Annapolis Bancorp, Inc. (NASDAQ: ANNB), parent company of BankAnnapolis, today announced net income of $299,000 for the third quarter of 2010, an increase of $76,000 or 34% from net income of $223,000 in the third quarter of 2009.

After accruing for preferred stock dividends, third quarter 2010 net income available to common shareholders increased $73,000 or 71% to $176,000 ($0.04 per basic and diluted common share) from $103,000 ($0.03 per basic and diluted common share) available to common shareholders in the year-ago period.

For the nine months ended September 30, 2010, net income of $1,354,000 increased by $3,442,000 from a loss of $2,088,000 in the same period of 2009. Net income available to common shareholders totaled $990,000 ($0.25 per basic and diluted common share) compared to a loss of $2,410,000 ($0.63 per basic and diluted common share) in the first nine months of 2009.

Results for the quarter ended September 30, 2010 included a provision for credit losses of $622,000 compared to a provision for credit losses of $1.1 million in the third quarter of last year. The allowance for credit losses totaled $7.4 million (2.64% of total gross loans) at September 30, 2010 compared to $7.9 million (2.81% of total gross loans) at year-end 2009.

Nonperforming assets at September 30, 2010 amounted to $13.2 million or 3.06% of total assets, a reduction of $6.1 million or 32% compared to $19.3 million or 4.35% of total assets at December 31, 2009.

?We are pleased to report year-over-year improvement in earnings as we continue to take proactive steps to address near-term challenges and navigate the slow path to economic recovery,? said Chairman and CEO Richard M. Lerner. ?Results for the three and nine months ended September 30, 2010 reflect improved asset quality and, as a result, lower provisions for credit losses relative to the comparable periods in 2009.?

Total assets were $432.5 million at September 30, 2010, down $11.8 million or 2.65% compared to $444.3 million at December 31, 2009. Gross loans totaled $279.7 million at the end of the third quarter, down $2.3 million from $282.0 million at December 31, 2009. Lending opportunities remained limited, as low consumer confidence and continued economic uncertainty have muted the demand for credit.

The Company's investment portfolio declined by $22.0 million or 18.7% in the first nine months of 2010 as $46.4 million in U.S. agency securities were called and the Company executed $13.1 million in securities sales. During the same period, the Company elected to strategically deploy funds earmarked for future lending in short maturity investments such as federal funds sold and placements at banks.

Total deposits decreased by $18.2 million or 5.2% to $332.2 million at September 30, 2010 compared to $350.5 million at year-end 2009. Total long term debt decreased by $5.0 million since December 31, 2009, reflecting a reduction in Federal Home Loan Bank borrowings. Short term securities under agreements to repurchase increased $8.2 million to $22.8 million at September 30, 2010 compared to $14.6 million as of December 31, 2009.

Stockholders' equity increased to $35.3 million at September 30, 2010 compared to $32.6 million at December 31, 2009. At September 30, 2010, Annapolis Bancorp, Inc. exceeded all federal regulatory requirements for a well-capitalized institution, with a Tier 1 capital ratio of 13.0%, a total capital ratio of 14.3%, and a Tier 1 leverage ratio of 9.0%. Book value per common share at September 30, 2010 increased to $6.97 compared to $6.41 at September 30, 2009 and $6.39 at December 31, 2009.

?Our strong capital ratios have left us well-positioned to meet increased demand for credit as the economy slowly improves,? said Lerner. ?With interest rates at historic lows, we believe this is a great time to borrow, and BankAnnapolis remains committed to delivering effective financing solutions to both consumers and businesses in the communities we serve.?

Third quarter 2010 interest income decreased by $633,000 or 11.7% compared to the same period last year, as average earning assets contracted $18.2 million and investment yields continued to decline. A high level of short-term liquidity and soft loan demand also exerted downward pressure on the Company's third quarter interest income.

Interest expense decreased by $512,000 or 31.9% due to average interest-bearing liabilities falling by $23.1 million coupled with a drop in the overall cost of funds from 1.54% in the third quarter of 2009 to 1.10% in the quarter just ended.

Although net interest income for the quarter ended September 30, 2010 decreased by $121,000 compared to the same period last year, the net interest margin improved by 4 basis points to 3.56%. The year-over-year margin expansion was due to the cost of interest-bearing liabilities declining more rapidly than the yield on interest earning assets.

Noninterest income decreased 2.7% to $469,000 in the third quarter of 2010 from $482,000 in the same period last year. Improvement in income earned on bank-owned life insurance and fees on loans held for sale was offset by a reduction in rental income and losses on the disposition of repossessed assets.

Noninterest expense increased by $258,000 or 9.2% for the quarter just ended compared to the same period last year, with increases in staffing and marketing expense partially counteracted by lower professional fees.

For the first nine months of 2010, the net interest margin increased 50 basis points to 3.68% from 3.18% in the comparable period of 2009. As a result of lower overall funding costs, net interest income rose by 12.8% to $11.4 million from $10.1 million in the same nine-month period of last year. Year-to-date noninterest income declined by $78,000 or 5.4% in 2010, and noninterest expense increased by $537,000 or 6.0% as personnel expense grew by $443,000 or 9.3% due to higher benefit charges, costs associated with the management of nonperforming assets, and additional staffing in the residential mortgage and commercial real estate lending divisions.

As of September 30, 2010, Annapolis Bancorp incurred year-to-date net charge-offs of $1,753,000. The Company recorded provisions for credit losses of $1.2 million and $6.1 million for the respective nine month periods ended September 30, 2010 and 2009.

