Delmar Bancorp (DBCP)

[norweger1979]

2016 year end report

March 20, 2017

Dear Shareholders:

Delmar Bancorp and its primary subsidiary, The Bank of Delmarva, concluded another successful year in 2016. Delmar Bancorp had net income of $4.0 million compared to income of $3.9 million the prior year. Asset growth was $28.9 million or 6.0%. Asset growth was centered in both the securities and loan portfolios. The securities portfolio grew by $16.6 million and the loan portfolio grew by $30.9 million. The growth was funded by a reduction in cash and overnight investments as well as an increase in deposit account balances of $20.9 million. The Bank’s tax equivalent net interest margin remained in the 4% range throughout the year. Credit quality of the Bank’s loan portfolio was stable. Cash dividends totaling $573,771 were paid to common stock shareholders of Delmar Bancorp in 2016.

Long serving Holding Company and Bank Board member, Paul H. Mylander, retired from both of our Boards at year end 2016. Paul had a long and distinguished career in banking and he joined our Boards after he retired from Delaware National Bank. Paul lives in Lewes, Delaware and he helped us establish a banking presence in eastern Sussex County, which is the most dynamic market in which we do business. Paul’s leadership and local knowledge will be missed on our Boards and we are grateful for his years of service.

Another dynamic market for us is eastern Worcester County, including Ocean City, Ocean Pines and West Ocean City. I am pleased to report that we will open the Bank’s eleventh branch office in West Ocean City in May of this year. The new branch is designed to have more self-service options compared to our existing locations but it will also be fully staffed with capable bankers with whom customers can meet face-toface for their depositing and lending needs. We will also provide a unique service for resort area merchants who have significant cash and coin pick-up needs at this new branch.

Late in 2016 our Bank opened a new Loan Production Office (LPO) in Rehoboth Beach, Delaware. That office is headed by veteran banker, Jim Barr. Jim came on board with several other seasoned bankers who collectively have years of experience lending to small and mid-sized businesses in our resort markets of Sussex and Worcester counties. We expect that a significant amount of the Bank’s loan and deposit growth will come from these vibrant markets and that our new hires will be instrumental in that growth.

There seems to be a greater sense of optimism since the Presidential election. At least our stock markets are indicating that something positive is going to happen. The current administration is focused upon economic growth which is a welcome change from the last eight years. A combination of reduced regulation, lower corporate tax rates and a resolution of the imploding ACA are all very positive for business and are welcomed by community banks across the country.

This country’s stock markets have been on a tear since the election. I have heard that $3 trillion in new wealth has been created by the increased value of equities since early November. The stock price of many large and regional banks have increased by 15% or more during this time period. However, the price of DBCP, like many small community banks, has not followed the market. Despite three relatively strong years in a row, our stock is traded at about $6 per share or 1.1 times book value, which is a 25% or so discount to larger banks. I believe that in due time the market will figure out that DBCP is undervalued and a good buy.

On a personal note, I am retiring as President and CEO effective June 30, 2017. I will remain on the Board of Directors and I have agreed to consult to assist in the management transition. Our Chief Credit Officer, John Breda, will succeed me. John and I have worked together for nearly five years and he is prepared and ready to provide new leadership to the Bank. I have been President and CEO since 1990. Community banking has been a rewarding and challenging career. When I started twenty six years ago, The Bank of Delmar, as it was then known, had four branches, forty employees and about $40 million in assets. The Bank of Delmarva has grown to ten branches (soon to be eleven), an LPO, one hundred and twenty three employees and about $515 million in assets. Stockholders equity has increased from about $4 million in 1990 to more than $46 million now. Cash dividends to common stockholders have been paid through most of this period. It has been a good run for me and I am confident that the Bank will continue to be in good hands with the management change.

Our Annual Stockholders Meeting is scheduled for 3:00 p.m., May 16th at Green Hill Yacht and Country Club near Salisbury. I look forward to seeing many of you there.

Very truly yours,



Edward M. Thomas President and Chief Executive Officer

2245 Northwood Drive Salisbury, Maryland 21801



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