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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

 

¨	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 its charter)

 

 

 

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)

(228) 762-3311

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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.    x  Yes    ¨  No

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 (§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).    x  Yes    ¨  No

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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of May 11, 2012, 1,330,338 shares of Common Stock were outstanding.

 

 

 

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TABLE OF CONTENTS

 

Part I. Financial Information
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 4. Controls and Procedures			37
Part II. Other Information
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Mine Safety Disclosures			38
Item 5. Other Information			38
Item 6. Exhibits			38
SIGNATURES			39
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

Part I. Financial Information

 

Item 1.

Financial Statements

 

		(Unaudited) March 31,  2012				December 31, 2011
ASSETS
Cash and due from banks		$	91,310,146				72,797,389
Federal funds sold			97,000				97,000
Securities:
Available-for-sale, at fair value			165,120,906				111,755,320
Held-to-maturity, at amortized cost			90,734,672				93,132,029
Non-marketable equity securities			900,060				900,060
Loans, less allowance for loan losses of $3,736,449 and $3,744,819, respectively			227,469,948				234,262,112
Property and equipment, net of depreciation			17,473,666				17,661,027
Other real estate owned			5,742,615				5,615,468
Accrued income			2,354,720				2,553,933
Other assets			16,356,014				16,658,510
Total assets		$	617,559,747				555,432,848
LIABILITIES
Deposits:
Non-interest bearing demand		$	91,411,764				90,034,763
Interest bearing savings, demand and other time deposits			442,246,530				386,032,877
Total deposits			533,658,294				476,067,640
Securities sold under agreements to repurchase			16,341,863				12,275,294
Accrued expense and other liabilities			12,919,356				12,446,480
Total liabilities			562,919,513				500,789,414
STOCKHOLDERS’ EQUITY
Common stock - $2.50 par value per share, 5,000,000 shares authorized, 1,330,338 shares issued and outstanding			3,325,845				3,325,845
Surplus			14,500,000				14,500,000
Retained earnings			42,087,864				41,349,035
Accumulated other comprehensive income (loss)			(5,273,475	)			(4,531,446	)
Total stockholders’ equity			54,640,234				54,643,434
Total liabilities and stockholders’ equity		$	617,559,747				555,432,848

See accompanying notes to condensed consolidated financial statements.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

		Three Months Ended March 31,
		2012				2011
Interest income
Interest and fees on loans		$	3,639,712				3,336,172
Interest on investment securities:
Taxable			1,047,311				1,609,243
Exempt from federal and state income tax			355,387				211,661
Interest bearing deposits in other banks			53,567				26,884
Other interest income			2,103				186
Total interest income			5,098,080				5,184,146
Interest expense
Interest on deposits			784,496				903,769
Interest on federal funds purchased and securities sold under agreements to repurchase			7,025				6,003
Total interest expense			791,521				909,772
Net interest income			4,306,559				4,274,374
Provision for loan losses			168,683				241,624
Net interest income after provision for loan losses			4,137,876				4,032,750
Non-interest income
Service charges on deposit accounts			1,166,214				1,095,616
Miscellaneous			538,473				358,948
Total non-interest income			1,704,687				1,454,564
Non-interest expense
Salaries and employee benefits			2,020,721				1,679,440
Premises			810,221				667,569
Services and fees expense			376,518				416,784
Miscellaneous			1,269,504				1,241,874
Total non-interest expense			4,476,964				4,005,667
Income before income taxes			1,365,599				1,481,647
Provision for income taxes			294,185				359,879
Net income		$	1,071,414				1,121,768
Net income per common share		$	0.81				0.84

See accompanying notes to condensed consolidated financial statements.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

		Three Months Ended March 31,
		2012				2011
Net income		$	1,071,414				1,121,768
Other comprehensive income, net of tax:
Unrealized holding gain (loss) arising during period			(742,029	)			(427,241	)
Comprehensive income		$	329,385				694,527

See accompanying notes to condensed consolidated financial statements.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

		Common Stock																Accumulated Other
		Shares Issued				Amount				Surplus				Retained Earnings				Comprehensive Income (Loss)
Balance December 31, 2011			1,330,338			$	3,325,845				14,500,000				41,349,035				(4,531,446	)
Net income			—				—				—				1,071,414				—
Cash dividends, $.25 per share			—				—				—				(332,585	)			—
Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $382,258			—				—				—				—				(742,029	)
Balance, March 31, 2012			1,330,338			$	3,325,845				14,500,000				42,087,864				(5,273,475	)

See accompanying notes to condensed consolidated financial statements.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Three Months Ended March 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,071,414				1,121,768
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			313,247				314,741
Provision for loan losses			168,683				241,624
(Accretion) amortization of securities premium/discount			65,841				60,364
(Gain) loss on sale of securities			(51,247	)			13,750
(Gain) loss on sale of REO			32,394				—
(Increase) decrease in accrued income			199,213				(566,040	)
Increase (decrease) in accrued expenses & other liabilities			472,876				(53,675	)
Other, net			(106,392	)			213,285
Net cash provided by operating activities			2,166,029				1,345,817
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell			—				3,050,000
Proceeds from sales and maturities of securities available-for-sale			61,666,214				15,486,250
Purchase of securities available-for-sale			(116,102,299	)			(78,679,050	)
Proceeds from maturities of securities held to maturity			4,400,000				17,055,000
Purchase of securities held-to-maturity			(2,071,026	)			(278,267	)
Net (increase) decrease in loans			6,623,480				355,910
Proceeds-REO			631,606				—
Purchase of property and equipment			(125,885	)			(78,207	)
Net cash provided by investing activities			(44,977,910	)			(43,088,364	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits			57,590,654				66,008,025
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase			4,066,569				524,245
Dividends paid			(332,585	)			(332,585	)
Net cash provided by financing activities			61,324,638				66,199,685
Net increase in cash and due from banks			18,512,757				24,457,138
Cash and due from banks, beginning			72,797,389				20,010,142
Cash and due from banks, ending		$	91,310,146				44,467,280

See accompanying notes to condensed consolidated financial statements.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the financial statements and notes thereto of Merchants & Marine Bancorp, Inc.’s (the “Bancorp’s) 2011 Annual Report to Shareholders.

Certain reclassifications have been made to the 2011 consolidated financial statements to conform to the 2012 presentation.

December 31, 2011 Balance Sheet Presentation.

The condensed consolidated balance sheet at December 31, 2011 has been taken from the audited balance sheet at that date.

Nature of Operations.

The “Bancorp is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, Merchants & Marine Bank (the “Bank”). The Bancorp generates commercial, mortgage, and consumer loans and receives deposits from customers located in Jackson and George Counties in Mississippi and Baldwin and DeKalb Counties in Alabama. The Bancorp operates under a state bank charter and provides full banking services. As a state bank, the Bancorp is subject to regulation by the Mississippi Department of Banking and Consumer Finance, the Federal Deposit Insurance Corporation, Securities Exchange Commission, and the Federal Reserve Bank.

