UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

File by the Registrant  þ

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

¨ Preliminary Proxy Statement

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

¨ Definitive Additional Materials

¨ Soliciting Materials Pursuant to §240.14a-12

Annapolis Bancorp, Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ No fee required.

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it is determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

¨ Fee paid previously with preliminary materials.

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

1) Amount previously paid:

2) Form, Schedule of Registration Statement No.:

3) Filing Party:

4) Date Filed:

[GRAPHIC OMITTED]

1000 Bestgate Road, Suite 400

Annapolis, Maryland 21401

(410) 224-4455

April 15, 2011

Dear Stockholder:

You are cordially invited and encouraged to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of Annapolis Bancorp, Inc. (the “Company”), the holding company for BankAnnapolis (the “Bank”), Annapolis, Maryland, which will be held on May 19, 2011, at 6:00 p.m., Eastern Daylight Savings Time, at the BankAnnapolis Headquarters Building, 1000 Bestgate Road, Annapolis, Maryland 21401.

The attached Notice of the Annual Meeting and the Proxy Statement describes the formal business to be transacted at the Annual Meeting. Directors and officers of Annapolis Bancorp, Inc., as well as a representative of Stegman & Company, the Company’s independent registered public accounting firm, will be present at the Annual Meeting to discuss the Company and the Bank and respond to any questions that our stockholders may have.

The Board of Directors of Annapolis Bancorp, Inc. has determined that the matters to be considered at the Annual Meeting are in the best interests of the Company and its stockholders. For the reasons set forth in the Proxy Statement, the Board unanimously recommends that you vote “FOR” each matter under consideration.

Please sign and return the enclosed proxy card promptly. Your cooperation is appreciated.

On behalf of the Board of Directors and all of the employees of the Company and the Bank, I thank you for your continued interest and support.

Sincerely,

/s/    Richard M. Lerner        

Richard M. Lerner

Chairman and CEO

ANNAPOLIS BANCORP, INC.

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 19, 2011

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Annapolis Bancorp, Inc. (the “Company”) will be held on May 19, 2011, at 6:00 p.m., Eastern Daylight Savings Time, at the BankAnnapolis Headquarters Building, 1000 Bestgate Road, Annapolis, Maryland 21401, for the following purposes:

(1) To elect four directors;

(2) To approve, on a non-binding basis, the compensation of the Company’s Named Executive Officers;

(3) To ratify the selection of Stegman & Company as independent registered public accountants for the fiscal year ending December 31, 2011; and

(4) To transact any other business that may properly come before the meeting, and at any adjournments thereof, including whether or not to adjourn the meeting.

Only those holders of record of Common Stock as of the close of business on March 23, 2011, are entitled to notice of and to vote at the 2011 Annual Meeting of Stockholders and any adjournments or postponements thereof.

Please sign, date and mail the accompanying proxy in the enclosed, self-addressed, stamped envelope, whether or not you expect to attend the meeting in person. You may revoke your proxy at any time before it is exercised by delivering to the secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date. You may also withdraw your proxy at the meeting should you be present and desire to vote your shares in person. All stockholders are cordially invited to attend. For directions to attend the Annual Meeting of Stockholders and vote in person, please call Ms. Rita D. Demma at 410-224-4455.

By Order of the Board of Directors

/s/    Rita D. Demma        

Rita D. Demma

Secretary

Annapolis, Maryland

April 15, 2011

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders

To Be Held on May 19, 2011

The Proxy Statement and 2010 Annual Report are available at www.bankannapolis.com

ANNAPOLIS BANCORP, INC.

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

May 19, 2011

Solicitation and Voting of Proxies

This Proxy Statement is being mailed on or about April 15, 2011, to the stockholders of Annapolis Bancorp, Inc. (the “Company”) in connection with the solicitation by the Board of Directors of proxies to be used at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 19, 2011, at 6:00 p.m., Eastern Daylight Savings Time, and at any adjournments or postponements thereof, at the BankAnnapolis Headquarters Building, 1000 Bestgate Road, Annapolis, Maryland 21401.

Regardless of the number of shares of common stock owned, it is important that stockholders be represented by proxy or in person at the Annual Meeting. Stockholders are requested to vote by completing the enclosed proxy card and returning it signed and dated in the enclosed postage-paid envelope. Stockholders are urged to indicate their vote in the spaces provided on the proxy card. Proxies solicited by the Board of Directors of the Company will be voted in accordance with the directions given therein. Where no instructions are indicated, signed proxy cards will be voted FOR the approval and ratification of the specific proposals presented in this proxy statement.

Other than the matters listed on the attached Notice of Annual Meeting of Stockholders, the Board of Directors knows of no additional matters that will be presented for consideration at the Annual Meeting. Execution of a proxy, however, confers on the designated proxy holders discretionary authority to vote the shares in accordance with their best judgment on such other business, if any, that may properly come before the Annual Meeting and at any adjournments thereof, including whether or not to adjourn the Annual Meeting.

A proxy may be revoked at any time prior to its exercise by filing a written notice of revocation with the Corporate Secretary of the Company, by delivering to the Company a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. However, if you are a stockholder whose shares are not registered in your own name, you will need appropriate documentation from your record holder to vote personally at the Annual Meeting.

The cost of solicitation of proxies on behalf of the Board of Directors of the Company will be borne by BankAnnapolis (the “Bank”). Proxies may be solicited personally or by telephone by directors, officers and other employees of the Company and its subsidiary, without compensation therefor. The Company will also request persons, firms and corporations holding shares in their names, or in the names of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from such beneficial owners, and will reimburse such holders for their reasonable expenses in doing so.

Voting Securities and Principal Holders Thereof

Stockholders are entitled to one vote for each share of common stock, par value $.01 per share (the “Common Stock”) registered in their names on the stock transfer books of the Company at the close of business on March 23, 2011, the record date fixed by the Board of Directors (the “Record Date”). At March 23, 2011, the Company had outstanding 3,944,332 shares of Common Stock entitled to vote at the Annual Meeting.

The presence in person or by proxy of stockholders entitled to cast a majority of the votes entitled to be cast at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting for the election of directors and for the other proposals. Votes withheld from a director nominee, abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining whether a quorum exits.

If a broker indicates on its proxy that it does not have authority to vote certain shares held in “street name,” the shares not voted are referred to as “broker non-votes.” Broker non-votes occur when brokers do not have discretionary voting authority to vote certain shares held in “street name” on particular proposals under the rules of the New York Stock Exchange, and the “beneficial owner” of those shares has not instructed the broker how to vote on those proposals. If you are a beneficial owner, your broker, bank or other nominee is permitted to vote your shares for or against “routine” matters such as the ratification of the appointment of our independent registered public accounting firm, even if the holder does not receive voting instructions from you. Brokers are not permitted to exercise discretionary voting authority to vote your shares for or

1

against “non-routine” matters such as the election of directors. Shares represented by proxies that are marked vote “withheld” with respect to the election of any nominee will not be considered in determining whether such nominee has received the affirmative vote of a plurality of the shares. Shares represented by proxies that are marked “abstain” with respect to any other matter to be voted upon at the annual meeting will have the effect of a negative vote.

As to the election of directors, the proxy card being provided by the Board of Directors enables a stockholder to vote “FOR” the election of the nominee proposed by the Board of Directors, or to “WITHHOLD” authority to vote for the nominee being proposed. Directors are elected by a plurality of votes cast, without regard to proxies as to which authority to vote for the nominee being proposed is withheld. If you do not instruct your broker how to vote with respect to this item, your broker may not vote with respect to this proposal.

As to the approval, on a non-binding advisory basis, of the Company’s named executive officers’ compensation, by checking the appropriate box, you may (i) vote “FOR” the item; (ii) vote “AGAINST” the item; or (iii) “ABSTAIN” with respect to the item. Compensation shall be approved, on a non-binding advisory basis, by a majority of the votes cast, without regard to either (i) broker non-votes; or (ii) proxies marked “ABSTAIN” as to that matter. Because the shareholder vote is advisory, it will not be binding upon the Board of Directors. However, the Compensation Committee may take into account the outcome of the vote when considering future executive compensation arrangements.

As to the ratification of Stegman & Company as independent registered public accounting firm of the Company, by checking the appropriate box, you may (i) vote “FOR” the item; (ii) vote “AGAINST” the item; or (iii) “ABSTAIN” with respect to the item. All such matters shall be determined by a majority of the votes cast, without regard to either (i) broker non-votes; or (ii) proxies marked “ABSTAIN” as to that matter.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding the beneficial ownership of Common Stock as of March 23, 2011, by each of the Company’s directors, nominees and named executive officers, as hereinafter defined, by each person known by the Company to own beneficially more than 5% of the Company’s voting securities, and by all the executive officers and directors of the Company as a group, including the number of shares beneficially owned by and percentage ownership of each such person as of that date. Other than those persons listed below, the Company is not aware of any person, as such term is defined in the Securities Exchange Act of 1934, as amended (the” Exchange Act”), that owned more than 5% of the Company’s Common Stock as of the Record Date. The information is based upon filings made by such persons pursuant to the Securities Exchange Act of 1934.

