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EX-21 - EXHIBIT 21 - Merchants & Marine Bancorp, Inc. | c14634exv21.htm |
EX-13 - EXHIBIT 13 - Merchants & Marine Bancorp, Inc. | c14634exv13.htm |
EX-31.1 - EXHIBIT 31.1 - Merchants & Marine Bancorp, Inc. | c14634exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - Merchants & Marine Bancorp, Inc. | c14634exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - Merchants & Marine Bancorp, Inc. | c14634exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - Merchants & Marine Bancorp, Inc. | c14634exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-53198
MERCHANTS & MARINE BANCORP, INC.
(Exact name of registrant as specified in charter)
Mississippi | 26-2498567 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation) | Identification No.) |
3118 Pascagoula Street, Pascagoula, Mississippi | 39567 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (228) 762-3311
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class | Name of Exchange on which Registered | |
None | None |
Securities registered to Section 12(g) of the Act:
$2.50 Common Stock, Par Value
$2.50 Common Stock, Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer,
large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity as of the last business day of the registrants most recently
completed second fiscal quarter: $45,335,440 as of June 30, 2010.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date: 1,330,338 shares of common stock as of March 22, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants 2010 Annual Report to Shareholders are incorporated by reference into
Parts I and II of this Form 10-K, and portions of the registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on April 7, 2011 are incorporated by reference into Part III of
this Form 10-K.
TABLE OF CONTENTS
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Exhibit 13 | ||||||||
Exhibit 21 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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Table of Contents
PART I
Item 1. | Business. |
Merchants & Marine Bancorp, Inc. (the Company) was incorporated under the laws of the State
of Mississippi on February 5, 2008. The purpose of the Company was to acquire all of the issued
and outstanding capital stock of Merchants & Marine Bank (the Bank) and act as a one-bank holding
company. On April 24, 2008, the Company acquired 100% of the capital stock of the Bank pursuant to
the terms of a plan of share exchange and agreement. As a result, the Bank became a wholly-owned
subsidiary of the Company.
All of the Companys banking business is conducted through the Bank, a state chartered bank
organized under the laws of the State of Mississippi. The Bank is a full service financial
institution offering a complete range of banking services to individuals, partnerships,
corporations and governmental agencies. At March 14, 2011, the Company employed approximately 129
full-time equivalent employees in its eleven offices. Most of the Companys customers reside
within Jackson and George Counties, Mississippi. Services offered by the Bank include checking
accounts, savings accounts, individual retirement accounts, certificates of deposit and personal,
commercial and mortgage loans.
The Bank also offers a variety of other services, including the direct deposit of government
checks, the sale of travelers checks, night deposit boxes, drive-up and remote teller facilities,
automated teller machines and safe deposit boxes.
The Company is not dependent on any single customer or small group of customers. The Company
has had longstanding relationships with a substantial number of its depositors and the Companys
management expects a general continuation of these relationships.
The Companys principal executive office is located at 3118 South Pascagoula Street,
Pascagoula, Mississippi, which is also the principal location of the Bank. The Company is located
in Jackson and George Counties, Mississippi, and has eleven facilities to serve the residents of
these areas.
The Company maintains Bank branch offices at the following locations to serve customers in
other areas of Jackson and George counties: 2600 Old Mobile Highway, Pascagoula; 1825 Market
Street, Pascagoula; 4619 Main Street, Moss Point; 2235 Highway 90, Gautier; 7616 Highway 613, Moss
Point; 2802 Bienville Boulevard, Ocean Springs; 16831 Highway 63, Moss Point; 21536 Highway 613,
Moss Point; 6416 North Washington Avenue, Ocean Springs; and 11283 Highway 63 South, Lucedale.
As of December 31, 2010, the Company had outstanding 1,330,338 shares of Common Stock held by
approximately 986 holders of record. Since its inception in 1932, the Bank has sought to allocate
the assets of the Bank back into the local communities that it serves. With this philosophy, the
Bank has shown steady growth and has been able to provide the shareholders a return through 245
consecutive quarterly dividends.
Jackson County is Mississippis largest industrial county. Our local industrial base includes
Northrop Grumman, Chevron Products Company, Mississippi Chemical Corporation, Signal International,
Halter Marine, Inc., and Mississippi Power Company. The economy of George County is primarily
dependent on agricultural (timber and cattle) and selected manufacturing industries. Workers have
moved into the Companys communities because of the close proximity to their work and the excellent
school systems in Jackson and George counties.
Financial and Statistical Information
The Companys audited consolidated financial statements, selected financial data, Managements
Discussion and Analysis of Financial Condition and Results of Operations and statistical
information required to be disclosed under Item 1 pursuant to Guide 3 contained in the Companys
Annual Report to Shareholders for the year ended December 31,
2010 (the 2010 Annual Report), filed as Exhibit 13 to this
Form 10-K, are incorporated herein by reference.
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Table of Contents
Regulation and Supervision
As a bank holding company, the Company is subject to regulation under the Bank Holding Company
Act (the BHC Act), and the regulations adopted by the Federal Reserve Board under the BHC Act.
The Company is required to file reports with, and is subject to examination by, the Federal Reserve
Board. The Bank is a Mississippi state chartered nonmember bank, and is therefore subject to the
supervision of, and is regularly examined by, the Mississippi Department of Banking and Consumer
Finance and the Federal Deposit Insurance Corporation (the FDIC).
Under the BHC Act, a bank holding company may not directly or indirectly acquire the ownership
or control of more than five percent of the voting shares or substantially all of the assets of any
company, including a bank, without the prior approval of the Federal Reserve Board. In addition,
bank holding companies are generally prohibited under the BHC Act from engaging in non-banking
activities, subject to certain exceptions. Under the BHC Act, the Federal Reserve Board is
authorized to approve the ownership by a bank holding company of shares of any company whose
activities have been determined by the Federal Reserve Board to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto.
In November, 1999, the Gramm-Leach-Bliley Act of 1999 (the GLB Act) became law. Under the
GLB Act, a financial holding company may engage in activities the Federal Reserve Board
determines to be financial in nature or incidental to such financial activity or complementary to a
financial activity and not a substantial risk to the safety and soundness of depository
institutions or the financial system. Generally, such companies may engage in a wide range of
securities activities and insurance underwriting and agency activities. The Company has not sought
financial holding company status.
A bank holding company is a legal entity separate and distinct from its subsidiary banks.
There are various legal limitations on the extent to which bank subsidiaries may extend credit, pay
dividends or otherwise supply funds to the holding company or its affiliates. In particular,
subsidiary banks are subject to certain restrictions imposed by Federal law on any extensions of
credit to the holding company or, with certain exceptions, other affiliates, on investments in
stock or other securities thereof and on the taking of such securities as collateral for loans to
borrowers. Such restrictions prevent the holding company or such other affiliates from borrowing
from the subsidiary bank unless the loans are secured by specified obligations. Further, such
secured loans by any subsidiary bank to any affiliate are limited in amount to 10% of such banks
capital stock and surplus; and the aggregate of all such loans to all affiliates is limited in
amount to 20% of such banks capital stock and surplus.
