4th Quarter Earnings Up 48% at Annapolis Bancorp; Full Year Earnings E

    Business Editors

    ANNAPOLIS, Md.--(BUSINESS WIRE)--Feb. 3, 2005--Annapolis Bancorp, Inc. (NASDAQ:ANNB) closed out 2004 in record fashion, posting results that made the 4th quarter the most profitable in its history with earnings of $755,000 ($0.19 per basic share and $0.18 per diluted share).
    Net income for the three months ended December 31, 2004 increased by 48.0% over the same period in 2003 when the parent company of BankAnnapolis reported net income of $510,000 ($0.13 per basic share and $0.12 per diluted share).
    Net income for 2004 totaled $2,173,000 ($0.54 per basic share and $0.52 per diluted share), up 29.8% from net income of $1,674,000 ($0.42 per basic share and $0.41 per diluted share) for the year ended December 31, 2003.
    "Continued strong growth in loans and deposits enabled us to reach a certain critical mass in 2004," said Richard M. Lerner, Chairman and CEO of Annapolis Bancorp and BankAnnapolis. "This resulted in improved efficiency and profitability, and created what we believe are favorable conditions for continued momentum in 2005."
    Lerner pointed to notable improvement in certain key metrics as evidence of the Company's progress in 2004: return on average assets rose to 0.84% from 0.75% in the prior year, return on average equity climbed to 12.48% from 10.59%, and the efficiency ratio improved to 68.2% from 73.9% in 2003. "All of these important and closely watched ratios reflect a year of substantial advancement," Lerner said.
    Total assets grew to $284.2 million at year-end 2004, a 22.9% increase over total assets of $231.3 million at year-end 2003. Average interest-earning assets in 2004 were $240.5 million compared to $205.3 million in 2003, a 17.1% increase. As a result, total interest income improved by $1,783,000 or 15.5% despite a slightly lower overall yield on earning assets (5.51% in 2004 vs. 5.59% in 2003).
    The increase in interest-earning assets resulted from another year of strong growth in both the loan and investment portfolios. Total gross loans increased by 21.0% to $204.1 million from $168.7 million at year-end 2003. Real estate loans grew by $25.7 million (30.9%) and construction loans by $7.2 million (29.0%), as favorable interest rates and a thriving local real estate market generated substantial demand for portfolio mortgage products. The bank also added $16.4 million to its portfolio of investment securities in 2004, a 43.2% increase over year-end 2003 levels.
    The Company's cost of interest-bearing liabilities dropped to 1.80% in 2004 from 1.92% in 2003. Even so, total interest expense for the year increased by $273,000 or 8.1% as average interest-bearing liabilities grew by $26.7 million (15.3%) from 2003.
    The increase in interest-bearing liabilities in 2004 came from deposit growth and $15.0 million in new borrowings from the Federal Home Loan Bank of Atlanta. Total deposits improved to $226.8 million at year-end compared to $190.6 million at December 31, 2003, a 19.0% increase. The bulk of the deposit growth came in certificates of deposits (up $18.4 million or 27.7%), money market accounts (up $11.3 million or 36.0%), and noninterest-bearing demand deposits (up $6.1 million or 18.3%).
    Net interest income improved by $1,510,000 or 18.6% in 2004, aided by expansion in the net interest margin to 4.00% from 3.95% in 2003. Given the interest rate sensitivity of the Company's asset base, further increases by the Federal Reserve in its target federal funds rate should continue to positively impact the Company's net interest margin in 2005.
    The end of the mortgage refinancing boom caused total noninterest income to decline by $59,000 or 2.8% in 2004. Fees earned on brokered mortgage loans fell to $239,000 from $448,000 in 2003, a 46.7% drop. Partially offsetting this deficit were increases in transaction-based service charges, fees earned from VISA check cards, and income from bank-owned life insurance.
    Noninterest expense in 2004 rose by $413,000 or 5.5% compared to the prior year. Compensation expense increased by $369,000 (8.8%) as a result of annual merit increases and higher benefit costs. Data processing expense also continued to rise in correlation with higher transactional volume.
    At year-end 2004, total stockholders' equity amounted to $18.7 million, up 14.0% from $16.4 million at December 31, 2003. Book value per basic share at December 31, 2004 was $4.61.
    After net charge offs of $94,000 and a $294,000 provision for credit losses in 2004, the allowance for credit losses at December 31, 2004 stood at $1,832,000 (0.90% of total gross loans) and provided greater than 3:1 coverage of nonperforming assets of $599,000 (0.29% of total gross loans).
    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. 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," "should," and words of similar import relating to future results of the Company, 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 December 31, 2004 and December 31, 2003 ($000)

