Annapolis Bancorp Reports 2010 Earnings of $1.6 Million

Nonperforming Assets Reduced by 48%

ANNAPOLIS, Md.--(BUSINESS WIRE)-- Annapolis Bancorp, Inc. (NASDAQ: ANNB), parent company of BankAnnapolis, today announced a $3.3 million rebound in earnings for the year ended December 31, 2010, as net income improved to $1,616,000</money> from a net loss of $1,707,000 for the twelve months ended December 31, 2009.

After accruing for preferred stock dividends, net income available to common shareholders for 2010 totaled $1,131,000 ($0.29 per basic and diluted common share) compared to a net loss of $2,149,000 ($0.56 per basic and diluted common share) available to common shareholders for fiscal year 2009.

Full year results for 2010 included a provision for credit losses of $2,148,000 compared to a provision for credit losses of $6,540,000 in 2009. The allowance for credit losses totaled $6.9 million (67.6% of nonperforming assets) at December 31, 2010 compared to $7.9 million (41.0% of nonperforming assets) at year-end 2009. Nonperforming assets at December 31, 2010 amounted to $10.1 million or 2.35% of total assets, a reduction of $9.2 million or 48% compared to $19.3 million or 4.35% of total assets at December 31, 2009. The decrease reflects year-to-date net charge-offs of $3.2 million and $6.9 million in problem loan resolutions, which include the return of borrowers to performing status, payoffs, and sales of foreclosed assets.

“We are pleased to report a turnaround in operating earnings and significantly improved asset quality at year-end 2010,” said Chairman and CEO Richard M. Lerner. “While encouraged that our response to the economic downturn has yielded positive results, we recognize there is still much to be accomplished, as we continue to aggressively manage nonperforming assets, build capital and reserves, and make investments in our franchise that are intended to benefit our customers and shareholders in future periods.”

Gross loans totaled $279.9 million at the end of 2010, down $2.1 million from $282.0 million at December 31, 2009, as persistently high unemployment and the anemic economic recovery suppressed business expansion and overall demand for credit throughout the year.

In response to limited lending and investment opportunities, total assets at December 31, 2010 decreased $12.2 million or 2.7% to $432.1 million compared to $444.3 million at December 31, 2009. Over the course of 2010 the Company elected to reduce its investment securities by $21.6 million and bolster its level of short-term liquidity, which is placed in federal funds sold and balances with banks.

On the funding side of the balance sheet, demand deposit accounts (noninterest bearing deposits) increased to $45.5 million as of December 31, 2010, up $4.7 million or 11.5% from $40.8 million at year-end 2009, while interest bearing deposits decreased year-over-year by $14.2 million or 4.6%. The reduction in interest bearing deposits was driven by an $18.4 million decrease in certificates of deposit that was partially offset by increases in savings, NOW and money market accounts. Total long-term debt decreased by $5.0 million since December 31, 2009, reflecting a strategic reduction in Federal Home Loan Bank borrowings.

Stockholders’ equity increased $2.1 million or 6.6% to $34.8 million at December 31, 2010 compared to $32.6 million at December 31, 2009. At December 31, 2010, Annapolis Bancorp, Inc. exceeded all federal regulatory requirements for a well-capitalized institution, with a Tier 1 capital ratio of 12.8%, a total capital ratio of 14.1%, and a Tier 1 leverage ratio of 9.1%. Book value per common share at December 31, 2010 increased to $6.81 from $6.39 at December 31, 2009.

In the year just ended, net interest income improved by $1,129,000 or 8.0% compared to 2009, and the Company’s net interest margin expanded to 3.69% from 3.32%.

Interest income for 2010 decreased by $1,373,000 or 6.5% compared to the same period last year, as average earning assets contracted $12.6 million, reinvestment yields continued to decline, and the Company increased its short-term liquidity position.

Interest expense decreased by $2,502,000 or 35.1%, due to average interest-bearing liabilities falling by $15.3 million since December 31, 2009 and a drop in the overall cost of funds to 1.16% in 2010 from 1.96% in the prior year.

Noninterest income decreased 8.7% to $1,815,000 in the year ended December 31, 2010 from $1,989,000 in the same period last year. A reduction in rental income and losses on the disposition of foreclosed assets and investment securities were partially offset by improvement in income earned on bank-owned life insurance and fees on loans held for sale.

Noninterest expense remained essentially flat year-to-year, with increases in personnel and marketing costs offset by lower FDIC and professional service charges.

Net income in the fourth quarter of 2010 totaled $262,000 compared to $381,000 in the three months ended December 31, 2009. Net income available to common shareholders in the quarter just ended was $141,000 ($0.04 per basic and diluted common share) compared to $261,000 ($0.07 per basic and diluted common share) in the comparable period of 2009.

In the final three months of 2010, net interest income declined by $163,000 or 4.1% compared to the same period of the prior year and the provision for credit losses recorded by the Company increased to $927,000 from $427,000. A decrease of $96,000 in noninterest income compared to the fourth quarter of 2009 was more than offset by a $558,000 or 15.9% reduction in noninterest expense (primarily FDIC and personnel costs).

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

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.Edward J. Schneider, CFO
410-224-4455

Source: Annapolis Bancorp, Inc.