Annapolis Bancorp Announces Second Quarter Results

ANNAPOLIS, Md.--(Business Wire)--
Annapolis Bancorp, Inc. (NASDAQ:ANNB), parent company of
BankAnnapolis, today announced net income of $458,000 ($0.12 per basic
and diluted share) for the second quarter of 2008, down from $628,000
($0.15 per basic and diluted share) for the same period last year.

"At a time of deteriorating economic conditions and considerable
distress in the banking industry, we are pleased to report that
Annapolis Bancorp earned a very respectable profit in the quarter just
ended," said Chairman and CEO Richard M. Lerner. "Although not at last
year's levels, we believe that our earnings reflect continued solid
performance by BankAnnapolis under the most challenging of
circumstances."

Amidst growing economic uncertainty, falling real estate
collateral values and rapidly changing market conditions, the Company
prudently elected to fortify its reserves in the second quarter by
recording a $367,000 provision for credit losses, up $357,000 from the
same period in 2007. After net charge-offs of $178,000 in the second
quarter, the allowance for credit losses amounted to $2,593,000 (1.02%
of total gross loans) at June 30, 2008 compared to $2,283,000 (0.93%
of total gross loans) at December 31, 2007.

The increase in second quarter provision for credit losses also
reflected substantial growth in the Company's loan portfolio, as total
gross loans increased to $255.0 million from $244.5 million at March
31, 2008, an annualized growth rate of 17.2%. Through the first six
months of 2008, the Company's loan portfolio has grown by $8.8 million
or 3.6% (7.2% annualized).

"The growth in our loan portfolio is a clear indication that
BankAnnapolis is actively developing business and pursuing
opportunities to extend credit to deserving local businesses," said
Lerner. "Because we maintained rigorous lending standards in the past,
we have no need to tighten them now."

Total assets dropped by $7.8 million or 2.0% from their level at
March 31, 2008, primarily because of a $5.0 million Federal Home Loan
Bank advance that was called and repaid by the Company. Since December
31, 2007, total assets have risen by 3.6% from $361.9 million to
$374.9 million at June 30, 2008.

Year-to-date balance sheet growth was funded by $20.0 million in
new Federal Home Loan Bank advances, as well as by higher repurchase
agreement and demand deposit account balances, offset by a $7.6
million or 3.0% decline in interest-bearing deposits.

The Company's mix of interest-bearing deposits continued its
dramatic transformation since year-end 2007, with savings account
balances increasing by $29.5 million or 66.2%, while money market
account balances fell by $25.9 million or 30.4%. Certificate of
deposit balances declined by $8.2 million or 9.4% due in large part to
the deliberate runoff of $8.0 million in brokered deposits in the
first quarter.

"The Company continues to be extremely pleased with the success of
its Superior Savings Account which was introduced in April of 2007,"
said Lerner. "Since then, almost 3,000 new accounts have been opened,
with the average balance per account exceeding $20,000. This product
has proven invaluable in attracting and retaining significant core
deposit relationships at a time when prevailing rates on money market
accounts and certificates of deposit were on the decline." The Annual
Percentage Yield on the Superior Savings Account was 3.00% at June 30,
2008.

Stockholders' equity totaled $25.9 million at the end of the
second quarter, a decrease of $1.0 million or 3.7% from year-end 2007.
Approximately $1.5 million of capital surplus was utilized to complete
the Company's stock repurchase program in the first half of 2008. In
total, 300,000 shares (approximately 7.3% of the outstanding common
stock) were repurchased between May 2007 and June 2008 at an average
price per share of $7.79. Book value per share at quarter-end was
$6.78.

At June 30, 2008, Annapolis Bancorp met all federal regulatory
requirements for a well-capitalized institution, with a Tier 1 capital
ratio of 11.8%, a total capital ratio of 12.8%, and a leverage ratio
of 9.0%. To be considered "well-capitalized" under federal
definitions, a bank holding company must have a Tier 1 capital ratio
of at least 6%, a total capital ratio of at least 10%, and a leverage
ratio of at least 5%.

Based on March 31, 2008 financial data, BankAnnapolis was assigned
a 5-Star "Superior" rating by BauerFinancial, an independent research
firm that analyzes and reports on the financial condition of the
nation's banking industry. According to information published on its
web site (www.bauerfinancial.com), "5-Stars" is BauerFinancial's top
rating, signifying superior safety and soundness based on such factors
as capital ratios, liquidity, loan delinquency rates and profitability
trends.

