<PAGE>   1
                                                       Registration No. 333
                                                                           -----

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM S - 4
                             REGISTRATION STATEMENT
                                      Under
                           THE SECURITIES ACT OF 1933

                Merchants and Manufacturers Bancorporation, Inc.
             (Exact name of registrant as specified in its charter)


           Wisconsin                         6712                  39-1413328
(State or other jurisdiction of        (Primary Standard        (I.R.S. Employer
         incorporation                    Industrial             Identification
       or organization)                 Classification                No.)
                                         Code Number)


                           14100 West National Avenue
                           New Berlin, Wisconsin 53151
                                 (414) 827-6713
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

                               ------------------

                                Michael J. Murry
                       Chairman of the Board of Directors
                Merchants and Manufacturers Bancorporation, Inc.
                            14100 W. National Avenue
                           New Berlin, Wisconsin 53151
                                 (414) 827-6713
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                               ------------------

                        Copies of all correspondence to:

Erich Mildenberg                             Frank J. Pelisek
Davis & Kuelthau, S.C.                       Michael Best & Friedrich, LLP
111 E. Kilbourn Avenue                       100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202                   Milwaukee, Wisconsin 53202
(414) 276-0200                               (414) 225-4928



         Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective and all
other conditions to the Merger (as defined herein) have been satisfied or
waived.



<PAGE>   2



         If the securities being registered on this Form are offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box {___}.

         If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering {___}.

         If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering {___}.

                         CALCULATION OF REGISTRATION FEE


Title of Each
  Class of             Amount          Proposed       Proposed         Amount
 Securities             to be           Maximum        Maximum           of
    to be           Registered(2)      Offering       Aggregate       Registra-
Registered(1)                            Price        Offering      tion Fee (3)
                                      per Share         Price

Common                620,100            Not             Not         $2,483.65
Stock, $1.00          Shares         Applicable      Applicable
par value


(1)      This Registration Statement relates to securities of the Registrant
         issuable to holders of Common Stock of Pyramid Bancorp., Inc
         ("Pyramid") in the proposed merger of Pyramid with and into a
         wholly-owned subsidiary of Registrant (the "Merger").

(2)      The actual number of shares of common stock, $1.00 par value of
         Merchants and Manufacturers Bancorporation, Inc. ("Merchants") to be
         issued in connection with the Merger will be determined based on the
         number of shares of common stock, $1.00 par value of Pyramid
         outstanding immediately prior to the effective date of the Merger
         multiplied by the exchange ratio specified by that certain Agreement
         and Plan of Merger, dated March 9, 1999, by and between Merchants and
         Pyramid and will further be determined by the number of shares of
         Pyramid stock as to which dissenters' rights will be perfected, if any.

(3)      Pursuant to Rule 457(f)(2), the registration fee was computed on the
         basis of $8,934,000, the book value of Pyramid stock to be exchanged in
         the Merger as of June 30, 1999, the latest practicable date.

         The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.


<PAGE>   3



                             Pyramid Bancorp., Inc.
                                 101 Falls Road
                                Grafton, WI 53024
                                           , 1999
                                -----------

Dear Fellow Shareholder:

         Following this letter is a notice of a Special Meeting of the
Shareholders of Pyramid Bancorp., Inc.("Pyramid"), a Proxy Statement/Prospectus
and a proxy card for the Special Meeting. The Special Meeting will commence at
_______ ___.m. on _____________, 1999 at ____________________________
_____________________,Wisconsin.

         The Pyramid shareholders will be asked to vote on a proposal to approve
an Agreement and Plan of Merger among Merchants and Manufacturers
Bancorporation, Inc. ("Merchants"), Merchants Merger Corp. ("Merger Corp."), a
wholly-owned subsidiary of Merchants, and Pyramid dated as of March 9, 1999, as
amended by the First Amendment to the Agreement and Plan of Merger dated as of
June 10, 1999 (the "Merger Agreement"). Merchants is a Wisconsin bank holding
company owning all of the capital stock of three commercial banks located in
Wisconsin.

         Subject to receipt of regulatory approval, approval by holders of a
majority of the shares of Pyramid and satisfaction of other conditions, the
Merger Agreement provides that Pyramid will combine its business and operations
with those of Merger Corp. through a statutory merger (the "Merger"). As
described in the accompanying Proxy Statement/Prospectus, each of the directors
of Pyramid has agreed to vote his shares in favor of approval of the Merger
Agreement.

         If the Merger becomes effective, each share of the Pyramid Common Stock
will be converted into 9 shares of Merchants Common Stock. See "THE MERGER -
Merger Consideration" in the accompanying Proxy Statement/Prospectus. Daily Bid
and Ask quotations for Merchants Common Stock are listed in The Milwaukee
Journal/Sentinel under "Other Stocks". The Bid and Ask quotations for Merchants
Common Stock as listed in The Milwaukee Journal/Sentinel on August 20, 1999 were
$42 and $42 1/2 respectively. The shares of Merchants Common Stock to be issued
to you in the Merger will offer greater liquidity than that of Pyramid Common
Stock which you presently own.

         The Merger is intended to be tax-free for federal income tax purposes
to Pyramid shareholders who receive Merchants Common Stock in exchange for
Pyramid Common Stock, except as discussed in "THE MERGER-Certain Material
Federal Income Tax Consequences" in the accompanying Proxy Statement/Prospectus.
No fractional shares of Merchants Common Stock will be issued in the Merger.
Pyramid shareholders entitled to a fractional share of Merchants Common Stock
will receive an amount of cash calculated upon the average Bid and Ask
quotations as reported in The Milwaukee Journal/Sentinel for a specified period.
Pyramid shareholders are advised to consult their tax advisors with respect to
income tax consequences of the transaction. Details of the Merger are set forth
in the accompanying Proxy Statement/Prospectus. We encourage you to read it
carefully.

         The Board of Directors of Pyramid has unanimously approved the Merger
Agreement as being in the best interest of Pyramid and its shareholders. Your
Board recommends that the Pyramid shareholders vote to approve the Merger
Agreement.





                                       -1-

<PAGE>   4



         Whether or not you plan to attend the Special Meeting, holders of
Pyramid Common Stock are asked to please complete, date and sign the enclosed
proxy card, which is solicited by the Board of Directors of Pyramid, and return
it promptly in the accompanying envelope, which requires no postage if mailed in
the United States. If you later find that you may be present at the Special
Meeting or for any other reason desire to revoke your proxy, you may do so at
any time before it is voted.

         IN ORDER TO APPROVE THE MERGER AGREEMENT, IT IS NECESSARY THAT HOLDERS
OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF PYRAMID VOTE IN FAVOR OF THE
MERGER AGREEMENT.

                                  Very truly yours,



                                  ----------------------------------------------
                                  Thomas J. Sheehan
                                  President and Chief Executive Officer


















                                       -2-

<PAGE>   5
                             PYRAMID BANCORP., INC.
                                 101 Falls Road
                                Grafton, WI 53024

                    NOTICE OF SPECIAL MEETING OF SHAREHOLDER
                          TO BE HELD            , 1999
                                     -----------

TO THE SHAREHOLDERS OF PYRAMID BANCORP., INC.

         A Special meeting of Shareholders of Pyramid Bancorp., Inc. ("Pyramid")
will be held at ____________________, Wisconsin on ______________, 1999 at
_______ __.m. for the purpose of voting on the following matters:

         1.    To approve the Agreement and Plan of Merger dated as of March 9,
               1999 as amended by the First Amendment to the Agreement and Plan
               of Merger dated as of June 10 1999 among Merchants and
               Manufacturers Bancorporation, INC. ("Merchants"), Merchants
               Merger Corp. ("Merger Corp."), a wholly-owned subsidiary of
               Merchants and Pyramid Bancorp., Inc. ("Pyramid") (the "Merger
               Agreement"), providing for the merger of Pyramid with and into
               Merger Corp. ("the Merger"). (A copy of the Merger Agreement is
               attached as Exhibits A and A-1 hereto).

         2.    To transact such other business as may properly come before the
               meeting.

         THE DIRECTORS OF PYRAMID HAVE UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMEND THAT THE SHAREHOLDERS APPROVE THE MERGER
AGREEMENT.

         Any shareholder desiring to exercise dissenters' rights and be paid in
cash for the fair value of his or her shares of Pyramid Common stock in
accordance with the provisions of the Wisconsin Business Corporation Law (i)
must file a written notice of intent to demand payment for his or her shares
before the vote is taken at the Special Meeting of Shareholders, (ii) must not
vote in favor of the Merger, and (iii) must otherwise comply with the
procedures set forth in Subchapter XIII of the Wisconsin Business Corporation
Law, a copy of which is attached as Exhibit D to the Proxy Statement/
Prospectus. See "THE MERGER-Dissenters' Rights" in the accompanying Proxy
Statement/Prospectus.

         The Board of Directors has fixed the close of business on ____________,
1999 as the record date for the determination of Pyramid shareholders entitled
to notice of and to vote at the Special Meeting and any adjournment thereof.

         Whether or not you plan to attend the Special Meeting, holders of
Pyramid Common Stock are asked to please complete, date and sign the enclosed
proxy card, which is solicited by the Board of Directors of Pyramid, and return
it promptly in the accompanying envelope. No postage is required if mailed in
the United States. The giving of such proxy does not affect your right to vote
in person in the event you attend the Special Meeting. You may revoke the proxy
at any time prior to its exercise in the manner described in the Proxy
Statement/Prospectus.







                                       -1-

<PAGE>   6



         The Special Meeting may be postponed or adjourned from time to time
without any notice other than by announcement at the Special Meeting of any
postponement or adjournment thereof, and any and all business for which notice
is hereby given may be transacted at such postponed or adjourned Special
Meeting.

         THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE
OUTSTANDING SHARES OF PYRAMID COMMON STOCK IS REQUIRED FOR APPROVAL OF THE
MERGER AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU
OWN.

         Shareholders are invited to attend the Special Meeting.

                                  BY ORDER OF THE BOARD OF DIRECTORS



                                  ----------------------------------------------
                                  Thomas J. Sheehan
                                  President and Chief Executive Officer

Grafton, Wisconsin
           , 1999
-----------

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.  IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING HE SURRENDER OF YOUR
STOCK CERTIFICATES.





























                                       -2-

<PAGE>   7



                                 PROXY STATEMENT
                             PYRAMID BANCORP., INC.
                                 101 Falls Road
                                Grafton, WI 53024
                                 (414) 377-5511

                         SPECIAL MEETING OF SHAREHOLDERS

--------------------------------------------------------------------------------

                                   PROSPECTUS
                MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
                                  COMMON STOCK

         This Proxy Statement/Prospectus is being furnished to the shareholders
of Pyramid Bancorp., Inc., a Wisconsin corporation ("Pyramid"), in connection
with the solicitation of proxies by the Board of Directors of Pyramid, for use
at its special meeting to be held on ______________, 1999, at
________________________________________, Wisconsin, commencing at _____ p.m.,
local time, and any adjournments or postponements thereof (the "Special
Meeting").

         At the Special Meeting, holders of Pyramid common stock, $1.00 par
value ("Pyramid Common Stock"), will consider and vote upon the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.

         Under the Merger Agreement, each issued and outstanding share of
Pyramid Common Stock (except as otherwise provided therein) will be converted
into the right to receive shares of Merchants Common Stock as described herein.
For a more complete description of the Merger Agreement and the terms of the
Merger, see "THE MERGER" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT."

         This Proxy Statement/Prospectus also constitutes a prospectus of
Merchants with respect to the shares of Merchants Common Stock to be issued in
connection with the Merger.

       THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
        OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
        INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
                              GOVERNMENTAL AGENCY.

          THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
           SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
            COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
             COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
                PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
                       THE CONTRARY IS A CRIMINAL OFFENSE.

         Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.




                                       -1-

<PAGE>   8



         This Proxy Statement/Prospectus and accompanying form of proxy are
first being mailed to shareholders of Pyramid on or about ______________, 1999.

         The date of this Proxy Statement/Prospectus is _______________, 1999.
































                                       -2-

<PAGE>   9



                Merchants and Manufacturers Bancorporation, Inc.
                             Pyramid Bancorp., Inc.

                           Proxy Statement/Prospectus

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                                Page
                                                                                                                ----


<S>                                                                                                              <C>
SUMMARY  .........................................................................................................6
         Merchants and Manufacturers Bancorporation, Inc..........................................................6
         Pyramid Bancorp., Inc....................................................................................6
         The Special Meeting .....................................................................................6
         Votes Required...........................................................................................7
         Voting Agreement.........................................................................................7
         Reasons for the Merger; Recommendation of the Board of Directors of Pyramid..............................7
         Background of Merger.....................................................................................8
         TheMerger ...............................................................................................8
         General..................................................................................................8
         What Pyramid Shareholders will receive in the Merger.....................................................8
         Post-Merger Dividend Policy of Merchants.................................................................9
         What we need to do to complete the Merger...............................................................10
         Exchange of Stock Certificates..........................................................................10
         Waivers and Amendments to the Merger Agreement..........................................................11
         Termination of the Merger Agreement.....................................................................11
         Reimbursement of Expenses...............................................................................11
         Break-Up Fee............................................................................................11
         Interests of Certain Persons in the Merger..............................................................12
         Opinion of Pyramid's Financial Advisor..................................................................12
         Dissenting Shareholders' Rights.........................................................................12
         Certain Federal Income Tax Consequences of the Merger...................................................13
         Accounting Treatment....................................................................................13
         Regulatory Approvals....................................................................................13

COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE.................................................13

COMPARATIVE STOCK PRICES AND DIVIDENDS...........................................................................15

SELECTED HISTORICAL AND PRO FORMA DATA...........................................................................16

THE SPECIAL MEETING..............................................................................................20
         Date, Place and Time....................................................................................20
         Matters to Be Considered at the Special Meeting.........................................................20
         Required Vote...........................................................................................20
         Voting of Proxies.......................................................................................20
         Revocability of Proxies.................................................................................20
         Record Date; Stock Entitled to Vote; Quorum.............................................................20
         Solicitation of Proxies.................................................................................21

</TABLE>






                                       -3-

<PAGE>   10


<TABLE>
<S>                                                                                                             <C>
THE MERGER.......................................................................................................21
         Background of the Merger................................................................................21
         Reasons for the Merger; Recommendation of Board of Directors of Pyramid.................................23
         Certain Considerations..................................................................................25
         Opinion of Pyramid Financial Advisor....................................................................26
                  Marshall's analysis............................................................................26
                  Analysis of Selected Comparable Transactions...................................................27
                  Analysis of Pyramid Valuation Multiples........................................................28
                  Analysis of Publicly Traded Companies Comparable to Pyramid....................................28
                  Discounted Earnings Analysis...................................................................28
                  Analysis of Merchants..........................................................................29
                  Pro Forma Merger Analysis......................................................................29
                  Stock Trading Analysis.........................................................................29
                  Contribution Analysis..........................................................................29
         Interests of Certain Persons in the Merger..............................................................30
         Merger Consideration....................................................................................31
         Regulatory Approvals Required...........................................................................32
                  Federal  ......................................................................................32
                  Wisconsin......................................................................................33
                  General  ......................................................................................33
         The Effective Time......................................................................................33
         Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares.........................34
         Description of Merchants Common Stock Issuable in the Merger............................................36
                  General  ......................................................................................36
                  Dividend Rights................................................................................36
                  Voting Rights..................................................................................36
                  Rights Upon Liquidation........................................................................36
                  Miscellaneous..................................................................................36
         Comparison of Shareholder Rights........................................................................37
                  Authorized Capital Stock.......................................................................37
                  Required Vote..................................................................................37
                  Classified Board of Directors..................................................................38
                  Removal of Directors...........................................................................38
                  Newly Created Directorships and Vacancies on the Board of Directors............................38
                  Certain Business Combinations..................................................................38
         Resale of Merchants Common Stock Issued Pursuant to the Merger..........................................39
         Pre-merger Dividend Policy .............................................................................39
         Post-merger Dividend Policy.............................................................................39
         Conduct of Business Pending the Merger..................................................................40
         Certain Material Federal Income Tax Consequences........................................................40
         Anticipated Accounting Treatment........................................................................41
         Dissenters' Rights......................................................................................41
         The Voting Agreement....................................................................................43
         Other Related Party Transactions........................................................................43
         Management after the Merger.............................................................................44

CERTAIN PROVISIONS OF THE MERGER AGREEMENT.......................................................................44
         The Merger..............................................................................................44

</TABLE>





                                       -4-

<PAGE>   11


<TABLE>
<S>                                                                                                             <C>
         Representations and Warranties..........................................................................44
         Certain Covenants.......................................................................................45
         No Solicitation of Transactions.........................................................................46
         Conditions to Consummation of the Merger................................................................47
         Termination.............................................................................................48
         Amendment and Waiver....................................................................................48
         Expenses ...............................................................................................48
         Break-Up Fee............................................................................................49

CERTAIN PROVISIONS OF THE VOTING AGREEMENT.......................................................................49

CERTAIN INFORMATION CONCERNING MERCHANTS.........................................................................50

CERTAIN INFORMATION CONCERNING PYRAMID...........................................................................51
         Ownership of Pyramid Common Stock.......................................................................52

EXPERTS  ........................................................................................................53

LEGAL OPINIONS...................................................................................................53

FUTURE SHAREHOLDER PROPOSALS.....................................................................................53

WHERE YOU CAN FIND MORE INFORMATION..............................................................................54

FORWARD-LOOKING STATEMENTS.......................................................................................55

<CAPTION>

                                                 INDEX OF EXHIBITS

<S>                                                                                                           <C>
         Exhibit A - Agreement and Plan of Merger...............................................................A-1

         Exhibit A-1 - First Amendment to Agreement and Plan of Merger........................................A-1-1

         Exhibit B - Voting Agreement...........................................................................B-1

         Exhibit C - Opinion of Marshall Financial Consulting, LLC..............................................C-1

         Exhibit D - Subchapter XIII of Wisconsin Business Corporation Law......................................D-1

         Exhibit E - Pyramid Bancorp., Inc. and Subsidiary Financial
                           Statements and Management's Discussion and Analysis
                           of Financial Condition and Results of Operations.....................................E-1

</TABLE>







                                       -5-

<PAGE>   12



                                     SUMMARY

         This Summary highlights selected information from this Proxy
Statement/Prospectus. It does not contain all the information that is important
to you. To understand the Merger fully, you should carefully read the entire
Proxy Statement/Prospectus and the other documents to which the Proxy
Statement/Prospectus refers you. See "WHERE YOU CAN FIND MORE INFORMATION"
(pages 53-55). We have included page numbers parenthetically to direct you to a
more complete description of the topics presented in this Summary.

MERCHANTS AND MANUFACTURERS BANCORPORATION, INC. (pages 50-51)

         Merchants and Manufacturers Bancorporation, Inc., a Wisconsin
corporation ("Merchants"), is a multi-bank holding company with three subsidiary
banks, Lincoln State Bank Milwaukee, Wisconsin, Franklin State Bank, Franklin,
Wisconsin and Lincoln Community Bank, Milwaukee, Wisconsin, sometimes
collectively referred to as the "Banks". The Banks operate a total of 17
facilities in Milwaukee and Waukesha Counties. In addition to the Banks,
Merchants owns three non-bank subsidiaries, Lincoln Neighborhood Redevelopment
Corporation, which was organized for the purpose of redeveloping and
rejuvenating certain areas in the City of Milwaukee; M&M Services, Inc., which
provides operational services to the Banks and Achieve Mortgage Corporation,
which is a mortgage brokerage firm.

         At June 30, 1999, Merchants had assets of $344 million, net loans of
$270 million, total deposits of $298 million and shareholders' equity of $31
million.

         The principal executive office of Merchants is located at 14100 West
National Avenue, New Berlin, Wisconsin, 53151, and its telephone number is (414)
827-6713.

PYRAMID BANCORP., INC. (pages 51-52)

         Pyramid Bancorp., Inc. ("Pyramid") was incorporated in October of 1991
under the laws of Wisconsin, with the express purpose to serve as the holding
company for Grafton State Bank (the "Bank"), a Wisconsin charted commercial
bank.

         The Bank was founded in 1907 and is one of the area's oldest commercial
banks. The Bank's principal business consists of attracting deposits from the
public and investing those deposits, along with funds generated from operations,
primarily in commercial and consumer loans, including residential real estate
loans. At June 30, 1999, Pyramid had total consolidated assets of $109 million,
loans of $61 million, deposits of $83 million and equity of $8.9 million. The
Bank operates from its executive offices in Grafton, Wisconsin and operates a
facility, including two teller windows and two drive-up lanes, at the
intersection of Pioneer Road and Port Washington Road in the Town of Grafton.

         The principal executive office of Pyramid is located at 101 Falls Road,
Grafton, Wisconsin, 53024, and its telephone number is (414)377-5511.

THE SPECIAL MEETING (pages 20-21)

         A Special Meeting of the shareholders of Pyramid will be held at
___________________________, on __________, 1999, at ____ p.m., local time. The
close of business on _____________, 1999 is the record date (the "Pyramid Record
Date") for determining the shareholders of record of Pyramid entitled to notice
of and to vote at the Pyramid Special Meeting and any postponement or
adjournment thereof. The purpose of the Pyramid Special Meeting is (i) to
consider and vote upon a proposal to approve the Merger Agreement




                                       -6-

<PAGE>   13



and the transactions contemplated thereby and (ii) to consider such other
matters that may come before the Pyramid Special Meeting.

Shareholders of Merchants are not required to approve the Merger Agreement.

VOTES REQUIRED (page 20)

         The Wisconsin Business Corporation Law (the "WBCL") requires that the
Merger Agreement be approved by the affirmative vote of a majority of the
outstanding shares of Pyramid Common Stock entitled to vote at the Special
Meeting.

         As of the Pyramid Record Date, there were 68,900 outstanding shares of
Pyramid Common Stock, each of which is entitled to one vote. As of the Pyramid
Record Date, directors and executive officers of Pyramid held or exercised
voting control over approximately 19.3% of the outstanding shares of Pyramid
Common Stock entitled to vote on the Merger.

VOTING AGREEMENT (pages 49-50)

         Merchants has entered into a Voting Agreement dated as of March 9, 1999
(the "Voting Agreement") attached hereto as Exhibit B with each of the directors
of Pyramid pursuant to which the directors have agreed to vote their shares (i)
in favor of the adoption and approval of the Merger Agreement and the Merger and
(ii) against any Competing Transaction (as such term is defined herein) which
generally includes an acquisition of control of, or a significant equity
interest in or significant assets of, Pyramid by a third party in the form of a
merger, consolidation, share exchange, business combination or other similar
transaction, acquisition of assets or shares or otherwise, or certain
announcements, proposals or offers with respect thereto. The directors of
Pyramid hold 13,312 shares, or approximately 19.3% of Pyramid Common Stock
entitled to vote at the Special Meeting. The Voting Agreement also provides that
Merchants has the exclusive right to purchase any or all of the shares of
Pyramid Common Stock owned by the directors of Pyramid for $250 per share,
payable in cash, subject to any necessary regulatory approval, after a material
breach of the Merger Agreement by Pyramid or a breach by a director of Pyramid
of the Voting Agreement. The purchase right is not exercisable as of the date
hereof. The purchase price per share under the Voting Agreement equaled
approximately 73% of the value of Pyramid Common Stock based upon the bid price
of Merchants Common Stock on the date the Voting Agreement was requested by
Merchants and based upon the exchange ratio set forth in the Merger Agreement.
The execution and delivery of the Voting Agreement was a condition to Merchants
entering into the Merger Agreement. The Voting Agreement may have the effect of
discouraging persons who might now or in the future be interested in acquiring
all of or a significant interest in Pyramid from considering or proposing such
an acquisition. The Voting Agreement is intended to increase the likelihood that
the Merger will be consummated.

REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF PYRAMID
(pages 23-25)

MERCHANTS.

         The Merchants Board, after consideration of the terms and conditions of
the Merger Agreement and other factors deemed relevant by the Merchants Board,
believes that the terms of the Merger Agreement are fair and that the Merger is
in the best interests of Merchants and its shareholders.







                                       -7-

<PAGE>   14



PYRAMID.

         The Board of Directors of Pyramid (the "Pyramid Board") unanimously
recommends that holders of Pyramid Common Stock vote FOR approval of the Merger
Agreement and the transactions contemplated thereby. The Pyramid Board, after
consideration of the terms and conditions of the Merger Agreement and other
factors deemed relevant by the Pyramid Board, believes that the terms of the
Merger Agreement are fair and that the Merger is in the best interests of
Pyramid and its shareholders.

BACKGROUND OF MERGER (pages 21-22)

         For a description of the background of the Merger, see "THE
MERGER--Background of the Merger."

THE MERGER (page 21)

GENERAL.

         Under the terms of the Merger Agreement, Pyramid will, upon the later
of (a) the time of filing of Articles of Merger with the Wisconsin Department of
Financial Institutions, or (b) the effective date and time of the Merger as set
forth in such Articles of Merger and Certificate of Merger (the later of (a) and
(b) above being the "Effective Time") in accordance with the terms of the Merger
Agreement, merge with and into Merger Corp. As a result of the Merger, Grafton
State Bank will become a wholly-owned subsidiary of Merger Corp. which, in turn
is a wholly-owned subsidiary of Merchants. The Merger Agreement is attached to
this document as Exhibit A and an amendment to the Merger Agreement is attached
as Exhibit A-1 to this document. We encourage you to read the Merger Agreement
and the Amendment. They are the legal documents governing the Merger.

WHAT PYRAMID SHAREHOLDERS WILL RECEIVE IN THE MERGER (pages 31-32)

         In the Merger, Merchants will issue up to 620,100 shares of Merchants
Common Stock to the Shareholders of Pyramid. As a shareholder of Pyramid, you
will receive nine (9) shares of Merchants Common Stock for each share of Pyramid
Common Stock you own unless you dissent from the Merger and follow the statutory
procedure for perfecting your dissenters' rights.

         The nine-for-one ratio at which your Pyramid Common Stock will be
converted into Merchants Common Stock (the "Exchange Ratio") will be
renegotiated by Merchants and Pyramid if the Daily Average Price (as defined
below) of Merchants Common Stock is less than $36 or greater than $44. Shares of
Merchants Common Stock are quoted on the "Pink Sheets", an inter-broker
quotation medium and in the "Over the Counter Bulletin Board", an electronic
quotation service. Merchants Common Stock is quoted in the "Other Stocks"
section of the Milwaukee Journal Sentinel. On August 20, 1999, the Bid price for
Merchants Common Stock was $42 per share. Based on the exchange ratio in the
Merger, which is nine (9) shares of Merchants Common Stock for one (1) share of
Pyramid Common Stock, the market value of the consideration that Pyramid
shareholders will receive for each share of Pyramid Common Stock would be $378.
The market price of Merchants Common Stock may fluctuate prior to consummation
of the Merger, while the exchange ratio is fixed. Shareholders of Pyramid should
obtain current stock price quotations.

         The Daily Average Price is the daily average of the "Bid" and "Ask"
quotations of Merchants Common Stock as published in the Milwaukee Journal
Sentinel (or obtained from another source acceptable to Merchants and Pyramid if
such quotations are not published in the Milwaukee Journal Sentinel) on each of
the thirty (30) trading days preceding the third day prior to the Effective
Time. On each of such thirty (30) trading days, the Bid and Ask prices will be
averaged to calculate the market quotation for that day, and the



                                       -8-

<PAGE>   15



resulting thirty market quotations will be summed and the result divided by
thirty to determine the Daily Average Price. In the event that "Ask" quotations
are not listed, or if the "Ask" price exceeds the "Bid" price by more than $2 on
any of the thirty trading days used to compute the Daily Average Price, then the
"Bid" quotes will be used on those days to calculate the Daily Average Price.

         If the Daily Average Price (as defined above) is less than $36 or
greater than $44, then Merchants and Pyramid will make a good faith effort to
promptly renegotiate the Exchange Ratio.

         Because the market value of Merchants Common Stock at the Effective
Time is not known at this time, the actual value that Merchants would pay and
Pyramid shareholders would receive in the Merger and whether Merchants and
Pyramid will renegotiate the Exchange Ratio will not be known until the
scheduled closing date or shortly before the Effective Time, respectively. It is
currently anticipated that, if approved by Pyramid shareholders, the Merger will
be completed in the fourth calendar quarter of 1999. However, no assurance as to
the exact timing of the completion can be given.

         In the event that the Daily Average Price is less than $36 or greater
than $44 and it becomes necessary to renegotiate the Exchange Ratio, Merchants'
Board is likely to consult with its legal and financial advisors regarding the
fairness of such renegotiated ratio.

         In addition, the Merchants' Board and its advisors would consider many
of the same factors they considered in determining whether to approve and adopt
the Merger Agreement in the first instance. In particular, the Merchants Board
of Directors would analyze, among other factors, the relationship of the
consideration to be paid by Merchants to the market price and book value and
earnings per share of Pyramid, the financial terms of recent business
combinations in the banking industry and the dilutive or accretive effect of the
renegotiated exchange ratio on Merchants' future earnings and book value.

         In the event it becomes necessary to renegotiate the Exchange Ratio
pursuant to the terms of the Merger Agreement, the Pyramid Board of Directors is
likely to consult with its legal and financial advisors to determine the
fairness of a renegotiated exchange ratio. Shareholders of Pyramid should note
that the fairness opinion obtained by the Pyramid Board and included as Exhibit
'C' to this Proxy Statement/Prospectus does not express an opinion as to the
fairness of the Merger, from a financial point of view, in the event that the
Daily Average Price of Merchants Common Stock is less than $36 or more than $44.
No assurance can be given that a fairness opinion regarding such renegotiated
exchange ratio can be obtained. In making a determination on a renegotiated
exchange ratio, the Pyramid Board of Directors would consider many of the same
factors it considered in determining whether to approve and accept the Merger
Agreement in the first instance. In particular, the Pyramid Board would analyze,
among other factors, whether the then current consideration to be received in
the Merger would deliver more value to the shareholders than could be expected
if Pyramid were to continue as an independent entity. In addition, the Pyramid
Board would consider whether, in light of then prevailing market and other
industry conditions, the renegotiated exchange ratio is fair from a financial
point of view to the Pyramid shareholders.

POST-MERGER DIVIDEND POLICY OF MERCHANTS (page 39)

         It is presently expected that dividend payments will continue at
Merchants' current quarterly dividend rate of $0.15 per share. Merchants' Board
of Directors determines the level of dividends to be declared each quarter based
on various economic and financial factors.





                                       -9-

<PAGE>   16



WHAT WE NEED TO DO TO COMPLETE THE MERGER (pages 47-48)

         The completion of the Merger depends on a number of conditions being
met, including the following:

         1.    Shareholders of Pyramid vote in favor of the Agreement and Plan
               of Merger.

         2.    We receive all necessary regulatory approvals.

         3.    Receipt by us of a legal opinion that, for United States federal
               income tax purposes, Merchants, Pyramid, Merger Corp. and Pyramid
               Shareholders who exchange their shares of Pyramid Common Stock
               for shares of Merchants Common Stock, will not recognize any gain
               or loss as a result of the Merger, except in connection with the
               payment of cash instead of fractional shares. The tax opinion
               will be subject to various limitations, and we recommend that you
               read the fuller description of material tax consequences on page
               40.

         4.    Receipt by Merchants of a letter from its independent accountant
               that the Merger will qualify for "pooling of interests"
               accounting treatment.

         5.    The absence of any injunction or legal restraint blocking the
               Merger.

         Where the law permits, Merchants or Pyramid could decide to complete
the Merger even though one or more of these conditions has not been met. We
cannot be certain when (or if) the conditions to the Merger will be satisfied or
waived, or that the Merger will be completed.

EXCHANGE OF STOCK CERTIFICATES (pages 34-35).

At or prior to the Effective Time, Merchants will deposit with Firstar Trust
Company (the "Exchange Agent") certificates representing the shares of Merchants
Common Stock to be issued in accordance with the terms of the Merger Agreement
("Merchant Common Stock Certificates") for exchange in accordance with the
Merger Agreement, and cash in lieu of any fractional shares of Merchants Common
Stock.

         As soon as practicable after the Effective Time, Merchants will cause
the Exchange Agent to mail to each holder of certificates representing one or
more shares of Pyramid Common Stock converted into the right to receive shares
of Merchants Common Stock pursuant to the Merger Agreement ("Pyramid Common
Stock Certificates") a letter of transmittal and instructions for use in
effecting the surrender of the Pyramid Common Stock Certificates in exchange for
Merchants Common Stock Certificates and any cash in lieu of fractional shares.
Upon proper surrender of an Pyramid Common Stock Certificate for exchange and
cancellation to the Exchange Agent, together with such properly completed letter
of transmittal, the holder of such Pyramid Common Stock Certificate shall be
entitled to receive in exchange therefor, as applicable, (i) Merchants Common
Stock Certificate representing that number of whole shares of Merchants Common
Stock to which such holder of Pyramid Common Stock is entitled pursuant to the
terms of the Merger Agreement and (ii) cash in lieu of fractional shares.
Persons who hold Merchants Common Stock prior to the Merger will not need to
exchange their existing certificates representing shares of Merchants Common
Stock for new stock certificates.








                                      -10-

<PAGE>   17



WAIVERS AND AMENDMENTS TO THE MERGER AGREEMENT. (page 48)

          Merchants and Pyramid may amend, modify or waive in writing the terms
and conditions of the Merger Agreement; provided, however, that no amendment may
be made after the approval of the Merger Agreement at the Pyramid Special
Meeting that changes the amount or type of consideration into which each share
of Pyramid Common Stock would be converted. At any time prior to the Effective
Time, either Merchants or Pyramid may by written instrument (a) extend the time
for the performance of any obligations of the other party, (b) waive any
inaccuracies in the representations and warranties and (c) waive compliance with
any agreement or condition contained in the Merger Agreement.

TERMINATION OF THE MERGER AGREEMENT.  (page 48)

         The Boards of Directors of Merchants and Pyramid can agree at any time
to terminate the Agreement and Plan of Merger without completing the Merger. In
addition, either Merchants or Pyramid can terminate the Merger Agreement if:

         1.    We do not complete the Merger by December 31, 1999, unless the
               failure to complete the Merger by that time is due to a violation
               of the Merger Agreement by the party that wants to terminate the
               Merger Agreement.

         2.    Any governmental agency denies an approval we need to complete
               the Merger and that denial has become final and nonappealable.

         3.    The shareholders of Pyramid do not approve the Merger Agreement.

         4.    Either Merchants or Pyramid breaches the Merger Agreement (and
               does not correct the breach promptly) in a way that would entitle
               the party that wants to terminate the Merger Agreement to not
               complete the Merger, as long as the party wanting to terminate
               the Merger Agreement has not materially breached the Merger
               Agreement.

         5.    If the Daily Average Price (see "What Pyramid Shareholders will
               receive in the Merger") is less than $36 or greater than $44 and
               Merchants and Pyramid cannot agree on a renegotiated exchange
               ratio.

REIMBURSEMENT OF EXPENSES.  (pages 48-49)

         The Merger Agreement provides that expenses incurred by Merchants and
Pyramid in connection with the Merger will be borne by the party which has
incurred the expense. However, if the Merger Agreement is terminated because of
a breach of the Merger Agreement, then the breaching party shall reimburse the
non-breaching party for documented out-of-pocket expenses incurred in connection
with the Merger. Such right to reimbursement is in addition to other remedies
the non-breaching party may have.

BREAK-UP FEE (page 49)

         If the Merger Agreement is terminated under certain circumstances
relating to third-party offers or the withdrawal or modification of the approval
or recommendation of the Merger Agreement by the Board of Directors of Pyramid,
Pyramid will be obligated to pay Merchants a fee equal to the lesser of (i) 1.5%
of the aggregate value of the Merger as of the date of termination (based on the
market price of Merchants






                                      -11-

<PAGE>   18



Common Stock multiplied by the 620,100 shares of Merchants Common Stock to be
issued in the Merger or (ii) $400,000 (the "Break-Up Fee").

         Provided that Pyramid has not breached the Merger Agreement in any
material respect, Merchants will be obligated to pay the Break-Up Fee to Pyramid
if the Board of Directors of Merchants withdraws, modifies or amends its
approval of the Merger Agreement.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (pages 30-31)

         Some of the directors and officers of Pyramid have interests in the
Merger that are different from, or in addition to, their interests as
stockholders in Pyramid.

         The Directors of Merchants immediately prior to the Effective Time will
continue as the Directors of Merchants, each to hold office in accordance with
the charter and bylaws of Merchants. Additionally, upon consummation of the
Merger, the Chairman and two other current Directors of Pyramid will be elected
to the Board of Directors of Merchants. The persons to be added to the Merchants
Board are Thomas J. Sheehan, Jerome T. Sarnowski and James Kacmarcik. Mr.
Sheehan is Chairman of the Board of Directors, President and Chief Executive
Officer of Pyramid and the Bank; Messrs. Sarnowski and Kacmarcik are Directors
of Pyramid and the Bank. The officers of Merchants immediately prior to the
Effective Time will continue as the officers of Merchants, in each case until
their respective successors are duly elected or appointed. Additionally, Thomas
J. Sheehan, the President and Chief Executive Officer of Pyramid and the Bank
will serve as Vice Chairman of Merchants and will assume responsibility for the
retail banking services of Merchants subsidiary banks. Some of the officers of
Pyramid have entered into employment agreements with the Bank which will
continue in effect after the Bank becomes a subsidiary of Merchants as a result
of the Merger . Merchants (through the Bank as employer) will succeed to the
Bank's obligations with respect to the employment agreements. The Boards of
Directors of Merchants and Pyramid were aware of those interests and took them
into account in approving the Merger Agreement.

OPINION OF PYRAMID'S FINANCIAL ADVISOR (pages 26-30)

         Marshall Financial Consulting LLC ("Marshall") delivered to the Pyramid
Board its written opinion dated March 8, 1999, which was confirmed in a written
opinion dated the date of this Proxy Statement/Prospectus that as of such date,
and based upon the matters considered as set forth in such opinion, the Exchange
Ratio is fair, from a financial point of view, to the Pyramid shareholders. The
written opinion of Marshall dated the date of this Proxy Statement/Prospectus is
attached hereto as Exhibit C and is incorporated herein by reference. Holders of
shares of Pyramid Common Stock are urged to read such opinion in its entirety.
For a description of the assumptions made and matters considered by Marshall,
see 'THE MERGER-Opinion of Financial Advisor" and Exhibit C.

DISSENTING SHAREHOLDERS' RIGHTS (pages 41-43)

         Shareholders of Pyramid who follow certain procedural requirements may
be entitled to receive cash in the amount of the fair value of their shares
instead of the shares of Merchants Common Stock offered pursuant to the Merger
Agreement. The fair value of the shares of Pyramid Common Stock will be
determined pursuant to Wisconsin law which defines "fair value" as "-- the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable."





                                      -12-

<PAGE>   19



         ANY SHAREHOLDER WHO WANTS TO EXERCISE DISSENTERS' RIGHTS MUST NOT VOTE
IN FAVOR OF THE MERGER AGREEMENT AND MUST COMPLY WITH ALL OF THE PROCEDURAL
REQUIREMENTS PROVIDED BY WISCONSIN LAW. A COPY OF THE DISSENTERS' RIGHTS STATUTE
IS ATTACHED AS EXHIBIT D TO THIS DOCUMENT. WE ENCOURAGE YOU TO READ THE STATUTE
CAREFULLY AND TO CONSULT WITH LEGAL COUNSEL IF YOU DESIRE TO EXERCISE YOUR
DISSENTERS' RIGHTS.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (pages 40-41)

         We expect that the conversion of your shares of Pyramid Common Stock
into shares of Merchants Common Stock generally will not cause you to recognize
any gain or loss for purposes of the United States federal income tax, except to
the extent that you may receive cash for fractional shares or pursuant to the
exercise of dissenters' rights.

         The obligation of Pyramid and Merchants to complete the Merger depends
on receipt of a legal opinion about the federal income tax treatment of Pyramid,
Merchants, Merger Corp. and Pyramid's shareholders. This opinion is not binding
on the Internal Revenue Service which could take a different view.

         Determining the actual tax consequences of the Merger to you can be
complicated. They will depend on your specific situation and on variables not
within our control. You should consult your own tax advisor for a full
explanation of the Merger's tax consequences to you.

ACCOUNTING TREATMENT (page 41)

         The Merger will be accounted for as a pooling-of-interests pursuant to
generally accepted accounting principles. It is a condition to the Merger that
Merchants shall have received an opinion, dated as of the Effective Time, from
Ernst & Young LLP, confirming that the Merger will qualify for "pooling of
interests" accounting treatment if consummated in accordance with the Merger
Agreement. However, Merchants may waive this condition and consummate the Merger
even if pooling of interests accounting is not available.

