3rd Quarter Profits Up 37% at Annapolis National Bancorp.

Business Editors

ANNAPOLIS, Md.--(BUSINESS WIRE)--Oct. 31, 2000

Significant improvements in net interest margin and non-interest income led to a 37% increase in third quarter earnings at Annapolis National Bancorp, Inc. (NASDAQ:ANNB), parent company of Annapolis National Bank.

Net income for the quarter ended September 30, 2000 totaled $311,000 or $0.14 per basic and diluted share, up from $227,000 or $0.10 per basic and diluted share for the same quarter in 1999. Net income for the nine months ended September 30, 2000 rose by 32.7% to $670,000 ($0.29 per basic and diluted share) from $505,000 ($0.22 per basic and diluted share) for the same period of 1999.

In the third quarter of 2000, the Bank's net interest margin climbed to 5.95% from 4.99% in the corresponding quarter of 1999. Bank President and Chief Executive Officer Mark H. Anders attributed the resulting $235,000 or 15.2% increase in net interest income to improved yields on loans and investments at a time when the Bank managed to hold rates relatively steady on its strong core deposit base.

Non-interest income increased by 17.8% in the third quarter to $232,000 from $197,000 due to improved deposit fee generation and continuing growth in fee income produced by the VISA debit card introduced in the first quarter of last year.

Non-interest expense increased in the third quarter by $188,000, or 13.5%, due principally to higher compensation expenses resulting from the staffing of previously unfilled positions in the Bank. Increased marketing costs were offset by lower legal and data processing expenses.

According to Anders, the Bank's enhanced financial performance coincides with marked improvement in its asset quality. Non-performing assets declined to $1,193,000 at September 30, 2000 from $1,557,000 at December 31, 1999, a 23.4% decrease. Anders added that this trend has continued in October of 2000 with the payoff of a $284,000 non-accrual commercial real estate loan.

"At a time when the banking industry as a whole is seeing mounting evidence of deteriorating asset quality, the trends at Annapolis National are positive," Anders stated. "Profits are up and the loan portfolio is arguably in its best shape in years."

As a percentage of total gross loans, non-performing assets fell to 1.43% at September 30, 2000, compared to 1.88% at December 31, 1999. When adjusted by eliminating the U.S. Small Business Administration-guaranteed portion of non-accrual loans, the Bank's non-performing assets represented 0.70% of total gross loans at September 30, 2000 and 1.04% at December 31, 1999.

The allowance for loan losses at September 30, 2000 stands at $1,542,000 and provides 129.3% coverage of non-performing assets. At December 31, 1999, the allowance stood at $1,483,000 and provided 95.3% coverage. As a percentage of total gross loans, the allowance for loan losses increased to 1.85% at September 30, 2000 from 1.79% at December 31, 1999.

"In just one year's time, new management has made tremendous strides in improving the Bank's performance," observed Richard M. Lerner, Chairman of Annapolis National Bank. "The results we are announcing today should make that clear to our customers, shareholders, and the investment community."

Total assets at September 30, 2000 rose to $130.7 million from $126.7 million at December 31, 1999. Cash, investment securities, and federal funds sold increased 5.6% to $43.2 million from $40.9 million, while net loans receivable increased 0.7% to $81.8 million from $81.2 million. Overall deposit levels increased 1.5% to $106.7 million from $105.1 million, as core deposits grew by $4.5 million or 7.6%, but were offset by reductions in certificate and IRA accounts.

Stockholders' equity increased by $355,000, or 2.8%, to $13.1 million at September 30, 2000 from $12.7 million at December 31, 1999. Earnings of $670,000 for the nine months ended September 30, 2000 were offset by $70,000 in cash dividends and a $270,000 decrease in capital surplus resulting from purchases of the Company's stock under a stock repurchase program initiated in May of 2000.

The Company disclosed that to date, it has repurchased 53,100 of its shares on the open market at an average price per share of $5.09. Book value per share at September 30, 2000 was $5.76. Upon inaugurating its stock repurchase program in May, the Company announced that it intended to ultimately repurchase up to 5%, or 116,175 of its then-outstanding shares.

The Company also announced today that its Board of Directors has again declared a quarterly common stock dividend. Shareholders of record as of November 3, 2000 will receive a cash dividend of one cent per share payable on November 17, 2000.

Annapolis National Bank serves the banking needs of small businesses, professional concerns, and individuals through five community banking offices located in Anne Arundel and Queen Anne's counties in Maryland. The Bank recently announced that effective November 1, 2000 it would convert to a Maryland state-chartered financial institution and change its name to BankAnnapolis.

"The required approvals have been obtained from the Maryland Office of Financial Regulation and the Federal Reserve Bank of Richmond, and plans are on track to open for business November 1st as BankAnnapolis," Anders confirmed. "Our focus is now squarely on the local markets we serve, and we aim to become nothing less than the premier community bank in the Annapolis region."

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.