Use of Estimates.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 2. SECURITIES

The amortized cost of securities and estimated fair values are as follows (dollars in thousands):

 

		March 31, 2012																December 31, 2011
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value				Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-sale:
US Government Agency Funds		$	163,275				44				(1,306	)			162,013				108,535				145				(231	)			108,449
Mortgage-backed securities			2,373				25				—				2,398				2,546				3				(1	)			2,548
State, county and municipal securities			509				—				—				509				587				—				—				587
Equity securities			72				128				—				200				72				99				—				171
Total		$	166,229				197				(1,306	)			165,120				111,740				247				(232	)			111,755
Held-to-maturity:
US Government Agency Funds		$	38,505				291				—				38,796				42,505				452				—				42,957
State, county and municipal securities			52,230				2,087				(81	)			54,236				50,627				2,090				(110	)			52,607
Total		$	90,735				2,378				(81	)			93,032				93,132				2,542				(110	)			95,564

The amortized cost and estimated fair value of securities held-to-maturity and available-for-sale at March 31, 2012 by contractual maturity are as follows (dollars in thousands):

 

		Available-For-Sale								Held-To-Maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Amounts maturing in:
One year or less		$	395				395				2,372				2,385
After one year through five years			1,698				1,716				43,210				44,214
After five years through ten years			163,669				162,539				24,938				25,787
Greater than ten years			467				470				20,215				20,646
		$	166,229				165,120				90,735				93,032

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Proceeds from sales and maturities of available-for-sale securities were approximately $61,666,214 in the first quarter of 2012, including a realized gain of $51,247. Proceeds from sales and maturities of available-for-sale securities were approximately $81,496,506 in 2011, including a realized gain of $536,821.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 2. SECURITIES (continued)

 

Securities with a carrying value of approximately $247,089,540 and $141,920,442 were pledged at March 31, 2012 and December 31, 2011 to secure certain deposits. Information pertaining to securities with gross unrealized losses at March 31, 2012 and December 31, 2011 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows (dollars in thousands):

 

		Less Than 12 Months								12 Months or Greater								Total
		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
March 31, 2012:
US Government Agency Funds		$	138,817				(1,306	)			—				—				138,817				(1,306	)
Mortgage-backed securities			—				—				—				—				—				—
State, county and municipal securities			6,871				(81	)			—				—				6,871				(81	)
Total		$	145,688				(1,387	)			—				—				145,688				(1,387	)

 

		Less Than 12 Months								12 Months or Greater								Total
		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
December 31, 2011:
US Government Agency Funds		$	46,876				(231	)			—				—				46,876				(231	)
Mortgage-backed securities			674				(1	)			—				—				674				(1	)
State, county and municipal securities			9,697				(110	)			—				—				9,697				(110	)
Total		$	57,247				(342	)			—				—				57,247				(342	)

Management performs periodic reviews for impairment in accordance with ASC Topic 320, Investment – Debt and Equity Securities. Consideration is given to (1) the length of time and to the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Bancorp to retain its investments in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 2. SECURITIES (continued)

 

At March 31, 2012, 50 debt securities with unrealized losses have depreciated 0.95% from the Bancorp’s amortized cost basis. These securities are guaranteed by either the U.S. Government or other governments. These unrealized losses relate principally to current interest rates for similar types of securities and not credit quality. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

The Bancorp also holds non-marketable equity securities. These securities are restricted and do not have readily determinable market values. These securities are carried at their acquisition cost and are accounted for by the cost method.

NOTE 3. LOANS

Loans outstanding at March 31, 2012 and December 31, 2011, by major lending classification, were as follows (in thousands):

 

		2012				2011
Loans secured by real estate:
Construction		$	33,784				34,887
Farmland			746				971
Revolving, open-end secured by 1-4 family residential property			3,221				2,579
1-4 family residential properties			44,112				48,228
Multifamily (5 or more) residential properties			628				447
Nonfarm nonresidential properties			86,810				89,643
Commercial and industrial			26,923				26,208
Loans to individuals for household, family and other personal expenditures			32,206				31,163
Municipal and government			2,430				2,547
Other			350				1,343
		$	231,210				238,016
Unearned income			(4	)			(9	)
Allowance for loan losses			(3,736	)			(3,745	)
		$	227,470				234,262

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 3. LOANS (continued)

 

Major loan classifications by age for March 31, 2012 and year ended December 31, 2011, is as follows (in thousands):

 

		30-89 Days Past Due				90 or More Days Past Due - Still Accruing				90 or More Days Past Due - Non Accrual				Total Past Due				Current				Total Loans
March 31, 2012:
Residential-RE		$	1,969				70				1,434				3,473				46,778				50,251
Non-Residential-RE			2,140				—				4,170				6,310				112,740				119,050
Commercial			134				—				276				410				28,943				29,353
Consumer			1,367				—				340				1,707				30,845				32,552
		$	5,610				70				6,220				11,900				219,306				231,206
		30-89 Days Past Due				90 or More Days Past Due - Still Accruing				90 or More Days Past Due - Non Accrual				Total Past Due				Current				Total Loans
December 31, 2011:
Residential-RE		$	3,076				—				1,028				4,104				82,037				86,141
Non-Residential-RE			4,961				89				1,694				6,744				83,870				90,614
Commercial			1,706				8				265				1,979				26,776				28,755
Consumer			2,360				114				143				2,617				29,889				32,506
		$	12,103				211				3,130				15,444				222,572				238,016

Changes in the allowance for loan losses for the quarter ended March 31, 2012 and the year ended December 31, 2011 are as follows (in thousands):

 

		2012				2011
Balance		$	3,745				3,268
Recoveries			115				536
Loans charged off			(292	)			(2,514	)
Provision for loan losses			168				2,455
Balance		$	3,736				3,745

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 3. LOANS (continued)

 

Changes in the allowance for loan losses by major loan classifications for the quarter ended March 31, 2012 and the year ended December 31, 2011 are as follows (in thousands):

 

		Residential				Non- Residential				Consumer				Commercial				Alabama Acquisition				Total
March 31, 2012:
Beginning Balance		$	571				1,894				500				302				478				3,745
Charge-Offs			(77	)			(50	)			(165	)			—				—				(292	)
Recoveries			3				—				97				15				—				115
Provision			336				261				29				20				(478	)			168
Ending Balance		$	833				2,105				461				337				—				3,736
Ending Balance: individually evaluated for impairment		$	310				818				—				269				—				1,397
Ending Balance: collectively evaluated for impairment		$	523				1287				461				68				—				2,339
		Residential				Non- Residential				Consumer				Commercial				Alabama Acquisition				Total
December 31, 2011:
Beginning Balance		$	392				2276				541				59				—				3,268
Charge-Offs			(327	)			(1457	)			(698	)			(32	)			—				(2,514	)
Recoveries			10				187				336				3				—				536
Provision			496				888				321				272				478				2,455
Ending Balance		$	571				1894				500				302				478				3,745
Ending Balance: individually evaluated for impairment		$	93				965				—				268				—				1,326
Ending Balance: collectively evaluated for impairment		$	478				929				500				34				478				2,419

 

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 3. LOANS (continued)

 

The carrying amounts of nonaccrual loans, which are considered for impairment analysis were $6,219,922 at March 31, 2012 and $3,129,517 at December 31, 2011. When a loan is deemed impaired, the full difference between the carrying amount of the loan and the most likely estimate of the asset’s fair value less cost to sell, is assessed for allowance. At March 31, 2012 and December 31, 2011, specifically evaluated impaired loans totaled $9,232,819 and $13,767,980, respectively. The Bancorp had $1,397,425 and $1,326,496 of specific allowance related to impaired loans at March 31, 2012 and December 31, 2011, respectively. The amount of interest that would have been recorded on nonaccrual loans had the loans not been classified as nonaccrual in 2012 and 2011, was $350,578 and $289,161, respectively.

The Bancorp’s lending activities are concentrated in Jackson and George Counties in Mississippi and Baldwin and DeKalb Counties in Alabama.

NOTE 4. FAIR VALUE DISCLOSURES

The Bancorp uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the ASC Topic 820, Fair Value Measurements and Disclosures, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

ASC Topic 820 also establishes a three-tier fair value which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market date.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 4. FAIR VALUE DISCLOSURES (continued)

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There have been no changes in the methodologies used at March 31, 2012.

The following methods and assumptions were used by the Bancorp in estimating fair value disclosures for financial instruments.

Cash, cash equivalents, and interest-bearing deposits in banks:

The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks approximate fair values based on the short-term nature of the assets.

Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands).

