##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-53198
 Merchants & Marine Bancorp, Inc.
  Mississippi
    
    26-2498567(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)3118 Pascagoula Street, Pascagoula, Mississippi
    
    39567(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ Yes o No
 o Yes o No
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o Yes þ No




---



##### 



TABLE OF CONTENTS
 Part I: Financial InformationItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9Item 4. Controls and Procedures
    
    
    32Part II. Other InformationItem 1. Legal Proceedings
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matter to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1:
    
    Financial Statements
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
    
    
    (Audited)September 30, 2009
    
    
    December 31, 2008ASSETS:Cash and due from banks (non-interest bearing)
    
    $
    16,655,779
    
    
    
    18,065,881Federal funds sold
    
    
    15,700,000
    
    
    
    11,039,000Securities:Available for sale, at market value
    
    
    49,192,224
    
    
    
    30,239,874Held to maturity, at amortized cost
    
    
    140,170,790
    
    
    
    146,509,925Non-marketable equity securities
    
    
    900,060
    
    
    
    600,060Loans, less allowance for loan losses $3,100,000
and $3,100,000, respectively
    
    
    210,182,534
    
    
    
    198,382,586Property and equipment, net
    
    
    17,107,132
    
    
    
    17,750,116Other real estate owned
    
    
    238,157
    
    
    
    235,659Accrued income
    
    
    2,434,431
    
    
    
    3,086,533Other assets
    
    
    11,928,040
    
    
    
    10,373,486TOTAL ASSETS
    
    $
    464,509,147
    
    
    
    436,283,120LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Non-interest bearing demand
    
    $
    74,937,070
    
    
    
    80,738,441Interest bearing demand, savings, money market, and
other time
    
    
    321,506,784
    
    
    
    286,506,672Total deposits
    
    
    396,443,854
    
    
    
    367,245,113Federal funds purchased and securities sold under
agreements to repurchase
    
    
    8,053,548
    
    
    
    10,916,967Accrued expenses and other liabilities
    
    
    9,547,532
    
    
    
    9,060,161Total liabilities
    
    
    414,044,934
    
    
    
    387,222,241Stockholders Equity:Common stock  $2.50 par value, 5,000,000 shares authorized,
1,330,338 shares issued and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    35,444,486
    
    
    
    34,045,240Accumulated other comprehensive income:Unrealized gain on securities available for sale
    
    
    219,698
    
    
    
    215,610Unrealized (loss) on defined benefit pension plan
    
    
    (3,025,816
    )
    
    
    (3,025,816
    )Total stockholders equity
    
    
    50,464,213
    
    
    
    49,060,879TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    464,509,147
    
    
    
    436,283,120
   3




---



##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008Interest Income:Interest and fees on loans
    
    $
    3,593,991
    
    
    $
    3,601,746
    
    
    $
    10,534,444
    
    
    $
    11,129,530Interest on investment securities:Taxable
    
    
    1,254,449
    
    
    
    2,122,737
    
    
    
    4,240,468
    
    
    
    6,190,109Exempt from federal income tax
    
    
    128,094
    
    
    
    72,109
    
    
    
    318,751
    
    
    
    222,731Interest on federal funds sold
    
    
    11,228
    
    
    
    39,435
    
    
    
    46,866
    
    
    
    586,682Total interest income
    
    
    4,987,762
    
    
    
    5,836,027
    
    
    
    15,140,529
    
    
    
    18,129,052Interest Expense:Interest on deposits
    
    
    1,216,944
    
    
    
    1,598,714
    
    
    
    3,875,580
    
    
    
    5,232,731Interest on federal funds purchased
and securities sold under agreements
to repurchase
    
    
    9,538
    
    
    
    60,297
    
    
    
    31,337
    
    
    
    289,686Total interest expense
    
    
    1,226,482
    
    
    
    1,659,011
    
    
    
    3,906,917
    
    
    
    5,522,417Net interest income
    
    
    3,761,280
    
    
    
    4,177,016
    
    
    
    11,233,612
    
    
    
    12,606,635Provision for loan losses
    
    
    304,367
    
    
    
    172,874
    
    
    
    439,250
    
    
    
    245,237Net interest income
after provision for loan losses
    
    
    3,456,913
    
    
    
