##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-53198
 Merchants & Marine Bancorp, Inc.
  Mississippi
    
    26-2498567(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)3118 Pascagoula Street, Pascagoula, Mississippi
    
    39567(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o 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 Yes þ No




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TABLE OF CONTENTS
 Part I. Financial InformationItem 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 InformationItem 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

33SIGNATURES

34EX-31.1EX-31.2EX-32.1EX-32.2
   2




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Part 1. Financial Information
 
 Item 1.
    
    Financial Statements
  CONDENSED BALANCE SHEETS
 (Unaudited)
    
    
    (Audited)June 30, 2009
    
    
    December 31, 2008ASSETS:Cash and due from banks (non-interest bearing)
    
    $
    16,630,488
    
    
    $
    18,065,881Federal funds sold
    
    
    26,622,000
    
    
    
    11,039,000Securities:Available for sale, at market value
    
    
    55,836,483
    
    
    
    30,239,874Held to maturity, at amortized cost
    
    
    109,775,599
    
    
    
    146,509,925Non-marketable equity securities
    
    
    900,060
    
    
    
    600,060Loans, less allowance for loan losses of $3,100,000
and $3,100,000, respectively
    
    
    207,565,919
    
    
    
    198,382,586Property and equipment, net of depreciation
    
    
    17,466,175
    
    
    
    17,750,116Other real estate owned
    
    
    100,657
    
    
    
    235,659Accrued income
    
    
    2,387,566
    
    
    
    3,086,533Other assets
    
    
    11,219,859
    
    
    
    10,373,486TOTAL ASSETS
    
    $
    448,504,806
    
    
    $
    436,283,120LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Non-interest bearing demand
    
    $
    85,533,510
    
    
    $
    80,738,441Interest bearing demand, savings, money market, and
other time
    
    
    291,683,879
    
    
    
    286,506,672Total deposits
    
    
    377,217,389
    
    
    
    367,245,113Federal funds purchased and securities sold under
agreements to repurchase
    
    
    12,091,483
    
    
    
    10,916,967Accrued expenses and other liabilities
    
    
    9,531,982
    
    
    
    9,060,161Total liabilities
    
    
    398,840,854
    
    
    
    387,222,241Stockholders Equity:Common stock  $2.50 par value; 5,000,000 shares authorized;
1,330,338 shares issued and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    34,911,966
    
    
    
    34,045,240Accumulated other comprehensive income:Unrealized gain (loss) on securities available for sale
    
    
    (48,043
    )
    
    
    215,610Unrealized (loss) on defined benefit pension plan
    
    
    (3,025,816
    )
    
    
    (3,025,816
    )Total stockholders equity
    
    
    49,663,952
    
    
    
    49,060,879TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    448,504,806
    
    
    $
    436,283,120
  3




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CONDENSED STATEMENTS OF INCOME
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008Interest Income:Interest and fees on loans
    
    $
    3,471,153
    
    
    $
    3,635,842
    
    
    $
    6,940,453
    
    
    $
    7,527,784Interest on investment securities:Taxable
    
    
    1,342,109
    
    
    
    2,100,962
    
    
    
    2,986,019
    
    
    
    4,067,372Exempt from federal income tax
    
    
    109,001
    
    
    
    71,758
    
    
    
    190,657
    
    
    
    150,622Interest on federal funds sold
    
    
    18,064
    
    
    
    220,912
    
    
    
    35,638
    
    
    
    547,247Total interest income
    
    
    4,940,327
    
    
    
    6,029,474
    
    
    
    10,152,767
    
    
    
    12,293,025Interest Expense:Interest on deposits
    
    
    1,315,845
    
    
    
    1,710,739
    
    
    
    2,658,636
    
    
    
    3,634,017Interest on federal funds purchased
and securities sold under agreements
to repurchase
    
    
    12,154
    
    
    
    89,017
    
    
    
    21,799
    
    
    
    229,389Total interest expense
    
    
    1,327,999
    
    
    
    1,799,756
    
    
    
    2,680,435
    
    
    
    3,863,406Net interest income
    
    
    3,612,328
    
    
    
    4,229,718
    
    
    
    7,472,332
    
    
    
    8,429,619Provision for loan losses
    
    
    60,493
    
    
    
    123,569
    
    
    
    134,883
    
    
    
    72,363Net interest income
after provision for loan losses
    
    
    3,551,835
    
    
    