Name and Address of Beneficial Owner	Number of Shares Owned (1)			Percent of Class
Joseph G. Baldwin 808 Homestead Lane Crownsville, MD 21032		7,532			0.19	%
Walter L. Bennett, IV 327 Broad Creek Drive Edgewater, MD 21037		8,796			0.22	%
Clyde E. Culp, III 1907 Hidden Point Road Annapolis, MD 21401		15,351	(2)		0.39	%
Kendel S. Ehrlich 2016 Monticello Drive Annapolis, MD 21401		9,427			0.24	%
F. Carter Heim 1842 Kimberwicke Place Annapolis, MD 21401		10,169			0.26	%
Patsy J. Houck 12308 Farmfield Drive Monrovia, MD 21770		9,242			0.23	%

2

Richard E. Hug 992 Stonington Drive Arnold, MD 21012	11,196		0.28	%
Robert E. Kendrick, III 850 Thicket Court Odenton, MD 21113	11,463	(3)	0.29	%
Stanley J. Klos, Jr. 76 Chautaugua Road Arnold, MD 21012	41,811		1.06	%
Lawrence E. Lerner 2711 Washington Avenue Chevy Chase, MD 20815	1,614,954		40.94	%
Richard M. Lerner 400 Beards Dock Crossing Annapolis, MD 21403	265,204	(4)	6.72	%
Loretta J. Mueller 3926 Calawasse Road Edgewater, MD 21037	9,241	(5)	0.23	%
Edward J. Schneider 9 Scottsdale Court Lutherville, MD 21093	20,000	(6)	0.51	%
Michael A. Schonfeld 3007 Martin Meadow Court Ellicott City, MD 21042	—		0.00	%
Lawrence W. Schwartz 10854 Country Pond Lane Oakton, VA 22124	37,507		0.95	%
Ermis Sfakiyanudis 2813 Durmont Court Annapolis, MD 21401	8,017		0.20	%
Clifford T. Solomon 9 Riverview Road Severna Park, MD 21146	14,951	(2)	0.38	%
Executive Officers and Directors as a group (17 persons)	2,094,861	(7)	53.11	%

(1) Information relating to beneficial ownership of Common Stock is based upon “beneficial ownership” concepts set forth in rules of the Securities and Exchange Commission under Section 13(d)3 of the Exchange Act. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power” which includes the power to vote or direct the voting of such security, or “investment power” which includes the power to dispose or to direct the disposition of such security. A person is deemed to be a beneficial owner of any security of which that person has the right to acquire beneficial ownership within sixty days. Under the rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities in which he has no beneficial interest. For instance, beneficial ownership may include spouses, minor children and other relatives residing in the same household, and trusts, partnerships, corporations, or deferred compensation plans which are affiliated with the principal.

(2) Each includes options to purchase 8,888 shares of Common Stock which are exercisable within 60 days of March 23, 2011 and are included with shares outstanding for the purpose of computing the percentage of outstanding Common Stock beneficially owned by each of Mr. Culp and Dr. Solomon.

3

(3) Includes options to purchase 7,510 shares of Common Stock which are exercisable within 60 days of March 23, 2011 and are included with shares outstanding for the purpose of computing the percentage of outstanding Common Stock beneficially owned by Mr. Kendrick.

(4) Includes options to purchase 33,333 shares of Common Stock which are exercisable within 60 days of March 23, 2011 and are included with shares outstanding for the purpose of computing the percentage of outstanding Common Stock beneficially owned by Mr. R. Lerner.

(5) Includes options to purchase 3,554 shares of Common Stock which are exercisable within 60 days of March 23, 2011 and are included with shares outstanding for the purpose of computing the percentage of outstanding Common Stock beneficially owned by Ms. Mueller.

(6) Includes a grant of 5,000 shares of restricted stock and 10,000 restricted share units that have vested or will vest within 60 days of March 23, 2011 and are included with shares outstanding for the purpose of computing the percentage of outstanding Common Stock beneficially owned by Mr. Schneider.

(7) Includes options to purchase and restricted share grants of 77,173 shares of Common Stock which are exercisable or vest within 60 days of March 23, 2011 and are included with shares outstanding of Common Stock for the purpose of computing the percentage of outstanding Common Stock beneficially owned by all directors and executive officers as a group.

PROPOSALS TO BE VOTED ON AT THE MEETING

PROPOSAL 1. ELECTION OF DIRECTORS

The number of directors of the Company is set at twelve (12). The Company’s Articles of Amendment and Restatement currently provide that the Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire board shall permit, with directors of each class being elected for three-year terms at each Annual Meeting. The term of four directors of the Company will expire at the time of the Annual Meeting or when their respective successors are elected and qualified. Four directors are to be elected at the Annual Meeting. Each of the nominees is currently a member of the Company and the Bank’s Board. Four of the twelve incumbent directors have been nominated to be elected to hold office until the 2014 Annual Meeting or until their respective successors are elected and qualified or until their earlier resignation or removal. These nominees are Messrs. Lawrence E. Lerner, Lawrence W. Schwartz, Ermis Sfakiyanudis and Dr. Clifford T. Solomon. The Board of Directors has determined that all of the current directors listed with the exception of Messrs. Lawrence E. Lerner and Richard M. Lerner are “independent” pursuant to Rule 4200 of The NASDAQ Stock Market (“NASDAQ”) regarding general independence of directors, which constitutes, as required, a majority of the Board. There are no arrangements or understandings between the Company and any person pursuant to which such person has been elected a director. Shareholders of the Company are not permitted to cumulate their votes for the election of directors.

The proxies solicited hereby, unless directed to the contrary, will be voted FOR the election as directors of the four nominees listed in the following table. Directors are elected by a plurality of votes cast. Each nominee has consented to serve as a director, if elected. The Board of Directors has no reason to believe that any nominee will be unwilling or unable to serve as a director but, if for any reason any nominee is not willing or able to serve as a director, the accompanying proxy will be voted FOR a substitute nominee chosen by the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR NOMINEES NAMED IN THIS PROXY STATEMENT.

Information Concerning Nominees

The following table sets forth information as of the Record Date concerning persons nominated by the Board of Directors for election as directors of the Company to serve until the Annual Meeting of Stockholders previously designated or until their successors have been elected and qualified or until their earlier resignation or removal. Except as indicated, the nominees have been officers of the organizations named below or of affiliated organizations as their principal occupations for more than five years.

4

Nominees and Directors serving until 2011

Name of Director	Age, Principal Occupation, Position with the Company and the Bank
Lawrence E. Lerner	Mr. Lerner, age 78, has been active in real estate development in the Washington, D.C. metropolitan area for over 45 years. He has been involved in the development and construction of two regional shopping centers, several other commercial developments, and more than 2,800 apartment units. Mr. Lerner manages his real estate investments, comprised of various partnership interests in entities which own real estate. He has been a Director of the Company and the Bank since their inception. Mr. Lerner is the father of Richard M. Lerner, a Director of the Company and the Bank.
	Our Board of Directors concluded that Mr. Lerner should serve as a director of the Company. The Board based its conclusions on Mr. Lerner’s 45 plus years of managing his own real estate development company and over twenty years of service on the Company’s Board of Directors.
Lawrence W. Schwartz	Mr. Schwartz, age 56 is a certified public accountant who has operated CPA firms since 1984 and currently is a partner with PBGH, LLP, an accounting and business consulting firm. Mr. Schwartz has served since 1997 as an adjunct professor of accountancy at The George Washington University. Mr. Schwartz also serves on the board of First Virginia Community Bank. Mr. Schwartz has been a Director of the Company since 1997 and a Director of the Bank since its inception.
	Our Board of Directors concluded that Mr. Schwartz should serve as a director of the Company. The Board based its conclusions on his 25 plus years of managing CPA firms as well as his educational experience and fourteen years on the Company’s Board of Directors and his experience on the Bank’s Board of Directors since inception.
Ermis Sfakiyanudis	Mr. Sfakiyanudis, age 42, presently serves as President and CEO of Cyber Reliant Corp. (“CRC”) an Annapolis-based network technology firm. Mr. Sfakiyanudis has been with CRC since 2010. Prior to joining CRC, Mr. Sfakiyanudis was President and CEO of eTelemetry, Inc., from 2005 until 2010. Mr. Sfakiyanudis is also a founding Principal of Sigma Engineering, Inc. Mr. Sfakiyanudis joined Sigma in 1993. Mr. Sfakiyanudis has a Civil Engineering Degree from the University of Maryland and is a Maryland registered Professional Engineer. Mr. Sfakiyanudis has been a Director of the Company and the Bank since 2000.
	Our Board of Directors concluded that Mr. Sfakiyanudis should serve as a director of the Company. The Board based its conclusions on his experience as a business owner and his experience as a director on other high profile local boards. Mr. Sfakiyanudis also has 11 years of experience as a current Director of the Company.
Clifford T. Solomon	Dr. Solomon, age 49, is a neurosurgeon affiliated with Baltimore Washington Medical Center (“BWMC”), Johns Hopkins University Hospital and the University of Maryland Hospital, where he is an assistant professor of neurosurgery. Dr. Solomon is also Chair of Neuro Sciences at BWMC. Dr. Solomon, a resident of Severna Park, is a member of numerous professional societies and in 2003 co-created “Angels of the OR,” a foundation to provide grants to critical patients with financial needs. Dr. Solomon has been a Director of the Company and the Bank since 2004.
	Our Board of Directors concluded that Dr. Solomon should serve as a director of the Company. The Board based its conclusions on his education and experience as a business owner and director on other local boards as well as his seven years of experience on the Company’s Board of Directors.

Information Concerning Continuing Directors and Executive Officers

The following tables set forth information as of the Record Date concerning directors and executive officers of the Company and the Bank whose terms of office will continue after the 2011 Annual Meeting. As indicated, some directors will serve until the 2011 Annual Meeting, and other directors will serve until the 2012 or 2013 Annual Meeting. Except as indicated, the directors and executive officers have been involved with the organizations named below or affiliated organizations for more than five years.

Directors serving until 2012

Name of Director

Age, Principal Occupation, Position with the Company and the Bank

Joseph G. Baldwin

Mr. Baldwin, age 47, is President and CEO of Reliable Contracting Company, Inc., an Anne Arundel County-based site work and road and highway construction company. Mr. Baldwin was recognized with the 2007 Ernst and Young Entrepreneur of the Year® Award in the Construction and Contracting Services category. Mr. Baldwin has previously served on the Boards of the Community Bank of Maryland located in Bowie, Maryland and F&M Bank of Maryland headquartered in Bethesda, Maryland. Mr. Baldwin has been a Director of the Company and the Bank since 2008.

