Exhibit 13
 SELECTED PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS




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Forward-looking Statements
  Formation of Holding Company
  Executive Summary




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Earnings Highlights
  Earning Assets
  Net Interest Income




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Interest Rate Sensitivity
    Loans




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Allowance for Loan Losses
    Critical Accounting Policies




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Asset Quality
   Securities Available for Sale and Investment Securities




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Deposits
  Liquidity




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Off-Balance Sheet Arrangements
  Contractual Obligations
    Risk-Based Capital/Stockholders Equity




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Non-Interest Income
   Non-Interest Expense




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Income Taxes




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Quantitative and Qualitative Disclosures about Market Risk




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TABLE 1
COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
  2008
    
    
    2007
    
    
    2006Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Assets
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-earning assets:Loans, net of unearned
income
    
    $
    199,239
    
    
    $
    14,723
    
    
    
    7.39
    %
    
    $
    203,397
    
    
    $
    16,028
    
    
    
    7.88
    %
    
    $
    185,519
    
    
    $
    13,562
    
    
    
    7.31
    %Securities held to
maturity:Taxable
    
    
    155,437
    
    
    
    7,422
    
    
    
    4.77
    %
    
    
    136,853
    
    
    
    6,839
    
    
    
    5.00
    %
    
    
    105,126
    
    
    
    4,866
    
    
    
    4.63
    %Exempt from Federal

income tax
    
    
    8,347
    
    
    
    293
    
    
    
    3.51
    %
    
    
    9,923
    
    
    
    325
    
    
    
    3.28
    %
    
    
    7,949
    
    
    
    251
    
    
    
    3.16
    %Securities available
for sale:Taxable
    
    
    23,561
    
    
    
    802
    
    
    
    3.40
    %
    
    
    68,908
    
    
    
    3,558
    
    
    
    5.16
    %
    
    
    126,461
    
    
    
    5,648
    
    
    
    4.47
    %Federal funds sold
and securities purchased under agreements to resell
    
    
    26,248
    
    
    
    617
    
    
    
    2.35
    %
    
    
    22,404
    
    
    
    1,141
    
    
    
    5.09
    %
    
    
    18,520
    
    
    
    871
    
    
    
    4.70
    %Total interest-earning
assets
    
    $
    412,832
    
    
    
    23,857
    
    
    
    5.78
    %
    
    $
    441,485
    
    
    
    27,891
    
    
    
    6.32
    %
    
    $
    443,575
    
    
    
    25,198
    
    
    
    5.68
    %Non interest-earning
assets:Cash and due from
banks
    
    
    24,677
    
    
    
    
    
    
    
    
    
    
    
    30,573
    
    
    
    
    
    
    
    
    
    
    
    31,771Bank premises and
equipment
    
    
    16,074
    
    
    
    
    
    
    
    
    
    
    
    14,129
    
    
    
    
    
    
    
    
    
    
    
    9,951Other assets
    
    
    14,947
    
    
    
    
    
    
    
    
    
    
    
    14,058
    
    
    
    
    
    
    
    
    
    
    
    13,723Allowance for possible

loan losses
    
    
    (2,784
    )
    
    
    
    
    
    
    
    
    
    
    (3,090
    )
    
    
    
    
    
    
    
    
    
    
    (3,076
    )Total assets
    
    $
    465,746
    
    
    
    
    
    
    
    
    
    
    $
    497,155
    
    
    
    
    
    
    
    
    
    
    $
    495,944




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TABLE 1 (continued)
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES (continued)
 2008
    
    
    2007
    
    
    2006Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Liabilities
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-bearing liabilities:INT DDAs, MMF & Savings
    
    $
    177,198
    
    
    
    2,804
    
    
    
    1.58
    %
    
    $
    196,453
    
    
    
    4,007
    
    
    
    2.04
    %
    
    $
    206,361
    
    
    
    3,514
    
    
    
    1.70
    %Time Deposits
    
    
    106,594
    
    
    
    4,008
    
    
    
    3.76
    %
    
    
    101,451
    
    
    
    4,544
    
    
    
    4.48
    %
    
    
    82,549
    
    
    
    3,238
    
    
    
    3.92
    %Federal funds purchased,
securities sold under
agreements to repurchase and other short-term borrowings
    
    
    18,766
    
    
    
    325
    
    
    
    1.73
    %
    
    
    19,242
    
    
    
    669
    
    
    
    3.48
    %
    
    
    16,317
    
    
    
    262
    
    
    
    1.61
    %Total interest-bearing
liabilities
    
    $
    302,558
    
    
    
    7,137
    
    
    
    2.36
    %
    
    $
    317,146
    
    
    
    9,220
    
    
    
    2.91
    %
    
    $
    305,227
    
    
    
    7,014
    
    
    
    2.30
    %Noninterest-bearing
liabilities:Deposits
    
    
    105,603
    
    
    
    
    
    
    
    
    
    
    
    128,005
    
    
    
    
    
    
    
    
    
    
    
    143,239Other liabilities
    
    
    7,480
    
    
    
    
    
    
    
    
    
    
    
    6,339
    
    
    
    
    
    
    
    
    
    
    
    6,180Total liabilities
    
    
    415,641
    
    
    
    
    
    
    
    
    
    
    
    451,490
    
    
    
    
    
    
    
    
    
    
    
    454,646Stockholders
equity
    
    
    50,105
    
    
    
    
    
    
    
    
    
    
    
    45,665
    
    
    
    
    
    
    
    
    
    
    
    41,298Total liabilities and
stockholders
equity
    
    $
    465,746
    
    
    
    
    
    
    
    
    
    
    $
    497,155
    
    
    
    
    
    
    
    
    
    
    $
    495,944Net interest income/
margin-tax
equivalent
    
    
    
    
    
    $
    16,720
    
    
    
    3.59
    %
    
    
    
    
    
    $
    18,671
    
    
    
    3.76
    %
    
    
    
    
    
    $
    18,184
    
    
    
    3.67
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    235Investment
securities
    
    
    
    
    
    
    293
    
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    251Securities available
for sale
    
    
    
    
    
    
    -
    
    
    
    
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    
    
    
    
    
    -OtherTotal tax equivalent
adjustment
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    561
    
    
    
    
    
    
    
    
    
    
    
    486Net interest
income
    
    
    
    
    
    $
    17,224
    
    
    
    
    
    
    
    
    
    
    $
    19,232
    
    
    
    
    
    
    
    
    
    
    $
    18,670




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TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Year ended December 20082008 Compared to 2007
    
    
    2007 Compared to 2006Increase(Decrease) Due To
    
    
    Increase(Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    (4,158
    )
    
    $
    (1,305
    )
    
    $
    (5,463
    )
    
    $
    17,878
    
    
    $
    2,466
    
    
    $
    20,344Investment securities:Taxable
    
    
    18,584
    
    
    
    583
    
    
    
    19,167
    
    
    
    31,727
    
    
    
    1,973
    
    
    
    33,700Exempt from Federal
income tax
    
    
    (1,576
    )
    
    
    (32
    )
    
    
    (1,608
    )
    
    
    1,974
    
    
    
    74
    
    
    
    2,048Securities available for
sale:Taxable
    
    
    (45,347
    )
    
    
    (2,756
    )
    
    
    (48,103
    )
    
    
    (57,553
    )
    
    
    (2,090
    )
    
    
    (59,643
    )Federal funds sold and
securities purchased
under agreements to
resell
    
    
    3,844
    
    
    
    (524
    )
    
    
    3,320
    
    
    
    3,884
    
    
    
    270
    
    
    
    4,154Total
    
    $
    (28,653
    )
    
    $
    (4,034
    )
    
    $
    (32,687
    )
    
    $
    (2,090
    )
    
    $
    2,693
    
    
    $
    603Interest expense on:DDA & Savings
    
    $
    (6,693
    )
    
