##### 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 June 30, 2010
 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




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##### 



TABLE OF CONTENTS
 Part I. Financial Information
    
    
    3Item 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 Information
    
    
    33Item 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Removed and Reserved
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Part 1. Financial Information
 
 Item 1. Financial Statements
 MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 (Unaudited)
    
    
    (Audited)June 30, 2010
    
    
    December 31, 2009ASSETS:Cash and due from banks (non-interest bearing)
    
    $
    36,532,635
    
    
    
    14,451,113Federal funds sold
    
    
    10,070,000
    
    
    
    16,450,000Securities:Available for sale, at market value
    
    
    48,281,020
    
    
    
    33,325,635Held to maturity, at amortized cost
    
    
    160,362,888
    
    
    
    143,957,199Non-marketable equity securities
    
    
    900,060
    
    
    
    900,060Loans, less allowance for loan losses of $3,133,000
and $3,100,000, respectively
    
    
    213,251,011
    
    
    
    207,113,223Property and equipment, net of depreciation
    
    
    16,133,601
    
    
    
    16,778,718Other real estate owned
    
    
    1,698,181
    
    
    
    2,194,611Accrued income
    
    
    2,283,916
    
    
    
    2,499,639Other assets
    
    
    13,534,626
    
    
    
    12,803,687TOTAL ASSETS
    
    $
    503,047,938
    
    
    
    450,473,885LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Non-interest bearing demand
    
    $
    75,087,667
    
    
    
    77,614,260Interest bearing demand, savings, money market, and
other time
    
    
    355,510,779
    
    
    
    305,253,753Total deposits
    
    
    430,598,446
    
    
    
    382,868,013Federal funds purchased and securities sold under
agreements to repurchase
    
    
    10,756,392
    
    
    
    8,433,632Accrued expenses and other liabilities
    
    
    9,515,924
    
    
    
    8,187,322Total liabilities
    
    
    450,870,762
    
    
    
    399,488,967Stockholders 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
    
    
    36,732,778
    
    
    
    35,560,524Accumulated other comprehensive income:Unrealized gain (loss) on securities available for sale
    
    
    235,287
    
    
    
    215,284Unrealized (loss) on defined benefit pension plan
    
    
    (2,616,734
    )
    
    
    (2,616,735
    )Total stockholders equity
    
    
    52,177,176
    
    
    
    50,984,918TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    503,047,938
    
    
    
    450,473,885
   3




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009Interest Income:Interest and fees on loans
    
    $
    3,604,110
    
    
    $
    3,471,153
    
    
    $
    7,087,973
    
    
    $
    6,940,453Interest on investment securities:Taxable
    
    
    1,315,797
    
    
    
    1,342,109
    
    
    
    2,545,129
    
    
    
    2,986,019Exempt from federal income tax
    
    
    151,458
    
    
    
    109,001
    
    
    
    313,732
    
    
    
    190,657Interest on federal funds sold
    
    
    20,878
    
    
    
    18,064
    
    
    
    39,216
    
    
    
    35,638Total interest income
    
    
    5,092,243
    
    
    
    4,940,327
    
    
    
    9,986,050
    
    
    
    10,152,767Interest Expense:Interest on deposits
    
    
    920,712
    
    
    
    1,315,845
    
    
    
    1,915,141
    
    
    
    2,658,636Interest on federal funds purchased
and securities sold under agreements
to repurchase
    
    
    4,873
    
    
    
    12,154
    
    
    
    12,024
    
    
    
    21,799Total interest expense
    
    
    925,585
    
    
    
    1,327,999
    
    
    
    1,927,165
    
    
    
    2,680,435Net interest income
    
    
    4,166,658
    
    
    
    3,612,328
    
    
    
    8,058,885
    
    
    
    7,472,332Provision for loan losses
    
    
    244,242
    
    
    
    60,493
    
    
    
    376,106
    
    
    
    134,883Net interest income
after provision for loan losses
    
    
    3,922,416
    
    
    
    3,551,835
    
    
    
    7,682,779
    
    
    
    7,337,449Non-Interest Income:Service charges
    
    
    1,142,825
    
    
    