5

Name of Director	Age, Principal Occupation, Position with the Company and the Bank
	Our Board of Directors concluded that Mr. Baldwin should serve as a director of the Company. The Board based its conclusions on his successful management of his own contracting company, his past experience serving as a director on other bank boards, and his three years of experience on the Company’s Board of Directors.
Walter L. Bennett, IV	Mr. Bennett, age 54, is President and owner of Skip Bennett Marine LTD, a company he founded in 1973. A resident of Annapolis, Mr. Bennett has been active in the marine trades in Anne Arundel County for 30 years. He currently owns and operates South River Marina in Edgewater, Maryland. Mr. Bennett is a current member and past president of the Washington Area Marine Dealers Association and a current member of the Marine Trades Association of Maryland. Mr. Bennett has been a Director of the Company and the Bank since 2005.
	Our Board of Directors concluded that Mr. Bennett should serve as a director of the Company. The Board based its conclusions on his successful ownership and management of a number of local marine trade businesses as well as his experience on other local boards and his six years of experience on the Company’s Board of Directors.
F. Carter Heim	Mr. Heim, age 57, is a Certified Public Accountant who has been in practice since December 1975 and is a member of the board of directors of the American Institute of Certified Public Accountants and past President of the Maryland Association of CPAs. Mr. Heim is also currently treasurer and a member of the board of directors of the Annapolis and Anne Arundel County Chamber of Commerce. Mr. Heim is President of HeimLantz, Professional Corporation. Prior to establishing his own firm, Mr. Heim was Executive Vice President of Hammond & Heim, Chartered. Mr. Heim has been a Director of the Company and Bank since 2000.
	Our Board of Directors concluded that Mr. Heim should serve as a director of the Company. The Board based its conclusions on his successful ownership and management of his own CPA firm, as well as his 11 years of service on the Company’s Board of Directors. Mr. Heim’s experience as a past director of the Maryland Association of CPAs and his current experience as a director of the American Institute of Certified Public Accountants add to his experience base.
Richard E. Hug	Mr. Hug, age 76, is Chairman and CEO of Hug Enterprises, Inc., a firm specializing in business and real estate investment and consulting, a Baltimore based company Mr. Hug started in 1991. Prior to starting Hug Enterprises, Inc., Mr. Hug served as President, Chairman and Chief Executive Officer of Environmental Elements Corporation from 1983 until his retirement in 1995. Mr. Hug remained a director and Chairman Emeritus of Environmental Elements until its sale in 2006. Mr. Hug has previously served on the board of Maryland National Bank from 1986 to 1993 and has been active on the boards of the National Aquarium in Baltimore, the Kennedy Krieger Institute, the United Way of Central Maryland and the Duke University School of the Environment.
	Our Board of Directors concluded that Mr. Hug should serve as a director of the Company. The Board based its conclusions on his past experience on other boards including seven years as a director of Maryland National Bank from 1986 to 1993 and his success as an executive and business owner. Mr. Hug has been a Director of the Bank since May 2009.

Directors serving until 2013

Name of Director	Age, Principal Occupation, Position with the Company and the Bank
Clyde E. Culp, III	Mr. Culp, age 68, is actively involved in building the Pusser’s Caribbean Grille restaurant brand presence in the U.S. Further, he is an investor in Duke and King Holdings, a Burger King franchise in the Midwest and Chairman of bd’s Mongolian Grille, a 37-unit Asian stir-fry concept franchisor. Mr. Culp has consulted with several businesses through his company, Culp Enterprises, LLC, and has an extensive background in hotel and restaurant management dating back to the 1970’s. Mr. Culp is a resident of Annapolis and serves on the boards of several non-restaurant companies. During the period from December 2006 to December 2008 Mr. Culp served on the board of Restaurant Acquisition Partners, Inc., a single purpose acquisition company.
	Our Board of Directors concluded that Mr. Culp should serve as a director of the Company. The Board based its conclusions on his years of serving in executive management roles for companies he has owned and operated as well as his seven years as a director of the Company. Mr. Culp has been a Director of the Company and the Bank since 2004.
Kendel S. Ehrlich	Ms. Ehrlich, age 49, an attorney, is the former First Lady of the State of Maryland. A resident of Annapolis, Ms. Ehrlich worked in various capacities at Comcast Cable between 1997 and 2007. Prior to joining Comcast, Ms. Ehrlich worked for five years as a prosecutor with Harford County, Maryland and for five years as a public defender with Anne Arundel County, Maryland. Ms. Ehrlich has served on various charitable boards including GBMC Hospital, Cystic Fibrosis of Maryland and the Maryland Woman’s Heritage Center.
	Our Board of Directors concluded that Ms. Ehrlich should serve as a director of the Company. The Board based its conclusions on her years of experience on other high profile boards as well

6

Name of Director	Age, Principal Occupation, Position with the Company and the Bank
	as her business acumen gained from her education and work place experience. Ms. Ehrlich has been a Director of the Company and Bank since 2007.
Stanley J. Klos, Jr.	Mr. Klos, age 59, became Vice-Chairman of the Bank in 2003 and has served as a Director of the Company and Bank since 1997. Mr. Klos has practiced law in Anne Arundel and Prince George’s Counties since 1977. He is currently a partner with the firm of Klos, Lourie and Leahy, P.A. He is a member of the Maryland, District of Columbia, Anne Arundel County, and Prince George’s County Bar Associations. Mr. Klos, a resident of Arnold, is active in community affairs and serves on the boards of directors of the Baltimore Washington Medical Center Foundation, and the board of the Hospice of the Chesapeake, Inc.
	Our Board of Directors concluded that Mr. Klos should serve as a director of the Company. The Board based its conclusions on his 14 years of experience on the Company’s Board as well as the experience he has gained while being a managing partner in several local law firms.
Richard M. Lerner	Mr. Lerner, age 51, has served as Chief Executive Officer of the Company since 1999 and became Chairman in 2001. He has also served as Chairman of the Bank since 1999. In 2002, Mr. Lerner was appointed President and Chief Executive Officer of the Bank. From 1984 to 1999, Mr. Lerner was President of White Flint Builders, Inc., in Bethesda, Maryland. Mr. Lerner earned a Masters in Business Administration from the A. B. Freeman School of Business at Tulane University in 1983. A resident of Annapolis, Mr. Lerner has been a Director of the Company and the Bank since their inception. Mr. Lerner currently serves as chairman of the boards of Hospice of the Chesapeake Foundation and the Foundation for Community Partnerships. He is the son of Lawrence E. Lerner, also a Director of the Company and Bank.
	Our Board of Directors concluded that Mr. Lerner should serve as a director of the Company. The Board based its conclusions on his over twenty years of service on the Company’s Board as well as his experience as a business owner.

Executive Officers (who are not also Directors)

Name of Executive Officer	Age, Principal Occupation, Position with the Company and the Bank
Patsy J. Houck	Ms. Houck, age 48, is Senior Vice President and Chief of Operations for the Bank, a position she has held since 2007. Previously, Ms. Houck was Senior Vice President and Manager of Branch Administration and Operations for the Bank for the period 2002 through 2007. Prior to joining the Bank in 1999, Ms. Houck held similar positions with Mellon Bank (MD).
Robert E. Kendrick, III	Mr. Kendrick, age 65, is Senior Vice President and Chief Credit Officer of the Bank, a position he has held since joining the Bank in 1999. Prior to joining the Bank, Mr. Kendrick held similar positions from 1967 through 1999 with Citizens National Bank of Laurel, Bank of Maryland, Sterling Bank & Trust Co. of Baltimore, and NationsBank.
Loretta J. Mueller	Ms. Mueller, age 48, is Senior Vice President and Chief Marketing Officer of the Bank, a position she has held since 2007. Ms. Mueller joined the Bank in 1990 and has held various positions with the Bank including Senior Vice President and Manager of Marketing and Branch Sales and Service for the period from 2003 through 2007.
Michael A. Schonfeld	Mr. Schonfeld, age 48, is Senior Vice President and Chief Business Banking Officer of the Bank, a position he has held since joining the Bank in 2010. Mr. Schonfeld was most recently with Hopkins Federal Savings Bank from 1996 until 2010, where he held the position of Executive Vice President and Chief Lending Officer. Prior to joining Hopkins Federal Savings Bank, Mr. Schonfeld was a senior executive at Taneytown Bank & Trust Company.
Edward J. Schneider	Mr. Schneider, age 49, is Chief Financial Officer and Treasurer of the Company and Senior Vice President, Chief Financial Officer and Treasurer of the Bank, positions he has held since joining the Company and the Bank in 2009. Prior to joining the Company, Mr. Schneider was Senior Vice President and Controller of CitiFinancial (a division of Citigroup) from 2005 until 2009 with responsibility for accounting and corporate governance for the division’s consumer finance branch network in the United States, Canada and Puerto Rico.

Committees

The Company and the Bank have standing joint Audit and Compensation Committees. The Company does not have a standing Nominating Committee. The members of each of the named committees serve at the discretion of the Board of Directors.

The Audit Committee examines accounting processes, reviews financial disclosures and meets privately outside the presence of Company and Bank management with the independent registered public accountants to discuss internal accounting control policies and procedures. The Committee reports on such meetings to the Boards of Directors. The Committee selects the independent registered public accountants, reviews the performance of the independent registered

7

public accountants in the annual audit and in assignments unrelated to the audit, and reviews the fees of the independent registered public accountants. The Audit Committee operates under the written charter it has adopted, which is reassessed for adequacy on an annual basis and is available on our website at www.bankannapolis.com. A copy of the Audit Committee Charter is included as Appendix A to this proxy statement.