In the quarter ended June 30, 2008, average interest-earning
assets rose to $362.2 million from $330.9 million in the same period
last year. The yields on loans and overnight investments declined
significantly, offsetting a modest improvement in the yield on
investment securities. Overall, the yield on interest-earning assets
dropped to 6.01% from 6.83% in the second quarter of last year, and as
a result, total interest income fell by $206,000 or 3.7%.

Average interest-bearing liabilities grew to $315.4 million from
$283.6 million in the second quarter of 2007, but total interest
expense plummeted by $566,000 or 20.8% compared to the same period
last year as the deposit mix shifted and interest rates on deposits
and borrowings fell sharply in every category. The overall cost of
interest-bearing liabilities dropped by 110 basis points to 2.74% in
the three months just ended from 3.84% in the comparable period last
year.

Due primarily to the substantial reduction in second quarter
interest expense, net interest income improved by $360,000 or 12.3%
compared to the same period in 2007, and for the first time in two
years, the Company's net interest margin expanded, from 3.54% in the
second quarter of 2007 to 3.64% in the three months just ended. On a
sequential quarter basis, the Company's net interest margin improved
by 5 basis points, continuing a trend of stabilization or improvement
in this key metric over the past three quarters.

As previously mentioned, the Company's second quarter provision
for credit losses increased to $367,000 from $10,000 in the same
period last year. Nonperforming assets at June 30, 2008 amounted to
$2.2 million or 0.86% of total gross loans compared to $1.1 million or
0.44% of total gross loans at December 31, 2007. An increase in loans
greater than 90 days past due but still accruing accounted for the
higher level of nonperforming assets.

"We are constantly reviewing our loan portfolio, adjusting
internal risk ratings as warranted, and modifying the qualitative
factors in our methodology to reflect changing economic and market
conditions," said Lerner. "These practices help us manage credit
quality and deal proactively with potential problem loans."

Noninterest income decreased by $36,000 or 7.4% in the second
quarter compared to the same period last year, due primarily to lower
transaction-based service charges. Noninterest expense increased by
$268,000 or 11.3%, reflecting the cost of recent strategic investments
in personnel, and higher legal, audit, and consulting fees compared to
the second quarter of 2007.

Annapolis Bancorp's annualized return on average equity for the
second quarter of 2008 was 7.08% compared to 9.94% for the same period
in the prior year. The second quarter annualized return on average
assets was 0.48% compared to 0.72% for the three months ended June 30,
2007.

Year-to-date net income for 2008 declined by 20.1% to $983,000
($0.25 per basic and $0.24 per diluted share) from $1,231,000 ($0.30
per basic and $0.29 per diluted share) in the first six months of last
year. Net interest income improved by $557,000 or 9.5%, with the net
interest margin contracting slightly to 3.61% from 3.64% in the first
half of 2007. After a $468,000 increase in the provision for credit
losses compared to the same period last year, net interest income
after provision increased by $89,000 or 1.5%. Year-to-date noninterest
income declined by $7,000 or 0.8%, and noninterest expense increased
by $503,000 or 10.6%.

For the six months ended June 30, 2008, Annapolis Bancorp's
annualized return on average equity was 7.40% compared to 9.97% for
the same period of 2007. The 2008 six-month annualized return on
average assets was 0.53% compared to 0.72% in 2007.

BankAnnapolis serves the banking needs of small businesses,
professional concerns, and individuals through seven community banking
offices located in Anne Arundel and Queen Anne's Counties in Maryland.
In the fourth quarter of 2008, the Bank will open its eighth office in
the Annapolis Towne Centre at Parole. 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.