    1,023,620
    
    
    
    2,146,317
    
    
    
    1,968,864Miscellaneous
    
    
    652,273
    
    
    
    629,220
    
    
    
    1,195,362
    
    
    
    1,103,521Total non-interest income
    
    
    1,795,098
    
    
    
    1,652,840
    
    
    
    3,341,679
    
    
    
    3,072,385Non-Interest Expense:Salaries and employee benefits
    
    
    1,801,648
    
    
    
    1,822,964
    
    
    
    3,921,723
    
    
    
    3,875,107Premises
    
    
    758,246
    
    
    
    800,597
    
    
    
    1,542,740
    
    
    
    1,562,637Miscellaneous
    
    
    1,495,403
    
    
    
    1,268,237
    
    
    
    2,884,191
    
    
    
    2,554,986Total non-interest expense
    
    
    4,055,297
    
    
    
    3,891,798
    
    
    
    8,348,654
    
    
    
    7,992,730Income before income taxes
    
    
    1,662,217
    
    
    
    1,312,877
    
    
    
    2,675,804
    
    
    
    2,417,104Provision for income taxes
    
    
    506,589
    
    
    
    500,407
    
    
    
    752,359
    
    
    
    836,144NET INCOME
    
    $
    1,155,628
    
    
    $
    812,470
    
    
    $
    1,923,445
    
    
    $
    1,580,960NET INCOME PER COMMON SHARE
    
    $
    0.87
    
    
    $
    0.61
    
    
    $
    1.45
    
    
    $
    1.19
   4




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    1,155,628
    
    
    $
    812,470
    
    
    $
    1,923,445
    
    
    $
    1,580,960Other comprehensive income, net of tax:Unrealized holding gains (losses)
arising during period
    
    
    78,203
    
    
    
    (52,345
    )
    
    
    20,003
    
    
    
    (263,653
    )Comprehensive income
    
    $
    1,233,831
    
    
    $
    760,125
    
    
    $
    1,943,448
    
    
    $
    1,317,307
   5




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 For the Six Months Ended June 302010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    1,882,792
    
    
    $
    1,580,960Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    716,075
    
    
    
    710,330Provision for loan losses
    
    
    376,106
    
    
    
    134,883Write-down of other real estate owned
    
    
    
    
    
    
    80Net premium amortization (discount accretion)
    
    
    38,415
    
    
    
    21,782Reinvested earnings on securities
    
    
    (869
    )
    
    
    (40,944
    )Decrease in accrued income receivable
    
    
    215,723
    
    
    
    698,967(Decrease) in interest payable
    
    
    (60,089
    )
    
    
    (105,978
    )(Gain) on disposition of property and equipment
    
    
    (90,870
    )
    
    
    (27,500
    )(Gain) on sale of securities
    
    
    (230,761
    )
    
    
    Net change in other assets and liabilities
    
    
    1,001,179
    
    
    
    217,283Net Cash Provided by Operating Activities
    
    
    3,847,701
    
    
    
    3,189,863CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) decrease in Federal funds sold
    
    
    6,380,000
    
    
    
    (15,583,000
    )Purchase of securities available for sale
    
    
    (51,930,830
    )
    
    
    (52,262,575
    )Proceeds from sales and maturities of securities available for sale
    
    
    37,232,500
    
    
    
    26,275,000Purchase of securities held to maturity
    
    
    (99,159,221
    )
    
    
    (60,207,613
    )Proceeds from maturities of securities held to maturity
    
    
    82,720,000
    
    
    
    96,952,593Purchase of other equity securities
    
    
    
    
    
    
    (300,000
    )Net (increase) decrease in loans
    
    
    (6,448,492
    )
    
    
    (9,338,294
    )Purchase of property and equipment
    
    
    (92,239
    )
    
    
    (426,389
    )Proceeds from sale of property and equipment
    
    
    543,180
    
    
    
    182,500Net Cash (Used) in Investing Activities
    
    
    (30,755,102
    )
    
    
    (14,707,778
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    47,730,433
    
    
    
    9,972,276Net increase in federal funds purchased and securities
sold under agreements to repurchase
    
    
    2,322,760
    
    
    
