Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), the parent company of Merchants & Marine Bank, reports net income for the second quarter of $2.65 million, yielding earnings per share of one dollar and ninety-nine cents. Comparable earnings for the second quarter of 2019 were $1.33 million or ninety-nine cents per share, representing an increase in earnings per share of just over 100 percent. Interest income on loans and securities held steady year over year, however interest on excess balances decreased significantly due to the fed funds rate decreasing to virtually zero.
The increase in income was driven by the monetization of an unrealized gain in the securities portfolio which provided approximately $2.94 million in non-recurring gross income. “Early in the second quarter, management identified what it perceived as an inefficiency in the municipal bond market,” said Casey Hill, the company’s chief financial officer. “The bank was able to capitalize on this inefficiency and increased the unrealized gain in its securities portfolio several-fold. The decision was made in June to liquidate a minority segment of the portfolio and monetize a portion of that gain. Due to its non-recurring nature, the income from the sale will be reinvested into core lines of business and efficiency measures, thereby strengthening forward earnings. In addition to bolstering income and allowing for an increase in the ALLL, it also increased the bank’s cash position to a level that enables our institution to execute a strategic initiative to virtually eliminate non-core, higher cost deposits as they mature, driving our cost of funds further toward negligibility and positioning the balance sheet for structured, profitable growth. It should be noted that the bank still holds a seven-figure unrealized gain in its securities portfolio as of the end of the quarter.” As of June 30th, the bank still holds a securities portfolio valued in excess of $105 million.
Other non-recurring items included a relatively large provision to the allowance for loan and lease losses (ALLL) and outsized income-tax accrual due to the gain on securities. The net provision to the ALLL totaled $423 thousand, while income taxes totaled $629 thousand.
“While the bank is not yet experiencing recognizable deterioration in credit quality, we believe it naïve to think that the economic impact of COVID-19 will not eventually manifest itself to some extent in our loan portfolio,” said Hill. “Our risk function has done a tremendous job in projecting likely economic stress scenarios and their financial impacts, and we have bolstered our loan loss reserve accordingly. Management feels that, given our very strong capital position and liquidity levels, the bank is remarkably well-positioned to not only endure economic headwinds from COVID-19, but to take advantage of opportunities that a downturn might present.”
The second quarter also saw the bank’s balance sheet grow by $48.6 million, or 8.18 percent. In addition to cash being augmented by the sale of securities, deposits also grew by $43.5 million, yielding a cash position of $141.7 million at the end of the second quarter. The loan portfolio grew substantially, by $34 million, driven primarily by the Small Business Administration’s Paycheck Protection Program (PPP) lending activity. “While we don’t expect to carry a large portion of those loans into 2021, it is important to note that the bank does expect to realize the majority of the fee income associated with those PPP loans prior to year-end 2020, depending on the process of forgiveness that continues to be legislated at this time,” noted Hill. To date, the bank has recognized no income from processing fees earned by its PPP lending activity.
On June 30, 2020, the bank entered into a definitive agreement with Bank OZK (NASDAQ: OZK) to acquire Bank OZK’s Branch located at 6161 Airport Boulevard, Mobile, Alabama. As a part of the transaction, M&M Bank will acquire all the deposits of the branch office, as well as certain loans and other assets. The transaction is subject to customary regulatory approvals and is expected to close during the fourth quarter of this year.
“We are very proud of our team’s continued strong performance in the face of an unprecedented set of challenges,” commented Clayton Legear, President & Chief Executive Officer. “Our second quarter results are a great reflection of our commitment to identifying, and seizing, opportunities embedded within the current COVID-19 pandemic while also focusing intensely on positioning M&M Bank for even stronger future financial performance. The progress made toward these two broad objectives during the second quarter was significant, and we look forward to continuing our pursuit of both objectives going forward.”
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 almost $600 million and from 2 offices to 13 locations in Jackson and George Counties in Mississippi and Baldwin County in Alabama. 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.
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Contacts:
Casey.Hill@mandmbank.com
(228) 934-1307