Under the cross guarantee provisions of the Federal Deposit Insurance Act (the FDI Act),
any FDIC-insured subsidiary of the Company, such as the Bank, could be liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of any
other FDIC-insured subsidiary also controlled by the Company or (ii) any assistance provided by the
FDIC to any FDIC-insured subsidiary of the Company in danger of default.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act) was signed into law, incorporating numerous financial institution regulatory reforms. Many of
these reforms will be implemented over the course of 2011 through regulations to be adopted by
various federal banking and securities regulations. The following discussion describes the material
elements of the regulatory framework that currently apply. The Dodd-Frank Act implements
far-reaching reforms of major elements of the financial landscape, particularly for larger
financial institutions. Many of its most far-reaching provisions do not directly impact
community-based institutions like the Company. For instance, provisions that regulate derivative
transactions and limit derivatives trading activity of federally-insured institutions, enhance
supervision of systemically significant institutions, impose new regulatory authority over hedge
funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred
securities for Tier 1 capital are among the provisions that do not directly impact the Company
either because of exemptions for institutions below a certain asset size or because of the nature
of the Companys operations. Other provisions that will impact the Company will:
| Change the assessment base for federal deposit insurance from the amount of insured
deposits to consolidated assets less tangible capital, eliminate the ceiling and increase
the size of the floor of the
Deposit Insurance Fund, and offset the impact of the increase in the minimum floor on
institutions with less than $10 billion in assets. |
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| Make permanent the $250,000 limit for federal deposit insurance, increase the cash limit
of Securities Investor Protection Corporation protection to $250,000 and provide unlimited
federal deposit insurance until December 31, 2012 for non-interest-bearing demand
transaction accounts at all insured depository institutions. |
| Repeal the federal prohibition on payment of interest on demand deposits, thereby
permitting depositing institutions to pay interest on business transaction and other
accounts. |
| Centralize responsibility for consumer financial protection by creating a new agency,
the Consumer Financial Protection Bureau, responsible for implementing federal consumer
protection laws, although banks below $10 billion in assets will continue to be examined
and supervised for compliance with these laws by their federal bank regulator. |
| Restrict the preemption of state law by federal law and disallow national bank
subsidiaries from availing themselves of such preemption. |
| Impose new requirements for mortgage lending, including new minimum underwriting
standards, prohibitions on certain yield-spread compensation to mortgage originators,
special consumer protections for mortgage loans that do not meet certain provision
qualifications, prohibitions and limitations on certain mortgage terms and various new
mandated disclosures to mortgage borrowers. |
| Apply the same leverage and risk based capital requirements that apply to insured
depository institutions to holding companies. |
| Permit national and state banks to establish de novo interstate branches at any location
where a bank based in that state could establish a branch, and require that bank holding
companies and banks be well-capitalized and well managed in order to acquire banks located
outside their home state. |
| Impose new limits on affiliated transactions and cause derivative transactions to be
subject to lending limits. |
| Implement corporate governance revisions, including with regard to executive
compensation and proxy access to shareholders that apply to all public companies not just
financial institutions. |
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several
years, and their impact on the Company or the financial industry is difficult to predict before
such regulations are adopted.
The Company has a compliance officer designated to make sure that the Company is in compliance
with state and federal laws.
Community Reinvestment Act
The Community Reinvestment Act requires that, in connection with examinations of financial
institutions within their respective jurisdictions, the federal bank regulatory agencies
responsible for evaluating the Company and the Bank evaluate the record of insured depository
institutions in meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions and applications to open a branch
of the Bank.
Dividends
Under Title 81 of the Mississippi Code of 1972, approval of the Commissioner of Banking and
Consumer Finance is required for declaration of any dividends by the Bank to the Company.
Moreover, there are a number of federal and state banking policies and regulations that restrict
the Banks ability to pay dividends to the Company
and the Companys ability to pay dividends to its shareholders. In particular, because the Bank is
a depository institution and its deposits are insured by the FDIC, it may not pay dividends or
distribute capital assets if it is in default on any assessment due to the FDIC. Also, as described
below, the Bank is subject to regulations which impose certain minimum regulatory capital and
minimum state law earnings requirements that affect the amount of cash available for distribution
to the Company.
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Table of Contents
Under the Dodd-Frank Act, and previously under Federal Reserve policy, the Company is expected
to act as a source of financial strength to the Bank and, where required, to commit resources to
support the Bank. This support can be required at times when it would not be in the best interest
of the Companys shareholders and creditors to provide it. Further, if the Banks capital levels
were to fall below minimum regulatory guidelines, the Bank would need to develop a capital plan to
increase its capital levels and the Company would be required to guarantee the Banks compliance
with the capital plan in order for such plan to be accepted by the federal regulatory authority.
FDICIA
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the
federal banking regulators have assigned each insured institution to one of five categories (well
capitalized adequately capitalized or one of three under capitalized categories) based upon the
three measures of capital adequacy discussed below. All institutions, regardless of their capital
levels, are restricted from making any capital distribution or paying any management fees that
would cause the institution to fail to satisfy the minimum levels for any of its capital
requirements for adequately capitalized status.
The FDIC has issued final regulations that classify insured depository institutions by capital
levels and require the appropriate federal banking regulator to take prompt action to resolve the
problems of any insured institution that fails to satisfy the capital standards. Under such
regulations, a well capitalized bank is one that is not subject to any regulatory order or
directive to meet any specific capital level and that has or exceeds the following capital levels:
a total risk based capital ratio of 10%, a Tier 1 risk based capital ratio of 6%, and a leverage
ratio of 5%. The Bank currently meets the requirement for well capitalized.
An institution that fails to meet the minimum level for any relevant capital measure (an
undercapitalized institution) may be: (i) subject to increased monitoring by the appropriate
federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45
days (which must be guaranteed by the institutions holding company); (iii) subject to asset growth
limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses. The bank regulatory agencies have discretionary authority to reclassify a
well capitalized institution as adequately capitalized or to impose on an adequately
capitalized institution requirements or actions specified for undercapitalized institutions if the
agency determines that the institution is in an unsafe or unsound condition or is engaging in an
unsafe or unsound practice.
A significantly undercapitalized institution may be subject to a number of additional
requirements and restrictions, including (1) orders to sell sufficient voting stock to become
adequately capitalized, (2) requirements to reduce total assets and (3) cessation of receipt of
deposits from correspondent banks. Critically undercapitalized institutions are subject to the
appointment of a receiver or conservator.
Under FDICIA, bank regulatory agencies have prescribed safety and soundness guidelines for all
insured depository institutions relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and compensation. The Bank is assessed quarterly at the rate of 2.908% of insured
deposits for deposit insurance. Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material effect on the Banks liquidity,
capital resources or operations.