    1,174,516Dividends paid to stockholders
    
    
    (1,064,270
    )
    
    
    (1,064,270
    )Net Cash Provided by Financing Activities
    
    
    48,988,923
    
    
    
    10,082,522Net Increase (Decrease) in Cash and Due from Banks
    
    
    22,081,522
    
    
    
    (1,435,393
    )Cash and Due From Banks, Beginning
    
    
    14,451,113
    
    
    
    18,065,881Cash and Due From Banks, Ending
    
    $
    36,532,635
    
    
    $
    16,630,488
   6




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Interim Financial Statements.
  December 31, 2009 Balance Sheet Presentation.
  Use of Estimates.
  2. FAIR VALUES OF FINANCIAL INSTRUMENTS
  Cash and Federal Funds Sold:
  Investment Securities:
  Loans:
  Deposits:
   7




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 2. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
  June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and federal funds sold
    
    $
    46,603
    
    
    
    46,603
    
    
    $
    30,901
    
    
    
    30,901Securities:Available-for-sale
    
    
    48,281
    
    
    
    48,281
    
    
    
    33,326
    
    
    
    33,326Held-to-maturity
    
    
    160,363
    
    
    
    162,895
    
    
    
    143,957
    
    
    
    145,326Non-marketable
    
    
    900
    
    
    
    900
    
    
    
    900
    
    
    
    900Loans, net of allowance
    
    
    213,251
    
    
    
    212,926
    
    
    
    207,113
    
    
    
    206,563Financial liabilitiesDeposits
    
    
    430,598
    
    
    
    432,327
    
    
    
    382,868
    
    
    
    382,586Federal funds purchased and securities sold
under agreements to repurchase
    
    
    10,756
    
    
    
    10,756
    
    
    
    8,434
    
    
    
    8,434
 3. SUBSEQUENT EVENTS
   8




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




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Executive Summary
 U.S. Banker th
    Earnings Highlights
   10




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Earning Assets
  Net Interest Income
     11




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Interest Rate Sensitivity
    Loans
    12




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Allowance for Loan Losses
    Critical Accounting Policies
    13




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14




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Asset Quality
   Securities Available-for-Sale and Investment Securities
     15




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Deposits
  Liquidity
   Off-Balance Sheet Arrangements
   16




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




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Non-Interest Expense
   Income Taxes
   18




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TABLE 1
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES
  2010
    
    
    2009
    
    
    2008Interest
    
    
    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
    
    $
    213,487
    
    
    $
    6,994
    
    
    
    6.55
    %
    
    $
    205,456
    
    
    $
    6,940
    
    
    
    6.76
    %
    
    $
    200,741
    
    
    $
    7,527
    
    
    
    7.50
    %Securities held to maturity:Taxable
    
    
    138,635
    
    
    
    2,184
    
    
    
    3.15
    %
    
    
    97,109
    
    
    
    2,203
    
    
    
    4.54
    %
    
    
    150,254
    
    
    
    3,671
    
    
    
    4.89
    %Exempt from Federal
income tax
    
    
    20,360
    
    
    
    314
    
    
    
    3.08
    %
    
    
    10,999
    
    
    
    181
    
    
    
    3.29
    %
    
    
    8,610
    
    
    
    151
    
    
    
    3.51
    %Securities available
for sale:Taxable
    
    
    31,499
    
    
    
    400
    
    
    
    2.54
    %
    
    
    52,356
    
    
    
    787
    
    
    
    3.01
    %
    
    
    20,501
    
    
    
    387
    
    
    
    3.78
    %Other interest earning
assets
    
    
    34,754
    
    
    
    35
    
    
    
    0.20
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Federal funds sold
and securities purchased under agreements to resell
    
    
    7,889
    
    
    
    5
    
    
    
    0.13
    %
    
    
    38,536
    
    
    
    36
    
    
    
    0.19
    %
    
    
    42,522
    
    
    
    547
    
    
    
    2.57
    %Total interest-earning
assets
    
    $
    446,624
    
    
    $
    9,932
    
    
    
    4.45
    %
    
    $
    404,456
    
    
    $
    10,147
    
    
    
