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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 March 31, 2009
 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 o
 o o
  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 1. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    8Item 4. Controls and Procedures
    
    
    31Part II. Other Information
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matter to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Part I: Financial Information
 
 Item 1: Financial Statements
 CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
 (Unaudited)
    
    
    (Audited)March 31, 2009
    
    
    December 31, 2008ASSETS:Cash and due from banks (non-interest
bearing)
    
    $
    17,618,157
    
    
    
    18,065,881Federal funds sold
    
    
    54,325,000
    
    
    
    11,039,000Securities:Available for sale, at market value
    
    
    56,317,487
    
    
    
    30,239,874Held to maturity, at amortized cost
    
    
    91,610,548
    
    
    
    146,509,925Non-marketable equity securities
    
    
    600,060
    
    
    
    600,060Loans, less allowance for loan losses
$3,100,000
and $3,100,000, respectively
    
    
    202,203,493
    
    
    
    198,382,586Property and equipment, net
    
    
    17,639,833
    
    
    
    17,750,116Other real estate owned
    
    
    235,657
    
    
    
    235,659Accrued income
    
    
    2,715,170
    
    
    
    3,086,533Other assets
    
    
    10,285,396
    
    
    
    10,373,486TOTAL ASSETS
    
    $
    453,550,801
    
    
    
    436,283,120LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Non-interest bearing demand
    
    $
    30,970,166
    
    
    
    80,738,441Interest bearing demand, savings,
money market, and
other time
    
    
    348,955,176
    
    
    
    286,506,672Total deposits
    
    
    379,925,342
    
    
    
    367,245,113Federal funds purchased and securities
sold under
agreements to repurchase
    
    
    15,664,695
    
    
    
    10,916,967Accrued expenses and other liabilities
    
    
    8,657,836
    
    
    
    9,060,161Total liabilities
    
    
    404,247,873
    
    
    
    387,222,241Stockholders Equity:Common stock  $2.50 par value; 1,330,560
shares authorized;
1,330,338 shares issued and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    34,498,597
    
    
    
    34,045,240Accumulated other comprehensive income:Unrealized gain (loss) on securities
available for sale
    
    
    4,302
    
    
    
    215,610Unrealized gain (loss) on defined
benefit pension plan
    
    
    (3,025,816
    )
    
    
    (3,025,816
    )Total stockholders equity
    
    
    49,302,928
    
    
    
    49,060,879TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    453,550,801
    
    
    
    436,283,120
   3




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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months EndedMarch 31,2009
    
    
    2008Interest Income:Interest and fees on loans
    
    $
    3,469,300
    
    
    
    3,891,942Interest on investment securities:Taxable
    
    
    1,643,910
    
    
    
    1,966,410Exempt from federal income tax
    
    
    81,656
    
    
    
    78,864Interest on federal funds sold
    
    
    17,574
    
    
    
    326,335Total interest income
    
    
    5,212,440
    
    
    
    6,263,551Interest Expense:Interest on deposits
    
    
    1,342,791
    
    
    
    1,923,278Interest on federal funds purchased
and securities sold under agreements
to repurchase
    
    
    9,645
    
    
    
    140,372Total interest expense
    
    
    1,352,436
    
    
    
    2,063,650Net interest income
    
    
    3,860,004
    
    
    
    4,199,901Provision for loan losses
    
    
    74,390
    
    
    
    (51,206
    )Net interest income
after provision for loan losses
    
    
    3,785,614
    
    
    
    4,251,107Non-Interest Income:Service charges
    
    
    945,244
    
    
    
    1,075,864Miscellaneous
    
    
    474,301
    
    
    
    600,558Total non-interest income
    
    
    1,419,545
    
    
    
    1,676,422Non-Interest Expense:Salaries and employee benefits
    
    
    2,052,143
    
    
    
    1,842,764Premises
    
    
    762,040
    
    
    
    660,085Miscellaneous
    
    
    1,286,749
    
    
    
    1,513,380Total non-interest expense
    
    
    4,100,932
    
    
    
    4,016,229Income before income taxes
    
    
    1,104,227
    
    
    
    1,911,300Provision for income taxes
    
    
    335,737
    
    
    
    491,939NET INCOME
    
    $
    768,490
    
    
    
    1,419,361NET INCOME PER COMMON SHARE
    
    $
    0.58
    
    
    