 

		Total				Level 1				Level 2				Level 3
Assets at March 31, 2012:
Securities available-for-sale:
U.S. Government Agency funds		$	162,013				—				162,013				—
Mortgage-backed securities			2,398				—				2,398				—
State, county and municipal securities			509				—				509				—
Equity securities			200				200				—				—
Assets at December 31, 2011:
Securities available-for-sale:
US Government Agency funds		$	108,449				—				108,449				—
Mortgage-backed securities			2,548				—				2,548				—
State, county and municipal Securities			587				—				587				—
Equity securities			171				171				—				—

The fair values of debt securities available-for-sale are generally determined by matrix pricing, which is widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

The fair values of equity securities available-for-sale are determined by quoted market prices.

The following represents assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2012 and December 31, 2011.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 4. FAIR VALUE DISCLOSURES (continued)

 

		Total				Level 1				Level 2				Level 3
Assets at March 31, 2012:
Impaired loans		$	9,232,819				—				—				9,232,819
Assets at December 31, 2011:
Impaired loans		$	12,441,484				—				—				12,441,484

Impaired loans are loans for which it is probable the Bancorp will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Specific allowances for impaired loans are based on the fair value of the collateral.

Nonfinancial assets and liabilities measured at fair value on a recurring basis are summarized below:

 

		Total				Level 1				Level 2				Level 3
Assets at March 31, 2012:
Other real estate owned		$	5,742,615				—				—				5,742,615
Assets at December 31, 2011:
Other real estate owned		$	5,615,468				—				—				5,615,468

The fair value of other real estate owned is based primarily on independent appraisals, less costs to sell. The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation and/or management’s expertise and knowledge of the client and client’s business.

The Bancorp has no liabilities carried at fair value or measured at fair value on a non-recurring basis.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Federal Funds Sold:

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities:

Fair values for investment securities are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities.

Loans:

Fair value for loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 4. FAIR VALUE DISCLOSURES (continued)

 

Deposits:

The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase:

The carrying amount is a reasonable estimate of fair value.

The estimated fair values of the Bancorp’s financial instruments are as follows at March 31, 2012 and December 31, 2011 (in thousands):

 

		March 31, 2012								December 31, 2011
		Carrying Amount				Fair Value				Carrying Value				Fair Value
Financial assets:
Cash and federal funds sold		$	91,407				91,407				72,894				72,894
Securities:
Available-for-sale			165,120				165,120				111,755				111,755
Held-to-maturity			90,735				93,032				93,132				95,564
Non-marketable			900				900				900				900
Loans, net of allowance			227,470				230,426				234,262				237,484
Financial liabilities:
Deposits			533,658				534,518				476,068				477,707
Federal funds purchased and securities sold under agreements to repurchase			16,342				16,342				12,275				12,275

 

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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 5. DEFINED BENEFIT PENSION PLAN

The Company has a non-contributory pension plan covering all employees who qualify under length of service and other requirements. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service and average earnings for the five consecutive plan years, which produce the highest average. The following table presents information regarding the plan’s net periodic benefit cost for the periods presented (in thousands):

 

		Three Months Ended March 31,
		2012				2011
Net periodic benefit cost (income):
Service cost		$	146				95
Interest cost			155				150
Expected return on plan assets			(193	)			(181	)
Amortization (gain) loss			132				65
Net periodic pension expense		$	240				129

NOTE 6. SUBSEQUENT EVENTS

The Bancorp has evaluated subsequent events through May 14, 2012, the date of issuance of the condensed consolidated financial statements. No material subsequent events have occurred since March 31, 2012 that required recognition or disclosure in the condensed consolidated financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of Merchants & Marine Bancorp, Inc. (the “Company”). Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modification or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan”, “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include, those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and without limitation, (i) the Company’s ability to effectively execute its business plans; (ii) greater than anticipated deterioration or lack of sustained growth in the national or local economies; (iii) rapid fluctuations or unanticipated changes in interest rates; (iv) continuation of the historically low short-term interest rate environment; (v) increased competition with other financial institutions in the markets that the Company serves; (vi) continuing consolidation in the financial services industry; (vii) losses, customer bankruptcies, claims and assessments; (viii) changes in state and federal legislation, regulations or policies applicable to banks or other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act; (ix) the effects of weather and natural disasters such as hurricanes; and (x) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies.

Formation of Holding Company

On April 24, 2008, the Company consummated its acquisition of 100% of the outstanding shares of Merchants & Marine Bank (the “Bank”) common stock pursuant to the terms of an Agreement and Plan of Share Exchange, dated as of February 5, 2008, by and between the Company and the Bank. In connection with the Share Exchange, the holders of Bank common stock exchanged their shares of Bank common stock for a like number of shares of Company common stock. Following consummation of the Share Exchange, the Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended and is subject to regulation by the Board of Governors of the Federal Reserve Bank. The common stock of the Bank constitutes substantially all of the assets of the Company. The Company has no other subsidiaries and the Bank accounts for substantially all of the Company’s assets, liabilities, income and expenses.

Executive Summary

The Company is a one bank holding company which acquired 100% of the Bank’s common stock on April 24, 2008 and is the successor issuer to the Bank pursuant to Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

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The Bank, a state-chartered institution since 1932, is a full service, federally insured bank serving Jackson and George Counties, Mississippi and DeKalb and Baldwin Counties, Alabama. The main office of the Bank is located in Pascagoula. Branch offices in Mississippi are located in Moss Point, Gautier, Escatawpa, Ocean Springs, Wade, Hurley, St. Martin and Lucedale. There are also branches in Gulf Shores and Crossville, Alabama. The Bank offers commercial and individual financial services consisting of business and personal checking accounts, certificates of deposit, various forms of real estate, commercial and industrial and personal consumer financing. U.S. Banker magazine has ranked the Bank as one of the Top 200 Community Banks in the nation and Bauer Financial, Inc. has given the Bank a 5-Star rating for the 74th consecutive quarter indicating that the Bank is one of the strongest banks in the nation. The Company is subject to regulation, supervision and examination by the Mississippi Department of Banking and Consumer Finance, the SEC, the Federal Reserve and the FDIC. At March 31, 2012, the Company’s assets totaled $618 million and it employed 145 persons on a full-time equivalent basis.

Hurricane Katrina hit the Mississippi Gulf Coast on August 29, 2005. Katrina’s wide spread devastation will be felt for years to come. Some of the challenges still facing our service area include insurance availability and settlements, housing, building code changes, flood elevation revisions, population shifts and business and staffing needs.

Acquisition

On December 9, 2011, the Bank, acquired substantially all of the assets and certain liabilities of Heritage First Bank pursuant to a purchase and assumption agreement with Heritage First Bank, an Alabama state banking corporation and Heritage First Bankshares, Inc., a Georgia corporation, dated as of August 3, 2011. Heritage First Bank had total assets of approximately $52 million (including goodwill) and operated two branches in Alabama at the time of the acquisition.

Earnings Highlights

The Company’s net income for the first quarter of 2012 was $1,071,000, a 4.5% decrease, when compared to $1,122,000 for the first quarter of 2011 and $768,000 for the first quarter of 2010. The following discussions, tables and the accompanying financial statements presented outline the change in earnings from the first quarters of 2012, 2011 and 2010. Return on average assets was 0.7%, 0.8% and 0.6%, for first quarters of 2012, 2011 and 2010, respectively. Return on average equity was 7.9%, 8.6% and 6.0%, in the first quarters of 2012, 2011 and 2010, respectively. Earnings per share were $0.81 in the first quarter of 2012, compared to $0.84 in the first quarter of 2011 and $0.58 in the first quarter of 2010.