Messrs. Heim (Chairman), Culp and Schwartz currently serve as members of the Audit Committee. Messrs. Heim, Culp and Schwartz are “independent” pursuant to Rule 4200 of the NASDAQ regarding general independence of directors. None has ever been an employee of the Company or any subsidiary. The Audit Committee met eleven (11) times during 2010. The Committee’s report appears on pages 16 and 17 of this proxy statement. The Board of Directors has determined that Mr. Heim and Mr. Schwartz are the “audit committee financial experts” as that term is defined in Item 407(d)(5) of Regulation S-K.

The Compensation Committee consists of Messrs. Klos (Chairman), Hug and Sfakiyanudis and Ms. Ehrlich. The Committee reviews and determines salaries and other benefits for members of the Board of Directors and executive and senior management persons of the Company and its subsidiaries. The Committee determines which employees shall be granted stock options, the terms of such grants, and reviews incentive and other compensatory plans and arrangements. The Committee has delegated its authority to administer the Employee Stock Purchase Plan to Mr. R. Lerner and Ms. Margaret Faison, a Senior Vice President of the Bank. The Compensation Committee uses a variety of tools to determine appropriate salary increases and bonus payments including measurements of inflation, industry outlooks, outside compensation consultants and other experts for survey data and other information as it deems appropriate. All of the members of the Compensation Committee are “independent” pursuant to Rule 4200 of the NASDAQ regarding general independence of directors. The Compensation Committee met three (3) times during 2010. The Compensation Committee operates under the written charter it has adopted, which is reassessed for adequacy on an annual basis and is also available on our website at www.bankannapolis.com.

Nominees for election to the Board of Directors of the Company and the Bank are either selected or recommended for the Board’s selection by a majority of the independent members of the Board of Directors. The Board of Directors believes that the independent members of the Board of Directors can satisfactorily carry out the responsibility of properly selecting or approving nominees for the Board of Directors without the formation of a standing nominating committee. The independent members of the Board of Directors believe that there is a meaningful relationship between diverse boards and improved corporate financial performance. As such, when recommending a new member to the Board the independent members of the Board of Directors who participate in the consideration of director nominees take into consideration the diversification of the Board primarily as it relates to business experience. The independent members of the Board of Directors who participate in the consideration of director nominees select nominees whose experience and education cover a broad spectrum of service and industry relevant to our business needs. The nominees are selected with backgrounds and skills that relate strongly to the client base of the Company. The independent members of the Board of Directors who participate in the consideration of director nominees are Joseph G. Baldwin, Walter L. Bennett, IV, Clyde E. Culp, III, Kendel S. Ehrlich, F. Carter Heim, Richard E. Hug, Stanley J. Klos, Jr., Lawrence W. Schwartz, Ermis Sfakiyanudis and Clifford T. Solomon. Pursuant to Rule 4200 of the NASDAQ regarding general independence of directors, all such board members are “independent.” As there is no standing nominating committee, the Company does not have a nominating committee charter in place. The independent directors met one (1) time during 2010 in their nominating capacity.

The independent directors will consider stockholder nominations submitted to them in writing in care of the Company if such nominations are timely submitted. To be considered timely, the nominations must be received at least thirty (30) but not more than sixty (60) days prior to the Annual Meeting if the Company has given at least forty (40) days prior notice of the meeting. Otherwise, such nominations should be submitted within ten (10) days of the Company first giving notice of the Annual Meeting. The written notice must set forth certain information specified in the Company’s Certificate of Incorporation. The Company did not receive any stockholder nominations in connection with the Annual Meeting.

In identifying and evaluating nominees for director, the Board considers diversity, among other factors and whether the candidate has the highest ethical standards and integrity and sufficient education, experience and skills necessary to understand and wisely act upon the complex issues that arise in managing a publicly-held company. To the extent the Board does not have enough information to evaluate a candidate, the Board may send a questionnaire to the candidate for completion in enough time for Board consideration. The Board will annually assess the qualifications, expertise, performance and willingness to serve of existing directors. Current members of the Board of Directors with skills and experience that are relevant to the Company’s business and/or unique situation who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective or skill set. If at this time or at any other time during the year the Board of Directors determines a need to add a new director with specific qualifications or to fill a vacancy on the Board, an “independent” director, pursuant to Rule 4200 of the NASDAQ, designated by the Board will then initiate the search. While conducting the

8

search the “independent” director will utilize staff support, seek input from other directors and senior management, and consider any nominees previously submitted by stockholders. An initial slate of candidates satisfying the qualifications set forth will then be identified and presented to all independent directors. The independent directors will then prioritize the candidates and determine if other directors or senior management have relationships with the preferred candidates and can initiate contacts. To the extent feasible, all of the independent members of the Board of Directors will interview the prospective candidates. Evaluations and recommendations of the interviewers will be submitted to the whole Board for final evaluation. The Board will meet to consider such information and to select candidates for election or appointment to the Board.

Stockholder Communications with the Board of Directors

The Company has established procedures for stockholders to communicate directly with the Board of Directors on a confidential basis. Stockholders who wish to communicate with the Board or with a particular director may send a letter to the Secretary of the Company at 1000 Bestgate Road, Suite 400, Annapolis, Maryland 21401. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-Director Communication.” All such letters must identify the author as a stockholder and clearly state whether the intended recipients are all members of the Board or just certain specified individual directors. The Secretary will make copies of all such letters and circulate them to the directors addressed. If a stockholder wishes the communication to be confidential, such stockholder must clearly indicate on the envelope that the communication is “confidential.” The Secretary will then forward such communication, unopened, to the Chairman of the Board of Directors.

About the Board of Directors

The Board of Directors of the Company and the Bank met eleven (11) times during 2010. Each director of the Company attended at least 75% of the total number of meetings of the Board and all Board Committees on which he or she served during the period that he or she has been a director or served on such Committees with the exception of Messrs. Bennett, Heim and Solomon. Mr. Bennett attended 73% of all Board and Committee meetings, Mr. Heim attended 64% of all Board meetings and 91% of all Committee meetings and Dr. Solomon attended 73% of all Board and Committee meetings.

Board Leadership Structure and Role in Risk Oversight

Mr. R. Lerner serves as both the Chairman and Chief Executive Officer of the Company and as Chairman, President and Chief Executive Officer of the Bank. The Board believes that the Company’s Chief Executive Officer is best qualified to serve as Chairman. Mr. Lerner has served on the Company’s Board for over twenty years and therefore he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the company and industry, while the Chief Executive Officer brings company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The Board believes the combined role of Chairman and Chief Executive Officer, together with an independent Lead Director having the duties described below, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

Lead Director

Stanley J. Klos, Jr., an independent director who serves as the Vice Chairman of the Bank’s Board of Directors, was selected by the Board to serve as the Lead Director. The Lead Director is responsible for chairing meetings of the Board when the Chairman is excused or absent, for chairing any executive session of the Company’s independent directors and for calling special meetings of the independent directors. The Lead Director conducts discussions among independent directors on nominations for directors of the Company. The Lead Director also acts as liaison between the Chairman and the independent directors. The Lead Director provides leadership and counsel to the independent directors with an emphasis on the appropriate roles and responsibilities of the independent directors. He enhances the effective functioning of the independent directors by facilitating communications and collaboration between and among them. In conjunction with the Chairman of the Board, he provides leadership to the Board in reviewing and deciding upon matters that exert major

9

influence on the manner in which the Company’s business is conducted. The Lead Director acts in coordination with the Chairman in all matters concerning Board governance and risk management.

Risk Oversight

Members of management attending each Board and Committee meeting are responsible for reporting on the Company and Bank’s financial results, day-to-day operations and risk management. Management is responsible for identifying potential material risks and implementing appropriate controls to mitigate risks. Information is presented to the Board of Directors about the various risks facing us and key risk indicators are reviewed by the Board in detail. In addition, each of the Board committees considers risks within its areas of responsibility.

Our Board has two standing committees—Audit and Compensation. Each of the Board committees is comprised solely of independent directors, with each of the two committees having a separate chair. One of the key responsibilities of the Board is to develop strategic direction for the Company, and provide management oversight for the execution of that strategy. The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s financial, strategic and operational issues, as well as the risks associated with each. At the committee level:

• The Audit Committee oversees management of financial risks including those related to internal controls, the annual financial audit, and financial reporting, and oversees the Company’s accounting and financial processes, reporting on such matters to the full Board. The Audit Committee’s agendas include discussions of individual risk areas throughout the year.

• The Compensation Committee is responsible for overseeing the management of risks relating to the Company’s and its subsidiaries’ compensation plans and arrangements. The Compensation Committee reviews the Company’s compensation plans to ensure they do not subject the Company to unnecessary or excessive risk or encourage the Company’s officers to take any unnecessary or excessive risk.

While each committee is responsible for evaluating and overseeing the management of such risks, the Board of Directors is regularly informed through committee reports about such risks.

Director Compensation

The Company pays no Board or committee fees. Directors of the Bank received fees for each Board and committee meeting attended in 2010 in the amount of $425 per Board of Directors meeting, $325 per Audit Committee meeting and $250-$325 per other committee meetings. The Chairman of each Committee receives an additional $100 per Committee meeting attended. If a director elects to participate in a Board or Committee meeting via telephone then the standard meeting fee is reduced by $100. Each director, with the exception of Ms. Ehrlich and Mr. R. Lerner, also received an annual retainer of $5,000 paid in restricted share units of Annapolis Bancorp, Inc. stock that vested 100% as of January 23, 2010. Ms. Ehrlich received $10,000 in restricted share units. Mr. R. Lerner received no fees for attendance at Board or committee meetings as he is a full-time employee of the Bank.

Directors are encouraged to attend annual meetings of stockholders. All Directors with the exception of Messrs. Bennett, L. Lerner, and Solomon attended the prior year’s annual meeting.

