UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20429
 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, 2008
 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)
 
 
  þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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TABLE OF CONTENTS  PART IFINANCIAL INFORMATIONItem 1. Financial Statements.PART IFINANCIAL INFORMATIONItem 1. Financial Statements.Item 2.  Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.  Quantitative and Qualitative Disclosures about Market RiskItem 4T.  Controls and ProceduresPart II. Other InformationItem 1.  Legal ProceedingsItem 2.  Unregistered Sales of Equity Securities and Use of ProceedsItem 3.  Defaults Upon Senior SecuritiesItem 4.  Submission of Matters to a Vote of Security HoldersItem 5. Other informationItem 6. ExhibitsSIGNATURESEX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEOEX-32.2 Section 906 Certification of the CFO 
 PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.




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PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 CONDENSED BALANCE SHEETS
 (Unaudited)
    
    
    (Audited)June 30, 2008
    
    
    December 31, 2007ASSETS:Cash and due from banks (non-interest bearing)
    
    $
    28,533,214
    
    
    $
    20,268,465Federal funds sold
    
    
    22,194,000
    
    
    
    26,477,000Securities:Available for sale, at market value
    
    
    26,909,355
    
    
    
    38,975,101Held to maturity, at amortized cost
    
    
    173,622,293
    
    
    
    143,792,190Non-marketable equity securities
    
    
    600,060
    
    
    
    600,060Loans, less allowance for loan losses $3,100,000
and $3,100,000, respectively
    
    
    193,456,374
    
    
    
    200,812,432Property and equipment, net
    
    
    15,918,716
    
    
    
    14,890,181Other real estate owned
    
    
    129,554
    
    
    
    406,606Accrued income
    
    
    3,303,673
    
    
    
    3,322,522Other assets
    
    
    11,721,152
    
    
    
    9,988,159TOTAL ASSETS
    
    $
    476,388,391
    
    
    $
    459,532,716LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Non-interest bearing demand
    
    $
    275,267,889
    
    
    $
    124,829,897Interest bearing demand, savings, money market, and
other time
    
    
    128,198,621
    
    
    
    258,592,773Total deposits
    
    
    403,466,510
    
    
    
    383,422,670Federal funds purchased and securities sold under
agreements to repurchase
    
    
    15,224,351
    
    
    
    21,018,486Accrued expenses and other liabilities
    
    
    7,630,077
    
    
    
    6,650,911Total liabilities
    
    
    426,320,938
    
    
    
    411,092,067Stockholders Equity:Common stock  $2.50 par value, 1,330,338 shares
authorized and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    32,920,162
    
    
    
    31,123,789Accumulated other comprehensive income:Unrealized gain (loss) on securities available for sale
    
    
    (139,821
    )
    
    
    29,748Unrealized loss on defined benefit pension plan
    
    
    (538,733
    )
    
    
    (538,733
    )Total stockholders equity
    
    
    50,067,453
    
    
    
    48,440,649TOTAL LIABILITES AND STOCKHOLDERS EQUITY
    
    $
    476,388,391
    
    
    $
    459,532,716




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CONDENSED STATEMENTS OF INCOME
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Interest Income:Interest and fees on loans
    
    $
    3,635,842
    
    
    
    3,848,711
    
    
    $
    7,527,784
    
    
    
    7,918,920Interest on investment securities:Taxable
    
    
    2,100,962
    
    
    
    2,778,296
    
    
    
    4,067,372
    
    
    
    5,224,149Exempt from federal income tax
    
    
    71,758
    
    
    
    86,487
    
    
    
    150,622
    
    
    
    165,403Interest on federal funds sold
    
    
    220,912
    
    
    
    360,753
    
    
    
    547,247
    
    
    
    770,897Total interest income
    
    
    6,029,474
    
    
    
    7,074,247
    
    
    
    12,293,025
    
    
    
    14,079,369Interest Expense:Interest on deposits
    
    
    1,710,739
    
    
    
    2,203,227
    
    
    
    3,634,017
    
    
    