Earning Assets

A detailed comparison of the Company’s average earning assets for the first quarters of 2012, 2011 and 2010 is presented in Table 1 of this report. The Company’s earning assets include loans, investments, Federal Reserve balances and federal funds sold. Average earning assets for the first quarter of 2012 totaled $562,671,000 compared to $531,076,000 in 2011 and $426,197,000 in 2010. Average net loans increased by $14,611,000 in the first quarter of 2012, compared to an increase of $7,550,000 in the first quarter of 2011 and compared to an increase of $9,113,000 for the first quarter of 2010. Average securities decreased by $34,840,000 in the first quarter of 2012, compared to increases of $82,878,000 and $13,416,000 in the first quarters of 2011 and 2010, respectively. Average federal funds sold decreased by $1,020,000 or 91.3% in the first quarter 2012, compared to $6,199,000 or 84.7% and $27,921,000 or 79.2% in the first quarters 2011 and 2010, respectively. Other earning assets consist of balances maintained in a Federal Reserve excess balance account. The average balance for the first quarter of 2012 totaled $106,578,000, compared to $53,734,000 for the first quarter 2011 and $33,084,000 for the first quarter of 2010, respectively.

 

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Net Interest Income

The major source of the Company’s income comes from gathering funds from deposit sources and investing them in loans and securities. Net interest income is the revenue generated from earning assets less the cost of interest paid on deposits and other interest bearing liabilities. Balancing interest rate, credit, liquidity and capital risks, while managing its assets and liabilities to maximize income growth is the Company’s primary long-term objective.

A bank’s net interest margin is a prime indicator of its profitability. The net interest margin reflects the spread between interest earning asset yields and interest bearing liability costs and the percentage of interest earning assets funded by interest bearing liabilities. The net margin, on a tax equivalent basis, was 3.1%, 3.2% and 3.7% in the first quarters of 2012, 2011 and 2010, respectively. The decreases in 2012 and 2011 are attributable to the decrease in rates of return on interest earning assets.

Average net loans increased by 6.6%, 3.6% and 4.5% in the first quarters of 2012, 2011 and 2010, respectively. Loan interest income increased by 9.1% in the first quarter of 2012, compared to a decrease of 4.2% in the first quarter of 2011 and compared to an increase of 0.4% in the same period of 2010. Loan yields rose by 14 basis points in the first quarter of 2012, but fell by 49 and 27 basis points in the first quarters of 2011 and 2010, respectively. Yields on average taxable securities, in the first quarters of 2012, 2011 and 2010, equaled 2.4%, 2.8% and 3.2%, respectively. Interest earned on average taxable securities decreased by 34.9% in the first quarter of 2012, due to lower volumes and increased by 29.5% in the first quarter of 2011 compared to a decline of 24.4% in the first quarters of 2010, due to higher volumes. Income on average tax-exempt securities increased 66.7%, 42.0% and 82.9% in the first quarters of 2012, 2011 and 2010 due to increased volumes. Yields on average tax-exempt securities decreased by 22 basis points in the first quarter of 2012 compared to the same periods in 2011 and 2010. The average volume of all securities in the first quarter of 2012 decreased by 13.5%, compared to increases of 47.8% and 8.4% in the same periods of 2011 and 2010, respectively. Total securities income decreased by 22.8% in the first quarter of 2012 and increased by 30.8% in 2011 compared to a decrease of 19.3% in 2010. The average balance of federal funds sold decreased in the first quarters of 2012, 2011 and 2010 by 91.3%, 84.7% and 79.2%, respectively. Income from federal funds sold decreased by 63.0%, 75.0% and 88.9% in the first quarters of 2012, 2011 and 2010, respectively. This decrease is a result of lower volumes and yields.

Total average interest bearing liabilities increased 6.5%, 18.1% and 22.4%, during the first quarters of 2012, 2011 and 2010, respectively. Rates paid on these funds decreased 15, 26 and 70 basis points in the first quarters of 2012, 2011 and 2010, respectively. The decrease in rates paid on these funds resulted in a decrease in interest expense of $119,000, $94,000 and $349,000 for the first quarters of 2012, 2011 and 2010, respectively. Interest bearing checking, money market fund, and savings average balances increased by 4.9%, 22.3% and 41.7% for the first quarters of 2012, 2011 and 2010, respectively. The increase in 2012 was a result of the Alabama branch acquisitions and the increases in 2011 and 2010 were a result of gaining public fund customers. Average time deposit balances increased by 11.6% and 6.2% in the first quarters of 2012 and 2011, compared to a decrease of 4.0% in the first quarter of 2010. The average rate paid on these funds was 1.2%, 1.5% and 2.0% for the first quarters of 2012, 2011 and 2010, respectively. Interest expense on time deposits decreased by 8.5%, 19.8% and 39.7% in the first quarters of 2012, 2011 and 2010, respectively, because of lower rates paid. Average federal funds purchased and securities sold under agreements to repurchase in the first quarters of 2012 and 2011 increased by 2.8% and 36.5%, respectively, and decreased by 18.6% in the first quarter of 2010. Interest rates paid on these funds increased by 3 basis points for the first quarter of 2012 and decreased 10 and 4 basis points for the first quarters of 2011 and 2010, respectively. Table 1 and 2 provide more information on the Company’s net interest income and rate and volume variances.

 

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Interest Rate Sensitivity

Managing the interest rate risk of the Company is an integral part of its financial success. 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.

The Company uses an earnings forecast model that simulates multiple interest rate scenarios and the effects on the Bank’s net margin, in addition to using traditional gap tables. 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 decrease. See Table 13 for a detailed analysis of the Company’s interest rate sensitivity.

The Company’s operations are not ordinarily impacted by inflationary factors. However, because the Company’s assets are largely monetary in nature its operations are subject to changes in interest rates.

Loans

One of the largest components of the Company’s earning assets is its loan portfolio. Loans are the highest yielding asset category and also contain the largest amount of risk. Meeting the credit needs of Jackson, George, Baldwin and DeKalb Counties, with special emphasis on consumer and small business loans, continues to be the primary goal of the Company.

Average loans, net of unearned income, as a percentage of average earning assets, was 41.7%, 41.4% and 54.0%, for the first quarters of 2012, 2011 and 2010, respectively. The average loan to deposit ratio was 43.7%, 43.6% and 52.2% at the end of the first quarters of 2012, 2011 and 2010, respectively. Average net loans increased by 6.6%, 3.6% and 4.5% in the first quarters of 2012, 2011 and 2010, respectively. Loan interest income increased by 9.1% at first quarter-end 2012, decreased by 4.2% at first quarter-end 2011 and increased by 0.4% at first quarter-end 2010.

Loan growth in the real estate portfolio resulted in an increase in loans secured by real estate from $149,492,000 at first quarter-end 2010 to $162,297,000 at first quarter-end 2011 to $169,301,000 at first quarter-end 2012. Commercial and industrial loans totaled $26,923,000, $24,467,000 and $26,386,000 at first quarter-end 2012, 2011, and 2010, respectively. Consumer loans totaled $32,206,000 at first quarter-end 2012, $27,822,000 at first quarter-end 2011 and $33,939,000 at first quarter-end 2010. Other loans at first quarter-end 2012 decreased slightly when compared to the same period in 2011.

Allowance for Loan Losses

Historical losses, trends and management’s opinion of the adequacy of the allowance for loan losses determine the allocations made to the loan loss reserve. Management considers the following factors in determining the adequacy of the allowance: (1) periodic reviews of individual credits, (2) gross and net charge-offs, (3) loan portfolio growth, (4) historical levels of the allowance to total loans, (5) the value of collateral securing loans, (6) the level of past due and non-accruing loans, and (7) current and future economic conditions and their potential impact on the loan portfolio.

The allowance to total loans was 1.6% at first quarter-end 2012 and 1.5% at first quarter-end 2011, compared to 1.4% at first quarter-end 2010.

 

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The Company immediately charges off any loan when it is determined to be uncollectible. However, experience shows that certain losses exist in the portfolio and have not been identified. The allowance is allocated to absorb losses on all loans and is not restricted to any one group of loans. The Company’s management has determined that the balance of the allowance for loan losses is adequate to cover potential future losses. If economic conditions deteriorate beyond management’s current expectations, an increase to the provision for loan losses may be necessary. See Tables 7 and 8 for a detailed analysis of the Company’s allowance for loan losses.