    1.07
   4




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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months EndedMarch 31,2009
    
    
    2008Net income
    
    $
    768,490
    
    
    
    1,419,361Other comprehensive income, net of tax:Unrealized holding gains (losses)
arising during period
    
    
    (211,308
    )
    
    
    (166,620
    )Comprehensive income
    
    $
    557,182
    
    
    
    1,252,741
   5




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    768,490
    
    
    
    1,419,361Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    354,877
    
    
    
    279,316Provision for loan losses
    
    
    74,390
    
    
    
    (51,206
    )Write-down of other real estate owned
    
    
    
    
    
    
    33,552Reinvested earnings on securities
    
    
    
    
    
    
    (57,983
    )Net premium amortization (discount accretion)
    
    
    (34,590
    )
    
    
    (5,776
    )Decrease in accrued income receivable
    
    
    371,363
    
    
    
    128,206(Decrease) in interest payable
    
    
    (132,824
    )
    
    
    (102,362
    )(Gain) loss on disposition of assets
    
    
    
    
    
    
    (117,392
    )Net change in other assets and liabilities
    
    
    343,998
    
    
    
    (226,553
    )Net Cash Provided by Operating Activities
    
    
    1,745,704
    
    
    
    1,299,163CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) in Federal funds sold
    
    
    (43,286,000
    )
    
    
    (38,476,000
    )Purchase of securities available for sale
    
    
    (40,255,375
    )
    
    
    Proceeds from maturities of securities available for sale
    
    
    13,875,000
    
    
    
    30,045,413Purchase of securities held to maturity
    
    
    (9,696,028
    )
    
    
    (57,699,250
    )Proceeds from maturities of securities held to maturity
    
    
    64,612,593
    
    
    
    43,203,333Net (increase) decrease in loans
    
    
    (3,895,295
    )
    
    
    1,172,028Purchase of property and equipment
    
    
    (244,594
    )
    
    
    (572,303
    )Net Cash (Used) by Investing Activities
    
    
    (18,889,699
    )
    
    
    (22,326,779
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    12,680,229
    
    
    
    14,789,516Net increase in federal funds purchased and
securities sold under agreements to repurchase
    
    
    4,747,728
    
    
    
    15,206,381Dividends paid to stockholders
    
    
    (731,686
    )
    
    
    (731,686
    )Net Cash Provided by Financing Activities
    
    
    16,696,271
    
    
    
    29,264,211Net Increase (decrease) in Cash and Due from Banks
    
    
    (447,724
    )
    
    
    8,236,595Cash and Due From Banks, Beginning
    
    
    18,065,881
    
    
    
    20,268,465Cash and Due From Banks, Ending
    
    $
    17,618,157
    
    
    
    28,505,060
   6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 Interim Financial Statements.
  December 31, 2008 Balance Sheet Presentation.
  Use of Estimates.
  2.
SHARE EXCHANGE.
    7




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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
   8




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Earnings Highlights
  Earning Assets
   9




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Net Interest Income
      10




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Interest Rate Sensitivity
    Loans
    11




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Allowance for Loan Losses
    Critical Accounting Policies
     12




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Asset Quality
  -
  13




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Securities Available for Sale and Investment Securities
      14




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Deposits
  Liquidity
   Off Balance Sheet Arrangements
  Contractual Obligations
    15




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Risk-Based Capital/Stockholders Equity
    Non-Interest Income
    16




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Non-Interest Expense
  
  Income Taxes
   17




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TABLE 1
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES
  2009
    
    
    2008
    
    
    2007Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsInterest-earning assets:Loans, net of unearned
income
    
    $
    203,173
    
    
    $
    3,469
    
    
    
    6.83
    %
    
    $
    203,418
    
    
    $
    3,892
    
    
    
    7.65
    %
    
    $
    204,305
    
    
    $
    4,070
    
    
    
    7.97
    %Securities held to
maturity:Taxable
    
    
    103,744
    
    
    
    1,252
    
    
    
    4.83
    %
    
    
    138,448
    
    
    
    1,749
    
    
    
    5.05
    %
    
    
    112,553
    
    
    
    1,337
    
    
    
    4.75
    %Exempt from Federal
income tax
    
    
    9,465
    
    
    
    82
    
    
    
    3.47
    %
    
    
    9,049
    
    
    
