##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-KSB



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Annual report under Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the fiscal year ended DECEMBER 31, 2006

Commission File No.: 0-22961



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ANNAPOLIS BANCORP, INC.

(Name of small business issuer in its charter)



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|                                                              |  |                           
|------------------------------------------------------------- |  | --------------------------
|MARYLAND                                                      |  | 52-1595772                
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employer I.D. No.)
|                                                              | 
|1000 Bestgate Road, Suite 400ANNAPOLIS, MARYLAND              |  | 21401                     
|(Address of principal executive offices)                      |  | (Zip Code)                

Issuers telephone number: (410) 224-4455



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Securities registered pursuant
to Section 12(b) of the Exchange Act: NONE

Securities registered pursuant to Section 12(g) of the Exchange Act:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

(Title of class)



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Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ̈

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.
    Yes:  x    No: ̈

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best
of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes: ̈No  x

Issuers revenues for its fiscal year ended December 31, 2006 were $21,695,837.

The aggregate market value of
the common stock held by non-affiliates of the registrant, i.e., persons other than directors and executive officers of the registrant is $19,412,899 and is based upon the last sales price as quoted on The NASDAQ Stock Market for March 1, 2007.

The Registrant had 4,101,893 shares of Common Stock outstanding as of March 1, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE
YEAR ENDED DECEMBER 31, 2006 ARE INCORPORATED BY REFERENCE INTO PART I AND PART II OF THIS FORM 10-KSB.

PORTIONS OF THE PROXY STATEMENT FOR THE
2007 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-KSB.

Transitional Small Business Disclosure
Format:    Yes: ̈No  x



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##### Table of Contents

INDEX



|           |  |          |  |                                                                                                                 |  |      
|---------- |  | -------- |  | --------------------------------------------------------------------------------------------------------------- |  | -----
|           |  |          |  |                                                                                                                 |  | PAGE 
|PART I     |  |          |  |                                                                                                                 |  |      
|           |  |          | 
|           |  | Item 1.  |  | Description of Business                                                                                         |  | 3    
|           |  |          | 
|           |  | Item 2.  |  | Description of Property                                                                                         |  | 3    
|           |  |          | 
|           |  | Item 3.  |  | Legal Proceedings                                                                                               |  | 3    
|           |  |          | 
|           |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  | 3    
|           |  |          | 
|PART II    |  |          |  |                                                                                                                 |  |      
|           |  |          | 
|           |  | Item 5.  |  | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities                 |  | 3    
|           |  |          | 
|           |  | Item 6.  |  | Managements Discussion and Analysis                                                                            |  | 3    
|           |  |          | 
|           |  | Item 7.  |  | Financial Statements                                                                                            |  | 4    
|           |  |          | 
|           |  | Item 8.  |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure                            |  | 4    
|           |  |          | 
|           |  | Item 8A. |  | Controls and Procedures                                                                                         |  | 4    
|           |  |          | 
|           |  | Item 8B. |  | Other Information                                                                                               |  | 4    
|           |  |          | 
|PART III   |  |          |  |                                                                                                                 |  |      
|           |  |          | 
|           |  | Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 4  5
|           |  |          | 
|           |  | Item 10. |  | Executive Compensation                                                                                          |  | 5    
|           |  |          | 
|           |  | Item 11. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 5    
|           |  |          | 
|           |  | Item 12. |  | Certain Relationships and Related Transactions                                                                  |  | 5    
|           |  |          | 
|           |  | Item 13. |  | Exhibits                                                                                                        |  | 5  6
|           |  |          | 
|           |  | Item 14. |  | Principal Accountant Fees and Services                                                                          |  | 6    
|           |  |         
|SIGNATURES |  |          |  | 7                                                                                                              

This Annual Report on Form 10-KSB contains statements that constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These statements appear in a number of places in this Report and include all statements regarding the intent, belief
or current expectations of Annapolis Bancorp, Inc. (the Company), its directors or its officers with respect to, among other things: (i) the Companys financing plans; (ii) trends affecting the Companys financial
condition or results of operations; (iii) the Companys growth strategy; and (iv) the declaration and payment of dividends. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and
involve certain risks and uncertainties, including but not limited to: changes in interest rates, deposit flows, cost of funds and demand for financial services; general economic conditions; legislative and regulatory changes; changes in tax
policies, rates and regulations of federal, state and local tax authorities; and changes in accounting principles, policies and guidelines. Actual results may differ materially from those projected in the forward-looking statements as a result of
various factors discussed herein and those factors discussed in the Companys filings with the Securities and Exchange Commission.



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##### Table of Contents

PART I

ITEM 1. DESCRIPTION OF BUSINESS

The information relating to the description of business of the Registrant is incorporated
herein by reference to page 23 of the Registrants 2006 Annual Report to Shareholders.

ITEM 2. DESCRIPTION OF PROPERTY

The executive offices of the Company and the Bank are located at 1000 Bestgate Road, Suite
400, Annapolis, Maryland 21401.