    4,004,142
    
    
    
    10,794,362
    
    
    
    12,361,398Non-Interest Income:Service charges
    
    
    1,137,849
    
    
    
    1,148,372
    
    
    
    3,106,713
    
    
    
    3,263,681Miscellaneous
    
    
    491,026
    
    
    
    500,933
    
    
    
    1,594,547
    
    
    
    1,952,703Total non-interest income
    
    
    1,628,875
    
    
    
    1,649,305
    
    
    
    4,701,260
    
    
    
    5,216,384Non-Interest Expense:Salaries and employee benefits
    
    
    2,007,562
    
    
    
    1,959,770
    
    
    
    5,882,669
    
    
    
    5,448,959Premises
    
    
    793,035
    
    
    
    704,964
    
    
    
    2,355,672
    
    
    
    2,065,394Miscellaneous
    
    
    1,150,521
    
    
    
    1,481,440
    
    
    
    3,705,507
    
    
    
    4,931,492Total non-interest expense
    
    
    3,951,118
    
    
    
    4,146,174
    
    
    
    11,943,848
    
    
    
    12,445,845Income before income taxes
    
    
    1,134,670
    
    
    
    1,507,273
    
    
    
    3,551,774
    
    
    
    5,131,937Provision for income taxes
    
    
    269,567
    
    
    
    477,308
    
    
    
    1,105,711
    
    
    
    1,628,186NET INCOME
    
    $
    865,103
    
    
    $
    1,029,965
    
    
    $
    2,446,063
    
    
    $
    3,503,751NET INCOME PER COMMON SHARE
    
    $
    0.65
    
    
    $
    0.77
    
    
    $
    1.84
    
    
    $
    2.63
   4




---



##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    865,103
    
    
    
    1,029,965
    
    
    $
    2,446,063
    
    
    
    3,503,751Other comprehensive income, net of tax:Unrealized holding gains (losses)
arising during period
    
    
    267,741
    
    
    
    115,905
    
    
    
    4,088
    
    
    
    (53,664
    )Comprehensive income
    
    $
    1,132,844
    
    
    
    1,145,870
    
    
    $
    2,450,151
    
    
    
    3,450,087
   5




---



##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   For the Nine Months Ended September 30
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    2,446,063
    
    
    $
    3,503,751Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,083,831
    
    
    
    883,356Provision for loan losses
    
    
    439,250
    
    
    
    245,237Write-down of other real estate owned
    
    
    80
    
    
    
    33,552Net premium amortization
    
    
    50,234
    
    
    
    53,525Reinvested earnings on securities
    
    
    (46,490
    )
    
    
    (61,649
    )(Increase) in accrued income receivable
    
    
    652,102
    
    
    
    (105,398
    )Decrease in interest payable
    
    
    (239,714
    )
    
    
    (72,905
    )Noncash charitable contribution
    
    
    
    
    
    
    310,000Gain on disposition of property and equipment
    
    
    (49,243
    )
    
    
    (356,283
    )Gain on disposition of securities
    
    
    
    
    
    
    (117,392
    )Net change in other assets and liabilities
    
    
    (413,020
    )
    
    
    (153,735
    )Net Cash (Used) Provided by Operating Activities
    
    
    3,923,093
    
    
    
    4,162,059CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) decrease in federal funds sold
    
    
    (4,661,000
    )
    
    
    16,684,000Purchase of securities available for sale
    
    
    (53,261,965
    )
    
    
    (26,079,750
    )Proceeds from maturities of securities available for sale
    
    
    34,315,000
    
    
    
    38,045,413Purchase of securities held to maturity
    
    
    (101,026,393
    )
    
    
    (92,416,810
    )Proceeds from maturities of securities held to maturity
    
    
    107,362,593
    
    
    
    63,513,333Purchase of other equity securities
    
    
    (300,000
    )
    
    
    Net (increase) decrease in loans
    
    
    (12,221,878
    )
    
    
    7,144,119Purchase of property and equipment
    
    
    (440,847
    )
    
    
    (3,029,682
    )Proceeds from sale of property and equipment
    
    
    29,345
    
    
    
    140,000Net Cash (Used) Provided by Investing Activities
    
    
    (30,205,145
    )
    
    
    4,000,623CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    29,198,741
    
    
    