    79
    
    
    
    3.49
    %
    
    
    9,871
    
    
    
    79
    
    
    
    3.20
    %Securities available
for sale:Taxable
    
    
    46,886
    
    
    
    391
    
    
    
    3.34
    %
    
    
    18,158
    
    
    
    211
    
    
    
    4.65
    %
    
    
    85,299
    
    
    
    1,109
    
    
    
    5.20
    %Federal funds sold
and securities pur-
chased under agree-
ments to resell
    
    
    35,237
    
    
    
    18
    
    
    
    0.20
    %
    
    
    42,817
    
    
    
    326
    
    
    
    3.05
    %
    
    
    32,107
    
    
    
    410
    
    
    
    5.11
    %Total interest-earning
assets
    
    $
    398,505
    
    
    $
    5,212
    
    
    
    5.23
    %
    
    $
    411,890
    
    
    $
    6,257
    
    
    
    6.08
    %
    
    $
    444,135
    
    
    $
    7,005
    
    
    
    6.31
    %Non interest-earning
assets:Cash and due from
banks
    
    
    18,069
    
    
    
    
    
    
    
    
    
    
    
    27,664
    
    
    
    
    
    
    
    
    
    
    
    32,473Bank premises and
equipment
    
    
    17,765
    
    
    
    
    
    
    
    
    
    
    
    14,954
    
    
    
    
    
    
    
    
    
    
    
    13,164Other assets
    
    
    13,742
    
    
    
    
    
    
    
    
    
    
    
    14,061
    
    
    
    
    
    
    
    
    
    
    
    13,338Allowance for possible
loan losses
    
    
    (3,093
    )
    
    
    
    
    
    
    
    
    
    
    (3,101
    )
    
    
    
    
    
    
    
    
    
    
    (3,100
    )Total assets
    
    $
    444,988
    
    
    
    
    
    
    
    
    
    
    $
    465,468
    
    
    
    
    
    
    
    
    
    
    $
    500,010
  18




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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/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateLiabilitiesInterest-bearing
liabilities:INT DDA, MMF & Savings
    
    $
    177,883
    
    
    $
    464
    
    
    
    1.04
    %
    
    $
    201,687
    
    
    $
    860
    
    
    
    1.71
    %
    
    $
    147,148
    
    
    $
    1,038
    
    
    
    2.82
    %Time deposits
    
    
    111,515
    
    
    
    879
    
    
    
    3.15
    %
    
    
    99,572
    
    
    
    1,063
    
    
    
    4.27
    %
    
    
    90,219
    
    
    
    960
    
    
    
    4.26
    %Federal funds purchased,
securities sold under
agreements to repur-
chase and other short-
term borrowings
    
    
    13,199
    
    
    
    10
    
    
    
    0.30
    %
    
    
    19,481
    
    
    
    140
    
    
    
    2.87
    %
    
    
    15,136
    
    
    
    109
    
    
    
    2.88
    %Total interest-bearing
liabilities
    
    $
    302,597
    
    
    $
    1,353
    
    
    
    1.79
    %
    
    $
    320,740
    
    
    $
    2,063
    
    
    
    2.57
    %
    
    $
    252,503
    
    
    $
    2,107
    
    
    
    3.34
    %Noninterest-bearing
liabilities:Deposits
    
    
    84,525
    
    
    
    
    
    
    
    
    
    
    
    89,073
    
    
    
    
    
    
    
    
    
    
    
    198,669Other liabilities
    
    
    8,729
    
    
    
    
    
    
    
    
    
    
    
    6,455
    
    
    
    
    
    
    
    
    
    
    
    5,281Total liabilities
    
    
    395,851
    
    
    
    
    
    
    
    
    
    
    
    416,268
    
    
    
    
    
    
    
    
    
    
    
    456,453Stockholders
equity
    
    
    49,137
    
    
    
    
    
    
    
    
    
    
    
    49,200
    
    
    
    
    
    
    
    
    
    
    
    43,557Total liabilities and
stockholders
equity
    
    $
    444,988
    
    
    
    
    
    
    
    
    
    
    $
    465,468
    
    
    
    
    
    
    
    
    
    
    $
    500,010Net interest income/
margin-tax
equivalent
    
    
    
    
    
    $
    3,859
    
    
    
    3.47
    %
    
    
    