10

DIRECTOR COMPENSATION (1)

(a)	(b)		(c)		(d)		(e)			(f)
Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Options Awards ($)		All Other Compensation ($)			Total ($)
Joseph G. Baldwin		5,000		5,000		—		—			10,000
Walter L. Bennett, IV		4,050		5,000		—		—			9,050
Clyde E. Culp, III		8,150		5,000		3,768		—			16,918
Kendel S. Ehrlich		5,500		10,000		—		9,323			24,823
F. Carter Heim		9,700		5,000		—		—			14,700
Richard E. Hug		5,750		5,000		—		—			10,750
Stanley J. Klos, Jr.		7,350		5,000		—		(2	)		12,350
Lawrence E. Lerner		4,200		5,000		—		—			9,250
Lawrence W. Schwartz		7,975		5,000		—		—			12,975
Ermis Sfakiyanudis		5,350		5,000		—		(3	)		10,350
Clifford T. Solomon		3,325		5,000		3,768		—			12,093

(1) Mr. R. Lerner does not receive compensation as a director of the Company or the Bank.

(2) Mr. Klos’ legal firm received payments in 2010 totaling $29,301 for services rendered.

(3) Mr. Sfakiyanudis’ engineering firm received payments in 2010 totaling $3,161 for services rendered.

Notes to Columns:

(b) Directors’ earned fees for attending Bank meetings. No fees are paid for attending Company meetings. Fees were paid for all Bank Board of Directors meetings at a rate of $425 per meeting. Fees were paid for Committee meetings at a rate of $250 per meeting with the exception of Audit Committee meetings, for which fees were paid at a rate of $325 per meeting.

(c) On January 22, 2010, each Director, with the exception of Directors Ehrlich and R. Lerner, were granted a $5,000 retainer for services rendered in 2010 payable in restricted share units (“RSU”) that vest 100% on January 28, 2011. Director Ehrlich received a retainer of $10,000 payable in RSUs that vest 100% on January 28, 2011. The number of RSUs granted to each Director was determined using the closing market price of the Company’s stock on February 19, 2010, which was $3.90 per share. The market value of the RSUs on the vesting date was $4.04 per share. The grant would have been forfeited if the director left before the grant vested.

(d) The dollar value reported for stock options reflects their expense for 2010 which has been recognized in the Company’s financial statements as determined under FASB guidance based on the Black-Scholes valuation method. Stock options were granted in prior years to directors elected prior to May 2005 after the directors had served a minimum of one year on the Board. The options were priced at the average of the bid and ask price on the date of the grant. These options vest at a rate of 20% per year over five years. The aggregate number of common shares subject to outstanding stock awards for each director on December 31, 2010 were as follows: Culp (8,888 shares) and Solomon (8,888 shares).

(e) In addition to the director fees paid to Ms. Ehrlich, Ms. Ehrlich was paid $9,323 in fiscal 2010 for consulting services, pursuant to a consulting agreement between her and the Bank.

Executive Compensation

The Company’s and the Bank’s executive compensation program for our named executive officers (“NEOs”) is administered by the Compensation Committee of the Board of Directors. Our NEOs include our Chairman, President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and the next most highly compensated officer listed in the Summary Compensation Table.

The Compensation Committee is responsible for the strategic direction of the Company’s executive compensation structure including recommending cash compensation, incentive compensation, and equity based awards as an inducement to attract and retain qualified managers and employees and for plans in which most employees of the Bank participate, such as health and welfare plans and the 401(k) plan.

The Compensation Committee met in February, March and July of 2010 and January of 2011 to review the Company’s executive compensation plans. The Committee determined that the Company’s executive compensation program

11

does not encourage the NEOs to take unnecessary and excessive risks that threaten the value of the Company, and that no further changes to the program were required for this purpose.

In addition to the requirements under the TARP set forth above, the recently enacted American Recovery and Reinvestment Act of 2009 (the “ARRA”) contains a number of significant new limitations on executive compensation for TARP participants. The Compensation Committee has reviewed the new requirements and incorporated them into its executive compensation programs.

Independent of the Company’s participation in the TARP, the Company’s executive management determined that no NEO would receive any bonus or incentive compensation in 2010. Although the Board of Directors recognizes the importance and value of incentive based compensation, it appears its ability to effectively use such compensation tools will be limited under the current and potentially forthcoming regulations. As a result, the Board of Directors intends to continue to review the Company’s overall compensation program to determine what actions may be necessary to continue to fulfill its objectives while complying with these limitations. The Company has historically conservatively compensated its executive officers while maintaining key talent and has never engaged in the practice of using extravagant compensation packages or perquisites to reward executive officers. The Board of Directors intends to continue to apply these long-held philosophies in setting future compensation within the limits of the TARP and any other applicable regulations.

SUMMARY COMPENSATION TABLE

The table below summarizes the total compensation paid by the Company or the Bank and earned by each of our NEOs for the fiscal year ended December 31, 2010.

(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Name and Principal Position	Year		Salary $		Stock Awards $		Option Awards $		Non-equity Incentive Plan Compensation $		All Other Compensation $		Total $
Richard M. Lerner     Chairman, President & CEO     of the Company and Bank		2010 2009		235,000 235,000		—   —		—   —		—   —		8,776 8,770		243,776 243,770
Edward J. Schneider		2010		175,000		—		—		—		8,672		183,672
SVP of the Bank, Treasurer		2009		117,788		122,500		—		—		235		240,523
& CFO of the Company & Bank
Robert E. Kendrick, III		2010		121,231		—		—		—		76,889		198,120
SVP & Chief Credit Officer of the Bank

Notes to Columns:

(c) Base Salary – In general, base salaries for each NEO are established based on (1) technical expertise, (2) a salary grade and compensation range corresponding to the individual’s level of responsibility, (3) proven organizational performance, and (4) the competitive market. Each NEO is expected to achieve certain performance standards within his or her area of expertise including elements of leadership, job competency, regulatory adherence and strategic thinking to receive an annual merit salary increase. The Compensation Committee, with the input of the CEO, assesses the level of attainment of those standards for the purpose of granting annual merit-based salary increases for the other NEOs. The Compensation Committee with the input of the Board of Directors assesses the performance of the CEO for the purpose of determining and adjusting the CEO’s salary. Mr. Lerner, being an officer of the Company and Bank, receives no compensation as a director of the Company or the Bank.

(d, e) Stock Awards and Option Awards – The Company believes that the granting of stock options, restricted share unit awards, and other stock awards are an appropriate means to compensate NEOs by aligning their interests with those of the stockholders. The Company maintains three stock compensation plans, namely: (i) the 1997 Employee Stock Option Plan (the “1997 Plan”), (ii) the 2000 Stock Incentive Plan (the “2000 Plan”), and (iii) the 2006 Annapolis Bancorp, Inc. Stock Incentive Plan (the “2006 Plan”) which the shareholders of the Company approved on May 18, 2006. No future

12

awards may be made under the 1997 and 2000 Plans. The 2006 Plan allows for up to 200,000 shares to be granted to directors, officers and employees. In 2009, Mr. Schneider, pursuant to terms of his employment received a grant of 10,000 restricted shares and 25,000 restricted share units that vest over a period ranging from two to five years. The fair market value of the awards granted to NEO Schneider was $122,500.

(f) Non-equity Incentive Plan Compensation – Awards are granted to NEOs on a discretionary basis although the Compensation Committee strongly considers, and has established guidelines based on, the extent to which the Company achieves annual performance objectives as established by the Board of Directors and the Compensation Committee. Performance objectives typically include the metrics derived from the Company’s operating plan including return on average assets (ROAA) and return on average equity (ROAE). A range of potential bonus awards are determined at the beginning of the year by the Compensation Committee and are accrued throughout the year. For the year ended December 31, 2010 the Company did not achieve its Operating Plan goals and no bonus awards were granted to employees eligible for such awards.

(g) Other Compensation – Other Compensation includes retirement and welfare benefits. The Bank maintains a 401(k) plan which provides an employer matching contribution equal to $0.50 on the dollar up to 10% of an executive’s compensation or the maximum amount allowable by law. The amounts in column (g) in addition to the 401(k) plan match reflect for each NEO imputed income on group term life insurance coverage, and, for NEO Schneider and Kendrick imputed income of $471 and $68,108, respectively for 2010, on bank owned life insurance policies provided in connection with the Bank’s non-tax qualified supplemental executive retirement plan (“SERP”).

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

			Option Awards										Stock Awards
(a)			(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Name	Grant Date		Number of securities underlying unexercised options (#) exercisable		Number of securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date		Number of shares or units of stock that have not vested (#)		Market value of shares or units of stock that have not vested ($)		Equity incentive plan awards: number of unearned shares, or units or other rights that have not vested (#)		Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)
Richard M. Lerner, CEO		Dec. 2002		33,333		—		—		4.14		Dec. 2012		—		—		—		—
Edward J. Schneider CFO		April 2009 April 2009		—   —		—   —		—   —		—   —				5,000 20,000		21,600 86,400		—   —		—   —
Robert E. Kendrick, III		May 2007		—		1,066		—		8.77		May 2014		—		—		—		—
				—		1,740		—		8.77		May 2015		—		—		—		—
				—		2,416		604		8.77		May 2016		—		—		—		—
				—		1,263		842		8.77		May 2017		—		—		—		—

(b) All options listed above vest at a rate of 20% per year over the first five years of the ten-year option term. All options granted prior to December 31, 2005 have fully vested.

(c) The options granted during 2007 to NEO Kendrick vested 20% for each year since the earnings event that determined the award beginning with results from the year ending December 31, 2003 through the year ending December 31, 2006. Options granted to NEO Kendrick fully vest as follows: those with an expiration date of May 2014 fully vested in May 2009; those with an expiration date of May 2015 fully vested in May 2010; those with an expiration date of May 2016 fully vest in May 2011; and those with an expiration date of May 2017 full vest in May 2012.

(g) The restricted share award of 10,000 shares granted in April 2009 to NEO Schneider vests in two equal installments beginning April 27, 2010. The market value on the date of issue of the grant was $3.50 per share. The deferred

13

restricted share unit award of 25,000 shares granted in April 2009 to NEO Schneider vests ratably at 20% per year over the first five years of NEO Schneider’s employment with the Bank. Issuance of the shares is deferred until the fifth anniversary of NEO Schneider’s employment. The market value of the restricted stock units and restricted stock awards was $4.32 at December 31, 2010.