    4,201,816Interest on federal funds purchased
and securities sold under agreements
to repurchase
    
    
    89,017
    
    
    
    185,846
    
    
    
    229,389
    
    
    
    294,707Total interest expense
    
    
    1,799,756
    
    
    
    2,389,073
    
    
    
    3,863,406
    
    
    
    4,496,523Net interest income
    
    
    4,229,718
    
    
    
    4,685,174
    
    
    
    8,429,619
    
    
    
    9,582,846Provision for loan losses
    
    
    123,569
    
    
    
    216,056
    
    
    
    72,363
    
    
    
    216,499Net interest income
after provision for loan losses
    
    
    4,106,149
    
    
    
    4,469,118
    
    
    
    8,357,256
    
    
    
    9,366,347Non-Interest Income:Service charges
    
    
    1,039,445
    
    
    
    1,044,967
    
    
    
    2,115,309
    
    
    
    2,049,713Miscellaneous
    
    
    851,212
    
    
    
    500,557
    
    
    
    1,451,770
    
    
    
    978,579Total non-interest income
    
    
    1,890,657
    
    
    
    1,545,524
    
    
    
    3,567,079
    
    
    
    3,028,292Non-Interest Expense:Salaries and employee benefits
    
    
    1,646,425
    
    
    
    1,562,579
    
    
    
    3,489,189
    
    
    
    3,234,441Premises
    
    
    700,345
    
    
    
    577,885
    
    
    
    1,360,430
    
    
    
    1,255,528Miscellaneous
    
    
    1,936,672
    
    
    
    1,390,275
    
    
    
    3,450,052
    
    
    
    2,910,592Total non-interest expense
    
    
    4,283,442
    
    
    
    3,530,739
    
    
    
    8,299,671
    
    
    
    7,400,561Income before income taxes
    
    
    1,713,364
    
    
    
    2,483,903
    
    
    
    3,624,664
    
    
    
    4,994,078Provision for income taxes
    
    
    658,939
    
    
    
    897,939
    
    
    
    1,150,878
    
    
    
    1,691,878NET INCOME
    
    $
    1,054,425
    
    
    
    1,585,964
    
    
    $
    2,473,786
    
    
    
    3,302,200NET INCOME PER COMMON SHARE
    
    $
    0.79
    
    
    
    1.19
    
    
    $
    1.86
    
    
    
    2.48




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CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    1,054,425
    
    
    
    1,585,964
    
    
    $
    2,473,786
    
    
    
    3,302,200Other comprehensive income, net of tax:Unrealized holding losses
arising during period
    
    
    (188,811
    )
    
    
    (45,337
    )
    
    
    (169,569
    )
    
    
    (67,810
    )Comprehensive income
    
    $
    865,614
    
    
    
    1,540,627
    
    
    $
    2,304,217
    
    
    
    3,234,390




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CONDENSED STATEMENTS OF CASH FLOWS   For the Six Months Ended June 30
 2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    2,473,786
    
    
    $
    3,302,200Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    576,492
    
    
    
    398,168Provision for loan losses
    
    
    56,701
    
    
    
    216,499Write-down of other real estate owned
    
    
    33,552
    
    
    
    33,694Net premium amortization (discount accretion)
    
    
    15,841
    
    
    
    (154,370
    )Reinvested earnings on securities
    
    
    (61,649
    )
    
    
    (684,597
    )(Increase) decrease in accrued income receivable
    
    
    18,849
    
    
    
    (223,208
    )Increase in interest payable
    
    
    185,556
    
    
    
    357,314Noncash charitable contribution
    
    
    310,000
    
    
    
    (Gain) loss on disposition of property and equipment
    
    
    (356,283
    )
    
    
    25,938Gain on disposition of securities
    
    
    (117,392
    )
    
    
    Net change in other assets and liabilities
    
    
    (465,171
    )
    
    
    (644,571
    )Net Cash Provided by Operating Activities
    
    
    2,670,282
    
    
    
    2,627,067CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in Federal funds sold
    
    
    4,283,000
    
    
    