Critical Accounting Policies

The accounting principles the Company follows and our methods of applying these principles conform to accounting principles generally accepted in the United States and general practices within the banking industry. In connection with the application of those principles to the determination of the Company’s ALL, the Company has made judgments and estimates, which have significantly impacted our financial position and results of operations.

The Company’s management assesses the adequacy of the ALL prior to the end of each calendar quarter. This assessment includes procedures to estimate the ALL and test the adequacy and appropriateness of the resulting balance. The ALL consists of two portions: (1) an allocated amount representative of specifically identified credit exposure and exposures readily predictable by historical or comparative experience; and (2) an unallocated amount representative of inherent loss, which is not readily identifiable. Even though the ALL is composed of two components, the entire allowance is available to absorb any credit losses.

The Company establishes the allocated amount separately for two different risk groups: (1) unique loans, including those loans considered impaired; and (2) homogenous loans (generally loans with similar characteristics). The allocation for unique loans is done primarily on risk-rating grades assigned to each of these loans as a result of our loan management and review processes. Each risk-rating grade is assigned an estimated loss ratio, which is determined based on the experience of management, discussions with banking regulators, historical and current economic conditions and our independent loan review process. Management estimates losses on impaired loans based on estimated cash flows at the loan’s original effective interest rate or the underlying collateral value. Estimated loss ratios are also assigned to our consumer portfolio. However, the estimated loss ratios for these homogenous loans are based on the historical loss rates of the category of consumer credit (e.g., automobile, residential mortgage, home equity) and not on the results of individual loan reviews.

The unallocated amount is particularly subjective and does not lend itself to exact mathematical calculation. The Company uses the unallocated amount to absorb inherent losses which may exist as of the balance sheet date for such matters as changes in the local or national economy, the depth or experience in the lending staff, any concentrations of credit in any particular industry group and new banking laws or regulations. After assessing applicable factors, management evaluates the aggregate unallocated amount based on its experience.

The resulting ALL balance is then tested by comparing the balance in the allowance account to historical trends and peer information. Management then evaluates the result of the procedures performed, including the testing results, and concludes on the appropriateness of the balance of the ALL in its entirety. The Company’s independent loan reviewer and the audit committee of our board of directors review the assessment prior to the filing of quarterly financial information.

 

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In assessing the adequacy of the ALL, the Company also relies on an ongoing loan review process. This process is undertaken to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in the overall evaluation of the risk characteristics of the entire loan portfolio. The loan review process includes the judgment of management, the input from our independent loan reviewer, who is not an employee of the Company, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. Management estimates losses on impaired loans based on estimated cash flows, or the fair market value of the underlying loan collateral.

Management believes the reserve is adequate at this time, based on a review of the portfolio and discussions with regulatory officials. If economic conditions deteriorate beyond management’s current expectations for the ALL, an increase to the provision for loan losses may be necessary.

The Company does not use derivatives and therefore no allowance for such instruments is made on the Company’s financial statements.

Asset Quality

Non-performing assets include non-accruing loans that are 90 days or more past due and other real estate acquired through foreclosure or property purchased by the Company for future bank expansion.

Total non-performing assets totaled $12,033,000, $8,219,000 and $4,425,000, at first quarter-end 2012, 2011, and 2010, respectively. Non-performing assets, as a percentage of total loans, were 5.2% at the first quarter-end 2012, 3.8% at the first quarter-end 2011 and 2.0% at the first quarter-end 2010. Non-accrual loans and accruing loans over 90 days past due totaled $6,290,000 or 2.7% of total loans, $5,419,000 or 2.5% of total loans, and $2,278,000 or 1.0% of total loans at first quarter-end 2012, 2011, and 2010, respectively. Other real estate totaled $5,743,000 or 2.5% of total loans, $2,800,000 or 1.3% of total loans, and $2,147,000 or 1.0% of total loans at first quarter-end 2012, 2011 and 2010, respectively. The increase in non-performing assets is a result of declining economic conditions which include high unemployment, declines in real estate value, and other factors. Approximately $1.8 million of the $2.9 million increase in other real estate owned is due to the acquisition of two branches from Heritage First Bank. See Table 9 for additional information concerning the Company’s non-performing assets

Securities Available for Sale and Investment Securities

The Company’s securities portfolio is another large component of the Company’s earning assets and had book values totaling $256,755,000, $275,910,000 and $186,796,000, for the first quarter-end 2012, 2011 and 2010, respectively. The large increase in securities in 2011 is a result of increase in deposits resulting from gaining additional public fund customers.

The securities portfolio is divided into two classifications: available-for-sale and held-to-maturity. The available-for-sale portion contains all securities which management believes could be subject to sale prior to their stated maturity. This category allows Company management to meet liquidity needs, as well as affording the Company the opportunity to take advantage of market shifts or anticipated changes in interest rates, yield curve changes, and inter-market spread relationships. This portion of the portfolio is also used to help manage the Company’s interest rate and credit risks in the overall balance sheet. In accordance with Accounting Standards Codification 320 Investment in Debt and Equity Securities, securities in the available-for-sale category are accounted for at fair market value with unrealized gains or losses excluded from earnings and reported as separate component of stockholders’ equity until realized. Unrealized losses net of taxes of $732,000 and $2,345,000 were included in stockholders’ equity at first quarter-end 2012 and 2011, respectively, compared to unrealized gains net of taxes of $157,000 at first quarter-end 2010. The held-to-maturity portion of the portfolio contains debt securities which the Company intends to hold until their contractual maturity date. These securities provide the Company with a long term, relatively stable source of income with minimal credit risk. The securities in this category are carried at their amortized costs. A portion of the Company’s investment portfolio is pledged as collateral against public deposits and on securities sold under agreements to repurchase.

 

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Yields on average taxable securities in the first quarters of 2012 and 2011 equaled 2.4% and 2.8%, compared to 3.2% in the first quarter of 2010. Interest earned on average taxable securities decreased 34.9% in the first quarter of 2012, increased 29.5% in the first quarter of 2011, and declined 24.4% in the first quarter of 2010. The decrease in 2012 is due to lower volumes and yields, compared to increases in 2011 which are due to higher volumes, and the decreases in 2010 is due to lower yields. Income increased on average tax-exempt securities by 80.8%, 42.0% and 82.9% in the first quarters of 2012, 2011 and 2010, respectively, due to higher volumes. The average volume of all securities decreased by 13.5% and income decreased 22.8% in the first quarter of 2012, compared to increases of 47.8% in average volume of all securities and 30.9% in income in the first quarter of 2011, and an increase of 8.4% in volume and a decrease of 19.3% in income in the first quarter of 2010. The average balance of federal funds sold decreased in the first quarters of 2012, 2011 and 2010 by 91.3%, 84.8% and 79.2%, respectively. Income from these funds decreased by 63.0%, 75.0% and 88.9% in the first quarters of 2012, 2011 and 2010, respectively, as a result of the decrease volumes. The decrease in volumes are a result of excess funds being placed in a Federal Reserve Excess Balance account shown as other interest earning assets in Table 1.

See Tables 3 and 4 for more information about the Company’s securities portfolio composition yields and maturity distributions.

Deposits

The Company’s primary funding source for loans and investments is its deposit base. Deposits consist of checking, savings and certificates of deposit. The Company’s ability to maintain a strong deposit base is of utmost importance in the growth and profitability of the institution. Managing the deposit mix and pricing is designed to be flexible, so that changes in interest rate movements and liquidity needs do not conflict or have an adverse effect on the Company’s balance sheet. The Company relies on local consumer, retail, corporate and governmental agencies for its deposit base. Average total deposits increased by 6.4%, 23.9% and 8.9% at first quarter-end 2012, 2011 and 2010, respectively. See Tables 10 and 11 for more information about the Company’s deposits and maturity distribution.