Risk-Based Capital Requirements
The federal regulatory agencies have adopted risk-based capital guidelines for banks and bank
holding companies. These risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks to account for off-balance
sheet exposure and to minimize disincentives for holding liquid and lower-risk assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total risk-weighted
assets and off-balance sheet items. The ratios are minimums. The guidelines require all
federally-regulated banks to maintain a minimum risk-based total capital ratio of 8%, of which at
least 4% must be Tier I capital, as described below.
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A banking organizations qualifying total capital consists of two components: Tier I, or
core capital, and Tier 2, or supplementary capital. Tier I capital is an amount equal to the
sum of: (1) common shareholders equity, including adjustments for any surplus or deficit; (2)
non-cumulative perpetual preferred stock; and (3) the companys minority interests in the equity
accounts of consolidated subsidiaries. With limited exceptions for goodwill arising from certain
supervisory acquisitions, intangible assets generally must be deducted from Tier I capital. Other
intangible assets may be included in an amount up to 25% of Tier I capital, so long as the asset is
capable of being separated and sold apart from the banking organization or the bulk of its assets.
Additionally, the market value of the asset must be established on an annual basis through an
identifiable stream of cash flows, and there must be a high degree of certainty that the asset will
hold this market value notwithstanding the future prospects of the banking organization. Finally,
the banking organization must demonstrate that a liquid market exists for the asset. Intangible
assets in excess of 25% of Tier I capital generally are deducted from a banking organizations
regulatory capital. At least 50% of the banking organizations total regulatory capital must
consist of Tier I capital.
Tier 2 capital is generally considered to be an amount equal to the sum of the following:
| the allowance for possible credit losses in an amount up to 1.25% of
risk-weighted assets; |
||
| cumulative perpetual preferred stock with an original maturity of 20 years or
more and related surplus; |
||
| hybrid capital instruments defined as instruments with characteristics of both
debt and equity, perpetual debt and mandatory convertible debt securities; and |
||
| in an amount up to 50% of Tier I capital, eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or more,
including related surplus. |
Investments in unconsolidated banking and finance subsidiaries, investments in securities
subsidiaries and reciprocal holdings of capital instruments must be deducted from capital. The
federal regulatory agencies may require other deductions on a case-by-case basis.
Under the risk-weighted capital guidelines, balance sheet assets and certain off-balance sheet
items like standby letters of credit are assigned to one of four risk-weight categories according
to the nature of the asset and its collateral or the identity of any obligor or guarantor. These
four categories are 0%, 20%, 50% or 100%. For example, cash is assigned to the 0% risk category,
while loans secured by one-to-four family residences are assigned to the 50% risk category. The
aggregate amount of assets and off-balance sheet items in each risk category is adjusted by the
risk-weight assigned to that category to determine weighted values, which are added together to
determine the total risk-weighted assets for the banking organization. Accordingly, an asset, like
a commercial loan, which is assigned to a 100% risk category, is included in risk-weighted assets
at its nominal face value, whereas a loan secured by a single-family home mortgage is included at
only 50% of its nominal face value. The application ratios are equal to capital, as determined,
divided by risk-weighted assets, as determined.
Leverage Capital Requirements
The federal regulatory agencies have issued a final regulation requiring certain banking
organizations to maintain additional capital of 1% to 2% above a 3% minimum Tier I leverage capital
ratio equal to Tier I capital, less intangible assets, to total assets. In order for an institution
to operate at or near the minimum Tier I leverage capital ratio of 3%, the banking regulators
expect that the institution would have well-diversified risk, no undue rate risk exposure,
excellent asset quality, high liquidity and good earnings. In general, the bank would have to be
considered a strong banking organization, rated in the highest category under the bank rating
system and have no significant plans for expansion. Higher Tier I leverage capital ratios of up to
5% will generally be required if all of the above characteristics are not exhibited or if the
institution is undertaking expansion, seeking to engage in new activities or otherwise faces
unusual or abnormal risks.
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Institutions not in compliance with these regulations are expected to be operating in
compliance with a capital plan or agreement with that institutions federal bank regulator. If they
do not do so, they are deemed to be engaging in an unsafe and unsound practice and may be subject
to enforcement action. Failure to maintain a Tier I leverage capital ratio of at least 2% of assets
constitutes an unsafe and unsound practice and may result in enforcement action against an
institution justifying termination of that institutions FDIC insurance.
In late 2010, the Basel Committee on Banking Supervision issued Basel III, a new capital
framework for banks and bank holding companies. If implemented in the United States, Basel III will
impose a stricter definition of capital, with more focus on common equity. At this time, the
Company does not know whether Basel III will be implemented in the United States, and if so
implemented whether it will be applicable to the Company and the Bank, because by its terms it is
applicable only to internationally active banks. But, if Basel III is implemented in the United
States and becomes applicable to the Company, the Company and the Bank would likely be subject to
higher minimum capital ratios than those to which the Company and the Bank are currently subject.
At December 31, 2010, the Banks Tier 1 risk-based capital, total risk-based capital and
leverage ratios were 19.7%, 18.6% and 11.1% respectively.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal)
authorized interstate acquisitions of banks and bank holding companies without geographic
limitation beginning on June 1, 1997. In addition, on that date, Riegle-Neal authorized a bank to
merge with a bank in another state as long as neither of the states has opted out of interstate
branching between the date of enactment of Riegle-Neal and May 1, 1997.
Federal Deposit Insurance Reform Act of 2005
The FDIC has adopted a risk-based assessment system for insured depository institutions that
takes into account the risks attributable to different categories and concentrations of assets and
liabilities. In early 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005, which
made certain changes to the Federal deposit insurance program. These changes included merging the
Bank Insurance Fund and the Savings Association Insurance Fund, increasing retirement account
coverage to $250,000 and providing for inflationary adjustments to general coverage beginning in
2010, providing the FDIC with authority to set the funds reserve ratio within a specified range,
and requiring dividends to banks if the reserve ratio exceeds certain levels. The federal statute
grants banks an assessment credit based on their share of the assessment base on December 31, 1996,
and the amount of the credit can be used to reduce assessments in any year subject to certain
limitations.
Capital Adequacy under the Dodd-Frank Act
The Dodd-Frank Act contains a number of provisions dealing with capital adequacy of insured
depository institutions and their holding companies, and for the most part will result in insured
depository institutions and their holding companies being subject to more stringent capital
requirements. Under the so-called Collins Amendment to the Dodd-Frank Act, federal regulators were
directed to establish minimum leverage and risk-based capital requirements for, among other
entities, banks and bank holding companies on a consolidated basis. These minimum requirements
cannot be less than the generally applicable leverage and risk-based capital requirements
established for insured depository institutions nor quantitatively lower than the leverage and
risk-based capital requirements established for insured depository institutions that were in effect
as of the date that the Dodd-Frank Act was enacted. These requirements in effect create capital
level floors for bank holding companies similar to those in place currently for insured depository
institutions.