    4,106,149
    
    
    
    7,337,449
    
    
    
    8,357,256Non-Interest Income:Service charges
    
    
    1,023,620
    
    
    
    1,039,445
    
    
    
    1,968,864
    
    
    
    2,115,309Miscellaneous
    
    
    629,220
    
    
    
    851,212
    
    
    
    1,103,521
    
    
    
    1,451,770Total non-interest income
    
    
    1,652,840
    
    
    
    1,890,657
    
    
    
    3,072,385
    
    
    
    3,567,079Non-Interest Expense:Salaries and employee benefits
    
    
    1,822,964
    
    
    
    1,646,425
    
    
    
    3,875,107
    
    
    
    3,489,189Premises
    
    
    800,597
    
    
    
    700,345
    
    
    
    1,562,637
    
    
    
    1,360,430Miscellaneous
    
    
    1,268,237
    
    
    
    1,936,672
    
    
    
    2,554,986
    
    
    
    3,450,052Total non-interest expense
    
    
    3,891,798
    
    
    
    4,283,442
    
    
    
    7,992,730
    
    
    
    8,299,671Income before income taxes
    
    
    1,312,877
    
    
    
    1,713,364
    
    
    
    2,417,104
    
    
    
    3,624,664Provision for income taxes
    
    
    500,407
    
    
    
    658,939
    
    
    
    836,144
    
    
    
    1,150,878NET INCOME
    
    $
    812,470
    
    
    $
    1,054,425
    
    
    $
    1,580,960
    
    
    $
    2,473,786NET INCOME PER COMMON SHARE
    
    $
    0.61
    
    
    $
    0.79
    
    
    $
    1.19
    
    
    $
    1.86
  4




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CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    812,470
    
    
    $
    1,054,425
    
    
    $
    1,580,960
    
    
    $
    2,473,786Other comprehensive income, net of tax:Unrealized holding (losses)
arising during period
    
    
    (52,345
    )
    
    
    (188,811
    )
    
    
    (263,653
    )
    
    
    (169,569
    )Comprehensive income
    
    $
    760,125
    
    
    $
    865,614
    
    
    $
    1,317,307
    
    
    $
    2,304,217
  5




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CONDENSED STATEMENTS OF CASH FLOWS   For the Six Months Ended June 30
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    1,580,960
    
    
    $
    2,473,786Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    710,330
    
    
    
    576,492Provision for loan losses
    
    
    134,883
    
    
    
    56,701Write-down of other real estate owned
    
    
    80
    
    
    
    33,552Net premium amortization (discount accretion)
    
    
    21,782
    
    
    
    15,841Reinvested earnings on securities
    
    
    (40,944
    )
    
    
    (61,649
    )Decrease in accrued income receivable
    
    
    698,967
    
    
    
    18,849Increase (decrease) in interest payable
    
    
    (105,978
    )
    
    
    185,556Noncash charitable contribution
    
    
    
    
    
    
    310,000(Gain) on disposition of property and equipment
    
    
    (27,500
    )
    
    
    (356,283
    )(Gain) on disposition of securities
    
    
    
    
    
    
    (117,392
    )Net change in other assets and liabilities
    
    
    217,283
    
    
    
    (465,171
    )Net Cash Provided by Operating Activities
    
    
    3,189,863
    
    
    
    2,670,282CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) decrease in Federal funds sold
    
    
    (15,583,000
    )
    
    
    4,283,000Purchase of securities available for sale
    
    
    (52,262,575
    )
    
    
    (26,079,750
    )Proceeds from maturities of securities available for sale
    
    
    26,275,000
    
    
    
    38,045,413Purchase of securities held to maturity
    
    
    (60,207,613
    )
    
    
    (89,937,077
    )Proceeds from maturities of securities held to maturity
    
    
    96,952,593
    
    
    
    60,113,333Purchase of other equity securities
    
    
    (300,000
    )
    
    
    Net (increase) decrease in loans
    
    
    (9,338,294
    )
    
    
    7,542,857Purchase of property and equipment
    
    
    (426,389
    )
    
    
    (1,698,744
    )Proceeds from sale of property and equipment
    
    
    182,500
    
    
    
    140,000Net Cash (Used) in Investing Activities
    
    
    (14,707,778
    )
    
    
    (7,590,968
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    9,972,276
    
    
    
