Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), the parent company of Merchants & Marine Bank, reports net income through the first six months of 2021 of $1.44 million, or $1.08 per share, compared with net income of $3.50 million, or $2.63 per share during the same period in 2020. It should be noted that during the same period in 2020, the company monetized a $3.1 million gain (pretax) by liquidating a portion of its securities portfolio, which materially affected per share earnings data during that period.

The company has been in an investment cycle since the last quarter of 2020, when its subsidiary, Merchants & Marine Bank, acquired a branch in Mobile, Alabama from a regional bank who was exiting the market. In the same quarter, Merchants & Marine Bank also established a loan and deposit production office in Hattiesburg, Mississippi. During the first half of 2021, the company entered the secondary market mortgage business through the formation of Canvas Mortgage, a division of Merchants & Marine Bank. “With any large investment into new markets and business lines, particularly those of a de novo nature like Canvas Mortgage and our new Hattiesburg office, there is a ‘J-curve’ effect on income. We hit the bottom of that J-curve in April 2021. I’m very pleased to report that since then – in May and June – the company’s core income, net of non-recurring items, has returned to net profitability and is accelerating,” said Casey Hill, the company’s Chief Financial Officer. “The timing of PPP forgiveness and the income associated with it could not have been a better fit with our expansion plans, such that this non-recurring revenue covered the trough in the return curve nearly perfectly.”

The company’s balance sheet grew significantly over the trailing twelve months, by $89.43 million, or 13.86 percent. The company’s cash position has increased over 80 percent during the same period, to $260.31 million. “While the bank grew significantly, it was almost entirely due to unanticipated federal stimulus. This has left the company in an exceptionally liquid position, but without the traditional avenues of investment due to the current yield curve and expectations on future changes in interest rates. We do not want to make short-term investment decisions to garner yield now that will handicap the bank in the future,” commented Hill. “We currently have a large unrealized gain in our securities portfolio. To invest at the bottom of the market would mean a likely evaporation of that gain. Our strategic plan, in place since last year, is to deliberately shrink the balance sheet by ridding the bank of higher-cost municipal deposits. All things held equal, the elimination of these accounts should mean six figure increases in net income per month beginning in the 3^rd quarter of 2022. The bank’s current liquidity position allows us to support this planned outflow of deposits, as well as possible additional outflows as federal stimulus bloat begins to wane, while also growing the loan portfolio. While we could have never planned for the effects of COVID-19, we are working diligently to position the bank such that it emerges from the economic effects of the pandemic in as strong a posture as possible,” continued Hill. “This can also be seen in the marked improvement in asset quality indicators over the past two quarters. A significant improvement in non-performing assets is a testament to the hard work of our lending staff and risk function.”

Selected Financial Highlights, as of June 30, 2021:

• Deposits increased year-over-year by 16.94 percent, to $638 million from $545 million. Demand deposits made up the bulk of the growth, increasing 27.03 percent to $466 million from $366 million, with $34 million of this increase centered in higher-cost, contractual public funds deposits that will be exiting over the course of the coming year.
• Interest expense decreased during the first half of 2021 when compared with the same period last year, by 28.61 percent – a decrease to $493 thousand from $1.72 million. This is due, primarily, to the adoption and implementation of a dynamic pricing strategy on time deposits. Time deposit balances have decreased 22 percent over the past 12 months, even with the significant increase in overall deposit balances.
• Operating expenses saw a significant increase over the same period last year, increasing to $11.52 million from $9.00 million, an increase of 28.01 percent. This occurred, in part, due to non-recurring expenses associated with a rebranding effort and startup costs associated with the establishment of the new Canvas Mortgage Division. Also contributing to the increase is heightened operational costs and personnel expenses related to new market expansions undertaken in the last year.
• Asset quality indicators improved substantially during the first six months of 2021, with past-due but accruing loans decreasing to 0.54 percent of total loans at June 30th of this year from 1.67 percent at the end of 2020. Nonaccrual Loans also decreased to 2.39 percent of total loans from 2.62 percent at the end of 2020. The improvement in these ratios was achieved despite a more than 11.00 percent reduction in the overall loan portfolio during the first half of 2021, the majority of which is due to paydowns in PPP Loans.
• It should be noted that during the same period in 2020, the company monetized a $3.1 million gain (pretax) by liquidating a portion of its securities portfolio. This materially affected per share earnings data during that period, as reflected in the opening paragraph of this release.

“I am very pleased with our second quarter results, and I am especially proud of what produced them: strong continued progress by our team in executing our strategic plans,” commented Clayton Legear, the company’s President & Chief Executive Officer. “The investments we have made and the plans we are executing are designed to put the bank in a position to chart its own course over the long term, even in uncertain economic conditions like the ones in which we are operating today. As we move into the second half of the year, we look forward to continued improvement in core earnings, more sustainable organic growth, stronger credit quality, and significantly enhanced operational capacity through the investments that have been made. We consider these key to our future growth plans and scaling in an efficient and controlled manner.”

Merchants & Marine Bank is a wholly owned subsidiary of Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), a Mississippi based bank holding company. Originally founded in 1899, Merchants & Marine Bank was reborn in 1932 during the middle of the worst economic disaster in the history of the United States: The Great Depression. More than eight decades later, Merchants & Marine Bank has grown from $25,000 in assets to over $700 million and from 2 offices to 14 offices serving Coastal Mississippi, Coastal Alabama and the Mississippi Pine Belt Region. Along the way, Merchants & Marine 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.

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