    
    
    $
    4,194
    
    
    
    3.60
    %
    
    
    
    
    
    $
    4,898
    
    
    
    3.92
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    58Investment
securities
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    65Securities available
for saleOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total tax equivalent
adjustment
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    123Net Interest Income
    
    
    
    
    
    $
    3,721
    
    
    
    
    
    
    
    
    
    
    $
    4,060
    
    
    
    
    
    
    
    
    
    
    $
    4,775
  19




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TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended March 31,2009 Compared to 2008
    
    
    2008 Compared to 2007Increase (Decrease) Due To
    
    
    Increase (Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    (245
    )
    
    $
    (423
    )
    
    $
    (668
    )
    
    $
    (887
    )
    
    $
    (178
    )
    
    $
    (1,065
    )Investment securities:Taxable
    
    
    (34,704
    )
    
    
    (497
    )
    
    
    (35,201
    )
    
    
    25,895
    
    
    
    412
    
    
    
    26,307Exempt from Federal
income tax
    
    
    416
    
    
    
    3
    
    
    
    419
    
    
    
    (822
    )
    
    
    
    
    
    
    (822
    )Securities available for
sale:Taxable
    
    
    28,728
    
    
    
    180
    
    
    
    28,908
    
    
    
    (67,141
    )
    
    
    (898
    )
    
    
    (68,039
    )Federal funds sold and
securities purchased
under agreements to
resell
    
    
    (7,580
    )
    
    
    (308
    )
    
    
    (7,888
    )
    
    
    10,710
    
    
    
    (84
    )
    
    
    10,626Total
    
    $
    (13,385
    )
    
    $
    (1,045
    )
    
    $
    (14,430
    )
    
    $
    (32,245
    )
    
    $
    (748
    )
    
    $
    (32,993
    )Interest expense on:Savings deposits
    
    $
    (23,804
    )
    
    $
    (396
    )
    
    $
    (24,200
    )
    
    $
    54,539
    
    
    $
    (178
    )
    
    $
    54,361Time deposits
    
    
    11,943
    
    
    
    (184
    )
    
    
    11,759
    
    
    
    9,353
    
    
    
    103
    
    
    
    9,456Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    (6,282
    )
    
    
    (130
    )
    
    
    (6,412
    )
    
    
    4,345
    
    
    
    31
    
    
    
    4,376Total
    
    $
    (18,143
    )
    
    $
    (710
    )
    
    $
    (18,853
    )
    
    $
    68,237
    
    
    $
    (44
    )
    
    $
    68,193Changes in net interest
income-tax equivalent
    
    $
    4,758
    
    
    $
    (335
    )
    
    $
    4,423
    
    
    $
    (100,482
    )
    
    $
    (704
    )
    
    $
    (101,186
    )
   20




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TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  March 31,2009
    
    
    2008
    
    
    2007Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    56,245
    
    
    $
    8,992
    
    
    $
    97,058Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    72
    
    
    
    72
    
    
    
    Total securities available for sale
    
    $
    56,317
    
    
    $
    9,064
    
    
    $
    97,058Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    82,009
    
    
    $
    149,590
    
    
    $
    116,967Obligations of states and political subdivisions
    
    
    9,602
    
    
    
    8,700
    
    
    
    10,230Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    600
    
    
    
    600
    
    
    
    600Total investment securities
    
    
    92,211
    
    
    
    158,890
    
    
    
    127,797Total securities available for sale and investment securities
    
    $
    148,528
    
    
    $
    167,954
    
    
    $
    224,855
  21




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TABLE 4
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
  MaturingAfter
    
    
    
    
    
    
    After 5 YrsWithin
    
    
    
    
    
    
    1 Yr But
    
    
    
    
    
    
    But Within1 Year
    
    
    
    
    
    
    Within 5 Yrs
    
    
    
    
    
    
    10 Yrs
    
    
    
    
    
    
    After 10 Yrs.CarryingAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    AmountSecurities
available for saleU.S. Treasury
and other U.S.
Government
agencies
    
    $
    2,003
    
    
    
    2.40
    %
    
    $
    41,262
    
    
    
    2.73
    %
    
    $
    12,959
    
    
    
    4.36
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    56,224Other securities
    
    
    93
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    93Total securities
available
for sale
    
    $
    2,096
    
    
    