    6,950,000Purchase of securities available for sale
    
    
    (26,079,750
    )
    
    
    (68,178,548
    )Proceeds from maturities of securities available for sale
    
    
    38,045,413
    
    
    
    80,000,000Purchase of securities held to maturity
    
    
    (89,937,077
    )
    
    
    (63,012,321
    )Proceeds from maturities of securities held to maturity
    
    
    60,113,333
    
    
    
    24,645,000Net (increase) decrease in loans
    
    
    7,542,857
    
    
    
    (4,215,230
    )Purchase of property and equipment
    
    
    (1,698,744
    )
    
    
    (1,840,723
    )Proceeds from sale of property and equipment
    
    
    140,000
    
    
    
    1,062Net Cash Used in Investing Activities
    
    
    (7,590,968
    )
    
    
    (25,650,760
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    20,043,840
    
    
    
    8,029,518Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase
    
    
    (5,794,135
    )
    
    
    16,492,877Dividends paid to stockholders
    
    
    (1,064,270
    )
    
    
    (1,064,270
    )Net Cash Provided by Financing Activities
    
    
    13,185,435
    
    
    
    23,458,125Net Increase in Cash and Due from Banks
    
    
    8,264,749
    
    
    
    434,432Cash and Due From Banks, Beginning
    
    
    20,268,465
    
    
    
    33,266,273Cash and Due From Banks, Ending
    
    $
    28,533,214
    
    
    $
    33,700,705




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NOTES TO CONDENSED FINANCIAL STATEMENTS   As of and For the Six Months Ended June 30, 2008
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 Interim Financial Statements.
  December 31, 2007 Balance Sheet Presentation.
  Use of Estimates.
  2. SHARE EXCHANGE.




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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
  Executive Summary




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Earnings Highlights
  Earning Assets




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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




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Securities Available-for-Sale and Investment Securities




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Deposits
  Liquidity
   Off-Balance Sheet Arrangements
  Contractual Obligations




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




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Income Taxes




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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
    
    $
    200,741
    
    
    $
    7,527
    
    
    
    7.50
    %
    
    $
    202,434
    
    
    $
    7,920
    
    
    
    7.82
    %
    
    $
    176,315
    
    
    $
    6,253
    
    
    
    7.09
    %Securities held to
maturity:Taxable
    
    
    150,254
    
    
    
    3,671
    
    
    
    4.89
    %
    
    
    124,467
    
    
    
    3,027
    
    
    
    4.86
    %
    
    
    96,710
    
    
    
    2,140
    
    
    
    4.43
    %Exempt from Federal
income tax
    
    
    8,610
    
    
    
    151
    
    
    
    3.51
    %
    
    
    8,259
    
    
    
    138
    
    
    
    3.34
    %
    
    
    8,307
    
    
    
    128
    
    
    
    3.08
    %Securities available
for sale:Taxable
    
    
    20,501
    
    
    
    387
    
    
    
    3.78
    %
    
    
    86,302
    
    
    
    2,220
    
    
    
    5.14
    %
    
    
    146,662
    
    
    
    3,132
    
    
    
    4.27
    %Federal funds sold
and securities purchased under agreements to resell
    
    
    42,522
    
    
    
    547
    
    
    
    2.57
    %
    
    
    29,682
    
    
    
    771
    
    
    
    5.20
    %
    
    
    22,610
    
    
    
    509
    
    
    
    4.50
    %Total interest-earning
assets
    
    $
    422,628
    
    
    $
    12,283
    
    
    
    5.81
    %
    
    $
    451,144
    
    
    $
    14,076
    
    
    
    6.24
    %
    
    $
    450,604
    
    
    $
    12,162
    
    
    
    5.40
    %Non interest-earning
assets:Cash and due from
banks
    
    
    27,183
    
    
    
    
    
    
    
    
    
    
    
    32,255
    
    
    
    
    
    
    
    
    
    
    
    31,347Bank premises and
equipment
    
    
    15,203
    
    
    
    
    
    
    
    
    
    
    