REGULATORY APPROVALS (pages 32-33)

         The Merger is subject to the approval of the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended (the "BHCA") and the
Wisconsin Department of Financial Institutions (the "DFI").

        COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE

         The following tables present selected comparative per common share data
for Merchants Common Stock for the years ended December 31, 1998, 1997 and 1996
and the six months ended June 30, 1999, and Pyramid Common Stock for the years
ended December 31, 1998, 1997 and 1996 and the six months ended June 30, 1999 on
both a historical and pro forma basis giving effect to the Merger. The pro forma
information has been prepared on the basis of accounting for the Merger as a
pooling-of-interests. The information is derived from the consolidated
historical financial statements of Merchants and Pyramid, including the related
notes thereto, included or incorporated by reference in this Proxy
Statement/Prospectus. This information should be read in conjunction with such
historical financial statements and the related notes thereto. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS."






                                      -13-

<PAGE>   20
         This information is not necessarily indicative of the results of the
future operations of the combined entity or the actual results that would have
occurred had the Merger been consummated prior to the periods indicated.


                             Merchants Common Stock

<TABLE>
<CAPTION>

                                       At or For the Six                   At or For the Year
                                       Months Ended June                   Ended December 31,
                                     30, 1999 (unaudited)
                                                                1998               1997               1996
<S>                                         <C>                <C>                <C>                <C>
Historical:
     Net income                             $ 0.69             $ 1.81             $ 1.67             $ 0.91

     Cash dividends declared                  0.30               0.59               0.48               0.48

     Book value                              20.81              20.80              19.78              18.48

Pro forma combined:
     Net income (1)                         $ 0.68             $ 1.86             $ 1.69             $ 1.07

     Cash dividends
       declared (2)                           0.30               0.59               0.48               0.48

     Book value                              18.77              19.03              17.90              16.44

</TABLE>
                              Pyramid Common Stock

<TABLE>
<CAPTION>

                                      At or for the Six                    At or for the Year
                                      Months Ended June                    Ended December 31,
                                     30, 1999 (unaudited)
                                                                1998               1997               1996
<S>                                        <C>                <C>               <C>                 <C>
Historical:
     Net income                            $  8.73            $ 18.07           $  15.55            $ 13.43

Cash dividends declared                       2.00               2.00               1.00

Book value                                  131.19             130.40             116.23             101.14

Equivalent pro forma
combined:  (3)
Net income                                 $  0.97            $  2.01            $  1.73            $  1.49

Cash dividends declared                       0.22               0.22               0.11

Book Value                                   14.41              14.49              12.91              11.24

</TABLE>

(1)      Pro forma net income was computed assuming 2,110,000; 2,067,355;
         2,004,809 and 2,001,160 fully diluted shares of Merchants outstanding
         for the periods ended June 30, 1999, December 31, 1998, 1997 and 1996,
         respectively.





                                      -14-

<PAGE>   21



(2)      Based on historical dividends of Merchants.

(3)      The pro forma equivalent per share data for Pyramid has been computed
         by multiplying the pro forma combined per share information by 9, which
         represents the Exchange Ratio assuming that the Daily Average Price of
         Merchants is not greater than $44 or less than $36 per share.

                     COMPARATIVE STOCK PRICES AND DIVIDENDS

Merchants Common Stock

         Merchants Common Stock is quoted on the "Pink Sheets," an inter-broker
quotation medium and in the "Over the Counter Bulletin Board," an electronic
quotation service. Merchants Common Stock is quoted in the "Other Stocks"
section of the Milwaukee Journal Sentinel. The following table sets forth, for
the periods indicated, the High and Low Bid quotations per share as furnished by
Robert W. Baird, Inc., a Wisconsin investment banking firm, and the regular cash
dividends declared for Merchants Common Stock as adjusted to reflect stock
dividends. It should be noted that such Bid quotations do not necessarily
represent actual sales.


<TABLE>
<CAPTION>
                                                MERCHANTS COMMON STOCK
                                                ----------------------

                                      HIGH              LOW
                                      BID               BID             DIVIDEND
                                      ----              ---             --------
<S>                                  <C>              <C>               <C>
1996
----

First quarter                        $17.73           $16.06            $ 0.10
Second Quarter                        17.73            16.82              0.10
Third Quarter                         18.18            17.27              0.12
Fourth Quarter                        18.18            17.57              0.15

1997
----

First Quarter                        $19.24           $16.97            $ 0.12
Second Quarter                        20.00            18.79              0.12
Third Quarter                         20.15            19.55              0.12
Fourth Quarter                        28.48            20.15              0.12

1998
----

First Quarter                        $30.30           $27.88            $ 0.12
Second Quarter                        33.64            28.64              0.13
Third Quarter                         35.45            28.10              0.15
Fourth Quarter                        39.50            34.63              0.20

1999
----

First Quarter                        $43.00           $38.00            $ 0.15
Second Quarter                        43.00            41.50              0.15

</TABLE>

         On March 10, 1999, the last trading day before the announcement of the
signing of the Merger Agreement, the Bid price of Merchants Common Stock as
reported in the Milwaukee Journal Sentinel was




                                      -15-

<PAGE>   22



$38 per share. On August 20, 1999, the latest practicable date before the filing
of the Proxy Statement/Prospectus with the Commission, the Bid price of
Merchants Common Stock as reported was $42 per share. Assuming the Merger had
occurred on such date, the equivalent market value per share of Pyramid Common
Stock, calculated by multiplying the Bid price of Merchants Common Stock by the
Exchange Ratio, would have been $378 which represents 288.1% of June 30, 1999
book value of Pyramid and a price to earnings ratio of 21.65x, based on
Pyramid's annualized net income for the first 6 months of 1999. See also "THE
MERGER-Opinion of Pyramid Financial Advisor". Shareholders are urged to obtain
current market prices for Merchants Common Stock. No assurance can be given as
to the market price of Merchants Common Stock prior to the Effective Time or
after consummation of the Merger.

         On the Record Date, there were approximately 601 holders of record of
Merchants Common Stock.

Pyramid Common Stock

         Pyramid Common Stock is not listed on any exchange or quoted in the
over-the-counter market. There is no established trading market for Pyramid
Common Stock. In the opinion of Pyramid, due to the lack of an active market for
Pyramid Common Stock, transactions in Pyramid Common Stock of which Pyramid is
aware are not frequent enough to produce representative prices. The last sale of
which Pyramid is aware was to the best knowledge of Pyramid at $100 per share on
April 17, 1998.

         The Board of Directors of Pyramid declared the following per-share
dividends in 1996, 1997, 1998 and during the first half of 1999, respectively:
$-0-, $1.00, $2.00, $2.00. Pursuant to the Merger Agreement, the ability of
Pyramid to pay dividends on Pyramid Common Stock prior to the Effective Time has
been restricted except that commencing in the first quarter of 1999 Pyramid is
permitted to declare and pay a quarterly dividend not to exceed $1.00 per share.

         On the Record Date, there were 111 holders of record of Pyramid Common
Stock.

                     SELECTED HISTORICAL AND PRO FORMA DATA

         The summary below sets forth selected historical and other data and
selected unaudited pro forma financial data. The financial data should be read
in conjunction with the historical consolidated financial statements and related
notes thereto of Merchants and Pyramid and in conjunction with the unaudited pro
forma combined financial statements and related notes thereto of Merchants as
the surviving corporation in the Merger included elsewhere in this Proxy
Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS" and "UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION."












                                      -16-

<PAGE>   23



  Selected Historical Financial and Other Data (In thousands, except per-share
                                     data)

                                    Merchants

<TABLE>
<CAPTION>

                          At or for the Six                                    At or for the Year
                          Months Ended June                                    Ended December 31,
                          30, (unaudited)


                          1999           1998               1998         1997           1996           1995          1994
                      -----------------------------     ----------------------------------------------------------------------
<S>                    <C>           <C>                 <C>          <C>            <C>            <C>           <C>
Total assets           $344,164      $312,705            $334,503     $296,678       $267,723       $264,247      $248,181

Loans, net              270,033       231,653             251,815      227,178        189,791        163,650       149,925
Investment
Securities held             -              -                  -            -              -              -           4,326
to maturity

Deposits                298,012       280,382             289,230      264,699        232,933        233,083       223,446

Long-term                 1,190                               260          -              -              -             -
debt

Shareholders'
  equity                 31,000        30,378              30,997       29,496         28,380         26,543        23,573


Interest income          11,679        11,324              23,215       21,094         19,328         18,383        16,139

Interest                  5,131         5,118              10,589        9,090          8,362          7,921         6,155
expense

Provision for
 loan losses                100           150                 250          192            460            132            43

Other income                925         1,009               2,330        1,656          1,555          1,328           941

Other expenses            5,836         5,511              10,532        9,620         10,021          9,040         8,484

Income tax                  502           547               1,468        1,439            730            917           874

Net income                1,035         1,007               2,706        2,409          1,310          1,701         1,524

</TABLE>














                                      -17-

<PAGE>   24



                                     Pyramid

<TABLE>
<CAPTION>

                        At or for the Six                                       At or for the Year
                        Months Ended June                                       Ended December 31,
                        30, (unaudited)


                          1999           1998              1998          1997           1996           1995          1994
                      ----------------------------     -----------------------------------------------------------------------
<S>                    <C>          <C>                 <C>            <C>            <C>            <C>           <C>
Total assets           $108,936     $  97,829           $106,909       $95,007        $90,971        $83,744       $81,586
Loans                    61,291        54,158             60,947        53,880         51,544         51,759        53,684
receivable, net

Investment
 Securities held
 to maturity              7,344         7,049              6,958         6,669          5,274          4,843         5,637
Deposit
 accounts                83,456        75,457             82,974        72,580         69,545         63,406        61,948
Borrowed                  8,150         5,190              8,750         4,740          5,190          6,890         5,540
funds
Shareholders'
  equity                  8,934         7,773              8,441         7,276          6,311          5,512         4,590

Interest income           3,794         3,652              7,472         6,933          6,503          6,228         4,959
Interest                  1,723         1,757              3,531         3,404          3,236          3,120         2,294
expense
Provision for
  loan losses                36            12                 64            35            145             24            64
Noninterest
income                      311           287                621           519            502            486           801
Noninterest
expenses                  1,477         1,344              2,780         2,526          2,427          2,383         2,429
Income tax
expenses                    281           275                574           515            359            456           359
Net income                  588           551              1,144           972            838            731           614

</TABLE>










                                      -18-

<PAGE>   25



                   Selected Unaudited Pro Forma Financial Data
                     ($ in thousands except per share data)

<TABLE>
<CAPTION>

                                     For the Six
                                     Months Ended                                    For the Year Ended
                                       June 30,                                         December 31,

                                1999             1998                    1998              1997               1996
                            -----------------------------------      -----------------------------------------------------
<S>                           <C>              <C>                     <C>               <C>                <C>
Income Statement
   Interest Income            $15,473          $14,976                 $30,687           $28,027            $25,831
   Interest Expense             6,854            6,875                  14,120            12,494             11,598
   Net Interest
      Income                    8,619            8,101                  16,567            15,533             14,233
   Loss Provision                 136              162                     314               227                605
   Other Income                 1,236            1,296                   2,951             2,175              2,057
   Other Expense                7,313            6,855                  13,312            12,146             12,448
   Income Before Tax            2,406            2,380                   5,892             5,335              3,237
   Income Tax                     783              822                   2,042             1,954              1,089
   Net Income                   1,623            1,558                   3,850             3,381              2,148

Per Share
   Basic earnings per
  share                       $  0.77          $  0.76                 $  1.86           $  1.69            $  1.07
   Diluted earnings
per share                        0.76             0.74                    1.82              1.64               1.05

<CAPTION>

                                       At the Six                                    At the Year Ended
                                 Months ended June 30                                   December 31

Balance Sheet                   1999             1998                   1998              1997               1996
                            -----------------------------------      ------------------------------------------------------
<S>                          <C>              <C>                     <C>               <C>                <C>
   Loans-Net                 $331,324         $285,811                $312,762          $281,058           $241,335
   Assets                     453,100          410,534                 441,412           391,685            358,694
   Deposits                   381,468          355,839                 372,204           337,249            302,387
   Shareholders'
Equity                         39,934           38,151                  39,438            36,772             32,691
Weighted Average
Shares
   Basic weighted               2,096            2,062                   2,067             2,005              2,005
average shares
outstanding
   Diluted weighted             2,136            2,106                   2,112             2,059              2,052
average shares
outstanding

</TABLE>





                                      -19-

<PAGE>   26



                               THE SPECIAL MEETING

Date, Place and Time

         The Special Meeting will be held at___________________________________,
Wisconsin, on ________________, 1999 at _____ p.m. (local time).

Matters to Be Considered at the Special Meeting.

         At the Special Meeting, holders of Pyramid Common Stock will consider
and vote upon a proposal to approve the Merger Agreement and any other matters
that may properly come before the Special Meeting. For a detailed description of
the Merger and the Merger Agreement, see "The Merger" and "Certain Provisions of
the Merger Agreement."

Required Vote

         The affirmative vote of the holders of a majority of the outstanding
shares of Pyramid Common Stock entitled to vote at the Special Meeting is
required to approve the Merger Agreement. Each share of Pyramid Common Stock
outstanding on the Record Date (as defined herein) is entitled to one vote.
Shareholders of Merchants are not required to approve the Merger Agreement and
no further corporate authorization by Merchants is required to consummate the
Merger.

         Pursuant to the Voting Agreement, the directors who have voting power
with respect to a total of 13,312 shares or approximately 19.3% of Pyramid
Common Stock entitled to vote at the Special Meeting have agreed, among other
things, to vote their shares in favor of the approval and adoption of the Merger
Agreement and against certain other transactions.

Voting of Proxies

         Shares represented by all properly executed proxies for Pyramid Common
Stock received in time for the Special Meeting will be voted at the Special
Meeting in the manner specified by the holders thereof. Proxies which do not
contain voting instructions will be voted FOR approval of the Merger Agreement.

         It is not expected that any matter other than that referred to herein
will be brought before the Special Meeting. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.

Revocability of Proxies

         The grant of a proxy on the enclosed form of proxy does not preclude a
shareholder from voting in person. A shareholder may revoke a proxy at any time
prior to its exercise by delivering to the Secretary of Pyramid a duly executed
proxy or revocation of proxy bearing a later date or by voting in person at the
Special Meeting. Attendance at the Special Meeting will not of itself constitute
revocation of a proxy.

Record Date; Stock Entitled to Vote; Quorum

         Only holders of record of Pyramid Common Stock at the close of business
on ____________, 1999 (the "Record Date") will be entitled to receive notice of
and to vote at the Special Meeting.



                                      -20-

<PAGE>   27



         At the Record Date, 68,900 shares of Pyramid Common Stock were
outstanding. Shares representing a majority of the outstanding shares of Pyramid
Common Stock entitled to vote must be represented in person or by proxy at the
Special Meeting in order for a quorum to be present. Abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
the Merger Agreement. If a broker or other holder of record indicates on the
proxy that it does not have discretionary authority as to certain shares to vote
on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.

Solicitation of Proxies

         Pyramid will bear the cost of the solicitation of proxies from its
shareholders, except that Merchants and Pyramid will share equally the cost of
printing this Proxy Statement/Prospectus and all regulatory filing fees in
connection therewith. In addition to solicitation by mail, the directors,
officers and employees of Pyramid may solicit proxies from shareholders of
Pyramid by telephone or telegram, or in person, but will receive no additional
compensation for such services.

         SHAREHOLDERS SHOULD NOT RETURN THEIR STOCK CERTIFICATES WITH THEIR
PROXY CARDS.  AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME, PYRAMID
SHAREHOLDERS WILL BE PROVIDED WITH MATERIALS RELATING TO THE EXCHANGE OF
THEIR STOCK CERTIFICATES.  SEE "THE MERGER - CONVERSION OF SHARES; PROCEDURES
FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES."

                                   THE MERGER

Background of the Merger

         For the past several years, the Board of Directors of Pyramid has
monitored the changes in the banking industry and the future of independent
banks in smaller communities in Wisconsin.

         The Pyramid Board considered the increasing competition in the banking
industry, the need for ever-larger capital expenditures to provide desired
customer services and the increasingly complex regulatory and market structure.
The Pyramid Board recognized that the banking industry has substantially changed
in recent years and that changes of equal or greater magnitude are likely in the
future.

         In that connection, the Pyramid Board discussed from time to time the
possibility of combining with another bank, forming an expanded bank holding
company and making suitable acquisitions and growing internally.

         As a result of these discussions, the Pyramid Board realized that it
would not be possible to realize sufficient growth through small acquisitions
and internally-generated growth to effectively compete with the increasing
numbers of larger competitors entering its market.

         The Pyramid Board thus concluded that a combination with another bank
would provide the size and the necessary resources for the Bank to remain an
effective competitor in its market and to properly service its community.




                                      -21-

<PAGE>   28



         The Board believed that it was very important for the Bank to retain
its identity as a community bank and also to retain the name of Grafton State
Bank along with its local management. Based on its review of other transactions,
the Board felt that the Bank's customers and the community would suffer a
reduction in service by a sale of the Bank and its conversion to a branch of
another bank, resulting in the decision making process being moved out of the
local community to a corporate headquarters in another location.

         To that end, in 1997, the Pyramid Board attempted to effect a
combination with another community bank ("other organization"). The combination
was intended to assure relative independence and local control for both
organizations. However, because of the ownership structure of the other
organization, the Board determined that the combination with that bank would not
be in the best interests of Pyramid, its shareholders or its customers.
Accordingly, discussions were terminated in January, 1998. In the summer of
1998, discussions between Pyramid and the other organization resumed in an
attempt to restructure the ownership of the other organization to protect
Pyramid's interests. After several months of unsuccessful negotiations,
discussions with the other organization were finally terminated.

         In 1998, Pyramid also discussed possible combinations with several
other bank holding companies. However, none of the potential acquirors agreed to
allow the Bank to retain its community identity and operate under its own name.
No specific offers were ever received by Pyramid as a result of such
discussions.

         The Pyramid Board continued to believe that in order to remain
competitive and provide appropriate banking services to its customers, an
increase in size and resources by means of a combination with another bank was
required.

         Over the past several years, Merchants had periodically expressed an
interest in exploring a combination with Pyramid. Pyramid's Board was aware that
Merchants' subsidiary banks were operating under local control and with local
autonomy. Pyramid's Board was also mindful of the desire of many of its
shareholders and customers to retain a community-oriented bank with local
control.

         Accordingly, in the second half of 1998, the management and Board of
Directors of Pyramid commenced discussing a possible combination with Merchants.
The Pyramid Board found that the Merchants' banking philosophy closely resembled
Pyramid's. Additionally, Pyramid concluded that the subsidiary banks of
Merchants and Grafton State Bank complemented each other in loan activities
because Merchants had a strong emphasis on commercial lending while Grafton
State Bank emphasized mortgage lending. As a result of the combination, Grafton
State Bank could increase its commercial lending limit to approximately $7
million and would be able to more effectively service many business customers in
its market area which it had difficulty accommodating in the past.

         In addition, the Pyramid Board believed that the shareholders of
Pyramid will enjoy greater liquidity for their stock and a means of accurately
valuing their investment through a transaction with Merchants.

         As a result, the Pyramid Board determined to pursue further discussions
with Merchants. The Pyramid Board and management held several meetings with the
management and Directors of Merchants to further discuss post-merger operational
matters and the merger consideration. Subsequently, the Pyramid Board engaged
Marshall as a financial advisor to assist it in evaluating the Merchants stock
and advise it on the fairness of the exchange, from a financial point of view.



                                      -22-

<PAGE>   29
         On December 19, 1998, the Merchants Board held a special meeting,
attended by its financial advisor and legal counsel, to consider and approve the
terms of a letter of intent to be submitted to Pyramid. The letter of intent was
executed by Merchants on December 28, 1998 and delivered to Pyramid.

         After further negotiations and discussions with its financial advisor
and legal counsel regarding the proposed stock exchange, on January 4, 1999, the
Pyramid Board accepted the letter of intent pursuant to which Pyramid
stockholders would receive an aggregate of 620,100 shares of Merchants stock,
subject to renegotiation of the exchange ratio under certain conditions related
to the price of Merchants' stock . The parties issued a joint press release
announcing the execution of the letter of intent.

         Following public announcement of the proposed transaction and prior to
the execution of the Agreement and Plan of Merger, a Pyramid shareholder
suggested to the management that Pyramid consider an auction which the
shareholder believed would enhance the value to be received by Pyramid
shareholders. The management and the Board of Directors of Pyramid determined an
auction process was not in the best interests of the Pyramid shareholders or the
customers of the Bank.

         After further discussions, an Agreement and Plan of Merger embodying
the terms of the letter of intent was negotiated with the assistance of legal
counsel and executed by Merchants and Pyramid as of March 9, 1999. The parties
issued a joint press release announcing the transaction.

         As of June 10, 1999, the First Amendment to the Merger Agreement was
entered into by Merchants and Pyramid. The purpose of the First Amendment was to
provide for the merger of Pyramid with Merchants Merger Corp., a wholly-owned
subsidiary of Merchants organized exclusively to facilitate the Merger
transaction.

         The Board of Directors of Pyramid has approved the Merger Agreement and
believes that the proposed Merger is in the best interest of Pyramid and its
shareholders. Accordingly, the Pyramid Board recommends that the shareholders of
Pyramid vote in favor of the adoption of the Merger Agreement as discussed
herein.

Reasons for the Merger; Recommendation of Board of Directors of Pyramid

         Merchants. The Merchants Board has concluded that the Merger would be
in the best interests of Merchants and its shareholders. In reaching this
determination, the Merchants Board considered many factors including the
following:

                  (i)   The Merger meets Merchants' strategic objectives of
         maintaining and strengthening a locally owned and operated
         community-oriented financial institution.

                  (ii)  The Merger will create a significantly larger financial
         institution that will have capabilities to offer a wider array of
         financial products and services.

         For instance, Merchants' current customers will have access to the
         products and services offered by Pyramid and, conversely, Pyramid will
         offer its products and services to Merchants' customers. Moreover, the
         combined resources of the two companies will improve the efficiencies
         associated with the development of new products and services to be
         offered by Merchants.

                  (iii) Merchants will have immediate access to the Ozaukee
         County market which is currently served by Merchants on a limited
         basis.


                                      -23-

<PAGE>   30
                  (iv)  The similarities between the operations of Merchants and
         Pyramid will result in cost savings and more efficient utilization of
         resources and technology thereby offering economies of scale not
         currently available to Merchants.

                  (v)   The size and capital structure of Merchants following
         the Merger will provide greater opportunities and flexibility in
         responding to the rapidly changing industry for financial service
         providers.

                  (vi)  The asset size, capital position, management strength
         and market position of Merchants will enable the combined company to
         remain competitive and take advantage of current and emerging
         opportunities for growth and profitability.

                  (vii) The opinion of Merchants that the consideration to be
         paid by Merchants in the Merger is fair, from a financial point of
         view, to Merchants and its shareholders.

Numerous factors were considered by the Merchants Board in approving the terms
of the Merger. These factors included information concerning the financial
structure, results of operations, and prospects of Merchants and Pyramid; the
capital adequacy of the resulting entity; the composition of the businesses of
the two organizations; the overall compatibility of the management and employees
of the organizations; the outlook for the organizations in the rapidly changing
financial services industry; the relationship of the consideration to be paid in
the Merger to market prices and the book value and earnings per share of Pyramid
and the financial terms of certain other recent business combinations in the
banking industry.

         Pyramid. In considering the Merger, the Directors of Pyramid reviewed
the terms and conditions of the proposed Merger Agreement, along with certain
business and financial information relating to Merchants and Pyramid. In
addition, the Board of Directors of Pyramid determined to approve the proposed
transaction primarily because the Merger will increase the financial strength of
the Bank by enabling it to better serve its depositors and customers, while at
the same time allowing the Bank to retain its identity as a community bank and
retain the name of Grafton State Bank along with local management; to provide
additional opportunities for professional advancement for the Bank's employees,
and to be more competitive with other bank subsidiaries of large bank holding
companies currently doing business in Ozaukee County or which might locate in
the community. The directors of Pyramid also concluded that the Merger will
enhance both the long-term and short-term value of Pyramid shareholders'
investment. Among the factors important to the Directors of Pyramid in
determining to approve the Merger, were: ( i) the increased opportunity and
resources to serve the Bank's customers; (ii) the possibility for career
enhancement which employees of Pyramid and the Bank might be provided as a
result of the merger; (iii) the increased resources and expertise to keep the
Bank competitive and meet the ever-changing demands of the banking industry;
(iv) the marketability and liquidity of Merchants' Common Stock and the
consistent dividend history and rate of dividends of the Merchants Common stock
to be received in the Merger as compared to the illiquidity and lack of
marketability of Pyramid Common Stock and the dividend history of Pyramid Common
stock; (v) the tax-free nature of the Merger for federal income tax purposes
which would permit Pyramid's shareholders who receive shares of Merchants Common
Stock to defer federal income taxation under certain circumstances; (vi) the
potential for future appreciation of Merchants' Common Stock due to Merchants'
greater market presence and financial resources; and (vii) the financial terms
of other recent business combinations in the financial services industry. See
"THE MERGER - Certain Material Federal Income Tax Consequences."

         While each member of Pyramid's Board of Directors evaluated each of the
foregoing as well as other factors, the Board of Directors collectively did not
assign any specific or relative weights to the factors


                                      -24-
<PAGE>   31
considered and did not make any determination with respect to any individual
factor. Pyramid's Board of Directors collectively made its determination with
respect to the Merger based on its unanimous conclusion that the Merger, in
light of the factors which each of them individually considered as appropriate,
is fair and in the best interests of Pyramid's shareholders.

         The Board of Directors of Pyramid has determined that the terms of the
Merger are fair to, and in the best interests of, Pyramid and its shareholders
for the reasons stated immediately above.

         THE BOARD OF DIRECTORS OF PYRAMID HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.

Certain Considerations

         In deciding whether to vote in favor of the Merger, the Pyramid
shareholders should consider the following factors, in addition to the other
matters set forth herein.

                  (i)   Uncertain Legislative and Regulatory Environment. The
         banking and financial services businesses in which Pyramid and
         Merchants engage are highly regulated. The laws and regulations
         affecting such businesses may be changed in the future. Such changes
         could affect the ability of banks to engage in nationwide branch
         banking and the ability of bank holding companies to engage in
         non-banking businesses, such as securities underwriting and insurance,
         in which they have been allowed to engage only on a limited basis. Such
         changes may also affect the capital that banks and bank holding
         companies are required to maintain, the premiums paid for or the
         availability of deposit insurance or other matters directly affecting
         earnings. Neither Pyramid nor Merchants can predict what changes will
         occur and the effect that any such changes would have on the ability of
         the combined entity to compete effectively or to take advantage of new
         opportunities after the Merger.

                  (ii)  Competition. The markets in which Pyramid and Merchants
         operate are highly competitive. Competition in such markets is likely
         to increase in light of the changing legislative and regulatory
         environment in which Pyramid and Merchants operate. In addition,
         consolidation and mergers in the banking industry are expected to
         continue, resulting in stronger and more effective competitors. Neither
         Pyramid nor Merchants can predict the degree to which competition in
         the industry will increase in the future or the effect any such
         increased competition will have on the combined entity.

                  (iii) Rapid Technological Changes. Evolving technology will
         play a major role in the processing and delivery of financial services.
         The effective use of new technology will enable banking and financial
         service businesses to improve information concerning their customers
         and markets. It will also enable them to reduce overhead expenses while
         improving the quality of service to customers. Communications
         technology will substantially improve the ability of financial
         institutions to exchange information with their customers and
         employees. Banks and financial institutions that are unwilling or
         unable to access this evolving new technology could experience lower
         earnings and a loss of customers.

                  (iv)  Uncertain Economic Environment. Banks and financial
         service companies in the Midwest have experienced a relatively long
         period of price stability and a growing economy. Price stability
         enables banks to better protect themselves against interest rate risks.
         A strong economy


                                      -25-

<PAGE>   32

         enhances the opportunity of the commercial sector of the economy to
         improve earnings and performance. It also provides an environment for
         financial institutions to experience positive and profitable growth.
         Potentially adverse economic changes present additional risks for banks
         and financial service companies.

               (v)    Nature of Business. The financial performance of Pyramid
         results primarily from its retail banking activities located in Ozaukee
         County. Pyramid shareholders who receive shares of Merchants Common
         Stock will own an interest in a diversified multi-bank holding company
         currently operating 17 banking offices located in Milwaukee and
         Waukesha Counties,, which is engaged in several non-banking businesses.
         Financial performance of Merchants is accordingly dependent on its
         activities and the economic factors in such markets and businesses.

               (vi)   Business Combinations. Merchants seeks additional
         expansion opportunities and accordingly may enter into business
         combinations with banking and non-banking entities involving the
         issuance of its shares or payment of cash consideration which may not
         require a vote of holders of Merchants Common Stock at the time of such
         additional acquisitions.

               (vii)  Share Price Fluctuation. The price of shares of Pyramid
         Common Stock is based essentially upon the financial condition of
         Pyramid and the market value for similar non-publicly traded bank
         holding companies and other factors. The share price of Merchants
         Common Stock is by nature more subject to the general price
         fluctuations in the market for publicly-traded equity securities. Such
         fluctuations are not necessarily related to a change in the financial
         performance or condition of Merchants.

Opinion of Pyramid Financial Advisor

         The Pyramid Board retained Marshall to act as its financial advisor in
connection with the Merger and to assist it in its examination of the fairness,
from a financial point of view, of the merger consideration to the holders of
Pyramid Common Stock. On March 8, 1999, Marshall rendered its opinion to the
Pyramid Board (subsequently confirmed as of the date of this Proxy
Statement/Prospectus) to the effect that the merger consideration was fair, from
a financial point of view, to the holders of Pyramid Common Stock.

         THE FULL TEXT OF MARSHALL'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY MARSHALL IN RENDERING ITS OPINION, IS ATTACHED AS
EXHIBIT C TO THIS PROXY STATEMENT/PROSPECTUS. THE MARSHALL OPINION IS DIRECTED
ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF PYRAMID COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY PYRAMID SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT
TO THE MERGER. THE SUMMARY OF THE MARSHALL OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION ATTACHED AS AN EXHIBIT HERETO, AND SHAREHOLDERS OF PYRAMID SHOULD
READ THE MARSHALL OPINION CAREFULLY AND IN ITS ENTIRETY.

         Marshall's analysis. In conducting its investigation and analysis and
in arriving at its opinion, Marshall reviewed such information and took into
account such financial and economic factors as it deemed relevant. In doing so,
Marshall, among other things; (i) reviewed certain internal information,
primarily financial in nature, including projections, as well as publicly
available information, including but not limited




                                      -26-

<PAGE>   33



to Pyramid's and Merchants' recent filings with regulatory authorities; (ii)
reviewed the Merger Agreement; (iii) compared the historical market prices and
trading activity of Pyramid and Merchants Common Stock with those of certain
other publicly traded companies Marshall deemed relevant; (iv) compared the
financial position and operation results of Pyramid and Merchants with those of
other publicly traded companies Marshall deemed relevant; (v) compared the
proposed financial terms of the Merger with the financial terms of certain other
business combinations involving banking institutions Marshall deemed relevant;
and (vi) reviewed certain potential pro forma effects of the Merger on
Merchants. Marshall held discussions with certain members of Pyramid's and
Merchants' senior management concerning Pyramid's and Merchants' historical and
current financial condition and operating results, as well as the future
prospects of Pyramid and Merchants, respectively. Marshall had not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any party of Pyramid. Marshall also considered such other
information, financial studies, analysis and investigations and financial,
economic and market criteria as Marshall deemed relevant for the preparation of
its opinion. The merger consideration was determined by Pyramid and Merchants in
arm's-length negotiations. Pyramid did not place any limitation upon Marshall
with respect to the procedures followed or factors considered by Marshall in
rendering its opinion.

         In arriving at its opinion, Marshall assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to it by or on behalf of Pyramid and Merchants,
and was not engaged to independently verify any such information. Marshall
assumed, with Pyramid's and Merchants' consent, that (i) all material assets and
liabilities (contingent or otherwise, known or unknown) of Pyramid and Merchants
are set forth in their respective financial statements; (ii) the Merger will be
accounted for under the pooling of interest method of accounting; (iii) the
Merger will be consummated in accordance with the terms of the Merger Agreement
without any additional amendments thereto and without any condition; (iv) the
prospective cost savings and revenue enhancements contemplated by management of
both companies following the Merger will be realized; and (v) all shareholder
and required regulatory approvals will be obtained in a timely manner. Marshall
also assumed that the financial forecasts examined by it were reasonably
prepared on bases reflecting the best available estimates and good faith
judgments of Pyramid's and Merchants' respective senior management, as to future
performance of their respective companies. Marshall did not undertake or obtain
an independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Pyramid or Merchants, nor did it make a physical
inspection of the properties or facilities of Pyramid or Merchants. Marshall's
opinion necessarily was based upon economic, monetary and market conditions as
they existed and could be evaluated on the date thereof, and did not predict or
take into account any changes which may occur, or information which may become
available, after the date thereof. Furthermore, Marshall expressed no opinion as
to the pricing or trading range at which shares of Merchants' securities would
trade following the date of such opinion.

         Analysis of Selected Comparable Transactions. Marshall reviewed a
selected group of ten completed or pending acquisitions of banks or bank holding
companies that were announced since January 1, 1997. Marshall focused on
transactions where the acquired entity had a transaction value of less than $50
million. The assets of the comparables ranged from $75 million to $171 million
and the mean being $106 million. The equity to asset ratio for the comparables
ranged from 6.97% to 13.57% with the median and the mean being 11.53% and 10.93%
respectively. The return on average assets for the comparables ranged from 1.10%
to 1.86% with the median and the mean being 1.34% and 1.43%, respectively. The
comparables' return on equity ranged from 9.35% to 25.61% with the median and
the mean being 11.68% and 13.88%, respectively. The price to book of the
comparables ranged from 151.00% to 320.57% with the median and the mean being
229.31% and 227.79%, respectively. The price to tangible book for the
comparables ranged from 158.84% to 363.37% with the median and the mean being
229.31% and 236.03%, respectively. The comparables' price to latest twelve
months net income ranged from 11.39x to 30.12x with the median being 18.58x and
the mean being 18.31x, respectively. The tangible premium to core deposits




                                      -27-


<PAGE>   34



for the comparable companies ranged from 8.63% to 25.14% with the median and
mean being 18.45% and 18.38%, respectively.

         Analysis of Pyramid Valuation Multiples. Marshall calculated the
"implied Equity Value Per Share" reflected by the terms of the Merger to be $351
for each share of Pyramid Common Stock, obtained by multiplying an Exchange
Ratio of 9 by the bid price share of Merchants Common Stock of $39 on March 1,
1999. Marshall then calculated the "Implied Total Equity Value: to be
$24,183,900 million, obtained by multiplying the implied equity Value Per Share
by the total number of outstanding shares of Pyramid Common Stock, including
shares issuable upon exercise of stock options. In performing its analysis,
Marshall used, among other items, operating statistics for Pyramid's twelve
months through December 31, 1998. Marshall calculated multiples of the Implied
Total Equity Value to Pyramid's earnings per share, book value, tangible book
value and tangible premium to core deposits. The calculations resulted in ratios
of the Implied Total Equity Value to net income ("P/E Ratios") of 21.99x based
on December 31, 1998 results, 288.3% of book value, 288.3% of tangible book
value and an 18.97% tangible premium to core deposits.

         As no comparative group or transaction from any comparative group is
identical to the Merger, Marshall indicated to the Pyramid Board that the
analyses described above are not mathematical, but rather involve complex
consideration and judgments concerning differences in operating and financial
characteristics including, among other things, differences in revenue
composition and earnings performance among Pyramid and Merchants and the
selected companies and transactions reviewed.

         Analysis of Publicly Traded Companies Comparable to Pyramid. Marshall
reviewed certain publicly available financial and stock market information for
certain publicly traded companies which Marshall deemed relevant. These
companies consisted of: F&M Bancorporation, ANB Corp., Baylake Corp., State
Financial Services, Empire Banc Corp., Princeton National Bancorp., Northern
States Financial Corp., Union Bancorp, Merchants Bancorp and German American
Bancorp (the "Comparable Companies"). The data described below for such group is
as of December 31, 1998 and is compared to Pyramid's financial information, as
reported, as of December 31, 1998.

         Marshall noted that the equity to assets for Pyramid was 7.90% compared
with a median of 9.47% and a mean of 9.80% for the Comparable Companies. The
equity to assets for the Comparable Companies ranged from a high of 13.40% to a
low of 8.17%. Marshall also noted the following operating performance statistics
for Pyramid compared to the Comparable Companies: (i) the net interest margin
for Pyramid was 4.28% compared to a median of 4.42% and a mean of 4.44%. (The
range for net interest margin of the Comparable Companies was a high of 4.92% to
a low of 3.99%); (ii) the efficiency ratio for Pyramid was 60.60% compared to a
median of 58.62% and a mean of 60.81% for the Comparable Companies. (The range
for the efficiency ratio for the Comparable Companies was 45.61% to 64.71%);
(iii) the return on average assets for Pyramid was 1.13% compared to a median of
1.18% and a mean of 1.21% for the Comparable Companies. (The range on average
assets was .88% and 1.55% for the Comparable Companies), (iv) the return on
average equity for Pyramid was 14.60% compared to a median of 11.67% and a mean
of 12.36% for the Comparable Companies. (The range for the return on average
equity was 9.94% to 15.85% for the Comparable Companies.)

         Discounted Earnings Analysis. Marshall performed a discounted earnings
analysis of Pyramid on a stand-alone basis using Pyramid management's
projections of future earnings for the 5 year period ending December 31, 2003.
Marshall estimated terminal values for Pyramid using asset growth rates of
6.00%, return on average assets of 1.20%, cash dividends of $4.00 per share in
1999 and $7.00 per share in 2000, 2001, 2002, and 2003, discount rates of 9%,
11% and 13%, and terminal book value multiples of 100%, 110% and 120%. Based
upon projections, Marshall calculated an implied per share price from $183 to
$253



                                      -28-


<PAGE>   35


per share of Pyramid Common Stock. Marshall noted that the discounted earnings
analysis was included because it is a widely used valuation methodology, but
noted that the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including earnings growth ratios,
dividend payout rates, terminal values and discount rates.

         Analysis of Merchants. In order to assess the relative public market
valuation of the Merchants Common Stock to be issued in the Merger, Marshall
reviewed certain publicly available financial information of the most recently
reported period as of December 31, 1998 for Merchants and stock market
information of certain selected publicly traded companies which Marshall deemed
relevant. Such comparable companies consist of F&M Bancorporation, ANB Corp.,
Baylake Corp., State Financial Services, Empire Banc Corp., Princeton National
Bancorp., Northern States Financial Corp., Union Bancorp, Merchants Bancorp and
German American Bancorp. (the "Merchants' Comparable Companies"). The data
described below for such group is as of December 31, 1998. Marshall noted the
following operating performance statistics for Merchants compared to the
Merchants Comparable Companies: (i) Merchants' net interest margin was 4.45%
compared to a median of 4.42% and a mean 4.44% for the Merchants' Comparable
Companies (the range for net interest margin was 3.99% to 4.92% for the
Merchants' Comparable Companies); (ii) the efficiency ratio for Merchants was
70.88% compared with a median of 58.62% and a mean of 60.81% for the Merchants'
Comparable Companies (The range for the efficiency ratio was 45.61% to 64.71%
for the Merchants' Comparable Companies); (iii) the return on average assets for
Merchants was .86% compared to a median of 1.18% and a mean of 1.21% for the
Merchants' Comparable Companies (The range for the return on average assets was
 .88% to 1.55% for the Merchants' Comparable Companies); (iv) the return on
average equity for Merchants was 8.92% compared to a median of 11.67% and a mean
of 12.36% for the Merchants' Comparable Companies (The range for the return on
average equity was 9.94% to 15.85% for the Merchants' Comparable Companies); (v)
the ratio of non-performing assets to total assets for Merchants was .31%
compared with a median of .61% and a mean of .69% for the Merchants' Comparable
Companies (The range for the non-performing assets to total assets was .31% to
1.36% for the Merchants' Comparable Companies).