Liquidity

Liquidity for a financial institution can be expressed in terms of maintaining sufficient funds available to meet both expected and unanticipated obligations in a cost-effective manner. The Company closely monitors its liquidity position to ensure it has ample funds available to meet its obligations. The Company relies on maturing loans and investments, federal funds, excess funds and its core deposit base to fund its day-to-day liquidity needs. By monitoring asset and liability maturities and the levels of cash on hand, the Company is able to meet expected demands for cash. The Company also has access to federal fund lines at correspondent banks and to an inventory of readily marketable government securities.

Average federal funds purchased and securities sold under agreement to repurchase represents 2.7%, 2.9% and 2.6% of total average deposits for the years 2012, 2011 and 2010, respectively. See Table 12 for more information concerning the Company’s short-term borrowings.

 

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Off Balance Sheet Arrangements

As of March 31, 2012, the Company had unfunded loan commitments outstanding of $27,647,000 and outstanding standby letters of credit of $1,183,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Company has the ability to liquidate federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase federal funds from other financial institutions. The Company historically has been a net seller of federal funds and a detailed statement of cash flows can be found in the accompanying notes to the financial statements.

Contractual Obligations

The Company has certain contractual obligations that arise from its normal course of business. Each category of deposit represents an obligation to pay. While certain categories of deposits, (e.g., certificates of deposit) have a contracted expiration date, checking accounts and savings are subject to immediate withdrawal. Table 14 details the Company’s deposit and contractual obligations.

The Company also has a defined benefit plan for substantially all of its employees, as well as former employees, who have retired from the Company; consequently, the Company is contractually obligated to pay these benefits to its retired employees. As of December 31, 2011, the plan was underfunded by $5,374,000, compared to an underfunded amount of $2,457,000 at year-end 2010. The underfunded status is the result of poor market conditions and the performance of the plan’s investment assets. Management is monitoring the funded status of its defined benefit plan closely and has begun to contribute additional funding to the plan during 2012.

Risk-Based Capital/Stockholders’ Equity

The Company has always placed a great emphasis on maintaining its strong capital base. The Company’s management and Board of Directors continually evaluate business decisions that may have an impact on the level of stockholders’ equity. It is their goal that the Company maintains a “well-capitalized” equity position. Based on the capital levels defined by banking regulators as part of the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, a “well-capitalized” institution is one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio and a 5% leverage ratio. The Company’s solid capital base is reflected in its regulatory capital ratios. The risk-based capital ratio was 17.3% at quarter-end 2012, 20.7% at quarter-end 2011 and 20.8% at quarter-end 2010. Tier 1 risk-based was 16.2% at quarter-end 2012, 19.5% at quarter-end 2011 and 19.7% at quarter-end 2010. The leverage ratio at quarter-end 2012, 2011 and 2010 was 9.1%, 9.7% and 11.0%, respectively.

The Company’s capital ratios surpass the minimum requirements of 8.0% for the total risk-based capital ratio, 4.0% for Tier 1 risk-based capital ratio and 4.0% for the leverage ratio.

Stockholders’ equity to total assets at first quarter-end 2012, 2011 and 2010 was 8.8%, 9.3% and 9.7%, respectively.

 

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Non-Interest Income

Non-interest income includes service charges on deposit accounts, safe-deposit box rent, check cashing fees, commissions, charges and other fees. Service charges on deposit accounts income increased by 6.4% in the first quarter of 2012, 9.2% in the first quarter of 2011 and 6.2% in the first quarter of 2010. These fees are generated from customer accounts and are affected by the number of accounts, and the balances of accounts subject to service charges. The Company updated its pricing structure during the first quarter of 2011 and this change is reflected in the increase in service charge income. Miscellaneous income for the first quarter of 2012 increased by 50.0%, compared to the first quarter of 2011 decreased by 36.4% for the first quarter of 2011, compared to the first quarter of 2010, and increased by 14.5% for the first quarter of 2010 compared to the first quarter of 2009. The increase in 2012 is mainly due to the settlement of an existing lawsuit. The decrease in 2011 is due to a gain recognized on real estate owned in the first quarter of 2010 in the amount of $116,000.

With deposit related costs constantly increasing, the Company continues to analyze means to increase non-interest income and continues to seek new sources for additional fee income.

Non-Interest Expense

The Company’s goal is to enhance customer service through efficient and effective delivery of its products and services. Enhancing operational resources, while containing overhead expenses is a top priority of the Company. While interest expense is one of the largest expenses of the Company, employees’ salaries, equipment and building expenses, legal fees, FDIC insurance, and other expenses combined make up the largest category of the Company’s expenses. Proper management of these costs is extremely important to the profitability of the Company.

Salaries and employee benefits expense increased in the first quarter of 2012 by 20.3% and decreased in the first quarter of 2011 by 20.8%, compared to an increase in the first quarter of 2010 of 3.3%. The increase in 2012 is attributed to an increase in the number of employees due to the acquisition of the two branches in Alabama during the last quarter of 2011 and increased pension costs. The decrease in 2011 is due to a reduction in the number of full time equivalent employees, a lower defined benefit pension expense, and the number of payrolls recognized during 2011 compared to 2010. Premise expense increased by 21.4% in the first quarter of 2012 and decreased by 11.2% in the first quarter of 2011, compared to an increase of 2.9%, in the first quarter of 2010. The increase in 2012 is due to increased bank insurance costs, maintenance, and property taxes on foreclosed properties. The decrease in 2011 is attributed to a reduction in property taxes on the main branch and depreciation expense overall. Miscellaneous expenses increased by 2.2%, 21.0% and 7.9% in the first quarters of 2012, 2011 and 2010, respectively. The increase in 2011 is due to merchant fees absorbed on behalf of a public fund deposit customer. The increase in the first quarter of 2010 is primarily due to an increase in FDIC insurance assessments. The FDIC began increasing deposit premiums in 2009 in order to replenish its reserve funds.

Income Taxes

Income tax expense totaled $294,000, $360,000 and $246,000 for the first quarter-ended 2012, 2011 and 2010, respectively.

 

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TABLE 1

COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES

(Dollars in Thousands)

The following table shows the major categories of interest-earning assets and interest-bearing liabilities with their corresponding average daily balances, related interest income or expense and the resulting yield or rate for the first quarter ended March 31, 2012, 2011, and 2010:

 

		2012												2011												2010
Assets		Average Balance				Interest Income/ Expense				Average Yield/ Rate				Average Balance				Interest Income/ Expense				Average Yield/ Rate				Average Balance				Interest Income/ Expense				Average Yield/ Rate
Interest-earning assets:
Loans, net of unearned income		$	234,447			$	3,640				6.21	%		$	219,836			$	3,336				6.07	%		$	212,286			$	3,484				6.56	%
Securities held to maturity:
Taxable			45,682				254				2.22	%			82,148				507				2.47	%			125,344				1,061				3.39	%
Exempt from Federal income tax			48,574				355				2.92	%			27,097				213				3.14	%			19,267				150				3.11	%
Securities available for sale:
Taxable			127,293				793				2.49	%			147,144				1,101				2.99	%			28,900				181				2.51	%
Other interest earning assets			106,578				56				0.21	%			53,734				27				0.20	%			33,084				16				0.19	%
Federal funds sold and securities purchased under agreements to resell			97				—				0.00	%			1,117				—				0.00	%			7,316				2				0.11	%
Total interest-earning assets		$	562,671			$	5,098				3.62	%		$	531,076			$	5,184				3.90	%		$	426,197			$	4,894				4.59	%
Non interest-earning assets:
Cash and due from banks			18,797												17,011												18,496
Bank premises and equipment			17,601												15,632												16,659
Other assets			21,518												15,931												15,198
Total assets		$	620,587											$	579,650											$	476,550

 

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TABLE 1 (continued)

COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES (continued)

(Dollars in Thousands)

 