    5.02
    %
    
    $
    422,628
    
    
    $
    12,283
    
    
    
    5.81
    %Non interest-earning assets:Cash and due from
banks
    
    
    17,386
    
    
    
    
    
    
    
    
    
    
    
    17,186
    
    
    
    
    
    
    
    
    
    
    
    27,183Bank premises and
equipment
    
    
    16,499
    
    
    
    
    
    
    
    
    
    
    
    17,682
    
    
    
    
    
    
    
    
    
    
    
    15,203Other assets
    
    
    18,165
    
    
    
    
    
    
    
    
    
    
    
    13,860
    
    
    
    
    
    
    
    
    
    
    
    14,311Allowance for possible
loan losses
    
    
    (3,090
    )
    
    
    
    
    
    
    
    
    
    
    (3,090
    )
    
    
    
    
    
    
    
    
    
    
    (3,094
    )Total assets
    
    $
    495,584
    
    
    
    
    
    
    
    
    
    
    $
    450,094
    
    
    
    
    
    
    
    
    
    
    $
    476,231
  19




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COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES (continued)
 2010
    
    
    2009
    
    
    2008Interest
    
    
    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
    
    $
    238,590
    
    
    $
    884
    
    
    
    0.74
    %
    
    $
    175,126
    
    
    $
    993
    
    
    
    1.13
    %
    
    $
    182,318
    
    
    $
    1,610
    
    
    
    1.77
    %Time deposits
    
    
    107,568
    
    
    
    1,031
    
    
    
    1.92
    %
    
    
    110,222
    
    
    
    1,665
    
    
    
    3.02
    %
    
    
    99,917
    
    
    
    2,024
    
    
    
    4.05
    %Federal funds purchased,
securities sold under
agreements to repurchase and other short-term borrowings
    
    
    11,176
    
    
    
    12
    
    
    
    0.21
    %
    
    
    13,298
    
    
    
    22
    
    
    
    0.33
    %
    
    
    21,462
    
    
    
    229
    
    
    
    2.13
    %Total interest-bearing
liabilities
    
    $
    357,334
    
    
    $
    1,927
    
    
    
    1.08
    %
    
    $
    298,646
    
    
    $
    2,680
    
    
    
    1.79
    %
    
    $
    303,697
    
    
    $
    3,863
    
    
    
    2.54
    %Noninterest-bearing
liabilities:Deposits
    
    
    78,943
    
    
    
    
    
    
    
    
    
    
    
    93,456
    
    
    
    
    
    
    
    
    
    
    
    116,239Other liabilities
    
    
    8,162
    
    
    
    
    
    
    
    
    
    
    
    8,606
    
    
    
    
    
    
    
    
    
    
    
    6,670Total liabilities
    
    
    444,439
    
    
    
    
    
    
    
    
    
    
    
    400,708
    
    
    
    
    
    
    
    
    
    
    
    426,606Stockholders
equity
    
    
    51,145
    
    
    
    
    
    
    
    
    
    
    
    49,386
    
    
    
    
    
    
    
    
    
    
    
    49,625Total liabilities and
stockholders
equity
    
    $
    495,584
    
    
    
    
    
    
    
    
    
    
    $
    450,094
    
    
    
    
    
    
    
    
    
    
    $
    476,231Net interest income/margin-tax
equivalent
    
    
    
    
    
    $
    8,005
    
    
    
    3.23
    %
    
    
    
    
    
    $
    7,467
    
    
    
    3.32
    %
    
    
    
    
    
    $
    8,420
    
    
    
    3.54
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    104Investment
securities
    
    
    
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    166Securities available
for saleOtherTotal tax equivalent
adjustment
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    
    
    
    
    280
    
    
    
    
    
    
    
    
    
    
    
    270Net interest
income
    
    
    
    
    
    $
    7,610
    
    
    
    
    
    
    
    
    
    
    $
    7,187
    
    
    
    
    
    
    
    
    
    
    $
    8,150
  20




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TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended June 30, 20102010 Compared to 2009
    
    
    2009 Compared to 2008Increase (Decrease) Due To
    
    
    Increase (Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    8,031
    
    
    $
    54
    
    
    $
    8,085
    
    
    $
    4,715
    
    
    $
    (587
    )
    