    $
    (710
    )
    
    $
    (7,403
    )
    
    $
    (9,303
    )
    
    $
    465
    
    
    $
    (8,838
    )Public Funds
    
    
    (12,562
    )
    
    
    (493
    )
    
    
    (13,055
    )
    
    
    (605
    )
    
    
    28
    
    
    
    (577
    )CDs < 100M
    
    
    2,804
    
    
    
    (104
    )
    
    
    2,700
    
    
    
    4,615
    
    
    
    354
    
    
    
    4,969CDs > 100M
    
    
    653
    
    
    
    (411
    )
    
    
    242
    
    
    
    13,898
    
    
    
    905
    
    
    
    14,803Other Time
    
    
    1,686
    
    
    
    (21
    )
    
    
    1,665
    
    
    
    389
    
    
    
    47
    
    
    
    436Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    (476
    )
    
    
    (344
    )
    
    
    (820
    )
    
    
    2,925
    
    
    
    407
    
    
    
    3,332Total
    
    $
    (14,588
    )
    
    $
    (2,083
    )
    
    $
    (16,671
    )
    
    $
    11,919
    
    
    $
    2,206
    
    
    $
    14,125Changes in net interest
income-tax equivalent
    
    $
    (14,065
    )
    
    $
    (1,951
    )
    
    $
    (16,016
    )
    
    $
    (14,009
    )
    
    $
    487
    
    
    $
    (13,522
    )




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TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  DECEMBER 31,2008
    
    
    2007
    
    
    2006Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    30,239
    
    
    $
    38,975
    
    
    $
    85,301Obligations of states and political subdivisions
    
    
    -
    
    
    
    -
    
    
    
    -Mortgage-backed securities
    
    
    -
    
    
    
    -
    
    
    
    -Other securities
    
    
    -
    
    
    
    -
    
    
    
    -Total securities available for sale
    
    $
    30,239
    
    
    $
    38,975
    
    
    $
    85,301Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    137,196
    
    
    $
    134,485
    
    
    $
    107,965Obligations of states and political subdivisions
    
    
    9,313
    
    
    
    9,307
    
    
    
    9,743Mortgage-backed securities
    
    
    -
    
    
    
    -
    
    
    
    -Other securities
    
    
    600
    
    
    
    600
    
    
    
    600Total investment securities
    
    
    147,109
    
    
    
    144,392
    
    
    
    118,308Total securities available for sale and
investment securities
    
    $
    177,348
    
    
    $
    183,367
    
    
    $
    203,609




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TABLE 4
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
  MaturingAfter
    
    
    
    
    
    
    After 5 YrsWithin
    
    
    
    
    
    
    1 Yr But
    
    
    
    
    
    
    But Within1 Year
    
    
    
    
    
    
    Within 5 Yrs
    
    
    
    
    
    
    10 Yrs
    
    
    After 10 Yrs.CarryingAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    AmountSecurities
available for saleU.S. Treasury
and other U.S.
Government
agencies
    
    $
    8,038
    
    
    
    2.58
    %
    
    $
    17,537
    
    
    
    3.04
    %
    
    $
    4,576
    
    
    
    4.96
    %
    
    $
    -
    
    
    
    0.00
    %
    
    $
    30,151Other securities
    
    
    88Total securities
available
for sale
    
    $
    8,126
    
    
    
    2.58
    %
    
    $
    17,537
    
    
    
    3.04
    %
    
    $
    4,576
    
    
    
    4.96
    %
    
    $
    -
    
    
    
    0.00
    %
    
    $
    30,239Investment securitiesU.S. Treasury
and other U.S.
Government
agencies
    
    $
    4,128
    
    
    
    4.08
    %
    
    $
    95,712
    
    
    
    4.59
    %
    
    $
    37,356
    
    
    
    4.87
    %
    
    $
    -
    
    
    
    0.00
    %
    
    $
    137,196Obligations of states
and political
subdivisions
    
    
    1,549
    
    
    
    4.55
    %
    
    
    3,683
    
    
    
    4.60
    %
    
    
    4,081
    
    
    
    5.20
    %
    
    
    -
    
    
    
    0.00
    %
    
    
    9,313Other securities
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Total investment
securities
    
    $
    6,277
    
    
    
    4.27
    %
    
    $
    99,395
    
    
    
    4.64
    %
    
    $
    41,437
    
    
    
    4.85
    %
    
    $
    -
    
    
    
    0.00
    %
    
    $
    147,109Total securities
available for sale
and investment
securities
    
    $
    14,403
    
    
    
    3.27
    %
    
    $
    116,932
    
    
    
    4.22
    %
    
    $
    46,013
    
    
    
    4.86
    %
    
    $
    -
    
    
    
    0.00
    %
    
    $
    177,348




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TABLE 5
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
(Dollars in Thousands)
 SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYDECEMBER 31, 2008
    
    
    
    DECEMBER 31, 2008GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    29,841,000
    
    
    $
    310,000
    
    
    $
    -
    
    
    $
    30,151,000
    
    
    
    $
    137,196,000
    
    
    $
    2,431,000
    
    
    $
    -
    
    
    $
    139,627,000STATE AND MUNICIPAL
SECURITIES
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    9,314,000
    
    
    
    196,000
    
    
    
    (12,000
    )
    
    
    9,498,000OTHER SECURITIES
    
    
    72,000
    
    
    
    16,000
    
    
    
    -
    
    
    
    88,000
    
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -TOTAL
    
    $
    29,913,000
    
    
    $
    326,000
    
    
    $
    -
    
    
    $
    30,239,000
    
    
    
    $
    146,510,000
    
    
    $
    2,627,000
    
    
    $
    (12,000
    )
    
    $
    149,125,000SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYDECEMBER 31, 2007
    
    
    
    DECEMBER 31, 2007GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    38,930,000
    
    
    $
    45,000
    
    
    $
    -
    
    
    $
    38,975,000
    
    
    
    $
    134,485,000
    
    
    $
    1,552,000
    
    
    $
    (26,000
    )
    
    $
    136,011,000STATE AND MUNICIPAL
SECURITIES
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    9,307,000
    
    
    
    45,000
    
    
    
    (20,000
    )
    
    
    9,332,000OTHER SECURITIES
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -TOTAL
    
    $
    38,930,000
    
    
    $
    45,000
    
    
    $
   -
    
    
    $
    38,975,000
    
    
    
    $
    143,792,000
    
    
    $
    1,597,000
    
    
    $
    (46,000
    )
    
    $
    145,343,000SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYDECEMBER 31, 2006
    
    
    
    DECEMBER 31, 2006GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    85,342,000
    
    
    $
    19,000
    
    
    $
    (60,000
    )
    
    $
    85,301,000
    
    
    
    $
    107,965,000
    
    
    $
    74,000
    
    
    $
    (651,000
    )
    
    $
    107,388,000STATE AND MUNICIPAL
SECURITIES
    
    
    -
    
    
    
   -
    
    
    
    -
    
    
    
    -
    
    
    
    
    9,742,000
    
    
    
    7,000
    
    
    
    (145,000
    )
    
    
    9,604,000OTHER SECURITIES
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -TOTAL
    
    $
    85,342,000
    
    
    $
    19,000
    
    
    $
    (60,000
    )
    
    $
    85,301,000
    
    
    
    $
    117,707,000
    
    
    $
    81,000
    
    
    $
    (796,000
    )
    
    $
    116,992,000




---



##### 



TABLE 6
LOAN PORTFOLIO
  2008
    
    
    2007
    
    
    2006Commercial , Industrial & Governmental
    
    $
    29,800
    
    
    $
    46,711
    
    
    $
    47,691Real Estate
    
    
    133,001
    
    
    
    124,015
    
    
    
    117,189Consumer Loans
    
    
    37,780
    
    
    
    32,388
    
    
    