    13,630
    
    
    
    
    
    
    
    
    
    
    
    8,669Other assets
    
    
    14,311
    
    
    
    
    
    
    
    
    
    
    
    13,529
    
    
    
    
    
    
    
    
    
    
    
    13,267Allowance for possible
loan losses
    
    
    (3,094
    )
    
    
    
    
    
    
    
    
    
    
    (3,093
    )
    
    
    
    
    
    
    
    
    
    
    (3,055
    )Total assets
    
    $
    476,231
    
    
    
    
    
    
    
    
    
    
    $
    507,465
    
    
    
    
    
    
    
    
    
    
    $
    500,832




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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, MMF & Savings
    
    $
    182,318
    
    
    $
    1,610
    
    
    
    1.77
    %
    
    $
    202,607
    
    
    $
    2,429
    
    
    
    2.40
    %
    
    $
    181,363
    
    
    $
    1,603
    
    
    
    1.77
    %Time deposits
    
    
    99,917
    
    
    
    2,024
    
    
    
    4.05
    %
    
    
    87,040
    
    
    
    2,131
    
    
    
    4.90
    %
    
    
    79,841
    
    
    
    1,472
    
    
    
    3.69
    %Federal funds purchased,
securities sold under
agreements to repurchase and other short-term borrowings
    
    
    21,462
    
    
    
    229
    
    
    
    2.13
    %
    
    
    17,937
    
    
    
    148
    
    
    
    1.65
    %
    
    
    17,845
    
    
    
    148
    
    
    
    1.66
    %Total interest-bearing
liabilities
    
    $
    303,697
    
    
    $
    3,863
    
    
    
    2.54
    %
    
    $
    307,584
    
    
    $
    4,708
    
    
    
    3.06
    %
    
    $
    279,049
    
    
    $
    3,223
    
    
    
    2.31
    %Noninterest-bearing
liabilities:Deposits
    
    
    116,239
    
    
    
    
    
    
    
    
    
    
    
    149,894
    
    
    
    
    
    
    
    
    
    
    
    176,285Other liabilities
    
    
    6,670
    
    
    
    
    
    
    
    
    
    
    
    5,767
    
    
    
    
    
    
    
    
    
    
    
    5,608Total liabilities
    
    
    426,606
    
    
    
    
    
    
    
    
    
    
    
    463,245
    
    
    
    
    
    
    
    
    
    
    
    460,942Stockholders
equity
    
    
    49,625
    
    
    
    
    
    
    
    
    
    
    
    44,220
    
    
    
    
    
    
    
    
    
    
    
    39,890Total liabilities and
stockholders
equity
    
    $
    476,231
    
    
    
    
    
    
    
    
    
    
    $
    507,465
    
    
    
    
    
    
    
    
    
    
    $
    500,832Net interest income/
margin-tax
equivalent
    
    
    
    
    
    $
    8,420
    
    
    
    3.54
    %
    
    
    
    
    
    $
    9,368
    
    
    
    3.69
    %
    
    
    
    
    
    $
    8,939
    
    
    
    3.57
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    43Investment
securities
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    44Securities available
for saleOtherTotal tax equivalent
adjustment
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    87Net interest
income
    
    
    
    
    
    $
    8,165
    
    
    
    
    
    
    
    
    
    
    $
    9,082
    
    
    
    
    
    
    
    
    
    
    $
    8,852




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##### 



TABLE 2  TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended June 30, 20082008 Compared to 2007
    
    2007 Compared to 2006Increase(Decrease) Due To
    
    Increase(Decrease) Due ToVolume
    
    Rate
    
    Net
    
    Volume
    
    Rate
    
    NetInterest income on:Loans
    
    $
    (1,693
    )
    
    $
    (393
    )
    
    $
    (2,086
    )
    
    $
    26,119
    
    
    $
    1,667
    
    
    $
    27,786Investment securities:Taxable
    
    
    25,787
    
    
    
    644
    
    
    
    26,431
    
    
    
    27,757
    
    
    
    887
    
    
    