		2012												2011												2010
Liabilities		Average Balance				Interest Income/ Expense				Average Yield/ Rate				Average Balance				Interest Income/ Expense				Average Yield/ Rate				Average Balance				Interest Income/ Expense				Average Yield/ Rate
Interest-bearing liabilities:
INT DDA, MMF & Savings		$	323,164			$	395				0.49	%		$	308,209			$	479				0.62	%		$	251,995			$	467				0.74	%
Time deposits			126,867				389				1.23	%			113,708				425				1.50	%			107,028				530				1.98	%
Federal funds purchased, securities sold under agreements to repurchase and other short- term borrowings			15,078				7				0.19	%			14,670				6				0.16	%			10,745				7				0.26	%
Total interest-bearing liabilities		$	465,109			$	791				0.68	%		$	436,587			$	910				0.83	%		$	369,768			$	1,004				1.09	%
Noninterest-bearing liabilities:
Deposits			86,311												82,365												47,993
Other liabilities			14,743												8,516												7,873
Total liabilities			566,163												527,468												425,634
Stockholder’s equity			54,424												52,182												50,916
Total liabilities and stockholders’ equity		$	620,587											$	579,650											$	476,550
Net interest income/ margin						$	4,307				3.06	%						$	4,274				3.22	%						$	3,890				3.65	%
Tax equivalent adjustment:
Loans							22												32												43
Investment securities							351												212												162
Total tax equivalent adjustment							373												244												205
Net Interest Income						$	4,680											$	4,762											$	4,300

 

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TABLE 2

SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES

(Dollars in Thousands)

The available for sale classification of securities, established January 1, 1994 includes all portfolio securities which management believes are subject to sale prior to their contractual maturities and are stated at the lower of amortized cost or aggregate market value. Investment securities include all portfolio securities that the Company intends to hold to maturity and are carried at amortized cost. The carrying amounts of securities available for sale and portfolio securities are presented as of the dates indicated.

 

		March 31,
		2012				2011				2010
Securities available for sale
U. S. Treasury and other U. S. Government agencies		$	162,013			$	178,749			$	27,268
Obligations of states and political subdivisions			509				—				—
Mortgage-backed securities			2,300				—				—
Other securities			298				125				153
Total securities available for sale		$	165,120			$	178,874			$	27,421
Investment securities
U. S. Treasury and other U. S. Government agencies		$	38,505			$	66,610			$	136,205
Obligations of states and political subdivisions			52,230				29,526				22,270
Mortgage-backed securities			—				—				—
Other securities			900				900				900
Total investment securities		$	91,635			$	97,036			$	159,375
Total securities available for sale and investment securities		$	256,755			$	275,910			$	186,796

TABLE 3

MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES

(Dollars in Thousands)

The following table shows the maturities and weighted average yields of the Company’s securities available for sale and investment securities at March 31, 2012:

 

		Maturing
		Within 1 Year				After 1 Yr But Within 5 Yrs												After 5 Yrs But Within 10 Yrs								After 10 Yrs.
		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Total Amount
Securities available for sale
U.S. Treasury and other U.S. Government agencies		$	175				0.15	%		$	—				0.00	%		$	161,838				2.20	%		$	—				0.00	%		$	162,013
Obligations of states & political subdivisions			—				0.00	%			175				7.49	%			231				2.53	%			103				0.33	%			509
Mortgage-backed securities			20				-1.18	%			1,443				2.13	%			470				2.48	%			367				2.60	%			2,300
Other securities			200				0.62	%			98				5.58	%			—				0.00	%			—				0.00	%			298
Total securities available for sale		$	395				0.20	%		$	1,716				2.81	%		$	162,539				2.33	%		$	470				2.09	%		$	165,120
Investment securities
U.S. Treasury and other U.S. Government agencies		$	1,000				1.80	%		$	27,505				2.12	%		$	10,000				2.20	%		$	—				0.00	%		$	38,505
Obligations of states and political subdivisions			1,372				4.79	%			15,705				4.04	%			14,938				4.34	%			20,215				5.16	%			52,230
Other securities			900				0.00	%			—				0.00	%			—				0.00	%			—				0.00	%			900
Total investment securities		$	3,272				3.50	%		$	43,210				2.87	%		$	24,938				2.99	%		$	20,215				5.92	%		$	91,635
Total securities available for sale and investment securities		$	3,667				3.50	%		$	44,926				2.78	%		$	187,477				3.04	%		$	20,685				5.92	%		$	256,755

At March 31, 2012, the Company held investment securities issued by the State of Mississippi with an aggregate carrying amount of $27.9 million and a market value of $28.6 million. The yield on obligations of states and political subdivisions has been calculated on a fully tax equivalent basis.

 

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TABLE 4

SECURITIES ANALYSIS

 

		SECURITIES AVAILABLE-FOR-SALE MARCH 31, 2012																SECURITIES HELD-TO-MATURITY MARCH 31, 2012
		AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE				AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE
U S GOVERNMENT AND AGENCY SECURITIES		$	163,275			$	44			$	(1,306	)		$	162,013			$	38,505			$	291			$	—			$	38,796
STATE AND MUNICIPAL SECURITIES			509				—				—			$	509				52,230				2,087				(81	)			54,236
MBS AND CMO SECURITIES			2,373				25							$	2,398
OTHER SECURITIES			72				128				—				200				900				—				—				900
TOTAL		$	166,229			$	197			$	(1,306	)		$	165,120			$	91,635			$	2,378			$	(81	)		$	93,932
		SECURITIES AVAILABLE-FOR-SALE MARCH 31, 2011																SECURITIES HELD-TO-MATURITY MARCH 31, 2011
		AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE				AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE
U S GOVERNMENT AND AGENCY SECURITIES		$	182,355			$	99			$	(3,705	)		$	178,749			$	66,610			$	971			$	—			$	67,581
STATE AND MUNICIPAL SECURITIES			—				—				—				—				29,526				793				(128	)			30,191
OTHER SECURITIES			72				53				—				125				900				—				—				900
TOTAL		$	182,427			$	152			$	(3,705	)		$	178,874			$	97,036			$	1,764			$	(128	)		$	98,672
		SECURITIES AVAILABLE-FOR-SALE MARCH 31, 2010																SECURITIES HELD-TO-MATURITY MARCH 31, 2010
		AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE				AMORTIZED COST				GROSS UNREALIZED GAINS				GROSS UNREALIZED LOSSES				FAIR VALUE
U S GOVERNMENT AND AGENCY SECURITIES		$	27,111			$	194			$	(37	)		$	27,268			$	136,205			$	684			$	(511	)		$	136,378
STATE AND MUNICIPAL SECURITIES			—				—				—				—				22,270				581				(98	)			22,753
OTHER SECURITIES			72				81				—				153				900				—				—				900
TOTAL		$	27,183			$	275			$	(37	)		$	27,421			$	159,375			$	1,265			$	(609	)		$	160,031

 

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TABLE 5

LOAN PORTFOLIO

(Dollars in Thousands)

Loans outstanding at the end of the first quarter indicated are shown in the following table classified by type of loans:

 

		2012				2011				2010
Commercial & Industrial		$	26,923			$	24,467			$	26,386
Real Estate			169,301				162,297				149,492
Consumer Loans			32,202				27,822				33,939
Other Loans			2,780				4,014				6,629
Total Loans		$	231,206			$	218,600			$	216,446

TABLE 6

LOAN MATURITIES & INTEREST RATE SENSITIVITY

(Dollars in Thousands)

The following table shows the amount of loans outstanding as of March 31, 2012 (excluding those in non-accrual status) based on the scheduled repayments of principal:

 

Remaining Maturity Fixed Rate
3 months or less		$	19,611
Over 3 months through 12 months			41,488
Over 1 year through 5 years			149,894
Over 5 years			9,355
Over 1 year but variable rate			4,638
Total Loans		$	224,986

 

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TABLE 7

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in Thousands)

The following table outlines the activity for the allowance for loan losses in the first quarters of the past three years:

 

		Quarter ended March 31,
		2012				2011				2010
Beginning Balance		$	3,745			$	3,268			$	3,100
Charge Offs:
Commercial & Industrial			—				—				43
Real Estate			127				195				30
Consumer			165				157				230
Other			—				—				—
Total Charge Offs			292				352				303
Recoveries:
Commercial & Industrial			15				—				17
Real Estate			3				2				17
Consumer			97				108				137
Other
Total Recoveries			115				110				171
Net Charge Offs			177				242				132
Provision for Possible Losses			168				242				132
Ending Balance		$	3,736			$	3,268			$	3,100
Total Loans Outstanding		$	231,206			$	218,600			$	216,446
Average daily loans		$	234,447			$	219,836			$	212,286
		2012				2011				2010
Percentages:
Allowance for loan losses to end of quarter total loans			1.62	%			1.49	%			1.43	%
Allowance for loan losses to average loans			1.59	%			1.49	%			1.46	%
Allowance for loan losses to nonperforming assets			31.05	%			39.76	%			70.06	%
Net charge offs to average loans			0.075	%			0.110	%			0.062	%

 

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TABLE 8

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in Thousands)

The following table represents the allocation of the allowance for loan losses by loan categories and is based on an analysis of individual credits, historical losses, and other factors. This allocation is for analytical purposes only as the aggregate allowance is available to absorb losses on any and all loans.