    33,831Other Loans
    
    
    894
    
    
    
    788
    
    
    
    449Total Loans
    
    $
    201,475
    
    
    $
    203,902
    
    
    $
    199,160
 
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    25,708Over 3 months through 12 months
    
    
    34,930Over 1 year through 5 years
    
    
    129,374Over 5 years
    
    
    10,862Total Loans
    
    $
    200,874




---



##### 



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Year ended December 31,2008
    
    
    2007
    
    
    2006Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,000Charge Offs:Commercial & Industrial
    
    
    78
    
    
    
    59
    
    
    
    15Real Estate
    
    
    68
    
    
    
    149
    
    
    
    Consumer
    
    
    681
    
    
    
    629
    
    
    
    639Other
    
    

    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    827
    
    
    
    837
    
    

    654Recoveries:Commercial & Industrial
    
    
    44
    
    
    
    63
    
    
    
    16Real Estate
    
    
    6
    
    
    
    
    
    
    
    Consumer
    
    
    214
    
    
    
    214
    
    
    
    420Other
    
    

    
    
    
    
    
    
    
    
    Total Recoveries
    
    
    264
    
    
    
    277
    
    
    
    436Net Charge Offs
    
    
    563
    
    
    
    560
    
    
    
    218Provision for Possible Losses
    
    
    563
    
    
    
    560
    
    
    
    318Ending Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,754Total Loans Outstanding
    
    $
    201,475
    
    
    $
    203,902
    
    
    $
    199,160Average daily loans
    
    $
    199,239
    
    
    $
    203,397
    
    
    $
    185,519Percentages:
    
    2008
    
    2007
    
    2006Allowance for loan losses to end of quarter total loans
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    1.9
    %Allowance for loan losses to average loans
    
    
    1.6
    %
    
    
    1.5
    %
    
    
    2.0
    %Allowance for loan losses to nonperforming assets
    
    
    370.4
    %
    
    
    277.3
    %
    
    
    402.4
    %Net charge offs to average loans
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.1
    %




---



##### 



TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  December 31,2008
    
    
    2007
    
    
    2006% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial & Industrial
    
    
    4.95
    
    
    $
    237
    
    
    
    7.65
    
    
    $
    237
    
    
    
    23.95
    
    
    
    742Real Estate
    
    
    13.38
    
    
    
    879
    
    
    
    28.35
    
    
    
    879
    
    
    
    58.84
    
    
    
    1,824Consumer
    
    
    43.87
    
    
    
    694
    
    
    
    22.40
    
    
    
    694
    
    
    
    16.99
    
    
    
    527Other
    
    
    2.04
    
    
    
    756
    
    
    
    24.38
    
    
    
    756
    
    
    
    0.22
    
    
    
    7Unallocated
    
    
    35.76
    
    
    
    534
    
    
    
    17.21
    
    
    
    534
    
    
    
    -
    
    
    
    -100.00
    
    
    $
    3,100
    
    
    
    100.00
    
    
    $
    3,100
    
    
    
    100.00
    
    
    $
    3,100
 
 TABLE 10
NONPERFORMING ASSETS
  December 31,2008
    
    
    2007
    
    
    2006Non-accrual Loans & Accruing Loans Past Due 90 Days or more
    
    $
    601
    
    
    $
    712
    
    
    $
    710Other Real Estate
    
    
    236
    
    
    
    406
    
    
    
    223$
    837
    
    
    $
    1,118
    
    
    $
    933Nonperforming Assets as % of Total Loans
    

    0.4%
    
    

    0.5%
    
    

    0.5%Non-accrual Loans & Loans Past Due 90 Days or More
as % of Total Loans
    

    0.3%
    
    

    0.3%
    
    

    0.4%




---



##### 



TABLE 11
AVERAGE DEPOSITS
  YEAR ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006Non-interest bearing deposits
    
    $
    105,603
    
    
    $
    128,005
    
    
    $
    143,239Interest-bearing deposits
    
    
    177,198
    
    
    
    196,453
    
    
    
    206,361Interest-bearing time deposits
    
    
    106,594
    
    
    
    101,451
    
    
    
    82,549Total
    
    $
    389,395
    
    
    $
    425,909
    
    
    $
    432,149
 
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    14,671Over 3 through 12 months
    
    
    35,859Over 12 months
    
    
    6,768Total
    
    $
    57,298




---



##### 



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    
    Average
    
    
    MaximumDecember
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate*
    
    
    Balance2008Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    10,917
    
    
    $
    18,766
    
    
    
    1.73
    %
    
    $
    10,9172007
Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    21,018
    
    
    $
    19,242
    
    
    
    3.48
    %
    
    $
    21,0182006
Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    12,205
    
    
    $
    16,317
    
    
    
    1.61
    %
    
    $
    17,070




---



##### 



TABLE 14
INTEREST SENSITIVITY
  0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssetsInterest-earning assets:Loans, net of unearned income
    
    $
    26,309
    
    
    $
    34,930
    
    
    $
    129,374
    
    
    $
    10,862
    
    
    $
    201,475Investment securities
    
    
    3,489
    
    
    
    2,788
    
    
    
    99,395
    
    
    
    41,437
    
    
    
    147,109Securities available for sale
    
    
    6,025
    
    
    
    2,101
    
    
    
    17,537
    
    
    
    4,576
    
    
    
    30,239Federal funds sold and securities
purchased under agreements to
resell
    
    
    11,039
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    11,039Total interest-earning assets
    
    
    46,862
    
    
    
    39,819
    
    
    
    246,306
    
    
    
    56,875
    
    
    
    389,862Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,421
    
    
    
    46,421Total assets
    
    $
    46,862
    
    
    $
    39,819
    
    
    $
    246,306
    
    
    $
    103,296
    
    
    $
    436,283Liabilities and stockholders equityInterest-bearing liabilities:Savings deposits
    
    $
    65,007
    
    
    $
    31,625
    
    
    $
    79,062
    
    
    $
    -
    
    
    $
    175,694Time deposits
    
    
    30,711
    
    
    
    63,359
    
    
    
    16,742
    
    
    
    -
    
    
    
    110,812Federal funds purchased, and securities
sold under agreements to repurchase
    
    
    10,917
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10,917Total interest-bearing liabilities
    
    
    106,635
    
    
    
    94,984
    
    
    
    95,804
    
    
    
    -
    
    
    
    297,423Noninterest-bearing deposits
    
    
    16,973
    
    
    
    -
    
    
    
    54,153
    
    
    
    9,699
    
    
    
    80,825Other liabilities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,127
    
    
    
    9,127Stockholders equity
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    48,908
    
    
    
    48,908Total liabilities and
stockholders equity
    
    $
    123,608
    
    
    $
    94,984
    
    
    $
    149,957
    
    
    $
    67,734
    
    
    $
    436,283Interest sensitive gap
    
    $
    (76,746
    )
    
    $
    (55,165
    )
    
    $
    96,349
    
    
    $
    35,562Cumulative interest sensitive gap
    
    $
    (76,746
    )
    
    $
    (131,911
    )
    
    $
    (35,562
    )
    
    $
    -Cumulative interest sensitive gap
as a percent of total assets
    
    
    -17.59
    %
    
    
    -30.24
    %
    
    
    -8.15
    %
    
    
    0.00
    %




---



##### 



TABLE 15
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND
OFF-BALANCE SHEET ARRANGEMENTS
  PAYMENTS DUE INONE TOONE YEAR
    
    
    THREE
    
    
    THREE TO
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALDeposits without a
stated maturity
    
    $
    65,767
    
    
    $
    13,385
    
    
    $
    155,508
    
    
    $
    21,859
    
    
    $
    256,519Consumer certificates
of deposit
    
    
    94,070
    
    
    
    12,015
    
    
    
    4,727
    
    
    
    -
    
    
    