         Pro Forma Merger Analysis. Marshall prepared a pro forma analysis of
the financial impact of the Merger. Using financial forecasts for Pyramid
(prepared by Pyramid's management) and Merchants (prepared by Merchants'
management), Marshall compared Merchants' earnings per share and book value on a
stand-alone basis to earnings and book value of the combined companies on a pro
forma basis. Without any synergies, this analysis indicated that the Merger
would be dilutive to earnings per share in 1999 and after synergies as provided
by Merchants management non-dilutive to earnings per share in 1999. However,
this analysis shows that it is immediately dilutive to book value per share by
10.1%.

         Stock Trading Analysis. Marshall reviewed the historical trading prices
and volume of Merchants Common Stock for the two years ending December 31, 1998.
The price of Merchants Common Stock ranged from a high to a low from January 1,
1997 through December 31, 1997 of $16.97 to $29.09, and from $28.03 to $42.50
from January 1, 1998 through December 31, 1998. The trading volumes in calendar
year 1997 and 1998 were 54,185 and 98,565 shares, respectively.

         Contribution Analysis. Marshall analyzed the contribution of each of
Pyramid and Merchants to the pro forma company of assets, deposits, net income,
estimated net income, tangible equity and ownership at or through December 31,
1998. Marshall calculated that: Merchants would contribute 75.8% and Pyramid
24.2% of assets; Merchants would contribute 77.7% and Pyramid 22.3% of deposits;
Merchants would contribute 71.1% and Pyramid 28.9% of 1998 net income, Merchants
would contribute 71.1% and Pyramid 28.9% of forecasted 1999 net income;
Merchants would contribute 78.7% and Pyramid 21.3% of tangible



                                      -29-

<PAGE>   36



equity; and Merchants would represent 71.6% and Pyramid 28.4% based on the
issuance by Merchants of 620,100 shares out of a pro forma total of 2,183.961
shares.

         In connection with its written opinion dated _____________, 1999,
Marshall confirmed the appropriateness of its reliance on the analyses used to
render its opinion dated March 8, 1999, by performing procedures to update
certain of its analyses and by reviewing assumptions on which such analyses were
based and the factors considered therewith.

         The summary of the opinion set forth above does not purport to be a
complete description of the presentation of Marshall to the Pyramid Board or the
analyses performed by Marshall. The preparation of a fairness opinion is a
complex process and is not susceptible to partial analysis or summary
description. Marshall believes that its analysis must be considered as a whole
and that selecting portions of its analyses, without considering all factors and
analyses would create an incomplete view of the processes underlying the
analyses conducted by Marshall and its opinion. Marshall did not attempt to
assign particular weights to particular analyses. Any estimates contained in
Marshall's analyses are not necessarily indicative of actual values, which may
be significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty. Marshall does not assume responsibility for
their accuracy.

         Marshall, as part of its investment banking business, is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Pyramid retained Marshall because of its experience and
expertise in the valuation of businesses and their securities in connection with
mergers and acquisitions.

         Pursuant to an agreement, dated December 17, 1998, between Pyramid and
Marshall, Pyramid has paid Marshall a non-refundable retainer fee of $25,000, a
fee of $25,000 for rendering its opinion dated March 8, 1999, and will pay a
closing fee of $15,000. Pyramid also has agreed to reimburse Marshall for
certain of its out-of-pocket expenses incurred in connection with its
engagement. Additionally, Pyramid has agreed to indemnify Marshall against
certain liabilities, including liabilities under the federal securities laws,
incurred in connection with the engagement of Marshall by Pyramid.

Interests of Certain Persons in the Merger

         Assuming that the Merger is consummated, the Directors of Merchants
immediately prior to the Effective Time will be the directors of Merchants at
the Effective Time, each to hold office in accordance with the Amended Articles
of Incorporation and By-Laws of Merchants. The officers of Merchants immediately
prior to the Effective Time will be the officers of Merchants at the Effective
Time, in each case until their respective successors are duly elected and
qualified.

         Upon consummation of the Merger, Mr. Thomas J. Sheehan, Chairman of the
Board of Directors and President and Chief Executive Officer of Pyramid and the
Bank will be elected to the Board of Directors of Merchants and will serve as
its Vice Chairman. In addition, Mr. Jerome T. Sarnowski and Mr. James Kacmarcik,
Directors of Pyramid and the Bank will be elected to the Board of Directors of
Merchants. Mr. Sheehan will also assume responsibility for the retail banking
services of Merchants subsidiary banks. Mr. Sheehan and three officers of the
Bank have entered into employment agreements with the Bank which will continue
in effect after the Bank becomes a subsidiary of Merchants as a result of the
Merger. The employment agreements are effective as of April 1, 1999, continue
for three years (unless sooner terminated



                                      -30-


<PAGE>   37



as provided in the employment agreements.) and provide for one-year renewals on
each anniversary date, unless notice of non-renewal is given. The employment
agreements provide for Mr. Sheehan to serve as Chief Executive Officer, for Mr.
Jefford Larson to serve as Vice President-Commercial Banking, for Mr. Peter
Schumacher to serve as Controller and for Mr. Richard Belling to serve as Vice
President-Mortgages of the Bank. In addition to an annual base salary, each of
the named officers will be entitled to such other benefits as are generally made
available to others officers serving in comparable positions at the Bank or
other subsidiaries of Merchants. Messrs. Sheehan, Larson, Schumacher and Belling
have agreed not to compete with the Bank or its affiliates during the employment
period or during the lesser of the remaining term of the employment agreement or
12 months following termination of employment.

         Merchants (through the Bank as employer) will succeed to the Bank's
obligations with respect to the employment agreements. The Boards of Directors
of Merchants and Pyramid were aware of these interests and took them into
account in approving the Merger Agreement.

Merger Consideration

         Upon consummation of the Merger, each share of Pyramid Common Stock
outstanding at the Effective Time will be converted (subject to the provisions
with respect to fractional shares described below) into the right to receive 9
shares of Merchants Common Stock, (the "Exchange Ratio"), subject to
renegotiation of the exchange ratio if the Daily Average Price (as defined
below) of Merchants Common Stock is less than $36 or greater than $44. The Daily
Average Price is the daily average of the "Bid" and "Ask" quotations of
Merchants Common Stock as published in the Milwaukee Journal Sentinel (or
obtained from another source acceptable to Merchants and Pyramid if such
quotations are not published in the Milwaukee Journal Sentinel) on each of the
thirty (30) trading days preceding the third day prior to the Effective Time. On
each of such thirty (30) trading days, the Bid and Ask prices will be averaged
to calculate the market quotation for that day, and the resulting thirty (30)
market quotations will be summed and the result divided by thirty (30) to
determine the Daily Average Price. In the event that "Ask" quotations are not
listed, or if the "Ask" price exceeds the "Bid" price by more than $2 on any of
the thirty (30) trading days used to compute the Daily Average Price, then the
"Bid" quotes will be used on those days to calculate the Daily Average Price. If
the Daily Average Price is less than $36 or greater than $44, then Merchants and
Pyramid will make a good-faith effort to promptly renegotiate the Exchange
Ratio.

         Because the market value of Merchants Common Stock at the Effective
Time is not known at this time, the actual value that Merchants would pay and
Pyramid shareholders would receive in the Merger and whether Merchants and
Pyramid will renegotiate the Exchange Ratio will not be known until the
scheduled closing date or shortly before the Effective Time, respectively. It is
currently anticipated that, if approved by Pyramid shareholders, the Merger will
be completed in the fourth calendar quarter of 1999, although no assurance as to
the time of completion can be given.

         In the event that the Daily Average Price is less than $36 or greater
than $44 and it becomes necessary to renegotiate the Exchange Ratio, Merchants'
Board is likely to consult with its legal and financial advisors regarding the
fairness of such renegotiated ratio.

         In addition, the Merchants' Board and its advisors would consider many
of the same factors they considered in determining whether to approve and adopt
the Merger Agreement in the first instance. In particular, the Merchants Board
of Directors would analyze, among other factors, the relationship of the
consideration to be paid by Merchants to the market price and book value and
earnings per share of Pyramid, the financial terms of recent business
combinations in the banking industry and the dilutive or accretive effect of the
renegotiated exchange ratio on Merchants' future earnings and book value.



                                      -31-


<PAGE>   38



         In the event it becomes necessary to renegotiate the Exchange Ratio
pursuant to the terms of the Merger Agreement, the Pyramid Board of Directors is
likely to consult with its legal and financial advisors to determine the
fairness of a renegotiated exchange ratio. Shareholders of Pyramid should note
that the fairness opinion obtained by the Pyramid Board and included as Exhibit
'C' to this Proxy Statement/Prospectus does not express an opinion as to the
fairness of the Merger, from a financial point of view, in the event that the
Daily Average Price of Merchants Common Stock is less than $36 or more than $44.
No assurance can be given that a fairness opinion regarding such renegotiated
exchange ratio can be obtained. In making a determination on a renegotiated
exchange ratio, the Pyramid Board of Directors would consider many of the same
factors it considered in determining whether to approve and accept the Merger
Agreement in the first instance. In particular, the Pyramid Board would analyze,
among other factors, whether the then current consideration to be received in
the Merger would deliver more value to the shareholders than could be expected
if Pyramid were to continue as an independent entity. In addition, the Pyramid
Board would consider whether, in light of then prevailing market and other
industry conditions, the renegotiated exchange ratio is fair from a financial
point of view to the Pyramid shareholders.

Regulatory Approvals Required

         Federal. The Merger is subject to prior approval by the Federal Reserve
Board under the BHC Act, which requires that the Federal Reserve Board take into
consideration, among other factors, the financial and managerial resources and
future prospects of the respective institutions and the convenience and needs of
the communities to be served. The BHC Act prohibits the Federal Reserve Board
from approving the Merger if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country may be to substantially lessen competition or to tend to
create a monopoly, or if it would in any other manner be a restraint of trade,
unless the Federal Reserve Board finds that the anti-competitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. It is highly improbable that the Merger poses any antitrust issues. The
Federal Reserve Board also has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
position. Furthermore, the Federal Reserve Board must also assess the records of
the Bank subsidiaries of Merchants and Pyramid under the Community Reinvestment
Act of 1977, as amended (the "CRA"). The CRA requires that the Federal Reserve
Board analyze, and take into account when evaluating an application, each bank's
record of meeting the credit needs of its local communities, including low and
moderate income neighborhoods, consistent with safe and sound operation.

         Under the BHC Act, the Merger may not be consummated until up to 30
days following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. Although a challenge is highly improbable, there can be no assurance
that the Department of Justice will not challenge the Merger or, if such a
challenge is made, as to the result thereof. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise. The BHC Act provides for the
publication of notice and public comment on the applications and authorizes the
regulatory agency to permit interested parties to intervene in the proceedings.

         Merchants filed an application with the Federal Reserve Bank of Chicago
(the "Federal Reserve Bank") that was accepted for filing by the Federal Reserve
Bank on May 20, 1999.



                                      -32-



<PAGE>   39



         Merchants has been advised that the Federal Reserve Bank has approved
its application to acquire 100% of Pyramid as of June 30, 1999. Merger Corp. has
filed a request for waiver with regard to the application requirements under the
BHCA.

         Wisconsin. The Merger is also subject to the prior approval by the
Wisconsin Department of Financial Institutions ("DFI") under Section 221.0901 of
the Wisconsin Statutes which requires that the DFI take into consideration (i)
the financial and managerial resources and future prospects of the respective
institutions and whether the transaction would be contrary to the best interests
of the shareholders or customers of the bank or bank holding company to be
acquired; (ii) whether the action would be detrimental to the safety and
soundness of the respective institutions or any subsidiary or affiliate of the
respective institutions; (iii) the record of performance, management, financial
responsibility and integrity, and the CRA rating of the applicant; and (iv)
whether upon consummation of the transaction, the applicant would control in
excess of 30% of the total amount of deposits of insured depository institutions
in Wisconsin as specified under federal banking law.

         Merchants filed an application with the DFI on May 21, 1999.  Merchants
has been advised that the DFI has approved the application as of July 19, 1999.
The Merger may be consummated at any time within one year of the date approval
was granted by the DFI (subject to the foregoing federal approvals).

         General. The Merger cannot proceed in the absence of all requisite
regulatory approvals and compliance with any waiting periods contained in such
approvals. See "Conditions to Consummation of the Merger." In the Merger
Agreement, Merchants and Pyramid have agreed to take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed
with respect to the Merger, including furnishing information to the Federal
Reserve Board or in connection with approvals or filings with other governmental
entities. Merchants and Pyramid have also agreed to take all reasonable action
necessary to obtain approvals of the Federal Reserve Board, the DFI and other
governmental entities. However, the obligation to take reasonable actions is not
to be construed as including an obligation to accept any terms or conditions to
an agreement or other approval of, or any exemption by, any party that are not
customarily contained in approvals of similar transactions granted by such
regulators or if Merchants in good faith determines that such terms or
conditions would have a material adverse effect on its business or financial
condition or would materially detract from the value of Pyramid to Merchants.

         Merchants and Pyramid are not aware of any other governmental
approvals or actions that are required for consummation of the Merger except as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance that any such approval or action, if needed, could be obtained
and, if such approvals or actions are obtained, there can be no assurance as to
the timing thereof.

The Effective Time

         The Merger will become effective as of the later of (a) the date
Articles of Merger are filed with the DFI or (b) the effective date and time of
the Merger as set forth in such Articles of Merger, (the later of (a) and (b)
being the "Effective Time"). The filing with respect to the Merger will occur as
promptly as practicable after the satisfaction or, if permissible, waiver of the
conditions to the Merger as set forth in the Merger Agreement. The Merger
Agreement may be terminated by either party if, among other reasons, the Merger
shall not have been consummated on or before December 31, 1999. Upon
consummation of the Merger, Pyramid will be merged into Merger Corp. and will
not continue its separate existence or operations, to which Merger Corp. as the
surviving corporation will succeed. See "CERTAIN PROVISIONS OF THE




                                      -33-



<PAGE>   40



MERGER AGREEMENT - Conditions to Consummation of the Merger" and "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT - Termination."

Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares

         At the Effective Time and without any action on the part of Merchants,
Pyramid or the holders of Pyramid Common Stock, each share of Pyramid Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares held by Pyramid shareholders exercising their dissenters rights under the
WBCL) shall be converted into the right to receive shares of Merchants Common
Stock. See "THE MERGER -- Dissenters' Rights." All such shares of Pyramid Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each stock certificate previously
representing any such shares of Pyramid Common Stock (other than shares held by
dissenting shareholders as described above) shall thereafter represent the right
to receive a certificate representing shares of Merchants Common Stock into
which such Pyramid Common Stock has been converted. Certificates previously
representing shares of Pyramid Common Stock shall be exchanged for certificates
representing whole shares of Merchants Common Stock upon the surrender of such
certificates as provided below. No fractional shares of Merchants Common Stock
will be issued, and, in lieu thereof, a cash payment will be made as provided
below.

         As of the Effective Time. Merchants shall deposit, or cause to be
deposited with Firstar Trust Company (the "Exchange Agent'), for the benefit of
the holders of shares of Pyramid Common Stock and for exchange in accordance
with the terms of the Merger Agreement, certificates representing the shares of
Merchants Common Stock (such certificate for shares of Merchants Common Stock,
together with any dividends or distributions with respect thereto (the "Exchange
Fund")) issuable pursuant to the terms of the Merger Agreement.

         As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate which
immediately prior to the Effective Time represented outstanding shares of
Pyramid Common Stock whose shares were converted into the right to receive
shares of Merchants Common Stock, (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of Pyramid Certificates in
exchange for certificates representing shares of Merchants Common Stock. Upon
surrender of a certificate previously representing shares of Pyramid Common
Stock to the Exchange Agent together with such duly executed letter of
transmittal, the holder of such certificate shall receive in exchange therefore
a certificate representing that number of whole shares of Merchants Common Stock
to which such holder is entitled and the certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of shares which
is not registered in the transfer records of Pyramid, a certificate representing
the proper number of shares of Merchants Common Stock may be issued to a
transferee if the certificate representing such shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered, each certificate previously representing shares of
Pyramid Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a certificate
representing shares of Merchants Common Stock and cash in lieu of any fractional
shares of Merchants Common Stock as described below.

         PYRAMID SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL NOR RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.




                                      -34-


<PAGE>   41



         No dividends or other distributions declared or made after the
Effective Time with respect to Merchants Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered certificate
of Pyramid Common Stock with respect to the shares of Merchants Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder, until such certificate is surrendered. Subject to the
effect of applicable laws, following surrender of any such certificate, there
shall be paid to the holder of said certificate, which represents whole shares
of Merchants Common Stock issued in exchange therefor, without interest, (i)
promptly, the amount of cash payable with respect to a fractional share of
Merchants Common Stock to which such holder is entitled and the amount of
dividends or other distributions with a record date after the Effective Time
paid with respect to such whole shares of Merchants Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions,
with a record date after the Effective Time, but prior to surrender and a
payment date occurring after surrender, payable with respect to such whole
shares of Merchants Common Stock.

         All shares of Merchants Common Stock issued upon conversion of the
shares of Pyramid Common Stock (including any cash paid for fractional shares)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Pyramid Common Stock.

         No certificates or scrip representing fractional shares of Merchants
Common Stock shall be issued upon the surrender for exchange of Pyramid Common
Stock certificates, and such fractional share interest will not entitle the
owner thereof to vote or to any rights of a shareholder of Merchants. Each
holder of a fractional share interest shall be paid an amount in cash equal to
the product obtained by multiplying such fractional share interest to which such
holder would otherwise be entitled by the Bid price of a share of Merchants
Common Stock as published in the Milwaukee Journal Sentinel on the first
business day following the date the Federal Reserve Board issues an order
approving consummation of the Merger. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of fractional
share interests, the Exchange Agent shall notify Merchants and Merchants shall
make available such amounts to such holders of such fractional share interests
subject to and in accordance with the terms of the Merger Agreement, as
relevant.

         Any portion of the Exchange Fund which remains undistributed to the
shareholders of Pyramid for six months after the Effective Time shall be
delivered to Merchants, upon demand, and any shareholders of Pyramid who have
not theretofore complied with the procedures described above shall thereafter
look only to Merchants for payment of their claim for Merchants Common Stock,
any cash in lieu of fractional shares of Merchants Common Stock and any
dividends or distributions with respect to Merchants Common Stock.

         Neither Merchants nor Pyramid shall be liable to any holder of shares
of Pyramid Common Stock for any such shares of Pyramid Common Stock (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any abandoned property, escheat or similar law.

         Merchants shall be entitled to deduct and withhold from any cash
consideration payable pursuant to the Merger Agreement to any holder of shares
of Pyramid Common Stock such amounts as Merchants is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of state, local or
foreign tax law.

         At the Effective Time the stock transfer books of Pyramid shall be
closed, and there shall be no further registration of transfers of shares of
Pyramid Common Stock, thereafter on said record books. From and after the
Effective Time, the holders of certificates of Pyramid Common Stock shall cease
to have any rights with respect to such shares of Pyramid Common Stock except as
otherwise provided in the Merger Agreement, or by law. On or after the Effective
Time, any certificate of Pyramid Common Stock presented


                                      -35-


<PAGE>   42



to the Exchange Agent or Merchants for any reason shall be converted into shares
of Merchants Common Stock in accordance with the terms of the Merger Agreement
as described above.

         Persons who hold Merchants Common Stock prior to the Merger will not
need to exchange their existing certificates representing shares of Merchants
Common Stock for new stock certificates.

Description of Merchants Common Stock Issuable in the Merger

         The following description of Merchants Common Stock issuable in the
Merger is a summary and is qualified in its entirety by reference to the terms
of such security, which is incorporated by reference herein and is set forth in
full in Merchants Amended Articles of Incorporation (the "Merchants Articles").
The description set forth below is subject in all respects to the WBCL and the
Merchants Articles.

         Firstar Trust Company is the transfer agent and registrar for all
outstanding Merchants Common Stock.

         THE FOLLOWING DESCRIPTION OF MERCHANTS COMMON STOCK SHOULD BE READ
CAREFULLY BY PYRAMID SHAREHOLDERS SINCE, AT THE EFFECTIVE TIME, EACH ISSUED AND
OUTSTANDING SHARE OF PYRAMID COMMON STOCK WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE SHARES OF MERCHANTS COMMON STOCK AT THE EXCHANGE RATIO.

         General. Merchants has one class of common stock, the Merchants Common
Stock. Of the 6,000,000 shares of Merchants Common Stock authorized, 1,489,754
shares were outstanding as of the Record Date, exclusive of shares held in its
treasury. The Merchants Articles do not provide authorization for the issuance
of preferred stock.

         Dividend Rights. Dividends on Merchants Common Stock will be payable
out of the assets of Merchants legally available therefor as, if and when
declared by the Merchants Board of Directors. No share of Merchants Common Stock
is entitled to any preferential treatment with respect to dividends.

         Voting Rights. Each holder of Merchants Common Stock will be entitled
at each shareholders' meeting of Merchants, as to each matter to be voted upon,
to cast one vote, in person or by proxy, for each share of Merchants Common
Stock registered in his or her name on the stock transfer books of Merchants.
Such voting rights are not cumulative.

         Rights Upon Liquidation. In the event of liquidation, dissolution or
winding up of Merchants, whether voluntary or involuntary, the holders of
Merchants Common Stock will be entitled to receive all assets of Merchants
remaining for distribution to its shareholders, on a pro rata basis. Since
Merchants has no preferred stock, the rights of holders of Merchants Common
Stock to receive dividends or payment in the event of liquidation or dissolution
are not subject to prior satisfaction of the rights of any other shareholders.

         Miscellaneous. Shares of Merchants Common Stock are not convertible
into shares of any other class of capital stock. Shares of Merchants Common
Stock are not entitled to any preemptive or subscription rights. The issued and
outstanding shares of Merchants Common Stock are fully paid and nonassessable
(except as otherwise provided under the WBCL).




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<PAGE>   43



Comparison of Shareholder Rights

         The following is a summary of material differences between the rights
of holders of Pyramid Common Stock and Merchants Common Stock. As Pyramid and
Merchants are both incorporated under the laws of the State of Wisconsin, rights
of shareholders are substantially similar. Differences in the rights of
shareholders of Pyramid and Merchants arise from differences between the
provisions of the Merchants Articles and By-laws and those of Pyramid.
Shareholders of Pyramid, whose rights are governed by Pyramid's Articles of
Incorporation, By-laws and the WBCL will, on consummation of the Merger, become
shareholders of Merchants. Their rights as Merchants shareholders will then be
governed by Merchants' Articles of Incorporation and By-laws and by the WBCL.
The following is a summary of the material differences between the rights of
shareholders of Pyramid and the rights of shareholders of Merchants.

         Authorized Capital Stock

         Pyramid. Under Pyramid's Articles of Incorporation, the aggregate
number of shares which it is authorized to issue is 125,000 shares of one class
of common stock, $1.00 par value. All shares of Pyramid Common Stock are
identical in rights and have one vote. The holders of Pyramid Common Stock are
entitled to such dividends as may be declared from time to time by the Board of
Directors of Pyramid from funds available therefor and upon liquidation are
entitled to receive pro rata all assets of Pyramid available for distribution to
such holders. Pyramid has no authorized shares of preferred stock and,
accordingly, the rights of holders of Pyramid Common Stock to receive dividends
or payment in the event of voluntary or involuntary dissolution, liquidation or
winding up of Pyramid are not subject to the prior satisfaction of the rights of
any other shareholders.

         Merchants. Under Merchants' Articles of Incorporation, Merchants is
authorized to issue 6,000,000 shares of common stock, par value $1.00 per share.
All shares of Merchants Common Stock are identical in rights and have one vote.
For a description of Merchants Common Stock, see "THE MERGER - Description of
Merchants Common Stock Issuable in the Merger."

         Required Vote

         Pyramid. Pursuant to the WBCL, the affirmative vote of a majority of
the shares of Pyramid Common Stock is required to adopt amendments to the
Company's Articles of Incorporation or approve mergers and certain other
extraordinary transactions.

         Merchants. Pursuant to the Merchants' Articles of Incorporation, any
merger, consolidation of Merchants with one or more other corporations, or any
sale, lease or exchange of all or substantially all of the assets of Merchants
requires the affirmative vote of at least eighty percent (80%) of the
outstanding shares of Merchants. However, the matters described in the preceding
sentence require the affirmative vote of a majority of the outstanding shares of
Merchants if such matters have the prior approval of a majority of the Board of
Directors of Merchants. The foregoing provisions may only be amended by the
affirmative vote of not less than eighty percent (80%) of the outstanding shares
of Merchants Common Stock unless such amendment was approved in advance by a
majority of the Directors of Merchants, in which case the affirmative vote of a
majority of the outstanding shares of Merchants Common Stock is required for
adoption of the amendments. All other provisions of the Merchants Articles of
Incorporation may be amended by the affirmative vote of a majority of the
outstanding shares of Merchants Common Stock.




                                      -37-


<PAGE>   44



         Classified Board of Directors

         Pyramid. Pursuant to Pyramid's By-laws, Pyramid's Board of Directors is
divided into three classes as nearly equal in number as possible, with the
Directors in each class serving for staggered three-year terms. Pyramid's Board
consists of not less than six (6) nor more than nine (9), as fixed from time to
time by the shareholders at each annual meeting. At each annual meeting, the
successors to the class of Directors whose term expires at the time of such
meeting are elected for three year terms. The affirmative vote of the holders of
at least 80% of the voting power of the shares of Pyramid entitled to vote for
the election of directors is required to amend or repeal the above provisions of
Pyramid's By-laws.

         Pyramid's By-laws provide that no person who has attained the age of
seventy-two (72) shall be nominated for election as a director of Pyramid. The
present Board of Pyramid consists of six (6) directors.

         Merchants. Pursuant to the Articles of Incorporation of Merchants, the
Board of Directors of Merchants is divided into three (3) classes as nearly
equal in number as possible, with the directors in each class serving for
staggered three-year terms. Merchants' Board consists of not less than eleven
(11) nor more than twenty (20), the exact number to be determined at each annual
meeting of shareholders or, within such limits by a majority of the Board of
Directors. At each annual meeting of shareholders, the successors of the class
whose term expires at the time of such meeting are elected for three-year terms.

         Removal of Directors

         Pyramid. Pursuant to Pyramid's By-laws, any director may be removed
from office by the affirmative vote of a majority of the outstanding shares
entitled to vote for the election of such director and any vacancy so created
may be filled by the affirmative vote of a majority of such shares.

         Merchants. The By-laws of Merchants provide that any director may be
removed from office by the affirmative vote of a majority of the shares
outstanding entitled to vote for the election of such director taken at a
special meeting of shareholders called for that purpose.

         Newly Created Directorships and Vacancies on the Board of Directors

         Pyramid. Any vacancy created by removal from office of a director may
be filled by the affirmative vote of a majority of the outstanding shares
entitled to vote for the election of such directors. Any other vacancy occurring
in the Board of Directors, including a vacancy created by an increase in the
number of directors, may be filled by a majority of the directors then in
office.

         Merchants. Pursuant to Merchants' Articles of Incorporation, a majority
of the Board of Directors may fill any vacancy on the Board.

         Certain Business Combinations

         Pyramid. Pyramid's Articles of Incorporation and Bylaws do not contain
any supermajority voting provisions relating to the approval by holders of
Pyramid Common Stock of mergers or other business combinations.

         Merchants. Article XI of Merchants' Articles provides that an
affirmative vote of eighty percent (80%) of Merchants' outstanding shares is
required to approve any merger or consolidation of Merchants with one or more
other corporations or any sale, lease or exchange of all or substantially all of
the assets of



                                      -38-


<PAGE>   45



Merchants. The 80% voting requirement does not apply if a majority of Merchants
Directors approve the transaction prior to the mailing of the notice of the
meeting of shareholders at which the matter is to be voted on. In that case, the
affirmative vote of a majority of the outstanding shares of Merchants Common
Stock is required. The foregoing provision may only be amended, modified or
repealed by the affirmative vote of not less than eighty percent (80%) of the
outstanding shares of Merchants Common Stock unless such amendment or
modification has been approved by the Board of Directors. In that case, the
affirmative vote of a majority of the outstanding shares of Merchants Common
Stock is required.

Resale of Merchants Common Stock Issued Pursuant to the Merger

         The Merchants Common Stock issued pursuant to the Merger will be
registered under the Securities Act and be freely tradeable under the Securities
Act except for shares issued to any shareholder of Pyramid who may be deemed to
be an "affiliate" of Pyramid for purposes of Rule 145 under the Securities Act.
Each affiliate identified by Pyramid will enter into an agreement with Merchants
providing that such affiliate will be subject to Rule 145(d) of the Securities
Act and shall not transfer any Merchants Common Stock received in the Merger
except in compliance with the Securities Act. In order to comply with pooling of
interests requirements, such persons shall agree to make no disposition of any
shares of Pyramid Common Stock or Merchants Common Stock (or any interests
therein) during the period beginning 30 days before the Effective Time and
ending when the financial results for at least 30 days of combined operations of
Pyramid and Merchants after the Effective Time have been published. This Proxy
Statement/Prospectus does not cover resales of Merchants Common Stock received
by any person who may be deemed to be an affiliate of Pyramid. The foregoing
restrictions are expected to apply to the directors and executive officers of
Pyramid.

Pre-merger Dividend Policy

         Pyramid. Pursuant to the Merger Agreement, except for a quarterly
dividend commencing in the first calendar quarter of 1999 not to exceed $1.00
per share, Pyramid is prohibited from declaring or paying any dividend on, or
making any other distribution in respect of, its outstanding shares of capital
stock without the prior written consent of Merchants. Pyramid does not
anticipate paying any other dividends on shares of the Pyramid Common Stock
prior to the Effective Time.

         Merchants. Merchants expects to continue to declare, until the
Effective Time, its regularly scheduled dividends.

Post-merger Dividend Policy

         It is the current intention of the Board of Directors of Merchants to
continue to declare cash dividends on the Merchants Common Stock following the
Merger. The dividend is currently in the amount of $0.15 per quarter or $0.60
per year, in each case per share. Shareholders should note that future dividends
will be determined by the Merchants Board of Directors in light of the earnings
and financial condition of Merchants and its subsidiaries and other factors,
including applicable governmental regulations and policies. In that regard,
Merchants is a legal entity separate and distinct from its banking and
non-banking subsidiaries, and the principal sources of Merchants' income are
dividends and interests form such subsidiaries. The payment of dividends by
Merchants' banking subsidiaries is subject to certain restrictions under
applicable governmental regulations.




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<PAGE>   46



Conduct of Business Pending the Merger

         Pursuant to the Merger Agreement, Pyramid has agreed to carry on its
business, and the business of its subsidiaries, in the usual, regular and
ordinary course in substantially the same manner as conducted prior to the
execution of the Merger Agreement, subject to certain covenants and other
agreements agreed to by Pyramid in the Merger Agreement. See "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT - Certain Covenants."

Certain Material Federal Income Tax Consequences

         Merchants and Pyramid have received an opinion of Davis & Kuelthau,
S.C., Counsel for Merchants that the Merger will qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and that each of Merchants
and Pyramid will be a party to such reorganization within the meaning of Section
368(b) of the Code. Accordingly, Pyramid, Merchants and Merger Corp. will
recognize no gain or loss for federal income tax purposes as a result of the
Merger and no gain or loss will be recognized by any holder of Pyramid Common
Stock upon receipt of Merchants Common Stock pursuant to the Merger (except upon
the receipt of cash in lieu of fractional shares of Merchants Common Stock). The
Internal Revenue Service ("Service") has not been asked to rule upon the tax
consequences of the Merger and such request will not be made. The opinion of
Davis & Kuelthau, S.C. is based entirely upon the Code, regulations now in
effect thereunder, current administrative rulings and practice, and judicial
authority, all of which are subject to change. Unlike a ruling from the Service,
an opinion of an advisor is not binding on the Service and there can be no
assurance, and none is hereby given, that the Service will not take a position
contrary to one or more positions reflected herein or that the opinion will be
upheld by the courts if challenged by the Service.

EACH SHAREHOLDER OF PYRAMID IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER
OWN PARTICULAR FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN
OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.

         Based upon the opinion of Davis & Kuelthau, S.C. which in turn is based
upon various representations and subject to various assumptions and
qualifications, the following federal income tax consequences to the
shareholders of Pyramid will result from the Merger:

               (i)    Provided that the Merger of Pyramid with and into Merger
         Corp. qualifies as a statutory merger under applicable law, the Merger
         will qualify as a reorganization within the meaning of Sections
         368(a)(1)(A) and 368(a)(2)(D) of the Code, and Pyramid, Merchants and
         Merger Corp. will each be "a party to a reorganization" within the
         meaning of Section 368(b) of the Code for purposes of this
         reorganization.

               (ii)   No gain or loss will be recognized by the holders of
         Pyramid Common Stock upon the exchange of Pyramid Common Stock solely
         for Merchants Common Stock pursuant to the Merger, except with respect
         to cash received in lieu of fractional shares of Merchants Common
         Stock.

               (iii)  A Pyramid shareholder's aggregate basis in the Merchants
         Common Stock received in the Merger will be the same as the aggregate
         basis of Pyramid Common Stock exchanged therefor.




                                      -40-



<PAGE>   47



               (iv)   The holding period of the Merchants Common Stock received
         by a holder of Pyramid Common Stock pursuant to the Merger will include
         the period during which Pyramid Common Stock exchanged therefor was
         held, provided that the Pyramid Common Stock surrendered was held as a
         capital asset as of the time of the Merger.

               (v)    The receipt by a holder of Pyramid Common Stock of cash in
         lieu of a fractional share of Merchants Common Stock will be treated as
         if he or she received such fractional share from Merchants and then had
         it redeemed for cash. Such receipt of cash will be treated under
         Section 302(b)(1) of the Code as full payment in exchange for the
         fractional share.

         The foregoing is only a general description of certain material federal
income tax consequences of the Merger for holders of Pyramid Common Stock who
are citizens or residents of the United States and who hold their shares as
capital assets, without regard to the particular facts and circumstances of the
tax situation of each holder of the Pyramid Common Stock. It does not discuss
all of the consequences that may be relevant to holders of Pyramid Common Stock
entitled to special treatment under the Code (such as insurance companies,
financial institutions, dealers in securities, tax-exempt organizations or
foreign persons). The summary set forth above does not purport to be a complete
analysis of all potential tax effects of the transactions contemplated by the
Merger Agreement or the Merger itself. No information is provided herein with
respect to the application and effect of state, local and foreign tax laws and
the possible effects of changes in federal laws or other tax laws.

Anticipated Accounting Treatment

         The business combination resulting from the Merger is expected to
qualify as a "pooling of interests" for accounting and financial reporting
purposes. Under this method of accounting, the recorded assets and liabilities
of Merchants and Pyramid will be carried forward to the combined corporation at
their recorded amounts; income of the combined corporation will include income
of Merchants and Pyramid for the entire fiscal year in which the combination
occurs.

         The Merger Agreement provides that a condition to the consummation of
the Merger is the receipt of the opinion of the independent public accountants
of Merchants to the effect that the Merger qualifies for "pooling of interests"
accounting treatment. However, Merchants may waive this condition and consummate
the Merger even if the transaction does not qualify for pooling of interests
accounting.

Dissenters' Rights

         Under the provisions of Subchapter XIII of the WBCL, a copy of which is
attached to this Proxy Statement/Prospectus as Exhibit D and which provisions
are incorporated herein by reference, any holder of record or beneficial holder
of Pyramid Common Stock has the right to dissent from the Merger and demand
payment of the "fair value" of his or her shares in cash as determined pursuant
to Subchapter XIII of the WBCL ("Dissenters' Rights"). Set forth below is a
summary of the procedures relating to the exercise of Dissenters' Rights. This
summary does not purport to be a complete statement of the provisions of
Subchapter XIII of the WBCL and shareholders wishing to dissent from the Merger
are urged to review Exhibit D in its entirety.

         Any shareholder who wishes to assert Dissenters' Rights must deliver a
written notice of his or her intent to exercise such right to Pyramid Bancorp.,
Inc., 101 Falls Road, Grafton, Wisconsin, 53024, Attention: Mr. Thomas Sheehan,
President, before the vote on the Merger Agreement is taken at the Special
Meeting. A PROXY OR VOTE AGAINST THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE



                                      -41-



<PAGE>   48



REGARDED AS A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT FOR PURPOSES OF
ASSERTING DISSENTERS' RIGHTS.

         Furthermore, a Pyramid shareholder wishing to assert Dissenters' Rights
may not vote his or her shares in favor of the Merger.

         A record holder of Pyramid Common Stock may assert Dissenters' Rights
as to fewer than all shares registered in that shareholder's name only if the
holder dissents with respect to all shares beneficially owned by any one person
and notifies Pyramid in writing of the name and address of each person on whose
behalf the shareholder asserts such Dissenters' Rights.

         A beneficial shareholder may assert Dissenters' Rights as to shares
held on the shareholder's behalf only if, in addition to meeting the other
requirements to dissent, the beneficial shareholder (i) submits to Pyramid the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts Dissenters' Rights and (ii) asserts Dissenters'
Rights with respect to all shares of which the shareholder is the beneficial
shareholder or over which the beneficial shareholder has power to direct the
vote.

         If the Merger Agreement is approved by the requisite vote of holders of
Pyramid Common Stock, Pyramid is required to send a notice (the "Dissenters'
Notice") to all dissenting shareholders containing payment demand and stock
certificate surrender information (the "Payment Demand") within 10 days after
such approval. The return date (the "Payment Demand Date") specified by Pyramid
for receiving the Payment Demand from dissenting shareholders may not be less
than 30 nor more than 60 days after the date on which the Dissenters' Notice was
first sent. Upon receipt of the Dissenters' Notice, each dissenting shareholder
must return his payment demand and Certificate for Pyramid Common Stock no later
than the Payment Demand Date as provided in the Dissenters' Notice and certify
whether he or she acquired beneficial ownership of the shares prior to the first
public announcement of the terms of the Merger on March 10, 1999. A Payment
Demand may not be withdrawn without Pyramid's consent.

         If the Merger is effectuated, Merchants upon such effectuation, will
pay each dissenting shareholder who properly complied with the statutory
requirements of Subchapter XIII of the WBCL, the amount that Merchants estimates
to be the fair value of such dissenting shareholder's shares, plus accrued
interest from the Effective Time; provided that, with respect to shares acquired
after the first public announcement of the Merger, Merchants may elect to
withhold payment until either such shareholder accepts Merchants offer of fair
value or a court determines the fair value of such shares.

         If the Merger is not effectuated within 60 days of the Payment Demand
Date, Pyramid will return all deposited certificates to dissenting shareholders.
If the Merger is thereafter effected, Pyramid will send a new Dissenters' Notice
within 10 days of effecting the Merger and repeat the payment demand procedure
described above.

         If any dissenting shareholder is dissatisfied with Merchants'
determination of "fair value," such dissenting shareholder may notify Merchants
in writing of his or her own estimate of the fair value of his or her shares and
the amount of interest due. A dissenting shareholder must assert this right
within 30 days after Merchants makes or offers payment for his or her shares or
the right is waived. Merchants may either accept such dissenting shareholder's
estimate of fair value or commence a proceeding in the Wisconsin Circuit Court
of Ozaukee County to determine the fair value of the shares of all dissenting
shareholders whose own estimates of fair value are not accepted by Merchants.



                                      -42-

<PAGE>   49



         Shareholders of Pyramid considering exercising dissenters' rights
should bear in mind that the "fair value" to be paid for their Pyramid stock is
defined under Section 180.1301 of the WBCL as "... the value of the shares
immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable."

         In the event any holder of Pyramid Common Stock fails to perfect his or
her rights to dissent by failing to comply strictly with the applicable
statutory requirements of Subchapter XIII of the WBCL, he or she will be bound
by the terms of the Merger Agreement and will not be entitled to payment for his
or her shares under Subchapter XIII of the WBCL. ANY HOLDER OF PYRAMID COMMON
STOCK WHO WISHES TO OBJECT TO THE TRANSACTION AND DEMAND PAYMENT IN CASH FOR HIS
OR HER SHARES SHOULD CONSIDER CONSULTING HIS OR HER OWN LEGAL ADVISOR.

         Because an executed proxy relating to Pyramid Common Stock on which no
voting direction is made will be voted at the Special Meeting in favor of the
Merger, a dissenting shareholder who wishes to have his or her shares of Pyramid
Common Stock represented by Proxy at the Special Meeting but preserve his or her
dissenters' rights must mark his or her proxy either to vote against the Merger
or to abstain form voting thereon, in addition to the foregoing requirements.