    28,644Exempt from Federal
income tax
    
    
    351
    
    
    
    13
    
    
    
    364
    
    
    
    (48
    )
    
    
    10
    
    
    
    (38
    )Securities available for
sale:Taxable
    
    
    (65,801
    )
    
    
    (1,833
    )
    
    
    (67,634
    )
    
    
    (60,360
    )
    
    
    (912
    )
    
    
    (61,272
    )Federal funds sold and
securities purchased
under agreements to
resell
    
    
    12,840
    
    
    
    (224
    )
    
    
    12,616
    
    
    
    7,072
    
    
    
    262
    
    
    
    7,334Total
    
    $
    (28,516
    )
    
    $
    (1,793
    )
    
    $
    (30,309
    )
    
    $
    540
    
    
    $
    1,914
    
    
    
    2,454Interest expense on:Savings deposits
    
    $
    (20,289
    )
    
    $
    (819
    )
    
    $
    (21,108
    )
    
    $
    21,244
    
    
    $
    826
    
    
    $
    22,070Time deposits
    
    
    12,877
    
    
    
    (107
    )
    
    
    12,770
    
    
    
    7,199
    
    
    
    659
    
    
    
    7,858Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    3,525
    
    
    
    81
    
    
    
    3,606
    
    
    
    92
    
    
    
    
    
    
    
    92Total
    
    $
    (3,887
    )
    
    $
    (845
    )
    
    $
    (4,732
    )
    
    $
    28,535
    
    
    $
    1,485
    
    
    $
    30,020Changes in net interest
income-tax equivalent
    
    $
    (24,629
    )
    
    $
    (948
    )
    
    $
    (25,577
    )
    
    $
    (27,995
    )
    
    $
    429
    
    
    $
    (27,566
    )




---



##### 



TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  June 30,2008
    
    2007
    
    2006Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    26,773
    
    
    $
    74,236
    
    
    $
    134,881Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    137
    
    
    
    
    
    
    
    Total securities available for sale
    
    $
    26,910
    
    
    $
    74,236
    
    
    $
    134,881Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    165,590
    
    
    $
    145,272
    
    
    $
    104,558Obligations of states and political subdivisions
    
    
    8,033
    
    
    
    10,781
    
    
    
    9,479Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    600
    
    
    
    600
    
    
    
    600Total investment securities
    
    $
    174,223
    
    
    $
    156,653
    
    
    $
    114,637Total securities available for sale and investment securities
    
    $
    201,133
    
    
    $
    230,889
    
    
    $
    249,518




---



##### 



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
    
    $
    7,993
    
    
    
    2.58
    %
    
    $
    16,806
    
    
    
    3.19
    %
    
    
    1,974
    
    
    
    4.55
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    26,773Other securities
    
    
    137
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    137Total securities
available
for sale
    
    $
    8,130
    
    
    
    2.58
    %
    
    $
    16,806
    
    
    
    3.19
    %
    
    
    
    
    
    
    4.55
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    26,910Investment securitiesU.S. Treasury
and other U.S.
Government
agencies
    
    $
    3,999
    
    
    
    4.55
    %
    
    $
    108,736
    
    
    
    4.70
    %
    
    $
    52,855
    
    
    
    4.88
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    165,590Obligations of states
and political
subdivisions
    
    
    1,299
    
    
    
    4.52
    %
    
    
    3,230
    
    
    
    5.19
    %
    
    
    3,504
    
    
    
    5.49
    %
    
    
    
    
    
    
    0.00
    %
    
    
    8,033Other securities
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Total investment
securities
    
    $
    5,898
    
    
    
    4.10
    %
    
    $
    111,966
    
    
    
    5.01
    %
    
    $
    56,359
    
    
    
    5.58
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    174,223Total securities
available for sale
and investment
securities
    
    $
    14,028
    
    
    
    3.36
    %
    
    $
    128,772
    
    
    
    4.17
    %
    
    $
    56,359
    
    
    
    4.81
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    201,133




---



##### 



TABLE 5
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
(Dollars in Thousands)
 SECURITIES AVAILABLE-FOR-SALE
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2008
    