    110,812Federal funds borrowed
& repurchase agreements
    
    
    10,917
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10,917Operating leases
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchase obligations
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
 COMMITMENTS
  ONE TOONE YEAR
    
    
    THREE
    
    
    THREE TO
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    10,551
    
    
    $
    1,415
    
    
    $
    -
    
    
    $
    -
    
    
    $
    11,966Residential real estate
    
    
    2,550
    
    
    
    76
    
    
    
    -
    
    
    
    -
    
    
    
    2,626Revolving home equity
and credit card lines
    
    
    7
    
    
    
    340
    
    
    
    -
    
    
    
    -
    
    
    
    347Other
    
    
    5,129
    
    
    
    302
    
    
    
    -
    
    
    
    -
    
    
    
    5,431Standby letters of credit
    
    $
    192
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    192
 PENSION EXPENSE (Net Periodic Pension Cost)
 2008
    
    
    2008
    
    
    2007
    
    
    2007Annual
    
    
    Quarterly
    
    
    Annual
    
    
    Quarterly(1) Service cost
    
    $
    279,047
    
    
    $
    69,762
    
    
    $
    266,713
    
    
    $
    66,678(2) Interest cost
    
    
    541,892
    
    
    
    135,473
    
    
    
    471,454
    
    
    
    117,864(3) Expected return on assets
    
    
    (747,483
    )
    
    
    (186,871
    )
    
    
    (697,800
    )
    
    
    (174,450
    )(4) Amortization of transition (asset) or liability
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -(5) Amortization of prior service cost
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -(6) Amortization of (gain) or loss
    
    
    -
    
    
    
    -
    
    
    
    56,226
    
    
    
    14,057(7) Total
    
    $
    73,456
    
    
    $
    18,364
    
    
    $
    96,593
    
    
    $
    24,149




---



##### 



First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(all amounts in thousands, except per share data)For the year ended December 31, 2008:Interest income
    
    $
    6,264
    
    
    
    6,029
    
    
    
    5,836
    
    
    
    5,735Interest expense
    
    
    2,064
    
    
    
    1,800
    
    
    
    1,659
    
    
    
    1,614Net interest income
    
    
    4,200
    
    
    
    4,229
    
    
    
    4,177
    
    
    
    4,121Provision for loan losses
    
    
    (51
    )
    
    
    124
    
    
    
    173
    
    
    
    317Net interest income after provision for loan losses
    
    
    4,251
    
    
    
    4,105
    
    
    
    4,004
    
    
    
    3,804Non-interest income
    
    
    1,676
    
    
    
    1,891
    
    
    
    1,649
    
    
    
    1,777Non-interest expense
    
    
    4,016
    
    
    
    4,283
    
    
    
    4,146
    
    
    
    3,754Income before income taxes
    
    
    1,911
    
    
    
    1,713
    
    
    
    1,507
    
    
    
    1,827Income taxes
    
    
    492
    
    
    
    659
    
    
    
    477
    
    
    
    600Net income
    
    $
    1,419
    
    
    
    1,054
    
    
    
    1,030
    
    
    
    1,227Net income per common share
    
    $
    1.07
    
    
    
    0.79
    
    
    
    0.77
    
    
    
    0.93For the year ended December 31, 2007:Interest income
    
    $
    7,005
    
    
    
    7,074
    
    
    
    7,154
    
    
    
    6,658Interest expense
    
    
    2,107
    
    
    
    2,389
    
    
    
    2,491
    
    
    
    2,233Net interest income
    
    
    4,898
    
    
    
    4,685
    
    
    
    4,663
    
    
    
    4,425Provision for loan losses
    
    
    
    
    
    
    216
    
    
    
    116
    
    
    
    229Net interest income after provision for loan losses
    
    
    4,898
    
    
    
    4,469
    
    
    
    4,547
    
    
    
    4,196Non-interest income
    
    
    1,483
    
    
    
    1,546
    
    
    
    1,645
    
    
    
    1,457Non-interest expense
    
    
    3,870
    
    
    
    3,531
    
    
    
    3,771
    
    
    
    3,074Income before income taxes
    
    
    2,511
    
    
    
    2,484
    
    
    
    2,421
    
    
    
    2,579Income taxes
    
    
    794
    
    
    
    898
    
    
    
    684
    
    
    
    896Net income
    
    $
    1,717
    
    
    
    1,586
    
    
    
    1,737
    
    
    
    1,683Net income per common share
    
    $
    1.29
    
    
    
    1.19
    
    
    
    1.31
    
    
    
    1.26




---



##### 



2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Interest income
    
    $
    23,864,224
    
    
    
    27,890,994
    
    
    
    25,198,321
    
    
    
    17,360,066
    
    
    
    14,296,716Interest expense
    
    
    7,137,225
    
    
    
    9,219,867
    
    
    
    7,014,461
    
    
    
    3,761,872
    
    
    
    2,694,383Net interest income
    
    
    16,726,999
    
    
    
    18,671,127
    
    
    
    18,183,860
    
    
    
    13,598,194
    
    
    
    11,602,333Provision for loan losses
    
    
    563,178
    
    
    
    560,590
    
    
    
    318,120
    
    
    
    1,149,096
    
    
    
    508,479Net interest income after
provision for loan losses
    
    
    16,163,821
    
    
    
    18,110,537
    
    
    
    17,865,740
    
    
    
    12,449,098
    
    
    
    11,093,854Non-interest income
    
    
    6,992,953
    
    
    
    6,130,556
    
    
    
    5,613,823
    
    
    
    5,156,216
    
    
    
    5,679,819Non-interest expense
    
    
    16,199,124
    
    
    
    14,246,174
    
    
    
    13,436,503
    
    
    
    12,455,940
    
    
    
    12,137,064Income before income taxes
    
    
    6,957,650
    
    
    
    9,994,919
    
    
    
    10,043,060
    
    
    
    5,149,374
    
    
    
    4,636,609Income taxes
    
    
    2,228,000
    
    
    
    3,272,000
    
    
    
    3,187,000
    
    
    
    1,564,000
    
    
    
    1,222,000Net income
    
    $
    4,729,650
    
    
    
    6,722,919
    
    
    
    6,856,060
    
    
    
    3,585,374
    
    
    
    3,414,609Net income per common share
    
    $
    3.56
    
    
    
    5.05
    
    
    
    5.15
    
    
    
    2.70
    
    
    
    2.57Dividends per common share
    
    $
    1.35
    
    
    
    1.35
    
    
    
    1.25
    
    
    
    1.15
    
    
    
    1.15




---



##### 



IN THOUSANDSAS OF DECEMBER 31,2008
    
    2007
    
    2006
    
    2005
    
    2004BALANCE SHEET:Total assets end of year
    
    $
    436,283
    
    
    
    459,533
    
    
    
    487,719
    
    
    
    485,590
    
    
    
    311,437Loans, net
    
    
    198,383
    
    
    
    200,812
    
    
    
    196,024
    
    
    
    168,977
    
    
    
    161,541Securities
    
    
    177,350
    
    
    
    183,367
    
    
    
    203,608
    
    
    
    222,551
    
    
    
    102,373Deposits
    
    
    367,245
    
    
    
    383,423
    
    
    
    426,071
    
    
    
    420,080
    
    
    
    260,350Stockholders equity
    
    
    49,061
    
    
    
    48,441
    
    
    
    42,980
    
    
    
    38,594
    
    
    
    36,610INCOME STATEMENT:Interest income
    
    
    23,864
    
    
    
    27,891
    
    
    
    25,198
    
    
    
    17,360
    
    
    
    14,297Interest expense
    
    
    7,137
    
    
    
    9,220
    
    
    
    7,014
    
    
    
    3,762
    
    
    
    2,694Net interest income
    
    
    16,727
    
    
    
    18,671
    
    
    
    18,184
    
    
    
    13,598
    
    
    