The Voting Agreement

         Pursuant to the Voting Agreement, attached hereto as Exhibit B, the
execution of which was a condition to Merchants entering into the Merger
Agreement, the directors of Pyramid have agreed to vote their shares (i) in
favor of the adoption and approval of the Merger Agreement and the Merger and
(ii) against any Competing Transaction. The Voting Agreement also provides that
Merchants has the exclusive right to purchase any or all of the shares of
Pyramid Common Stock owned by the directors for $250 per share, payable in cash,
subject to any necessary regulatory approval, after a material breach of the
Merger Agreement by Pyramid or any events or circumstances that lead Merchants
reasonably to believe that Pyramid is likely to materially breach the Merger
Agreement, or a breach by any director of the Voting Agreement. The purchase
right is not exercisable as of the date hereof. The purchase price per share
under the Voting Agreement equaled approximately 73% of the value of Pyramid
Common Stock based upon the trading price of Merchants Common Stock at the date
that the Voting Agreement was requested by Merchants. See "CERTAIN PROVISIONS OF
THE VOTING AGREEMENT."

         Anti-Takeover Effect of the Voting Agreement. The Voting Agreement may
have the effect of discouraging persons who might now or in the future be
interested in acquiring all of or a significant interest in Pyramid from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for Pyramid's Common Stock than the price per
share implicit in the Exchange Ratio. Certain attempts to acquire Pyramid would
trigger Merchants' right to purchase such shares and to receive any premium
offered to the directors of Pyramid.

Other Related Party Transactions

         In the ordinary course of conducting their banking and financial
service businesses, each of Merchants, Pyramid and their respective
subsidiaries, may do business and engage in banking transaction with the other
party and its subsidiaries, which may include, but not be limited to, interests
or participation in loans and interbank advances.



                                      -43-


<PAGE>   50



Management after the Merger

         In the Merger, Pyramid will be merged into Merger Corp. and the
separate corporate existence of Pyramid will cease. Merchants will thereby
acquire control of the Bank through Merger Corp.

         The officers and directors of Merger Corp. prior to the Merger will
continue as officers and directors of the surviving corporation. The directors
of the Bank prior to the Effective Time will continue as directors after the
Effective Time until their successors shall have been duly elected and
qualified.

                   CERTAIN PROVISIONS OF THE MERGER AGREEMENT

         The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Exhibits A and A-1 to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.

The Merger

         The Merger Agreement provides that, following the approval of the
Merger Agreement by the shareholders of Pyramid and the satisfaction or waiver
of the other conditions to the Merger, Pyramid will be merged with and into
Merger Corp. If the Merger Agreement is approved by the shareholders of Pyramid,
the Merger will become effective upon the Effective Time.

         At the Effective Time, pursuant to the Merger Agreement, each
outstanding share of Pyramid Common Stock will be converted into the right to
receive 9 shares of Merchants' Common Stock, subject to renegotiation of the
Exchange Ratio if the Daily Average Price (as defined above) of Merchants Common
Stock is less than $36 or greater than $44. See "THE MERGER-Merger
Consideration." With regard to the treatment of fractional share interests, see
"The MERGER - Conversion of Shares; Procedure for Exchange of Certificates;
Fractional Shares."

Representations and Warranties

         The Merger Agreement contains customary representations and warranties
relating to, among other things, (i) each of Merchants' and Pyramid's and their
respective subsidiaries' organization and similar corporate matters; (ii) each
of Merchants' and Pyramid's capital structure; (iii) authorization, execution,
delivery, performance and enforceability of the Merger Agreement and other
related matters; (iv) documents filed by Merchants with the Commission and with
the Federal Reserve Board and state banking authorities and the accuracy of
information contained therein; (v) the accuracy of information supplied by each
of Merchants and Pyramid in connection with the Registration Statement and this
Proxy Statement/Prospectus; (vi) compliance with laws including employment and
lending laws; (vii) no material pending or threatened litigation except as
otherwise disclosed by Merchants and Pyramid; (viii) filing of tax returns and
payment of taxes; (ix) certain material contracts and contracts relating to
certain employment, consulting and benefits matters of Pyramid; (x) retirement
and other employee plans and matters of Pyramid relating to ERISA; (xi) the
absence of any burdensome contracts, agreements or restrictions; (xii) the
absence of certain material changes or events since December 31, 1997, relating
to the incurrence of a material adverse effect in the business operations,
properties (including intangible properties), condition (financial or
otherwise), assets or liabilities (including contingent liabilities) of
Merchants or its subsidiaries, taken as a whole, and Pyramid or its
subsidiaries, taken as a whole; (xiii) maintenance of books of account and
accounting controls, loan documentation and disclosure; (xiv) no action taken
that would prevent using the "pooling of interests" method to account for the
Merger or which would prevent the Merger from qualifying as a tax-free


                                      -44-


<PAGE>   51


reorganization under the Code; (xv) certain environmental matters relating to
the properties of Pyramid; (xvi) good title to the properties of Pyramid and its
subsidiaries, free of liens except as specified; and (xvii) certain insurance
matters.

Certain Covenants

         Pursuant to the Merger Agreement, Merchants and Pyramid have each
agreed that prior to the Effective Time (and unless the prior written consent of
the other shall have been obtained) each of them and their respective
subsidiaries will operate their respective businesses in a manner that does not
violate any law. In addition, Pyramid has agreed that prior to the Effective
Time, Pyramid will not propose or adopt any amendments to its corporate charter
or bylaws in any way materially adverse to Merchants.

         Pursuant to the Merger Agreement, Merchants and Pyramid have each
agreed that prior to the Effective Time (and unless the prior written consent of
Merchants shall have been obtained) Pyramid and its subsidiaries will ((i) carry
on business in the usual, regular and ordinary course consistent with past
practice, (ii) use reasonable efforts to preserve intact their business
organization and assets (and all rights associated therewith), (iii) use
reasonable efforts to maintain and keep their properties in good repair and
condition, (iv) use reasonable efforts to keep all insurance and bonds in full
force and effect, (v) perform in all material respects all obligations under all
material contracts, leases and documents relating to or affecting the assets,
properties and business of Pyramid and its subsidiaries, (vi) purchase and sell
securities in accordance with agreed upon guidelines, (vii) maintain as of the
date on which all conditions have been met and until the Effective Time, a loan
loss reserve of not less than 1.2% of period ending loans, (viii) fully expense
on its financial statement all expenses payable as a result of the consummation
of the Merger (ix) obtain an independent audit of its financial statements for
the year ended December 31, 1998; and (x) comply with and perform in all
material respects all obligations and duties imposed by all applicable laws.
Pyramid has also agreed that prior to the Effective Time (and unless the prior
written consent of Merchants shall have been obtained), neither Pyramid nor its
subsidiaries will: (i) grant any increase in compensation or bonuses (other than
as specified in the Merger Agreement) or retirement benefits to any employee or
otherwise adopt, enter into, amend or modify any employee benefit plan, or enter
into or amend any employment, severance or similar agreement with any director
or officer (other than as is consistent with the normal policy of Pyramid); (ii)
except for quarterly dividends commencing in the first calendar quarter of 1999
not to exceed $1.00 per share, declare or pay any dividend on its outstanding
shares of capital stock; (iii) redeem, purchase or otherwise acquire any shares
of Pyramid capital stock; (iv) merge or consolidate with or into any other
corporation or bank; (v) purchase or otherwise acquire any assets or stock of
any corporation, bank or other business; (vi) liquidate, sell, dispose of, or
encumber any assets or acquire any assets, other than in the ordinary course of
business consistent with past practice; (vii) split, combine or reclassify any
of the capital stock of Pyramid or issue, authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock; (viii) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of any class
of Pyramid Common Stock or any rights, warrants or options to acquire, any such
shares; (ix) purchase any shares of Merchants Common Stock (except in a
fiduciary capacity for the account of its customers; (x) change any of its
methods of accounting, or methods of reporting income or deductions for federal
income tax purposes, in effect at December 31, 1997, except as may be required
by law or generally accepted accounting principles; (xi) change any lending,
investment, liability management or other material policies concerning the
business or operations of Pyramid or any subsidiary in any material respect;
(xii) organize any new subsidiaries or enter into any new non-bank line of
business or make any material changes in its operations; (xiii) take any action
which is or is reasonably likely to adversely affect the ability of Merchants or
Merger Corp. to obtain any necessary approvals of governmental authorities
required for the transactions contemplated hereby, adversely affect Pyramid's
ability to perform its covenants and agreements under the Merger Agreement or
result in


                                      -45-

<PAGE>   52



any of the conditions to the Merger not being satisfied; (xiv) incur or assume
any material obligation or liability, or make any loan (excluding loan renewals
of a loan not then classified as "substandard," "doubtful," "loss," "other loans
especially mentioned" or any comparable classifications by Pyramid, the Bank or
banking regulators) or investment (excluding U.S. Treasury Securities) in any
amount greater than $100,000; (xv) assume, guarantee, endorse or otherwise
become liable or responsible for the obligations of any other person or entity;
(xvi) mortgage, license, pledge or grant a security interest in any of its
material assets or allow to exist any material lien thereon, except (A)
liabilities and obligations incurred in the ordinary course of business
consistent with past practices and in amounts not material to Pyramid or its
subsidiaries taken as a whole, and (B) as may be required under existing
agreements to which Pyramid or any subsidiary is a party; (xvii) acquire assets
(including equipment)or securities in excess of $25,000 in the aggregate
(excluding loans to customer and investments permitted above); (xviii) enter
into any other contract or agreement involving annual payments by Pyramid or a
subsidiary or the other party or parties thereto in excess of $20,000; (xix)
pay, discharge, or satisfy any debts or claims not in the ordinary course of
business and consistent with past practices and in no event with a value in
excess of $20,000 individually; (xx) settle any claim, action, suit, litigation,
proceeding, arbitration, investigation or controversy of any kind, for any
amount in excess of $25,000 or in any manner which would restrict in any
material respect the operations or business of Pyramid or its subsidiaries;
(xxi) purchase any new financial product or instrument which involves entering
into a contract with a term of six months or longer; or xxii) take any action or
fail to take any action which individually or in the aggregate can be expected
to have a material adverse effect (as defined in the Merger Agreement) or
Pyramid on its subsidiaries, taken as whole.

No Solicitation of Transactions

         The Merger Agreement provides that Pyramid and its respective
subsidiaries will not initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to any Competing Transaction or negotiate with any person in
furtherance of such inquiries or to obtain a Competing Transaction, or agree to
or endorse any Competing Transaction, or authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to take any such action. Pyramid must promptly notify Merchants
orally and in writing of all of the relevant details relating to all inquiries
and proposals which it may receive relating to any of such matters.
Notwithstanding the foregoing, the Board of Directors of Pyramid is not
prohibited from (i) furnishing or permitting any of its officers, directors,
employees, investment bankers, financial advisors, attorneys, accountants or
other representatives to furnish information to any party that requests
information as to Pyramid if the Board of Directors of Pyramid, after
consultation with and based upon the written advice of independent legal
counsel, determines in good faith that such action is required for the Board of
Directors of Pyramid to comply with its fiduciary duties to shareholders imposed
by law, and if prior to furnishing such information to such party, Pyramid
receives from such party an executed confidentiality agreement in reasonably
customary form.

         For purposes of the Merger Agreement, a "Competing Transaction" shall
mean any of the following involving Pyramid or any of Pyramid's subsidiaries:
(i) any merger, consolidation, share exchange, business combination, or other
similar transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 10% or more of assets in a single transaction or series
of transactions, excluding from the calculation of such percentage any such
transactions undertaken in the ordinary course of business and consistent with
past practice; (iii) any sale of 10% or more of shares of capital stock (or
securities convertible or exchangeable into or otherwise evidencing, or any
agreement or instrument evidencing, the right to acquire capital stock); (iv)
any tender offer or exchange offer for 10% or more of outstanding shares of
capital stock; (v) any solicitation of proxies in opposition to approval by
Pyramid's shareholders of the



                                      -46-

<PAGE>   53



Merger; (vi) the filing of an acquisition application (or the giving of
acquisition notice) whether in draft or final form under the BHC Act or the
Change in Bank Control Act with respect to Pyramid or its subsidiaries; (vii)
any person shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 10% or more of the then outstanding shares of capital
stock; or (viii) any public announcement of a proposal, plan or intention to do
any of the foregoing.

Conditions to Consummation of the Merger

         The respective obligations of each party to effect the Merger is
subject to various conditions which include, in addition to other customary
closing conditions, the following: (i) the Merger shall have been approved by
the holders of Pyramid Common Stock; (ii) the Registration Statement shall have
been declared effective by the Commission under the Securities Act (and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued) and Merchants shall also have received all other federal and state
securities permits and authorizations necessary to issue Merchants Common Stock
pursuant to the Merger Agreement; (iii) the Merger shall have been approved by
the Federal Reserve Board and the DFI, which approvals shall not contain any
condition which is not reasonably satisfactory to Merchants or Pyramid and any
waiting periods with respect to the Merger shall have expired; and (iv) there
shall not be any injunction or restraining order preventing the consummation of
the Merger in effect.

         In addition, Merchants' or Pyramid's respective obligation to effect
the Merger is subject to one or more of the following additional conditions (any
of which may be waived by such party): (i) the representations and warranties of
the other party to the Merger Agreement shall be true and correct in all
material respects and the other party shall have performed in all material
respects all agreements and covenants required to be performed by it under the
Merger Agreement and any agreements entered into in connection therewith, and
the other party shall have obtained all material consents and approvals required
to consummate the Merger; (ii) there shall not be any pending action, proceeding
or investigation before any court or administrative agency or by any government
agency or any other person (a) challenging or seeking material damages in
connection with the Merger or the conversion of Pyramid Common Stock into
Merchants Common Stock pursuant to the Merger, or (b) seeking to restrain,
prohibit or limit the exercise of full rights of ownership or operation by
Merchants or is subsidiaries of all or any portion of the business or assets of
Pyramid or any of its subsidiaries, which in either case is reasonably likely to
have a material adverse effect on either Pyramid and its subsidiaries, taken as
a whole, or Merchants and its subsidiaries, taken as a whole; (iii) the parties
shall have received the opinion of independent counsel to Merchants that the
Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code (see "The MERGER - Certain
Material Federal Income Tax Consequences," above); (iv) Merchants shall have
received an opinion from Ernst & Young, LLP to the effect that the Merger
qualifies for "pooling of interests" accounting treatment; (v) the aggregate of
(a) fractional share interests in Merchants Common Stock to be paid in cash
pursuant to the Merger Agreement and (b) the number of shares of Merchants
Common Stock which would have been issuable pursuant to the Merger Agreement
that will not be issued due to the exercise of dissenters' rights is not more
than 10% of the maximum aggregate number of shares of Merchants Common Stock
which could be issuable as a result of the Merger; (vi) Merchants and Pyramid
shall have received the opinion of counsel regarding certain issues under the
Securities Act and the WBCL; (vii) Merchants shall have received from each
affiliate of Pyramid a signed letter regarding certain restrictions on the
resale of Merchants Common Stock under Rule 145 of the Securities Act; (viii)
Merchants shall have received from Ernst & Young LLP "Comfort Letters" dated as
of the date of mailing of the Proxy Statement/Prospectus and the Closing Date,
covering matters customary


                                      -47-


<PAGE>   54


in transactions such as the Merger; (ix) Merchants shall have received from the
Directors of Pyramid the Voting Agreement discussed. See "CERTAIN PROVISIONS OF
THE VOTING AGREEMENT."

Termination

         The Merger Agreement may be terminated at any time prior to the
Effective Time by the applicable Board of Directors, whether before or after
approval of the matters presented in connection with the Merger by the
shareholders of Pyramid: (i) by mutual consent of Merchants and Pyramid; (ii) by
either Pyramid or Merchants (x) if there has been a breach in any material
respect of any representation, warranty, covenant or agreement on the part of
Pyramid, on the one hand, or Merchants, on the other hand, respectively set
forth in the Merger Agreement, or (y) if any representation or warranty of
Pyramid, on the one hand, or Merchants on the other hand, respectively, shall be
discovered to have become untrue in any material respect, in either case which
breach or other condition has not been cured within 10 business days following
receipt by the non-terminating party of notice of such breach or other condition
(provided that he Merger Agreement may not be terminated by the breaching party
or party making any representation or warranty which shall have become untrue in
any material respect); (iii) by either Merchants or Pyramid if any permanent
injunction preventing the consummation of the Merger shall have become final and
nonappealable; (iv) by either Merchants or Pyramid if the Federal Reserve Board
or the DFI denied approval of the Merger and neither Merchants nor Pyramid has,
within 30 days after the entry of such order denying approval, filed a petition
seeking review of such order as provided by applicable law; (v) by either
Merchants or Pyramid if the Merger has not been consummated by December 31, 1999
for a reason other than the failure of the terminating party to comply with its
obligations under the Merger Agreement; or (vi) by either Merchants or Pyramid
if the required approval of the shareholders of Pyramid has not been obtained.

         In the event of termination of the Merger Agreement by either Pyramid
or Merchants, other than as a result of a material breach by the non-terminating
party, each party will pay its own expenses and the Merger Agreement will become
void and there will be no liability or obligation on the part of Merchants or
Pyramid other than under certain specified provisions of the Merger Agreement
dealing with confidential treatment of non-public information. In the event of
termination of the Merger Agreement by a material breach, in addition to other
remedies at law or equity for breach, the party to have breached will reimburse
the non-breaching parties their expenses under the Merger Agreement.

Amendment and Waiver

         The Merger Agreement may be amended at any time prior to the Effective
Time by action taken or authorized by the respective Boards of Directors of
Merchants and Pyramid (except that after the Merger Agreement shall have been
approved by the shareholders of Pyramid, no amendment may be entered into which
would reduce the amount or change the consideration into which each share of
Pyramid Common Stock shall be converted upon consummation of the Merger without
further shareholder approval). At any time prior to the Effective Time the
parties may extend the time for the performance of any of the obligations or
other acts of the other party hereto, waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement and waive compliance with
any of the agreements or conditions contained in the Merger Agreement.

Expenses

         Whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expense (except
that the parties shall share equally in the expense of printing and reproducing
for filing the


                                      -48-


<PAGE>   55



Registration Statement and this Proxy Statement/Prospectus and all Commission
and other regulatory filing fees incurred in connection with the Merger
Agreement), except if the Merger Agreement is terminated due to the breach of
the Merger Agreement by either party thereto, then, in addition to other
remedies at law or equity for breach of the Merger Agreement, the party so found
to have breached the Merger Agreement shall indemnify the other parties for
their respective expenses.

Break-Up Fee

         Provided that Merchants has not breached in any material respect its
obligations under the Merger Agreement, Pyramid is obligated to pay to Merchants
a fee ("Break-Up Fee") equal to the lesser of 1.5% of the value of the Exchange
Fund (as defined in the Merger Agreement) or $400,000. The Break-Up Fee is
payable to Merchants if (A) the Board of Directors of Pyramid (i) withdraws,
modifies or amends its approval or recommendation of the Merger Agreement; (ii)
does not at the appropriate time recommend that the shareholders of Pyramid vote
in favor of the Merger Agreement or withdraws or modifies such recommendation or
(iii) does not include such voting recommendation in the Proxy
Statement/Prospectus or (B) Pyramid initiates, solicits or encourages or takes
any other action to lead to any Competing Transaction see "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT - No Solicitation of Transactions."

         Provided that Pyramid has not breached in any material respect its
obligations under the Merger Agreement, Merchants is obligated to pay to Pyramid
the Break-Up Fee if the Board of Directors of Merchants withdraws, modifies or
amends in any respect its approval of the Merger Agreement.

                   CERTAIN PROVISIONS OF THE VOTING AGREEMENT

         The following is a brief summary of certain provisions of the Voting
Agreement, which is attached as Exhibit B to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary is qualified in its
entirety by reference to the Voting Agreement.

         Merchants has entered into the Voting Agreement with Directors of
Pyramid and related parties ("directors"). The directors hold 13,312 shares
representing approximately 19.3 of the total voting power of Pyramid Common
Stock. The Voting Agreement provides that the directors, in consideration of the
substantial expenses incurred by Merchants in connection with the Merger
Agreement and as a condition to Merchants entering into the Merger Agreement,
shall vote or cause to be voted or express a written consent with respect to all
of such director's shares:

               (a)    in favor of adoption and approval of the Merger Agreement
         and the Merger at every meeting of shareholders of Pyramid at which
         such matters are considered and at every adjournment thereof and in
         connection with every proposal to take action by written consent with
         respect thereto, and

               (b)    against any other Competing Transaction at every meeting
         of shareholders of Pyramid at which such matters are considered and at
         every adjournment thereof and in connection with every proposal to take
         action by written consent with respect thereto.

         The Voting Agreement also provides that Merchants has the exclusive
right to purchase any and all of the shares of Pyramid Common Stock owned by
each director for $250.00 per share, payable in cash, subject to any necessary
regulatory approval, after a material breach of the Merger Agreement by Pyramid
or any events or circumstances that lead Merchants reasonably to believe that
Pyramid is likely to materially


                                      -49-


<PAGE>   56


breach the Merger Agreement or a breach by a director of the Voting Agreement.
The purchase right is not exercisable as of the date hereof. The purchase price
per share under the Voting Agreement equaled approximately 73% of the value of
Pyramid Common Stock based upon the trading price of Merchants Common Stock at
the date that the Voting Agreement was requested by Merchants.

         The Voting Agreement also provides that:

                (a)   Each of the directors agrees that such director will not,
         nor will such director permit any entity under such director's control,
         to deposit any of such director's shares in a voting trust or subject
         any of their shares to any agreement, arrangement or understanding with
         respect to the voting of such shares inconsistent with the Voting
         Agreement.

                (b)   During the term of the Voting Agreement, each director
         agrees not to sell, assign, transfer or dispose (except by means of
         certain gifts) of such director's shares.

         The Voting Agreement shall terminate upon the earlier of (a) the
Effective Time of the Merger and (b) the date on which the Merger Agreement is
terminated in accordance with its terms. Upon such termination, no party shall
have any further obligations or liabilities under the Voting Agreement; provided
that termination shall not relieve any party from liability for any breach of
the Voting Agreement prior to such termination.

         The Voting Agreement binds the actions of the signatories thereto only
in their capacity as shareholders of Pyramid, and such shareholders/directors of
Pyramid were not and could not be contractually bound to abrogate their
fiduciary duties as directors of Pyramid. Accordingly, while such
shareholders/directors are, under the Voting Agreement, contractually bound to
vote as a shareholder in favor of the Merger and against a Competing Transaction
should one be presented, their fiduciary duties as directors nevertheless
require them to act, in their capacity as directors, in the best interests of
Pyramid when they decided to approve and adopt the Merger Agreement. In
addition, such shareholders/directors will continue to be bound by their
fiduciary duties as directors of Pyramid with respect to any decisions they may
take in connection with the Merger or otherwise.

                    CERTAIN INFORMATION CONCERNING MERCHANTS

         Merchants is a registered bank holding company pursuant to the BHC Act.
It was incorporated in Wisconsin in 1982 and pursuant to permission from the
Federal Reserve Board acquired Lincoln State Bank, Milwaukee, Wisconsin and
Franklin State Bank, Franklin, Wisconsin. In 1993 Merchants acquired Lincoln
Savings Bank which was renamed Lincoln Community Bank. The three subsidiary
banks operate a total of seventeen facilities in Milwaukee and Waukesha
Counties. In addition, to the three banks, Merchants owns and operates three
non-bank subsidiaries, Lincoln Neighborhood Redevelopment Corporation, which was
organized to redevelop and rejuvenate certain areas of the City of Milwaukee;
M&M Services, Inc. which provides operational services to the subsidiary banks
and Achieve Mortgage Corporation, which is a mortgage brokerage firm. Merchants
provides advice and specialized services to its bank and nonbank subsidiaries in
various areas including auditing, data processing, marketing/advertising,
investments, personnel services and other financial services closely related to
banking. The respective Boards of Directors and officers of the subsidiaries
retain overall control of and responsibility for their organizations.

         As of June 30, 1999, Merchants had consolidated assets of $344 million
and the subsidiary banks had deposits of $298 million.



                                      -50-


<PAGE>   57



         Merchants, through its subsidiaries, provides a complete range of
retail banking services to individuals and small-to-medium-size businesses.
These services include checking and savings accounts, NOW, Super NOW and money
market deposit accounts, business loans, personal loans, residential and
condominium mortgage loans, loans for education, MasterCard, VISA and other
consumer-oriented financial services, including IRA and Keogh accounts, safe
deposit and night depository facilities. Automated teller machines, which
provide 24 hour banking services to customers of Merchants have been installed
in many locations in the Merchants service areas. Among the services designed
specifically to meet the needs of small-and medium-size businesses are various
types of specialized financing, cash management services and transfer/collection
facilities.

         The Merchants subsidiaries provide lending, depository and related
financial services to commercial, industrial, financial and governmental
customers. In the lending area, these include term loans, revolving credit
arrangements, letters of credit, inventory and accounts receivable financing and
real estate construction lending.

         Additional emphasis is given to non-credit services for commercial
customers, such as advice and assistance in the placement of securities,
corporate cash management and financial planning. Merchants subsidiaries make
available check clearing, safekeeping, loan participation, lines of credit,
portfolio analyses, data processing and other services.

         Achieve Mortgage Corporation provides certain mortgage banking services
including the origination, underwriting, closing, and the temporary warehousing
of mortgage loans and the sale of loans to investors. The primary focus is on
one-to-four-family residential and multi-family properties, all of which
mortgage loans are saleable into the secondary mortgage market.

         Merchants and the Merchants subsidiaries are not dependent upon a
single or a few customers, the loss of which would have a material adverse
effect on Merchants. No material portion of Merchants or Merchants subsidiaries'
business is seasonal.

         At December 31, 1998 Merchants and its subsidiaries, as a group,
employed 141 full-time and 55 part-time employees.

                     CERTAIN INFORMATION CONCERNING PYRAMID

         Pyramid is a bank holding company incorporated under the laws of the
State of Wisconsin with its principal office in Grafton, Wisconsin. Pyramid owns
all the issued and outstanding stock of the Bank, a Wisconsin banking
corporation. The Bank owns all the issued and outstanding stock of BGS
Investments, Inc., a Nevada corporation ("GBS"). As of June 30, 1999, Pyramid
had total assets of approximately $109 million and the bank had deposits of
approximately $83 million.

         The Bank is a full service bank serving the banking needs of the city
of Grafton and the surrounding Ozaukee County area. The Bank provides commercial
banking services and products, including savings and demand deposits, real
estate, commercial and consumer loans, collection and safe deposit facilities
and other services tailored to meet the needs of the individual and business
customer. The Bank owns its main banking premises located at 101 Falls Road,
Grafton, Wisconsin. BGS was formed to manage the Bank's investment portfolio.



                                      -51-


<PAGE>   58



         The Bank operates an additional facility at the intersection of Pioneer
Road and Port Washington Road in the Town of Grafton (the "Pioneer Branch"). The
Pioneer Branch operates two inside teller stations and two drive-up windows.

         Pyramid and the Bank are not dependent upon a single or a few
customers, the loss of which would have a material adverse effect on Pyramid or
the Bank. No material portion of Pyramid's or the Bank's business is seasonal.

         At December 31, 1998, Pyramid and Bank employed approximately 32
full-time and 25 part-time employees.

Ownership of Pyramid Common Stock

         The following table sets forth information regarding the beneficial
ownership of Pyramid Common Stock as of the Record Date by each director,
certain executive officers, all directors and executive officers of Pyramid as a
group and each person who is known by Pyramid to be the beneficial owner of more
than 5% of Pyramid Common Stock. Directors and executive officers are deemed to
own all shares of Pyramid Common Stock which may be owned in joint tenancy, by a
spouse, in the names of minor children or in revocable trusts for which the
individual has voting and investment power. The address for each of the
directors is the executive offices of Pyramid.


<TABLE>
<CAPTION>

      NAME OF                                    NUMBER OF                      PERCENT OF
 BENEFICIAL OWNER                                 SHARES                          CLASS
<S>                                                <C>                             <C>
Thomas J. Sheehan                                  5,351                           7.76
Jerome T. Sarnowski                                1,050                           1.52
Thomas N. Holton                                   5,446                           7.90
James Kacmarcik                                      305                           0.44
Richard A. Kranitz                                   300                           0.44
Richard Belling                                      860                           1.25
All Directors and executive
officers as a group (6 persons)                   13,312                          19.32
James Derse Rev. Trust
c/o General Industries
Investment Corp.
741 N. Milwaukee Street
Milwaukee, WI 53202                                3,957                           5.74
Band & Co., FBO Zaun
Memorial Foundation
c/o Firstar Trust Co.
P. O. Box 2054
Milwaukee, WI   53201                              3,425(1)                        4.97
</TABLE>





                                      -52-

<PAGE>   59
Ralph and Edith Zaun
Rev. Trust
1757 - 12th Ave.
Grafton, WI 53024                    2,965(1)                4.30

(1) To the knowledge of Pyramid, Mr. Ralph Zaun holds shared voting and
investment power with regard to these shares.


                                     EXPERTS

         The consolidated financial statements of Merchants incorporated by
reference in Merchants and Manufacturers Bancorporation, Inc.'s Annual Report
(Form 10-K) for the year ended December 31, 1998, have been audited by Ernst &
Young, LLP, independent auditors, as set forth in their report thereon
incorporated by reference and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.

         The consolidated financial statements of Pyramid as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, have been included in this Proxy Statement/Prospectus and in the
registration statement in reliance upon the report of Virchow, Krause & Company,
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.

         Merchants has retained Davis & Kuelthau, S.C. to render an opinion on
the federal income tax consequences of the Merger and in connection therewith,
Davis & Kuelthau, S.C. has reviewed the discussion herein entitled "THE MERGER -
Certain Material Federal Income Tax Consequences." Such opinion has been
included in the registration statement in reliance upon the authority of said
firm as experts in tax matters.

                                 LEGAL OPINIONS

         The validity of the shares issued in connection with the Merger will be
passed upon for Merchants by Davis & Kuelthau, S.C., Milwaukee, Wisconsin.
Certain other legal matters in connection with the Merger will be passed upon
for Merchants by Davis & Kuelthau, S.C. and for Pyramid by Michael Best &
Friedrich LLP, Milwaukee, Wisconsin.

                          FUTURE SHAREHOLDER PROPOSALS

         If the Merger is consummated, shareholders of Pyramid will become
shareholders of Merchants. Pursuant to Rule 14a-(8) promulgated under the
Exchange Act, Merchants shareholders may present proper proposals for inclusion
in Merchants proxy statement for consideration at the next annual meeting of its
shareholders by submitting their proposals to Merchants in a timely manner.
Shareholders of Pyramid who become shareholders of Merchants may present
proposals for inclusion in Merchants' proxy statement for its year 2000 Annual
Meeting as the 1999 Annual Meeting of Merchants has been held.



                                      -53-


<PAGE>   60



                       WHERE YOU CAN FIND MORE INFORMATION

         Merchants is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material may
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Web site is http://www.sec.gov.

         This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby which Merchants
has filed with the Commission, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission, and to which portions
reference is hereby made for further information with respect to Merchants and
the securities offered hereby. The Registration Statement is available for
inspection and copying as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.

         All information concerning Merchants included in this Proxy
Statement/Prospectus has been furnished by Merchants, and all information
concerning Pyramid included in this Proxy Statement/Prospectus has been
furnished by Pyramid.

         No person is authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, the information or representation should not be relied upon as having been
authorized by Merchants or Pyramid. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to purchase the
securities offered hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is unlawful to make such offer or solicitation
of an offer or proxy in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities to which this Proxy
Statement/Prospectus relates shall, under any circumstances, create any
implication that there has been no change in the affairs of Merchants or Pyramid
since the date of this Proxy Statement/Prospectus.

         The Commission allows us to "incorporate by reference" information into
this Proxy Statement/Prospectus, which means that we can disclose information to
you by referring you to another document filed separately with the Commission.
The information that we incorporate by reference is deemed to be part of this
Proxy Statement/Prospectus, except for any information superseded by information
contained in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
incorporates by reference the documents listed below that Merchants has
previously filed with the Commission. Those documents contain important
information about Merchants and its financial condition.



                                      -54-



<PAGE>   61



         a)   Merchants' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.

         b)   Merchants' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.

         c)   Merchants' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.

         d)   Merchants Notice of Annual Meeting and Proxy Statement dated
May 5, 1999.

         Merchants is also incorporating by reference all additional documents
that it will file with the Commission between the date of this Proxy
Statement/Prospectus and the date of the Special Meeting of the shareholders of
Pyramid.

         Documents which Merchants incorporates by reference are available from
Merchants without charge, excluding all exhibits unless Merchants has
specifically incorporated by reference an exhibit in this Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from Merchants at the following address:

                Merchants and Manufacturers Bancorporation, Inc.
                           14100 West National Avenue
                              New Berlin, WI 53151
               Attention: Michael J. Murry, Chairman of the Board
                             Telephone (414)827-6700

         If you would like to request documents from Merchants, please do so by
___________, 1999 to receive them before the Special Meeting.

                           FORWARD-LOOKING STATEMENTS

         Cautionary Statement for Purposes of the Private Litigation Reform Act
of 1995.

         This Proxy Statement/Prospectus (including information incorporated by
reference herein), information included in, or incorporated by reference from
future filings by Merchants with the Commission, and information contained in
written material, press releases and oral statements issued or made by or on
behalf of Merchants or Pyramid contain, or may contain, certain "forward-looking
statements" including statements concerning plans, objectives and future events
or performance, and other statements which are other than statements of
historical fact. Forward looking statements include information concerning
possible or assumed future results of operations of Merchants and Pyramid set
forth under "THE MERGER-Reasons for the Merger" and "THE MERGER-Opinion of
Pyramid Financial Advisor" and those preceded by, followed by or that include
the words "believes," "expects," "anticipates" or similar expressions. For those
statements, Merchants and Pyramid claim the protection of the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. It should be understood that the following
important factors, in addition to those discussed elsewhere in this document and
in the documents incorporated by reference, could affect the future results of
Merchants and Pyramid, and could cause those results to differ materially from
those expressed in such forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, but are not limited to, the following: (i)
failure to fully realize or to realize within the expected time frame expected
cost savings from the Merger; (ii) lower than expected income or revenues
following the Merger, or higher than expected operating costs; (iii) a
significant increase in competitive



                                      -55-



<PAGE>   62



pressure in the banking and financial services industry; (iv) business
disruption related to the Merger (both before and after completion); (v) greater
than expected costs or difficulties related to the integration of the management
of Merchants and Pyramid; (vi) litigation costs and delays caused by litigation;
(vii) higher than anticipated costs in completing the Merger; (viii)
unanticipated regulatory delays or constraints or changes in the proposed
transaction required by regulatory authorities; (ix) reduction in interest
margins due to changes in the interest rate environment; (x) poorer than
expected general economic conditions, including acquisition and growth
opportunities, either nationally or in the states in which the combined company
will be doing business; (xi) legislation or regulatory changes which adversely
affect the businesses in which the combined company would be engaged; and (xii)
other unanticipated occurrences which may delay the consummation of the Merger,
increase the costs related to the Merger or decrease the expected financial
benefits of the Merger.


















                                      -56-
<PAGE>   63
                                   EXHIBIT A


                          AGREEMENT AND PLAN OF MERGER


                                      AMONG

                MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.

                                       AND

                             PYRAMID BANCORP., INC.


                                  March 9, 1999






                                      A-1

<PAGE>   64
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                               PAGE
                                                                                                               ----
ARTICLE I:  THE MERGER
<S>                                 <C>                                                                         <C>
         SECTION 1.01               The Merger....................................................................2
         SECTION 1.02               Effective Time................................................................2
         SECTION 1.03               Effect of the Merger..........................................................3
         SECTION 1.04               Articles of Incorporation and Bylaws..........................................3
         SECTION 1.05               Directors and Officers........................................................3
         SECTION 1.06               Conversion of Securities......................................................3
         SECTION 1.07               Exchange of Certificates......................................................4
         SECTION 1.08               Stock Transfer Books..........................................................6
         SECTION 1.09               Anti-Dilution Adjustment......................................................7

ARTICLE II:  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         SECTION 2.01               Organization and Qualification of the Company; Subsidiaries...................7
         SECTION 2.02               Articles of Incorporation and Bylaws..........................................8
         SECTION 2.03               Capitalization................................................................8
         SECTION 2.04               Authority.....................................................................9
         SECTION 2.05               No Conflict; Required Filings and Consents....................................9
         SECTION 2.06               Compliance; Permits..........................................................10
         SECTION 2.07               Banking Reports and Financial Statements.....................................10
         SECTION 2.08               Absence of Certain Changes or Events.........................................11
         SECTION 2.09               Absence of Litigation........................................................11
         SECTION 2.10.              Employee Benefit Plans.......................................................12
         SECTION 2.11               Employment Contracts; Material Contracts.....................................14
         SECTION 2.12               Registration Statement; Proxy Statement......................................14
         SECTION 2.13               Title to Property............................................................14
         SECTION 2.14               Compliance with Environmental Laws...........................................15
         SECTION 2.15               Absence of Agreements........................................................17
         SECTION 2.16               Taxes........................................................................17
         SECTION 2.17               Insurance....................................................................18
         SECTION 2.18               Absence of Adverse Agreements................................................18
         SECTION 2.19               Internal Controls and Records................................................18
         SECTION 2.20               Loans........................................................................19
         SECTION 2.21               Labor Matters................................................................19
         SECTION 2.22               Brokers......................................................................19
         SECTION 2.23               Accounting and Tax Matters...................................................19
</TABLE>


                                       A-2

<PAGE>   65


<TABLE>


<S>                                 <C>                                                                           <C>
         SECTION 2.24               Full Disclosure..............................................................20
         SECTION 2.25               Vote Required................................................................20


ARTICLE III:  REPRESENTATIONS AND WARRANTIES OF MERCHANTS

         SECTION 3.01               Organization and Qualification...............................................20
         SECTION 3.02               Articles of Incorporation and Bylaws.........................................20
         SECTION 3.03               Capitalization...............................................................21
         SECTION 3.04               Authority....................................................................21
         SECTION 3.05               No Conflict; Required Filings and Consents...................................21
         SECTION 3.06               Compliance; Permits..........................................................22
         SECTION 3.07               Securities Reports; Financial Statements.....................................22
         SECTION 3.08               Absence of Certain Changes or Events.........................................23
         SECTION 3.09               Absence of Litigation........................................................23
         SECTION 3.10               Registration Statement; Proxy Statement......................................23
         SECTION 3.11               Absence of Agreements........................................................23
         SECTION 3.12               Taxes........................................................................24
         SECTION 3.13               Brokers......................................................................24
         SECTION 3.14               Accounting and Tax Matters...................................................25
         SECTION 3.15               Full Disclosure..............................................................25
         SECTION 3.16               Vote Required................................................................25

ARTICLE IV:  COVENANTS OF THE COMPANY

         SECTION 4.01               Affirmative Covenants........................................................25
         SECTION 4.02               Negative Covenants...........................................................26
         SECTION 4.03.              Intentionally left blank.....................................................29
         SECTION 4.04.              Access and Information.......................................................29
         SECTION 4.05               Affiliates; Accounting and Tax Treatment.....................................29
         SECTION 4.06               Expenses.....................................................................30
         SECTION 4.07               Delivery of Shareholder List.................................................30

ARTICLE V:  COVENANTS OF MERCHANTS

         SECTION 5.01               Affirmative Covenants........................................................30
         SECTION 5.02               Access and Information.......................................................31
         SECTION 5.03               Accounting and Tax Treatment.................................................31

ARTICLE VI:  ADDITIONAL AGREEMENTS

         SECTION 6.01               Registration Statement.......................................................31
         SECTION 6.02               Meetings of the Shareholders.................................................32
         SECTION 6.03               Appropriate Action; Consents; Filings........................................32
</TABLE>



                                      A-3

<PAGE>   66

<TABLE>




<S>                                 <C>                                                                          <C>
         SECTION 6.04               Notification of Certain Matters..............................................33
         SECTION 6.05               Public Announcements.........................................................33
         SECTION 6.06               Environmental Matters........................................................33
         SECTION 6.07               Break-Up Fee.................................................................33

ARTICLE VII:  CONDITIONS OF MERGER

         SECTION 7.01               Conditions to Obligation of Each Party to Effect the Merger..................34
         SECTION 7.02               Additional Conditions to Obligations of Merchants............................35
         SECTION 7.03               Additional Conditions to Obligations of the Company..........................37

ARTICLE VIII:  TERMINATION, AMENDMENT AND WAIVER

         SECTION 8.01               Termination..................................................................38
         SECTION 8.02               Effect of Termination........................................................39
         SECTION 8.03               Amendment....................................................................39
         SECTION 8.04               Waiver.......................................................................39

ARTICLE IX:  GENERAL PROVISIONS

         SECTION 9.01               Non-Survival of Representations, Warranties and Agreements...................40
         SECTION 9.02               Disclosure Schedules.........................................................40
         SECTION 9.03               Notices......................................................................40
         SECTION 9.04               Certain Definitions..........................................................41
         SECTION 9.05               Headings.....................................................................42
         SECTION 9.06               Severability.................................................................42
         SECTION 9.07               Entire Agreement.............................................................42
         SECTION 9.08               Assignment...................................................................42
         SECTION 9.09               Parties in Interest..........................................................42
         SECTION 9.10               Governing Law................................................................42
         SECTION 9.11               Counterparts.................................................................42
</TABLE>





                                      A-4

<PAGE>   67



                          AGREEMENT AND PLAN OF MERGER


         AGREEMENT AND PLAN OF MERGER, dated as of March 9, 1999(the
"Agreement"), among MERCHANTS AND MANUFACTURERS BANCORPORATION, INC., a
Wisconsin corporation ("Merchants"), and PYRAMID BANCORP., INC., a Wisconsin
corporation ("Company").