    2.40
    %
    
    $
    41,262
    
    
    
    2.73
    %
    
    $
    
    
    
    
    4.36
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    56,317Investment securitiesU.S. Treasury
and other U.S.
Government
agencies
    
    $
    5,035
    
    
    
    3.82
    %
    
    $
    59,974
    
    
    
    4.71
    %
    
    $
    17,000
    
    
    
    4.78
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    82,009Obligations of states
and political
subdivisions
    
    
    1,150
    
    
    
    4.97
    %
    
    
    4,692
    
    
    
    4.97
    %
    
    
    3,760
    
    
    
    4.88
    %
    
    
    
    
    
    
    0.00
    %
    
    
    9,602Other securities
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Total investment
securities
    
    $
    6,785
    
    
    
    4.48
    %
    
    $
    64,666
    
    
    
    5.07
    %
    
    $
    20,760
    
    
    
    5.57
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    92,211Total securities
available for sale
and investment
securities
    
    $
    8,881
    
    
    
    3.50
    %
    
    $
    105,928
    
    
    
    3.73
    %
    
    $
    20,760
    
    
    
    4.56
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    148,528
   22




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##### Table of Contents



TABLE 5  SECURITIES ANALYSIS
 SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2009
    
    
    
    MARCH 31, 2009GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    56,238,991
    
    
    $
    199,650
    
    
    $
    (214,728
    )
    
    $
    56,223,913
    
    
    
    $
    82,008,699
    
    
    $
    1,551,688
    
    
    $
    
    
    
    $
    83,560,387STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,601,849
    
    
    
    275,870
    
    
    
    (19,570
    )
    
    
    9,858,149OTHER SECURITIES
    
    
    71,979
    
    
    
    21,596
    
    
    
    
    
    
    
    93,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    56,310,970
    
    
    $
    221,246
    
    
    $
    (214,728
    )
    
    $
    56,317,488
    
    
    
    $
    91,610,548
    
    
    $
    1,827,558
    
    
    $
    (19,570
    )
    
    $
    93,418,536SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2008
    
    
    
    MARCH 31, 2008GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    8,991,690
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    9,032,540
    
    
    
    $
    149,591,870
    
    
    $
    2,967,324
    
    
    $
    (12,440
    )
    
    $
    152,546,754STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,699,992
    
    
    
    140,415
    
    
    
    (5,666
    )
    
    
    8,834,741OTHER SECURITIES
    
    
    71,979
    
    
    
    33,377
    
    
    
    
    
    
    
    105,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    9,063,669
    
    
    $
    74,227
    
    
    $
    
    
    
    $
    9,137,896
    
    
    
    $
    158,291,862
    
    
    $
    3,107,739
    
    
    $
    (18,106
    )
    
    $
    161,381,495SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2007
    
    
    
    MARCH 31, 2007GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    97,057,857
    
    
    $
    20,338
    
    
    $
    (95,450
    )
    
    $
    96,982,746
    
    
    
    $
    116,967,680
    
    
    $
    112,904
    
    
    $
    (483,216
    )
    
    $
    116,597,368STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,229,722
    
    
    
    5,467
    
    
    
    (134,156
    )
    
    
    10,101,033OTHER SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    97,057,857
    
    
    $
    20,338
    
    
    $
    (95,450
    )
    
    $
    96,982,746
    
    
    
    $
    127,197,402
    
    
    $
    118,371
    
    
    $
    (617,372
    )
    
    $
    126,698,401
  23




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TABLE 6
LOAN PORTFOLIO
  2009
    
    
    2008
    
    
    2007Commercial & Industrial
    
    $
    27,648
    
    
    $
    31,804
    
    
    $
    33,605Real Estate
    
    
    136,680
    
    
    
    124,679
    
    
    
    119,230Consumer Loans
    
    
    35,527
    
    
    
    40,067
    
    
    
    39,190Other Loans
    
    
    5,486
    
    
    
    6,528
    
    
    
    5,473Total Loans
    
    $
    205,341
    
    
    $
    203,078
    
    
    $
    197,498
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    18,234Over 3 months through 12 months
    
    
    41,511Over 1 year through 5 years
    
    
    131,662Over 5 years
    
    
    12,055Over 1 year but variable rate
    
    
    Total Loans
    
    $
    203,462
  24




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##### Table of Contents



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended March 31,2009
    
    
    2008
    
    
    2007Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Charge Offs:Commercial & Industrial
    