The following table sets forth the location of and certain additional information regarding the offices of the Company and
the Bank at December 31, 2006:



|                   |  |               |  |                                           |  |                          |     |  |                                                                                 |      
|------------------ |  | ------------- |  | ----------------------------------------- |  | ------------------------ | --- |  | ------------------------------------------------------------------------------- | -----
|                   |  | Leased/ Owned |  | Original Year Leased or Location
Acquired |  | Year of Lease Expiration |     |  | Net Book Value of
Propertyor Leasehold Improvements at December 31, 2006 ($000)
|Administration (4) |  | Owned         |  | 2001                                      |  | N/A                      |     |  | $                                                                               | 3,989
|Bestgate           |  | Owned         |  | 2001                                      |  | N/A                      |     |  |                                                                                 | 1,371
|Edgewater          |  | Land Leased   |  | 1996                                      |  | 2016                     | (1) |  |                                                                                 | 309  
|Cape St. Claire    |  | Leased        |  | 1995                                      |  | 2010                     | (1) |  |                                                                                 | 39   
|Kent Island (3)    |  | Leased        |  | 1990                                      |  | 2023                     | (1) |  |                                                                                 | 1,557
|Severna Park       |  | Leased        |  | 1996                                      |  | 2008                     | (2) |  |                                                                                 | 19   
|BayWoods           |  | Leased        |  | 2003                                      |  | 2008                     | (1) |  |                                                                                 | 9    
|Market House (3)   |  | Leased        |  | 2006                                      |  | 2011                     | (1) |  |                                                                                 | 119  

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|(1) | These leases may be extended at the option of the Company for periods ranging from one to twenty years.
|--- | -------------------------------------------------------------------------------------------------------

|(2) | The landlord agreed to allow a two year extension of the lease at Severna Park instead of the five year option originally included in the lease.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Construction was completed on the Kent Island branch in May, 2006 and on the Market House branch in July, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------

|(4) | The Company owns an undeveloped piece of property in Odenton, Maryland for future branch expansion.
|--- | ---------------------------------------------------------------------------------------------------

On July 1, 2001, the Bank entered into a three year lease for the second floor space of the Banks headquarters building with Heim and Associates, P.A., now HeimLantz Professional Corporation, an accounting
firm whose President is a director of the Company and the Bank. The lease rate of $184 thousand per annum is based on current market rates as determined by an independent commercial real estate services firm not affiliated with the Company or the
Bank. The initial lease term of 3 years expired in June 30, 2004. The lease is now in the first year of the second renewal option of 2 years. There is one 1 year renewal option remaining.

ITEM 3. LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Companys financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information
relating to the market for Registrants common equity and related stockholder matters appears on page 17, of the Registrants 2006 Annual Report to Stockholders and is incorporated herein by reference.

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS

The above-captioned information appears on pages 1 through 17 of the
Registrants 2006 Annual Report to Stockholders and is incorporated herein by reference.



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##### Table of Contents

ITEM 7. FINANCIAL STATEMENTS

The Consolidated Financial Statements of Annapolis Bancorp, Inc. and its subsidiaries,
together with the report thereon by Stegman & Company for the year ended December 31, 2006, appear in the Registrants 2006 Annual Report to Stockholders on pages 18 through 38 and are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report on Form 10-KSB, the
Companys Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Companys disclosure controls and procedures. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions
rules and forms.

In addition, there were no changes in the Companys internal controls over financial reporting (as defined in Rule 13a-15 or Rule
15d-15 under the Securities Act of 1934, as amended) during the quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information relating to directors, officers, promoters and control persons and regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on May 17, 2007, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Registrants fiscal year (Proxy Statement).

Executive Officers of the Registrant

The information relating to
directors and named executive officers of the Registrant is incorporated herein by reference to the Registrants Proxy Statement for the Annual Meeting of Shareholders to be held on May 17, 2007 at pages 4 through 8. In addition,
information concerning Executive Officers who are not directors is set forth below:



|                        |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------- |  | -------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                    |  | Age at12/31/06 |  | Position with the Company and Bank and Past Five Years Experience                                                                                                                                                                                                                                                                                                                                    
|Rita D. Demma           |  | 59             |  | Secretary of the Company and the Bank. Ms. Demma has been an officer of the Bank since 2000. Ms. Demma held a similar position from 1996 through 2000 with the University of Maryland Medical
Center prior to joining the Company.                                                                                                                                                                   
|                        |  |               
|Margaret Theiss Faison  |  | 48             |  | Chief Financial Officer and Treasurer of the Company and Senior Vice President, Chief Financial Officer and Treasurer of the Bank. Prior to joining the Company in 1999, Ms. Faison was Senior
Vice President and Chief Financial Officer of Sterling Bank & Trust Co. of Baltimore from 1997 until 1999. Ms. Faison was previously Vice President and Chief Financial Officer with Mellon Bank (MD).
|                        |  |               
|Robert E. Kendrick, III |  | 61             |  | Senior Vice President and Chief Credit Officer of the Bank. Prior to joining the Bank in 1999, 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.                                                                                                                           
|                        |  |               
|J. Mitchell Krebs       |  | 45             |  | Senior Vice President and Chief Business Development Officer of the Bank. Prior to joining the Bank in July 2006, Mr. Krebs was with SunTrust from 1985 to June 2006 most recently as a Vice
President and Sales Manager for the Annapolis Market and as a Team Leader for Business Banking.                                                                                                         



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Code of Ethics

On
June 20, 2003, the Companys Board of Directors adopted a code of ethics that applies to its principal executive officer, principal accounting officer or controller, or persons performing similar functions. On March 16, 2007 the
Companys Board of Directors reaffirmed the code of ethics. That Code of Ethics for the Principal Executive Officer and the Senior Financial Officer has been posted on the Companys internet website at www.bankannapolis.com.