    JUNE 30, 2008GROSS
    
    GROSS
    
    
    
    
    
    
    
    
    
    GROSS
    
    GROSSAMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIR
    
    AMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUE
    
    COST
    
    GAINS
    
    LOSSES
    
    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
 SECURITIES AVAILABLE-FOR-SALE
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2007
    
    JUNE 30, 2007GROSS
    
    GROSS
    
    
    
    
    
    
    
    
    
    GROSS
    
    GROSSAMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIR
    
    AMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUE
    
    COST
    
    GAINS
    
    LOSSES
    
    VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    74,380
    
    
    $
    5
    
    
    $
    (149
    )
    
    $
    74,236
    
    
    $
    145,272
    
    
    $
    41
    
    
    $
    (1,217
    )
    
    $
    144,096STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,781
    
    
    
    
    
    
    
    (139
    )
    
    
    10,642OTHER SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    74,380
    
    
    $
    5
    
    
    $
    (149
    )
    
    $
    74,236
    
    
    $
    156,053
    
    
    $
    41
    
    
    $
    (1,356
    )
    
    $
    154,738
 SECURITIES AVAILABLE-FOR-SALE
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2006
    
    JUNE 30, 2006GROSS
    
    GROSS
    
    
    
    
    
    
    
    
    
    GROSS
    
    GROSSAMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIR
    
    AMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUE
    
    COST
    
    GAINS
    
    LOSSES
    
    VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    135,461
    
    
    $
    
    
    
    $
    (580
    )
    
    $
    134,881
    
    
    $
    104,558
    
    
    $
    2
    
    
    $
    (2,005
    )
    
    $
    102,555STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,479
    
    
    
    
    
    
    
    (248
    )
    
    
    9,231OTHER SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    135,461
    
    
    $
    
    
    
    $
    (580
    )
    
    $
    134,881
    
    
    $
    114,037
    
    
    $
    2
    
    
    $
    (2,253
    )
    
    $
    111,786




---



##### 



TABLE 6
LOAN PORTFOLIO
 
 2008
    
    2007
    
    2006Commercial & Industrial
    
    $
    28,840
    
    
    $
    32,557
    
    
    $
    41,420Real Estate
    
    
    122,868
    
    
    
    123,108
    
    
    
    105,260Consumer Loans
    
    
    39,458
    
    
    
    41,000
    
    
    
    36,311Other Loans
    
    
    5,390
    
    
    
    6,476
    
    
    
    580Total Loans
    
    $
    196,556
    
    
    $
    203,141
    
    
    $
    183,571
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
 
 Remaining Maturity Fixed Rate3 months or less
    
    $
    25,726Over 3 months through 12 months
    
    
    34,178Over 1 year through 5 years
    
    
    127,178Over 5 years
    
    
    8,821Over 1 year but variable rate
    
    
    Total Loans
    
    $
    195,903




---



##### 



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended June 30,2008
    
    2007
    
    2006Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,000Charge Offs:Commercial & Industrial
    
    
    69
    
    
    
    43
    
    
    
    Real Estate
    
    
    2
    
    
    
    9
    
    
    
    Consumer
    
    
    304
    
    
    
    342
    
    
    
    346Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    375
    
    
    
    394
    
    
    
    346Recoveries:Commercial & Industrial
    
    
    33
    
    
    
    58
    
    
    
    8Real Estate
    
    
    152
    
    
    
    
    
    
    
    Consumer
    
    
    118
    
    
    
    120
    
    
    
    273Other
    
    
    
    
    
    
    
    
    
    
    Total Recoveries
    
    
    303
    
    
    
    178
    
    
    
    281Net Charge Offs
    
    
    72
    
    
    
    216
    
    
    
    65Provision for Possible Losses
    
    
    72
    
    
    
    216
    
    
    