                              W I T N E S S E T H:

         WHEREAS, the Company is a bank holding company, the wholly-owned
subsidiary of which is the Grafton State Bank located in Grafton, Wisconsin (the
"Bank"); and

         WHEREAS, the Bank has only one wholly-owned subsidiary, GBS
Investments, Inc. ("GBS"). The Bank and GBS are sometimes individually referred
to herein as a "Subsidiary" and collectively as the "Subsidiaries;" and

         WHEREAS, the Company upon the terms and subject to the conditions of
this Agreement and in accordance with the Wisconsin Business Corporation Act
("Wisconsin Law"), will merge with and into Merchants (the "Merger"); and

         WHEREAS, the Company and its Board of Directors have determined that
the Merger will enhance the ability of the Bank to better serve its existing
depositors and customers in Grafton, Wisconsin, and increase the financial
strength of the Bank; and

         WHEREAS, the Board of Directors of the Company believes that the Merger
with Merchants will benefit the shareholders and the employees of the Company
and the Subsidiaries; and

         WHEREAS, the respective Boards of Directors of Merchants and the
Company have (i) determined that the Merger and the exchange of newly issued
shares of Merchants Common Stock (as defined in Section 1.06) for shares of the
Company's Common Stock (as defined in Section 1.06) pursuant and subject to the
terms and conditions of this Agreement are fair to and in the best interests of
the respective corporations and their shareholders, and (ii) approved and
adopted this Agreement and the transactions contemplated hereby; and

         WHEREAS, the respective Board of Directors of the Company and Merchants
have, subject to their fiduciary duties under applicable law, resolved to
recommend approval of the Merger by the shareholders of the Company and
Merchants; and

         WHEREAS, Merchants and the Company intend to effect a merger that
qualifies for pooling-of-interests accounting treatment and as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the "Code");
and


                                      A-5

<PAGE>   68


         WHEREAS, as a condition and inducement to Merchants' willingness to
enter into this Agreement, Merchants and certain shareholders of the Company are
entering into concurrently with the execution and delivery hereof, a Voting
Agreement dated as of the date hereof (the "Voting Agreement"), pursuant to
which such shareholders shall make certain agreements with respect to the voting
of their shares of Company Common Stock.

         NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Merchants and the Company hereby agree as follows:

                                    ARTICLE I

                                   THE MERGER

         SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Wisconsin Law, at the
Effective-Time (as defined in Section 1.02) the Company shall be merged with and
into Merchants. As a result of the Merger, the separate corporate existence of
the Company shall cease and Merchants shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").

         SECTION 1.02. EFFECTIVE TIME. The parties hereto shall cause the Merger
to be consummated by filing Articles of Merger (the "Articles of Merger") with
the Department of Financial Institutions of the State of Wisconsin, in such form
as required by, and executed in accordance with the relevant provisions of
Wisconsin Law (a) after the satisfaction, or if permissible, waiver of
conditions set forth in Article VII, and (b) as promptly as possible within the
sixty (60) day period commencing with the latest of the following dates:

         (i) The 30th calendar day after the date of approval of the Merger by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board");

         (ii) Such date as may be prescribed by the Federal Reserve Board or any
other agency or authority pursuant to applicable law, rules or regulations,
prior to which consummation of the transaction described and referred to herein
may not be effected;

         (iii) The date of the last of the shareholders' meetings of the Company
and Merchants to vote upon the Merger pursuant to Section 6.02; or

         (iv) If the transaction contemplated by this Agreement is being
contested in any legal proceeding and Merchants or the Company has elected to
contest the same, the date that such legal proceeding has been brought to a
conclusion favorable, in the judgment of Merchants or the Company, to the
consummation of the transaction contemplated hereby.



                                       A-6

<PAGE>   69



         The later of the date and time of the filing of the Articles of Merger
or the effective date and time of the Merger as set forth in such Articles of
Merger is hereinafter referred to as the "Effective Time."

         SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of Wisconsin
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Merchants and the Company shall
vest in the Surviving corporation, and all debts, liabilities and duties of
Merchants and the Company shall become the debts, liabilities and duties of the
Surviving Corporation.

         SECTION 1.04. ARTICLES OF INCORPORATION AND BYLAWS. At the Effective
Time, the Articles of Incorporation and the Bylaws of Merchants, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
and the Bylaws of the Surviving Corporation.

         SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merchants
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merchants immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.

         SECTION 1.06. CONVERSION OF SECURITIES.  At the Effective Time, by
virtue of the Merger and without any action on the part of Merchants, the
Company, or the holders of any of the following securities:

         (a) each Share of common stock, par value $1 per share, of the Company
(the "Company Common Stock") (all issued and outstanding shares of the Company
Common Stock being hereinafter collectively referred to as the "Shares") issued
and outstanding immediately prior to the Effective Time (other than any Shares
to be canceled pursuant to Section 1.06(b) and other than any Dissenting Shares,
as defined in Section 1.06(c)) shall be converted, in accordance with Section
1.07, into the right to receive nine (9) shares of common stock, par value $1
per share, of Merchants ("Merchants Common Stock"), provided, however, that if
the Daily Average Price (as defined below) is less than $36 or greater than $44,
then Merchants and the Company will make a good faith effort to promptly
renegotiate the ratio at which Merchants Common Stock would be exchanged for
Company Common Stock. For purposes hereof, the Daily Average Price shall mean
the daily average of the "Bid" and "Ask" quotations of Merchants Common Stock as
published in the Milwaukee Journal/Sentinel (or obtained from another source
acceptable to Merchants and the Company if such quotations are not published in
the Milwaukee Journal/Sentinel) on each of the thirty (30) trading days
preceding the third day prior to the Effective Time. On each of the thirty
trading days prior to the third day before the Effective Time, all Bid and Ask
prices will be averaged to calculate the market quotation for that day. The
resulting thirty average quotes will be summed and the result divided by thirty
to determine the Daily Average Price. In the event that "Ask" quotations are not
available or if the "Ask" price exceeds the "Bid" price by more than $2 on any
of the thirty trading days used to compute the Daily Average Price, then the
"Bid" quotes shall be

                                      A-7

<PAGE>   70



used on those days to calculate the Daily Average Price. As of the Effective
Time, all such shares of the Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such Shares shall thereafter
represent the right to receive a certificate representing shares of Merchants
Common Stock into which such Company Common Stock is convertible. Certificates
previously representing shares of Company Common Stock shall be exchanged for
certificates representing whole shares of Merchants Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with the provisions of Section 1.07, without interest. No fractional shares of
Merchants Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made pursuant to Section 1.07 hereof.

         (b) each Share held in the treasury of the Company and each Share owned
by Merchants or any direct or indirect wholly-owned subsidiary of Merchants
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.

         (c) each Share of the Company Common Stock which shall be issued and
outstanding as of the Effective Time and held by a shareholder who has validly
perfected dissenter's rights in accordance with Wisconsin Law, shall not be
converted into and shall not become Merchants Common Stock hereunder (all such
shares of the Company Common Stock are hereinafter called "Dissenting Shares").
The Company shall give Merchants prompt notice upon receipt by the Company of
any written notice from any such shareholder of the Company ("Dissenting
Shareholder"). The Company agrees that prior to the Effective Time, it will not,
except with prior written consent of Merchants, voluntarily make any payment
with respect to, or settle or offer to settle, any request for withdrawal
pursuant to the exercise of dissenter's rights. Each Dissenting Shareholder who
becomes entitled, pursuant to the provisions of applicable law, to payment for
his or her shares of the Company Common Stock shall receive payment therefor
from Merchants (but only after the amount thereof shall be agreed upon or
finally determined pursuant to the provisions of applicable law). If any
Dissenting Shareholder shall fail to perfect or shall effectively withdraw or
lose his or her right to receive the value of his or her shares of Company
Common Stock, his or her shares shall be thereupon converted into Merchants
Common Stock in accordance with the provisions of Section 1.06(a) and, if
applicable, cash under Section 1.07(e).

         SECTION 1.07. EXCHANGE OF CERTIFICATES.

         (a) Exchange Agent. As of the Effective Time, Merchants shall deposit,
or shall cause to be deposited, with Firstar Trust Company (the "Exchange
Agent"), and such deposit shall be solely for the benefit of the holders of
Shares, for exchange in accordance with this Article I through the Exchange
Agent, certificates representing the shares of Merchants Common Stock (such
certificates for shares of Merchants Common Stock, and cash in lieu of
fractional shares (if any), together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 1.06 in exchange for outstanding Shares.


                                       A-8

<PAGE>   71




         (b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail or personally deliver to each
holder of record (or his or her attorney-in-fact) of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates"), whose Shares were converted into the
right to receive shares of Merchants Common Stock pursuant to Section 1.06 and
cash in lieu of fractional shares (if any), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Merchants may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Merchants
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Merchants Common Stock which such
holder has the right to receive in respect of the Certificate surrendered
pursuant to the provisions of this Article I (after taking into account all
Shares then held by such holder) and cash in lieu of fractional shares (if any),
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares which is not registered in the transfer
records of the Company, a certificate representing the proper number of shares
of Merchants Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Certificates surrendered for
exchange by any affiliate of the Company shall not be exchanged for certificates
representing shares of Merchants Common Stock until Merchants has received a
written agreement from such person as provided in Section 4.05 hereof. Until
surrendered as contemplated by his Section 1.07, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Merchants
Common Stock and cash in lieu of any fractional shares of Merchants Common Stock
as contemplated by Section 1.07(e).

         (c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Merchants Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Merchants Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.07(e),
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificates representing whole shares
of Merchants Common Stock issued in exchange therefor, without interest, (i)
promptly, the amount of any cash payable with respect to a fractional share of
Merchants Common Stock to which such holder is entitled pursuant to Section
1.07(e) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Merchants Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of Merchants Common stock.


                                       A-9

<PAGE>   72



         (d) No Further Rights in the Shares. All shares of Merchants Common
Stock issued upon conversion of the Shares in accordance with the terms hereof
(including any cash paid pursuant to Section 1.07(e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Shares.

         (e) No Fractional Shares. No certificates or scrip representing
fractional shares of Merchants Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interest will not
entitle the owner thereof to vote or to any rights of a shareholder of
Merchants. Each holder of a fractional share interest shall be paid an amount in
cash equal to the product obtained by multiplying such fractional share interest
to which such holder (after taking into account all fractional share interests
then held by such holder) would otherwise be entitled by the "Order Date Price".
For purposes hereof, the "Order Date Price" shall mean the "Bid" price of a
share of Merchants Common Stock published in the Milwaukee Journal/Sentinel on
the first business day following the date the Federal Reserve Board issues an
order approving consummation of the Merger.

         (f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of the Company for six months
after the Effective Time shall be delivered to Merchants, upon demand, and any
shareholders of the Company who have not theretofore complied with this Article
I shall thereafter look only to Merchants for payment of their claim for
Merchants Common Stock, any cash in lieu of fractional shares of Merchants
Common Stock and any dividends or distributions with respect to Merchants Common
Stock.

         (g) Liability. Neither Merchants, nor the Company shall be liable to
any holder of Shares for any such Shares (or dividends or distributions with
respect thereto) or cash delivered to a public official pursuant to any
abandoned property, escheat or similar law.

         (h) Withholding Rights. Merchants shall be entitled to deduct and
withhold from any cash consideration payable pursuant to this Agreement to any
holder of Shares such amounts as Merchants is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
Merchants, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by Merchants.

         SECTION 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of the Company's Common Stock thereafter on
the records of the Company. From and after the Effective Time, the holders of
certificates evidencing ownership of shares of the Company's Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided herein or by
law. On or after the Effective Time, any Certificates presented to the Exchange
Agent or Merchants for any reason shall be converted into shares of Merchants
Common Stock in accordance with this Article I.



                                      A-10
<PAGE>   73




         SECTION 1.09. ANTI-DILUTION ADJUSTMENT. If, subsequent to the date
hereof and prior to the Effective Time, Merchants shall pay a stock dividend or
make a distribution on Merchants Common Stock in shares of Merchants Common
Stock or any security convertible into Merchants Common Stock or shall combine
or subdivide its stock, then in each such case, from and after the record date
for determining the shareholders entitled to receive such dividend or
distribution or the securities resulting from such combination or subdivision,
an appropriate adjustment shall be made to the conversion ratio set forth in
Section 1.06 above, for purposes of determining the number of shares of
Merchants Common Stock into which the Company's Common Stock shall be converted.
For purposes hereof, the payment of a dividend in Merchants Common Stock, or the
distribution on Merchants Common Stock in securities convertible into Merchants
Common Stock, shall be deemed to have effected an increase in the number of
outstanding shares of Merchants Common Stock equal to the number of shares of
Merchants Common Stock into which such securities shall be initially convertible
without the payment by the holder thereof of any consideration other than the
surrender for cancellation of such convertible securities. Notwithstanding the
foregoing, this Section shall not apply to any stock options issued under option
plans of Merchants existing as of the date of this Agreement.

                                   ARTICLE II

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         Except as set forth in the Disclosure Schedule attached hereto (the
"Company Disclosure schedule"), the Company hereby represents and warrants to
Merchants that:

         SECTION 2.01. ORGANIZATION AND QUALIFICATION OF THE COMPANY;
SUBSIDIARIES. The Company is a corporation duly organized and validly existing
under the laws of the State of Wisconsin. The Bank is a duly organized and
validly existing Wisconsin bank. GBS is duly organized, validly existing and in
good standing under the laws of Nevada. The Bank is the only subsidiary of the
Company. GBS is the only subsidiary of the Bank. The Company and Subsidiaries
each has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Company Approvals") necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and Company Approvals would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below) on the Company and the Subsidiaries, taken as a whole. The term "Material
Adverse Effect" as used in this Agreement shall mean any change or effect that
is or is reasonably likely to be materially adverse to a party's business,
operations, properties (including intangible properties), condition (financial
or otherwise), assets or liabilities (including contingent liabilities). Neither
the Company nor any Subsidiary has received notice of proceedings relating to
the revocation or modification of any Company Approvals. The Company, the Bank
and GBS are duly qualified or licensed as a foreign corporations to do business,
and are in good standing, in each jurisdiction where the character of their
properties owned, leased or operated by them or the nature of their activities
makes such qualification or licensing necessary,


                                      A-11

<PAGE>   74



except for such failures to be so duly qualified or licensed and in good
standing that would not, either individually or in the aggregate, have a
Material Adverse Effect on the Company or the Subsidiaries, taken as a whole.
The Company is registered with the Federal Reserve Board as a one bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").
Except for the Subsidiaries, the Company holds no interest, either directly or
indirectly, in any other entity.

         SECTION 2.02. ARTICLES OF INCORPORATION AND BYLAWS.  The Company has
heretofore furnished to Merchants a complete and correct copy of the Articles of
Incorporation and the Bylaws, as amended or restated, of the Company and the
Subsidiaries and such Articles of Incorporation and Bylaws of the Company and
the Subsidiaries are in full force and effect and neither the Company nor the
Subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or Bylaws.

         SECTION 2.03. CAPITALIZATION.

         (a) Capitalization of the Company. The authorized capital stock of the
Company consists of 125,000 shares of Common Stock, par value $1 per share. As
of the date of this Agreement, (i) 68,900 shares of the Company's Common Stock
are issued and outstanding, all of which are validly issued, fully paid and
non-assessable (except as provided in section 180.0622(2)(b) of the Wisconsin
Business Corporation Law), and all of which have been issued in compliance with
applicable securities laws, and (ii) no shares of the Company's Common Stock are
held in the Company's treasury. Except as set forth in the Company's Disclosure
Schedule at Section 2.03(a), as of the date of this Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
obligating the Company to issue or sell any shares of capital stock of, or other
equity interests in the Company. There are no obligations, contingent or
otherwise, of the Company to repurchase, redeem or otherwise acquire any shares
of the Company's Common Stock or to provide funds to or make any investment (in
the form of a loan, capital contribution or otherwise) in any other entity.

         (b) Capitalization of the Bank. The authorized capital stock of the
Bank consists of 10,000 shares of common stock, par value $100 per share. As of
the date of this Agreement, (i) 10,000 shares of the Bank's common stock are
issued and outstanding, all of which are validly issued, fully paid and
non-assessable, and all of which have been issued in compliance with applicable
securities laws, and (ii) the Company owns all of the Bank's capital stock.
Except as set forth in the Company's Disclosure Schedule at Section 2.03(b), as
of the date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Bank or obligating the Bank to issue or sell
any shares of capital stock of, or other equity interests in the Bank. There are
no obligations, contingent or otherwise, of the Bank to repurchase, redeem or
otherwise acquire any shares of the Bank's capital stock or to provide funds to
or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity.


                                      A-12

<PAGE>   75
         (c) Capitalization of GBS. The authorized capital stock of GBS consists
of 1,000 shares of common stock, par value $1 per share. As of the date of this
Agreement, (i) 1,000 shares of GBS's common stock are issued and outstanding,
all of which are validly issued, fully paid and non-assessable, and all of which
have been issued in compliance with applicable securities laws, and (ii) the
Bank owns all of GBS's capital stock. Except as set forth in the Company's
Disclosure Schedule at Section 2.03(c), as of the date of this Agreement, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
GBS or obligating GBS to issue or sell any shares of capital stock of, or other
equity interests in GBS. There are no obligations, contingent or otherwise, of
GBS to repurchase, redeem or otherwise acquire any shares of GBS's capital stock
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity.

         SECTION 2.04. AUTHORITY. The Company has the requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the outstanding shares of the Company's Common Stock in accordance with
Wisconsin Law and the Company's Articles of Incorporation and Bylaws). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Merchants, constitutes
the legal, valid and binding obligation of the Company enforceable in accordance
with its terms.

         SECTION 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

         (a) To the best knowledge of the Company, after inquiry of its
executive officers, the execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company shall not, (i)
conflict with or violate the Articles of Incorporation or Bylaws of the Company
or the Subsidiaries, (ii) conflict with or violate any domestic (federal, state
or local) or foreign law, statute, ordinance, rule, regulation, order, judgment
or decree (collectively, "Laws") applicable to the Company or the Subsidiaries,
or by which their respective properties are bound or affected, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or the Subsidiaries pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or its or any of their respective properties are bound
or affected, except for any such breaches, defaults or other occurrences that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company or the Subsidiaries, taken as a whole. The Board of Directors of the
Company has taken all actions necessary under Wisconsin Law, including approving
the transactions contemplated


                                      A-13

<PAGE>   76




herein, to insure that none of the restrictions set forth in Wisconsin Law do or
will apply to the transactions contemplated herein.

         (b) To the best knowledge of the Company, after inquiry of its
executive officers, the execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act of 1933,
as amended (the "Securities Act"), and the Securities Exchange of 1934, as
amended (the "Exchange Act"), state securities or blue sky laws ("Blue Sky
Laws"), BHCA, the banking laws and regulations of the State of Wisconsin (the
"WBL"), and the filing and recordation of appropriate merger or other documents
as required by Wisconsin Law and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent the
Company from performing its obligations under this Agreement, and would not have
a Material Adverse Effect on the Company or the Subsidiaries, taken as a whole.

         SECTION 2.06. COMPLIANCE; PERMITS. To the best knowledge of the Company
after inquiry of its executive officers, neither the Company nor any Subsidiary
is in conflict with, or in default or violation of, (a) any law applicable to
the Company or any Subsidiary or by which any of their respective properties are
bound or affected, or (b) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties are bound or affected, except
for any such conflicts, defaults or violations which would not, individually or
in the aggregate, have a Material Adverse Effect on the Company or the
Subsidiaries, taken as a whole.

         SECTION 2.07. BANKING REPORTS AND FINANCIAL STATEMENTS.

         (a) The Company and the Subsidiaries have timely filed all forms,
reports and documents required to be filed with the Federal Reserve Board, the
Wisconsin Department of Financial Institutions and any other applicable federal
or state securities or banking authorities (all such reports and statements are
collectively referred to as the "Company Reports"). The Company Reports,
including all Company Reports filed after the date of this Agreement, (i) were
or will be prepared in accordance with the requirements of applicable law and
(ii) did not at the time they were filed,.or will not at the time they are
filed, contain any untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

         (b) Each of the consolidated financial statements of the Company
(including, in each case, any related notes thereto) delivered to Merchants
whether or not contained in the Company Reports (the "Financial Statements"),
including, but not limited to, any Company Reports filed since the date of this
Agreement and prior to or at the Effective Time, have been prepared in
accordance



                                      A-14

<PAGE>   77


with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and each fairly presents the consolidated financial position of the
Company and the Subsidiaries as of the respective dates thereof and the
consolidated results of its operations and changes in financial position for the
periods indicated, except that any unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.

         (c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the Subsidiaries as of December 31, 1997, including all
notes thereto (the "Company Balance Sheet"), neither the Company nor any of the
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with generally
accepted accounting principles, except (i) for liabilities or obligations
incurred in the ordinary course of business since December 31, 1997, that would
not, individually or in the aggregate have a Material Adverse Effect on the
Company or the Subsidiaries, taken as a whole, or (ii) as otherwise reflected in
the reports referred to in Section 2.07(a) hereof.

         SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Financial Statements, since December 31, 1997 to the date of this
Agreement, the Company and the Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and, since
December 31, 1997, there has not been (a) any change in the financial condition,
results of operations or business of the Company or the Subsidiaries having a
Material Adverse Effect on the Company or the Subsidiaries, taken as a whole,
(b) any damage, destruction or loss (whether or not covered by insurance) with
respect to any assets of the Company or the Subsidiaries having a Material
Adverse Effect on the Company or the Subsidiaries, taken as a whole, (c) any
change by the Company or the Subsidiaries in their accounting methods,
principles or practices, except for compliance with applicable new requirements
of the Financial Accounting Standards Board, (d) any revaluation by the Company
or the Subsidiaries of any of their material assets in any material respect, (e)
any entry by the Company or any Subsidiary into any commitment or transactions
material to the Company or the Subsidiaries, taken as a whole, (f) any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of the Company's Common Stock or any redemption, purchase or
other acquisition of any of its securities or any of the securities of any
Subsidiary, or (g) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in compensation
payable or to become payable to any officers or key employees of the Company or
any of the Subsidiaries.

         SECTION 2.09. ABSENCE OF LITIGATION. Except as disclosed in the
Company's Disclosure Schedule at Section 2.09, (a) neither the Company nor any
Subsidiary is subject to any continuing order of, or written agreement or
memorandum of understanding with, or continuing material investigation by, any
federal or state banking authority or other governmental entity, or any



                                      A-15

<PAGE>   78



judgment, order, writ, injunction, decree or award of any governmental entity or
arbitrator, including, without limitation, cease-and-desist or other orders of
any bank regulatory authority, (b) there is no claim of any kind, action, suit,
litigation, proceeding, arbitration, investigation, or controversy affecting the
Company or any Subsidiary pending or, to the knowledge of the Company,
threatened, and (c) there are no uncured material violations, or violations with
respect to which material refunds or restitutions may be required, cited in any
compliance report to the Company or any Subsidiary as a result of the
examination by any regulatory authority.


         SECTION 2.10.  EMPLOYEE BENEFIT PLANS.

         (a) The Company Disclosure Schedule at Section 2.10 lists all "employee
pension benefit plans," as such term is defined in section 3(2) of the Employee
Retirement Income Security Act of 1974 (ERISA) without regard to any exemptions
from any requirements thereunder issued by the United States Department of Labor
in regulations or otherwise, maintained, sponsored or contributed to by the
Company or any Subsidiary (the "Pension Plans"). The term "Pension Plan" shall
also include any terminated "employee pension benefit plan" previously
maintained, sponsored or contributed to by the Company or any Subsidiary which,
as of the Effective Time, has not distributed all of its assets in full
satisfaction of accrued benefits and/or obligations.

         (b) The Company Disclosure Schedule at Section 2.10 lists all "employee
welfare benefit plans," as defined in ERISA section 3(1) without regard to any
exemptions from any requirements thereunder issued by the United States
Department of Labor in regulations or otherwise, maintained, sponsored or
contributed to by the Company or any Subsidiary (the "Welfare Plans"). The term
"Welfare Plans" shall also include any terminated employee welfare benefit plan
previously maintained, sponsored or contributed to by the Company or any
Subsidiary which, as of the Effective Time, has not distributed all of its
assets and/or satisfied all of its obligations.

         (c) The Company has made available to Merchants true and complete
copies of the documents governing each of the Pension Plans and Welfare Plans as
in effect at the Effective Time.

         (d) The Company Disclosure Schedule at Section 2.10 lists all plans or
programs to provide fringe benefits to the Company's and Subsidiaries' employees
(other than Pension Plans and Welfare Plans) including, but not limited to
vacation, sick leave, disability, medical, hospitalization, life insurance and
other insurance plans or related benefits (the "Fringe Benefit Plans").

         (e) The Company has made available to Merchants true and complete
copies of the documents governing each Fringe Benefit Plan.

         (f) The Company has no direct or indirect, formal or informal, plan,
fund or program to change any Pension Plan, Welfare Plan or Fringe Benefit Plan
that would affect any of the Company's or any Subsidiary's employees. Neither
the Company nor any Subsidiary has made a material modification, within the
meaning of ERISA section 102 and the regulations thereunder, to


                                      A-16

<PAGE>   79



any existing Pension Plan, Welfare Plan or Fringe Benefit Plan which is not set
forth in the Pension Plan, Welfare Plan or Fringe Benefit Plan documents
provided to Merchants.

         (g) For purposes of this Section 2.10, "Company" shall include the
Company, the Subsidiaries and all members of any controlled group of
corporations (within the meaning of Code section 414(b), relevant Treasury
Regulations and Pension Benefit Guaranty Corporation regulations issued pursuant
to ERISA section 4001), any group of trades or businesses under common control
(within the meaning of Code section 414(c), relevant Treasury Regulations and
Pension Benefit Guaranty Corporation regulations issued pursuant to ERISA
section 4001) and any affiliated service group (within the meaning of Code
section 414(m) and relevant Treasury Regulations and proposed Treasury
Regulations) of which the Company or any Subsidiary is a member.

         (h) Neither the Company nor any Subsidiary has ever been obligated to
contribute to any multi-employer plan within the meaning of ERISA section 3(37).

         (i) To the Company's knowledge, the Pension Plans, Welfare Plans and
Fringe Benefit Plans and the trusts and other funding vehicles related to the
Pension Plans, Welfare Plans and Fringe Benefit Plans have been administered in
all respects in compliance with the applicable requirements of ERISA, the Code,
the plan documents and all other applicable rules, regulations and laws. The
Pension Plans, Welfare Plans and Fringe Benefit Plans and the trusts or other
funding vehicles related to the Pension Plans, Welfare Plans and Fringe Benefit
Plans meet all applicable requirements, in form and in operation, for favorable
tax treatment under the Code. All required contributions pursuant to the Pension
Plans, Welfare Plans and Fringe Benefit Plans for all periods prior to the
Effective Time have been made or will be made prior to the Effective Time. There
are no pending or, to the Company's knowledge, threatened claims, lawsuits or
arbitrations which have been asserted or instituted against the Pension Plans,
Welfare Plans or Fringe Benefit Plans or any fiduciaries thereof with respect to
their duties to the Pension Plans, Welfare Plans or Fringe Benefit Plans or the
assets of any of the trusts under any Pension Plans, Welfare Plans or Fringe
Benefit Plans. No representations or communications with respect to
participation, eligibility for benefits, vesting, benefit accrual or coverage
under the Pension Plans, Welfare Plans or Fringe Benefit Plans have been made to
the Company's or Subsidiaries employees other than those which are in accordance
with the terms of such Pension Plans, Welfare Plans or Fringe Benefit Plans in
effect immediately prior to the Effective Time.

         (j) With respect to any Welfare Plan which is a "group health plan" as
defined in Code section 4980B, the Company or Subsidiary in question has
complied with the continuation coverage requirements of Code section 4980B for
any periods prior to the Effective Time.

         (k) The Company has furnished to Merchants copies of all documents
relating to the Pension Plans, Welfare Plans or Fringe Benefit Plans, including,
but not limited to, the following: any service provider agreements, any
investment management agreements, fiduciary insurance policies, fidelity bonds,
rules, regulations or policies of the trustees or any committee thereunder, all
of which are true and complete.


                                      A-17
<PAGE>   80



         (1) Since December 31, 1974, no fiduciary of the Pension Plans or
Welfare Plans has engaged in any "prohibited transaction" (as defined in ERISA
section 406 or Code section 4975) nor has any fiduciary breached any fiduciary
responsibility, as described in Part 4 of Title I of ERISA with respect to such
Pension Plans or Welfare Plans.

         (m) The Company has no knowledge of the occurrence of any event with
respect to any Pension Plan which could result in a liability of the Company,
any Subsidiary or any member of the Company's controlled group to the Pension
Benefit Guaranty Corporation ("PBGC"), other than the timely payment of premiums
pursuant to section 4007 of ERISA. All required PBGC premiums have been paid for
the periods through the Effective Time.

         (n) Except as set forth in the Company's Disclosure Schedule at Section
2.10, no Welfare Plan or Fringe Benefit Plan provides any form of
post-retirement health benefits to retired employees of the Company or any
Subsidiary, other than benefits required to be provided pursuant to Code section
4980B.

         SECTION 2.11. EMPLOYMENT CONTRACTS; MATERIAL CONTRACTS. Except as set
forth in the Company Disclosure Schedule at Section 2.11, neither the Company
nor any Subsidiary is a party to or bound by (a) any employment or consulting
contract that is not terminable without penalty by the Company or such
Subsidiary on 60 days' or less notice, (b) any contract or commitment for
capital expenditures in excess of $10,000.00 for any one (1) project, or (c)
contracts or commitments for the purchase of materials or supplies or for the
performance of services over a period of more than 60 days from the date of this
Agreement.

         SECTION 2.12. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by the Company for inclusion in (a) the
Registration Statement (as defined in Section 6.01), (b) the Proxy Statement/
Prospectus (as defined in Section 6.01), or (c) any other document to be filed
with the Securities and Exchange Commission (the "SEC") or other regulatory
authority in connection with the transactions contemplated hereby, at the
respective times such documents are filed and, in the case of the Registration
Statement, when it becomes effective and at the Effective Time, and with respect
to the Proxy Statement/Prospectus, when mailed, shall be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading. In the case of the Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, none of
such information at the time of the Company's and Merchants' shareholders
meeting (pursuant to Section 6.02) (the "Meetings") shall be false or misleading
with respect to any material fact or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Meetings.

         SECTION 2.13. TITLE TO PROPERTY. The Company Disclosure Schedule at
Section 2.13 correctly identifies all real property owned and leased by the
Company and the Subsidiaries. The Company and each of the Subsidiaries has good
and defensible title to all of their properties and assets, real and personal,
tangible and intangible free and clear of all mortgage liens, and free and

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<PAGE>   81



clear of all other liens, charges and encumbrances except liens for taxes not
yet due and payable, pledges to secure deposits and such minor imperfections of
title, if any, as to not materially detract from the value of or interfere with
the present use of the property affected thereby or which, individually or in
the aggregate, would not have a Material Adverse Effect on the Company or the
Subsidiaries, taken as a whole; and all leases pursuant to which the Company or
any Subsidiary leases from others real or personal property including, without
limitation, leases for branch offices are in good standing, valid and effective
in accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default and in
respect of which the Company or any Subsidiary has not taken adequate steps to
prevent such a default from occurring). The Company's and each Subsidiary's
buildings and equipment in regular use have been reasonably maintained and are
in good and serviceable condition, reasonable wear and tear excepted. None of
the buildings, structures or appurtenances owned or leased by the Company or any
Subsidiary for their operation or maintenance as now operated or maintained,
contravenes any zoning ordinances or other administrative regulations (whether
or not permitted because of prior non-conforming use) or violates any
restrictive covenant or any provision of law, the effect of which would
materially interfere with or prevent the continued use of such properties for
the purposes for which they are now being used or would materially and adversely
affect the value thereof.

         SECTION 2.14. COMPLIANCE WITH ENVIRONMENTAL LAWS.

         (a) The term "Company's Property" shall mean any real property and
improvements currently owned, leased, used, operated or occupied by the Company
or any Subsidiary, including properties acquired by foreclosure, properties
which the Bank has a present right to acquire upon foreclosure and which are
owned by customers of the Bank who have received written notification of
default, or properties held or operated in a fiduciary or managerial capacity;

         (b) The term "Environmental Claims" shall mean any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or Environmental
Permit;

         (c) The term "Environmental Laws" shall mean all federal, state and
local laws including statutes, regulations and other governmental restrictions
and requirements relating to the discharge of air pollutants, water pollutants
or process wastewater or the disposal of solid or hazardous waste or otherwise
relating to the environment or hazardous substances or employee health and
safety.

         (d) The term "Environmental Permits" shall mean all permits, approvals,
identification numbers, licenses and other authorizations required under any
applicable Environmental Law.

         (e) The term "Hazardous Substances" shall mean all hazardous and toxic
substances, wastes and materials; any pollutants or contaminants (including,
without limitation, petroleum


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<PAGE>   82


products, asbestos and raw materials which include hazardous constituents); and
any other similar substances or materials which are regulated under
Environmental Laws.

         (f) The Environmental Permits (if any) are in full force and effect
and, to the Company's knowledge, constitute all permits, licenses, approvals and
consents relating to Environmental Laws or Hazardous Substances required for the
conduct of the Company's and Subsidiaries, businesses and the use of the
Company's Property (as presently conducted and used) in compliance with
Environmental Laws.

         (g) The Company and the Subsidiaries have filed all reports, returns
and other filings required to be filed with respect to the Company's Property
under Environmental Laws and the Environmental Permits except where the failure
to do so would not have a material adverse effect on the Company's or
Subsidiaries, businesses or financial condition, taken as a whole.

         (h) Except as set forth in the Company's Disclosure Schedule at Section
2.14(h), to the Company's knowledge, the business of the Company and the
Subsidiaries and the Company's Property have been and are being operated by the
Company in accordance with all Environmental Laws and Environmental Permits and
neither the Company nor any of the Subsidiaries has received any written notice
nor does the Company or any of the Subsidiaries have knowledge that the
Company's Property is not in material compliance with all Environmental Laws and
Environmental Permits and no proceeding for the suspension, revocation or
cancellation of any Environmental Permit is pending or, to Company's knowledge,
threatened.

         (i) Except as set forth in the Company's Disclosure Schedule at Section
2.14(i), there are no actions pending, or to the Company's knowledge, threatened
against the Company or any of the Subsidiaries (naming the Company or any
Subsidiary), which in any case assert or allege (i) the Company or any
Subsidiary (naming the Company or any Subsidiary) violated any Environmental Law
or Environmental Permit or are in default with respect to any Environmental
Permit or any order, writ, judgment, variance, award or decree of any government
authority; (ii) the Company or any of the Subsidiaries is required to clean up
or take remedial or other response action due to the disposal, discharge or
other release of any Hazardous Substance on the Company's Property or elsewhere;
or (iii) the Company or any of the Subsidiaries is required to contribute to the
cost of any past, present or future cleanup or remedial or other response action
which arises out of or is related to the disposal, discharge or other release of
any Hazardous Substance by the Company, the Subsidiaries or others. The Company,
the Subsidiaries, and the Company's Property are not subject to any judgment,
stipulation, order, decree or agreement arising under Environmental Laws.

         (j) Except as set forth in the Company's Disclosure Schedule at Section
2.14(j), with respect to the period during which the Company or any of the
Subsidiaries occupied the Company's Property (i) no Hazardous Substances have
been treated, recycled or disposed of by the Company or any of the Subsidiaries
(intentionally or unintentionally) on, under or at the Company's Property; (ii)
there has been no release or threatened release by the Company or any of the
Subsidiaries of any Hazardous Substance from the Company's Property; (iii) to
the Company's knowledge, there have



                                      A-20

<PAGE>   83


been no activities on the Company's Property which would subject Merchants, the
Subsidiaries, or any subsequent occupier of the Company's Property to damages,
penalties, injunctive relief or cleanup costs under any Environmental Laws
or-common law theory of liability.

         SECTION 2.15. ABSENCE OF AGREEMENTS. Neither the Company nor any
Subsidiary is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter which restricts materially the conduct of its business
(including any contract containing covenants which limit the ability of the
Company or any Subsidiary to compete in any line of business or with any person
or which involve any restriction of the geographical area in which, or method by
which, the Company or any Subsidiary may carry on its business), or in any
manner relates to its capital adequacy, its credit policies or its management
nor has the Company or any Subsidiary been advised that any federal, state or
governmental agency is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar submission.

         SECTION 2.16. TAXES. The Company and the Subsidiaries have timely filed
all Tax Returns (as defined below) required to be filed by them, and the Company
and the Subsidiaries have timely paid and discharged all Taxes (as defined
below) due in connection with or with respect to the filing of such Tax Returns
and have timely paid all other Taxes as are due, except such as are being
contested in good faith by appropriate proceedings and with respect to which the
Company is maintaining reserves adequate for their payment. To the best
knowledge of the Company, the liability for Taxes set forth on each such Tax
Return adequately reflects the Taxes required to be reflected on such Tax
Return. For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
charges, fees levies, and other governmental assessments and impositions of any
kind, payable to any federal, state, local or foreign governmental entity or
taxing authority or agency, including, without limitation, (a) income,
franchise, profits, gross receipts, estimated, ad valorem, value added, sales,
use, service, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, (b) customs
duties, imposts, charges, levies or other similar assessments of any kind, and
(c) interest, penalties and additions to tax imposed with respect thereto, and
"Tax Returns" shall mean returns, reports, and information statements with
respect to Taxes required to be filed with the United States Internal Revenue
Service (the "IRS") or any other governmental entity or taxing authority or
agency, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns. Neither the IRS nor any other governmental
entity or taxing authority or agency is now asserting, either through audits,
administrative proceedings, court proceedings or otherwise, or, to the best of
the Company's knowledge, threatening to assert against the Company or any
Subsidiary any deficiency or claim for additional Taxes. Neither the Company nor
any Subsidiary has granted any waiver of any statute of limitation with respect
to, or any extension of a period for the assessment of any tax. There are no tax
liens on any assets of the Company or any Subsidiary. Neither the Company nor
any Subsidiary has received a ruling or entered into an agreement with the



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IRS or any other governmental entity or taxing authority or agency that would
have a Material Adverse Effect on the Company or the Subsidiaries, taken as a
whole, after the Effective Time. The accruals and reserves for taxes reflected
in the Company's Balance Sheet are adequate to cover all Taxes accruable by the
Company and the Subsidiaries on a consolidated basis through the date thereof
(including Taxes being contested) in accordance with generally accepted
accounting principles. Except as may be set forth in the Company Disclosure
Schedule at Section 2.16, no agreements relating to allocating or sharing of
Taxes exist between the Company and the Subsidiaries.

         SECTION 2.17. INSURANCE. Complete and correct copies of all material
policies of fire, product or other liability, workers' compensation and other
similar forms of insurance owned or held by the Company and the Subsidiaries
have been delivered to Merchants. Subject to expirations and renewals of
insurance policies in the ordinary course of business, all such policies are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date as of which this representation is being made have
been paid (other-than retrospective premiums which may be payable with respect
to workers' compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
and shall remain valid, outstanding and enforceable policies, and will not be
terminated prior to the Effective Time. To the best knowledge of the Company,
the insurance policies to which the Company or the Subsidiaries are parties are
sufficient for compliance with all material requirements of law and all material
agreements to which the Company or the Subsidiaries are parties and will be
maintained by the Company and the Subsidiaries until the Effective Time. Neither
the Company nor any Subsidiary has been refused any insurance with respect to
any material assets or operations, nor has coverage been limited in any respect
material to their operations by any insurance carrier to which they have applied
for any such insurance or with which they have carried insurance during the last
five (5) years.