The Emergency Economic Stabilization Act (EESA) of 2008
The EESA provided for a temporary increase in the basic limit on federal deposit insurance
coverage from $100,000 to $250,000 per depositor. This increased level of basic deposit insurance
limit was made permanent by the Dodd-Frank Act. In addition, on October 14, 2008, the FDIC
instituted a temporary unlimited FDIC coverage of non-interest bearing deposit transaction
accounts. Following passage of the Dodd-Frank Act, an institution can provide full coverage on
non-interest bearing transaction accounts until December 31, 2012. The Dodd-Frank Act also
repealed the prohibition on paying interest on demand transaction accounts, but did not extend
unlimited insurance protection for these accounts.
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The PATRIOT Act of 2001
The President of the United States signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the Patriot Act), into law on
October 26, 2001. The Patriot Act established a wide variety of new and enhanced ways of combating
international terrorism. The provisions that affect banks (and other financial institutions) most
directly are contained in Title III of the act. In general, Title III amended existing law -
primarily the Bank Secrecy Act to provide the Secretary of U.S. Department of the Treasury and
other departments and agencies of the federal government with enhanced authority to identify,
deter, and punish international money laundering and other crimes.
Among other things, the Patriot Act prohibits financial institutions from doing business with
foreign shell banks and requires increased due diligence for private banking transactions and
correspondent accounts for foreign banks. In addition, financial institutions will have to follow
new minimum verification of identity standards for all new accounts and will be permitted to share
information with law enforcement authorities under circumstances that were not previously
permitted. These and other provisions of the Patriot Act became effective at varying times and the
Treasury and various federal banking agencies are responsible for issuing regulations to implement
the law.
Future Regulation
The banking industry is generally subject to extensive regulatory oversight. The Company, as
a publicly held bank holding company, and the Bank, as a state-chartered bank with deposits insured
by the FDIC, are subject to a number of laws and regulations. Many of these laws and regulations
have undergone significant change in recent years. In July 2010, the U.S. Congress passed, and
President Obama signed into law, the Dodd-Frank Act, which includes significant consumer protection
provisions related to residential mortgage loans that is likely to increase our regulatory
compliance costs. These laws and regulations impose restrictions on activities, minimum capital
requirements, lending and deposit restrictions and numerous other requirements. Future changes to
these laws and regulations, and other new financial services laws and regulations, are likely and
cannot be predicted with certainty. With the enactments of EESA and the Dodd-Frank Act and the
significant amount of regulations that are to come from the passage of that legislation, the nature
and extent of the future legislative and regulatory changes affecting financial institutions and
the resulting impact on those institutions is very unpredictable at this time. The Dodd-Frank Act,
in particular, will require that a significant number of new regulations be adopted by various
financial regulatory agencies over 2011 and 2012.
Monetary Policy
The Bank is affected by commercial bank credit policies of regulatory authorities, including
the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the
national supply of bank credit in order to attempt to combat recessionary and curb inflationary
pressures. Among the instruments of monetary policy used by the Federal Reserve Board to implement
these objectives are open market operations in U.S. Government securities, changes in discount
rates on member borrowings, changes in reserve requirements against bank deposits and limitations
on interest rates which member banks may pay on time and savings deposits. The monetary policies of
the Federal Reserve Board have had a significant effect on the operating results of all commercial
banks, whether nonmembers such as the Bank or members, in the past and are expected to continue to
do so in the future.
The Bank is a state chartered bank and comes under the supervision of the Mississippi
Department of Banking and Consumer Finance and the FDIC. The Bank is governed by the laws of the
state of Mississippi and federal banking laws under the FDIC and the Federal Reserve Act. The
Company is also regulated by other agencies including, but not limited to, the Internal Revenue
Service, Occupational Safety and Health Administration and the Department of Labor.
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Competition
The Company, through its subsidiary bank, competes with national and state banks for deposits,
loans, and trust and other services.
The banking environment in Jackson and George Counties is highly competitive. Jackson County
has eight banks, one savings and loan association and six credit unions in the Companys immediate
market. George County has four banks and two credit unions in the Companys immediate market. The
Bank is the only locally owned independent bank in the Jackson County market. In Jackson County,
the Company competes with several large regional multi-bank holding company banks headquartered in
North Carolina, Alabama and Mississippi, along with three smaller Mississippi chartered banks that
have branches in the Companys market. The credit union market system is also very strong, with
both Navigator Credit Union, the credit union for Northrop Grumman, the states largest private
employer, and Keesler Federal Credit Union, one of the largest credit unions in the world, located
in the Companys market. In the latest market share information available from Sheshunoff, in June
of 2010, the Company had the second largest market share of all financial institutions in Jackson
County, with 25.49% of the Jackson County market. The market share in June 2010 for George County
was 8.79%.
Given the competitive market place, the Company makes no predictions as to how its relative
position will change in the future.
Available Information
The Company maintains a website at www.mandmbank.com. The Company is subject to the reporting
requirements of the Exchange Act, and files an annual report on Form 10-K which also serves as the
Companys annual disclosure statement under applicable Securities and Exchange Commission (the
SEC) regulations, quarterly and current reports, proxy statements and other information with the
SEC. Our current SEC filings and accompanying exhibits may be inspected without charge at the
public reference facilities of the SEC located at 100 F Street, N. E., Washington, D.C. 20549. You
may obtain copies of this information at prescribed rates. The SEC also maintains a website that
contains reports, proxy statements, registration statements and other information. The SEC website
address is www.sec.gov. You may call the SEC at 1-800-SEC-0330 to obtain further information on the
operations of the public reference room. Additionally, the Company voluntarily will provide paper
copies of its filings, free of charge, upon request made to Royce Cumbest, President and Chief
Executive Officer, Merchants & Marine Bancorp, Inc., 3118 South Pascagoula Street, Pascagoula,
Mississippi 39567 (telephone: 228-762-3311).
Item 1A. | Risk Factors. |
Negative developments in the financial services industry and U.S. and global credit markets
may adversely impact the Companys operations and results.
Negative developments throughout 2008 and into 2009 in the capital markets have resulted in
uncertainty in the financial markets in general with the expectation of the general economic
downturn continuing in 2011. Although the Federal Reserve has issued statements that economic data
suggests strongly that the recession ended in the latter half of 2009, the Company believes that it
will continue to experience a challenging economic environment in 2011, and the Company expects
that its results of operations will continue to be negatively impacted as a result. There can be no
assurance that the economic conditions that have adversely affected the financial services
industry, and the capital, credit and real estate markets generally or the Company in particular
will improve, in which case the Company could continue to experience reduced earnings and
write-downs of assets, and could face capital and liquidity constraints or other business
challenges. Loan portfolio performances have deteriorated at many institutions resulting from,
amongst other factors, a weak economy and a decline in the value of the collateral supporting their
loans. The competition for the Companys deposits has increased significantly due to liquidity
concerns at many of these same institutions. Stock prices of bank holding companies, like the
Company, have been negatively affected by the current condition of the financial markets, as has
the Companys ability, if needed, to raise capital or borrow in the debt markets compared to recent
years.