    20,043,840Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase
    
    
    1,174,516
    
    
    
    (5,794,135
    )Dividends paid to stockholders
    
    
    (1,064,270
    )
    
    
    (1,064,270
    )Net Cash Provided by Financing Activities
    
    
    10,082,522
    
    
    
    13,185,435Net Increase (Decrease) in Cash and Due from Banks
    
    
    (1,435,393
    )
    
    
    8,264,749Cash and Due From Banks, Beginning
    
    
    18,065,881
    
    
    
    20,268,465Cash and Due From Banks, Ending
    
    $
    16,630,488
    
    
    $
    28,533,214
  6




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NOTES TO CONDENSED FINANCIAL STATEMENTS   As of and For the Six Months Ended June 30, 2009
 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
   8




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Executive Summary
 U.S. Banker th
   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
   Non-Interest Expense
   16




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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/Assets
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-earning assets:Loans, net of unearned
income
    
    $
    205,456
    
    
    $
    6,940
    
    
    
    6.76
    %
    
    $
    200,741
    
    
    $
    7,527
    
    
    
    7.50
    %
    
    $
    202,434
    
    
    $
    7,920
    
    
    
    7.82
    %Securities held to maturity:Taxable
    
    
    97,109
    
    
    
    2,203
    
    
    
    4.54
    %
    
    
    150,254
    
    
    
    3,671
    
    
    
    4.89
    %
    
    
    124,467
    
    
    
    3,027
    
    
    
    4.86
    %Exempt from Federal
income tax
    
    
    10,999
    
    
    
    181
    
    
    
    3.29
    %
    
    
    8,610
    
    
    
    151
    
    
    
    3.51
    %
    
    
    8,259
    
    
    
    138
    
    
    
    3.34
    %Securities available
for sale:Taxable
    
    
    52,356
    
    
    
    787
    
    
    
    3.01
    %
    
    
    20,501
    
    
    
    387
    
    
    
    3.78
    %
    
    
    86,302
    
    
    
    2,220
    
    
    
    5.14
    %Federal funds sold
and securities pur-
chased under agree-
ments to resell
    
    
    38,536
    
    
    
    36
    
    
    
    0.19
    %
    
    
    42,522
    
    
    
    547
    
    
    
    2.57
    %
    
    
    29,682
    
    
    
    771
    
    
    
    5.20
    %Total interest-earning
assets
    
    $
    404,456
    
    
    $
    10,147
    
    
    
    5.02
    %
    
    $
    422,628
    
    
    $
    12,283
    
    
    
    5.81
    %
    
    $
    451,144
    
    
    $
    14,076
    
    
    
    6.24
    %Non interest-earning assets:Cash and due from
banks
    
    
    17,186
    
    
    
    
    
    
    
    
    
    
    
    27,183
    
    
    
    
    
    
    
    
    
    
    
    32,255Bank premises and
equipment
    
    
    17,682
    
    
    
    
    
    
    
    
    
    
    
    15,203
    
    
    
    
    
    
    
    
    
    
    
    13,630Other assets
    
    
    13,860
    
    
    
    
    
    
    
    
    
    
    
    14,311
    
    
    
    
    
    
    
    
    
    
    
    13,529Allowance for possible
loan losses
    
    
    (3,090
    )
    
    
    
    
    
    
    
    
    
    
    (3,094
    )
    
    
    
    
    
    
    
    
    
    
    (3,093
    )Total assets
    
    $
    450,094
    
    
    
    
    
    
    
    
    
    
    $
    476,231
    
    
    
    
    
    
    
    
    
    
    $
    507,465
  18




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TABLE 1 (Continued)
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES
 2009
    
    
    2008
    
    
    2007Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Liabilities
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-bearing liabilities:INT DDA, MMF & Savings
    
    $
    175,126
    
    
    $
    993
    
    
    
    1.13
    %
    
    $
    182,318
    
    
    $
    1,610
    
    
    
    1.77
    %
    
    $
    202,607
    
    
    $
    2,429
    
    
    
    2.40
    %Time deposits
    
    
    110,222
    
    
    
    1,665
    
    
    
    3.02
    %
    
    
    99,917
    
    
    
    2,024
    
    
    
    4.05
    %
    
    
    87,040
    
    
    
    2,131
    
    
    
    4.90
    %Federal funds purchased,
securities sold under
agreements to repurchase and other short-term borrowings
    