    
    9
    
    
    
    13
    
    
    
    12Real Estate
    
    
    16
    
    
    
    2
    
    
    
    Consumer
    
    
    117
    
    
    
    165
    
    
    
    122Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    142
    
    
    
    180
    
    
    
    134Recoveries:Commercial & Industrial
    
    
    5
    
    
    
    13
    
    
    
    45Real Estate
    
    
    
    
    
    
    146
    
    
    
    Consumer
    
    
    63
    
    
    
    72
    
    
    
    88OtherTotal Recoveries
    
    
    68
    
    
    
    231
    
    
    
    133Net Charge Offs
    
    
    74
    
    
    
    (51
    )
    
    
    1Provision for Possible Losses
    
    
    74
    
    
    
    (51
    )
    
    
    1Ending Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    205,341
    
    
    $
    203,078
    
    
    $
    197,498Average daily loans
    
    $
    203,173
    
    
    $
    203,418
    
    
    $
    204,305
 Percentages:
    
    2009
    
    
    2008
    
    
    2007Allowance for loan losses to end of quarter total loans
    
    
    1.51
    %
    
    
    1.53
    %
    
    
    1.53
    %Allowance for loan losses to average loans
    
    
    1.53
    %
    
    
    1.52
    %
    
    
    1.52
    %Allowance for loan losses to nonperforming assets
    
    
    146.57
    %
    
    
    368.17
    %
    
    
    319.26
    %Net charge offs to average loans
    
    
    0.036
    %
    
    
    -0.025
    %
    
    
    0.000
    %
  25




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##### Table of Contents



TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  March 31,2009
    
    
    2008
    
    
    2007% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial & Industrial
    
    
    6.71
    
    
    $
    208
    
    
    
    7.68
    
    
    $
    238
    
    
    
    15.7
    
    
    $
    485Real Estate
    
    
    21.45
    
    
    
    665
    
    
    
    28.90
    
    
    
    896
    
    
    
    61.4
    
    
    
    1,903Consumer
    
    
    48.81
    
    
    
    1,513
    
    
    
    23.23
    
    
    
    720
    
    
    
    19.7
    
    
    
    612Other
    
    
    1.58
    
    
    
    49
    
    
    
    24.39
    
    
    
    756
    
    
    
    3.2
    
    
    
    100Unallocated
    
    
    21.45
    
    
    
    665
    
    
    
    15.81
    
    
    
    490
    
    
    
    
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  2009
    
    
    2008
    
    
    2007Non-accrual Loans & Accruing Loans Past Due 90 Days or more
    
    $
    1,879
    
    
    $
    713
    
    
    $
    782Other Real Estate
    
    
    236
    
    
    
    129
    
    
    
    189$
    2,115
    
    
    $
    842
    
    
    $
    971Nonperforming Assets as % of Total Loans
    
    
    1.03
    %
    
    
    0.41
    %
    
    
    0.48
    %Non-accrual Loans & Loans Past Due 90 Days or More
as % of Total Loans
    
    
    0.92
    %
    
    
    0.35
    %
    
    
    0.39
    %
  26




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##### Table of Contents



TABLE 11
AVERAGE DEPOSITS
  Quarter ended March 31,2009
  
  
  2008
  
  
  2007Non-interest bearing deposits
  
  $
  84,525
  
  
  $
  89,073
  
  
  $
  198,669Interest-bearing deposits
  
  
  177,883
  
  
  
  201,687
  
  
  
  147,148Interest-bearing time deposits
  
  
  111,515
  
  
  
  99,572
  
  
  
  90,219Total
  
  $
  373,923
  
  
  $
  390,332
  
  
  $
  436,036
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
  
  $
  13,402Over 3 through 6 months
  
  
  12,994Over 6 through 12 months
  
  
  26,890Over 12 months
  
  
  5,802Total
  
  $
  59,088
  27




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##### Table of Contents



TABLE 13
SHORT-TERM BORROWINGS
 
 Daily
    
    
    Average
    
    
    MaximumMarch
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate*
    
    
    Balance2009Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    15,665
    
    
    $
    13,199
    
    
    
    0.30
    %
    
    $
    15,6652008Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    36,225
    
    
    $
    19,481
    
    
    
