First Quarter Earnings Up 50% at Annapolis Bancorp

    Business Editors

    ANNAPOLIS, Md.--(BUSINESS WIRE)--May 9, 2005--Annapolis Bancorp, Inc. (NASDAQ:ANNB), parent company of BankAnnapolis, today announced net income of $620,000 ($0.15 per basic and diluted share) for the first quarter of 2005--a 50.1% increase over first quarter 2004 net income of $413,000 ($0.10 per basic and diluted share).
    The Company also reported strong balance sheet growth for the quarter, as total assets reached $292.4 million at March 31, 2005 compared to $284.2 million at December 31, 2004--an increase of $8.2 million or 2.9%.
    The Bank's loan portfolio grew by 6.5% in the first quarter, adding $13.2 million to total loans outstanding. Demand for real estate and construction loans continued as growth in those categories accounted for $10.0 million of the increase in loan volume.
    The loan growth was funded by an increase of $7.7 million in deposit and repurchase agreement balances, a reduction of $3.7 million in cash and federal funds sold balances, and $1.1 million in scheduled amortization of mortgaged-backed securities. Total deposits rose by $6.9 million, or 3.0%, in the first quarter--with the largest increases coming in demand deposits, money market, NOW and savings accounts. The majority of the portfolio growth came in money market and NOW accounts, which increased by $2.7 million and $1.7 million, respectively.
    "We continue to see a positive response to BankAnnapolis' unique approach to community banking, as evidenced by our first quarter results," said Chairman and CEO Richard M. Lerner. "We believe our responsiveness to the community's interests and needs is truly setting BankAnnapolis apart from other area banks, and as a result, we are enjoying significant growth and record profitability."
    Average interest-earning assets grew to $273.2 million compared to $218.6 million in the first quarter of last year. As a result, total interest income improved by $929,000, or 30.8%, with the yield on earning assets improving to 5.86% for the three months ended March 31, 2005 compared to 5.55% for the same period in 2004.
    Average interest-bearing liabilities rose to $231.2 million in the first quarter of 2005 from $183.7 million in the same period last year--an increase of $47.5 million, or 25.9%, due to deposit growth and the impact of an additional $10 million borrowed from the Federal Home Loan Bank in October 2004. Total interest expense increased in the first quarter by $359,000, or 45.0%, with the cost of interest-bearing liabilities rising to 2.03% from 1.75% in the quarter ended March 31, 2004.
    First quarter net interest income rose by $570,000, or 25.7%, with the net interest margin improving to 4.14% from 4.08% in the first quarter of 2004.
    "As expected, continued increases by the Federal Reserve in its target federal funds rate have positively impacted the Bank's net interest margin," said Lerner. "Given the interest rate sensitivity of our asset base, we believe that our net interest margin will continue to benefit from further such increases. Because we have the added advantage of operating in a strong market with robust local economic activity, we expect loan demand to remain constant. Therefore, our principal challenge will be to fund asset growth with core deposits at a reasonable cost."
    The Bank booked a $145,000 provision for credit losses in the first quarter of 2005, bringing the allowance for credit losses to $1,975,000, or 0.91% of total gross loans. Nonperforming assets of $579,000 accounted for 0.27% of total gross loans at quarter-end, and the allowance for credit losses provided 3:1 coverage of nonperforming assets.
    Noninterest income decreased by $27,000, or 5.5%, for the quarter as income on bank-owned life insurance decreased by $27,000 compared to the same period in 2004. Transaction-based deposit fees decreased $23,000 in the first quarter, offset by increases in VISA debit card fees and mortgage banking fees.
    Noninterest expense rose by $135,000, or 6.7%, compared to the first three months of 2004, due to increases in compensation, occupancy and equipment, and marketing expenses. Rising benefit costs and higher payroll taxes accounted for a $78,000 jump in compensation expense, while occupancy and equipment expense increased $48,000 as a result of costs incurred to move the Bank's Kent Island branch to a temporary facility while a new building is being constructed. Marketing expense increased $18,000 as the Bank launched a new campaign to build market share among small businesses and professional firms, key sources of core deposits.
    The per share financial information contained in this release gives effect to a 4-for-3 stock split declared by the Annapolis Bancorp Board of Directors on October 19, 2004 and paid on December 3, 2004.
    BankAnnapolis serves the banking needs of small businesses, professional concerns, and individuals through six community banking offices located in Anne Arundel and Queen Anne's Counties in Maryland. Committed to a unique "unbank" philosophy of personalized customer service and strategic, market-driven offerings, BankAnnapolis' goal is to be the community bank of choice in the greater Annapolis area. The Bank's headquarters building and main branch are located at 1000 Bestgate Road, directly across from the 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.