 

		March 31,
		2012								2011								2010
		% Gross Loans Outstanding				Loan Loss Allowance Allocation				% Gross Loans Outstanding				Loan Loss Allowance Allocation				% Gross Loans Outstanding				Loan Loss Allowance Allocation
Commercial & Industrial			9.02			$	337				1.80			$	59				7.06			$	219
Real Estate			78.64				2,938				81.66				2,668				61.81				1,916
Consumer			9.98				373				12.29				402				22.52				698
Other			2.36				88				4.25				139				8.61				267
Unallocated			—				—				—				—				—				—
			100	%		$	3,736				100	%		$	3,268				100	%		$	3,100

TABLE 9

NONPERFORMING ASSETS

(Dollars in Thousands)

This table summarizes the amount of nonperforming assets at the end of the first quarter of the years indicated.

 

		2012				2011				2010
Non-accrual Loans & Accruing Loans Past Due 90 Days or more		$	6,290			$	5,419			$	2,278
Other Real Estate			5,743				2,800				2,147
		$	12,033			$	8,219			$	4,425
Nonperforming Assets as % of Total Loans			5.20	%			3.76	%			2.04	%
Non-accrual Loans & Loans Past Due 90 Days or More as % of Total Loans			2.72	%			2.48	%			1.05	%

 

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TABLE 10

AVERAGE DEPOSITS

(Dollars in Thousands)

The daily average amounts of deposits for the periods indicated are summarized in the following table:

 

		Quarter ended March 31,
		2012				2011				2010
Non-interest bearing deposits		$	86,311			$	82,365			$	47,993
Interest-bearing deposits			323,164				308,209				251,995
Interest-bearing time deposits			126,867				113,708				107,028
Total		$	536,342			$	504,282			$	407,016

TABLE 11

TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION

(Dollars in Thousands)

Maturities of time certificates of deposits $100,000 or more outstanding at March 31, 2012 are summarized in the following table:

 

Time remaining until maturity
3 months or less		$	12,165
Over 3 through 12 months			43,031
Over 12 months			17,543
Total		$	72,739

 

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TABLE 12

SHORT-TERM BORROWINGS

(Dollars in Thousands)

The following table presents a summary of the Company’s short-term borrowings at March 31, for each of the last three years and the corresponding interest rates:

 

		March Balance				Daily Average Balance				Average Interest Rate*				Maximum Month-End Balance
2012
Federal funds purchased and securities sold under agreements to repurchase		$	16,342			$	15,078				0.19	%		$	16,342
2011
Federal funds purchased and securities sold under agreements to repurchase		$	14,254			$	14,670				0.16	%		$	14,254
2010
Federal funds purchased and securities sold under agreements to repurchase		$	10,641			$	10,745				0.26	%		$	10,641

 

*	on daily average balance

 

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TABLE 13

INTEREST SENSITIVITY

(Dollars in Thousands)

The following table reflects the interest sensitivity of the Company over various periods as of March 31, 2012, based on contractual maturities as of that date:

 

		0-3 Months				4-12 Months				1-5 Years				Over 5 Years				Total
Assets
Interest-earning assets:
Loans, net of unearned income		$	23,901			$	41,640			$	155,316			$	10,349			$	231,206
Investment securities			2,430				842				43,210				45,153				91,635
Securities available for sale			395				—				1,716				163,009				165,120
Other interest earning assets			78,425				—				—				—				78,425
Federal funds sold and securities purchased under agreements to resell			97				—				—				—				97
Total interest-earning assets			105,248				42,482				200,242				218,511				566,483
Non-interest-earning assets			—				—				—				51,077				51,077
Total assets		$	105,248			$	42,482			$	200,242			$	269,588			$	617,560
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Int DDAs, MMF, Savings deposits		$	28,535			$	91,946			$	196,575			$	—			$	317,056
Time deposits			22,791				70,330				32,070				—				125,191
Federal funds purchased, and securities sold under agreements to repurchase			16,342				—				—				—				16,342
Total interest-bearing liabilities			67,668				162,276				228,645				—				458,589
Non-interest-bearing deposits			15,540				45,706				30,166				—				91,412
Other liabilities			—				—				—				12,919				12,919
Stockholders’ equity			—				—				—				54,640				54,640
Total liabilities and stockholders’ equity		$	83,208			$	207,982			$	258,811			$	67,559			$	617,560
Interest sensitive gap		$	22,040			$	(165,500	)		$	(58,569	)		$	202,029
Cumulative interest sensitive gap		$	22,044			$	(143,456	)		$	(202,025	)		$	4
Cumulative interest sensitive gap as a percent of total assets			3.57	%			-23.23	%			-32.71	%			0.00	%

 

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TABLE 14

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND OFF-BALANCE SHEET ARRANGEMENTS

(Dollars In Thousands)

The following table presents, as of March 31, 2012, significant fixed and determinable contractual obligations to third parties by payment date:

 

		PAYMENTS DUE IN
		ONE YEAR OR LESS				ONE TO THREE  YEARS				THREE TO FIVE YEARS				OVER FIVE YEARS				TOTAL
Deposits without a stated maturity		$	181,727			$	117,905			$	108,836			$	—			$	408,468
Consumer certificates of deposit			93,121				18,597				13,473				—				125,191
Federal funds borrowed & repurchase agreements			16,342				—				—				—				16,342
Operating leases																			—
Purchase obligations			—				—				—				—				—

COMMITMENTS

The following table details the amounts and expected maturities of significant commitments as of March 31, 2012:

 

		ONE YEAR OR LESS				ONE TO THREE YEARS				THREE TO FIVE YEARS				OVER FIVE YEARS				TOTAL
Commitments to extend credit:
Commercial		$	14,467			$	223			$	—			$	—			$	14,690
Residential real estate			67				—				—				—				67
Revolving home equity and credit card lines							838				138				10				986
Other			11,892				11				—				1				11,904
Standby letters of credit			1,183				—				—				—				1,183

 

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Item 4.

Controls and Procedures

Evaluation of disclosure controls and procedures – The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s 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 Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Controls – There were no changes in the Company’s internal control over financial reporting for the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II. Other Information

 

Item 1.

Legal Proceedings

None

 

Item 1A.

Risk Factors

There were no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

 

Item 3.

Defaults Upon Senior Securities

None

 

Item 4.

Mine Safety Disclosures

Not Applicable

 

Item 5.

Other Information

None

 

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.
101		Interactive Data File

 

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SIGNATURES

Pursuant to the requirements 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.
Date: May 14, 2012				By:		/s/ Royce Cumbest
						Royce Cumbest, Chairman of the Board
						President and Chief Executive Officer
Date: May 14, 2012				By:		/s/ Elise Bourgeois
						Elise Bourgeois, Senior Vice President,
						Cashier and Chief Financial Officer

 

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