OPTION EXERCISES AND STOCK VESTED

	Option Awards				Stock Awards
	(a)		(b)		(c)		(d)
Name	Number of Shares Acquired on Exercise (#)		Value Realized Upon Exercise ($)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
Edward J. Schneider		—		—		5,000		18,050

(c) On April 27, 2010 restricted awarded to NEO Schneider totaling 5,000 shares vested. The 5,000 shares on the date of grant had a market value of $18,050.

OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS

Post-employment Severance and Change-in-Control Benefits – The following table sets forth the payments each of the NEOs is entitled to in the event of a termination of employment by reason of death, disability, termination without just cause, or change-in-control of the Company subject to TARP compensation limitations.

	Total amount payable upon termination of employment
(a)	(b)		(c)		(d)		(e)
Name	Death ($)		Disability ($)		Without Just Cause ($)		Change-in- Control ($)
Richard M. Lerner, CEO		299,772		121,772		49,772		49,772
Edward J. Schneider, CFO		396,807		201,600		—		155,341
Robert E. Kendrick, III		477,955		309,955		237,955		237,955

(b) In the event of an NEO’s death, the NEO’s beneficiaries are eligible to exercise the vested stock options awarded to the NEOs or receive the restricted stock awarded to the NEO as applicable. Additionally, the Bank provides insurance coverage of two times the NEO’s salary up to a maximum of $250,000.

(c) In the event of the disability of the NEO, the NEO is entitled to exercise the vested stock options awarded to the NEO, or receive the restricted stock awarded to the NEO as applicable, with the table reporting the excess of the fair market value of a share of our common stock on December 31, 2010 ($4.32) over the exercise price for the respective stock options and the value of the restricted shares at the December 31, 2010 price of $4.32 per share. The NEOs are also entitled to receive disability benefits under the Bank’s long-term disability insurance program.

(d) In the event an NEO is terminated without just cause, the NEO is entitled to collect the severance benefits described above and to exercise the vested stock options awarded to them (see note to column “c” for further information).

(e) In the event of a termination of employment in connection with a change in corporate control, our NEOs will receive a combination of the severance benefits described above and the right to exercise all of their stock options (see note to column “c” for further information), any restricted stock awards, as well as any unvested Bank contributions to the Bank’s 401(k) plan.

14

Supplement Executive Retirement Plan

The Company maintains a SERP for certain executives. The SERP is designed to supplement the benefits the executives can receive under the Bank’s 401(k) plan and social security. It is also designed to provide retirement benefits to the executives upon meeting defined age and service requirements. The benefit is payable for life. In the case of the executive’s termination of employment for any reason other than cause, the SERP provides for 50% vesting after five years from the date of employment, and 10% per subsequent year until fully vested. The Company maintains split dollar life insurance policies under the SERP for certain executives. In the event of the executive’s death, the executive’s beneficiary will receive a split dollar benefit in the amount of 80% of the net at-risk life insurance portion of the death benefit. The SERP also provides for annual credits to a liability reserve account. The reserve account is increased or decreased each year by the excess (if any) of the annual after-tax income from life insurance contracts purchased to fund the SERP over an opportunity cost calculated for each plan year. When the SERP benefit becomes payable, the amount accumulated in the reserve account is paid annually in equal installments to the executive over 15 years. NEOs Schneider and Kendrick participate in the SERP. There were no other deferred compensation plans available to the NEOs as of December 31, 2010.

Stock Option Plans

The Company maintains three Employee Stock Option Plans. The first plan was approved by the Company’s stockholders on April 25, 1997 (the “1997 Option Plan”) and provides for discretionary awards of options to purchase up to an aggregate of 177,777 shares of Common Stock to officers and key employees of the Company and Bank as determined by a committee of disinterested directors at the fair market value of the Common Stock on the date of grant. The 1997 Option Plan is not qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (“Code”) and is not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended. As of December 31, 2010, the Company had no outstanding options to purchase Company Common Stock under the 1997 Option Plan. The second plan was approved by the Company’s stockholders on April 27, 2000 (the “2000 Option Plan”). The 2000 Option Plan reserves 355,554 shares of Common Stock for issuance upon the exercise of options, as well as upon the distribution of restricted stock and deferred share awards. Such shares may be authorized but unissued shares, or shares held in treasury. To the extent awards expire, become unexercisable, or are forfeited for any reason without having resulted in the issuance of Common Stock to award holders, those shares shall be available for the grant of additional awards. As of December 31, 2010, the Company had outstanding options to purchase an aggregate of 108,408 shares of Company Common Stock subject to a five-year vesting schedule under the 2000 Option Plan. The third plan was approved by the Company’s stockholders on May 18, 2006 (the “2006 Option Plan”). The 2006 Option Plan reserves 200,000 shares of Common Stock for issuance upon the exercise of Options, as well as upon the distribution of restricted stock and deferred share awards. Such shares may be authorized but unissued shares, or shares held in treasury. To the extent awards expire, become unexercisable, or are forfeited for any reason without having resulted in the issuance of Common Stock to award holders, those shares shall be available for the grant of additional awards. As of December 31, 2010, the Company had outstanding options to purchase an aggregate of 15,862 shares of Company Common Stock and combined grants of 68,384 shares of restricted stock and restricted share units under the 2006 Option Plan.

Securities Authorized for Issuance under Equity Compensation Plans

A table of the Equity Compensation Plan Information as of December 31, 2010 is shown below:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
Plan Category	(a)	(b)	(c)
Equity compensation plans approved by security holders	192,654	$5.21	168,596
Equity compensation plans not approved by security holders	—	—	—
Total	192,654	$5.21	168,596

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (“ESPP”) that was established in 2007. All employees of the Company and its designated affiliates (including designated related entities for sub-plans) who have been employed by the Bank for at least one (1) year are eligible to participate in the ESPP, except persons whose customary employment is less

15

than 20 hours per week or five months per year. Persons who are deemed for purposes of Section 423(b)(3) of the Code to own shares of Common Stock possessing 5% or more of the total combined voting power or value of all classes of Common Stock or shares of a subsidiary are ineligible to participate in the ESPP.

The price per share of Common Stock sold under the ESPP during an offering (a thirty-day period) is equal to 95% of the Fair Market Value of a share of the Company’s Common Stock on the last day of the offering, which is typically the last day of each month. Employees purchased 2,719 shares of common stock through the ESPP during 2010.

Certain Transactions with Directors and Management

The Bank has adopted a written policy which requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features.

On January 19, 2007, the Bank entered into a consulting agreement with Director Kendel S. Ehrlich, holder of 0.24% of the Company’s common stock. This agreement terminated on April 5, 2010. Under the terms of the contract Ms. Ehrlich assisted the Bank in developing new customer relationships. In addition to the fees paid to Ms. Ehrlich as a Director of the Bank, Ms. Ehrlich received a monthly payment of $2,944, with the April 2010 payment prorated. In 2010 and 2009, Ms. Ehrlich earned $9,323 and $35,328, respectively under the contract.

The Company paid $29,301 and $27,052 in 2010 and 2009 respectively, to the law firm of Klos, Lourie and Leahy, P.A., of which Director Klos is a partner. The Company also paid $3,161 in 2010 to Sigma Engineering, of which Mr. Sfakiyanudis is a principal.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s officers (as defined in regulations promulgated by the Securities and Exchange Commission (“SEC”) thereunder) and directors, and persons who own more than ten percent (10%) of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of copies of reports of ownership furnished to the Company, or written representations that no forms were necessary, to the Company’s knowledge no officer, director or greater than ten percent beneficial owner of the Company failed to file such ownership reports on a timely basis for the fiscal year ended December 31, 2010.

Report of the Audit Committee

The following report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating this Proxy Statement into any filing under the Securities Act, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such the Securities Act or the Exchange Act.

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. In fulfilling its responsibilities, the Committee has reviewed and discussed the audited financial statements for the year ended December 31, 2010 with management and the independent registered public accountants. In this process, the Committee met with the independent registered public accountants, with and without management present, to discuss the results of the registered public accountants’ examinations and the overall quality of the Company’s financial reporting.

The Committee has discussed with the independent registered public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA Professional Standards, Vol. 1 AU Section 380), as adopted by the Public Accounting Oversight Board in Rule 3200T. In addition, the Committee has received the written disclosures and letter from Stegman & Company as required by the Public Company Accounting Oversight Board in Rule 3526, Communications with Audit Committees Concerning Independence and has discussed with Stegman & Company its independence and has received confirmation from Stegman & Company that it is independent of the Company in compliance with Public Company Accounting Oversight Board Rule 3520.

16

Based on the Committee’s discussions with management and the independent registered public accountants referred to above, the representations of the independent registered public accountants and the Committee’s review of the report of the independent registered public accountants to the Committee, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the SEC.

AUDIT COMMITTEE:

F. Carter Heim – Chairman

Clyde E. Culp, III

Lawrence W. Schwartz

PROPOSAL 2. ADVISORY VOTE ON EXECUTIVE COMPENSATION

The ARRA was signed into law on February 17, 2009, and imposes significant new requirements for and restrictions relating to the compensation arrangements of financial institutions that received government funds through the Troubled Asset Relief Program (“TARP”). These new executive compensation compliance requirements will be effective for both new and existing TARP recipients during the period that any obligation arising from financial assistance provided to the Company under the TARP remains outstanding pursuant to the TARP Capital Purchase Program (“CPP”), excluding any period in which the U.S. Department of the Treasury only holds warrants to purchase the common stock of the Company. The Company is a TARP recipient because of its participation in the CPP, pursuant to which the Company issued preferred stock and warrants to purchase the Company’s common stock to the U.S. Department of the Treasury.