    165Ending Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    196,556
    
    
    $
    203,141
    
    
    $
    183,571Average daily loans
    
    $
    200,741
    
    
    $
    202,434
    
    
    $
    176,315
 2008
    
    2007
    
    2006Percentages:Allowance for loan losses to end of quarter
total loans
    
    
    1.6
    
    
    
    1.5
    
    
    
    1.7Allowance for loan losses to average loans
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.8Allowance for loan losses to nonperforming assets
    
    
    377.1
    
    
    
    310.3
    
    
    
    309.7Net charge offs to average loans
    
    
    0.04
    
    
    
    0.11
    
    
    
    0.04




---



##### 



TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  June 30,2008
    
    
    2007
    
    
    2006% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial &
Industrial
    
    
    5.55
    
    
    
    172
    
    
    
    16.03
    
    
    $
    497
    
    
    
    22.56
    
    
    $
    601Real Estate
    
    
    13.03
    
    
    
    404
    
    
    
    60.60
    
    
    
    1,879
    
    
    
    57.34
    
    
    
    1,778Consumer
    
    
    47.39
    
    
    
    1,469
    
    
    
    20.18
    
    
    
    626
    
    
    
    19.78
    
    
    
    613Other
    
    
    22.58
    
    
    
    700
    
    
    
    3.19
    
    
    
    98
    
    
    
    0.32
    
    
    
    108Unallocated
    
    
    11.45
    
    
    
    355100
    %
    
    
    3,100
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  June 30,2008
    
    2007
    
    2006Non-accrual Loans & Accruing Loans Past Due 90
Days or more
    
    $
    692
    
    
    $
    798
    
    
    $
    752Other Real Estate
    
    
    130
    
    
    
    201
    
    
    
    249$
    822
    
    
    $
    999
    
    
    $
    1,001Nonperforming Assets as % of Total Loans
    
    
    0.42
    %
    
    
    0.49
    %
    
    
    0.55
    %Non-accrual Loans & Loans Past Due 90 Days or More
as % of Total Loans
    
    
    0.35
    %
    
    
    0.39
    %
    
    
    0.41
    %




---



##### 



TABLE 11
AVERAGE DEPOSITS
  Quarter ended June 30,2008
    
    2007
    
    2006Non-interest bearing deposits
    
    $
    116,239
    
    
    $
    149,894
    
    
    $
    176,285Interest-bearing deposits
    
    
    182,318
    
    
    
    202,607
    
    
    
    181,363Interest-bearing time deposits
    
    
    99,917
    
    
    
    87,040
    
    
    
    79,841Total
    
    $
    398,474
    
    
    $
    439,541
    
    
    $
    437,489
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    10,597Over 3 through 6 months
    
    
    10,346Over 6 through 12 months
    
    
    26,430Over 12 months
    
    
    6,227Total
    
    $
    53,600




---



##### 



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    Average
    
    MaximumJune
    
    Average
    
    Interest
    
    Month-EndBalance
    
    Balance
    
    Rate
    
    Balance2008
Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    15,224
    
    
    $
    21,462
    
    
    
    2.13
    %
    
    $
    15,2242007
Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    28,698
    
    
    $
    17,937
    
    
    
    1.65
    %
    
    $
    28,6982006
Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    12,551
    
    
    $
    17,845
    
    
    
    1.66
    %
    
    $
    15,407




---



##### 



TABLE 14
INTEREST SENSITIVITY
  0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssetsInterest-earning assets:Loans, net of unearned income
    
    $
    26,379
    
    
    $
    34,178
    
    
    $
    127,178
    
    
    $
    8,821
    
    
    $
    196,556Investment securities
    
    
    2,000
    
    
    
    3,898
    
    
    
    111,966
    
    
    
    56,359
    
    
    
    174,223Securities available for sale
    
    
    137
    
    
    
    7,993
    
    
    
    16,806
    
    
    
    1,974
    
    
    
    26,910Federal funds sold and securities
purchased under agreements to
resell
    
    
    22,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,194Total interest-earning assets
    
    $
    50,710
    
    
    $
    46,069
    
    
    $
    255,950
    
    
    $
    67,154
    
    
    $
    419,883Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,590
    
    
    