    11,602Provision for possible loan losses
    
    
    563
    
    
    
    561
    
    
    
    318
    
    
    
    1,149
    
    
    
    508Net interest income after provision
for possible loan losses
    
    
    16,164
    
    
    
    18,110
    
    
    
    17,866
    
    
    
    12,449
    
    
    
    11,094Non-interest income
    
    
    6,993
    
    
    
    6,131
    
    
    
    5,614
    
    
    
    5,156
    
    
    
    5,680Non-interest expense
    
    
    16,199
    
    
    
    14,246
    
    
    
    13,437
    
    
    
    12,456
    
    
    
    12,137Net income
    
    
    4,730
    
    
    
    6,723
    
    
    
    6,856
    
    
    
    3,585
    
    
    
    3,415Cash dividends declared
    
    
    1,796
    
    
    
    1,796
    
    
    
    1,663
    
    
    
    1,530
    
    
    
    1,530PER SHARE DATA:Net income
    
    
    3.56
    
    
    
    5.05
    
    
    
    5.15
    
    
    
    2.70
    
    
    
    2.57Cash dividends
    
    
    1.35
    
    
    
    1.35
    
    
    
    1.25
    
    
    
    1.15
    
    
    
    1.15Book value
    
    
    36.88
    
    
    
    36.41
    
    
    
    32.31
    
    
    
    29.01
    
    
    
    27.51RATIOS:Return on average equity
    
    
    9.44
    
    
    
    14.73
    
    
    
    16.60
    
    
    
    9.54
    
    
    
    9.53Return on average assets
    
    
    1.01
    
    
    
    1.35
    
    
    
    1.38
    
    
    
    1.08
    
    
    
    1.08Capital to assets
    
    
    11.25
    
    
    
    10.47
    
    
    
    8.81
    
    
    
    7.95
    
    
    
    11.76Dividends declared as percentage
of income
    
    
    37.97
    
    
    
    26.71
    
    
    
    24.25
    
    
    
    42.68
    
    
    
    38.86




---



##### 



MERCHANTS & MARINE BANCORP, INC.
 FINANCIAL STATEMENTS
Pascagoula, Mississippi
Years Ended December 31, 2008 and 2007




---



##### 



TABLE OF CONTENTS
 Report of Independent Registered Public Accounting Firm
    
    Page
    
    
    3Statements of Condition
    
    
    
    
    4Statements of Income
    
    
    
    
    5Statements of Comprehensive Income
    
    
    
    
    6Statements of Changes in Stockholders Equity
    
    
    
    
    7Statements of Cash Flows
    
    
    
    
    8Notes to Financial Statements
    
    
    
    
    10
 - 2 -




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##### 



Report of Independent Registered Public Accounting Firm
 
     
 
 - 3 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
 December 31,2008
    
    
    2007Assets:Cash and due from banks
    
    $
    18,065,881
    
    
    
    20,268,465Federal funds sold
    
    
    11,039,000
    
    
    
    26,477,000Securities:Available-for-sale at market value
    
    
    30,239,874
    
    
    
    38,975,101Held-to-maturity at amortized cost
    
    
    146,509,925
    
    
    
    143,792,190Non-marketable equity securities
    
    
    600,060
    
    
    
    600,060Loans
    
    
    201,525,438
    
    
    
    203,959,583Less:Allowance for loan losses
    
    
    3,100,000
    
    
    
    3,100,000Unearned income
    
    
    42,852
    
    
    
    47,151Loans, net
    
    
    198,382,586
    
    
    
    200,812,432Property and equipment, net
    
    
    17,750,116
    
    
    
    14,890,181Other real estate owned
    
    
    235,659
    
    
    
    406,606Accrued income
    
    
    3,086,533
    
    
    
    3,322,522Goodwill, net
    
    
    880,398
    
    
    
    880,398Other assets
    
    
    9,493,088
    
    
    
    9,107,761Total Assets
    
    $
    436,283,120
    
    
    
    459,532,716Liabilities:Deposits:Non-interest bearing demand
    
    $
    80,738,441
    
    
    
    124,829,897Interest bearing savings, demand, and other time deposits
    
    
    286,506,672
    
    
    
    258,592,773Total deposits
    
    
    367,245,113
    
    
    
    383,422,670Securities sold under agreements
to repurchase
    
    
    10,916,967
    
    
    
    21,018,486Accrued expense and other liabilities
    
    
    9,060,161
    
    
    
    6,650,911Total Liabilities
    
    
    387,222,241
    
    
    
    411,092,067Stockholders Equity:Common stock- $2.50 par value per share, 1,330,560 shares
authorized, 1,330,338 shares issued and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    34,045,240
    
    
    
    31,123,789Accumulated other comprehensive income (loss)
    
    
    (2,810,206
    )
    
    
    (508,985
    )Total Stockholders Equity
    
    
    49,060,879
    
    
    
    48,440,649Total Liabilities and Stockholders Equity
    
    $
    436,283,120
    
    
    
    459,532,716
  - 4 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Interest Income:Interest and fees on loans
    
    $
    14,722,605
    
    
    
    16,027,911
    
    
    
    13,562,043Interest on investment securities:Taxable
    
    
    8,223,847
    
    
    
    10,442,700
    
    
    
    10,514,624Exempt from federal and state income tax
    
    
    293,049
    
    
    
    278,908
    
    
    
    250,507Interest on federal funds sold
    
    
    617,070
    
    
    
    1,141,475
    
    
    
    871,147Other interest income
    
    
    7,653
    
    
    
    -
    
    
    
    -Total interest income
    
    
    23,864,224
    
    
    
    27,890,994
    
    
    
    25,198,321Interest Expense:Interest on deposits
    
    
    6,812,012
    
    
    
    8,550,628
    
    
    
    6,752,514Interest on federal funds purchased and securities
sold under agreements to repurchase
    
    
    325,213
    
    
    
    669,239
    
    
    
    261,947Total interest expense
    
    
    7,137,225
    
    
    
    9,219,867
    
    
    
    7,014,461Net interest income
    
    
    16,726,999
    
    
    
    18,671,127
    
    
    
    18,183,860Provision for loan losses
    
    
    563,178
    
    
    
    560,590
    
    
    
    318,120Net interest income after provision for loan losses
    
    
    16,163,821
    
    
    
    18,110,537
    
    
    
    17,865,740Non-Interest Income:Service charges on deposit accounts
    
    
    4,331,617
    
    
    
    4,293,946
    
    
    
    3,904,526Other service charges, commissions and fees
    
    
    1,032,825
    
    
    
    927,847
    
    
    
    842,238Other
    
    
    1,628,511
    
    
    
    908,763
    
    
    
    867,059Total non-interest income
    
    
    6,992,953
    
    
    
    6,130,556
    
    
    
    5,613,823Non-Interest Expense:Salaries and employee benefits
    
    
    6,806,340
    
    
    
    6,377,824
    
    
    
    5,993,814Occupancy expense
    
    
    2,737,432
    
    
    
    2,434,926
    
    
    
    1,747,844Other
    
    
    6,655,352
    
    
    
    5,433,424
    
    
    
    5,694,845Total non-interest expense
    
    
    16,199,124
    
    
    
    14,246,174
    
    
    
    13,436,503Income Before Income Taxes
    
    
    6,957,650
    
    
    
    9,994,919
    
    
    
    10,043,060Income Taxes
    
    
    2,228,000
    
    
    
    3,272,000
    
    
    
    3,187,000Net Income
    
    $
    4,729,650
    
    
    
    6,722,919
    
    
    
    6,856,060Net Income per Common Share
    
    $
    3.56
    
    
    
    5.05
    
    
    
    5.15
  - 5 -




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##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Net Income
    
    $
    4,729,650
    
    
    
    6,722,919
    
    
    