         SECTION 2.18. ABSENCE OF ADVERSE AGREEMENTS. Neither the Company nor
any Subsidiary is a party to any agreement or instrument or any judgment, order
or decree or any rule or regulation of any court or other governmental agency or
authority which materially and adversely affects or in the future may have a
Material Adverse Effect on the financial condition, results or operations,
assets, business or prospects of the Company or the Subsidiaries, taken as a
whole.

         SECTION 2.19. INTERNAL CONTROLS AND RECORDS. The Company and each
Subsidiary maintain books of account which accurately and validly reflect, in
all material respects, all loans, mortgages, collateral and other business
transactions and maintain accounting controls sufficient to ensure that all such
transactions are (a) in all material respects, executed in accordance with its
management's general or specific authorization, and (b) recorded in conformity
with generally accepted accounting principles. There is no amendment to any
ending agreement, collateral document or security which is not fully reflected
in the books and records of the Company or the Subsidiaries.


                                      A-22

<PAGE>   85


         SECTION 2.20. LOANS. Except as disclosed in the Company Disclosure
Schedule at Section 2.20, (a) the Bank is not a party to any written or oral
loan agreement, note or borrowing arrangement which has been classified as
"substandard," "doubtful," "loss," "other loans especially mentioned" or any
comparable classifications by the Company or the Subsidiaries or banking
regulators; (b) neither the Company nor any Subsidiary is a party to any written
or oral loan agreement, note, or borrowing arrangement, including any loan
guaranty, with any director or executive officer of the Company or any
Subsidiary, or any person, corporation or enterprise controlling, controlled by
or under common control with any of the foregoing; or (c) neither the Company
nor any Subsidiary is a party to any written or oral loan agreement, note or
borrowing arrangement in violation of any law, regulation or rule of any
governmental authority and which violation could have a material Adverse Effect
on the Company or the Subsidiaries, taken as a whole.

         SECTION 2.21. LABOR MATTERS.

         (a) The Company and the Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice. (b) There is no unfair labor practice complaint against the
Company or any Subsidiary pending before the National Labor Relations Board; (c)
there is no labor strike, dispute, slowdown, representation campaign or work
stoppage actually pending or threatened against or affecting the Company or any
Subsidiary; (d) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor has been
asserted against the Company or any Subsidiary; and (e) neither the Company nor
any Subsidiary is experiencing any material work stoppage.

         SECTION 2.22. BROKERS. Except as set forth in the Company's Disclosure
Schedule at Section 2.22, no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or the Subsidiaries.

         SECTION 2.23. ACCOUNTING AND TAX MATTERS.

         (a) To the best knowledge of the Company, neither the Company nor any
of its affiliates has through the date of this Agreement taken or agreed to take
any action that would prevent Merchants from accounting for the business
combinations to be effected by the Merger as a pooling-of-interests or would
prevent the Merger from qualifying as a reorganization under Section
368(a)(1)(A) of the Code.

         (b) To the best knowledge of the Company, there is no plan or intention
on the part of shareholders of the Company who will receive Merchants Common
Stock to sell or otherwise dispose of an amount of Merchants Common Stock to be
received in the Merger which would reduce their ownership of Merchants Common
Stock to a number of shares having in the aggregate a value



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at the time of the Merger of less than fifty percent (50%) of the total value of
the Company's Common Stock outstanding immediately prior to the Merger.

         SECTION 2.24. FULL DISCLOSURE. No statement contained in any document,
certificate, or other writing furnished or to be furnished by or at the
direction of the Company to Merchants in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material fact or
omits or shall omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.

         SECTION 2.25. VOTE REQUIRED. The affirmative vote of a majority of the
votes that holders of the outstanding shares of the Company's Common Stock are
entitled to cast is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve the Merger.

                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF MERCHANTS

         Except as set forth in the Disclosure Schedule attached hereto (the
"Merchants Disclosure Schedule"), Merchants hereby represents and warrants to
the Company that:

         SECTION 3.01. ORGANIZATION AND QUALIFICATION. Merchants is a bank
holding company duly organized and validly existing under the laws of the State
of Wisconsin. Merchants is registered with the Federal Reserve Board as a bank
holding company under the BHCA. Merchants has the requisite corporate power and
authority and is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders (the
"Merchants Approvals") necessary to own, lease and operate its properties and to
carry on its businesses as they are now being conducted, including appropriate
authorizations from the Federal Reserve Board, except where the failure to be so
organized and existing or to have such power, authority and Merchants Approvals
would not, individually or in the aggregate, have a Material Adverse Effect on
Merchants taken as a whole. Merchants has not received any notice of proceedings
relating to the revocation or modification of any such Merchants Approvals.
Merchants is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect on Merchants.

         SECTION 3.02. ARTICLES OF INCORPORATION AND BYLAWS. Merchants has
heretofore made available to the Company a complete and correct copy of its
Articles of Incorporation and Bylaws, as amended or restated. Such Articles of
Incorporation and Bylaws are in full force and effect. Merchants is not in
violation of any of the provisions of its Articles of Incorporation or Bylaws.


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         SECTION 3.03. CAPITALIZATION. The outstanding capital stock of
Merchants is, and the shares of Merchant's Common Stock to be issued pursuant to
the Merger, when so issued, will be, duly authorized, validly issued, fully paid
and non-assessable, (except as provided in section 180.0622(2)(b) of Wisconsin
Business Corporation Law) fully registered under the Securities Act and have
not, and will not have, been issued in violation of the preemptive rights of any
person.

         SECTION 3.04. AUTHORITY. Merchants has have the requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Merchants and the consummation
by Merchants of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Merchants and no
other corporate proceedings on the part of Merchants are necessary to authorize
this Agreement or to consummate the transactions so contemplated hereby (other
than, with respect to the Merger, the approval and adoption of this Agreement by
the holders of a majority of the outstanding shares of Merchants Common Stock in
accordance with Wisconsin law and Merchants' Articles of Incorporation and
Bylaws). This Agreement has been duly and validly executed and delivered by
Merchants and, assuming the due authorization, execution and delivery by the
Company, constitutes the legal, valid and binding obligation of Merchants.

         SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

         (a) To the best knowledge of Merchants, the execution and delivery of
this Agreement by Merchants does not, and the performance of this Agreement by
Merchants shall not, (i) conflict with or violate the Articles of Incorporation
or Bylaws of Merchants, (ii) conflict with or violate any laws applicable to
Merchants or by which its properties are bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Merchants pursuant to any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Merchants is a party or by which Merchants or its properties are bound or
affected, except for any such breaches, defaults or other occurrences that would
not, individually or in the aggregate, have a material Adverse Effect on
Merchants.

         (b) To the best knowledge of Merchants, the execution and delivery of
this Agreement by Merchants does not, and the performance of this Agreement by
Merchants shall not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements of the Securities
Act, the Exchange Act, Blue Sky Laws, the BHCA, the WBL and the filing and
recordation of appropriate merger or other documents as required by Wisconsin
Law, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Merchants from
performing its obligations under this Agreement, and would not have a Material
Adverse Effect on Merchants.


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<PAGE>   88



         SECTION 3.06. COMPLIANCE; PERMITS. To the best knowledge of Merchants,
Merchants is not in conflict with, or in default or violation of (a) any Law
applicable to Merchants or by which its property is bound or affected, or (b)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Merchants is a
party or by which Merchants or any of its properties is bound or affected,
except for any such conflicts, defaults or violations which would not,
individually or in the aggregate, have a Material Adverse Effect on Merchants.

         SECTION 3.07. SECURITIES REPORTS; FINANCIAL STATEMENTS.

         (a) As of the date of this Agreement, Merchants has made available to
the Company in the form filed with the SEC(i) its Annual Reports on Form 10-K
for the fiscal years ended December 31, 1994, 1995, 1996 and 1997, respectively,
(ii) Quarterly Reports on Form 10-Q for the periods ended March 31, 1998, June
30, 1998 and September 30, 1998, (iii) all definitive proxy statements relating
to Merchants meetings of shareholders (whether annual or special) held since
December 31, 1993, (iv) all Reports on Form 8-K filed by Merchants with the SEC
since December 31, 1993, (v) all other reports or registration statements filed
by Merchants with the SEC since December 31, 1993, and (vi) all amendments and
supplements to all such reports and registration statements filed by Merchants
with the SEC since December 31, 1993 (collectively, the "Merchants SEC
Reports"). The Merchants' SEC Reports, including all Merchants SEC Reports filed
after the date of this Agreement, (i) were or will be prepared in accordance
with the requirements of applicable law and (ii) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

         (b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Merchants SEC Reports,
including any SEC Reports filed since the date of this Agreement and prior to or
on the Effective Time, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Merchants and its subsidiaries
as of the respective dates thereof and the consolidated results of its
operations and changes in financial position for the periods indicated, except
that any unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount.

         (c) Except as set forth on the consolidated balance sheet of Merchants
and its subsidiaries as of December 31, 1997, including all notes thereto,
neither Merchants nor its subsidiaries have any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles, except for
liabilities or obligations incurred in the ordinary course of business since
December 31, 1997, that would not have a Material Adverse Effect on Merchants.


                                      A-26

<PAGE>   89



         SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Merchants SEC Reports filed prior to the date of this Agreement, since
December 31, 1997, to the date of this Agreement, Merchants and its subsidiaries
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since December 31, 1997, there has not been
(a) any change in the financial condition, results of operations or business of
Merchants or its subsidiaries having a Material Adverse Effect on Merchants or
its subsidiaries, taken as a whole, (b) any damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of Merchants or its
subsidiaries having a Material Adverse Effect on Merchants or its subsidiaries,
taken as a whole, (c) any change by Merchants in its accounting methods,
principles or practices, (d) any revaluation by Merchants of any of its material
assets in any material respect, or (e) to the date of this Agreement, any entry
by Merchants or any of its subsidiaries into any commitment or transactions
material to Merchants or its subsidiaries, taken as a whole.

         SECTION 3.09. ABSENCE OF LITIGATION. Except as disclosed in the
Merchants Disclosure Schedule at Section 3.09 and in the Merchants SEC Reports
filed prior to the date of this Agreement, there is no claim, action, suit,
litigation, proceeding, arbitration, investigation, or controversy of any kind
affecting Merchants or. any of Merchants' subsidiaries pending or, to the
knowledge of Merchants, threatened, except for matters which will not have, and
cannot reasonably be expected to have, a material Adverse Effect on Merchants or
its subsidiaries taken as a whole, and there are no uncured material violations,
or violations with respect to which material refunds or restitutions may be
required, cited in any compliance report to Merchant or any of Merchants'
subsidiaries as a result of an examination by any bank regulatory authority.

         SECTION 3.10. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by Merchants for inclusion in (a) the
Registration Statement (as defined in Section 6.01) (b) the Proxy Statement/
Prospectus (as defined in Section 6.01), or (c) any other document to be filed
with the SEC or other regulatory authority in connection with the transactions
contemplated hereby, at the respective time such documents are filed and, in the
case of the Registration Statement, when it becomes effective and at the
Effective Time, and with respect to the Proxy Statement/Prospectus, when mailed,
shall be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not
misleading. In the case of the Proxy Statement/Prospectus or any amendment
thereof or supplement thereto, none of such information at the time of the
Meeting (as provided for in Section 6.02) shall be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Meeting. All documents filed with the SEC or
other regulatory authority by Merchants in connection with the Merger shall
comply as to form in all material respects with the provisions of applicable
law.

         SECTION 3.11. ABSENCE OF AGREEMENTS. Neither Merchants nor any of its
subsidiaries is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter which restricts materially the conduct of its business




                                      A-27

<PAGE>   90


(including any contract containing covenants which limit the ability of
Merchants or its subsidiaries to compete in any line of business or with any
person or which involve any restriction of the geographical area in which, or
any method by which, Merchants or its subsidiaries may carry on their business
(other than as may be required by Law or applicable regulatory authorities)), or
in any manner relates to their capital adequacy, their credit policies or
management, except for those the existence of which has been disclosed to the
Company prior to the date of this Agreement, nor has Merchants or any of its
subsidiaries been advised that any federal, state or governmental agency is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission.


         SECTION 3.12. TAXES. Merchants and its subsidiaries have timely filed
all Tax Returns required to be filed by them, and Merchants and its subsidiaries
have timely paid and discharged all Taxes due in connection with or with respect
to the filing of such Tax Returns and have timely paid all other Taxes as are
due, except such as are being contested in good faith by appropriate proceedings
and with respect to which Merchants is maintaining reserves adequate for their
payment. To the best knowledge of Merchants, the liability for Taxes set forth
on each such Tax Return adequately reflects the Taxes required to be reflected
on such Tax Return. Neither the IRS nor any other governmental entity or taxing
authority or agency is now asserting, either through audits or administrative
proceedings, court proceedings or otherwise, or, to the best of Merchants'
knowledge, threatening to assert against Merchants or any of its subsidiaries
any deficiency or claim for additional Taxes. Neither Merchants nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. There are no
tax liens on any assets of Merchants or any of its subsidiaries. Neither
Merchants nor any of its subsidiaries has received a ruling or entered into an
agreement with the IRS or any other governmental entity or taxing authority or
agency that would have a Material Adverse Effect on Merchants or its
subsidiaries, taken as a whole, after the Effective Time. The accruals and
reserves for taxes reflected in the Merchants Balance Sheet are adequate to
cover all Taxes accruable through the date thereof (including Taxes being
contested) in accordance with generally accepted accounting principles. Except
as set forth in Merchants Disclosure Schedule, at Section 3.12, no agreements
relating to allocating or sharing of Taxes exist among Merchants and its
subsidiaries and no tax indemnities given by Merchants or its subsidiaries in
connection with a sale of stock or assets remain in effect. Except as disclosed
in the Merchants Disclosure Schedule at Section 3.12, neither Merchants nor any
of its subsidiaries is required to include in income either (i) any amount in
respect of any adjustment under Section 481 of the Code, or (ii) any installment
sale gain. Neither Merchants nor any of its subsidiaries has made an election
under Section 341(f) of the Code.

         SECTION 3.13. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Merchants.


                                      A-28

<PAGE>   91


         SECTION 3.14. ACCOUNTING AND TAX MATTERS. To the best knowledge of
Merchants, neither Merchants nor any of its affiliates has through the date of
this Agreement taken or agreed to take any action that would prevent Merchants
from accounting for the business combinations to be effected by the Merger as a
pooling-of-interests or would prevent the Merger from qualifying as a
reorganization under Section 368(a)(1)(A) of the Code.

         SECTION 3.15. FULL DISCLOSURE. No statement contained in any document,
certificate, or other writing furnished or to be furnished by or at the
direction of Merchants to the Company in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material fact or
omits or shall omit to state any material fact necessary, in the light of the
circumstances under which it has been made, in order to make the statements
herein or therein not misleading.

         SECTION 3.16. VOTE REQUIRED. The approval by the holders of a majority
of the votes entitled to be cast by the holders of Merchants Common Stock to
approve the Merger (including the issuance of shares of Merchants Common Stock
in connection therewith) is the only vote of the holders of any class or series
of the capital stock of Merchants required for any of the transactions
contemplated by this Agreement.

                                   ARTICLE IV

                            COVENANTS OF THE COMPANY


         SECTION 4.01. AFFIRMATIVE COVENANTS. The Company hereby covenants and
agrees with Merchants that prior to the Effective Time, unless the prior written
consent of Merchants shall have been obtained and except as otherwise
contemplated herein, it will and/or it will cause each Subsidiary to:

         (a) operate its business only in the usual, regular and ordinary course
consistent with past practices;

         (b) use reasonable efforts to preserve intact its business organization
and assets, maintain its rights and franchises, retain the services of its
officers and key employees and maintain its relationships with customers;

         (c) use reasonable efforts to maintain and keep its properties in as
good repair and condition as at present, ordinary wear and tear excepted;

         (d) use reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that now maintained by
it;


                                      A-29

<PAGE>   92

         (e) perform in all material respects all obligations required to be
performed by it under all material contracts, leases, and documents relating to
or affecting its assets, properties, and business;

         (f) purchase and sell securities in accordance with the guidelines set
forth on the Schedule at Section 4.01;

         (g) with respect to the Bank, maintain as of the date on which all of
the conditions set forth in Article VII have been satisfied or waived and
thereafter a loan loss reserve of not less than 1.2 percent of loans;

         (h) comply with and perform in all material respects all obligations
and duties imposed upon it by all applicable laws;

         (i) obtain an independent audit of its financial statements for the
year ended December 31, 1998;

         (j) fully expense as of the date on which all conditions set forth in
Article VII have been satisfied or waived all expenses (including fees) incurred
in connection with the consummation of the transaction contemplated hereby.

         SECTION 4.02. NEGATIVE COVENANTS. Except as specifically contemplated
by this Agreement, from the date of this Agreement until the Effective Time, the
Company shall not do, or permit the Subsidiaries to do, without the prior
written consent of Merchants, any of the following:

         (a) (i) grant any increase in compensation or grant any bonuses
(incentive or special) to its employees as a class, or to its officers or
directors, (ii) effect any change in retirement benefits to any class of
employees or officers (unless any such change shall be required by applicable
law) which would increase its retirement benefit liabilities, (iii) adopt, enter
into, amend or modify any employee benefit plan or make any adjustments pursuant
to any employee benefit plan, or (iv) enter into or amend any employment,
severance or similar agreements or arrangements with any directors or officers,
other than as is consistent with the normal severance policies of the Company
and the Subsidiaries in effect on the date of this Agreement;

         (b) except as set forth on Schedule 4.02, declare or pay any dividend
on, or make any other distribution in respect of, its outstanding shares of
capital stock;

         (c) (i) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or any options, warrants, conversion or other
rights to acquire any shares of its capital stock or any such securities or
obligations; (ii) merge with or into any other corporation or bank, permit any
other corporation or bank to merge into it or consolidate with any other
corporation or bank, or effect any reorganization or recapitalization; (iii)
purchase or otherwise acquire any assets or stock of any corporation, bank or
other business; (iv) liquidate, sell, dispose of, or encumber any assets or
acquire

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<PAGE>   93



any assets, other than in the ordinary course of its business consistent with
past practice; or (v) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock;

         (d) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of its
capital stock (including shares held in treasury) or any rights, warrants or
options to acquire, any such shares;

         (e) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any Subsidiary to take any such action, and the
Company shall promptly notify Merchants orally and in writing of all of the
relevant details relating to all inquiries and proposals which it may receive
relating to any of such matters; provided, however, that nothing contained in
this subsection (e) shall prohibit the Board of Directors of the Company from
furnishing or permitting any of its officers, directors, employees, investment
bankers, financial advisors, attorneys, accountants or other representative to
furnish information to any party that requests information as to the Company and
the Subsidiaries if (i) the Board of Directors of the Company, after
consultation with and based upon the written advice of independent legal
counsel, determines in good faith that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to shareholders
imposed by law and (ii) prior to furnishing such information to such party, the
Company receives from such party an executed confidentiality agreement in
reasonably customary form. For purposes of this Agreement, "Competing
Transaction" shall mean any of the following involving the Company or any
Subsidiary: (i) any merger, consolidation, share exchange, business combination,
or other similar transactions; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of ten percent or more of assets in a single
transaction or series of transactions, excluding from the calculation of the
percentage hereunder any such transactions undertaken in the ordinary course of
business and consistent with past practice; (iii) any sale of ten percent or
more of shares of capital stock (or securities convertible or exchangeable into
or otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock); (iv) any tender offer or exchange offer for ten percent
or more of outstanding shares of capital stock; (v) any solicitation of proxies
in opposition to approval by the Company's shareholders of the Merger; (vi) the
filing of an acquisition application (or the giving of acquisition notice)
whether in draft or final form under the BHCA or the Change in Bank Control Act
with respect to the Company or the subsidiaries; (vii) any person shall have
acquired beneficial ownership or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership of, 10%

                                      A-31

<PAGE>   94



or more of the then outstanding shares of capital stock; or (viii) any public
announcement of a proposal, plan or intention to do any of the foregoing;

         (f) propose or adopt any amendments to the corporate charter or Bylaws
in any way materially adverse to Merchants;

         (g) except in their fiduciary capacities for the account of customers,
purchase any shares of Merchants Common Stock;

         (h) change any of its methods of accounting in effect at December 31,
1997, or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1997, except as may be
required by law or generally accepted accounting principles;

         (i) change any lending, investment, liability management or other
material policies concerning the business or operations of the Company or any
Subsidiary in any material respect; organize any new subsidiaries or enter into
any new non-banking line of business whether or not permissible under applicable
Federal or state law, or make any material changes in its operations;

         (j) (i) incur or assume any material obligation or liability, including
without limitation any obligation for borrowed money, whether or not evidenced
by a note, bond, debenture or similar instrument and whether or not being
incurred to reduce other existing liabilities, or make any loan (not including
any loan renewal of a loan not then classified as "substandard," "doubtful,"
"loss," "other loans especially mentioned" or any comparable classifications by
the Company, the Subsidiaries or banking regulators) or investment (excluding
U.S. Treasury Securities) in an amount greater than $100,000, (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingent or otherwise) for the obligations of any other person or entity;
(iii) mortgage, license, pledge or grant a security interest in any of its
material assets or allow to exist any material lien thereon; except (A) for
liabilities and obligations (including corporate debt issuances) incurred in the
ordinary course of business consistent with past practices and in amounts not
material to the Company or the Subsidiaries; and (B) as may be required under
existing agreements to which the Company or any Subsidiary is a party; (iv)
acquire assets (including equipment) or securities in excess of $25,000 in the
aggregate (excluding loans to customers and investments permitted in (i) above;
(v) enter into any other contract or agreement involving annual payments by the
Company or any Subsidiary or the other party or parties thereto in excess of
$20,000; (vi) pay, discharge, or satisfy any debts or claims not in the ordinary
course of business and consistent with past practices and in no event with a
value in excess of $20,000 individually; (vii) settle any claim, action, suit,
litigation, proceeding, arbitration, investigation or controversy of any kind,
for any amount in excess of $25,000 or in any manner which would restrict in any
material respect the operations or business of the Company or the Subsidiaries;
(viii) purchase any new financial product or instrument which involves entering
into a contract with a term of six months or longer; or (ix) take any action or
fail to take any action which individually or in the aggregate can be expected
to have a Material Adverse Effect on the Company or the Subsidiaries, taken as a
whole; or


                                      A-32

<PAGE>   95




         (k) agree in writing or otherwise to do any of the foregoing.

         SECTION 4.03.  INTENTIONALLY LEFT BLANK.

         SECTION 4.04.  ACCESS AND INFORMATION.

         (a) Upon reasonable notice, and without unreasonable disruption to the
business carried on by the Company or the Subsidiaries, the Company shall (and
shall cause the Subsidiaries to) afford to Merchants' officers, employees,
accountants, legal counsel and other representatives access, during normal
business hours, to all its properties, books, contracts, commitments and
records. Prior to the Effective Time, the Company shall (and shall cause each
Subsidiary to) furnish promptly to Merchants (i) a copy of each Company Report
filed by it (to the extent permitted by Law) after the date of this Agreement
and prior to the Effective Time pursuant to the requirements of federal or state
securities laws, the BHCA, any other federal or state banking laws or any other
applicable laws promptly after such documents are available; (ii) the monthly
consolidated financial statements of the Company and the Subsidiaries; (iii) the
audited consolidated financial statements of the Company and the Subsidiaries
for the year ended December 31, 1998; (iv) a summary of any action taken by the
Board of Directors, or any committee thereof, of the Company and the
Subsidiaries; (v) all other information concerning the business, properties and
personnel of the Company or the Subsidiaries as Merchants may reasonably
request.

         (b) Any information provided to Merchants by the Company or the
Subsidiaries, whether prior to or subsequent to the date of this Agreement,
shall be kept confidential by the representatives of Merchants (and shall be
used by them only in connection with this Agreement and the transactions
contemplated hereby) except to the extent that (i) it was already known to such
representatives when received, (ii) it hereafter becomes lawfully obtainable
from other sources, or (iii) it is required to be disclosed by Merchants in any
document required to be filed with any government agency. Upon any termination
of this Agreement pursuant to Section 8 hereof, Merchants agrees to promptly
return all information and documents that it has obtained from the Company in
connection herewith.

         SECTION 4.05. AFFILIATES; ACCOUNTING AND TAX TREATMENT. Within thirty
(30) days after the date of this Agreement, (a) the Company shall deliver to
Merchants a letter identifying all persons who are then "affiliates" of the
Company, including, without limitation, all directors and executive officers of
the Company for purposes of Rule 145 promulgated under the Securities Act and
(b). the Company shall advise the persons identified in such letter of the
resale restrictions imposed by applicable securities laws and required to cause
the Merger to qualify for pooling-of-interests accounting treatment, and shall
use reasonable efforts to obtain from each person identified in such letter a
written agreement, substantially in the form attached hereto as Exhibit 4.05.
The Company shall use reasonable efforts to obtain from any person who becomes
an affiliate of the Company after the Company's delivery of the letter referred
to above, and on or prior to the Effective Time, a written agreement
substantially in the form attached hereto as Exhibit 4.05 as soon as practicable
after attaining such status. The Company will use its best efforts to cause the
Merger to


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<PAGE>   96


qualify for pooling-of-interests accounting treatment and as a reorganization
under Section 368(a)(1) (A) of the Code.


         SECTION 4.06. EXPENSES.

         (a) Except as provided in Section 8.02, below, all Expenses (as
described below) incurred by Merchants and the Company shall be borne solely and
entirely by the party which has incurred the same, except that the parties shall
share equally in the expense of printing and filing the Registration Statement
and the Proxy Statement/Prospectus and all SEC and other regulatory filing fees
incurred in connection herewith.

         (b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to the party
and its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transactions contemplated hereby.

         SECTION 4.07. DELIVERY OF SHAREHOLDER LIST. The Company shall arrange
to have its transfer agent deliver to Merchants or its designee, from time to
time prior to the Effective Time, a true and complete list setting forth the
names and addresses of the shareholders of the Company, their holdings of stock
as of the latest practicable date, and such other shareholder information as
Merchants may reasonably request.


                                    ARTICLE V

                             COVENANTS OF MERCHANTS

         SECTION 5.01. AFFIRMATIVE COVENANTS. Merchants hereby covenants and
agrees with the Company that prior to the Effective Time, unless the prior
written consent of the Company shall have been obtained, and except as otherwise
contemplated herein it will:

         (a) maintain its corporate existence in good standing and maintain all
books and records in accordance with accounting principles and practices as
utilized in Merchants' financial Statements applied on a consistent basis;

         (b) conduct its business in a manner that does not violate any law,
except for possible violations which individually or in the aggregate do not,
and insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on Merchants or its subsidiaries, taken as a whole; and


                                      A-34

<PAGE>   97



         (c) will, to the best of its ability and in all material respects, (i)
comply with applicable Blue Sky Laws and regulations, the Securities Act, and
the Exchange Act, and (ii) remain qualified under the Exchange Act and the rules
and regulations thereunder.

         SECTION 5.02. ACCESS AND INFORMATION.

         (a) After the date of this Agreement and prior to the Effective Time,
upon reasonable notice, Merchants shall (and shall cause each of its
subsidiaries to) furnish promptly to the Company (i) a copy of each Merchants
SEC Report filed by it or received by it (to the extent permitted by law) after
the date of this Agreement and prior to the Effective Time pursuant to the
requirements of federal or state securities laws, the BHCA, any other federal or
state banking laws or any other applicable laws promptly after such documents
are available, and (ii) all other information concerning the business,
properties and personnel of Merchants or its subsidiaries as the Company may
reasonably request.

         (b) Any information provided to the Company by Merchants whether prior
to or subsequent to the date of this Agreement shall be kept confidential by the
representatives of the Company (and shall be used by them only in connection
with this Agreement and the transactions contemplated hereby) except to the
extent that (i) it was already known to such representatives when received, (ii)
it hereafter becomes lawfully obtainable from other sources, or (iii) it is
required to be disclosed by the Company in any document required to be filed
with the Company or any government authority or agency.

         SECTION 5.03. ACCOUNTING AND TAX TREATMENT. Merchants will use its best
efforts to cause the Merger to qualify for pooling-of-interests accounting
treatment and as a reorganization under Section 368(a)(1)(A) of the Code.


                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

         SECTION 6.01. REGISTRATION STATEMENT. As promptly as practicable after
the execution of this Agreement, Merchants shall prepare and file a registration
statement on Form S-4 (the registration statement together with the amendments
thereto are defined as the "Registration Statement" and the prospectus and proxy
materials contained therein are defined as the "Proxy Statement/Prospectus")
with the SEC covering the Merchants Common Stock to be issued in the Merger
(subject to the immediately following sentence), with a view toward permitting
the Registration Statement to become effective as soon as reasonably
practicable. Merchants does not undertake to file post-effective amendments to
Form S-4 or to file a separate registration statement to register the sale of
Merchants Common Stock by affiliates of the Company pursuant to Rule 145
promulgated under the Securities Act. The Company will furnish to Merchants all
information concerning the Company and the Subsidiaries required to be set forth
in the Registration Statement



                                      A-35

<PAGE>   98


and Merchants will provide the Company and its counsel the opportunity to review
and approve such information as set forth in the Registration Statement and
Proxy Statement/Prospectus. Merchants and the Company will each render to the
other its full cooperation in preparing, filing, prosecuting the filing of, and
amending the Registration Statement such that it comports at all times with the
requirements of the Securities Act and the Exchange Act. Specifically, but
without limitation, each will promptly advise the other if at any time before
the Effective Time any information provided by it for inclusion in the
Registration Statement appears to have been, or shall have become, incorrect or
incomplete and will furnish the information necessary to correct such
misstatement or omissions. As promptly as practicable after the effective date
of the Registration Statement, the Company and Merchants will mail to their
respective shareholders (a) the Proxy Statement/Prospectus, and (b) as promptly
as practicable after approval thereof by Merchants and the Company, such other
supplementary proxy materials as may be necessary to make the Proxy
Statement/Prospectus comply with the requirements of the Securities Act and the
Exchange Act. Except as provided above and except with the prior written consent
of Merchants, the Company will not mail or otherwise furnish or publish to
shareholders of the Company any proxy solicitation material or other material
relating to the Merger that constitute a "prospectus" within the meaning of the
Securities Act. Merchants shall also take any action required to be taken under
any applicable Blue Sky Law in connection with the issuance of the shares of
Merchants Common Stock to be issued as set forth in this Agreement and the
Company and the Subsidiaries shall furnish all information concerning the
Company and the Subsidiaries, and the holders of the Company's Common Stock and
other assistance as Merchants may reasonably request in connection with such
action.

         SECTION 6.02. MEETINGS OF THE SHAREHOLDERS. Each of Merchants and the
Company shall: (a) cause a shareholders meeting to be duly called and held as
soon as practicable to consider and vote upon the Merger and any related matters
in accordance with the applicable provision of applicable law, (b) submit this
Agreement to the shareholders together with a unanimous recommendation for
approval by the respective Board of Directors of Merchants and the Company, (c)
solicit the approval thereof by the shareholders of Merchants and the Company by
mailing or delivering to each shareholder a combined Prospectus/Proxy Statement,
and (d) use their best efforts to obtain the approval and adoption of the Merger
by the requisite percentage of the respective shareholders.

         SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS. The Company and
Merchants shall use all reasonable efforts to (a) take, or cause to be taken,
all appropriate action, and do, or cause to be done, all things necessary,
proper or advisable under applicable law to consummate and make effective the
transactions contemplated by this Agreement; (b) obtain all consents, licenses,
permits, waivers, approvals, authorizations or orders required under Law
(including, without limitation, all foreign and domestic (federal, state and
local) governmental and regulatory rulings and approvals and parties to
contracts) in connection with the authorization, execution and delivery of this
Agreement and the consummation by them of the transactions contemplated hereby
and thereby, including, without limitation, the Merger; and (c) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (i) the Securities Act
and the Exchange Act and the rules and regulations thereunder, and any other



                                      A-36



<PAGE>   99

applicable federal and state securities law, (ii) any applicable federal or
state banking laws and (iii) any other applicable law; provided that Merchants
and the Company shall cooperate with each other in connection with the making of
all such filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if requested, to accept
all reasonable additions, deletions or changes suggested in connection
therewith. The Company and Merchants shall furnish all information required or
any application or other filing to be made pursuant to the rules and regulations
of any applicable law (including all information required to be included in the
Proxy Statement/Prospectus and the Registration statement) in connection with
the transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall use all reasonable efforts to take all such necessary
action.

         SECTION 6.04. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Merchants, and Merchants shall give prompt notice to the
Company, of (a) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate, and (b) any
failure of the Company or Merchants, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.04 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.

         SECTION 6.05. PUBLIC ANNOUNCEMENTS. Merchants and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation and without
mutual consent of both parties, except as may be required by law.

         SECTION 6.06. ENVIRONMENTAL MATTERS. In the event Merchants or its
environmental consultants discover or determine the existence of any
environmental condition (including, without limitation, a spill, discharge or
contamination) the result of which may require investigative or remedial action
pursuant to any federal, state, or local law, statute or regulation or may be
the basis for the assertion of any third-party claims, including the claims of
governmental entitles, Merchants shall promptly notify the Company thereof and
the Company shall, at its sole cost and expense, proceed with due diligence to
take reasonably appropriate action in response thereto.

         SECTION 6.07.  BREAK-UP FEE.

         (a) Provided that Merchants has not breached in any material respect
its obligations under this Agreement, as a condition and inducement to
Merchants' willingness to enter into and perform this Agreement, the Company
shall pay Merchants a fee ("Break-Up Fee") equal to the lesser of 1.5% of the
value of the Exchange Fund (as defined in Section 1.07(a) of this Agreement) or
$400,000. The Break-Up Fee shall be payable by the Company to Merchants only if:


                                      A-37

<PAGE>   100


         (i)  (A) The Board of Directors of the Company (1) shall have
         withdrawn, modified or amended in any respect its approval or
         recommendation of this Agreement or the transactions contemplated
         thereby, or (2) shall not at the appropriate time have recommended or
         shall have withdrawn, modified or amended in any respect its
         recommendation that its shareholders vote in favor of this Agreement,
         or (3) shall not have included such recommendation in the Proxy
         Statement/Prospectus or (B) the Board of Directors of the Company shall
         have resolved to do any of the foregoing; or

         (ii) the Company violates Section 4.02(e) hereof.

         (b)  Provided that the Company has not breached in any material respect
its obligations under this Agreement, as a condition to the Company's
willingness to enter into and perform this Agreement, Merchants shall pay to the
Company the Break-Up Fee in the amount set forth in paragraph (a) above if the
Board of Directors of Merchants shall have taken action or resolved to take such
action as described in subparagraph 6.07(a)(i) above.

         (c)  The Break-Up Fee shall be paid within three (3) days subsequent to
a termination of this Agreement and shall be considered liquidated damages and
shall be payable in addition to any other damages, fees or expenses to which
either party may be entitled pursuant to the terms of this Agreement or remedies
at law or equity.


                                   ARTICLE VII

                              CONDITIONS OF MERGER


         SECTION 7.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:

         (a)  Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall, on
or prior to the Effective Time, have been initiated or, to the knowledge of
Merchants or the Company, threatened by the SEC. Merchants shall have received
all other federal or state securities permits and other authorizations necessary
to issue Merchants Common Stock in exchange for the Company Common Stock and to
consummate the Merger.



                                      A-38

<PAGE>   101
                  (b) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by the respective requisite vote of the
shareholders of the Company and Merchants.

                  (c) Regulatory Approvals. The Agreement and the transactions
contemplated therein shall have been approved by the Federal Reserve Board and
the Department of Financial Institutions, which approval shall not contain any
conditions which are not reasonably satisfactory to Merchants or the Company,
all conditions required to be satisfied prior to the Effective Time imposed by
the terms of such approvals shall have been satisfied and all waiting periods
relating to such approvals shall have expired.

                  (d) No Order. No federal or state governmental or regulatory
authority or other agency or commission, or federal or state court of competent
jurisdiction, shall have enacted, issued promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect restricting,
preventing or prohibiting consummation of the transactions contemplated by this
Agreement.

         SECTION 7.02.  ADDITIONAL CONDITIONS TO OBLIGATIONS OF MERCHANTS.  The
obligation of Merchants to effect the Merger are also subject to the following
conditions:

         (a)      Representations and Warranties. Each of the representations
and warranties of the Company contained in this Agreement shall be complete and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects) as of the Effective Time as
though made at the Effective Time with the same force and effect as if made on
and as of the Effective Time. Merchants shall have received a certificate of the
Chief Executive Officer of the Company to that effect.

         (b)      Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time.

         (c)      Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Company.

         (d)      No Challenge. There shall not be pending any action,
proceeding or investigation before any court or administrative agency or by any
governmental agency or any other person (i) challenging or seeking material
damages in connection with the Merger or the conversion of the Company Common
Stock into Merchants Common Stock pursuant to the Merger, or (ii) seeking to
restrain, prohibit or limit the exercise of full rights of ownership or
operation by Merchants or its


                                      A-39

<PAGE>   102


subsidiaries of all or any portion of the business or assets of the Company or
any of the Subsidiaries, which in either case is reasonably likely to have a
Material Adverse Effect on either the Company or the Subsidiaries, taken as a
whole, or Merchants or its subsidiaries, taken as a whole.

         (e) Opinion of Counsel. Merchants shall have received from Michael,
Best & Friedrich or other independent counsel for the Company reasonably
satisfactory to Merchants, an opinion dated the Effective Time, in form and
substance reasonably satisfactory to Merchants, covering the matters set forth
in Exhibit 7.02(e) hereto, which opinion shall be based on such assumptions and
containing such qualifications and limitations as are appropriate and reasonably
satisfactory to Merchants.

         (f) Tax Opinion. An opinion of independent counsel for Merchants, to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
Merchants and the Company will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, dated on or about the date that is two
business days prior to the date the Proxy Statement/Prospectus is first mailed
to shareholders of the Company, shall have been delivered and shall not have
been withdrawn or modified in any material respect.

         (g) No Material Adverse Change. Since the date of this Agreement (i) no
event shall have occurred which has a Material Adverse Effect on the Company or
its subsidiaries, and (ii) no condition, event, fact, circumstances or other
occurrence shall have occurred that may reasonably be expected to have or result
in such a Material Adverse Effect on the Company or its subsidiaries.

         (h) Pooling Opinions. Merchants shall have received an opinion from
Ernst & Young LLP to the effect that the Merger qualifies for
pooling-of-interests accounting treatment if consummated in accordance with this
Agreement,

         (i) Affiliate Agreements. Merchants shall have received from each
person who is identified in the affiliate letter as an "affiliate" of the
Company a signed affiliate agreement in the form attached hereto as Exhibit
4.05.

         (j) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable, to the Merger, by any federal or state governmental entity which, in
connection with the grant of any regulatory approval, imposes any condition or
restriction upon the Company or Merchants or their respective subsidiaries (or
the Surviving Corporation or its subsidiaries after the Effective Time),
including, without limitation, any requirement to raise additional capital,
which would so materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.

         (k) Fractional Shares; Dissenters. The aggregate of (i) the fractional
share interests in Merchants Common Stock to be paid in cash pursuant to Section
1.07 of this Agreement and (ii) the


                                      A-40

<PAGE>   103


shares of Merchants Common Stock that would be issuable by virtue of the Merger
with respect to shares of the Company's Common Stock outstanding on the record
date for the meeting of the Company's shareholders to consider the Merger that
will not be converted into Merchants Common Stock due, directly or indirectly,
to the exercise of dissenters' rights, if available under Wisconsin law, shall
not be more than 10% of the maximum aggregate number of shares of Merchants
Common Stock which could be issued as a result of the Merger.

         (l) Voting Agreement. Concurrently with the execution and delivery of
this Agreement, Merchants and certain shareholders of the Company shall have
executed and delivered the Voting Agreement in the form of Exhibit 7.02(l).

         (m) Comfort Letters. Merchants shall have received from Ernst & Young
LLP "comfort letters" dated as of the date of mailing of the Joint Proxy
Statement and the Closing Date, covering matters customary in transactions such
as the Merger and in form and substance reasonably satisfactory to Merchants.

         SECTION 7.03.  ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligation of the Company to effect the Merger is also subject to the
following conditions:

         (a)  Representations and Warranties.  Each of the representations and
warranties of Merchants contained in this Agreement shall be complete and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a statement of materiality, such
statement shall be true and correct in all respects) as of the Effective Time as
though made on and as of the Effective Time with the same force and effect as if
made on and as of the Effective Time. The Company shall have received a
certificate of the President of Merchants to that effect.