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Annapolis Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
as of June 30, 2008 and December 31, 2007
($000)

(Unaudited) (Audited)
June 30, December 31,
------------ ------------
2008 2007
------------ ------------
Assets
Cash and due from banks $ 5,842 $ 5,411
Interest bearing deposits with banks 12,500 11,500
Federal funds sold 1,330 1,588
Investment securities, available for sale 85,813 83,123
Loans, net of allowance 252,421 243,905
Accrued interest receivable 2,017 1,794
Deferred income taxes 1,245 836
Premises and equipment 9,100 9,179
Investment in bank owned life insurance 4,008 3,927
Other assets 644 616
------------ ------------
Total Assets $ 374,920 $ 361,879
============ ============

Liabilities and Stockholders' Equity
Deposits
Noninterest bearing $ 40,409 $ 38,075
Interest bearing 245,949 253,514
------------ ------------
Total deposits 286,358 291,589
------------ ------------
Securities under agreements to repurchase 16,406 13,337
Short-term borrowings - 4,170
Long term borrowings 40,000 20,000
Junior subordinated debentures 5,000 5,000
Accrued interest and accrued expense 1,293 931
------------ ------------
Total Liabilities 349,057 335,027
------------ ------------

Stockholders' Equity
Common stock 38 40
Paid in capital 11,147 12,589
Retained Earnings 15,073 14,233
Comprehensive loss (395) (10)
------------ ------------
Total Equity 25,863 26,852
Total Liabilities and Equity
------------ ------------
$ 374,920 $ 361,879
============ ============

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Annapolis Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
for the Three and Six Month Periods Ended June 30, 2008 and 2007
(Unaudited)
(In thousands, except per share data)

For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------

Interest Income
Loans $ 4,170 $ 4,432 $ 8,627 $ 8,707
Investments 1,050 877 2,015 1,803
Interest bearing
balances with banks 83 190
Federal funds sold 123 323 229 481
---------- ---------- ---------- ----------
Total interest income 5,426 5,632 11,061 10,991

Interest expense
Deposits 1,681 2,300 3,727 4,202
Securities sold under
agreements to
repurchase 62 131 158 239
Borrowed funds 333 177 601 490
Junior debentures 73 107 172 214
---------- ---------- ---------- ----------
Total interest expense 2,149 2,715 4,658 5,145
Net interest income 3,277 2,917 6,403 5,846

Provision 367 10 488 20
---------- ---------- ---------- ----------

Net interest income
after provision 2,910 2,907 5,915 5,826

Noninterest Income
Service charges 312 334 605 598
Mortgage banking 16 24 34 40
Other fee income 123 129 246 254
---------- ---------- ---------- ----------
Total noninterest
income 451 487 885 892

Noninterest Expense
Personnel 1,538 1,332 3,092 2,722
Occupancy and Equipment 307 317 626 625
Data processing expense 184 190 387 384
Professional Fees 107 78 218 144
Marketing expense 106 115 203 252
Other operating expense 404 346 740 636
---------- ---------- ---------- ----------
Total noninterest
expense 2,646 2,378 5,266 4,763

Income before taxes 715 1,016 1,534 1,955
Income tax expense 257 388 551 724
--------------------- ---------- ----------
Net income $ 458 $ 628 $ 983 $ 1,231
===================== ========== ==========

Basic earnings per share $ 0.12 $ 0.15 $ 0.25 $ 0.30
========== ========== ========== ==========
Diluted earnings per share $ 0.12 $ 0.15 $ 0.24 $ 0.29
========== ========== ========== ==========
Book value per share $ 6.78 $ 6.16 $ 6.78 $ 6.16
========== ========== ========== ==========
Average fully diluted
shares 3,955,160 4,226,161 4,034,817 4,226,242
========== ========== ========== ==========

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

For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2008 2007 2008 2007
----------- ----------------------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Performance Ratios
(annualized)
Return on average
assets 0.48% 0.72% 0.53% 0.72%
Return on average
equity 7.08% 9.94% 7.40% 9.97%
Average equity to
average assets 6.83% 7.20% 7.12% 7.24%
Net interest margin 3.64% 3.54% 3.61% 3.64%
Efficiency ratio 70.98% 69.86% 72.26% 70.69%

Other Ratios
Allow for credit
losses to loans 1.02% 0.87% 1.02% 0.87%
Nonperforming to
gross loans 0.86% 0.13% 0.86% 0.13%
Net charge-offs to
average loans 0.07% 0.00% 0.07% 0.00%
Tier 1 capital ratio 11.8% 13.0% 11.8% 13.0%
Total capital ratio 12.8% 13.8% 12.8% 13.8%

Average Balances
Assets 381,170 351,249 375,648 343,837
Earning assets 362,180 330,891 356,255 324,072
Loans, gross 245,436 230,709 245,696 227,882
Interest Bearing
Liabilities 315,423 283,556 309,703 277,973
Stockholders' Equity 26,028 25,306 26,743 24,918

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

Copyright Business Wire 2008