    6,856,060Other comprehensive income, net of tax:Unrealized gain(loss) on securities
available-for-sale
    
    
    185,862
    
    
    
    56,849
    
    
    
    208,804Adjustment to initially applyFASB Statement No. 158, net of taxes of $522,948
    
    
    -
    
    
    
    -
    
    
    
    (1,015,135
    )Unrealized gain on pension plan assets
    
    
    (2,499,326
    )
    
    
    476,402
    
    
    
    -Comprehensive income
    
    $
    2,416,186
    
    
    
    7,256,170
    
    
    
    6,049,729
  - 6 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years Ended December 31, 2008, 2007 and 2006
 Common Stock
    
    
    
    
    
    
    Retained
    
    
    Accumulated OtherShares Issued
    
    
    Amount
    
    
    Surplus
    
    
    Earnings
    
    
    Comprehensive IncomeBalance January 1, 2006
    
    
    1,330,338
    
    
    $
    3,325,845
    
    
    
    14,500,000
    
    
    
    21,003,689
    
    
    
    (235,905
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,856,060Cash dividends, $1.25
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,662,922
    )Change in unrealized gain (loss)
on securities available-for-sale
net of taxes of $46,856
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,804Adjustment to initially apply
FASB Statement No. 158, net of taxes of $522,948(1,015,135
    )Balance December 31, 2006
    
    
    1,330,338
    
    
    
    3,325,845
    
    
    
    14,500,000
    
    
    
    26,196,827
    
    
    
    (1,042,236
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,722,919Cash dividends, $1.35
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,795,957
    )Change in unrealized gain (loss)
on securities available-for-sale
net of taxes of $29,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,849Change in unrealized gain (loss)
on pension plan assets
net of taxes of $245,419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476,402Balance December 31, 2007, as originally reported
    
    
    1,330,338
    
    
    
    3,325,845
    
    
    
    14,500,000
    
    
    
    31,123,789
    
    
    
    (508,985
    )Prior period adjustment, net of taxes of $6,307

see Note 17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,243
    )
    
    
    12,243Balance December 31, 2007, as restated
    
    
    1,330,338
    
    
    
    3,325,845
    
    
    
    14,500,000
    
    
    
    31,111,546
    
    
    
    (496,742
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,729,650Cash dividends, $1.35
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,795,956
    )Change in unrealized gain (loss)
on securities available-for-sale
net of taxes of $41,707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,862Change in unrealized gain
on pension plan assets
net of taxes of ($558,101)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,499,326
    )Balance December 31, 2008
    
    
    1,330,338
    
    
    $
    3,325,845
    
    
    
    14,500,000
    
    
    
    34,045,240
    
    
    
    (2,810,206
    )
  - 7 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net Income
    
    $
    4,729,650
    
    
    
    6,722,919
    
    
    
    6,856,060Adjustments to reconcile net cash provided by
operating activities:Depreciation and amortization
    
    
    1,214,757
    
    
    
    985,111
    
    
    
    710,601Provision for loan losses
    
    
    561,127
    
    
    
    556,604
    
    
    
    316,572Writedowns on real estate owned
    
    
    55,947
    
    
    
    55,947
    
    
    
    25,996Pension expense
    
    
    -
    
    
    
    96,593
    
    
    
    106,187(Accretion) Amortization of securities premium/discount
    
    
    69,178
    
    
    
    (200,283
    )
    
    
    (535,499
    )Loss on disposition of fixed assets
    
    
    (356,283
    )
    
    
    20,605
    
    
    
    2,093(Gain) on sale of securities
    
    
    (117,392
    )
    
    
    -
    
    
    
    -Noncash charitable donation
    
    
    310,000
    
    
    
    -
    
    
    
    -(Increase)Decrease in accrued income
    
    
    235,989
    
    
    
    64,598
    
    
    
    (1,170,609
    )Reinvested earnings on securities
    
    
    (61,649
    )
    
    
    (873,951
    )
    
    
    (1,974,985
    )Increase (Decrease) in interest payable
    
    
    (140,185
    )
    
    
    (807,947
    )
    
    
    440,215Other, net
    
    
    (344,723
    )
    
    
    794,279
    
    
    
    (116,260
    )Net cash provided by operating activities
    
    
    6,156,416
    
    
    
    7,414,475
    
    
    
    4,660,371Cash flows from investing activities:Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell
    
    
    15,438,000
    
    
    
    2,548,000
    
    
    
    19,675,000Proceeds from sales and maturities of securities 

available-for-sale
    
    
    43,045,413
    
    
    
    139,500,000
    
    
    
    193,190,000Purchase of securities available-for-sale
    
    
    (33,919,423
    )
    
    
    (91,994,215
    )
    
    
    (150,446,473
    )Proceeds from maturities of securities held-to-maturity
    
    
    91,075,741
    
    
    
    71,935,000
    
    
    
    40,740,000Purchase of securities held-to-maturity
    
    
    (93,792,767
    )
    
    
    (98,039,679
    )
    
    
    (61,713,404
    )Net (increase) in loans
    
    
    1,983,719
    
    
    
    (5,585,232
    )
    
    
    (27,531,001
    )Purchase of property and equipment
    
    
    (4,168,409
    )
    
    
    (3,176,080
    )
    
    
    (5,637,649
    )Proceeds from sale of equipment
    
    
    140,000
    
    
    
    31,500
    
    
    
    22,000Net cash provided (used) by investing activities
    
    
    19,802,274
    
    
    
    15,219,294
    
    
    
    8,298,473Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    (16,263,799
    )
    
    
    (42,648,611
    )
    
    
    5,991,382Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase
    
    
    (10,101,519
    )
    
    
    8,812,991
    
    
    
    (9,581,916
    )Dividends paid
    
    
    (1,795,956
    )
    
    
    (1,795,957
    )
    
    
    (1,596,406
    )Net cash provided (used) by financing activities
    
    
    (28,161,274
    )
    
    
    (35,631,577
    )
    
    
    (5,186,940
    )Net increase (decrease) in cash and due from banks
    
    
    (2,202,584
    )
    
    
    (12,997,808
    )
    
    
    7,771,904Cash and Due from Banks, Beginning
    
    
    20,268,465
    
    
    
    33,266,273
    
    
    
    25,494,369Cash and Due from Banks, Ending
    
    $
    18,065,881
    
    
    
    20,268,465
    
    
    
    33,266,273
  - 8 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Supplemental Disclosures of Cash Flow Information:Cash paid during the year for:Interest
    
    $
    7,277,410
    
    
    
    8,924,814
    
    
    
    6,574,246Income taxes
    
    
    2,525,000
    
    
    
    2,835,000
    
    
    
    3,500,000
  - 9 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations:
   Basis of Consolidation:
  Use of Estimates:
     Securities:
  - 10 -




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##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Securities (continued):
    Allowance for Loan Losses:
     - 11 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Allowance for Loan Losses (continued):
  Comprehensive Income:
  Property and Equipment:
  Other Real Estate Owned:
  Loans:
   - 12 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Loans (continued):
  Income Taxes:
  Cash and Cash Equivalents:
  Goodwill:
  Advertising Costs:
  - 13 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 2. SECURITIES
  December 31, 2008
    
    
    December 31, 2007Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Amortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-For-Sale:US Treasury securities
    
    $
    999
    
    
    
    12
    
    
    
    -
    
    
    
    1,011
    
    
    
    994
    
    
    
    21
    
    
    
    -
    
    
    
    1,015US Government Agency
Funds
    
    
    28,842
    
    
    
    298
    
    
    
    -
    
    
    
    29,140
    
    
    
    37,936
    
    
    
    24
    
    
    
    -
    
    
    
    37,960Equity securities
    
    
    72
    
    
    
    16
    
    
    
    -
    
    
    
    88
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    29,913
    
    
    
    326
    
    
    
    -
    
    
    
    30,239
    
    
    