         (b) Agreements and Covenants. Merchants shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time.

         (c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made by Merchants for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by Merchants.

         (d) Opinion of Counsel. The Company shall have received from Davis &
Kuelthau, s.c. or other independent counsel for Merchants reasonably
satisfactory to the Company, an opinion dated the Effective Time, in form and
substance reasonably satisfactory to the Company, covering the matters set forth
in Exhibit 7.03(d), which opinions shall be based on such assumptions and
contains such qualifications and limitations as are appropriate and reasonably
satisfactory to the Company.



                                      A-41
<PAGE>   104
         (e)       Tax Opinion. An opinion of independent counsel for Merchants,
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, and that
Merchants and the Company will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, dated on or about the date that is two
business days prior to the date the Proxy/Statement/Prospectus is first mailed
to shareholders of the Company, shall have been delivered and shall not have
been withdrawn or modified in any material respect.

                                  ARTICLE VIII

                        TERMINATION, AMENDMENT AND WAIVER

         SECTION 8.01. TERMINATION.

         (a)       This Agreement may be terminated at any time prior to the
Effective Time. whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company or Merchants:

                   (i)  by mutual written consent of Merchants and the Company;

                   (ii) by Merchants or the Company (A) if there has been a
breach in any material respect (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall have been breached in any respect) of any representation,
warranty, covenant or agreement on the part of the Company, on the one hand, or
Merchants, on the other hand, respectively, set forth in this Agreement, or (B)
if any representation of warranty of the Company, on the one hand, or Merchants,
on the other hand, respectively, shall be discovered to have become untrue in
any material respect (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall have
become untrue in any respect), in either case which breach or other condition
has not been cured within 10 business days following receipt by the
nonterminating party of notice of such breach or other condition, provided,
however, this Agreement may not be terminated pursuant to this clause (ii) by
the breaching party or party making any representation or warranty which shall
have become untrue in any material respect.

                   (iii) by either Merchants or the Company if any permanent
injunction preventing the consummation of the Merger shall have become final and
nonappealable;

                   (iv) by either Merchants or the Company if the merger shall
not have been consummated before December 31, 1999, for a reason other than the
failure of the terminating party to comply with its obligations under this
Agreement.

                   (v) by either Merchants or the Company if the Federal Reserve
Board or the Department of Financial Institutions has denied approval of the
Merger and neither Merchants nor








                                      A-42
<PAGE>   105

the Company has, within thirty (30) days after the entry of such order denying
approval, filed a petition seeking review of such order as provided by
applicable law;

             (vi) by either Merchants or the Company if any approval of the
shareholders of Merchants or the Company required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of shareholders or at any adjournment
thereof.


         (b) In the event of termination and abandonment by any party as
provided above, written notice shall forthwith be given to other party, which
notice shall specifically describe the basis for such termination.

         SECTION 8.02. EFFECT OF TERMINATION.

         (a) If the merger is not consummated as the result of termination of
this Agreement caused otherwise than by breach of a party hereto, the Company
and Merchants each shall pay its own Expense (as defined in Section 4.06 above)
and this Agreement shall immediately terminate, except as set forth in Section
9.01 hereof, and neither the Company nor Merchants shall have any liability
under this Agreement for damages or otherwise.

         (b) If termination of this Agreement shall have been caused by breach
of this Agreement by any party hereto, then, in addition to other remedies at
law or equity for breach of this Agreement, the party so found to have breached
this Agreement shall promptly (but not later than five (5) business days after
receipt of notice from the non-breaching party) pay the non-breaching party for
its documented out-of-pocket expenses and fees incurred in connection with or
related to the Merger.

         The foregoing subsections (a) and (b) of this Section 8.02 are in
addition to and shall not limit the obligations of the parties pursuant to
Section 6.07 of this Agreement.

         SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the shareholders of the Company and Merchants, no amendment may
be made which would change the amount or type of consideration into which each
Share of Company Common Stock shall be converted pursuant to this Agreement upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.

         SECTION 8.04. WAIVER. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions







                                      A-43
<PAGE>   106

contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.

                                   ARTICLE IX

                               GENERAL PROVISIONS

         SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Article I
shall survive the Effective Time indefinitely and those set forth in Sections
4.04(b), 4.06, 5.02(b), 8.02 and Article IX hereof shall survive termination
indefinitely.

         SECTION 9.02. DISCLOSURE SCHEDULES. The schedules and information set
forth in the Disclosure Schedules specifically refer to the Section (and
paragraph, if applicable) of this Agreement to which such schedule and
information is responsive. The Disclosure schedules shall not vary, change or
alter the literal meaning of the representations and warranties of the parties
contained in this Agreement, other than creating exceptions thereto which are
directly responsive to the language of the representations and warranties
contained in this Agreement.

         SECTION 9.03. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered personally or
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following address (or at such other address for
a party as shall be specified by like changes of address) and shall be effective
upon receipt:

                   (a) If to Merchants:

                       Merchants & Manufacturers Bancorporation, Inc.
                       14100 West National Avenue
                       New Berlin, WI 53151
                       Telecopier: (414) 827-5614
                       Attention: Michael Murry

                       With a copy to:

                       Davis & Kuelthau, S.C.
                       111 East Kilbourn Avenue
                       Milwaukee, WI 53202
                       Telecopier: (414) 276-9369
                       Attention: Erich Mildenberg

                   (b) If to Company:







                                      A-44
<PAGE>   107

                   Pyramid Bancorp., Inc.
                   101 Falls Road
                   Grafton, WI 53024
                   Telecopier: (414)
                   Attention: Thomas Sheehan

                   With a copy to:

                   Michael, Best & Friedrich
                   100 East Wisconsin Avenue, Suite 3300
                   Milwaukee, WI 53202
                   Telecopier: (414) 277-0656
                   Attention: Frank J. Pelisek

         SECTION 9.04. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:

         (a) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the Company (either alone, or through or together with
any subsidiary) has, directly or indirectly, an interest of 5% or more;

         (b) "beneficial owner" with respect to any Shares, means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such person
or any of its affiliates or associates beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates (as
such term defined in Rule 12b-2 of the Exchange Act) has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration rights,
exchange rights, warranties or options, or otherwise, or (B) the right to vote
pursuant to any agreement , arrangement or understanding, (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting or disposing of any
Shares or (iv) pursuant to Section 13(d) of the Exchange Act and any rules or
regulations promulgated thereunder;

         (c) 'business day" means any day other than a day on which banks in
Wisconsin are required or authorized to be closed;

         (d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise; and








                                      A-45
<PAGE>   108

         (e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the "Exchange Act).

         SECTION 9.05. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

         SECTION 9.06. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.

         SECTION 9.07. ENTIRE AGREEMENT. This Agreement together with the
Disclosure Schedules and Exhibits hereto constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder.

         SECTION 9.08. ASSIGNMENT. This agreement shall not be assigned by
operation of law or otherwise, except that Merchants may assign all or any of
its rights hereunder to any affiliate provided that no such assignment shall
relieve the assigning party of its obligations hereunder, and the assignee
agrees to be bound by the terms and conditions of this Agreement including the
requirement of conversion and delivery of shares of Merchants Common Stock
pursuant to Section 1.06 hereof.

         SECTION 9.09. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

         SECTION 9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Wisconsin, regardless of
the laws that might otherwise govern under the applicable principles of
conflicts of law.

         SECTION 9.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.






                                      A-46
<PAGE>   109

         IN WITNESS WHEREOF, Merchants and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.


                                  MERCHANTS & MANUFACTURERS
                                  BANCORPORATION, INC.

                                  By:     Michael J. Murry
                                       -----------------------------------------
                                       Name:  Michael J. Murry
                                       Title: Chairman of the Board of Directors


                                  PYRAMID BANCORP., INC.

                                  By:      Thomas Sheehan
                                       -----------------------------------------
                                       Name:  Thomas Sheehan
                                       Title: President and Chief Executive
                                              Officer





                                        A-47

<PAGE>   110
                                  EXHIBIT A-1





                          FIRST AMENDMENT TO AGREEMENT
                               AND PLAN OF MERGER

         This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "First
Amendment") is made as of this 10th day of June, 1999 between Merchants and
Manufacturers Bancorporation, Inc. ("Merchants") and Pyramid Bancorp., Inc.
("Company") and Merchants Merger Corp. ("Merger Corp.").

                                    RECITALS

         A. Merchants and the Company entered into an Agreement and Plan of
Merger dated March 9, 1999 (the "Agreement").

         B. Merchants and the Company deem it to be in the interests of their
respective organization and its shareholders to merge the Company into Merger
Corp., a newly organized, wholly-owned subsidiary of Merchants.

         C. Merchants and the Company desire to amend the Agreement in
accordance with the terms of this First Amendment to effect the intent and
purpose of Recital B.

                                   AGREEMENTS

         In consideration of the recitals and the mutual covenants contained
herein and in the Agreement, the parties agree as follows:

         1. The first paragraph of the Agreement is hereby amended to read as
follows:

            AGREEMENT AND PLAN OF MERGER dated as of March 9, 1999 (the
         "Agreement"), among Merchants and Manufacturers Bancorporation, Inc., a
         Wisconsin corporation ("Merchants"), Merchants Merger Corporation, a
         Wisconsin corporation ("Merger Corp.") and Pyramid Bancorp., Inc., a
         Wisconsin corporation ("Company").

         2. The third recital of the Agreement is hereby amended to read as
follows:

            WHEREAS, THE Company upon the terms and subject to the
         conditions of this Agreement and in accordance with the Wisconsin
         Business Corporation Act ("Wisconsin Law"), will merge with and into
         Merger Corp., a wholly owned subsidiary of Merchants (the "Merger");
         and

         3. the fifth recital of the Agreement is hereby amended to read as
follows:

            WHEREAS, THE BOARD OF Directors of the Company believes that
         the Merger with Merger Corp. will benefit the shareholders and
         employees of the Company and Subsidiaries; and





                                      A-1-1

<PAGE>   111



         4. The seventh recital of the Agreement is hereby amended to read as
follows:

            WHEREAS, THE Board of Directors of the Company has, subject to
         its fiduciary duties under applicable law, resolved to recommend
         approval of the Merger by the shareholders of the Company; and

         5. The eighth recital of the Agreement is hereby amended to read as
follows:

            WHEREAS, Merger Corp. and the Company intend to effect a
         merger that qualifies for pooling-of-interests accounting treatment and
         as a tax-free reorganization under the Internal Revenue Code of 1986,
         as amended (the "Code"); and

         6. The NOW, THEREFORE clause of the Agreement is hereby amended to read
as follows:

            NOW, THEREFORE, in consideration of the foregoing and the
         mutual covenants and agreements herein contained and intending to be
         legally bound hereby, Merchants, Merger Corp. AND THE Company hereby
         agree as follows:

         7. Section 1.01 of the Agreement is hereby amended to read as follows:

            SECTION 1.01. THE MERGER. Upon the terms and subject to the
         conditions set forth in this Agreement, and in accordance with
         Wisconsin Law, at the Effective- Time (as defined in Section 1.02) the
         Company shall be merged with and into Merger Corp. As a result of the
         Merger, the separate corporate existence of the Company shall cease and
         Merger Corp. shall continue as the surviving corporation of the Merger
         (the "Surviving Corporation").

         8. Section 1.02 (iii) of the Agreement is hereby amended to read as
follows:

            (iii) The date of the shareholders' meeting of the Company to
         vote upon the Merger pursuant to Section 6.02; or

         9. Section 1.03 of the Agreement is hereby amended to read as follows:

            SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the
         effect of the Merger shall be as provided in the applicable provisions
         of Wisconsin Law. Without limiting the generality of the foregoing, and
         subject thereto, at the Effective Time, except as otherwise provided
         herein, all the property, rights, privileges, powers and franchises of
         Merger Corp. and the Company shall vest in the Surviving corporation,
         and all debts, liabilities and duties of Merger Corp. and the Company
         shall become the debts, liabilities and duties of the Surviving
         Corporation.






                                     A-1-2
<PAGE>   112



         10. Section 1.04 of the Agreement is hereby amended to read as follows:

             SECTION 1.04. ARTICLES OF INCORPORATION AND BYLAWS. At the
         Effective Time, the Articles of Incorporation and the Bylaws of Merger
         Corp., as in effect immediately prior to the Effective Time, shall be
         the Articles of Incorporation and the Bylaws of the Surviving
         Corporation.

         11. Section 1.05 of the Agreement is hereby amended to read as follows:

             SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger
         Corp. immediately prior to the Effective Time shall be the initial
         directors of the Surviving Corporation, each to hold office in
         accordance with the Articles of Incorporation and Bylaws of the
         Surviving Corporation, and the officers of Merger Corp. immediately
         prior to the Effective Time shall be the initial officers of the
         Surviving Corporation, in each case until their respective successors
         are duly elected or appointed and qualified.

         12. Section 1.06 of the Agreement is hereby amended to read as follows:

             SECTION 1.06. CONVERSION OF SECURITIES. At the Effective Time,
         by virtue of the Merger and without any action on the part of
         Merchants, Merger Corp., the Company, or the holders of any of the
         following securities:

         13. Section 1.07(g) of the Agreement is hereby amended to read as
follows:

             (g)   Liability. Neither Merchants, Merger Corp., nor the
         Company shall be liable to any holder of Shares for any such Shares (or
         dividends or distributions with respect thereto) or cash delivered to a
         public official pursuant to any abandoned property, escheat or similar
         law.

         14. The first paragraph under Article II of the Agreement is hereby
amended to read as follows:

             Except as set forth in the Disclosure Schedule attached hereto
         (the "Company Disclosure schedule"), the Company hereby represents and
         warrants to Merchants and Merger Corp. that:

         15. Section 3.01 of the Agreement is hereby amended to read as follows:

             SECTION 3.01. ORGANIZATION AND QUALIFICATION. Merchants is a
         bank holding company duly organized and validly existing under the laws
         of the State of Wisconsin. Merchants is registered with the Federal
         Reserve Board as a bank holding company under the BHCA. Merchants and
         Merger Corp. have the requisite corporate power and authority and are
         in possession of all franchises, grants, authorizations, licenses,
         permits, easements, consents, certificates, approvals and




                                      A-1-3

<PAGE>   113
         orders (the "Merchants Approvals") necessary to own, lease and operate
         their properties and to carry on their businesses as they are now being
         conducted, including appropriate authorizations from the Federal
         Reserve Board, except where the failure to be so organized and existing
         or to have such power, authority and Merchants Approvals would not,
         individually or in the aggregate, have a Material Adverse Effect on
         Merchants or Merger Corp. taken as a whole. Merchants has not received
         any notice of proceedings relating to the revocation or modification of
         any such Merchants Approvals. Merchants and Merger Corp. are duly
         qualified or licensed as foreign corporations to do business, and are
         in good standing, in each jurisdiction where the character of
         properties owned, leased or operated by them or the nature of their
         activities makes such qualification or licensing necessary, except for
         such failures to be so duly qualified or licensed and in good standing
         that would not, either individually or in the aggregate, have a
         Material Adverse Effect on Merchants or Merger Corp.

         16. Section 3.02 of the Agreement is hereby amended to read as follows:

             SECTION 3.02. ARTICLES OF INCORPORATION AND BYLAWS. Merchants
         and Meger Corp. have heretofore made available to the Company a
         complete and correct copy of their Articles of Incorporation and
         Bylaws, as amended or restated. Such Articles of Incorporation and
         Bylaws are in full force and effect. Merchants or Merger Corp. is not
         in violation of any of the provisions of its Articles of Incorporation
         or Bylaws.

         17. Section 3.04 of the Agreement is hereby amended to read as follows:

             SECTION 3.04. AUTHORITY. Merchants and Merger Corp. have the
         requisite corporate power and authority to execute and deliver this
         Agreement and to perform their obligations hereunder and to consummate
         the transactions contemplated hereby. The execution and delivery of
         this Agreement by Merchants and Merger Corp. and the consummation by
         Merchants and Merger Corp. of the transactions contemplated hereby have
         been duly and validly authorized by all necessary corporate action on
         the part of Merchants and Merger Corp. and no other corporate
         proceedings on the part of Merchants and Merger Corp. are necessary to
         authorize this Agreement or to consummate the transactions so
         contemplated hereby (other than, with respect to the Merger, the
         approval and adoption of this Agreement by the holders of a majority of
         the outstanding shares of Merger Corp. Common Stock in accordance with
         Wisconsin law and Merger Corp.'s Articles of Incorporation and Bylaws).
         This Agreement has been duly and validly executed and delivered by
         Merchants and Merger Corp. and, assuming the due authorization,
         execution and delivery by the Company, constitutes the legal, valid and
         binding obligation of Merchants and Merger Corp.








                                     A-1-4
<PAGE>   114


         18. Section 3.05(a) of the Agreement is hereby amended to read as
follows:

             (a) To the best knowledge of Merchants, the execution and
         delivery of this Agreement by Merchants and Merger Corp. does not, and
         the performance of this Agreement by Merchants and Merger Corp. shall
         not, (i) conflict with or violate the Articles of Incorporation or
         Bylaws of Merchants or Merger Corp., (ii) conflict with or violate any
         laws applicable to Merchants or Merger Corp. or by which their
         properties are bound or affected, or (iii) result in any breach of or
         constitute a default (or an event that with notice or lapse of time or
         both would become a default) under, or give to others any rights of
         termination, amendment, acceleration or cancellation of, or result in
         the creation of a lien or encumbrance on any of the properties or
         assets of Merchants or Merger Corp. pursuant to any note, bond,
         mortgage, indenture, contract, agreement, lease, license, permit,
         franchise or other instrument or obligation to which Merchants or
         Merger Corp. is a party or by which Merchants or Merger Corp. or their
         properties are bound or affected, except for any such breaches,
         defaults or other occurrences that would not, individually or in the
         aggregate, have a material Adverse Effect on Merchants or Merger Corp.

         19. Section 3.05(b) of the Agreement is hereby amended to read as
follows:

             (b) To the best knowledge of Merchants, the execution and
         delivery of this Agreement by Merchants and Merger Corp. does not, and
         the performance of this Agreement by Merchants and Merger Corp. shall
         not, require any consent, approval, authorization or permit of, or
         filing with or notification to, any governmental or regulatory
         authority, domestic or foreign, except (i) for applicable requirements
         of the Securities Act, the Exchange Act, Blue Sky Laws, the BHCA, the
         WBL and the filing and recordation of appropriate merger or other
         documents as required by Wisconsin Law, and (ii) where the failure to
         obtain such consents, approvals, authorizations or permits, or to make
         such filings or notifications, would not prevent or delay consummation
         of the Merger, or otherwise prevent Merchants or Merger Corp. from
         performing its obligations under this Agreement, and would not have a
         Material Adverse Effect on Merchants or Merger Corp.

         20. Section 3.06 of the Agreement is hereby amended to read as follows:

             SECTION 3.06. COMPLIANCE; PERMITS. To the best knowledge of
         Merchants, neither Merchants nor Merger Corp. is in conflict with, or
         in default or violation of (a) any Law applicable to Merchants or
         Merger Corp. or by which their property is bound or affected, or (b)
         any note, bond, mortgage, indenture, contract, agreement, lease,
         license, permit, franchise or other instrument or obligation to which
         Merchants or Merger Corp. is a party or by which Merchants or Merger
         Corp. or any of their properties is bound or affected, except for any
         such conflicts, defaults or violations which would not, individually or
         in the aggregate, have a Material Adverse Effect on Merchants or Merger
         Corp.






                                     A-1-5
<PAGE>   115



         21. Section 3.16 of the Agreement and Merchants Disclosure Schedule are
hereby deleted.

         22. Section 4.01 of the Agreement is hereby amended to read as follows:

             SECTION 4.01. AFFIRMATIVE COVENANTS. The Company hereby
         covenants and agrees with Merchants and Merger Corp. that prior to the
         Effective Time, unless the prior written consent of Merchants shall
         have been obtained and except as otherwise contemplated herein, it will
         and/or it will cause each Subsidiary to:

         23. Section 5.01 of the Agreement is hereby amended to read as follows:

             SECTION 5.01. AFFIRMATIVE COVENANTS. Merchants hereby
         covenants and agrees with the Company that prior to the Effective Time,
         unless the prior written consent of the Company shall have been
         obtained, and except as otherwise contemplated herein it will and will
         cause Merger Corp. to:

         24. Section 6.01 of the Agreement is hereby amended to read as follows:

             SECTION 6.01. REGISTRATION STATEMENT. As promptly as
         practicable after the execution of this Agreement, Merchants shall
         prepare and file a registration statement on Form S-4 (the registration
         statement together with the amendments thereto are defined as the
         "Registration Statement" and the prospectus and proxy materials
         contained therein are defined as the "Proxy Statement/Prospectus") with
         the SEC covering the Merchants Common Stock to be issued in the Merger
         (subject to the immediately following sentence), with a view toward
         permitting the Registration Statement to become effective as soon as
         reasonably practicable. Merchants does not undertake to file
         post-effective amendments to Form S-4 or to file a separate
         registration statement to register the sale of Merchants Common Stock
         by affiliates of the Company pursuant to Rule 145 promulgated under the
         Securities Act. The Company will furnish to Merchants all information
         concerning the Company and the Subsidiaries required to be set forth in
         the Registration Statement and Merchants will provide the Company and
         its counsel the opportunity to review and approve such information as
         set forth in the Registration Statement and Proxy Statement/Prospectus.
         Merchants and the Company will each render to the other its full
         cooperation in preparing, filing, prosecuting the filing of, and
         amending the Registration Statement such that it comports at all times
         with the requirements of the Securities Act and the Exchange Act.
         Specifically, but without limitation, each will promptly advise the
         other if at any time before the Effective Time any information provided
         by it for inclusion in the Registration Statement appears to have been,
         or shall have become, incorrect or incomplete and will furnish the
         information necessary to correct such misstatement or omissions. As
         promptly as practicable after the effective date of the Registration
         Statement, the Company will mail to its shareholders (a) the Proxy
         Statement/Prospectus, and (b) as promptly as practicable after approval
         thereof by Merchants and the Company, such other supplementary






                                      A-1-6
<PAGE>   116
         proxy materials as may be necessary to make the Proxy
         Statement/Prospectus comply with the requirements of the Securities Act
         and the Exchange Act. Except as provided above and except with the
         prior written consent of Merchants, the Company will not mail or
         otherwise furnish or publish to shareholders of the Company any proxy
         solicitation material or other material relating to the Merger that
         constitute a "prospectus" within the meaning of the Securities Act.
         Merchants shall also take any action required to be taken under any
         applicable Blue Sky Law in connection with the issuance of the shares
         of Merchants Common Stock to be issued as set forth in this Agreement
         and the Company and the Subsidiaries shall furnish all information
         concerning the Company and the Subsidiaries, and the holders of the
         Company's Common Stock and other assistance as Merchants may reasonably
         request in connection with such action.

         25. Section 6.02 of the Agreement is hereby amended to read as follows:

             SECTION 6.02. MEETING OF SHAREHOLDERS. The Company and its
         officers and directors shall: (a) cause a shareholders meeting to be
         duly called and held as soon as practicable to consider and vote upon
         the Merger and any related matters in accordance with the applicable
         provision of applicable law, (b) submit this Agreement to the
         shareholders together with a unanimous recommendation for approval by
         the Board of Directors of the Company, (c) solicit the approval thereof
         by the shareholders of the Company by mailing or delivering to each
         shareholder a combined Prospectus/Proxy Statement, and (d) use their
         best efforts to obtain the approval and adoption of the Merger by the
         requisite percentage of the Company's shareholders.

         26. Section 6.03 of the Agreement is hereby amended to read as follows:

             SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS. The
         Company and Merchants and Merger Corp. shall use all reasonable efforts
         to (a) take, or cause to be taken, all appropriate action, and do, or
         cause to be done, all things necessary, proper or advisable under
         applicable law to consummate and make effective the transactions
         contemplated by this Agreement; (b) obtain all consents, licenses,
         permits, waivers, approvals, authorizations or orders required under
         Law (including, without limitation, all foreign and domestic (federal,
         state and local) governmental and regulatory rulings and approvals and
         parties to contracts) in connection with the authorization, execution
         and delivery of this Agreement and the consummation by them of the
         transactions contemplated hereby and thereby, including, without
         limitation, the Merger; and (c) make all necessary filings, and
         thereafter make any other required submissions, with respect to this
         Agreement and the Merger required under (i) the Securities Act and the
         Exchange Act and the rules and regulations thereunder, and any other
         applicable federal and state securities law, (ii) any applicable
         federal or state banking laws and (iii) any other applicable law;
         provided that Merchants and the Company shall cooperate with each other
         in connection with the making of all such filings, including providing
         copies of all such documents to





                                      A-1-7
<PAGE>   117
         the non-filing party and its advisors prior to filing and, if
         requested, to accept all reasonable additions, deletions or changes
         suggested in connection therewith. The Company and Merchants shall
         furnish all information required or any application or other filing to
         be made pursuant to the rules and regulations of any applicable law
         (including all information required to be included in the Proxy
         Statement/Prospectus and the Registration statement) in connection with
         the transactions contemplated by this Agreement. In case at any time
         after the Effective Time any further action is necessary or desirable
         to carry out the purposes of this Agreement, the proper officers and
         directors of each party to this Agreement shall use all reasonable
         efforts to take all such necessary action.

         27. Section 7.01(b) of the Agreement is hereby amended to read as
follows:

             (b) Shareholder Approval. This Agreement and the Merger shall
         have been approved and adopted by the requisite vote of the
         shareholders of the Company and Merger Corp.

         28. Section 7.02(f) of the Agreement is hereby amended to read as
follows:

             (f) Tax Opinion. An opinion of independent counsel for
         Merchants, to the effect that the Merger will be treated for federal
         income tax purposes as a reorganization within the meaning of Section
         368(a) of the Code, and that Merchants, Merger Corp. and the Company
         will each be a party to that reorganization within the meaning of
         Section 368(b) of the Code, dated on or about the date that is two
         business days prior to the date the Proxy Statement/Prospectus is first
         mailed to shareholders of the Company, shall have been delivered and
         shall not have been withdrawn or modified in any material respect.

         29. Section 7.02(m) of the Agreement is hereby amended to read as
follows:

             (m) Comfort Letters. Merchants shall have received from Ernst
         & Young LLP "comfort letters" dated as of the date of mailing of the
         Proxy Statement/Prospectus and the Closing Date, covering matters
         customary in transactions such as the Merger and in form and substance
         reasonably satisfactory to Merchants.

         30. Section 7.03(b) of the Agreement is hereby amended to read as
follows:

             (b) Agreements and Covenants. Merchants and Merger Corp. shall
         have performed or complied in all material respects with all agreements
         and covenants required by this Agreement to be performed or complied
         with by them on or prior to the Effective Time.







                                     A-1-8
<PAGE>   118
         31. Section 7.03(c) of the Agreement is hereby amended to read as
follows:

             (c) Consents Obtained. All material consents, waivers,
         approvals, authorizations or orders required to be obtained, and all
         filings required to be made by Merchants and Merger Corp. for the
         authorization, execution and delivery of this Agreement and the
         consummation by it of the transactions contemplated hereby shall have
         been obtained and made by Merchants.

         32. Section 7.03(e) of the Agreement is hereby amended to read as
follows:

             (e) Tax Opinion. An opinion of independent counsel for
         Merchants, to the effect that the Merger will be treated for federal
         income tax purposes as a reorganization within the meaning of Section
         368(a) of the Code, and that Merchants, Merger Corp. and the Company
         will each be a party to that reorganization within the meaning of
         Section 368(b) of the Code, dated on or about the date that is two
         business days prior to the date the Proxy/Statement/Prospectus is first
         mailed to shareholders of the Company, shall have been delivered and
         shall not have been withdrawn or modified in any material respect.

         33. Section 8.01(a) of the Agreement is hereby amended to read as
follows:

             (a) This Agreement may be terminated at any time prior to the
         Effective Time. whether before or after approval of the matters
         presented in connection with the Merger by the shareholders of the
         Company:

         34. Section 8.01(a)(vi) of the Agreement is hereby amended to read as
follows:

                 (vi) by either Merchants or the Company if the approval of
         the shareholders of the Company required for the consummation of the
         Merger shall not have been obtained by reason of the failure to obtain
         the required vote at a duly held meeting of shareholders or at any
         adjournment thereof.

         35. Section 8.03 of the Agreement is hereby amended to read as follows:

             SECTION 8.03. AMENDMENT. This Agreement may be amended by the
         parties hereto by action taken by or on behalf of their respective
         Boards of Directors at any time prior to the Effective Time; provided,
         however, that, after approval of the Merger by the shareholders of the
         Company, no amendment may be made which would change the amount or type
         of consideration into which each Share of Company Common Stock shall be
         converted pursuant to this Agreement upon consummation of the Merger.
         This Agreement may not be amended except by an instrument in writing
         signed by the parties hereto.





                                      A-1-9
<PAGE>   119



         36. Section 9.03(a) of the Agreement is hereby amended to read as
follows:

                   (a)  If to Merchants or Merger Corp.:

                        Merchants & Manufacturers Bancorporation,  Inc.
                        14100 West National Avenue
                        New Berlin, WI 53151
                        Telecopier: (414) 827-5614
                        Attention: Michael Murry

                        With a copy to:

                        Davis & Kuelthau, S.C.
                        111 East Kilbourn Avenue
                        Milwaukee, WI 53202
                        Telecopier: (414) 276-9369
                        Attention: Erich Mildenberg

         37. The execution clause of the Agreement is hereby amended by adding
Merger Corp. as a signatory.

         38. All other provisions of the Agreement remain in full force and
effect.

                                MERCHANTS AND MANUFACTURERS
                                BANCORPORATION, INC.

                                By:      Michael J. Murry
                                     -------------------------------------------
                                     Name:    Michael J. Murry
                                     Title:   Chairman of the Board of Directors

                                MERCHANTS MERGER CORP.

                                By:     Michael J. Murry
                                     -------------------------------------------
                                     Name:    Michael J. Murry
                                     Title:   President and Chief Executive
                                              Officer

                                PYRAMID BANCORP., INC.

                                By:      Thomas Sheehan
                                     -------------------------------------------
                                     Name:    Thomas Sheehan
                                     Title:   President and Chief Executive
                                              Officer






                                     A-1-10

<PAGE>   120


         IN WITNESS WHEREOF, Merger Corp. has caused this Agreement to be
executed as of the 10th day of June, 1999 by its duly authorized officer.

                                MERCHANTS MERGER CORP.

                                By:  /s/  Michael J. Murry
                                     -------------------------------------------
                                     Name:    Michael J. Murry
                                     Title:   President and Chief Executive
                                              Officer














                                     A-1-11
<PAGE>   121
                                   EXHIBIT B

                                VOTING AGREEMENT


         THIS VOTING AGREEMENT (this "Agreement"), dated as of March 9, 1999,
among the undersigned shareholders (the "Shareholders") of PYRAMID BANCORP.,
INC., a Wisconsin corporation (the "Company"), and MERCHANTS AND MANUFACTURERS
BANCORPORATION, INC., a Wisconsin corporation ("Merchants")

                                    RECITALS

         The Shareholders, the Company and Merchants acknowledge the following:

         A. Concurrent with the execution of this Agreement, the Company and
Merchants have entered into an Agreement and Plan of Merger (the "Merger
Agreement"), providing for the business combination transaction contemplated
therein pursuant to which the Company will merge with and into Merchants
pursuant to the terms and conditions of the Merger Agreement ("Merger").

         B. Upon consummation of the Merger, the Shareholders will receive
shares of Merchants Common Stock for each share of Company Common Stock, par
value $1.00 per share (the "Company Common Stock"), owned by them.

         C. The Shareholders own the shares of Company Common Stock set forth
opposite such Shareholder's respective names on Exhibit A hereto (such shares
set forth on Exhibit A, and together with all shares of Company Common Stock
subsequently acquired by any Shareholder during the term of this Agreement,
being referred to as the "Shares").

         D. In order to induce Merchants to enter into the Merger Agreement and
in consideration of the substantial expenses incurred and to be incurred by
Merchants in connection therewith, the Shareholders have agreed to enter into
and perform this Voting Agreement.

                                   AGREEMENTS

         In consideration of the Recitals and the mutual agreements which
follow, Shareholders, the Company and Merchants agree as follows:

         1. Agreement to Vote Shares. Each of the Shareholders shall vote or
cause to be voted, or express a written consent with respect to, all of such
Shareholder's Shares (a) in favor of adoption and approval of the Merger
Agreement and the Merger at every meeting of the shareholders of the Company at
which such matters are considered and at every adjournment thereof and in
connection with every proposal to take action by written consent with respect
thereto and (b) against any proposal for a Competing Transaction (as such term
is defined in the Merger Agreement) at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto; provided, however, that the obligations under this paragraph
1 of those Shareholders

                                       B-1

<PAGE>   122

who are also directors of the Company are subject to any action such
Shareholder/directors, after consultation with and based upon the written advice
of their independent legal counsel, determine, in good faith, is required to
comply with their respective fiduciary duties to shareholders imposed by law. As
of the date hereof, such Shareholder/directors (a) intend to recommend approval
of the Merger Agreement and Merger to the shareholders of the Company and (b)
are aware of no facts or circumstances existing as of the date hereof that could
cause or reasonably be expected to cause any such Shareholder/director to change
such recommendation.

         2. No Voting Trusts. Each of the Shareholders agrees that such
Shareholder will not, nor will such Shareholder permit any entity under such
Shareholder's control to, deposit any of such Shareholder's Shares in a voting
trust or subject any of their Shares to any agreement, arrangement or
understanding with respect to the voting of such Shares inconsistent with this
Agreement.

         3. Limitation on Sales. During the term of this Agreement, each
Shareholder agrees not to sell, assign, transfer or dispose of any such
Shareholder's Shares. Notwithstanding the foregoing, any Shareholder may, during
the term of this Agreement, make gifts of Shares to the charitable organization
of his or her choice or to members of his or her immediate family, provided any
such charitable organization or family member agrees in writing to be bound to
the terms of this Agreement.

         4. Purchase Right. Subject to the terms of this paragraph 4, the
Shareholders hereby grant to Merchants the exclusive right ("Purchase Rights")
to purchase any or all of such Shareholders' Shares for a price of $250 per
share, payable in cash. The exercise of the Purchase Rights by Merchants, with
respect to any amount of Shares that exceeds 5% of the outstanding voting stock
of the Company is subject to the approval of the Board of Governors of the
Federal Reserve System and any other necessary regulatory approvals. The
Purchase Rights are exercisable at any time prior to the earlier of the
Effective Time, as defined in the Merger Agreement, or the termination of the
Merger Agreement and after (a) a material breach by the Company of the Merger
Agreement; (b) a breach by a Shareholder of this Agreement; or (c) any similar
events or circumstances that lead Merchants reasonably to believe that the
Company is likely to materially breach the Merger Agreement.

         5. Shareholders' Representations. Each Shareholder severally represents
that: (a) subject to the terms of paragraph 1, such Shareholder has the complete
and unrestricted power and unqualified right to enter into and perform the terms
of this Agreement; (b) this Agreement constitutes a valid and binding agreement
with respect to such Shareholder, enforceable against such Shareholder in
accordance with its terms; and (c) such Shareholder owns the number of Shares
indicated opposite such Shareholder' s name on Exhibit A hereto, has the sole
and unrestricted voting power with respect to such Shares and such Shares are
all of the Shares directly or indirectly held by such Shareholder.

                                       B-2

<PAGE>   123

         6. Specific Performance and Remedies. The parties hereto acknowledge
that it will be impossible to measure in money the damage to the other
party(ies) if a party hereto fails to comply with the obligations imposed by
this Agreement and that, in the event of such failure, the other party(ies) will
not have an adequate remedy at law or in damages. Accordingly, each party hereto
agrees that injunctive relief or other equitable remedy, in addition to remedies
at law or in damages, is the appropriate remedy for any such failure. No party
will oppose the granting of such relief on the basis that the other party(ies)
have an adequate remedy at law. Each party hereto agrees that it will not seek,
and agrees o waive any requirement for, the securing or posting of a bond in
connection with any other party's seeking or obtaining such equitable relief. In
addition to all other rights or remedies which any party hereto may have against
any other party hereto who defaults in the performance of such party's
obligations under the Agreement, such defaulting party shall be liable to the
nondefaulting party for all litigation costs and attorneys' fees incurred by the
nondefaulting party(ies) in connection with the enforcement of any of the
nondefaulting party's rights or remedies against the defaulting party.

         7. Term of the Agreement; Termination. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (a) the Effective Time (as defined in the Merger
Agreement) and (b) the date on which the Merger Agreement is terminated in
accordance with its terms. Upon such termination, no party shall have any
further obligations or liabilities hereunder; provided, that such termination
shall not relieve any party from liability for any breach of this Agreement
prior to such termination.

         8. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all parties hereto. No waiver of any provisions
hereof by any party shall be deemed a waiver of any other provisions hereof by
any such party, nor shall any such waiver be deemed a continuing waiver of any
provision hereof by such party.

         9. Notices. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by Federal
Express, Express Mail or other reputable overnight courier service to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

                       If to Merchants:

                       Merchants and Manufacturers Bancorporation, Inc.
                       14100 West National Avenue
                       New Berlin, WI 53151
                       Telecopier:  (414) 827-5614
                       Attention: Michael Murry



                                       B-3
<PAGE>   124

                       With a copy to:

                       Davis & Kuelthau, S.C.
                       111 E. Kilbourn Avenue
                       Milwaukee, WI 53202
                       Telecopier: (414) 276-9369
                       Attention: Erich Mildenberg

         If to a Shareholder, to the address or telecopy number set forth for
such Shareholder on the signature page hereof:

                       With a copy to:

                       Michael, Best & Friedrich
                       100 East Wisconsin Avenue
                       Suite 3300
                       Milwaukee, WI 53202
                       Telecopier: (414) 277-0656
                       Attention: Frank J. Pelisek

         10.      Miscellaneous.

                  (a) This Agreement shall be deemed a contract made under, and
for all purposes shall be construed in accordance with, the laws of the State of
Wisconsin, without reference to its conflicts of law principles.

                  (b) If any provision of this Agreement or the application of
such provision to any person or circumstances shall be held invalid or
unenforceable by a court of competent jurisdiction, this Agreement shall be
construed with the invalid or unenforceable provision deleted and the remainder
of this Agreement shall not be affected.

                  (c) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

                  (d) All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.

                  (e) In the event any Shareholder acquires any additional
Shares during the term of this Agreement, then such Shareholder agrees that the
provisions of this Agreement shall apply to such additional Shares.

                  (f) This Agreement shall be binding upon and inure to the
benefit of Merchants and its successors, and each Shareholder and Shareholder's
spouse and their respective executors, personal representatives, administrators,
heirs, legatees, guardians and other legal representatives.

                                       B-4

<PAGE>   125

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.

MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.

By: Michael J. Murry
    ---------------------------
Its: CHAIRMAN
     --------------------------


SHAREHOLDERS:



/s/ Thomas J. Sheehan                        /s/ James Kacmarcik
-------------------------------              -----------------------------------
Name:    Thomas J. Sheehan                   Name:    James Kacmarcik
Address: 1964 W. Acorn Street                Address: N31 W7515 Cedar Pointe Ct.
         Grafton, WI 53024                            Cedarburg, WI 53012

/s/ Jerome T. Sarnowski                      /s/ Richard A. Kranitz
-------------------------------              -----------------------------------
Name:    Jerome T. Sarnowski                 Name:    Richard A. Kranitz
Address: W73 N740 Locust Avenue              Address: 1221 13th Avenue
         Cedarburg, WI 53012                          Grafton, WI 53024

/s/ Thomas N. Holton                         /s/ Richard L. Belling
-----------------------------                -----------------------------------
Name:    Thomas N. Holton                    Name:    Richard L. Belling
Address: 389 Horns Corners Road              Address: 100 Friendship Road
         Cedarburg, WI 53012                          Saukville, WI 53080

/s/ Thomas N. Holton, Pres.                  /s/ Bernice Sheehan
-----------------------------                -----------------------------------
Name:    Holton Brothers                     Name:    Bernice Sheehan
By:      Thomas N. Holton, Pres.             Address: 1964 W. Acorn Drive
Address: Grafton, WI 53024                            Grafton, WI 53024

/s/ Mary J. Kranitz                          /s/ Mary E. Belling
-----------------------------                -----------------------------------
Name:    Mary J. Kranitz                     Name:    Mary E. Belling
Address: 1221 13th Ave.                      Address: 100 Friendship Road
         Grafton, WI 53024                            Saukville, WI 53080

                                      B-5

<PAGE>   126
                                    EXHIBIT A

<TABLE>
<CAPTION>

    Shareholder Name                                    Number of Shares Owned
    ----------------                                    ----------------------

<S>                                                              <C>
Thomas J. and Bernice Sheehan                                    5,351
1964 W. Acorn Street
Grafton, WI 53024

Jerome T. or Caecilia K. Sarnowski                               1,050
W73 N740 Locust Avenue
Cedarburg, WI  53012

Thomas N. Holton/ Holton Bros. Inc.                              5,446
389 Horns Corners Road
Cedarburg, WI 53012

James Kacmarcik                                                    305
N31 W7515 Cedar Pointe Ct.
Cedarburg, WI 53012

Richard A. and Mary J. Kranitz                                     300
1221 13th Avenue
Grafton, WI 53024

Richard L. and Mary E. Belling                                     860
100 Friendship Road
Saukville, WI 53080
</TABLE>

                                      B-6
<PAGE>   127
                                   EXHIBIT C

                 [MARSHALL FINANCIAL COUNSELING LLC LETTERHEAD]

                                             1999

Board of Directors
Pyramid Bancorp, Inc.
101 Falls Road
Grafton, WI 53024

Gentlemen:

Pyramid Bancorp, Inc. ("Pyramid") will enter into an Agreement and Plan of
Merger (the "Agreement") with Merchants & Manufacturers Bancorp ("Merchants").
Pursuant to the Agreement, at the Effective Time (as defined in the Agreement),
Pyramid shall be merged with and into a wholly owned subsidiary of Merchants
and such subsidiary shall continue as the surviving corporation (the "Merger").