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. and Subsidiaries
Consolidated Balance Sheets
as of September 30, 2010 and December 31, 2009
($000)
 
(Unaudited) (Audited)
September 30, December 31,
2010   2009  
Assets
Cash and due from banks $ 17,018 $ 5,936
Interest bearing deposits with banks 7,396 10,000
Federal funds sold 14,112 8,828
Investment securities, available for sale 95,868 117,883

Federal Reserve and Federal Home Loan Bank stock

3,080 3,260
Loans held for sale 2,066 3,296
Loans, net of allowance of $7,394 and $7,926 270,283 270,736
Premises and equipment 8,895 9,274
Accrued interest receivable 1,429 1,934
Deferred income taxes 2,755 3,902
Investment in bank owned life insurance 5,392 4,226
Real estate owned 1,739 2,398
Other assets   2,506   2,659  
Total Assets $ 432,539 $ 444,332  
 

Liabilities and Stockholders' Equity

Deposits
Noninterest bearing $ 43,874 $ 40,834
Interest bearing   288,352   309,629  
Total deposits   332,226   350,463  

Securities under agreements to repurchase

22,792 14,642
Long term borrowings 35,000 40,000
Junior subordinated debentures 5,000 5,000
Accrued interest and accrued expense   2,177   1,595  
Total Liabilities   397,195   411,700  
 
Stockholders' Equity
Preferred stock 8,043 7,985
Common stock 39 39
Warrants to purchase common stock 234 234
Paid in capital 11,604 11,501
Retained Earnings 14,358 13,367
Accumulated other comprehensive income/(loss)   1,066   (494 )
Total Equity 35,344 32,632
Total Liabilities and    
Equity $ 432,539 $ 444,332  

 
Annapolis Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
for the Three and Nine Month Periods Ended September 30, 2010 and 2009
(Unaudited)
(In thousands, except per share data)
       
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2010   2009   2010     2009  
 
Interest Income
Loans $ 3,928 $ 3,962 $ 11,934 $ 11,844
Investments 825 1,419 3,056 3,795
Interest bearing balances with banks 7 17 18 48
Federal funds sold   11     6   29     46  
Total interest income   4,771     5,404   15,037     15,733  
 
Interest expense
Deposits 734 1,214 2,556 4,444

Securities sold under agreements to repurchase

27 31 77 91
Borrowed funds 285 312 868 927
Junior debentures   47     48   133     160  
Total interest expense   1,093     1,605   3,634     5,622  
Net interest income 3,678 3,799 11,403 10,111
 
Provision   622     1,102   1,221     6,113  
 
Net interest income after provision   3,056     2,697   10,182     3,998  
 
Noninterest Income
Service charges 309 316 882 903
Mortgage banking 23 27 55 73
Other fee income 146 84 358 344
Gain on sale of loans 21 47 104 112
Loss on sale of securities - - (55 ) -
(Loss)/gain on sale of REO and repossessed assets   (30 )   8   18     8  
Total noninterest income   469     482   1,362     1,440  
 
Noninterest Expense
Personnel 1,721 1,543 5,228 4,785
Occupancy and equipment 414 377 1,205 1,138
Data processing expense 212 208 629 640
Professional Fees 95 197 420 548
Marketing expense 69 9 249 216
FDIC expense 140 139 427 464
Other operating expense   421     341   1,278     1,108  
Total noninterest expense   3,072     2,814   9,436     8,899  
 
Income (loss) before taxes 453 365 2,108 (3,461 )
Income tax expense (benefit)   154       142   754       (1,373 )
Net income (loss) 299 223 1,354 (2,088 )
Preferred stock dividend and discount accretion   123     120   364     322  
Net income (loss) available to common shareholders $ 176   $ 103 $ 990   $ (2,410 )
 
 
Basic earnings (loss) per common share $ 0.04   $ 0.03 $ 0.25   $ (0.63 )
Diluted earnings (loss) per common share $ 0.04   $ 0.03 $ 0.25   $ (0.63 )
Book value per common share $ 6.97   $ 6.41 $ 6.97   $ 6.41  

     
Annapolis Bancorp, Inc. and Subsidiaries
Financial Ratios and Average Balance Highlights
for the Three and Nine Month Periods Ended September 30, 2010 and 2009
(Unaudited)
(In thousands)
 
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2010 2009 2010 2009
 
Performance Ratios (annualized)
Return on average assets 0.28 % 0.20 % 0.42 % (0.63 %)
Return on average equity 3.36 % 2.75 % 5.24 % (8.68 %)
Average equity to average assets 8.20 % 7.19 % 7.93 % 7.23 %
Net interest margin 3.56 % 3.52 % 3.68 % 3.18 %
Efficiency ratio 74.08 % 65.73 % 73.92 % 77.04 %
 
Other Ratios
Allowance for credit losses to loans 2.64 % 3.26 % 2.64 % 3.26 %
Nonperforming assets to total assets 3.06 % 3.63 % 3.06 % 3.63 %
Net charge-offs to average loans 0.00 % 0.19 % 0.63 % 0.42 %
Tier 1 capital ratio 13.0 % 12.6 % 13.0 % 12.6 %
Total capital ratio 14.3 % 13.9 % 14.3 % 13.9 %
 
Average Balances
Assets 431,407 446,672 435,614 444,608
Earning assets 409,459 427,692 414,405 424,549
Loans, gross 277,337 274,852 276,931 271,843
Interest-bearing liabilities 349,904 373,013 357,154 371,978
Stockholders' equity 35,354 32,133 34,542 32,148

Annapolis Bancorp, Inc.
Edward J. Schneider, CFO
410-224-4455