    1,671,865Net (decrease) in federal funds purchased
and securities sold under agreements to repurchase
    
    
    (2,863,419
    )
    
    
    (7,643,603
    )Dividends paid to stockholders
    
    
    (1,463,372
    )
    
    
    (1,463,372
    )Net Cash Provided (Used) by Financing Activities
    
    
    24,871,950
    
    
    
    (7,435,110
    )Net Increase (Decrease) in Cash and Due from Banks
    
    
    (1,410,102
    )
    
    
    727,572Cash and Due From Banks, Beginning
    
    
    18,065,881
    
    
    
    20,268,465Cash and Due From Banks, Ending
    
    $
    16,655,779
    
    
    $
    20,996,037
   6




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   As of and For the Three and Nine Months Ended September 30, 2009
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Interim Financial Statements.
  December 31, 2008 Balance Sheet Presentation.
  Use of Estimates.
  2. FAIR VALUES OF FINANCIAL INSTRUMENTS
  Cash and Federal Funds Sold:
  Investment Securities:
  Loans:
  Deposits:
   7




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)   As of and For the Three and Nine Months Ended September 30, 2009
 2. FAIR VALUES OF FINANCIAL INSTRUMENTS  (Continued)
  September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and federal funds sold
    
    $
    32,356
    
    
    
    32,356
    
    
    $
    29,105
    
    
    
    29,105Securities:Available-for-sale
    
    
    49,192
    
    
    
    49,192
    
    
    
    30,240
    
    
    
    30,240Held-to-maturity
    
    
    140,171
    
    
    
    142,060
    
    
    
    146,510
    
    
    
    149,125Non-marketable
    
    
    900
    
    
    
    900
    
    
    
    600
    
    
    
    600Loans, net of allowance
    
    
    210,183
    
    
    
    209,833
    
    
    
    198,383
    
    
    
    201,570Financial liabilitiesDeposits
    
    
    396,444
    
    
    
    397,303
    
    
    
    367,245
    
    
    
    370,312Federal funds purchased and securities sold
under agreements to repurchase
    
    
    8,054
    
    
    
    8,054
    
    
    
    10,917
    
    
    
    10,917
 3. SHARE EXCHANGE
   4. SUBSEQUENT EVENTS
   8




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
  Formation of Holding Company
   9




---



##### Table of Contents



Executive Summary
 U.S. Banker th
   Earnings Highlights
  Earning Assets
   10




---



##### Table of Contents



Net Interest Income
      11




---



##### Table of Contents



Interest Rate Sensitivity
    Loans
     12




---



##### Table of Contents



Allowance for Loan Losses
    Critical Accounting Policies
      13




---



##### Table of Contents



Asset Quality
   Securities Available-for-Sale and Investment Securities
   14




---



##### Table of Contents



Deposits
   15




---



##### Table of Contents



Liquidity
   Contractual Obligations
  Off-Balance Sheet Arrangements
   16




---



##### Table of Contents



Risk-Based Capital/Stockholders Equity
    Non-Interest Income
   Non-Interest Expense
   17




---



##### Table of Contents



Income Taxes
   18




---



##### Table of Contents



TABLE 1
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES
  2009
    
    
    2008
    
    
    2007Interest
    
    
    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
    
    $
    207,781
    
    
    $
    10,534
    
    
    
    6.76
    %
    
    $
    199,279
    
    
    $
    11,130
    
    
    
    7.45
    %
    
    $
    202,731
    
    
    $
    12,008
    
    
    
    7.90
    %Securities held to maturity:Taxable
    
    
    97,754
    
    
    
    3,091
    
    
    
    4.22
    %
    
    
    155,261
    
    
    
    5,600
    
    
    
    4.81
    %
    
    
    134,056
    
    
    
    4,919
    
    
    
    4.89
    %Exempt from Federal
income tax
    
    
    12,583
    
    
    
    319
    
    
    
    3.38
    %
    
    
    8,472
    
    
    
    223
    
    
    
    3.51
    %
    
    
    8,277
    
    
    
    250
    
    
    
    4.03
    %Securities available
for sale:Taxable
    
    
    52,187
    
    
    
    1,122
    
    
    
    2.87
    %
    
    
    22,650
    
    
    