    56,590Total assets
    
    $
    50,710
    
    
    $
    46,069
    
    
    $
    255,950
    
    
    $
    123,744
    
    
    $
    476,473Liabilities and stockholders
equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
    
    $
    64,642
    
    
    $
    31,447
    
    
    $
    78,618
    
    
    $
    
    
    
    $
    174,707Time deposits
    
    
    22,361
    
    
    
    63,012
    
    
    
    15,188
    
    
    
    
    
    
    
    100,561Federal funds purchased, and
securities
sold under agreements to
repurchase
    
    
    15,224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,224Total interest-bearing
liabilities
    
    $
    102,227
    
    
    $
    94,459
    
    
    $
    93,806
    
    
    $
    
    
    
    $
    290,492Noninterest-bearing deposits
    
    
    26,922
    
    
    
    
    
    
    
    85,893
    
    
    
    15,384
    
    
    
    128,199Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,813
    
    
    
    7,813Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,969
    
    
    
    49,969Total liabilities and
stockholders equity
    
    $
    129,148
    
    
    $
    94,459
    
    
    $
    179,699
    
    
    $
    73,166
    
    
    $
    476,473Interest sensitive gap
    
    $
    (78,438
    )
    
    $
    (48,390
    )
    
    $
    76,251
    
    
    $
    50,578Cumulative interest sensitive gap
    
    $
    (78,438
    )
    
    $
    (126,829
    )
    
    $
    (50,578
    )
    
    $
    Cumulative interest sensitive gap
as a percent of total assets
    
    
    -16.46
    %
    
    
    -26.62
    %
    
    
    -10.62
    %
    
    
    0.00
    %




---



##### 



TABLE 15
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND
OFF-BALANCE SHEET ARRANGEMENTS
  PAYMENTS DUE INONE TO
    
    THREE TO
    
    OVERONE YEAR
    
    THREE
    
    FIVE
    
    FIVEOR LESS
    
    YEARS
    
    YEARS
    
    YEARS
    
    TOTALDeposits without a
stated maturity
    
    $
    123,011
    
    
    $
    21,203
    
    
    $
    143,308
    
    
    $
    15,384
    
    
    $
    302,906Consumer certificates
of deposit
    
    
    85,373
    
    
    
    15,188
    
    
    
    
    
    
    
    
    
    
    
    100,561Federal funds borrowed
& repurchase agreements
    
    
    15,224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,224Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE TO
    
    THREE TO
    
    OVERONE YEAR
    
    THREE
    
    FIVE
    
    FIVEOR LESS
    
    YEARS
    
    YEARS
    
    YEARS
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    9,810
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,810Residential real estate
    
    
    29
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    31Revolving home equity
and credit card lines
    
    
    348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348Other
    
    
    6,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,914Standby letters of credit
    
    
    192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192




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##### 



Item 3.  Quantitative and Qualitative Disclosures about Market Risk
     Item 4T. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in Internal Controls




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##### 



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 Matters to a Vote of Security Holders
 (a)
    
    The Companys annual meeting of shareholders was held on April 3, 2008 at
Merchants & Marine Bank in Pascagoula, Mississippi.(b)
    
    The following directors were elected at the meeting to serve until the annual
meeting of shareholders in 2011:
 Votes For
    
    Votes Withheld
    
    Broker Non-VotesLynda J. Gautier
    
    
    899,665
    
    
    
    3,776
    
    
    
    -0-John F. Grafe
    
    
    878,653
    
    
    
    5,444
    
    
    
    -0-Gerald J. St. Pé
    
    
    880,017
    
    
    
    4,080
    
    
    
    -0-
 (c)
    
    Other matters voted upon and the results of the voting were as follows:
  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 Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.




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##### 



32.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. 350, as
created by Section 906 of the Sarbanes-Oxley Act of 2002.




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##### 



SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date: August 14, 2008
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate: August 14, 2008
    By:
    /s/ S. M. DicksonS. M. Dickson, Executive Vice President(Principal Financial and Accounting Officer)