    38,930
    
    
    
    45
    
    
    
    -
    
    
    
    38,975Held-To-Maturity:US Treasury securities
    
    $
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    500
    
    
    
    1
    
    
    
    -
    
    
    
    501US Government Agency
Funds
    
    
    137,196
    
    
    
    2,432
    
    
    
    -
    
    
    
    139,628
    
    
    
    133,985
    
    
    
    1,550
    
    
    
    (26
    )
    
    
    135,509State, county, and Municipal
securities
    
    
    9,313
    
    
    
    196
    
    
    
    (12
    )
    
    
    9,497
    
    
    
    9,307
    
    
    
    45
    
    
    
    (20
    )
    
    
    9,332Total
    
    $
    146,509
    
    
    
    2,628
    
    
    
    (12
    )
    
    
    149,125
    
    
    
    143,792
    
    
    
    1,596
    
    
    
    (46
    )
    
    
    145,342
  Available-For-Sale
    
    
    Held-To-MaturityAmortized
    
    
    
    
    
    
    AmortizedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueAmounts maturing in:One year or less:
    
    $
    8,073
    
    
    
    8,125
    
    
    
    5,605
    
    
    
    5,649After one year through five years
    
    
    17,372
    
    
    
    17,537
    
    
    
    99,467
    
    
    
    101,618After five years through ten years
    
    
    4,468
    
    
    
    4,577
    
    
    
    41,437
    
    
    
    41,858$
    29,913
    
    
    
    30,239
    
    
    
    146,509
    
    
    
    149,125
    - 14 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 2. SECURITIES (continued)
   Less Than 12 Months
    
    12 Months or Greater
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses(dollars in thousands)December 31, 2008:State and Municipal
governments
    
    $
    241
    
    
    
    (12
    )
    
    
    -
    
    
    
    -
    
    
    
    241
    
    
    
    (12
    )Total
    
    $
    241
    
    
    
    (12
    )
    
    
    -
    
    
    
    -
    
    
    
    241
    
    
    
    (12
    )
     December 31,2008
    
    
    2007Beginning balance
    
    $
    600
    
    
    
    600purchase of non-marketable equity securities
    
    
    -
    
    
    
    -sale of non-marketable equity securities
    
    
    -
    
    
    
    -Ending balance
    
    $
    600
    
    
    
    600
 - 15 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 3. LOANS
  2008
    
    2007Loans secured by real estate:Construction
    
    $
    29,186
    
    
    
    28,819Farmland
    
    
    629
    
    
    
    833Revolving, open-end secured by 1-4 family residential property
    
    
    343
    
    
    
    3971-4 family residential properties
    
    
    37,756
    
    
    
    33,782Multifamily (5 or more) residential properties
    
    
    491
    
    
    
    354Nonfarm nonresidential properties
    
    
    64,596
    
    
    
    59,830Commercial and industrial
    
    
    23,709
    
    
    
    32,435Loans to individuals for household, family and other
personal expenditures
    
    
    37,823
    
    
    
    40,902Municipal and government
    
    
    6,088
    
    
    
    5,797Other
    
    
    904
    
    
    
    810$
    201,525
    
    
    
    203,959
  2008
    
    2007
    
    2006Balance, January 1,
    
    $
    3,100
    
    
    
    3,100
    
    
    
    3,000Recoveries
    
    
    264
    
    
    
    276
    
    
    
    437Loans charged off
    
    
    (827
    )
    
    
    (837
    )
    
    
    (655
    )Provision charged to operating expense
    
    
    563
    
    
    
    561
    
    
    
    318Balance, December 31,
    
    $
    3,100
    
    
    
    3,100
    
    
    
    3,100
     - 16 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 4. PROPERTY AND EQUIPMENT
  2008
    
    2007Land and buildings
    
    $
    18,226
    
    
    
    15,875Furniture and equipment
    
    
    4,906
    
    
    
    3,78123,132
    
    
    
    19,656Accumulated depreciation
    
    
    (6,028
    )
    
    
    (4,824
    )Net property and equipment
    
    
    17,104
    
    
    
    14,832Construction in progress
    
    
    646
    
    
    
    58$
    17,750
    
    
    
    14,890
 NOTE 5. INCOME TAXES
  2008
    
    2007Deferred tax assets:Provision for loan losses not currently deductible
    
    $
    862
    
    
    
    862Write-down of other real estate not currently deductible
    
    
    113
    
    
    
    94Deferred compensation
    
    
    1,675
    
    
    
    1,499Loan origination costs not currently deductible
    
    
    388
    
    
    
    388Accrued interest on non-accrual loans
    
    
    252
    
    
    
    225Underfunded pension
    
    
    623
    
    
    
    -Losses on defined benefit plan assets
    
    
    1,559
    
    
    
    278$
    5,472
    
    
    
    3,346Deferred tax liabilities:Book basis of fixed assets greater than tax
    
    
    (2,433
    )
    
    
    (2,273
    )Prepaid pension
    
    
    -
    
    
    
    (689
    )Discount accretion
    
    
    (14
    )
    
    
    (37
    )Unrealized gains on securities available-for-sale
    
    
    (111
    )
    
    
    (15
    )(2,558
    )
    
    
    (3,014
    )Net deferred tax asset
    
    $
    2,914
    
    
    
    332
 - 17 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 5. INCOME TAXES (continued)
  2008
    
    2007
    
    2006Currently payable
    
    $
    2,334
    
    
    
    2,373
    
    
    
    3,317Deferred
    
    
    (106
    )
    
    
    899
    
    
    
    (130
    )$
    2,228
    
    
    
    3,272
    
    
    
    3,187
  2008
    
    
    2007
    
    
    2006Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Taxes computed at statutory rate
    
    $
    2,366
    
    
    
    34.0
    
    
    
    3,398
    
    
    
    34.0
    
    
    
    3,415
    
    
    
    34.0Increase (decrease) in taxes resulting from:Tax exempt life insurance income (net of expense)
    
    
    (61
    )
    
    
    (0.9
    )
    
    
    (51
    )
    
    
    (0.5
    )
    
    
    (106
    )
    
    
    (1.1
    )Tax exempt interest income
    
    
    (99
    )
    
    
    (1.4
    )
    
    
    (86
    )
    
    
    (0.9
    )
    
    
    (98
    )
    
    
    (1.0
    )Miscellaneous
    
    
    22
    
    
    
    0.3
    
    
    
    11
    
    
    
    0.1
    
    
    
    (24
    )
    
    
    (0.2
    )$
    2,228
    
    
    
    32.0
    
    
    
    3,272
    
    
    
    32.7
    
    
    
    3,187
    
    
    
    31.7
 Accounting for Uncertainty in Income Taxes, An
Interpretation of FASB Statement No. 109
   - 18 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 6. DEPOSITS
  2008
    
    2007Non-interest bearing
    
    $
    17,167
    
    
    
    124,830Interest bearing demand
    
    
    197,912
    
    
    
    122,310Savings
    
    
    41,272
    
    
    
    38,847Certificates of deposit
    
    
    110,894
    
    
    
    97,436$
    367,245
    
    
    
    383,423
  2009
    
    $
    94,1522010
    
    
    9,9752011
    
    
    2,0402012
    
    
    1,9562013
    
    
    2,671Thereafter
    
    
    100$
    110,894
   NOTE 7. LINES OF CREDIT
  NOTE 8. EMPLOYEE BENEFIT PLANS
  - 19 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
 December 31,2008
    
    2007
    
    2006Reconciliation of Benefit Obligation:Projected benefit obligation at beginning of period
    
    $
    8,865
    
    
    
    8,789
    
    
    
    7,605Service cost
    
    
    326
    *
    
    
    267
    
    
    
    310Interest cost
    
    
    632
    *
    
    
    471
    
    
    