    590
    
    
    
    3.47
    %
    
    
    79,424
    
    
    
    3,076
    
    
    
    5.16
    %Federal funds sold
and securities pur-
chased under agree-
ments to resell
    
    
    34,980
    
    
    
    47
    
    
    
    0.18
    %
    
    
    30,799
    
    
    
    587
    
    
    
    2.54
    %
    
    
    24,823
    
    
    
    968
    
    
    
    5.20
    %Total interest-earning
assets
    
    $
    405,285
    
    
    $
    15,113
    
    
    
    4.97
    %
    
    $
    416,461
    
    
    $
    18,130
    
    
    
    5.80
    %
    
    $
    449,311
    
    
    $
    21,221
    
    
    
    6.30
    %Non interest-earning assets:Cash and due from
banks
    
    
    16,804
    
    
    
    
    
    
    
    
    
    
    
    25,934
    
    
    
    
    
    
    
    
    
    
    
    31,026Bank premises and
equipment
    
    
    17,568
    
    
    
    
    
    
    
    
    
    
    
    15,608
    
    
    
    
    
    
    
    
    
    
    
    13,894Other assets
    
    
    14,136
    
    
    
    
    
    
    
    
    
    
    
    14,853
    
    
    
    
    
    
    
    
    
    
    
    13,920Allowance for possible
loan losses
    
    
    (3,085
    )
    
    
    
    
    
    
    
    
    
    
    (3,086
    )
    
    
    
    
    
    
    
    
    
    
    (3,090
    )Total assets
    
    $
    450,708
    
    
    
    
    
    
    
    
    
    
    $
    469,770
    
    
    
    
    
    
    
    
    
    
    $
    505,061
  19




---



##### Table of Contents



TABLE 1 CONTINUED
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES (continued)
 2009
    
    
    2008
    
    
    2007Interest
    
    
    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, MMF & Savings
    
    $
    187,436
    
    
    $
    1,481
    
    
    
    1.05
    %
    
    $
    198,535
    
    
    $
    2,220
    
    
    
    1.49
    %
    
    $
    176,554
    
    
    $
    3,080
    
    
    
    2.33
    %Time deposits
    
    
    109,760
    
    
    
    2,395
    
    
    
    2.91
    %
    
    
    103,729
    
    
    
    3,012
    
    
    
    3.87
    %
    
    
    102,350
    
    
    
    3,427
    
    
    
    4.46
    %Federal funds purchased,
securities sold under
agreements to repur-
chase and other short-
term borrowings
    
    
    12,771
    
    
    
    31
    
    
    
    0.32
    %
    
    
    20,028
    
    
    
    290
    
    
    
    1.93
    %
    
    
    18,775
    
    
    
    480
    
    
    
    3.41
    %Total interest-bearing
liabilities
    
    $
    309,967
    
    
    $
    3,907
    
    
    
    1.68
    %
    
    $
    322,292
    
    
    $
    5,522
    
    
    
    2.28
    %
    
    $
    297,679
    
    
    $
    6,987
    
    
    
    3.13
    %Noninterest-bearing
liabilities:Deposits
    
    
    82,374
    
    
    
    
    
    
    
    
    
    
    
    90,603
    
    
    
    
    
    
    
    
    
    
    
    156,464Other liabilities
    
    
    8,945
    
    
    
    
    
    
    
    
    
    
    
    7,057
    
    
    
    
    
    
    
    
    
    
    
    6,040Total liabilities
    
    
    401,286
    
    
    
    
    
    
    
    
    
    
    
    419,952
    
    
    
    
    
    
    
    
    
    
    
    460,183Stockholders
equity
    
    
    49,422
    
    
    
    
    
    
    
    
    
    
    
    49,818
    
    
    
    
    
    
    
    
    
    
    
    44,878Total liabilities and
stockholders
equity
    
    $
    450,708
    
    
    
    
    
    
    
    
    
    
    $
    469,770
    
    
    
    
    
    
    
    
    
    
    $
    505,061Net interest income/
margin-tax
equivalent
    
    
    
    
    
    $
    11,206
    
    
    
    3.32
    %
    
    
    
    
    
    $
    12,608
    
    
    
    3.58
    %
    
    
    
    
    
    $
    14,234
    
    
    
