Merchants & Marine Bancorp, Inc. (OTCQX: MNMB), the parent company of Merchants & Marine Bank, reports net income for fiscal year 2021 of $2.18 million, or $1.64 per share, compared with net income of $4.02 million, or $3.02 per share for fiscal year 2020.

“2021 marked a year of planned, heavy investments into technology, facilities, processes, personnel and marketing,” remarked Casey Hill, the company’s chief financial officer. “We started work on the budget in the latter half of 2020 and realized that if we were going to realize the bank’s full potential, we had to step back and build out a framework that could easily take us beyond the billion-dollar mark.” In addition to a new branding and office openings, the bank expanded into a new market in Hattiesburg and a completely new, independently branded business line: Canvas Mortgage. “The market and line expansions have proved very successful,” continued Hill. “Our new Hattiesburg branch, in our first full year in that market, grew to over $39 million in net loans with just four employees, while Canvas Mortgage, a new line built from scratch, is on the edge of profitability after less than a year in operation. We’re obviously very proud of both of these teams and what they mean to our larger bank family. We are also very proud of what they represent, as investments, to our shareholders.”

In addition to investments into new business lines and markets, the company also elected to utilize a portion of non-recurring income during the third quarter to purge its books of more than $4 million of legacy nonperforming loans. The loans were sold at a discount that, after recognizing non-accrual interest paid and specific reserves, represented a loss to the bank of just over $600 thousand. “We sold loans that, in management’s estimation, carried the highest risk of loss on our books. Being able to de-risk our loan portfolio from both a credit risk and reputational risk view was the right thing to do for the health and ongoing profitability of the bank. We move into 2022 with a much cleaner balance sheet, which will allow us to focus on organic loan growth rather than problem loan resolution.”

The company’s assets grew $31.98 million, or 4.92 percent, over the prior 12 months. Loan growth was negative, with net loans at FYE 2021 of $347.19 million compared to $359.41 million at FYE 2020. However, controlling for extraordinary items such as PPP and the non-performing loan sale, loans increased by $21.59 million, or 6.63 percent, during 2021. Deposits increased during the same period by $34.90 million, or 6.31 percent. The sustained growth in deposits, and management’s desire to avoid taking on significant interest rate risk in the form of investment securities, has contributed to the company’s cash position increasing by 32.54 percent over the last 12 months, to $172.68 million at FYE 2021. It should be noted, however, that this cash position has decreased 16.64 percent, or $34.47 million since the end of the third quarter of 2021. This decline is due to the strategic runoff of high-cost noncore certificates of deposit and a planned cessation of servicing relatively high-cost public funds accounts. This decline will continue through 2022 as additional noncore certificates of deposit and public funds exit the bank.

“Between the Paycheck Protection Program (PPP) and certain income items arising from our status as a Community Development Financial Institution (CDFI), the bank realized several one-time income items in 2021,” said Hill. “Instead of allowing these items to inflate our bottom line and give the appearance of a rapid increase of regular income, management elected to reinvest these windfalls into positioning the bank for stronger future growth and returns. In doing so, we presented the board with an adjusted strategic financial plan. I am very pleased to report that as of the publishing of this release, we are exceeding what was a very aggressive planned climb out of the J-shaped investment curve. The investments have been made, and we ended the year by exceeding a very thin adjusted budget. Now, we’re seeing core, recurring income accelerating each successive month. Merchants & Marine Bank is poised for a very impressive future.”

Selected Financial Highlights, as of December 31, 2021:

• Demand Deposits and Savings increased by 16.01 percent, or $63.69 million over the past 12 months. The bank has no current or foreseeable dependence on time deposits for funding of assets.
• Loans grew by 6.63 percent, or $21.59 million, since FYE 2021, net of PPP loans and legacy troubled loans sold during 2021. The bank no longer carries any PPP loans on its balance sheet.
• Interest expense decreased in FY 2021 by 30.42 percent, or $947 thousand, compared to FY 2020. This is due, primarily, to the adoption and implementation of a dynamic pricing strategy on time deposits and a planned exit from public funds. High-cost public fund balances will continue to decrease in a substantial way through 2022, pushing interest expense significantly lower still.
• Operating expenses saw a significant increase over the previous, increasing to $23.24 million from $19.35 million, or 20.14 percent. The increase is primarily attributable to non-recurring expenses linked with previously discussed investments made to improve the bank’s long-term profitability. Examples of these expenses include, non-recurring expenses associated with rebranding efforts and marketing infrastructure enhancements; startup costs associated with the establishment of the new Canvas Mortgage Division, including professional fees, software contract expenses, branding and staffing; and new market expansions in Hattiesburg, Mississippi, and Mobile, Alabama.
• Asset quality indicators have improved substantially during the last 12 months. Past due loans have decreased from 1.56 percent of total loans a year ago, to 0.48 percent of loans at FYE 2021. Nonaccrual loans have experienced a marked decrease as well, improving from 2.63 percent of total loans to 1.47 percent of total loans during the same period.

“Our talented bankers are to be commended for successfully executing a very challenging and complex set of plans during 2021 that were crafted to produce long term improvements in our bank’s profitability, as well as our ability to compete in a rapidly changing environment,” remarked Clayton Legear, the company’s president & chief executive officer. “While 2021 earnings were greatly reduced from prior years, it is important to remember that the reduction comes as a result of continued growth and planned reinvestment in the bank. We are very encouraged by the continued monthly acceleration in our core operating income, which is outpacing very aggressive goals, and look forward to this trend continuing throughout this year and next. Positioning the bank for continual improvement in long term profitability, client service, resilience and scale remains our top priority. Make no mistake: we are exceptionally well positioned to continue growing in profitability and footings as we move forward.”

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 approximately $700 million and from 2 offices to 16 offices serving Coastal Mississippi, Coastal Alabama and the Mississippi Pine Belt Region. The bank offers mortgage financing across the region through its new division, Canvas Mortgage. For more information on Merchants & Marine Bank, visit www.mandmbank.com. For more information on Canvas Mortgage, visit www.canvasmortgage.com.

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