The ARRA requires, among other things, that all participants in the TARP permit a non-binding stockholder vote to approve the compensation of the Company’s executives, commonly referred to as “Say-on-Pay” proposal.

As provided in the ARRA, the vote is not binding on the Company’s Board of Directors and may not be construed as overruling a decision by the Board of Directors, nor creating or implying any additional fiduciary duty by the Board of Directors, nor may it be construed to restrict or limit the ability of stockholders to make proposals for inclusion in proxy materials related to executive compensation. However, the Compensation Committee may take into account the outcome of the vote when considering future executive compensation arrangements.

Stockholders are encouraged to carefully review the “Executive Compensation” section of this Proxy Statement and the tabular disclosure regarding named executive officer compensation for a detailed discussion of the Company’s executive compensation program.

The purpose of the Company’s compensation policies and procedures is to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and enhance shareholder value. The Board of Directors believes the Company’s compensation policies and procedures achieve this objective, and are strongly aligned with the long-term interests of stockholders. The Company is providing stockholders the opportunity to endorse or not endorse the Company’s executive compensation policies and procedures through the following resolution:

“RESOLVED, that the stockholders of the Company approve the compensation of the Company’s executives named in the Summary Compensation Table of the Company’s Proxy Statement for the 2011 Annual Meeting of Stockholders, including the Executive Compensation section and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this Proxy Statement.”

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE COMPENSATION OF EXECUTIVE OFFICERS AS DESCRIBED IN THE EXECUTIVE COMPENSATION SECTION AND THE TABULAR DISCLOSURE REGARDING NAMED EXECUTIVE OFFICER COMPENSATION (TOGETHER WITH THE ACCOMPANYING NARRATIVE DISCLOSURE) IN THIS PROXY STATEMENT.

PROPOSAL 3. TO APPROVE THE SELECTION OF

INDEPENDENT AUDITOR FOR THE YEAR 2011

The Audit Committee of the Board of Directors of the Company has appointed Stegman & Company, a registered independent public accounting firm, as the Company’s independent registered public accountants, for the year ending December 31, 2011. Stegman & Company has served as independent auditor for the Company and its subsidiary since April 2000. Stegman & Company has advised the Company that neither the firm nor any of its members or associates has any

17

direct financial interest in or any connection with the Company or its subsidiaries other than as independent registered public accountants. A representative of Stegman & Company will be present at the Annual Meeting and will have the opportunity to make a statement if the representative desires to do so and will be available to respond to appropriate questions.

Although the Company’s bylaws do not require the submission of the selection of independent registered public accountants to the stockholders for approval, the Board of Directors believes it is appropriate to give stockholders the opportunity to ratify the decision of the Audit Committee. Neither the Audit Committee nor the Board will be bound by the stockholders’ vote at the meeting, but if the stockholders fail to ratify the independent registered public accountants selected by the Audit Committee, the Audit Committee may reconsider its selection.

All audit, audit-related, tax and other non-audit services were pre-approved by the Audit Committee, which concluded that the provision of such services by Stegman & Company was compatible with the maintenance of Stegman & Company’s independence in the conduct of its auditing functions. The Audit Committee charter requires that the Audit Committee pre-approve all audit and non-audit engagement fees, and terms and services. On an ongoing basis, management communicates specific projects and categories of services for which advance approval of the Audit Committee is required. The Audit Committee reviews these requests and advises management and the independent auditors if the Audit Committee pre-approves the engagement of the independent auditors for such projects and services. On a periodic basis, the independent auditors report to the Audit Committee the actual spending for such projects and services compared to the approved amounts. The Audit Committee may delegate the authority to grant any pre-approvals to one or more members of the Audit Committee, provided that such member reports any pre-approvals to the Audit Committee at its next scheduled meeting. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee.

The following table presents fees for professional audit services rendered by Stegman & Company for the audit of Annapolis Bancorp’s annual consolidated financial statements for the years ended December 31, 2010 and December 31, 2009 and fees billed for other services rendered by Stegman & Company during those periods.

	Year ended December 31,
	2010		2009
Audit fees (1)	$	68,719	$	72,793
Audit-related fees (2)		7,000		6,500
Tax fees (3)		5,750		5,750
All other fees		—		—
Total fees	$	81,469	$	85,043

(1) Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements and the performance of review procedures in accordance with SAS 100 of Form 10-Q for the quarters ended March 31, 2010 and 2009, June 30, 2010 and 2009 and September 30, 2010 and 2009 respectively, and services that are normally provided by Stegman & Company in connection with statutory and regulatory filings or engagements.

(2) Audit-Related Fees consist of fees billed for professional services rendered for the audit of the Company’s Employee Stock Purchase Plan for the years ended December 31, 2009 and 2008.

(3) Tax Fees consist of fees billed for professional services rendered for federal and state tax return assistance and compliance, tax advice and tax planning and property and other tax return assistance.

Proxies will be voted FOR the Proposal unless otherwise instructed by the Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF STEGMAN & COMPANY AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS TO THE COMPANY FOR THE YEAR 2011.

18

ADDITIONAL INFORMATION

Stockholder Proposals

Any proposal of a stockholder intended to be presented at the 2012 Annual Meeting of Stockholders must be received by the Company at 1000 Bestgate Road, Suite 400, Annapolis, Maryland 21401 prior to December 15, 2011 to be eligible for inclusion in the proxy statement and form of proxy. Any such proposal will be subject to 17 C.F.R. ss.240.14a-8 of the Rules and Regulations under the Exchange Act.

Any proposal of a stockholder that is not submitted for inclusion in the Company’s proxy materials pursuant to Rule 14a-8 under the Exchange Act may be brought before an annual meeting of stockholders pursuant to the advance notice procedure set forth in the Company’s Certificate of Incorporation. To properly bring business before an annual meeting of stockholders, the stockholder must give written notice to the Secretary of the Company not less than thirty (30) days nor more than sixty (60) days prior to the annual meeting; provided, however, that if less than forty (40) days notice of the meeting is given to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the date on which notice of the annual meeting was mailed to stockholders. The stockholder’s written notice must set forth certain information specified in the Company’s Certificate of Incorporation.

Methods of Voting

If you are the stockholder of record, you may vote by one of the following four methods (as instructed on the enclosed proxy card):

• in person at the Annual Meeting

• via the internet

• by telephone

• by mail

Voting over the Internet: If you are a stockholder of record, you may use the Internet to transmit your vote up until 11:59 P.M. Eastern Time May 18, 2011. Visit www.voteproxy.com and have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.

Voting by Telephone: If you are a stockholder of record, you may call 1-800-690-6903 and use any touch-tone telephone to transmit your vote up until 11:59 P.M. Eastern Time May 18, 2011. Have your proxy card in hand when you call and then follow the instructions.

If you hold your shares in “street name,” that is through a broker, bank or other nominee, that institution will instruct you as to how your shares may be voted by proxy, including whether telephone or Internet voting options are available.

Delivery of Documents to Stockholders Sharing Same Address (Householding)

If you are the beneficial owner, but not the record holder, of shares of Annapolis Bancorp, Inc. Stock, your broker, bank or other nominee may only deliver one (1) copy of this proxy statement to multiple stockholders at the same address, unless that nominee has received contrary instructions from one (1) or more of the stockholders. We will deliver, upon request, a separate copy of this proxy statement to a Stockholder at a shared address to which a single copy of the documents was delivered. A Stockholder desiring to receive a separate copy of the proxy statement and annual report, now or in the future, should submit this request by contacting Registrar and Transfer Company, either by calling toll free at 800-368-5948 or by writing to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572. Also, beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and who wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the same address in the future.

19

ANNUAL REPORTS

The Company’s 2010 Annual Report to Stockholders accompanies this Proxy Statement and is available at www.bankannapolis.com. A copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 may be obtained upon written request to the Secretary of the Company, 1000 Bestgate Road, Suite 400, Annapolis, Maryland 21401, and will be available at the Annual Meeting.

By Order of the Board of Directors

/s/ Rita D. Demma

Rita D. Demma

Secretary

Annapolis, Maryland

April 15, 2011

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU PLAN

TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE

ACCOMPANYING PROXY CARD IN THE ENCLOSED

POSTAGE-PAID ENVELOPE.

20

APPENDIX A

ANNAPOLIS BANCORP, INC.

BANKANNAPOLIS

AUDIT COMMITTEE CHARTER

COMMITTEE DESCRIPTION

The duties of the Audit Committee (the “Committee”) of Annapolis Bancorp, Inc. (the “Company”) shall be to cause the affairs of the Company and BankAnnapolis (the “Bank”) to be examined at least one time during each calendar year and within fifteen (15) months of the last examination. The Committee shall oversee the accounting and financial reporting processes, as well as the audits of the Company and the Bank. The Committee shall cause these examinations to be made by auditors accountable only to the Committee. Results of the examinations shall be reported to the Board of Directors. Such reports shall describe the financial condition and operating performance of the Company and Bank and whether adequate internal controls and procedures are being maintained. The Committee shall recommend to the Board such changes in the manner of conducting the affairs of the Company and Bank as deemed advisable. The Committee shall also be responsible for monitoring whether the Company and Bank are in compliance with all applicable rules and regulations and shall cause an evaluation of the condition and management of the Bank’s loan portfolio at least one time during each calendar year and within fifteen (15) months of the last evaluation. The Committee shall confirm that management takes corrective action when the need for such action has been identified. The Committee shall review and reassess the adequacy of this charter on an annual basis.

The Committee shall consist of not less than three “independent directors.” A director is not considered independent if any of the following has occurred:

• The director has been employed by the Company, Bank or an affiliate during the current year or any of the past three years;

• The director is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the Company or any of its affiliates as an executive officer;

• The director is a partner in or a controlling shareholder or an executive officer of any organization to which the Company or Bank made or from which the Company or Bank received payments (other than those arising from investments in the Company’s securities or under non-discretionary charitable contributions matching programs) from property or services that exceed 5% of the Company’s or Bank’s consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years;

• The director is employed as an executive of another entity where any of the Company’s or Bank’s executives serve on that entity’s compensation committee.

