment                              9,383            9,651
Investment in bank owned life insurance             4,192            4,085
Other assets                                        1,062            773
Total Assets                                  $     445,532    $     394,916
Liabilities and
Stockholders' Equity
Deposits
Noninterest bearing                           $     42,069     $     39,065
Interest bearing                                    307,488          261,562
Total deposits                                      349,557          300,627
Securities under agreements to repurchase           16,556           12,639
Long term borrowings                                40,000           40,000
Junior subordinated debentures                      5,000            5,000
Accrued interest and accrued expense                1,763            9,836
Total Liabilities                                   412,876          368,102
Stockholders' Equity
Preferred stock, net                                7,967            -
Common stock                                        39               38
Warrants to purchase common stock                   234              -
Paid in capital                                     11,443           11,299
Retained Earnings                                   13,107           15,517
Comprehensive loss                                  (134    )        (40     )
Total Equity                                        32,656           26,814
Total Liabilities and Equity                  $     445,532    $     394,916

Annapolis Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
for the Three and Nine Month Periods Ended September 30, 2009 and
2008
(Unaudited)
(In thousands, except per share data)
                                                              For the Three Months            For the Nine Months
                                                              Ended September 30,             Ended September 30,
                                                              2009            2008            2009                 2008
Interest Income
Loans                                                         $    3,962      $    4,305      $    11,844          $    12,932
Investments                                                        1,419           1,080           3,795                3,095
Interest bearing balances with banks                               17              62              48                   252
Federal funds sold                                                 6               26              46                   255
Total interest income                                              5,404           5,473           15,733               16,534
Interest expense
Deposits                                                           1,214           1,619           4,444                5,346
Securities sold under agreements to repurchase                     31              63              91                   221
Borrowed funds                                                     312             315             927                  916
Junior debentures                                                  48              77              160                  249
Total interest expense                                             1,605           2,074           5,622                6,732
Net interest income                                                3,799           3,399           10,111               9,802
Provision                                                          1,102           931             6,113                1,419
Net interest income after provision                                2,697           2,468           3,998                8,383
Noninterest Income
Service charges                                                    316             307             903                  912
Mortgage banking                                                   27              9               73                   43
Other fee income                                                   84              121             344                  367
Gain on sale of loans                                              47              -               112                  -
Gain on sale of repossessed assets                                 8               -               8                    -
Total noninterest income                                           482             437             1,440                1,322
Noninterest Expense
Personnel                                                          1,543           1,375           4,785                4,467
Occupancy and Equipment                                            377             336             1,138                962
Data processing expense                                            208             208             640                  595
Professional Fees                                                  197             78              548                  296
Marketing expense                                                  9               97              216                  300
FDIC Insurance                                                     139             45              464                  89
Other operating expense                                            341             324             1,108                1,020
Total noninterest expense                                          2,814           2,463           8,899                7,729
Income (loss) before taxes                                         365             442             (3,461    )          1,976
Income tax expense (benefit)                                       142             143             (1,373    )          694
Net income (loss)                                                  223             299             (2,088    )          1,282
Preferred stock dividend and discount accretion                    120             -               322                  -
Net income (loss) available to common shareholders            $    103        $    299        $    (2,410    )     $    1,282
Basic earnings (loss) per common share                        $    0.03       $    0.08       $    (0.63     )     $    0.33
Diluted earnings (loss) per common share                      $    0.03       $    0.08       $    (0.63     )     $    0.32
Book value per common share                                   $    6.41       $    6.77       $    6.41            $    6.77
Average common shares outstanding with the effect of grants,       3,962,322       3,975,023       3,855,076            4,043,981
options and warrants

Annapolis Bancorp, Inc. and Subsidiaries
Financial Ratios and Average Balance Highlights
(In thousands)
                                      For the Three Months       For the Nine Months
                                      Ended September 30,        Ended September 30,
                                      2009         2008          2009           2008
                                      (Unaudited)  (Unaudited)   (Unaudited)    (Unaudited)
Performance Ratios (annualized)
Return on average assets              0.20    %    0.32    %     (0.63   %)     0.46    %
Return on average common equity       3.65    %    4.59    %     (11.16  %)     6.48    %
Average equity to average assets      7.19    %    6.88    %     7.23    %      7.04    %
Net interest margin                   3.52    %    3.79    %     3.18    %      3.67    %
Efficiency ratio                      65.73   %    64.21   %     77.04   %      69.48   %
Other Ratios
Allowance for credit losses to loans  3.26    %    1.35    %     3.26    %      1.35    %
Nonperforming to gross loans          5.80    %    2.13    %     5.80    %      2.13    %
Net charge-offs to average loans      0.19    %    0.00    %     0.42    %      0.07    %
Tier 1 capital ratio                  12.6    %    11.6    %     12.6    %      11.6    %
Total capital ratio                   13.9    %    12.9    %     13.9    %      12.9    %
Average Balances
Assets                                446,672      376,234       444,608        375,797
Earning assets                        427,692      356,774       424,549        356,430
Loans, gross                          274,852      258,399       271,843        249,962
Interest-bearing liabilities          373,013      309,942       371,978        309,784
Stockholders' equity                  32,133       25,871        32,148         26,447

SOURCE: Annapolis Bancorp, Inc.

Annapolis Bancorp, Inc. 
Richard M. Lerner 
410-224-4455