(Unaudited) (Audited) December 31, December 31, 2004 2003 ------------ ------------ Assets Cash and due $ 7,455 $ 6,033 Federal funds sold 7,213 8,014 Investments 54,440 37,969 Loans, net of allowance 202,296 167,123 Acc int rec 1,061 869 Def inc taxes 594 477 Premises and equip 6,998 6,936 Investment in BOLI 3,510 3,356 Other assets 621 561 ------------ ------------ Total Assets $ 284,188 $ 231,338 ============ ============

Liabilities and Stockholders' Equity Deposits Noninterest bearing $ 39,473 $ 33,385 Interest bearing 187,361 157,192 ------------ ------------ Total deposits 226,834 190,577 Sec under agree to repurchase 7,901 8,745 Other borrowed funds 25,000 10,000 Junior subordinated debentures 5,000 5,000 Acc int & acc exp 791 568 ------------ ------------ Total Liabilities 265,526 214,890

Stockholders' Equity Common stock 41 30 Paid in capital 12,986 12,898 Retained Earnings 5,877 3,704 Comprehensive income (242) (184) ------------ ------------ Total Equity 18,662 16,448 ------------ ------------ Total Liabilities and Equity $ 284,188 $ 231,338 ============ ============

Annapolis Bancorp, Inc. and Subsidiaries Consolidated Statements of Income for the Three and Twelve Month Periods Ended December 31, 2004 and 2003 (Unaudited) (In thousands, except per share data)

For the Three Months For the Twelve Months Ended December 31, Ended December 31, ----------------------- ----------------------- 2004 2003 2004 2003 ----------- ----------- ----------- -----------

Interest Income Loans $ 3,178 $ 2,541 $ 11,596 $ 10,051 Investments 416 386 1,507 1,235 Federal funds sold 91 20 157 191 ----------- ----------- ----------- ----------- Total int inc 3,685 2,947 13,260 11,477

Interest expense Deposits 770 611 2,629 2,557 Sec sold under agree to repurch 50 41 159 188 Borrowed funds 196 115 617 456 Junior debentures 66 54 236 167 ----------- ----------- ----------- ----------- Total int exp 1,082 821 3,641 3,368 Net int inc 2,603 2,126 9,619 8,109

Provision 106 25 294 50 ----------- ----------- ----------- -----------

Net int inc after prov 2,497 2,101 9,325 8,059

NonInterest Income Service charges 332 349 1,309 1,195 Mortgage banking 66 75 239 448 Other fee income 115 107 477 441 ----------- ----------- ----------- ----------- Total nonint inc 513 531 2,025 2,084

NonInterest Expense Personnel 1,089 1,032 4,586 4,217 Occ and equip 249 238 962 984 Data processing exp 205 211 874 836 Other operating exp 295 343 1,524 1,496 ----------- ----------- ----------- ----------- Total Nonint Exp 1,838 1,824 7,946 7,533

Income before taxes 1,172 808 3,404 2,610 Income tax expense 417 298 1,231 936 ----------- ----------- ----------- ----------- Net income $ 755 $ 510 $ 2,173 $ 1,674 =========== =========== =========== ===========

Basic EPS $ 0.19 $ 0.13 $ 0.54 $ 0.42 =========== =========== =========== =========== Diluted EPS $ 0.18 $ 0.12 $ 0.52 $ 0.41 =========== =========== =========== =========== Book value per share $ 4.61 $ 4.09 $ 4.61 $ 4.09 =========== =========== =========== =========== Avg fully diluted shares 4,153,137 4,108,114 4,139,734 4,096,183 =========== =========== =========== ===========

Per share data adjusted to effect a four-for-three 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 For the Twelve Months Ended December 31, Ended December 31, ----------------------- ----------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Performance Ratios (annualized) Return on average assets 1.06% 0.87% 0.84% 0.75% Return on average equity 16.32% 12.47% 12.48% 10.59% Average equity to average assets 6.50% 7.03% 6.73% 7.11% Net interest margin 3.92% 3.97% 4.00% 3.95% Efficiency ratio 58.99% 68.65% 68.24% 73.90%

Other Ratios Allow for credit losses to loans 0.90% 0.97% 0.90% 0.97% Nonperforming to gross loans 0.29% 0.02% 0.29% 0.02% Net charge-offs to avg loans 0.05% 0.00% 0.05% 0.00% Tier 1 capital ratio 11.1% 12.2% 11.1% 12.2% Total capital ratio 12.0% 13.1% 12.0% 13.1%

Average Balances Assets 283,185 230,584 258,771 222,324 Earning assets 264,505 212,587 240,471 205,284 Loans, gross 201,628 160,996 189,130 155,067 Interest Bearing Liabiities 222,657 181,418 201,723 175,012 Stockholders' Equity 18,418 16,218 17,406 15,800

--30--TG/ph*

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

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

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