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The Companys loan portfolio includes a significant amount of real estate loans, including
construction and development loans, which loans have a greater credit risk than residential
mortgage loans.
As of December 31, 2010, approximately 72% of the Companys loans were secured by real estate.
Of this amount, approximately 53% were commercial real estate loans, 28% were residential real
estate loans, 18% were construction and development loans and 1% were other real estate loans. In
total, these loans make up approximately 88% of the Companys nonperforming loans as of December
31, 2010. Construction and development lending is generally considered to have relatively high
credit risks because the principal is concentrated in a limited number of loans with repayment
dependent on the successful operation of the related real estate project. Consequently, the asset
quality of many of these loans have deteriorated as a result of the current adverse conditions
within the Companys market. Throughout 2010, the number of newly constructed homes or lots sold in
the Companys market area continued to decline, negatively affecting collateral values and
contributing to increased provision expense and higher levels of non-performing assets. A continued
reduction in residential real estate market prices and demand could result in further price
reductions in home and land values adversely affecting the value of collateral securing the
construction and development loans that the Company holds. These adverse economic and real estate
market conditions may lead to further increases in non-performing loans and other real estate
owned, increased charge offs from the disposition of non-performing assets, increases in provision
for loan losses and increases in operating expenses as a result of the allocation of management
time and resources to the collection and work out of these loans, all of which would negatively
impact the Companys financial condition and results of operations.
The Company is geographically concentrated in Jackson and George Counties, Mississippi and its
surrounding counties and changes in local economic conditions could impact its profitability.
The Company operates primarily in Jackson and George counties and the surrounding counties and
substantially all of its loan customers and most of its deposit and other customers live or have
operations in this same geographic area. Accordingly, the Companys success significantly depends
upon the growth in population, income levels, and deposits in these areas, along with the continued
attraction of business ventures to the area, and its profitability is impacted by the changes in
general economic conditions in this market. Economic conditions in the Companys markets weakened
during 2008 and 2009 and remained challenging in 2010, negatively affecting the Companys
operations, particularly the real estate construction and development segment of the Companys loan
portfolio. Additionally, unemployment levels in the Companys market areas
remained elevated in 2010. The Company cannot assure you that economic conditions in its markets
will improve during 2011 or thereafter, and continued weak economic conditions in the Companys
markets could cause the Company to constrict its growth rate, affect the ability of its customers
to repay their loans and generally affect the Companys financial condition and results of
operations.
The Company has increased levels of other real estate, primarily as a result of foreclosures,
and it anticipates higher levels of expense related to other real estate owned.
As
the Company has begun to resolve non-performing real estate loans, it has increased the
level of other real estate owned primarily through foreclosures acquired from builders and from
residential land developers. Expense related to other real estate owned consists of three types of
charges: maintenance costs, valuation adjustments owed on new appraisal values and gains or losses
on disposition. These charges will likely remain at above historical levels as the Companys level
of other real estate owned remains elevated, and also if local real estate values continue to
decline, negatively affecting the Companys results of operations.
Environmental liability associated with commercial lending could result in losses.
In the course of business, the Bank may acquire, through foreclosure, properties securing
loans it has originated or purchased which are in default. Particularly in commercial real estate
lending, there is a risk that hazardous substances could be discovered on these properties. In this
event, the Company, or the Bank, might be required to remove these substances from the affected
properties at the Companys sole cost and expense. The cost of this removal could substantially
exceed the value of affected properties. The Company may not have adequate remedies against the
prior owner or other responsible parties and could find it difficult or impossible to sell the
affected properties. These events could have a material adverse effect on the Companys business,
results of operations and financial condition.
The Company could sustain losses if its asset quality declines.
The Companys earnings are significantly affected by its ability to properly originate,
underwrite and service loans. The Company could sustain losses if it incorrectly assesses the
creditworthiness of its borrowers or
fails to detect or respond to deterioration in asset quality in a timely manner. Problems with
asset quality could cause the Companys interest income and net interest margin to decrease and its
provisions for loan losses and non-interest expenses to increase, which could adversely affect
its results of operations and financial condition.
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An inadequate allowance for loan losses would reduce the Companys earnings.
The risk of credit losses on loans varies with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower over the term of the
loan and, in the case of a collateralized loan, the value and marketability of the collateral for
the loan. Management maintains an allowance for loan losses based upon, among other things,
historical experience, an evaluation of economic conditions and regular reviews of delinquencies
and loan portfolio quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectibility of the loan portfolio and provides an allowance for
loan losses based upon a percentage of the outstanding balances and takes a charge against earnings
with respect to specific loans when their ultimate collectibility is considered questionable. If
managements assumptions and judgments prove to be incorrect and the allowance for loan losses is
inadequate to absorb losses, the Companys earnings and capital could be significantly and
adversely affected.
In addition, federal and state regulators periodically review the Companys loan portfolio and
may require it to increase its allowance for loan losses or recognize loan charge-offs. Their
conclusions about the quality of the Companys loan portfolio may be different than the Companys.
Any increase in the Companys allowance for loan losses or loan charge offs as required by these
regulatory agencies could have a negative effect on the Companys operating results. Moreover,
additions to the allowance may be necessary based on changes in economic and real estate market
conditions, new information regarding existing loans or borrowers, identification of additional
problem loans and other factors, both within and outside of the Companys managements control.
These additions may require increased provision expense which would negatively impact the Companys
results of operations.
Liquidity needs could adversely affect the Companys results of operations and financial
condition.
The Company relies on dividends from the Bank as its primary source of funds. The Bank relies
on customer deposits and loan repayments as its primary source of funds. While scheduled loan
repayments are a relatively stable source of funds, they are subject to the ability of borrowers to
repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of
factors, including changes in economic conditions, adverse trends or events affecting business
industry groups, reductions in real estate values or markets, business closings or lay-offs,
inclement weather, natural disasters and international instability. Additionally, deposit levels
may be affected by a number of factors, including rates paid by competitors, general interest rate
levels, deposit customers views on the Banks financial strength, returns available to customers
on alternative investments and general economic conditions. Accordingly, the Bank may be required
from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise
fund operations. Such sources include federal funds lines of credit from corresponding banks.
While the Company believes that these sources are currently adequate, there can be no assurance
they will be sufficient to meet future liquidity demands.
Competition from financial institutions and other financial service providers may adversely
affect the Companys profitability.
The banking business is highly competitive and the Company experiences competition in each of
its markets from many other financial institutions. The Company competes with commercial banks,
credit unions, savings and loan associations, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market funds, and other mutual funds, as
well as other community banks and super-regional and national financial institutions that operate
offices in the Companys primary market areas and elsewhere. Many of the Companys competitors are
well-established, larger financial institutions that have greater resources and lending limits and
a lower cost of funds than the Company has.