    $
    4,128Investment securities:Taxable
    
    
    41,526
    
    
    
    (19
    )
    
    
    41,507
    
    
    
    (53,145
    )
    
    
    (1,468
    )
    
    
    (54,613
    )Exempt from Federal
income tax
    
    
    9,361
    
    
    
    133
    
    
    
    9,494
    
    
    
    2,389
    
    
    
    30
    
    
    
    2,419Securities available
for sale:Taxable
    
    
    (20,857
    )
    
    
    (387
    )
    
    
    (21,244
    )
    
    
    31,855
    
    
    
    400
    
    
    
    32,255Other interest earning
assets
    
    
    34,754
    
    
    
    35
    
    
    
    34,789
    
    
    
    
    
    
    
    
    
    
    
    Federal funds sold and
securities purchased
under agreements to
resell
    
    
    (30,647
    )
    
    
    (31
    )
    
    
    (30,678
    )
    
    
    (3,986
    )
    
    
    (511
    )
    
    
    (4,497
    )Total
    
    $
    42,168
    
    
    $
    (215
    )
    
    $
    41,953
    
    
    $
    (18,172
    )
    
    $
    (2,136
    )
    
    
    (20,308
    )Interest expense on:Savings deposits
    
    $
    63,464
    
    
    $
    (109
    )
    
    $
    63,355
    
    
    $
    (7,192
    )
    
    $
    (617
    )
    
    $
    (7,809
    )Time deposits
    
    
    (2,654
    )
    
    
    (634
    )
    
    
    (3,288
    )
    
    
    10,305
    
    
    
    (359
    )
    
    
    9,946Federal funds
purchased,
and securities sold
under agreements to
repurchase
    
    
    (2,122
    )
    
    
    (10
    )
    
    
    (2,132
    )
    
    
    (8,164
    )
    
    
    (207
    )
    
    
    (8,371
    )Total
    
    $
    58,688
    
    
    $
    (753
    )
    
    $
    57,935
    
    
    $
    (5,051
    )
    
    $
    (1,183
    )
    
    $
    (6,234
    )Changes in net interest
income-tax equivalent
    
    $
    (16,520
    )
    
    $
    538
    
    
    $
    (15,982
    )
    
    $
    (13,121
    )
    
    $
    (953
    )
    
    $
    (14,074
    )
   21




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TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  June 30,2010
    
    
    2009
    
    
    2008Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    48,162
    
    
    $
    55,732
    
    
    $
    26,773Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    119
    
    
    
    105
    
    
    
    137Total securities available for sale
    
    $
    48,281
    
    
    $
    55,837
    
    
    $
    26,910Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    133,313
    
    
    $
    92,962
    
    
    $
    165,590Obligations of states and political subdivisions
    
    
    27,050
    
    
    
    16,813
    
    
    
    8,033Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    900
    
    
    
    900
    
    
    
    600Total investment securities
    
    $
    161,263
    
    
    $
    110,675
    
    
    $
    174,223Total securities available for sale and
investment securities
    
    $
    209,544
    
    
    $
    166,512
    
    
    $
    201,133
  22




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TABLE 4
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
  After
    
    
    
    
    
    
    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 sale
U.S. Treasury
and other U.S.
Government
agencies
    
    $
    4,013
    
    
    
    1.09
    %
    
    $
    10,588
    
    
    
    1.93
    %
    
    $
    33,561
    
    
    
    3.21
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    48,162Other securities
    
    
    119
    
    
    
    0.66
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    119Total securities
available
for sale
    
    $
    4,132
    
    
    
    0.88
    %
    
    $
    10,588
    
    
    
    1.93
    %
    
    $
    33,561
    
    
    
    3.21
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    48,281Investment securities
U.S. Treasury
and other U.S.
Government
agencies
    
    $
    4,994
    
    
    
    5.04
    %
    
    $
    65,499
    
    
    
    2.48
    %
    
    $
    61,105
    
    
    
    2.71
    %
    
    
    1,715
    
    
    