    
    13,298
    
    
    
    22
    
    
    
    0.33
    %
    
    
    21,462
    
    
    
    229
    
    
    
    2.13
    %
    
    
    17,937
    
    
    
    148
    
    
    
    1.65
    %Total interest-bearing
liabilities
    
    $
    298,646
    
    
    $
    2,680
    
    
    
    1.79
    %
    
    $
    303,697
    
    
    $
    3,863
    
    
    
    2.54
    %
    
    $
    307,584
    
    
    $
    4,708
    
    
    
    3.06
    %Noninterest-bearing
liabilities:Deposits
    
    
    93,456
    
    
    
    
    
    
    
    
    
    
    
    116,239
    
    
    
    
    
    
    
    
    
    
    
    149,894Other liabilities
    
    
    8,605
    
    
    
    
    
    
    
    
    
    
    
    6,670
    
    
    
    
    
    
    
    
    
    
    
    5,767Total liabilities
    
    
    400,707
    
    
    
    
    
    
    
    
    
    
    
    426,606
    
    
    
    
    
    
    
    
    
    
    
    463,245Stockholders
equity
    
    
    49,387
    
    
    
    
    
    
    
    
    
    
    
    49,625
    
    
    
    
    
    
    
    
    
    
    
    44,220Total liabilities and
stockholders
equity
    
    $
    450,094
    
    
    
    
    
    
    
    
    
    
    $
    476,231
    
    
    
    
    
    
    
    
    
    
    $
    507,465Net interest income/
margin-tax
equivalent
    
    
    
    
    
    $
    7,467
    
    
    
    3.32
    %
    
    
    
    
    
    $
    8,420
    
    
    
    3.54
    %
    
    
    
    
    
    $
    9,368
    
    
    
    3.69
    %Tax equivalent
adjustment:Loans
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    120Investment
securities
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    166Securities available
for saleOtherTotal tax equivalent
adjustment
    
    
    
    
    
    
    280
    
    
    
    
    
    
    
    
    
    
    
    270
    
    
    
    
    
    
    
    
    
    
    
    286Net interest
income
    
    
    
    
    
    $
    7,187
    
    
    
    
    
    
    
    
    
    
    $
    8,150
    
    
    
    
    
    
    
    
    
    
    $
    9,082
  19




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TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended June 30, 20092009 Compared to 2008
    
    
    2008 Compared to 2007Increase (Decrease) Due To
    
    
    Increase (Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    4,715
    
    
    $
    (587
    )
    
    $
    4,128
    
    
    $
    (1,693
    )
    
    $
    (393
    )
    
    $
    (2,086
    )Investment securities:Taxable
    
    
    (53,145
    )
    
    
    (1,468
    )
    
    
    (54,613
    )
    
    
    25,787
    
    
    
    644
    
    
    
    26,431Exempt from Federal
income tax
    
    
    2,389
    
    
    
    30
    
    
    
    2,419
    
    
    
    351
    
    
    
    13
    
    
    
    364Securities available for sale:Taxable
    
    
    31,855
    
    
    
    400
    
    
    
    32,255
    
    
    
    (65,801
    )
    
    
    (1,833
    )
    
    
    (67,634
    )Federal funds sold and
securities purchased
under agreements to
resell
    
    
    (3,986
    )
    
    
    (511
    )
    
    
    (4,497
    )
    
    
    12,840
    
    
    
    (224
    )
    
    
    12,616Total
    
    $
    (18,172
    )
    
    $
    (2,136
    )
    
    $
    (20,308
    )
    
    $
    (28,516
    )
    
    $
    (1,793
    )
    
    
    (30,309
    )Interest expense on:Savings deposits
    
    $
    (7,192
    )
    
    $
    (617
    )
    
    $
    (7,809
    )
    
    $
    (20,289
    )
    
    $
    (819
    )
    
    $
    (21,108
    )Time deposits
    
    
    10,305
    
    
    
    (359
    )
    
    
    9,946
    
    
    
    12,877
    
    
    
    (107
    )
    
    
    12,770Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    (8,164
    )
    
    
    (207
    )
    
    
    (8,371
    )
    
    
    3,525
    
    
    
    81
    
    
    
    3,606Total
    
    $
    (5,051
    )
    
    $
    (1,183
    )
    
    $
    (6,234
    )
    
    $
    (3,887
    )
    