The Company competes with these other financial institutions both in attracting deposits and
in making loans. In addition, the Company has to attract its customer base from other existing
financial institutions and from new residents. This competition has made it more difficult for the
Company to make new loans and at times has forced the Company to offer higher deposit rates. Price
competition for loans and deposits might result in the Company earning less interest on its loans
and paying more interest on its deposits, which reduces the Companys
net interest income. The Companys profitability depends upon its continued ability to successfully
compete with an array of financial institutions in its market areas.
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The Companys key management personnel may leave at any time.
The Companys future success depends to a significant extent on the continued service of its
key management personnel, especially Royce Cumbest, its President and Chief Executive Officer. The
Company does not have employment agreements with any of its personnel and can provide no assurance
that it will be able to retain any of its key officers and employees or attract and retain
qualified personnel in the future.
The Company, as well as the Bank, operates in a highly regulated environment that is becoming
more so and is supervised and examined by various federal and state regulatory agencies who may
adversely affect the Companys ability to conduct business.
The Mississippi Department of Banking and Consumer Finance and the Board of Governors of the
Federal Reserve supervise and examine the Bank and the Company, respectively. Because the Banks
deposits are federally insured, the FDIC also regulates its activities. These and other regulatory
agencies impose certain regulations and restrictions on the Bank, including:
| explicit standards as to capital and financial condition; |
||
| limitations on the permissible types, amounts and extensions of credit and investments; |
||
| restrictions on permissible non-banking activities; and |
||
| restrictions on dividend payments. |
Federal and state regulatory agencies have extensive discretion and power to prevent or remedy
unsafe or unsound practices or violations of law by banks and bank holding companies. As a result,
the Company must expend significant time and expense to assure that it is in compliance with
regulatory requirements and agency practices.
The Company, as well as the Bank, also undergoes periodic examinations by one or more
regulatory agencies. Following such examinations, the Company or the Bank may be required, among
other things, to make additional provisions to its allowance for loan loss or to restrict its
operations. These actions would result from the regulators judgments based on information
available to them at the time of their examination. The Banks operations are also governed by a
wide variety of state and federal consumer protection laws and regulations. These federal and state
regulatory restrictions limit the manner in which the Company and the Bank may conduct business and
obtain financing. These laws and regulations can and do change
significantly from time to time. Any such change could adversely
affect the Companys results of operations.
National or state legislation or regulation may increase the Companys expenses and reduce
earnings.
Federal bank regulators are increasing regulatory scrutiny, and additional restrictions
(including those originating from the Dodd-Frank Act) on financial institutions have been proposed
or adopted by regulators and by Congress. Changes in tax law, federal legislation, regulation or
policies, such as bankruptcy laws, deposit insurance, consumer protection laws, and capital
requirements, among others, can result in significant increases in the Companys expenses and/or
charge-offs, which may adversely affect its earnings. Changes in state or federal tax laws or
regulations can have a similar impact. Furthermore, financial institution regulatory agencies are
expected to continue to be very aggressive in responding to concerns and trends identified in
examinations, including the continued issuance of additional formal or informal enforcement or
supervisory actions. These actions, whether formal or informal, could result in the Companys
agreeing to limitations or to take actions that limit its operational flexibility, restrict its
growth or increase its capital or liquidity levels. Failure to comply with any formal or informal
regulatory restrictions, including informal supervisory actions, could lead to further regulatory
enforcement actions. Negative developments in the financial services industry and the impact of
recently enacted or new legislation in response to those developments could negatively impact the
Companys operations by restricting its business operations, including its ability to originate or
sell loans, and adversely impact its financial performance. In addition, industry, legislative or
regulatory developments may cause the Company to materially change its existing strategic
direction, capital strategies, compensation or operating plans.
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Implementation of the various provisions of the Dodd-Frank Act may increase our operating
costs or otherwise have a material affect on our business, financial condition or results of
operations.
On July 21, 2010, President Obama signed the Dodd-Frank Act. This landmark legislation
includes, among other things, (i) the creation of a Financial Services Oversight Counsel to
identify emerging systemic risks and improve interagency cooperation; (ii) the elimination of the
Office of Thrift Supervision and the transfer of oversight of federally chartered thrift
institutions and their holding companies to the Office of the Comptroller of the Currency and the
Federal Reserve; (iii) the creation of a Consumer Financial Protection Agency authorized to
promulgate and enforce consumer protection regulations relating to financial products that would
affect banks and non-bank finance companies; (iv) the establishment of new capital and prudential
standards for banks and bank holding companies; (v) the termination of investments by the U.S.
Treasury under the Troubled Asset Relief Program; (vi) enhanced regulation of financial markets, including the derivatives,
securitization and mortgage origination markets; (vii) the elimination of certain proprietary
trading and private equity investment activities by banks; (viii) the elimination of barriers to de
novo interstate branching by banks; (ix) a permanent increase of the previously implemented
temporary increase of FDIC deposit insurance to $250,000; (x) the authorization of interest-bearing
transaction accounts; and (xi) changes in how the FDIC deposit insurance assessments will be
calculated and an increase in the minimum designated reserve ratio for the Deposit Insurance Fund.
Certain provisions of the legislation are not immediately effective or are subject to required
studies and implementing regulations. Further, community banks with less than $10 billion in assets
(like the Company) are exempt from certain provisions of the legislation. The Company cannot
predict how this significant new legislation may be interpreted and enforced or how implementing
regulations and supervisory policies may affect it. There can be no assurance that these or future
reforms will not significantly increase the Companys compliance or operating costs or otherwise
have a significant impact on the Companys business, financial condition and results of operations.
The Companys Common Stock is thinly traded, and recent prices may not reflect the prices at
which the stock would trade in an active trading market.
The Companys Common Stock is not traded through an organized exchange, but rather is traded
in individually-arranged transactions between buyers and sellers. Therefore, recent prices may not
necessarily reflect the actual value of the Companys Common Stock. A shareholders ability to sell
the shares of Company Common Stock in a timely manner may be substantially limited by the lack of a
trading market for the Common Stock.
An investment in the Companys Common Stock is not an insured deposit.
The Companys Common Stock is not a bank deposit and, therefore, is not insured against loss
by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment
in the Companys Common Stock is inherently risky for the reasons described in this Risk Factors
section and elsewhere in this report and is subject to equity market forces like other common
stocks. As a result, if you acquire the Companys stock, you could lose some or all of your
investment.
Item 1B. | Unresolved Staff Comments. |
Inapplicable.
Item 2. | Properties. |
(a) Company Facilities. At December 31, 2010, the Company premises consisted of a main office
and ten branches of the Bank, all within or surrounding the cities of Pascagoula, Moss Point,
Gautier and Ocean Springs (Jackson County, Mississippi) and Lucedale (George County, Mississippi).