    3.00
    %
    
    $
    133,313Obligations of states
and political
subdivisions
    
    
    838
    
    
    
    4.62
    %
    
    
    12,952
    
    
    
    4.09
    %
    
    
    9,131
    
    
    
    4.40
    %
    
    
    4,129
    
    
    
    5.91
    %
    
    
    27,050Other securities
    
    
    900
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    900Total investment
securities
    
    $
    6,732
    
    
    
    4.98
    %
    
    $
    78,451
    
    
    
    3.29
    %
    
    $
    70,236
    
    
    
    3.56
    %
    
    
    5,844
    
    
    
    5.48
    %
    
    $
    161,263Total securities
available for sale
and investment
securities
    
    $
    10,864
    
    
    
    3.40
    %
    
    $
    89,039
    
    
    
    2.61
    %
    
    $
    103,797
    
    
    
    3.01
    %
    
    $
    5,844
    
    
    
    5.48
    %
    
    $
    209,544
   23




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Table 5
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2010
    
    
    JUNE 30, 2010GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    47,853
    
    
    $
    309
    
    
    $
    
    
    
    $
    48,162
    
    
    $
    133,313
    
    
    $
    1,982
    
    
    $
    
    
    
    $
    135,295STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,050
    
    
    
    635
    
    
    
    (84
    )
    
    
    27,601OTHER SECURITIES
    
    
    72
    
    
    
    
    
    
    
    47
    
    
    
    119
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    900TOTAL
    
    $
    47,925
    
    
    $
    309
    
    
    $
    47
    
    
    $
    48,281
    
    
    $
    161,263
    
    
    $
    2,617
    
    
    $
    (84
    )
    
    $
    163,796
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2009
    
    
    JUNE 30, 2009GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    55,837
    
    
    $
    200
    
    
    $
    (305
    )
    
    $
    55,732
    
    
    $
    92,962
    
    
    $
    1,236
    
    
    $
    (413
    )
    
    $
    93,785STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,813
    
    
    
    269
    
    
    
    (140
    )
    
    
    16,942OTHER SECURITIES
    
    
    72
    
    
    
    
    
    
    
    33
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    55,909
    
    
    $
    200
    
    
    $
    (272
    )
    
    $
    55,837
    
    
    $
    109,775
    
    
    $
    1,505
    
    
    $
    (553
    )
    
    $
    110,727
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2008
    
    
    JUNE 30, 2008GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    27,049
    
    
    $
    19
    
    
    $
    (295
    )
    
    $
    26,773
    
    
    $
    165,590
    
    
    $
    1,210
    
    
    $
    (1,113
    )
    
    $
    165,687STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,033
    
    
    
    73
    
    
    
    (21
    )
    
    
    8,085OTHER SECURITIES
    
    
    72
    
    
    
    
    
    
    
    65
    
    
    $
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    27,121
    
    
    $
    19
    
    
    $
    (230
    )
    
    $
    26,910
    
    
    $
    173,623
    
    
    $
    1,283
    
    
    $
    (1,134
    )
    
    $
    173,772
  24




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##### Table of Contents



TABLE 6
LOAN PORTFOLIO
  2010
    
    
    2009
    
    
    2008Commercial & Industrial
    
    $
    26,297
    
    
    $
    26,962
    
    
    $
    28,840Real Estate
    
    
    152,181
    
    
    
    141,329
    
    
    
    122,868Consumer Loans
    
    
    32,245
    
    
    
    37,835
    
    
    
    39,458Other Loans
    
    
    5,645
    
    
    
    4,540
    
    
    
    5,390Total Loans
    
    $
    216,368
    
    
    $
    210,666
    
    
    $
    196,556
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    24,862Over 3 months through 12 months
    
    
    32,440Over 1 year through 5 years
    
    
    149,511Over 5 years
    
    
    4,652Over 1 year but variable rate
    
    
    2,556Total Loans
    
    $
    214,021
  25




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##### Table of Contents



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended June 30,2010
    
    
    2009
    
    
    2008Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Charge Offs:Commercial & Industrial
    
    
    118
    
    
    
    23
    
    
    
    69Real Estate
    
    
    30
    
    
    
    16
    
    
    