Annapolis Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 (In thousands)

(Unaudited) (Audited) March 31, December 31, 2005 2004 -------------- -------------- Assets Cash and due $ 6,536 $ 7,455 Federal funds sold 4,454 7,213 Investments 52,641 54,440 Loans, net of allowance 215,370 202,296 Accrued interest receivable 1,101 1,061 Deferred income taxes 931 490 Premises and equipment 6,982 6,998 Investment in BOLI 3,541 3,510 Other assets 815 732 -------------- -------------- Total Assets $ 292,371 $ 284,195 ============== ==============

Liabilities and Stockholders' Equity Deposits Noninterest bearing $ 40,222 $ 39,473 Interest bearing 193,440 187,361 -------------- -------------- Total deposits 233,662 226,834 Securities under agreement to repurchase 8,721 7,901 Other borrowed funds 25,000 25,000 Junior subordinated debentures 5,000 5,000 Accrued interest & accrued expense 1,205 798 -------------- -------------- Total Liabilities 273,588 265,526

Stockholders' Equity Common stock 41 41 Paid in capital 13,009 12,986 Retained Earnings 6,497 5,877 Comprehensive income (764) (242) -------------- -------------- Total Equity 18,783 18,662 -------------- -------------- Total Liabilities and Equity $ 292,371 $ 284,195 ============== ==============

Annapolis Bancorp, Inc. and Subsidiaries Consolidated Statements of Income for the Three Month Periods Ended March 31, 2005 and 2004 (Unaudited) (In thousands, except per share data)

For the three months ended March 31, ----------------- ----------------- 2005 2004 ----------------- -----------------

Interest income Loans $ 3,367 $ 2,658 Investments 523 341 Federal funds sold 54 16 ----------------- ----------------- Total interest income 3,944 3,015

Interest expense Deposits 827 593 Securities sold under agreement to repurchase 51 33 Borrowed funds 207 118 Junior debentures 72 54 ----------------- ----------------- Total interest expense 1,157 798 Net interest income 2,787 2,217

Provision 145 75 ----------------- -----------------

Net interest income after provision 2,642 2,142

Noninterest income Service charges 294 305 Mortgage banking 58 51 Other fee income 114 137 ----------------- ----------------- Total noninterest income 466 493

Noninterest expense Personnel 1,220 1,142 Occupancy and equipment 285 237 Data processing expense 220 223 Other operating expense 414 402 ----------------- ----------------- Total noninterest expense 2,139 2,004

Income before taxes 969 631 Income tax expense 349 218 ----------------- ----------------- Net income $ 620 $ 413 ================= =================

Basic EPS $ 0.15 $ 0.10 ================= ================= Diluted EPS $ 0.15 $ 0.10 ================= ================= Book value per share $ 4.63 $ 4.24 ================= ================= Average fully diluted shares 4,173,882 4,117,987 ================= =================

Earnings per share data adjusted to effect a 4-for-3 stock split in the form of a stock dividend paid December 3, 2004

Annapolis Bancorp, Inc. and Subsidiaries Financial Ratios and Average Balance Highlights (In thousands)

For the Three Months Ended March 31, ----------------- ----------------- 2005 2004 ----------------- ----------------- (Unaudited) (Unaudited)

Performance Ratios (annualized) Return on average assets 0.86% 0.71% Return on average equity 13.34% 9.95% Average equity to average assets 6.46% 7.09% Net interest margin 4.14% 4.08% Efficiency ratio 65.75% 73.95%

Other Ratios Allow for credit losses to loans 0.91% 0.92% Nonperforming to gross loans 0.27% 0.02% Net charge-offs to avg loans 0.00% 0.00% Tier 1 capital ratio 10.8% 11.4% Total capital ratio 11.7% 12.3%

Average Balances Assets 292,016 235,617 Earning assets 273,204 218,609 Loans, gross 210,358 173,619 Interest Bearing Liabilities 231,173 183,698 Stockholders' Equity 18,868 16,704

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CONTACT: Annapolis Bancorp, Inc. Richard M. Lerner, 410-224-4455 rlerner@bankannapolis.com or Corporate Communications Alliance (CCA) Sandy Alan, 410-975-9001 sandy@cca-pr.com

KEYWORD: MARYLAND DISTRICT OF COLUMBIA INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: Annapolis Bancorp, Inc.

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