    $
    (845
    )
    
    $
    (4,732
    )Changes in net interest
income-tax equivalent
    
    $
    (13,121
    )
    
    $
    (953
    )
    
    $
    (14,074
    )
    
    $
    (24,629
    )
    
    $
    (948
    )
    
    $
    (25,577
    )
   20




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TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  June 30,2009
    
    
    2008
    
    
    2007Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    55,732
    
    
    $
    26,773
    
    
    $
    74,236Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    105
    
    
    
    137
    
    
    
    Total securities available for sale
    
    $
    55,837
    
    
    $
    26,910
    
    
    $
    74,236Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    92,962
    
    
    $
    165,590
    
    
    $
    145,272Obligations of states and political subdivisions
    
    
    16,813
    
    
    
    8,033
    
    
    
    10,781Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    900
    
    
    
    600
    
    
    
    600Total investment securities
    
    $
    110,675
    
    
    $
    174,223
    
    
    $
    156,653Total securities available for sale and investment securities
    
    $
    166,512
    
    
    $
    201,133
    
    
    $
    230,889
  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 Within
    
    
    After 10 Yrs.1 Year
    
    
    Within 5 Yrs
    
    
    10 Yrs
    
    
    
    
    
    
    
    
    
    

    CarryingAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    AmountSecurities
available for saleU.S. Treasury
and other U.S. Government
agencies
    
    $
    6,007
    
    
    
    0.63
    %
    
    $
    37,843
    
    
    
    2.41
    %
    
    
    11,882
    
    
    
    4.36
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    55,732Other securities
    
    
    105
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    105Total securities
available
for sale
    
    $
    6,112
    
    
    
    0.63
    %
    
    $
    37,843
    
    
    
    2.41
    %
    
    
    
    
    
    
    4.36
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    55,837Investment securitiesU.S. Treasury
and other U.S. Government
agencies
    
    $
    3,035
    
    
    
    4.55
    %
    
    $
    70,943
    
    
    
    4.21
    %
    
    $
    18,984
    
    
    
    4.64
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    92,962Obligations of states
and political
subdivisions
    
    
    903
    
    
    
    5.13
    %
    
    
    7,423
    
    
    
    4.40
    %
    
    
    8,487
    
    
    
    4.36
    %
    
    
    
    
    
    
    0.00
    %
    
    
    16,813Other securities
    
    
    900
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    900Total investment
securities
    
    $
    4,838
    
    
    
    4.83
    %
    
    $
    78,366
    
    
    
    4.31
    %
    
    $
    27,471
    
    
    
    4.50
    %
    
    
    
    
    
    
    0.00
    %
    
    $
    110,675Total securities
available for sale
and investment
securities
    
    $
    10,950
    
    
    
    2.73
    %
    
    $
    116,209
    
    
    
    3.36
    %
    
    $
    27,471
    
    
    
    4.43
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    166,512
   22




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##### Table of Contents



TABLE 5
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
(Dollars in Thousands)
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2009
    
    
    JUNE 30, 2009GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    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
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    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
 SECURITIES AVAILABLE-FOR-SALE
    
    
    SECURITIES HELD-TO-MATURITYJUNE 30, 2007
    
    
    JUNE 30, 2007GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZEDCOST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR 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
  23




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##### Table of Contents



TABLE 6
LOAN PORTFOLIO
  2009
    
    
    2008
    
    
    2007Commercial & Industrial
    
    $
    26,962
    
    
    $
    28,840
    
    
    $
    32,557Real Estate
    
    
    141,329
    
    
    
    122,868
    
    
    
    123,108Consumer Loans
    
    
    37,835
    
    
    
    39,458
    
    
    
    41,000Other Loans
    
    
    4,540
    
    
    
    5,390
    
    
    
    6,476Total Loans
    
    $
    210,666
    
    
    $
    196,556
    
    
    $
    203,141
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    27,096Over 3 months through 12 months
    
    
    29,494Over 1 year through 5 years
    
    
    142,913Over 5 years
    
    
    8,363Over 1 year but variable rate
    
    
    Total Loans
    
    $
    207,866
  24




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##### Table of Contents



TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended June 30,2009
    
    
    2008
    
    
    2007Beginning Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Charge Offs:Commercial & Industrial
    
    
    23
    
    
    
    69
    
    
    
    43Real Estate
    
    
    16
    
    
    
    2
    
    
    