The Company owns all properties on which the Company and Bank premises are maintained. For
additional information, see Note 4 Property and Equipment to the Financial Statements included on
page 17 in the Companys 2010 Annual Report filed as Exhibit 13 hereto.
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The Companys operating properties are more fully described as follows:
(1) Main Office. A new 40,000 square foot two story building is located on
approximately three acres, near the center of the business district in the City of Pascagoula.
Construction began on the facility in 2005 and was completed in early 2007. The doors were opened
for business on March 5, 2007. The new office is a full service bank, houses the computer center,
operations, and administrative offices. It has two ATMs.
(2) Market Street Branch. A free-standing one-story masonry building located at
1825 Market Street, in the City of Pascagoula. The building was constructed in 1956 and extensive
renovations were done in 2008. The branch offers drive-up facilities, as well as an ATM.
(3) Gautier Branch. A contemporary one-story masonry, steel and glass building located
on approximately 1.8 acres on the south side of U.S. Highway 90 east of Ladnier Road in the City of
Gautier. It is located approximately three-quarters of a mile from a shopping mall on the north
side of Highway 90. The branch, which was built in 1972, was enlarged during 1980, at which time
drive-up teller lanes and expanded parking areas were added to the facility. The branch offers
full banking services and two ATMs.
(4) Moss Point Branch. A two-story 7,000 square foot masonry building located at 4619
Main Street, Moss Point. The building was constructed in the 1970s. The Company acquired the
building and property in 2003 and extensive renovations were done to the first floor. The branch
offers full banking services, drive-up facilities and an ATM.
(5) Escatawpa Branch. Located on approximately one acre near the intersection of the
east side of State Highway 613 and the west side of Elder Street in the community of Escatawpa.
The physical address of this branch is 7616 Highway 613, Moss Point. The property was acquired by
the Company in 1972 and a full-service bank was opened at this location during mid-1982. The
branch offers drive-up facilities, as well as an ATM.
(6) Bel-Air Branch. A free-standing one-story masonry building located at 2600 Old
Mobile Highway, within the Bel-Air Shopping Center in the City of Pascagoula. Previously leased,
this property was acquired in 1983. The branch offers drive-up facilities, as well as an ATM.
(7) Wade Branch. A free-standing one-story lap sided building containing
approximately 1,900 square feet, together with drive-up teller facilities and an ATM. The branch
offers limited banking services at this time. This branch is located at 16831 Highway 613, Moss
Point and is located in the Wade Community.
(8) Ocean Springs Branch. A free-standing one story masonry building located on 2.3
acres of land at 2802 Bienville Boulevard, Ocean Springs. Construction of this facility was
completed, and operation of the branch began, in August 1994. The branch offers full banking
services, drive-up teller facilities and an ATM.
(9) Hurley Branch. A free-standing one story masonry building located at 21536
Highway 63, Moss Point and is located in the Hurley Community. Construction on this facility began
in 2007 and was completed in 2008. The branch offers full banking services, drive-up facilities
and an ATM.
(10) St. Martin Branch. A free-standing one-story masonry building located on 1 acre
of land at 6416 North Washington Avenue, Ocean Springs. Construction of the facility was
completed, and operation of the branch began, in February 2000. The branch offers full banking
services, drive-up teller facilities and an ATM.
(11) Lucedale Branch. A free-standing one-story masonry building located on 0.90
acres of land located at 11283 Highway 63 South, Lucedale. The branch was purchased from Union
Planters Bank, National Association in June 2001, and operation of the branch began in June 2001.
The branch offers full banking services, drive-up teller facilities and an ATM.
In addition to the foregoing branches, the Company has ATMs and night depositories in various
locations in Jackson County.
(b) Other Real Estate. The only non-banking properties presently owned by the Company are
properties acquired from time to time in connection with the foreclosure of loans and seven plus
acres located adjacent to the St. Martin branch.
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Item 3. | Legal Proceedings. |
Other than ordinary routine litigation incidental to the business of the Company, there are no
pending legal proceedings with respect to the Company as of the date hereof.
Item 4. | Removed and Reserved. |
PART II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. |
At December 31, 2010, the Companys authorized capital stock consisted of 5,000,000 shares of
Common Stock, par value $2.50 per share, of which 1,330,388 were issued and outstanding. The
Common Stock is not traded on an exchange nor is there a known active trading market. As of
December 31, 2010, the Common Stock of the Company was held of record by 986 stockholders. Based
solely on information made available to the Company from a limited number of buyers and sellers,
the Company believes that the following table sets forth the quarterly range of sales prices for
the Companys stock during the years 2010 and 2009.
Stock Prices
2010 | High | Low | ||||||
1st Quarter |
$ | 40.50 | $ | 40.00 | ||||
2nd Quarter |
40.00 | 40.00 | ||||||
3rd Quarter |
40.00 | 40.00 | ||||||
4th Quarter |
40.00 | 40.00 |
2009 | High | Low | ||||||
1st Quarter |
$ | 40.00 | $ | 40.00 | ||||
2nd Quarter |
42.00 | 40.00 | ||||||
3rd Quarter |
41.00 | 40.00 | ||||||
4th Quarter |
41.00 | 40.00 |
During each quarter of 2010 and 2009, cash dividends on Common Stock were paid as follows.
2010 | 2009 | |||||||
1st Quarter |
$ | 0.25 | $ | 0.25 | ||||
2nd Quarter |
0.30 | 0.30 | ||||||
3rd Quarter |
0.25 | 0.25 | ||||||
4th Quarter |
0.55 | 0.55 | ||||||
Total |
$ | 1.35 | $ | 1.35 |
Although no assurances can be given, the Company anticipates that cash dividends on shares of
the Companys Common Stock will continue to be paid during 2011, subject to the discretion of the
Board of Directors.
Item 6. | Selected Financial Data. |
Information required by this item is included under the captions Summary of Operations and
Financial Highlights in the Companys 2010 Annual Report filed as Exhibit 13 hereto, incorporated
herein by reference.
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Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Information required by this item is included under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operations in the Companys 2010 Annual Report
filed as Exhibit 13 hereto, incorporated herein by reference.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The Company’s primary component
of market risk is interest rate volatility. Fluctuations in interest rates will
ultimately impact both the level of income and expense recorded on a large
portion of the Company’s assets and liabilities, and the market value of
all interest-earning assets and interest-bearing liabilities, other than those
which possess a short term to maturity. Based upon the nature of the
Company’s operation, the Company is not subject to foreign currency
exchange or commodity price risk.
Interest rate risk management is an
integral part of the financial success of the Company. The process of interest
rate risk management includes the monitoring of each component of the balance
sheet and its sensitivity to interest rate changes. Management monitors the
day-to-day exposure to changes in interest rates in response to loan and
deposit flows and makes adjustments accordingly.