• The director is or has an immediate family member who is a current partner of the Company’s outside auditor, or who was a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years.

• The director is an accountant, attorney, investment banker or financial advisor who provides fee based services to the Company or Bank.

In addition, to be considered independent, a member of the Committee may not, other than in his or her capacity as a member of the Committee, the board of directors, or any other board committee:

• Accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any subsidiary, provided that, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company (provided that such compensation is not contingent in any way on continued service); or

• Be an affiliated person of the Company or any subsidiary thereof.

Members of the Committee shall be appointed by the Board of Directors. Members of the Committee shall not have participated in the preparation of the financial statements of the Company or the Bank during any of the last three years. Each of the members of the Committee should be able to understand fundamental financial statements, and at least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background that rises to the level of such financial sophistication, including being or having been a chief executive officer, chief financial officer, or other senior officer with

21

financial oversight responsibilities, to be in compliance with SEC regulations and be designated the “audit committee financial expert” as that term is defined in Item 401(e) of Regulation S-B.

No director who has outstanding loans or other extensions of credit from the Bank that have been identified as classified by the Bank, by the State of Maryland Department of Licensing and Regulation or by the Federal Reserve may serve as a member of the Committee during any period during which such loan or extension of credit is classified.

GENERAL RESPONSIBILITIES

The Audit Committee shall meet at least four times per year. The Committee shall satisfy itself that adequate systems of internal control are in place to protect customers, employees, stockholders and directors. The Committee will assure itself that the Company adequately evaluates, identifies and mitigates risk by overseeing the Audit, Regulatory Compliance and Loan Review functions in the bank. The Committee shall also receive and respond to internal and external audits, loan review, compliance and regulatory reports of examination. The Committee shall receive and evaluate management’s response(s) to internal and external audits, loan review, compliance and regulatory reports of examination.

SPECIFIC DUTIES

External Audit

• The Committee shall select, engage, compensate, oversee and, where appropriate, replace the independent registered public accounting firm (“Auditor”). The Auditor shall not provide any services unless approved by the Audit Committee. The Committee shall require that the Auditor issue a written report of such audit directly to the Committee.

• The Committee shall discuss with the Auditor the overall scope and plans for the audit including the adequacy of staffing and compensation and submit to management the audit, non-audit, administrative and other fees to be paid by management on behalf of the Committee.

• The Committee shall ascertain that both the lead and the concurring audit partners are restricted to a maximum of five consecutive years of serving in either capacity. In addition, the Committee shall ascertain that after the initial service period, both the lead and concurring partners not perform any audit services in either capacity for a minimum of five consecutive years. The Committee should also ascertain that after the initial service period, the lead partner does not step down into an engagement quality review role that would cause the lead partner to review his or her own work. Finally, the Committee shall ascertain that any partner other than the lead or concurring partner serves no more than seven consecutive years at the partner level on the Company’s audit.

• The Committee shall review with management and the Auditor the Auditor’s assessment of the adequacy of internal controls and the resolution of identified material weaknesses and reportable conditions, including the prevention or detection of management override or compromise of the internal control system. Further, the Committee shall meet separately as deemed necessary with the Auditor, without management present, to discuss the results of its examinations, or for any other reason the Committee deems necessary.

• The Committee shall work with management and the Auditor to monitor the Company and Bank’s compliance with laws and regulations.

• The Committee shall resolve any significant disagreements between the Auditor and management.

• The Committee shall receive and review communications submitted by the Auditors and regulators and take appropriate actions.

• The Committee shall require receipt from the Auditors of a formal written statement delineating all relationships between the Auditors and the Company and the Bank, consistent with Independence Standards Board Standard 1, and the Committee’s responsibility for actively engaging in a dialogue with the Auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the Auditor and for taking, or recommending that the full board take, appropriate action to oversee the independence of the outside Auditor.

• The Committee shall review the results of the annual audit, the audited financial statements included in Form 10-K and discuss the results of the audit and any other matters required to be communicated to the Committee by the Auditor under generally accepted auditing standards, including any comments or recommendations of the Auditor.

• The Committee shall receive affirmative acknowledgment from the Auditor that it is accountable only to the Committee.

• The Committee shall require that the Auditor review the Company’s interim financial statements prior to filing the quarterly report on Form 10-Q. Also, the Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the Auditor under generally accepted auditing standards. The chair of the Committee may represent the entire Committee for the purpose of this review.

• The Committee shall conduct executive sessions with the outside auditors without the presence of Management as deemed necessary but no less than annually.

• The Committee shall review with management policies and procedures that govern the use of corporate assets.

22

• The Committee shall review all Corporate Policies at least once per calendar year and cause such policies to be revised to reflect changes in regulations and best practice.

Internal Audit

• The Committee shall engage an independent certified public accountant or other qualified vendor(s) to perform routine internal audits on major risk areas.

• The Committee shall review and approve the scope, effectiveness and results of the Bank’s internal audit function.

• The Committee shall review communications submitted by the internal auditor and take appropriate actions.

• The Committee shall review incidents of internal fraud to determine their impact in relation to the financial reporting process and the overall systems of internal control.

Loan Review and Asset Quality

• The Committee shall conduct periodic reviews of the Bank’s loan quality with management, including a quarterly review of past-due and non-performing loans and trends, the adequacy of the Bank’s loan loss reserve and methodology for assessing credit risk exposure, the level, trend, and status of the Bank’s criticized and classified assets and the action plans implemented by management to reduce/and or control credit exposures or concentrations.

• The Committee shall engage a qualified vendor to perform a periodic review of the loan portfolio to assess the quality of the Bank’s underwriting, approval function, loan documentation, account management and risk identification processes.

• The Committee shall review and approve the scope, effectiveness and results of the Bank’s loan review function.

• The Committee shall review communications submitted by the outside vendor and take the appropriate actions.

• The Committee shall annually review the ratings of the insurance carriers that have been selected to provide coverage for bank owned life insurance for compliance with corporate policy.

Compliance

• The Committee shall review, process and retain any complaints or other communications received by the Company’s Compliance Officer, an employee of the Company or the independent external auditor regarding accounting, internal accounting controls or auditing matters. Also, the Committee shall review, process and retain confidential, anonymous submissions by employees of the Company regarding questionable accounting or auditing matters.

• The Committee shall cause an investigation to be made into any matter brought to its attention that is within the scope of its duties, with the power to retain independent outside counsel or other professionals for this purpose if, in its judgment, that is appropriate.

• The Committee shall engage independent counsel, or other advisors or experts, as it determines necessary in the performance of its duties.

Other

• The Committee shall review annually the Company’s Whistleblower policy. The Committee shall review any correspondence received relating to the Whistleblower policy and act accordingly.

• The Committee shall prepare a report to the stockholders for inclusion in the annual Proxy Statement on the Company’s financial reporting process on behalf of the Board of Directors.

• The Committee shall keep minutes of its proceedings and submit the same to the Board for information or action at the next regularly scheduled meeting.

23

	VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
	ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
	VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
	VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

		CONTROL #g
	NAME
	THE COMPANY NAME INC. - COMMON THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS B THE COMPANY NAME INC. - CLASS C THE COMPANY NAME INC. - CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC. - CLASS F THE COMPANY NAME INC. - 401 K	SHARES	123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:        x		PAGE                 1         OF	2

KEEP THIS PORTION FOR YOUR RECORDS

DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

For All

Withhold All

For All Except

To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.

The Board of Directors recommends you vote FOR the following:

1.

Election of Directors

¨

¨

¨

Nominees

01

Lawrence E. Lerner           02    Lawrence W. Schwartz           03    Ermis Sfakiyanudis           04    Clifford T. Solomon

The Board of Directors recommends you vote FOR proposals 2 and 3:

For

Against

Abstain

2

To approve on a non-binding advisory basis, the compensation of the Company’s executive officers named in the Summary Compensation Table of the Proxy Statement.

¨

¨

¨

3

The ratification of Stegman & Company as the Company’s independent registered public accountants for the year ending December 31, 2011.

¨

¨

¨

NOTE: Such other business as may properly come before the meeting or any adjournment thereof. This proxy is solicited on behalf of the Board of Directors. This proxy will be voted in accordance with the instructions given herein. If no instructions are given, this proxy when signed will be voted for each of the nominees as directors under Proposal 1. for Proposals 2. and 3., and at the Proxies’ discretion, upon any other matters that may properly come before the meeting and any adjournment(s) thereof.

For address change/comments, mark here.

¨

(see reverse for instructions)

Yes

No

Please indicate if you plan to attend this meeting

¨

¨

Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.

JOB #

SHARES CUSIP # SEQUENCE #

Signature [PLEASE SIGN WITHIN BOX]

Date

Signature (Joint Owners)

Date

	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/are available at www.proxyvote.com.
				PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 2011 THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
		The undersigned stockholder(s) of Annapolis Bancorp, Inc., a Maryland Corporation (“The Company”), hereby constitute(s) and appoint(s) the official proxy committee consisting of the following members of the Board of Directors of the Company, Messrs. Mr. Clyde E. Culp III and Mr. Stanley J. Klos, Jr. and Ms. Kendel S. Ehrlich each with full power of substitution, to act as attorneys and proxies of the undersigned, for and in the name, place and stead of the undersigned, and to vote all shares of common stock of the Company which the undersigned would be entitled to vote if then personally present at the Annual Meeting of Stockholders, to be held on May 19, 2011 at 6:00 PM, Eastern Daylight Savings Time, at the BankAnnapolis Headquarters Building, 1000 Bestgate Road, Annapolis, Maryland 21401, and at any and all adjournments thereof, in the manner specified and on any other business as may properly come before the meeting.
			Address change/comments:
			(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side