    9Consumer
    
    
    238
    
    
    
    304
    
    
    
    342Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    277
    
    
    
    375
    
    
    
    394Recoveries:Commercial & Industrial
    
    
    5
    
    
    
    33
    
    
    
    58Real Estate
    
    
    
    
    
    
    152
    
    
    
    Consumer
    
    
    137
    
    
    
    118
    
    
    
    120Other
    
    
    
    
    
    
    
    
    
    
    Total Recoveries
    
    
    142
    
    
    
    303
    
    
    
    178Net Charge Offs
    
    
    135
    
    
    
    72
    
    
    
    216Provision for Possible Losses
    
    
    135
    
    
    
    72
    
    
    
    216Ending Balance
    
    $
    3,100
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    210,666
    
    
    $
    196,556
    
    
    $
    203,141Average daily loans
    
    $
    205,456
    
    
    $
    200,741
    
    
    $
    202,434
 Percentages:
    
    2009
    
    
    2008
    
    
    2007Allowance for loan losses to end of quarter
total loans
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.5Allowance for loan losses to average loans
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.5Allowance for loan losses to nonperforming assets
    
    
    105.4
    
    
    
    377.1
    
    
    
    310.3Net charge offs to average loans
    
    
    0.07
    
    
    
    0.04
    
    
    
    0.11
  25




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##### Table of Contents



TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  June 30,2009
    
    
    2008
    
    
    2007% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial &
Industrial
    
    
    7.00
    
    
    
    217
    
    
    
    5.55
    
    
    $
    172
    
    
    
    16.03
    
    
    $
    497Real Estate
    
    
    27.90
    
    
    
    865
    
    
    
    13.03
    
    
    
    404
    
    
    
    60.60
    
    
    
    1,879Consumer
    
    
    48.87
    
    
    
    1,515
    
    
    
    47.39
    
    
    
    1,469
    
    
    
    20.18
    
    
    
    626Other
    
    
    1.94
    
    
    
    60
    
    
    
    22.58
    
    
    
    700
    
    
    
    3.19
    
    
    
    98Unallocated
    
    
    14.29
    
    
    
    443
    
    
    
    11.45
    
    
    
    355100
    %
    
    
    3,100
    
    
    
    89
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  June 30,2009
    
    
    2008
    
    
    2007Non-accrual Loans & Accruing Loans Past Due 90 Days or more
    
    $
    2,839
    
    
    $
    692
    
    
    $
    798Other Real Estate
    
    
    101
    
    
    
    130
    
    
    
    201$
    2,940
    
    
    $
    822
    
    
    $
    999Nonperforming Assets as % of Total Loans
    
    
    1.50
    %
    
    
    0.42
    %
    
    
    0.49
    %Non-accrual Loans & Loans Past Due 90 Days or Moreas % of Total Loans
    
    
    1.35
    %
    
    
    0.35
    %
    
    
    0.39
    %
  26




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##### Table of Contents



TABLE 11
AVERAGE DEPOSITS
  Quarter ended June 30,2009
    
    
    2008
    
    
    2007Non-interest bearing deposits
    
    $
    93,456
    
    
    $
    116,239
    
    
    $
    149,894Interest-bearing deposits
    
    
    175,126
    
    
    
    182,318
    
    
    
    202,607Interest-bearing time deposits
    
    
    110,222
    
    
    
    99,917
    
    
    
    87,040Total
    
    $
    378,804
    
    
    $
    398,474
    
    
    $
    439,541
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    12,809Over 3 through 6 months
    
    
    21,224Over 6 through 12 months
    
    
    19,441Over 12 months
    
    
    4,993Total
    
    $
    58,467
  27




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##### Table of Contents



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    
    Average
    
    
    MaximumJune
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate
    
    
    Balance2009Federal funds purchased
and
securities sold under
agreements to repurchase
    
    $
    12,091
    
    
    $
    13,298
    
    
    
    0.33
    %
    
    $
    12,0912008Federal funds purchased
and
securities sold under
agreements to repurchase
    
    $
    15,224
    
    
    $
    21,462
    
    
    
    2.13
    %
    
    $
    15,2242007Federal funds purchased
and
securities sold under
agreements to repurchase
    
    $
    28,698
    
    
    $
    17,937
    
    
    