    3.76
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    181Investment
securities
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    208Securities available
for saleTotal tax equivalent
adjustment
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    389Net interest
income
    
    
    
    
    
    $
    10,828
    
    
    
    
    
    
    
    
    
    
    $
    12,230
    
    
    
    
    
    
    
    
    
    
    $
    13,845
  20




---



##### Table of Contents



TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended September 30, 20092009 Compared to 2008
    
    
    2008 Compared to 2007Increase (Decrease) Due To
    
    
    Increase (Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    8,502
    
    
    $
    (596
    )
    
    $
    7,906
    
    
    $
    (3,452
    )
    
    $
    (878
    )
    
    $
    (4,330
    )Investment securities:Taxable
    
    
    (57,507
    )
    
    
    (2,509
    )
    
    
    (60,016
    )
    
    
    21,205
    
    
    
    681
    
    
    
    21,886Exempt from Federal
income tax
    
    
    4,111
    
    
    
    96
    
    
    
    4,207
    
    
    
    195
    
    
    
    (27
    )
    
    
    168Securities available for sale:Taxable
    
    
    29,537
    
    
    
    532
    
    
    
    30,069
    
    
    
    (56,774
    )
    
    
    (2,486
    )
    
    
    (59,260
    )Federal funds sold and
securities purchased
under agreements to
resell
    
    
    4,181
    
    
    
    (540
    )
    
    
    3,641
    
    
    
    5,976
    
    
    
    (381
    )
    
    
    5,595Total
    
    $
    (11,176
    )
    
    $
    (3,017
    )
    
    $
    (14,193
    )
    
    $
    (32,850
    )
    
    
    (3,091
    )
    
    $
    (35,941
    )Interest expense on:Savings deposits
    
    $
    (11,099
    )
    
    $
    (739
    )
    
    $
    (11,838
    )
    
    $
    21,981
    
    
    $
    (860
    )
    
    $
    21,121Time deposits
    
    
    6,031
    
    
    
    (617
    )
    
    
    5,414
    
    
    
    1,379
    
    
    
    (415
    )
    
    
    964Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    (7,257
    )
    
    
    (259
    )
    
    
    (7,516
    )
    
    
    1,253
    
    
    
    (190
    )
    
    
    1,063Total
    
    $
    (12,325
    )
    
    $
    (1,615
    )
    
    $
    (13,940
    )
    
    $
    24,613
    
    
    $
    (1,465
    )
    
    $
    23,148Changes in net interest
income-tax equivalent
    
    $
    1,149
    
    
    $
    (1,402
    )
    
    $
    (253
    )
    
    $
    (57,463
    )
    
    $
    (1,626
    )
    
    $
    (59,089
    )
   21




---



##### Table of Contents



TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  SEPTEMBER 30,2009
    
    
    2008
    
    
    2007Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    49,076
    
    
    $
    26,982
    
    
    $
    55,021Obligations of states and political subdivisionsMortgage-backed securitiesOther securities
    
    
    116
    
    
    
    72
    
    
    
    Total securities available for sale
    
    $
    49,192
    
    
    $
    27,054
    
    
    $
    55,021Portfolio securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    123,456
    
    
    $
    164,594
    
    
    $
    155,965Obligations of states and political subdivisions
    
    
    16,715
    
    
    
    8,102
    
    
    
    9,950Mortgage-backed securitiesOther securities
    
    
    900
    
    
    
    600
    
    
    
    600Total investment securities
    
    $
    141,071
    
    
    $
    173,296
    
    
    $
    166,515Total securities available for sale and
investment securities
    
    $
    190,263
    
    
    $
    200,350
    
    
    $
    221,536
  22




---



##### Table of Contents



TABLE 4
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
  MaturingAfter 1 Yr
    
    
    
    
    
    
    After 5 YrsWithin
    
    
    
    
    
    
    But Within
    
    
    
    
    
    
    But Within1 Year
    
    
    
    
    
    
    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
    
    $
    6,008
    
    
    
    0.63
    %
    
    $
    30,059
    
    
    
    2.45
    %
    
    
    13,009
    
    
    
    4.09
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    49,076Other Securities
    
    
    116
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    116Total securities
available
for sale
    
    $
    6,124
    
    
    