    408Actuarial (gain) loss
    
    
    426
    
    
    
    (240
    )
    
    
    748Distributions
    
    
    (587
    )    *
    
    
    (422
    )
    
    
    (282
    )Projected benefit obligation at end of period
    
    
    9,662
    
    
    
    8,865
    
    
    
    8,789Accumulated benefit obligation at end of period
    
    
    8,599
    
    
    
    7,908
    
    
    
    8,094Reconciliation of Plan Assets:Fair value of plan assets at beginning of plan year
    
    
    10,887
    
    
    
    10,185
    
    
    
    9,401Actual return (loss) on plan assets
    
    
    (2,369
    )    *
    
    
    1,227
    
    
    
    1,156Benefit payments
    
    
    (587
    )    *
    
    
    (421
    )
    
    
    (282
    )Expenses
    
    
    (101
    )
    
    
    (104
    )
    
    
    (90
    )Other receipts
    
    
    -
    
    
    
    -
    
    
    
    -Fair value of plan assets at end of measurement year
    
    
    7,830
    
    
    
    10,887
    
    
    
    10,185Funded Status, included in other assets
    
    
    (1,832
    )
    
    
    2,022
    
    
    
    1,397Unrecognized transition obligation (asset)
    
    
    -
    
    
    
    -
    
    
    
    -Unrecognized net loss
    
    
    4,585
    
    
    
    816
    
    
    
    1,538Prepaid pension cost
    
    $
    2,753
    
    
    
    2,838
    
    
    
    2,935
  - 20 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
 December 31,2008
    
    2007
    
    2006Net periodic pension expense:Service cost
    
    $
    279
    
    
    
    267
    
    
    
    310Interest cost
    
    
    542
    
    
    
    471
    
    
    
    408Actual (gain) loss on plan assets
    
    
    (747
    )
    
    
    (698
    )
    
    
    (645
    )Amortization of (gain) loss
    
    
    -
    
    
    
    56
    
    
    
    33Net periodic pension cost
    
    $
    74
    
    
    
    96
    
    
    
    106
  Rate assumptions:
    
    2008
    
    2007
    
    2006Discount rate
    
    
    6.23%
    
    
    
    6.26%
    
    
    
    5.50%Long term rate of investment return
    
    
    7.00%
    
    
    
    7.00%
    
    
    
    7.00%Rate of compensation increase
    
    
    4.00%
    
    
    
    4.00%
    
    
    
    3.50%
   2009
    
    $
    475,1992010
    
    
    487,5632011
    
    
    516,1892012
    
    
    537,1192013 - 2018
    
    
    4,476,147
  - 21 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
  Before
    
    
    
    
    
    
    AfterApplication of
    
    
    
    
    
    
    Application ofStatement 158
    
    Adjustments
    
    Statement 158Other assets
    
    $
    9,569
    
    
    
    (1,015
    )
    
    
    8,554Total assets
    
    
    488,734
    
    
    
    (1,015
    )
    
    
    487,719Accumulated other comprehensive income
    
    
    (27
    )
    
    
    (1,015
    )
    
    
    (1,042
    )Total stockholders equity
    
    
    43,995
    
    
    
    (1,015
    )
    
    
    42,980
  NOTE 9. REGULATORY CAPITAL
    - 22 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE
9. REGULATORY CAPITAL (continued)
  To be WellCapitalized Under theFor Capital Adequacy

    
    Prompt CorrectiveActual

    
    Purposes

    
    Action ProvisionsAmount

    
    Ratio

    
    Amount

    
    Ratio

    
    Amount

    
    RatioDecember 31, 2008Total Capital (to Risk-Weighted Assets)
    
    $
    53,920
    
    
    
    21.87
    %
    
    
    19,720
    
    
    
    8.00
    %
    
    
    24,650
    
    
    
    10.00
    %Tier I Capital (to Risk-Weighted Assets)
    
    
    50,838
    
    
    
    20.62
    %
    
    
    9,860
    
    
    
    4.00
    %
    
    
    14,790
    
    
    
    6.00
    %Tier I Leveraged Capital
    
    
    50,838
    
    
    
    10.94
    %
    
    
    18,595
    
    
    
    4.00
    %
    
    
    23,244
    
    
    
    5.00
    %December 31, 2007Total Capital (to Risk-Weighted Assets)
    
    $
    51,113
    
    
    
    20.84
    %
    
    
    19,625
    
    
    
    8.00
    %
    
    
    24,532
    
    
    
    10.00
    %Tier I Capital (to Risk-Weighted Assets)
    
    
    48,070
    
    
    
    19.60
    %
    
    
    9,813
    
    
    
    4.00
    %
    
    
    14,719
    
    
    
    6.00
    %Tier I Leveraged Capital
    
    
    48,070
    
    
    
    9.69
    %
    
    
    19,051
    
    
    
    4.00
    %
    
    
    23,814
    
    
    
    5.00
    %
 NOTE 10. RELATED PARTIES
  Loans:
    
    2008

    
    2007

    
    2006Balance, January 1
    
    $
    1,620
    
    
    
    1,243
    
    
    
    895New loans
    
    
    578
    
    
    
    478
    
    
    
    443Payments
    
    
    (157
    )
    
    
    (101
    )
    
    
    (95
    )Balance, December 31
    
    $
    2,041
    
    
    
    1,620
    
    
    
    1,243
 Deposits:
    
    2008

    
    2007

    
    2006Balance, January 1
    
    $
    4,175
    
    
    
    4,162
    
    
    
    5,581Net change
    
    
    (849
    )
    
    
    13
    
    
    
    (1,419
    )Balance, December 31
    
    $
    3,326
    
    
    
    4,175
    
    
    
    4,162
   - 23 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE
10. RELATED PARTIES (continued)
   NOTE 11. FAIR VALUES OF FINANCIAL INSTRUMENTS
  Cash and Federal Funds Sold:
  Investment Securities:
  Loans:
  Deposits:
  - 24 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE
11. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
  2008

    
    2007Carrying

    
    Fair

    
    Carrying

    
    FairAmount

    
    Value

    
    Amount

    
    ValueFinancial assets:Cash and federal funds sold
    
    $
    29,105
    
    
    
    29,105
    
    
    $
    46,745
    
    
    
    46,745Securities:Available-for-sale
    
    
    30,240
    
    
    
    30,240
    
    
    
    38,975
    
    
    
    38,983Held-to-maturity
    
    
    146,510
    
    
    
    149,125
    
    
    
    143,792
    
    
    
    144,841Non-marketable
    
    
    600
    
    
    
    600
    
    
    
    600
    
    
    
    600Loans, net of allowance
    
    
    198,383
    
    
    
    201,570
    
    
    
    200,812
    
    
    
    201,577Financial liabilities:Deposits
    
    
    367,245
    
    
    
    370,312
    
    
    
    383,423
    
    
    
    380,124Federal funds purchased and securities
sold under agreements to repurchase
    
    
    10,917
    
    
    
    10,917
    
    
    
    21,018
    
    
    
    21,017
 NOTE 12. CONCENTRATIONS OF CREDIT
  NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
  - 25 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (continued)
  2008

    
    2007Commitments to extend credit
    
    $
    20,370
    
    
    
    20,471Standby letters of credit
    
    
    192
    
    
    
    273
   Mississippi National Bankers Bank
    
    $
    61
 NOTE 14. COMMITMENTS AND CONTINGENCIES
    - 26 -




---



##### 



MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008, 2007, and 2006
 NOTE 15. RECLASSIFICATION
  NOTE 16.  FORMATION OF HOLDING COMPANY
   NOTE 17.  PRIOR PERIOD ADJUSTMENT
  Increase in pension obligations during the period

November 1, 2007 - December 31, 2007
    
    $
    18,850Tax savings
    
    
    (6,307
    )Net prior period adjustment
    
    $
    12,543
 - 27 -