    1.65
    %
    
    $
    28,698
  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
    
    $
    29,896
    
    
    $
    29,494
    
    
    $
    142,913
    
    
    $
    8,363
    
    
    $
    210,666Investment securities
    
    
    3,310
    
    
    
    1,528
    
    
    
    78,366
    
    
    
    27,471
    
    
    
    110,675Securities available for sale
    
    
    105
    
    
    
    6,007
    
    
    
    37,843
    
    
    
    11,882
    
    
    
    55,837Federal funds sold and securities
purchased under agreements to
resell
    
    
    26,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,622Total interest-earning assets
    
    $
    59,933
    
    
    $
    37,029
    
    
    $
    259,122
    
    
    $
    47,716
    
    
    $
    403,800Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,693
    
    
    
    44,693Total assets
    
    $
    59,933
    
    
    $
    37,029
    
    
    $
    259,122
    
    
    $
    92,409
    
    
    $
    448,493Liabilities and stockholders equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
    
    $
    67,730
    
    
    $
    32,950
    
    
    $
    82,375
    
    
    $
    
    
    
    $
    183,055Time deposits
    
    
    28,595
    
    
    
    66,818
    
    
    
    13,216
    
    
    
    
    
    
    
    108,629Federal funds purchased, and securities
sold under agreements to repurchase
    
    
    12,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,091Total interest-bearing liabilities
    
    $
    108,416
    
    
    $
    99,768
    
    
    $
    95,591
    
    
    $
    
    
    
    $
    303,775Noninterest-bearing deposits
    
    
    18,003
    
    
    
    
    
    
    
    57,438
    
    
    
    10,288
    
    
    
    85,729Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,605
    
    
    
    9,605Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,384
    
    
    
    49,384Total liabilities and
stockholders equity
    
    $
    126,419
    
    
    $
    99,768
    
    
    $
    153,029
    
    
    $
    69,277
    
    
    $
    448,493Interest sensitive gap
    
    $
    (66,486
    )
    
    $
    (62,739
    )
    
    $
    106,093
    
    
    $
    23,132Cumulative interest sensitive gap
    
    $
    (66,486
    )
    
    $
    (129,225
    )
    
    $
    (23,132
    )
    
    $
    Cumulative interest sensitive gap as a percent of total assets
    
    
    -14.82
    %
    
    
    -28.81
    %
    
    
    -5.16
    %
    
    
    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 TOONE YEAR
    
    
    THREE
    
    
    THREE TO
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALDeposits without a
stated maturity
    
    $
    118,683
    
    
    $
    21,203
    
    
    $
    143,308
    
    
    $
    10,288
    
    
    $
    293,482Consumer certificates
of deposit
    
    
    95,413
    
    
    
    8,491
    
    
    
    4,725
    
    
    
    
    
    
    
    108,629Federal funds borrowed
& repurchase agreements
    
    
    12,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,091Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE TOONE YEAR
    
    
    THREE
    
    
    THREE TO
    
    
    OVER FIVEOR LESS
    
    
    YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    6,930
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    6,931Residential real estate
    
    
    5,007
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    5,008Revolving home equity
and credit card lines
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    749Other
    
    
    6,690
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,690Standby letters of credit
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188
  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
 (a)
    
    The Companys annual meeting of shareholders was held on April 2, 2009 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 2012:
 Votes For
    
    
    Votes Withheld
    
    
    Broker Non-VotesScott B. Lemon
    
    
    837,833
    
    
    
    12,922
    
    
    
    -0-Diann M. Payne
    
    
    837,833
    
    
    
    12,922
    
    
    
    -0-Thomas B. Van Antwerp
    
    
    846,584
    
    
    
    -0-
    
    
    
    -0-Julius A. (Jay) Willis, Jr., DMD
    
    
    845,882
    
    
    
    702
    
    
    
    -0-
  Term ExpiresRoyce Cumbest
    
    
    2010Frank J. Hammond, III
    
    
    2010Paul H. (Hal) Moore, Jr., M.D.
    
    
    2010Lynda J. Gautier
    
    
    2011John F. Grafe
    
    
    2011Gerald J. St. Pe
    
    
    2011
 
 Item 5. Other Information
   32




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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.
  33




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##### Table of Contents



SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date:  August 14, 2009
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate:  August 14, 2009
    By:
    /s/ Elise BourgeoisElise BourgeoisCashier
Acting Principal Financial and Accounting Officer  34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    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. 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.
  35