ITEM 10. EXECUTIVE COMPENSATION

The information relating to director and executive compensation is incorporated herein by
reference to the Registrants Proxy Statement defined above.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information
relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the Registrants Proxy Statement.

The Equity Compensation Plan Information appears in the Registrants 2006 Annual Report to Stockholders on pages 25 and 26 and is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrants Proxy Statement.

ITEM 13. EXHIBITS

Exhibits

The following exhibits are filed as part of this report.



|     |  |                                                                                      
|---- |  | -------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Annapolis Bancorp, Inc.*                                
|     | 
|3.2  |  | Bylaws of Annapolis Bancorp, Inc.*                                                   
|     | 
|3.3  |  | Articles of Incorporation of BankAnnapolis**                                         
|     | 
|3.4  |  | Bylaws of BankAnnapolis**                                                            
|     | 
|4.0  |  | Stock Certificate of Annapolis National Bancorp, Inc.*                               
|     | 
|10.1 |  | Annapolis National Bancorp, Inc. Employee Stock Option Plan*+                        
|     | 
|10.2 |  | Annapolis Bancorp, Inc. 2006 Stock Incentive Plan****                                
|     | 
|10.3 |  | Annapolis Bancorp, Inc. 2006 Stock Incentive Plan****                                
|     | 
|10.4 |  | Form of Restricted Share Award Agreement****                                         
|     | 
|10.5 |  | Form of Deferral Election Agreement for Deferred Share Units****                     
|     | 
|11.0 |  | Computation of earnings per share (filed herewith)                                   
|     | 
|13.0 |  | Portions of 2006 Annual Report to Stockholders (filed herewith)                      
|     | 
|14.0 |  | Code of Ethics***                                                                    
|     | 
|21.0 |  | Subsidiary information is incorporated herein by reference to Part I  Subsidiaries
|     | 
|23.0 |  | Consent of Independent Registered Public Accounting Firm/Auditors (filed herewith)   
|     | 
|31.1 |  | Certification Pursuant to Sarbanes-Oxley Section 302 (filed herewith)                
|     | 
|31.2 |  | Certification Pursuant to Sarbanes-Oxley Section 302 (filed herewith)                
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350                                     
|     | 
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350                                     

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|+ | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|* | Incorporated herein by reference to the Exhibits to Form SB-2, Registration Statement, filed on June 23, 1997 and any Amendments thereto, Registration No. 333-29841.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated herein by reference to the Exhibits to Form 10-KSB Annual Report for the fiscal year ended December 31, 2000, Commission File Number 0-22961, filed with the Securities
and Exchange Commission on March 28, 2001.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated herein by reference to the Annual Report on Form 10-KSB for fiscal year ended December 31, 2004, filed with the SEC on March 25, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|**** | Incorporated by reference to the Registration Statement on Form S-8, Commission File Number 333-136382, filed with the Securities and Exchange Commission on August 8, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The information relating to the principal accountant fees and services is incorporated herein by reference to the Registrants Proxy Statement.



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.



ANNAPOLIS BANCORP, INC.By:

/s/ Richard M. LernerRichard M. LernerChairman and CEODate: March 26, 2007By:

/s/ Margaret Theiss FaisonMargaret Theiss FaisonChief Financial OfficerDate: March 26, 2007


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons in the capacities and on the dates stated.



|                                                  |  |                                                                                    |  |               
|------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|NAME                                              |  | Title                                                                              |  | Date          
|                                                  |  |                                                                                   
|/s/ Richard M. Lerner Richard M.
Lerner           |  | Chairman, Chief Executive Officer and Director (principal executive officer)       |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Margaret Theiss Faison Margaret
Theiss Faison |  | Treasurer and Chief Financial Officer (principal accounting and financial officer) |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Walter L. Bennett, IV Walter L.
Bennett, IV   |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Clyde E. Culp, III Clyde E. Culp,
III         |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ F. Carter Heim F. Carter
Heim                 |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Stanley J. Klos, Jr. Stanley J.
Klos, Jr.     |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Lawrence E. Lerner Lawrence E.
Lerner         |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Nancy Lowell Nancy
Lowell                     |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Lawrence W. Schwartz Lawrence W.
Schwartz     |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Ermis Sfakiyanudis Ermis
Sfakiyanudis         |  | Director                                                                           |  | March 26, 2007
|                                                  |  |                                                                                   
|/s/ Clifford T. Solomon Clifford T.
Solomon       |  | Director                                                                           |  | March 26, 2007



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