    0.63
    %
    
    $
    30,059
    
    
    
    2.45
    %
    
    $
    13,009
    
    
    
    4.09
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    49,192Investment securitiesU.S. Treasury
and other U.S.
Government
agencies
    
    $
    1,035
    
    
    
    4.10
    %
    
    $
    100,436
    
    
    
    3.52
    %
    
    $
    21,985
    
    
    
    4.30
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    123,456Obligations of states
and political
subdivisions
    
    
    491
    
    
    
    5.31
    %
    
    
    9,532
    
    
    
    4.23
    %
    
    
    6,692
    
    
    
    4.49
    %
    
    
    
    
    
    
    0.00
    %
    
    
    16,715Other securities
    
    
    900
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    900Total investment
securities
    
    $
    2,426
    
    
    
    4.70
    %
    
    $
    109,968
    
    
    
    3.88
    %
    
    $
    28,677
    
    
    
    4.40
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    141,071Total securities
available for sale
and investment
securities
    
    $
    8,550
    
    
    
    1.43
    %
    
    $
    140,027
    
    
    
    3.25
    %
    
    $
    41,686
    
    
    
    4.19
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    190,263
   23




---



##### Table of Contents



TABLE 5
SECURITIES ANALYSIS
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYSEPTEMBER 30, 2009
    
    
    SEPTEMBER 30, 2009GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    48,787
    
    
    $
    340
    
    
    $
    (51
    )
    
    $
    49,076
    
    
    $
    123,456
    
    
    $
    1,339
    
    
    $
    (38
    )
    
    $
    124,757STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,715
    
    
    
    592
    
    
    
    (4
    )
    
    $
    17,303OTHER SECURITIES
    
    
    72
    
    
    
    44
    
    
    
    
    
    
    
    116
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    $
    900TOTAL
    
    $
    48,859
    
    
    $
    384
    
    
    $
    (51
    )
    
    $
    49,192
    
    
    $
    141,071
    
    
    $
    1,931
    
    
    $
    (42
    )
    
    $
    142,960
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYSEPTEMBER 30, 2008
    
    
    SEPTEMBER 30, 2008GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    27,018
    
    
    $
    19
    
    
    $
    (84
    )
    
    $
    26,953
    
    
    $
    164,594
    
    
    $
    1,333
    
    
    $
    (469
    )
    
    $
    165,458STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,102
    
    
    
    49
    
    
    
    (31
    )
    
    $
    8,120OTHER SECURITIES
    
    
    72
    
    
    
    29
    
    
    
    
    
    
    
    101
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600TOTAL
    
    $
    27,090
    
    
    $
    48
    
    
    $
    (84
    )
    
    $
    27,054
    
    
    $
    173,296
    
    
    $
    1,382
    
    
    $
    (500
    )
    
    $
    174,178
 SECURITIES AVAILABLE-FOR-SALE
    
    

    SECURITIES HELD-TO-MATURITYSEPTEMBER 30, 2007
    
    
    SEPTEMBER 30, 2007GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    54,983
    
    
    $
    39
    
    
    $
    (1
    )
    
    $
    55,021
    
    
    $
    155,965
    
    
    $
    615
    
    
    $
    (143
    )
    
    $
    156,437STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,950
    
    
    
    11
    
    
    
    (52
    )
    
    
    9,909OTHER SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600TOTAL
    
    $
    54,983
    
    
    $
    39
    
    
    $
    (1
    )
    
    $
    55,021
    
    
    $
    166,515
    
    
    $
    626
    
    
    $
    (195
    )
    
    $
    166,946
  24




---



##### Table of Contents



TABLE 6
LOAN PORTFOLIO
  2009
    
    
    2008
    
    
    2007Commercial & Industrial
    
    $
    26,135
    
    
    $
    27,236
    
    
    $
    38,656Real Estate
    
    
    144,595
    
    
    
    124,460
    
    
    
    123,526Consumer Loans
    
    
    42,178
    
    
    
    44,356
    
    
    
    41,497Other Loans
    
    
    375
    
    
    
    580
    
    
    
    540Total Loans
    
    $
    213,283
    
    
    $
    196,632
    
    
    $
    204,219
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    18,254Over 3 months through 12 months
    
