Merchants & Marine Bancorp, Inc. Issues Third Quarter Earnings

Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), the parent company of Merchants & Marine Bank, reports net income for the third quarter of $274 thousand, yielding earnings per share of twenty-one cents. Comparable earnings for the third quarter of 2019 were $1.17 million or eighty-eight cents per share, representing a decrease in earnings per share of just under 77 percent. Interest and fee income on loans held steady year-over-year at just over $4.2 million, however interest on securities decreased by 45 percent from $940 thousand to $513 thousand. This is due to both the marked decrease in yield in investment grade securities and to the liquidation of a portion of the securities portfolio in the second quarter of 2020. Service charges and fee income in the third quarter fell $741 thousand, or 42 percent, when compared the same period in 2019, largely due to COVID-19-induced changes in customer spending patterns. Interest on excess funds decreased from $158 thousand to $27 thousand due to the Fed Funds rate hovering at near zero for the entirety of the quarter.

While interest income on loans held steady, bank management was able to affect a 10 percent decrease in interest expense even as total deposits grew by 11 percent over the same time last year, demonstrating a shift in deposit mix toward noninterest-bearing accounts.

“We find ourselves operating in a very unique economic situation, largely created by the government’s response to COVID-19, but one that management plans to use to the bank’s advantage,” commented Casey Hill, the company’s chief financial officer. “While the 42 percent decrease in service charges and fees is largely beyond management’s control, the decrease in interest income from securities was the direct and predicted result of the decision to monetize a portion of the unrealized gain in the securities portfolio in the second quarter. The gains realized from the liquidated securities during the second quarter constituted approximately 30 months of income from those assets. The bank is operating under a strategic plan to employ the liquidity created by that action in a way that will be economically advantageous over the long term,” said Hill. “The bank has reinvested a significant portion of these gains into initiatives designed to drive stronger future performance, including expansions into new markets, ongoing upgrades to our digital presence and new marketing and advertising initiatives.”

The bank also continued to add to its already healthy reserve for loan losses at a higher rate than in periods leading up to the pandemic. As of the end of September, the allowance for loan and lease losses (ALLL) stood at 1.13 percent of gross loans. Net of PPP loans, that ratio increases to 1.26 percent, a significant increase from 1.05 percent at the end of September 2019. “While we continue to aggressively reserve for the probable economic effects of the pandemic and resulting economic strain, we also see the need to look to the future when we emerge from this temporary stressor,” said Hill. “While it does not excuse us from managing and mitigating current economic risks, the bank has managed its capital in a way that allows us to also look to a future past the current economic headwinds.”

The bank’s balance sheet shrank by 1.59 percent in the three months ended September 30^th, driven almost exclusively by deposit balances decreasing by $8.6 million or 1.57 percent. Net decreases in interest-bearing balances accounted for the bulk of the decrease in deposits, with time deposits decreasing by $17.4 million. Decreases in repo agreements of $876 thousand accounted for the remainder of the variance. Cash decreased by 3.69 percent but remained high at $136 million. Regarding the balance sheet, Hill stated “The monetary impacts of federal stimulus and its utilization has placed a great deal of cash on balance sheets across the banking system. Unfortunately, the attempt to employ the excess cash by investors across the market has also pushed bond yields historically low. While it is tempting to redeploy cash back into earning assets immediately, the present low yields on those securities demands that management take a more disciplined approach. Our strategic investments into new markets and talent acquisition will allow us to utilize that cash in funding new loan opportunities in those communities without pressuring funding sources in the near term.”

On September 10, 2020, the bank announced plans to establish a Commercial Loan & Deposit Production Office in Hattiesburg, Mississippi market to be led by a team of seasoned local bankers. This new office, which opened for business on September 16, 2020, is expected to reach monthly break-even profitability during the first quarter of 2021. In addition, the company’s acquisition of an existing Mobile, Alabama location, slated to close in late October, is expected to be immediately accretive to earnings.

“We recognize that broad economic and COVID-19 related headwinds are significantly impacting the competitive landscape in banking, and also in the markets we serve,” remarked Clayton Legear, the company’s President & Chief Executive Officer. “We are taking strong action to identify, quantify and mitigate both traditional and emerging risks to our bank, our clients and the communities we serve. However, we remain committed to leveraging the opportunities presented by the current environment to make bold strategic investments that will drive continued and sustained improvement in our bank’s growth, profitability, and client experience over the long term.”