    2Consumer
    
    
    479
    
    
    
    238
    
    
    
    304Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    627
    
    
    
    277
    
    
    
    375Recoveries:Commercial & Industrial
    
    
    24
    
    
    
    5
    
    
    
    33Real Estate
    
    
    19
    
    
    
    
    
    
    
    152Consumer
    
    
    241
    
    
    
    137
    
    
    
    118Other
    
    
    
    
    
    
    
    
    
    
    Total Recoveries
    
    
    284
    
    
    
    142
    
    
    
    303Net Charge Offs
    
    
    343
    
    
    
    135
    
    
    
    72Provision for Possible Losses
    
    
    376
    
    
    
    135
    
    
    
    72Ending Balance
    
    $
    3,133
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    216,368
    
    
    $
    210,666
    
    
    $
    196,556Average daily loans
    
    $
    213,487
    
    
    $
    205,456
    
    
    $
    200,741
 2010
    
    
    2009
    
    
    2008Percentages:Allowance for loan losses to end of quarter
total loans
    
    
    1.4
    
    
    
    1.5
    
    
    
    1.6Allowance for loan losses to average loans
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.5Allowance for loan losses to nonperforming assets
    
    
    75.0
    
    
    
    105.4
    
    
    
    310.3Net charge offs to average loans
    
    
    0.16
    
    
    
    0.07
    
    
    
    0.11
  26




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TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  June 30,2010
    
    
    2009
    
    
    2008% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial &
Industrial
    
    
    5.94
    
    
    $
    184
    
    
    
    7.00
    
    
    $
    217
    
    
    
    5.55
    
    
    $
    172Real Estate
    
    
    65.19
    
    
    
    2,021
    
    
    
    27.90
    
    
    
    865
    
    
    
    13.03
    
    
    
    404Consumer
    
    
    23.81
    
    
    
    738
    
    
    
    48.87
    
    
    
    1,515
    
    
    
    47.39
    
    
    
    1,469Other
    
    
    6.13
    
    
    
    190
    
    
    
    1.94
    
    
    
    60
    
    
    
    22.58
    
    
    
    700Unallocated
    
    
    0.00
    
    
    
    
    
    
    
    14.29
    
    
    
    443
    
    
    
    11.45
    
    
    
    355100
    %
    
    $
    3,133
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  June 30,2010
    
    
    2009
    
    
    2008Non-accrual Loans & Accruing Loans Past
Due 90 Days or more
    
    $
    2,477
    
    
    $
    2,839
    
    
    $
    692Other Real Estate
    
    
    1,698
    
    
    
    101
    
    
    
    130$
    4,175
    
    
    $
    2,940
    
    
    $
    822Nonperforming Assets as % of Total Loans
    
    
    1.95
    %
    
    
    1.50
    %
    
    
    0.42
    %Non-accrual Loans & Loans Past Due 90 Days
or More
as % of Total Loans
    
    
    1.14
    %
    
    
    1.35
    %
    
    
    0.35
    %
  27




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##### Table of Contents



TABLE 11
AVERAGE DEPOSITS
  Quarter ended June 30,2010
    
    
    2009
    
    
    2007Non-interest bearing deposits
    
    $
    78,943
    
    
    $
    93,456
    
    
    $
    116,239Interest-bearing deposits
    
    
    238,590
    
    
    
    175,126
    
    
    
    182,318Interest-bearing time deposits
    
    
    107,568
    
    
    
    110,222
    
    
    
    99,917Total
    
    $
    425,101
    
    
    $
    378,804
    
    
    $
    398,474
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    17,408Over 3 through 6 months
    
    
    16,427Over 6 through 12 months
    
    
    22,553Over 12 months
    
    
    8,088Total
    
    $
    64,476
  28




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##### Table of Contents



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    
    Average
    
    
    MaximumJune
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate
    
    
    Balance2010Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    10,756
    
    
    $
    11,176
    
    
    
    0.21
    %
    
    $
    10,7562009Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    12,091
    
    
    $
    13,928
    
    
    
    0.33
    %
    
    $
    12,0912008Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    15,224
    
    
    $
    21,462
    
    
    