    
    31,633Over 1 year through 5 years
    
    
    142,036Over 5 years
    
    
    8,744Over 1 year but variable rate
    
    
    9,738Total loans
    
    $
    210,405
  25




---



##### Table of Contents



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended September 30,2009
    
    
    2008
    
    
    2007Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Charge Offs:Commercial & Industrial
    
    
    61
    
    
    
    75
    
    
    
    51Real Estate
    
    
    104
    
    
    
    61
    
    
    
    9Consumer
    
    
    515
    
    
    
    463
    
    
    
    486Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    680
    
    
    
    599
    
    
    
    546Recoveries:Commercial & Industrial
    
    
    29
    
    
    
    35
    
    
    
    61Real Estate
    
    
    
    
    
    
    152
    
    
    
    Consumer
    
    
    212
    
    
    
    167
    
    
    
    153Other
    
    
    
    
    
    
    
    
    
    
    Total Recoveries
    
    
    241
    
    
    
    354
    
    
    
    214Net Charge Offs
    
    
    439
    
    
    
    245
    
    
    
    332Provision for Possible Losses
    
    
    439
    
    
    
    245
    
    
    
    332Ending Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    213,283
    
    
    $
    196,632
    
    
    $
    204,219Average daily loans
    
    $
    207,781
    
    
    $
    199,279
    
    
    $
    202,731
 Percentages:
    
    2009
    
    
    2008
    
    
    2007Allowance for loan losses to end of quarter total loans
    
    
    1.5
    %
    
    
    1.6
    %
    
    
    1.5
    %Allowance for loan losses to average loans
    
    
    1.5
    %
    
    
    1.6
    %
    
    
    1.5
    %Allowance for loan losses to nonperforming assets
    
    
    98.2
    %
    
    
    416.7
    %
    
    
    254.9
    %Net charge offs to average loans
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %
  26




---



##### Table of Contents



TABLE 9
 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  September 30,2009
    
    
    2008
    
    
    2007% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial & Industrial
    
    
    7.00
    
    
    $
    217
    
    
    
    14.80
    
    
    $
    459
    
    
    
    10.22
    
    
    $
    317Real Estate
    
    
    47.33
    
    
    
    1,467
    
    
    
    5.30
    
    
    
    164
    
    
    
    25.00
    
    
    
    775Consumer
    
    
    36.34
    
    
    
    1,126
    
    
    
    45.87
    
    
    
    1,422
    
    
    
    22.73
    
    
    
    705Other
    
    
    2.22
    
    
    
    69
    
    
    
    22.58
    
    
    
    700
    
    
    
    24.55
    
    
    
    761Unallocated
    
    
    7.12
    
    
    
    221
    
    
    
    11.45
    
    
    
    355
    
    
    
    17.50
    
    
    
    542100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  September 30,2009
    
    
    2008
    
    
    2007Non-accrual Loans & Accruing Loans Past Due 90 Days or more
    
    $
    2,920
    
    
    $
    479
    
    
    $
    1,037Other Real Estate
    
    
    238
    
    
    
    265
    
    
    
    179$
    3,158
    
    
    $
    744
    
    
    $
    1,216Nonperforming Assets as % of Total Loans
    
    
    1.48
    %
    
    
    0.38
    %
    
    
    0.60
    %Non-accrual Loans & Loans Past Due 90 Days or More
as % of Total Loans
    
    
    1.37
    %
    
    
    0.24
    %
    
    
    0.51
    %
  27




---



##### Table of Contents



TABLE 11
AVERAGE DEPOSITS
  Quarter Ended September 302009
    
    
    2008
    
    
    2007Non-interest bearing deposits
    
    $
    82,374
    
    
    $
    90,603
    
    
    $
    156,464Interest-bearing deposits
    
    
    187,436
    
    
    
    198,535
    
    
    
    176,554Interest-bearing time deposits
    
    
    109,760
    
    
    
    103,729
    
    
    
    102,348Total
    
    $
    379,570
    
    
    $
    392,867
    
    
    $
    435,366
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    21,205Over 3 through 6 months
    
    
    14,818Over 6 through 12 months
    
    
    16,825Over 12 months
    
    
    4,832Total
    
    $
    57,680
  28




---



##### Table of Contents



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    
    Average
    
    
    MaximumSeptember
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate
    
    
    Balance2009Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    8,054
    
    
    $
    12,771
    
    
    