    2.87
    %
    
    $
    36,2252007Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    20,173
    
    
    $
    15,136
    
    
    
    2.88
    %
    
    $
    20,173
 *
    
    On daily average balance  28




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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
  
  $
  18,234
  
  
  $
  41,511
  
  
  $
  131,662
  
  
  $
  12,055
  
  
  $
  203,462Investment securities
  
  
  4,940
  
  
  
  1,845
  
  
  
  64,666
  
  
  
  20,760
  
  
  
  92,211Securities available for sale
  
  
  2,096
  
  
  
  —
  
  
  
  41,262
  
  
  
  12,959
  
  
  
  56,317Federal funds sold and securities purchased under agreements to resell
  
  
  54,325
  
  
  
  —
  
  
  
  —
  
  
  
  —
  
  
  
  54,325Total interest-earning assets
  
  
  79,595
  
  
  
  43,356
  
  
  
  237,590
  
  
  
  45,774
  
  
  
  406,315Non-interest-earning assets
  
  
  —
  
  
  
  —
  
  
  
  —
  
  
  
  47,224
  
  
  
  47,224Total assets
  
  $
  79,595
  
  
  $
  43,356
  
  
  $
  237,590
  
  
  $
  92,998
  
  
  $
  453,539Liabilities and stockholders’ equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
  
  $
  68,033
  
  
  $
  33,097
  
  
  $
  82,743
  
  
  $
  —
  
  
  $
  183,873Time deposits
  
  
  28,067
  
  
  
  68,088
  
  
  
  14,944
  
  
  
  —
  
  
  
  111,099Federal funds purchased, and securities sold under agreements to repurchase
  
  
  15,665
  
  
  
  —
  
  
  
  —
  
  
  
  —
  
  
  
  15,665Total interest-bearing liabilities
  
  
  111,765
  
  
  
  101,185
  
  
  
  97,687
  
  
  
  —
  
  
  
  310,637Non-interest-bearing deposits
  
  
  17,871
  
  
  
  —
  
  
  
  57,018
  
  
  
  10,212
  
  
  
  85,101Other liabilities
  
  
  —
  
  
  
  —
  
  
  
  —
  
  
  
  8,499
  
  
  
  8,499Stockholders’ equity
  
  
  —
  
  
  
  —
  
  
  
  —
  
  
  
  49,302
  
  
  
  49,302Total liabilities and stockholders’ equity.
  
  $
  129,636
  
  
  $
  101,185
  
  
  $
  154,705
  
  
  $
  68,013
  
  
  $
  453,539Interest sensitive gap
  
  $
  (50,041
  )
  
  $
  (57,829
  )
  
  $
  82,885
  
  
  $
  24,985Cumulative interest sensitive gap
  
  $
  (50,041
  )
  
  $
  (107,870
  )
  
  $
  (24,985
  )
  
  $
  —Cumulative interest sensitive gap as a percent of total assets
  
  
  -11.03
  %
  
  
  -23.78
  %
  
  
  -5.51
  %
  
  
  0.00
  %
  29




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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
    
    $
    107,590
    
    
    $
    18,828
    
    
    $
    129,108
    
    
    $
    13,448
    
    
    $
    268,974Consumer certificates
of deposit
    
    
    96,155
    
    
    
    10,239
    
    
    
    4,705
    
    
    
    
    
    
    
    111,099Federal funds borrowed
& repurchase agreements
    
    
    15,665
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,665Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE TO
    
    
    THREE TO
    
    
    OVERONE YEAR
    
    
    THREE
    
    
    FIVE
    
    
    FIVEOR LESS
    
    
    YEARS
    
    
    YEARS
    
    
    YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    6,262
    
    
    $
    1,690
    
    
    $
    
    
    
    $
    
    
    
    $
    7,952Residential real estate
    
    
    3,862
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    4,258Revolving home equity
and credit card lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    5,250
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    5,261Standby letters of credit
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
  30




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures 
 Changes in Internal Controls
  31




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##### 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 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. 350, 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. 350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
  32




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##### Table of Contents



SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date:  May 15, 2009
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate:  May 15, 2009
    By:
    /s/ S. M. DicksonS. M. Dickson, Executive Vice PresidentPrincipal Financial and Accounting Officer  33




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1
    
    
    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. 350, 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. 350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
  34