In addition to using traditional gap
tables, the Company uses an earnings forecast model that simulates multiple
interest rate scenarios and the effects on the Company’s net interest
margin. The model analyzes the earnings risk by revealing the probability of
reaching future income levels based on balance sheet changes caused by interest
rate fluctuations. The model and traditional gap analysis indicate the Company
is liability sensitive, which means that in a rising rate environment, the
Company’s net interest margin will generally decrease.
There have been no material changes in
reported market risks during the year ended December 31, 2010.
A table providing information about the Companys financial
instruments that are sensitive to changes in interest rates as of
December 31, 2010, is included as Table 14 under the caption
Management Discussion and Analysis of Financial Condition
and Results of Operation in the Companys 2010 Annual
Report filed as Exhibit 13 hereto, incorporated herein by reference.
Item 8. | Financial Statements and Supplementary Data. |
Information
required by this item is incorporated herein by reference to pages 3 to 28 of the
Companys 2010 Annual Report filed as Exhibit 13 hereto, incorporated herein by reference.
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
Item 9A. | Controls and Procedures. |
The Company maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Exchange Act, that are designed to ensure that information required
to be disclosed in the reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is accumulated and communicated
to the Companys management, including its Chief Executive Officer and its Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief
Executive Officer and Chief Financial Officer of the Company carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls and procedures as of
the end of the period covered by this report. Based on the evaluation of these disclosure controls
and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective as of the end of the period covered by
this report. It should be noted that any system of controls, however well designed and operated,
can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
In addition, the design of any control system is based in part upon certain assumptions about the
likelihood of future events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the
fourth quarter of 2010 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
Managements Report On Internal Control Over Financial Reporting
The management of Merchants & Marine Bancorp, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. This internal control system was
designed to provide reasonable assurance to the companys management and board of directors
regarding the preparation and fair presentation of published financial statements.
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All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Merchants & Marine Bancorp, Inc. management assessed the effectiveness of the companys
internal control over financial reporting as of December 31, 2010. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of
December 31, 2010, the companys internal control over financial reporting is effective based on
those criteria.
This annual report does not include an attestation report of the companys registered public
accounting firm regarding internal control over financial reporting because that requirement under
Section 404 of the Sarbanes Oxley Act of 2002 was permanently removed for non-accelerated filers
pursuant to the provisions of Section 989(G) set forth in the Dodd-Frank Act.
Item 9B. | Other Information. |
Inapplicable.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
Information concerning the directors and executive officers of the Company required by Item
401 is included under the caption Proposal 1: Election of Directors and Executive Officers of
the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on April 7, 2011,
incorporated herein by reference. Information required by Items 405, 406 and 407 of Regulation S-K are
included under the headings Board Committees and Code of Ethics, under the caption Corporate
Governance and under the heading Section 16(a) Beneficial Ownership Reporting Compliance under
the caption Stock Ownership of the Companys Proxy Statement for the Annual Meeting of
Shareholders to be held on April 7, 2011, incorporated herein by reference.
Item 11. | Executive Compensation. |
Information required by this item is included under the caption Executive Compensation in
the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on April 7, 2011,
incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. |
Information required by this item is included under the heading Security Ownership of Certain
Beneficial Owners and Management under the caption Stock Ownership of the Companys Proxy
Statement for the Annual Meeting of Shareholders to be held on April 7, 2011, incorporated herein
by reference.
The Company does not have any compensation plans under which it authorizes shares of Common
Stock for issuance.
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information required by this item is included under the headings Certain Transactions and
Director Independence under the caption Corporate Governance in the Companys Proxy Statement
for the Annual Meeting of Shareholders to be held on April 7, 2011, incorporated herein by
reference.
Item 14. | Principal Accountant Fees and Services. |
Information required by this item is included under the caption Relationship with Principal
Accountants in the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on
April 7, 2011, incorporated herein by reference.
16
Table of Contents
PART IV
Item 15. | Exhibits, Financial Statement Schedules. |
(a)(1) | Financial Statements. See Item 8. |
||
(a)(2) | Financial Statement Schedules. Inapplicable. |
||
(a)(3) | Exhibits. See Index to Exhibits. |
17
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MERCHANTS & MARINE BANCORP, INC. |
||||
March 25, 2011 | By: | /s/ Royce Cumbest | ||
Royce Cumbest | ||||
Chairman of the Board, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacities and on the
dates indicated.
Signature | Title | Date | ||
/s/ Royce Cumbest
|
Chairman of the Board,
President and Chief
Executive Officer (Principal Executive Officer) |
March 25, 2011 | ||
/s/ Frank J. Hammond, III
|
Director | March 25, 2011 | ||
/s/ Lynda J. Gautier
|
Director | March 25, 2011 | ||
/s/ Paul H. Moore, Jr., M.D.
|
Director | March 25, 2011 | ||
/s/ Scott B. Lemon
|
Director | March 25, 2011 | ||
/s/ Gerald J. St. Pe
|
Director | March 25 2011 | ||
/s/ Thomas B. Van Antwerp
|
Director | March 25, 2011 | ||
/s/ John F. Grafe
|
Director | March 25, 2011 | ||
/s/ Julius A. Willis, Jr., DMD
|
Director | March 25, 2011 | ||
/s/ Diann M. Payne
|
Director | March 25, 2011 | ||
/s/ Elise Bourgeois
|
Senior Vice President and Chief Financial Officer | March 25, 2011 |
18
Table of Contents
INDEX TO EXHIBITS
2.1 | The Agreement and Plan of Share Exchange by and between Merchants & Marine Bancorp, Inc. and
Merchants & Marine Bank, dated February 2, 2008, is incorporated by reference from Exhibit 2.1
of the Companys Form 8-K 12g3 filed on April 29, 2008. |
|||
2.2 | The Articles of Share Exchange by and between Merchants & Marine Bancorp, Inc. and Merchants
& Marine Bank, dated February 5, 2008, is incorporated by reference from Exhibit 2.2 of the
Companys Form 8-K 12g3 filed on April 29, 2008. |
|||
3.1 | The Articles of Incorporation of the Company are incorporated by reference from Exhibit 3.1
of the Companys Form 8-K 12g3 filed on April 29, 2008. |
|||
3.2 | The Bylaws of the Company are incorporated by reference from Exhibit 3.2 of the Companys
Form 8-K 12g3 filed on April 29, 2008. |
|||
4 | Specimen Common Stock Certificate is incorporated by reference from Exhibit 4 of the
Companys Form 10-K filed on March 20, 2009. |
|||
10 | Director Deferred Compensation Plan is incorporated by reference from Exhibit 10 of the
Companys Form 10-K filed on March 20, 2009. |
|||
13 | Selected portions of the Companys 2010 Annual Report for the year ended December 31, 2010. |
|||
21 | Subsidiaries of Merchants & Marine Bancorp, Inc. |
|||
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. Section 1350, as created
by Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002. |
19