    0.32
    %
    
    $
    8,0542008Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    13,375
    
    
    $
    20,028
    
    
    
    1.93
    %
    
    $
    13,3752007Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    16,028
    
    
    $
    18,775
    
    
    
    3.41
    %
    
    $
    16,028
  29




---



##### Table of Contents



TABLE 14
INTEREST SENSITIVITY
  0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssetsInterest-earning assets:Loans, net of unearned income
    
    $
    21,132
    
    
    $
    31,633
    
    
    $
    151,774
    
    
    $
    8,744
    
    
    $
    213,283Investment securities
    
    
    2,330
    
    
    
    96
    
    
    
    109,968
    
    
    
    28,677
    
    
    
    141,071Securities available for sale
    
    
    116
    
    
    
    6,008
    
    
    
    30,059
    
    
    
    13,009
    
    
    
    49,192Federal funds sold and securities
purchased under agreements to
resell
    
    
    15,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,700Total interest-earning assets
    
    $
    39,278
    
    
    $
    37,737
    
    
    $
    291,801
    
    
    $
    50,430
    
    
    $
    419,246Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,253
    
    
    
    45,253Total assets
    
    $
    39,278
    
    
    $
    37,737
    
    
    $
    291,801
    
    
    $
    95,683
    
    
    $
    464,499Liabilities and stockholders equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
    
    $
    38,104
    
    
    $
    113,594
    
    
    $
    127,228
    
    
    $
    
    
    
    $
    278,926Time deposits
    
    
    34,850
    
    
    
    58,004
    
    
    
    13,785
    
    
    
    
    
    
    
    106,639Federal funds purchased, and securities
sold under agreements to repurchase
    
    
    8,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,054Total interest-bearing liabilities
    
    $
    81,008
    
    
    $
    171,598
    
    
    $
    141,013
    
    
    $
    
    
    
    $
    393,619Noninterest-bearing deposits
    
    
    1,893
    
    
    
    5,568
    
    
    
    3,674
    
    
    
    
    
    
    
    11,135Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,620
    
    
    
    9,620Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,125
    
    
    
    50,125Total liabilities and
stockholders equity
    
    $
    82,901
    
    
    $
    177,166
    
    
    $
    144,687
    
    
    $
    59,745
    
    
    $
    464,499Interest sensitive gap
    
    $
    (43,623
    )
    
    $
    (139,429
    )
    
    $
    147,114
    
    
    $
    35,938Cumulative interest sensitive gap
    
    $
    (43,623
    )
    
    $
    (183,052
    )
    
    $
    (35,938
    )
    
    $
    Cumulative interest sensitive gap
as a percent of total assets
    
    
    -9.39
    %
    
    
    -39.41
    %
    
    
    -7.74
    %
    
    
    0.00
    %
  30




---



##### Table of Contents



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
    
    $
    159,159
    
    
    $
    66,901
    
    
    $
    64,001
    
    
    $
    
    
    
    $
    290,061Consumer certificates
of deposit
    
    
    92,854
    
    
    
    9,441
    
    
    
    4,344
    
    
    
    
    
    
    
    106,639Federal funds borrowed
& repurchase agreements
    
    
    8,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,054Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE TOONE YEAR
    
    
    THREE
    
    
    THREE TO
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    14,703
    
    
    $
    1,095
    
    
    $
    
    
    
    $
    
    
    
    $
    15,798Residential real estate
    
    
    4,017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,017Revolving home equity
and credit card lines
    
    
    613
    
    
    
    152
    
    
    
    832
    
    
    
    
    
    
    
    1,597Other
    
    
    1,081
    
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    1,485Standby letters of credit
    
    
    266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
  31




---



##### Table of Contents



Item 4.
    
    Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in Internal Controls
  32




---



##### Table of Contents



Part II. Other Information
 
 Item 1.
    
    Legal Proceedings
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matter to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 31.1
    
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Acting Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Acting Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  33




---



##### Table of Contents



SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date:  November 12, 2009
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate:  November 12, 2009
    By:
    /s/ Elise BourgeoisElise BourgeoisCashier
Acting Principal Financial and Accounting Officer  34