Merchants & Marine Bank (M&M Bank) is a wholly owned subsidiary of Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), a Mississippi based bank holding company. Unlike most banks, M&M Bank was re-established in the middle of the worst economic disaster in the history of the United States. Despite those circumstances, in 1932 a small group of Pascagoula citizens saw the potential of the local area, considered the risk of probable failure, and then made the bold commitment to provide dependable financial services to the people and businesses in the area. More than eight decades later, M&M Bank has grown from $25,000 in assets to over $600 million and from 2 offices to 14 offices serving Coastal Mississippi, Coastal Alabama and the Mississippi Pine Belt Region. Along the way, M&M Bank has earned numerous awards, including a listing in U.S. Banker magazine as a Top 200 Community Bank and multiple 5-Star Superior ratings from Bauer Financial, Inc.

MERCHANTS & MARINE BANK
BALANCE SHEETS
SEPTEMBER 30,
(Unaudited)
ASSETS		2020		2019
Cash and due from banks		$ 136,427,548		$ 45,955,639
Federal funds sold		-		1,015
Total cash and cash equivalents		136,427,548		45,956,654
Time deposits due from banks		4,250,136		1,000,136
Securities:
Available-for-sale, at fair value		100,222,596		121,282,984
Held-to-maturity, at amortized cost		-		44,201,104
Non-marketable equity securities		1,815,360		1,803,060
Loans		348,643,987		319,120,339
Less allowance for loan losses		(3,935,729)		(3,351,016)
Loans, net		344,708,258		315,769,323
Property and equipment, net		19,521,594		18,512,463
Other real estate owned		202,197		1,119,251
Accrued income		2,313,271		1,816,353
Goodwill		2,823,554		2,823,554
Cash surrender value		16,522,227		16,011,671
Other assets		3,328,867		3,791,601
Total Assets		$ 632,135,606		$ 574,088,154
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand		$ 142,609,699		$ 110,084,562
Interest bearing		394,462,616		374,121,968
Total deposits		537,072,315		484,206,530
Securities sold under agreements to repurchase		5,151,672		5,757,025
Accrued expenses and other liabilities		10,408,034		9,974,211
Total liabilities		552,632,021		499,937,766
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		63,832,330		60,721,300
Accumulated other comprehensive loss		(2,154,590)		(4,396,757)
Total stockholders' equity		79,503,585		74,150,388
Total Liabilities and Stockholders' Equity		$ 632,135,606		$ 574,088,154

MERCHANTS & MARINE BANK
INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(unaudited)
INTEREST INCOME		2020		2019
Interest and fees on loans		$ 12,620,115		$ 12,272,655
Interest on investment securities:
Taxable		1,185,291.62		1,715,592
Exempt		929,359		1,136,534
Interest on federal funds sold		0		48
Interest on excess balances		191,073		661,532
Other interest income		40,217		146,913
Total interest income		14,966,056		15,933,273
INTEREST EXPENSE
Interest on deposits		2,493,264		2,544,809
Interest on federal funds purchased and securities sold under agreements to repurchase		4,923		3,693
Total interest expense		2,498,187		2,548,502
Net interest income		12,467,869		13,384,771
Provision for loan losses		622,420		646,577
Net interest income after provision for loan losses		11,845,449		12,738,194
NON-INTEREST INCOME
Service charges on deposit accounts		1,644,066		2,292,109
Other service charges, commissions and fees		1,438,039		1,432,554
Gain (loss) on sale of other real estate owned		(65,731)		(41,516)
Gain (loss) on sale of securities		3,100,182		(232,842)
Income from bank owned life insurance, net of premiums		245,750		318,037
Other		81,744		742,808
Total non-interest income		6,444,051		4,511,150
NON-INTEREST EXPENSE
Salaries and employee benefits		6,467,421		6,924,988
Occupancy expense		3,258,733		3,100,366
Regulatory assessments		84,681		122,485
Professional fees		680,988		998,092
Director and committee expenses		264,900		274,475
Other		2,822,378		2,470,029
Total non-interest expense		13,579,101		13,890,435
Income before income taxes		4,710,398		3,358,909
Income taxes		904,406		500,128
Net income		$ 3,805,992		$ 2,858,781

 

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