    2.13
    %
    
    $
    15,224
  29




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##### 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
    
    $
    27,209
    
    
    $
    32,440
    
    
    $
    152,067
    
    
    $
    4,652
    
    
    $
    216,368Investment securities
    
    
    900
    
    
    
    5,832
    
    
    
    78,451
    
    
    
    76,080
    
    
    
    161,263Securities available for sale
    
    
    119
    
    
    
    4,013
    
    
    
    10,588
    
    
    
    33,561
    
    
    
    48,281Other interest earnings assets
    
    
    18,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,066Federal funds sold and securities
purchased under agreements to
resell
    
    
    10,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,070Total interest-earning assets
    
    $
    56,364
    
    
    $
    42,285
    
    
    $
    241,106
    
    
    $
    114,293
    
    
    $
    454,048Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,991
    
    
    
    48,991Total assets
    
    $
    56,364
    
    
    $
    42,285
    
    
    $
    241,106
    
    
    $
    163,284
    
    
    $
    503,039Liabilities and stockholders equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
    
    $
    29,500
    
    
    $
    94,243
    
    
    $
    118,323
    
    
    $
    
    
    
    $
    242,066Time deposits
    
    
    28,279
    
    
    
    67,515
    
    
    
    17,652
    
    
    
    
    
    
    
    113,446Federal funds purchased, and securities
sold under agreements to repurchase
    
    
    10,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,756Total interest-bearing liabilities
    
    $
    68,535
    
    
    $
    161,758
    
    
    $
    135,975
    
    
    $
    
    
    
    $
    366,268Noninterest-bearing deposits
    
    
    17,030
    
    
    
    34,075
    
    
    
    24,387
    
    
    
    
    
    
    
    75,492Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,595
    
    
    
    9,595Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,684
    
    
    
    51,684Total liabilities and
stockholders equity
    
    $
    85,565
    
    
    $
    195,833
    
    
    $
    160,362
    
    
    $
    61,279
    
    
    $
    503,039Interest sensitive gap
    
    $
    (29,201
    )
    
    $
    (153,548
    )
    
    $
    80,744
    
    
    $
    102,005Cumulative interest sensitive gap
    
    $
    (29,201
    )
    
    $
    (182,749
    )
    
    $
    (102,005
    )
    
    $
    Cumulative interest sensitive gap
as a percent of total assets
    
    
    -5.80
    %
    
    
    -36.33
    %
    
    
    -20.28
    %
    
    
    0.00
    %
  30




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##### Table of Contents



TABLE 15
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND
OFF-BALANCE SHEET ARRANGEMENTS
  PAYMENTS DUE INONE TO
    
    
    THREE TOONE YEAR
    
    
    THREE
    
    
    FIVE
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    YEARS
    
    
    YEARS
    
    
    TOTALDeposits without a
stated maturity
    
    $
    174,848
    
    
    $
    90,909
    
    
    $
    51,801
    
    
    $
    
    
    
    $
    317,558Consumer certificates
of deposit
    
    
    95,794
    
    
    
    12,830
    
    
    
    4,822
    
    
    
    
    
    
    
    113,446Federal funds borrowed
& repurchase agreements
    
    
    10,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,756Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE TO
    
    
    THREE TOONE YEAR
    
    
    THREE
    
    
    FIVE
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    YEARS
    
    

YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    13,971
    
    
    $
    401
    
    
    $
    11
    
    
    $
    
    
    
    $
    14,383Residential real estate
    
    
    101
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    152Revolving home equity
and credit card lines
    
    
    32
    
    
    
    266
    
    
    
    781
    
    
    
    
    
    
    
    1,079Other
    
    
    2,058
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,058Standby letters of credit
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258
  31




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##### Table of Contents



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




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The impact on our future results of operations and financial condition of the recently enacted
Dodd-Frank Wall Street Reform and Consumer Protection Act is not yet known.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information
   33




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##### Table of Contents



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 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 Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
  34




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##### Table of Contents



SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date:  August 16, 2010
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate:  August 16, 2010
    By:
    /s/ Elise BourgeoisElise Bourgeois, Senior Vice President,Cashier and Chief Financial Officer  35