Pursuant to the Agreement, each share of common stock of Pyramid issued and
outstanding immediately prior to the Effective Time (as defined in the
Agreement) shall be converted into the right to receive (9) nine shares of
Merchants common stock (the "Consideration") provided, however, that if the
Daily Average Price (as defined in the Agreement) is less than $36 per share or
greater than $44 per share, then Merchants and Pyramid will make a good faith
effort to promptly renegotiate the ratio at which Merchants common stock would
be exchanged for Pyramid common stock.

You have requested our opinion as to the fairness, from a financial point of
view, of the Consideration to the holders of Pyramid's common stock.

Marshall Financial Consulting LLC ("Marshall"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.

In conducting our investigation and analysis and arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors, as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of Pyramid and Merchants furnished to us for
purposes of our analysis, as well as publicly available information including
but not limited to Pyramid's and Merchant's recent filings with the regulatory
authorities; (ii) reviewed a draft of the Agreement; (iii) compared the
historical market prices and trading activity of Merchants' Common Stock with
those of certain other publicly traded companies we deemed relevant; (iv)

                                      C-1
<PAGE>   128
Pyramid Bancorp, Inc.
         , 1999
Page 2

compared the financial position and operating results of Pyramid and Merchants
with those of other publicly traded companies we deemed relevant; (v) compared
the proposed financial terms of the Merger with the financial terms of certain
other business combinations involving banking institutions we deemed relevant;
and (vi) reviewed certain potential pro forma effects of the Merger on
Merchants. We have held discussions with members of Pyramid's and Merchants'
respective senior management concerning Pyramids' and Merchants' historical and
current financial condition and operating results, as well as the future
prospects of Pyramid and Merchants, respectively. We have not been requested to,
and did not, solicit third party indications of interest in acquiring all or any
part of Pyramid. We have also considered such other information, financial
studies, analysis and investigations and financial, economic and market criteria
which we deemed relevant for the preparation of this opinion.

In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to us by or on behalf of Pyramid and Merchants and have
not been engaged to independently verify any such information. We have assumed,
with your consent, (i) that all material assets and liabilities (contingent or
otherwise, known or unknown) of Pyramid and Merchants are as set forth in their
respective financial statements; (ii) the Merger will be accounted for under the
pooling of interests method of accounting; (iii) the Merger will be consummated
in accordance with the terms of the Agreement without any amendment thereto and
without waiver of any condition; (iv) the prospective cost savings and revenue
enhancements contemplated by management of both companies following the Merger
will be realized; and (v) all shareholder and required regulatory approvals will
be obtained in a timely manner. We have also assumed that the financial
forecasts examined by us were reasonably prepared on bases reflecting the best
available estimates and good faith judgments of Pyramid's and Merchants',
respective senior Management as to future performance of Pyramid and Merchants,
respectively. In conducting our review, we have not undertaken nor obtained an
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Pyramid and Merchants nor have we made a physical
inspection of the properties or facilities of Pyramid or Merchants. Our opinion
necessarily is based upon economic, monetary and market conditions as they exist
and can be evaluated on the date hereof, and does not predict or take into
account any changes which may occur, or information which may become available,
after the date hereof. Furthermore, we express no opinion as to the price or
trading range at which Merchants' common stock will trade following the date
hereof.

Our opinion has been prepared at the request and for the information of the
Board of Directors of Pyramid, and shall not be used for any other purpose or
disclosed to any other party without the prior written consent of Marshall.
This opinion does not address the relative merits of the Merger and any other
potential transactions or business strategies considered by Pyramid's Board of
Directors, and does not constitute a recommendation to any shareholder of
Pyramid as to how

                                      C-2
<PAGE>   129
Pyramid Bancorp, Inc.
         , 1999
Page 3

any such shareholder should vote with respect to the Merger. Marshall will
receive a fee for rendering this opinion. In the past, individuals involved in
examinations leading to this opinion have provided investment banking and
financial advisory services to Pyramid for which they received customary
compensation.

Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
holders of Pyramid common stock.

Very truly yours,

MARSHALL FINANCIAL CONSULTING LLC

Robert Marshall Leonhardt
Managing Director



                                      C-3

RML:csh
<PAGE>   130
                                   EXHIBIT D





                       SUBCHAPTER XIII DISSENTERS' RIGHTS

180.1301 DEFINITIONS.

In ss.180.1301 to 180.1331:


  (1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.

  (1m) "Business combination" has the meaning given in 180.1130 (3).

  (2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under s. 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.

  (3) "Dissenter" means a shareholder or beneficial shareholder who is entitled
to dissent from corporate action under s. 180.1302 and who exercises that right
when and in the manner required by ss. 180.1320 to 180.1328.

  (4) "Fair Value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
shares in a business combination, means market value, as defined in s. 180.1130
(9)(a) 1. to 4.

  (5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.

  (6) "Issuer corporation" means a domestic corporation that is the issuer of
the shares held by a dissenter before the corporate action.

  History: 1989a. 303; 1991 a. 16.

  180.1302 RIGHT TO DISSENT.

 (1) Except as provided in sub.(4) and s. 180.1008(3), a shareholder or
beneficial shareholder may dissent from, and obtain payment of the fair value of
his or her shares in the event of, any of the following corporate actions:

  (a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:

  1. Shareholder approval is required for the merger by s. 180.1103 or by the
articles of incorporation.

  2. The issuer corporation is a subsidiary that is merged with its parent under
s. 180.1104.

  (b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding shares
on behalf of the beneficial shareholder is entitled to vote on the plan.




                                      D-1
<PAGE>   131
  (c) Consummation of a sale or exchange of all, or substantially all, of the
property of the issuer corporation other than in the usual and regular course
of business, including a sale in dissolution, but not including any of the
following:

  1. A sale pursuant to court order.

  2. A sale for cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.

  (d) Experts as provided in sub. (2), any other corporate action taken pursuant
to a shareholder vote to the extent that the articles of incorporation, bylaws
or a resolution of the board of directors provides that the voting or nonvoting
shareholder or beneficial shareholder may dissent and obtain payment for his or
her shares.

  (2) Except as provided in sub. (4) and s. 180.1008 (3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles of incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:

  (a) Alters or abolishes a preferential right of the shares.

  (b) Creates, alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of the
shares.

  (c) Alters or abolishes a preemptive right of the holder of shares to acquire
shares or other securities.

  (d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights.

  (e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is to
be acquired for cash under s. 180.0604.

  (3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of
the statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813 (1)(d) or (2)(b), 180.1815 (3) or
180.1829 (1)(c).

  (4) Except in a business combination or unless the articles of incorporation
provide otherwise, subs. (1) and (2) do not apply to the holders of shares of
any class or series if the shares of the class or series are registered on a
national securities exchange or quoted on the national association of
securities dealers, inc., automated quotations system on the record date fixed
to determine the shareholders entitled to notice of a shareholders meeting at
which shareholders are to vote on the proposed corporate action.

  (5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder, beneficial shareholder or issuer corporation.

  History: 1989 a. 303; 1991 a. 16.






                                      D-2
<PAGE>   132

180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS.


  (1) A shareholder may assert dissenters' rights as to fewer than all of the
shares registered in his or her name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
he or she asserts dissenters' rights.  The rights of a shareholder who under
this subsection asserts dissenters' rights as to fewer than all of the shares
registered in his or her name are determined as if the shares as to which he or
she dissents and his or her other shares were registered in the names of
different shareholders.


  (2) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if the beneficial shareholder does all of the
following:


  (a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.


  (b) Submits the consent under par. (a) with respect to all shares of which he
or she is the beneficial shareholder.


  History: 1989 a. 303.


180.1320 NOTICE OF DISSENTERS' RIGHTS.


  (1) If proposed corporate action creating dissenters' rights under s.
180.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders and beneficial shareholders are or may be entitled
to assert dissenters' rights under ss. 180.1301, 180.1331, and shall be
accompanied by a copy of those sections.


  (2) If corporate action creating dissenters' rights under s. 180.1302 is
authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to assert
dissenters' rights that the action was authorized and send them the dissenters'
notice described in s. 180.1322.


   History: 1989 a. 303.


180.1321 NOTICE OF INTENT TO DEMAND PAYMENT.


  (1) If proposed corporate action creating dissenters' rights under s.
180.1302 is submitted to a vote at a shareholders' meeting, a shareholder or
beneficial shareholder who wishes to assert dissenters' rights shall do all of
the following:


  (a) Deliver to the issuer corporation before the vote is taken written notice
that complies with s. 180.0141 of the shareholder's or beneficial shareholder's
intent to demand payment for his or her shares if the proposed action is
effectuated.


  (b) Not vote his or her shares in favor of the proposed action.


  (2) A shareholder or beneficial shareholder who fails to satisfy sub.(1) is
not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.

  History: 1989 a. 303.

180.1322 DISSENTERS' NOTICE.





                                      D-3
<PAGE>   133
  (1) If proposed corporate action creating dissenters' rights under s. 180.1302
is authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders and beneficial shareholders who
satisfied s. 180.1321.

  (2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply with
s. 180.0141 and shall include or have attached all of the following:

  (a) A statement indicating where the shareholder or beneficial shareholder
must send the payment demand and where and when certificates for certificated
shares must be deposited.

  (b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.

  (c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder or beneficial shareholder
asserting dissenters' rights to certify whether he or she acquired beneficial
ownership of the shares before that date.

  (d) A date by which the corporation must receive the payment demand, which may
not be fewer than 30 days nor more than 60 days after the date on which the
dissenters' notice is delivered.

  (e) A copy of ss. 180.1301 to 180.1331.

  History: 1989 a. 303.

  180.1323 DUTY TO DEMAND PAYMENT.

  (1) A shareholder or beneficial shareholder who is sent a dissenters' notice
described in s. 180.1322, or a beneficial shareholder whose shares are held by
a nominee who is sent a dissenters' notice described in s. 180.1322, must
demand payment in writing and certify whether he or she acquired beneficial
ownership of the shares before the date specified in the dissenters' notice
under s. 180.1322(2)(c). A shareholder or beneficial shareholder with
certificated shares must also deposit his or her certificates in accordance
with the terms of the notice.

  (2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub.(1)
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.

  (3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with certificated
shares who does not deposit his or her share certificates where required and by
the date set in the dissenters' notice, is not entitled to payment for his or
her shares under ss. 180.1301 to 180.1331.

  History: 1989 a. 303.

180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES.


                                      D-4
<PAGE>   134
     (1) The issuer corporation may restrict the transfer of uncertificated
shares from the date that the demand for payment for those shares is received
until the corporate action is effectuated or the restrictions released under s.
180.1326.

     (2) The shareholder or beneficial shareholder who asserts dissenters'
rights as to uncertificated shares retains all of the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1), until these
rights are canceled or modified by the effectuation of the corporate action.

     History: 1989 a.303.

180.1325 PAYMENT.

     (1) Except as provided in s. 180.1327, as soon as the corporate action is
effectuated or upon receipt of a payment demand, whichever is later, the
corporation shall pay each shareholder or beneficial shareholder who has
completed with s. 180.1323 the amount that the corporation estimates to be the
fair value of his or her shares, plus accrued interest.

     (2) The payment shall be accompanied by all of the following:

     (a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement  of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.

     (b)  A statement of the corporation's estimate of the fair value of the
shares.

     (c)  An explanation of how the interest was calculated.

     (d)  A statement of the dissenter's right to demand payment under s.
180.1328 if the dissenter is dissatisfied with the payment.

     (e)  A copy of ss. 180.1301 to 180.1331.

     History:  1989 a. 303.

180.1326 FAILURE TO TAKE ACTION.

     (1)  If an issuer corporation does not effectuate the corporate action
within 60 days after the date set under s. 180.1322 for demanding payment, the
issuer corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.

     (2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat
the payment demand procedure.

     History: 1989 a. 303.

180.1327 AFTER-ACQUIRED SHARES.



                                      D-5

<PAGE>   135
  (1) A corporation may elect to withhold payment required by s. 180.1325 from a
dissenter unless the dissenter was the beneficial owner of the shares before the
date specified in the dissenters' notice under s. 180.1322 (2) (c) as the date
of the first announcement to news media or to shareholders of the terms of the
proposed corporate action.


  (2) To the extent that the corporation elects to withhold payment under sub.
(1) after effectuating the corporate action, it shall estimate the fair value of
the shares, plus accrued interest, and shall pay this amount to each dissenter
who agrees to accept it in full satisfaction of his or her demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated, and a
statement of the dissenter's right to demand payment under s. 180.1328 if the
dissenter is dissatisfied with the offer.

  History: 1989 a. 303.

180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER.

  (1) A dissenter may, in the manner provided in sub. (2), notify the
corporation of the dissenter's estimate of the fair value of his or her shares
and amount of interest due, and demand payment of his or her estimate, less any
payment received under s. 180.1325, or reject the offer under s. 180.1327 and
demand payment of the fair value of his or her shares and interest due, if any
of the following applies:

  (a) The dissenter believes that the amount paid under s. 180.1325 or offered
under s. 180.1327 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated.

  (b) The corporation fails to make payment under s. 180.1325 within 60 days
after the date set under s. 180.1322 for demanding payment.

  (c) The issuer corporation, having failed to effectuate the corporate action,
does not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set under s.
180.1322 for demanding payment.

  (2) A dissenter waives his or her right to demand payment under this section
unless the dissenter notifies the corporation of his or her demand under sub.
(1) in writing within 30 days after the corporation made or offered payment
for his or her shares. The notice shall comply with s. 180.0141.

  History: 1989 a. 303.

180.1330 COURT ACTION.

  (1) If a demand for payment under s. 180.1328 remains unsettled, the
corporation shall bring a special proceeding within 60 days after receiving the
payment demand under s. 180.1328 and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not bring the
special proceeding within 60-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.

  (2) The corporation shall bring the special proceeding in the circuit court
for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special proceeding
in the county in this state in which was located the registered office of the
issuer corporation that merged with or whose shares were acquired by the foreign
corporation.

  (3)  The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the petition
as provided in s. 801.14.








                                      D-6
<PAGE>   136

   (4) The jurisdiction of the court in which the special proceeding is brought
under sub. (2) is plenary and exclusive.  The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value.  An appraiser has the power described in the order
appointing him or her or in any amendment to the order.  The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.

   (5) Each dissenter made a party to the special proceeding is entitled to
judgment for any of the following:

   (a) The amount, if any, by which the court finds the fair value of his or her
shares, plus interest, exceeds the amount paid by the corporation.

   (b) The fair value, plus accrued interest, of his or her shares acquired on
or after the date specified in the dissenter's notice under s. 180.1322 (2) (c),
for which the corporation elected to withhold payment under s. 180.1327.

   History: 1989 a. 303.

180.1331 COURT COSTS AND COUNSEL FEES.

   (1) (a) Notwithstanding ss. 814.01 to 814.04, the court in a special
proceeding brought under s. 180.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court and shall assess the costs against the corporation,
except as provided in par. (b).

   (b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs against
all or some of the dissenters, in amounts that the court finds to be equitable,
to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under s. 180.1328.

   (2) The parties shall bear their own expenses of the proceeding, except that,
notwithstanding ss. 814.01 to 814.04, the court may also assess the fees and
expenses of counsel and experts for the respective parties, in amounts that the
court finds to be equitable, as follows:

   (a) Against the corporation and in favor of any dissenter if the court finds
that the corporation did not substantially comply with ss. 180.1320 to 180.1328.

   (b) Against the corporation or against a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by this chapter.

   (3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit to
other dissenters similarly situated, the court may award to these counsel and
experts reasonable fees to be paid out of the amounts awarded the dissenters who
were benefited.

   History: 1989 a. 303



                                      D-7
<PAGE>   137
                                   Exhibit E
                      PYRAMID BANCORP, INC. AND SUBSIDIARY

          MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

                             SELECTED FINANCIAL DATA
               (AMOUNTS IN THOUSANDS EXCEPT SHARE AND RATIO DATA)

<TABLE>
<CAPTION>
                                                     As of and for the
                                                     six months ended                      As of and for the year ended
                                                         June 30,                                  December 31,
                                             ---------------------------------- ---------------------------------------------------
                                                  1999              1998             1998              1997             1996
                                             ---------------- ----------------- ---------------- ----------------- ----------------
                                                        (Unaudited)
<S>                                                  <C>               <C>              <C>               <C>              <C>
Income statement data:
  Interest income                                    $ 3,794           $ 3,652          $ 7,472           $ 6,933          $ 6,503
  Interest expense                                     1,723             1,757            3,531             3,404            3,236
                                             ---------------- ----------------- ---------------- ----------------- ----------------
    Net interest income                                2,071             1,895            3,941             3,529            3,267
  Provision for loan losses                               36                12               64                35              145
  Other income                                           311               287              621               519              502
  Other expense                                        1,477             1,344            2,780             2,526            2,427
                                             ---------------- ----------------- ---------------- ----------------- ----------------
    Income before income taxes                           869               826            1,718             1,487            1,197
  Income tax expense                                     281               275              574               516              359
                                             ---------------- ----------------- ---------------- ----------------- ----------------
    Net income                                         $ 588             $ 551          $ 1,144             $ 971            $ 838
                                             ================ ================= ================ ================= ================

Per common share data:
  Net income per share
    Basic                                              $8.73             $8.78           $18.07            $15.55           $13.43
    Diluted                                            $8.62             $8.37            17.31             14.58            12.65
  Weighted average shares outstanding
    Basic                                             67,364            62,774           63,288            62,454           62,400
    Diluted                                           68,196            65,841           66,088            66,588           66,216
Cash dividends per share                               $2.00             $1.00            $2.00             $1.00               --
Balance sheet data:
  Total assets                                     $ 108,936          $ 97,829        $ 106,909          $ 95,007         $ 90,971
  Loans                                               62,045            54,844           61,663            54,556           52,215
  Allowance for loan losses                              754               686              716               676              671
  Total deposits                                      83,456            75,457           82,974            72,580           69,454
  Stockholders' equity                                 8,934             7,773            8,441             7,276            6,311
</TABLE>

                         CHANGES IN FINANCIAL CONDITION

Total Company assets at year-end 1998 were $106.9 million. During 1998, assets
increased by $11.9 million or 12.5%. The majority of this increase was in gross
loans, which increased by $7.1 million or 13.0% to $61.6 million. The loan
growth experienced was primarily due to increased residential and commercial
loan activity in the Company primary market area.

Most of the increased loan balances were funded by an increase in total
deposits. Total deposits increased from $72.6 million at December 31, 1997 to
$83.0 million at December 31, 1998, an increase of $10.4 million, or 14.3%.
Substantially all of the deposit growth occurred within the Company's primary
market area. The majority of the deposit increase was in additional time
deposits as well as savings and NOW accounts. Non deposit funding sources also
increased in 1998. Total long-term borrowings consisting primarily of advances,
collateral pledge and security agreements with the Federal Home Loan Bank (FHLB)
increased $4.0 million or 84.6% in 1998.

Stockholders' equity increased by $1.2 million or 16.0% in 1998. This increase
resulted from Company net income of $1.1 million; $128,000 from proceeds
received in connection with the exercise of employee incentive stock options,
and $21,000 in the change in unrealized gains on securities available-for-sale.
The increase was partially offset by a $127,000 dividend paid to shareholders
during the period.


                                      E-1
<PAGE>   138


Total securities increased by $4.0 million in 1998 mainly due to purchases of
mortgage-backed securities. Cash and cash equivalents increased by $1.0 million
in 1998; included in this increase is $3.0 million in additional Federal Funds
Sold.

During the period from December 31, 1998 to June 30, 1999 total assets increased
$2.0 million or 1.9%, from $106.9 million to $108.9 million; the majority of the
growth was in investment securities available for sale, which increased $1.7
million. Total loans also increased by $382,000 during the six month period
ended June 30, 1999.

Total deposits increased by $482,000 during the period from December 31, 1998 to
June 30, 1999. The majority of the growth can be attributed to increases in
savings and NOW accounts.

Stockholders' equity increased $493,000 from December 31, 1998 to June 30, 1999.
The increase resulted from $588,000 of net income, $202,000 from proceeds
received in connection with the exercise of employee incentive stock options and
the remainder from the decline in the market value of securities categorized as
available-for-sale. The increase was partially offset by a $135,000 dividend
paid to shareholders during the period.

                          RESULTS OF OPERATIONS FOR THE
                SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE
                         SIX MONTHS ENDED JUNE 30, 1998

For the six months ended June 30, 1999, the Company's net income increased
$37,000 or 6.7% over the same six-month period in 1998. Basic net income per
share was $8.73 and $8.78 for the six-month periods ended June 30, 1999 and
1998, respectively. Diluted net income per share was $8.62 and $8.37 for the
same periods. The decrease in basic earnings per share was due to the greater
percentage increase in the number of shares outstanding in relation to net
income.

Net interest income increased by $176,000, or 9.3%, to $2.1 million. An improved
net interest margin from 4.16% for the six-month period ending June 30, 1998 to
4.29% for the six month period ended June 30, 1999 and an $8.6 million increase
in average earning assets caused the increase.

The balance in the allowance for loan losses is based on management's evaluation
of the loan portfolio. Management determines the adequacy of the allowance for
loan losses based on past loan loss experience, current economic conditions,
composition of the loan portfolio, and the potential for future loss. During the
six month period ended June 30, 1999, there was $4,000 less in net charge-offs
compared with the same period in 1998. Due to increases in the loan portfolio
the provision for loan losses grew by $24,000 to $36,000 for the six-month
period ended June 30, 1999. Management believes the allowance is adequate to
absorb any current or future losses in the loan portfolio.

Other income increased by $24,000, or 8.3% for the first six months of 1999
compared to the first three months of 1998. This change was entirely due to an
increase in service charges on deposit accounts.

Operating expenses increased from $1.35 million to $1.48 million, an increase of
$132,000, or 9.8% for the first six months of 1999 compared to the same period
in 1998. Salary and related benefit costs accounted for $71,000 of this
increase. In addition, premises and equipment expense increased by $39,000.

Income tax expense increased by $6,100 in the first six months of 1999 compared
with the same period in 1998 due to an increase in the before tax income.

                          RESULTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

Net income in 1998 totaled $1.1 million or an increase of $173,000 or 17.8% over
the $971,000 earned in 1997. Net income in 1997 was $133,000 or 15.9% over the
1996 level of $838,000. On a per share basis, basic net income was $18.07,
$15.55 and $13.43 for 1998, 1997 and 1996, respectively. Diluted net income per
share was $17.31, $14.58, and $12.65 during the same three periods. The growth
in net income was due largely to the growth in assets of the Company's
subsidiary bank, increased fee income, and improved operating efficiencies. At
December 31, 1998, 1997 and 1996, the total assets per employee were
approximately $2.7 million, $2.5 million and $2.4 million, respectively.




                                      E-2
<PAGE>   139


Net interest income increased $412,000, or 11.7% to $3.9 million in 1998
compared to $3.5 million in 1997. The 1997 total represented an increase of
$262,000, or 8.0% compared to 1996. The net interest margin for 1998 was 4.24%
compared with 4.19% in 1997 and 4.27% in 1996. The margin has remained
relatively constant even though competitive pressures and reduced market
interest rates have produced lower loan rates as well as higher costs of
retaining deposits. As the yield on earnings assets has declined from 8.25% in
1996, 8.10% in 1997 and 8.04% in 1998, the cost of funding those earning assets
has decreased as well from 3.98% in 1996, 3.91% in 1997 and 3.80% in 1998. The
level of earning assets increased by $4.6 million from 1996 to 1997 and by $12.4
million from 1997 to 1998.

The provision for loan losses was $64,000 for 1998, representing an increase of
$29,000 or 82.9% over the $35,000 of loss provision charged to operations in
1997. The 1997 provision was $110,000 less than the $145,000 provision incurred
in 1996. The increase in 1998 is principally a result of higher loan levels over
the same period. The higher 1996 provision was due to $132,000 in net
charge-offs recorded in the period. Due to the increase in loans outstanding,
the percentage of the allowance for loan losses to total gross loans outstanding
decreased from 1.29% to 1.24% from 1996 to 1997 and from 1.24% to 1.16% from
1997 to 1998. Even though the percentage of the loan loss allowance ratio has
been declining management believes the allowance is adequate to absorb any
current or future losses in the loan portfolio.

Other income consists primarily of deposit account service charges, gains on
sales of loans and related fee income. Other income increased by $102,000 or
19.7% in 1998 compared to 1997 and by $17,000 or 3.4% in 1997 compared to 1996.

Other expenses increased $254,000 or 10.0% in 1998 compared to a $99,000 or
4.08% increase in 1997 over 1996 levels. Salary and related benefit expenses
increased by $189,000 or 13.1% in 1998 due to an increase in the number of full
time equivalent employees and also to an increase in base compensation and
individual performance incentives. Similarly, salary and benefits increased by
$98,000 or 7.3% from 1996 to 1997. Bank premises and equipment expenses
increased by $51,000 or 14.6% in 1998 due partly to additional depreciation
associated with fixed asset expenditures and higher utility costs. Similarly,
bank premises and equipment increased by $37,000 or 11.9% from 1996 to 1997.

Income tax expense increased by $59,000 or 11.5% from 1997 to 1998 while the
increase from 1996 to 1997 was $156,000 or 43.3%. These increases paralleled the
percentage increase in income before taxes, which were 15.6% for 1997 to 1998
and 24.2% from 1996 to 1997. The effective income tax rate was 33.4%, 34.7% and
30.0% for 1998, 1997 and 1996, respectively.

                         LIQUIDITY AND CAPITAL RESOURCES

The concept of liquidity comprises the ability of an enterprise to maintain
sufficient cash flow to meet its needs and obligations on a timely basis. Bank
liquidity must be considered in terms of the nature and mix of the institution's
sources and uses of funds. Bank liquidity is provided from several asset
categories. The asset side of the balance sheet provides liquidity through
maturities of investment securities and repayment and pay-offs of loans. Cash
and amounts due from correspondent banks, interest bearing deposits in banks,
investment securities available for sale and Federal Funds sold are primarily
sources of asset liquidity. At December 31, 1998, these categories totaled
approximately $34.6 million; these categories totaled approximately $35.9
million at June 30, 1999. The Company has no significant plans for major capital
expenditures in 1999.

Management believes that, in the current economic environment, the Bank's
liquidity position is adequate. There are no known trends, nor any known
demands, commitments, events or uncertainties that will result or are reasonably
likely to result in a material increase or decrease in the Bank's liquidity.

                              EFFECTS OF INFLATION

The Company's consolidated financial statements and notes thereto have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.


                                      E-3
<PAGE>   140

                                    YEAR 2000

An issue affecting the Company is whether computer systems and applications will
recognize and process the Year 2000 and beyond. The Company is currently in the
final stages of the assessment, remediation and internal testing of the systems
affected by this issue.

Management believes that it is devoting the necessary resources to timely
address all Year 2000 issues over which it has control and all critical systems
are scheduled to be Year 2000 compliant by mid 1999. The Company is also
monitoring the adequacy of the process of its customers, suppliers and others
will timely resolve their own Year 2000 compliance issues.

Costs related to the year 2000 issues are being expensed during the period in
which they are incurred. The financial impact to the Company of implementing the
systems changes necessary to become Year 2000 compliant has not and is not
anticipated to be material to its business, operations, financial condition,
liquidity and capital resources.

                         REGULATORY CAPITAL REQUIREMENTS

The Federal Reserve Board, the Company's primary regulator, has adopted
risk-based capital regulations, which require the Company to maintain a
risk-based capital/ratio of at least 8.0%. The Company's capital ratios and
those of the Bank exceed the minimum ratios required by their respective
regulators. The FDIC and the State of Wisconsin Department of Financial
Institutions examine and regulate the Bank.

Management is not aware of any pending regulatory requirements or
recommendations that, if enacted, would have a material adverse impact on the
Company's capital, liquidity, or results of operations.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

For each period ended shown, the allowance for loan losses has been allocated to
the following categories in amounts deemed reasonably necessary to provide for
the possibility of losses being incurred within each category of loans at the
dates indicated.

<TABLE>
<CAPTION>

                                             December 31, 1998          December 31, 1997         December 31, 1996
                                                       Percent of                 Percent of                Percent of
                                                        loans in                   loans in                  loans in
                                           Allowance      each       Allowance       each       Allowance      each
                                           for loan     category      for loan     category     for loan     category
Balance at end of period applicable to:     losses      to total       losses      to total      losses      to total
                                                          loans                      loans                     loans
----------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------
                                                                     (Amounts in thousands)
<S>                                              <C>         <C>            <C>         <C>           <C>         <C>
Commercial  and  commercial  real estate
    loans                                        $329        46.0%          $292        43.2%         $457        68.1%
Real estate - mortgage                            281        39.2            292        43.2           154        23.0
Installment and other loans                       106        14.8             92        13.6            60         8.9
                                          ------------ ------------ ------------- ------------ ------------ ------------
                                                 $716       100.0%          $676       100.0%         $671       100.0%
                                          ============ ============ ============= ============ ============ ============
</TABLE>





                                      E-4

<PAGE>   141


SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>

                                                                       As of and for the year ended December 31,
                                                                      1998                1997               1996
                                                                ------------------ ------------------- ------------------
                                                                                 (Amounts in thousands)
<S>                                                                       <C>                 <C>                <C>
Loan balance at year end                                                  $61,663             $54,556            $52,215
                                                                ------------------ ------------------- ------------------
Balance of allowance for loan losses at beginning of period                   676                 671                658
Loans charged off:
    Commercial loans                                                           21                  21                136
    Real estate - mortgage loans                                               --                  --                 --
    Installments and other loans                                               15                  15                  2
                                                                ------------------ ------------------- ------------------
Total loans charged off                                                        36                  36                138
Recoveries of loans previously charged off:
    Commercial loans                                                            5                   4                  5
    Real estate - mortgage loans                                               --                  --                 --
    Installments and other loans                                                7                   2                  1
                                                                ------------------ ------------------- ------------------
Total recoveries                                                               12                   6                  6
Net loans charged off                                                          24                  30                132
Additions to allowance for loan losses charged to operating
    expense                                                                    64                  35                145
                                                                ------------------ ------------------- ------------------
Balance of allowance for loan losses at end of period                        $716                $676               $671
                                                                ================== =================== ==================
Ratios:
Net charge-offs to loans outstanding at period end                          0.04%               0.05%              0.25%
Net charge-offs to total allowance                                          3.35%               4.44%              1.97%
Allowance to year end gross loans outstanding                               1.16%               1.24%              1.29%
</TABLE>

LOAN COMPOSITION

The following table summarizes the loan composition at the end of each period.

<TABLE>
<CAPTION>
                                                 December 31,
                                            1998              1997
                                       ---------------- -----------------
                                            (Amounts in thousands)
<S>                                            <C>               <C>
  Commercial                                   $16,344           $14,260
  Agricultural production                           11                19
  Real Estate:
    Construction                                 4,341             4,055
    Commercial                                  15,018            15,308
    Agricultural                                   141               120
    Residential                                 23,003            18,235
  Installment and consumer                       2,673             2,404
  Municipal loans                                  132               155
                                       ---------------- -----------------
                                                61,663            54,556
  Less: allowance for loan losses                  716               676
                                       ---------------- -----------------
  Loans, net                                   $60,947           $53,880
                                       ================ =================
</TABLE>

LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES AS OF DECEMBER 31,
1998

<TABLE>
<CAPTION>

                                                         Loan maturities (Amounts in thousands)
                                                                 After 1
                                                                through 5
                                           1 Year or less        years         After 5 years         Total
                                          ----------------- ---------------- ----------------- ----------------
<S>                                                 <C>              <C>               <C>             <C>
Commercial real estate                              $4,505           $8,410            $2,103          $15,018
Commercial                                           7,518            7,518             1,308           16,344
                                          ----------------- ---------------- ----------------- ----------------
     Total                                         $12,023          $15,928            $3,411          $31,362
                                          ================= ================ ================= ================
Amount over one year with:
     Fixed rates                                                                                       $18,179
                                                                                               ================
     Floating or adjustable rates                                                                      $ 1,160
                                                                                               ================
</TABLE>


                                      E-5
<PAGE>   142


PAST DUE AND NONPERFORMING LOANS

The following table reflects as of the period ended the aggregate amounts of
loans past due and nonperforming.

<TABLE>
<CAPTION>

                                                                      December 31,
                                                        1998              1997             1996
                                                   ---------------- ----------------- ----------------
                                                                 (Amounts in thousands)
<S>                                                           <C>               <C>              <C>
Nonaccrual loans                                              $505              $576             $611
Loans contractually past due over 90 days                       --                --               --
Restructured loans                                              --                --               --
                                                   ---------------- ----------------- ----------------
     Total                                                    $505              $576             $611
                                                   ================ ================= ================
</TABLE>

If interest on the nonaccrual loans had been accrued, such income would have
approximated $16,333, $18,209 and $8,861 for the years ended December 31, 1998,
1997 and 1996.

Loans are normally placed on non-accrual status when they become contractually
past due 90 days or more as to interest or principal payments. Previously
accrued and uncollected interest on such loans is reversed, and income is
recorded only to the extent that interest payments are substantially received in
cash and a determination has been made that the principal balance of the loan is
collectible. If collectibility of the principal is in doubt, payments received
are applied to loan principal.


                                      E-6
<PAGE>   143


                              PYRAMID BANCORP, INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AND INDEPENDENT AUDITOR'S REPORT

                     YEARS ENDED DECEMBER 31, 1998 AND 1997




















                                      E-7
<PAGE>   144
                         INDEX TO FINANCIAL STATEMENTS
                     PYRAMID BANCORP., INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Independent Auditor's Report                                                 E-9

Consolidated Balance Sheets as of
     December 31, 1998 and 1997                                             E-10

Consolidated Statements of Income for the
     years ended December 31, 1998 and 1997                                 E-11

Consolidated Statements of Changes in
     Stockholders Equity for the years ended
     December 31, 1998 and 1997                                             E-12

Consolidated Statements of Cash Flows for the
     years ended December 31, 1998 and 1997                                 E-13

Notes to Consolidated Financial Statements                                  E-14

Unaudited Consolidated Balance Sheet as of
     June 30, 1999                                                          E-34

Unaudited Consolidated Statements of Income for
     the six months ended June 30, 1999 and 1998                            E-35

Unaudited Consolidated Statements of Cash Flow
     for the six months ended June 30, 1999 and 1998                        E-36

Notes to Unaudited Consolidated Financial Statements
     as of June 30, 1999 and 1998                                           E-37
</TABLE>


                                      E-8
<PAGE>   145

[VIRCHOW, KRAUSE & COMPANY, LLP LOGO]


[VIRCHOW, KRAUSE & COMPANY, LLP LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT




Board of Directors
Pyramid Bancorp, Inc. and Subsidiary
Grafton, Wisconsin

We have audited the accompanying consolidated balance sheets of Pyramid Bancorp,
Inc. and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pyramid Bancorp,
Inc. and Subsidiary at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

                         VIRCHOW, KRAUSE & COMPANY, LLP

                         /s/ Virchow, Krause & Company LLP



Brookfield, Wisconsin
February 3, 1999




                                      E-9
<PAGE>   146

PYRAMID BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------

ASSETS                                                                                  1998             1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                 <C>
   Cash and due from banks (Note B)                                            $         3,565,417 $     3,920,628
   Interest-bearing deposits in banks                                                    4,967,333       6,593,734
   Federal funds sold                                                                    3,000,000               -
   Available for sale securities at fair value (Note C)                                 23,065,083      19,340,514
   Held to maturity securities, fair value $7,148,968 and
      $6,782,324 in 1998 and 1997 respectively (Note D)                                  6,958,430       6,668,500
   Loans, less allowance for loan losses of $716,040 and $675,988
      in 1998 and 1997 respectively (Notes E, F, G and N)                               60,946,563      53,880,201
   Mortgage loans held for sale                                                                  -          50,000
   Cash surrender value of life insurance                                                1,386,729       1,312,401
   Office buildings and equipment, net (Note H)                                          1,369,030       1,372,705
   Accrued interest receivable and other assets (Note L)                                 1,650,029       1,868,696
                                                                               ------------------------------------

              TOTAL ASSETS                                                     $       106,908,614 $    95,007,379
                                                                               ====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
LIABILITIES:
   Deposits: (Note I)
      Demand deposits                                                          $        15,150,123 $    14,562,827
      Savings and NOW                                                                   46,531,194      41,261,719
      Other Time                                                                        21,292,890      16,755,416
                                                                               ------------------------------------
              TOTAL DEPOSITS                                                            82,974,207      72,579,962
   Short-term borrowings (Note J)                                                        5,322,821       9,152,062
   Long-term borrowings (Note K)                                                         8,750,000       4,740,000
   Accrued interest payable and other liabilities (Notes L and P)                        1,420,339       1,259,419
                                                                               ------------------------------------
              TOTAL LIABILITIES                                                         98,467,367      87,731,443
                                                                               ------------------------------------

COMMITMENTS AND CONTINGENCIES (Note M)

STOCKHOLDERS' EQUITY:
   Common stock, $1 par value; 125,000 shares authorized; and 64,735 and 62,600
      shares issued and outstanding
      in 1998 and 1997 respectively                                                         64,735          62,600
   Surplus                                                                               3,466,481       3,340,516
   Retained earnings (Notes R and S)                                                     4,831,579       3,815,026
                                                                               ------------------------------------
                                                                                         8,362,795       7,218,142
   Accumulated other comprehensive income                                                   78,452          57,794
                                                                               ------------------------------------
              TOTAL STOCKHOLDERS' EQUITY                                                 8,441,247       7,275,936
                                                                               ------------------------------------

              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $       106,908,614 $    95,007,379
                                                                               ====================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      E-10
<PAGE>   147


PYRAMID BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                          1998            1997
                                                                                  ---------------------------------
<S>                                                                               <C>               <C>
INTEREST INCOME:
   Interest and fees on loans (Note E)                                            $      5,420,365  $    4,928,411
   Interest on investment securities:
      Taxable                                                                            1,270,479       1,242,267
      Tax-exempt                                                                           285,839         194,889
   Interest on federal funds sold                                                          127,986         209,672
   Interest on deposits with banks                                                         367,338         357,280
                                                                                  ---------------------------------
              TOTAL INTEREST INCOME                                                      7,472,007       6,932,519
                                                                                  ---------------------------------
INTEREST EXPENSE:
   Interest on deposits (Note I)                                                         2,713,444       2,556,589
   Interest on short-term borrowings (Note J)                                              461,519         553,828
   Interest on long-term borrowings (Note K)                                               356,147         293,123
                                                                                  ---------------------------------
              TOTAL INTEREST EXPENSE                                                     3,531,110       3,403,540
                                                                                  ---------------------------------

              NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                       3,940,897       3,528,979
Provision for loan losses (Note G)                                                          64,000          35,000
                                                                                  ---------------------------------
              NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                        3,876,897       3,493,979
                                                                                 ---------------------------------
NONINTEREST INCOME:
   Service fees                                                                            337,393         305,507
   Gains on sale of loans                                                                  102,374          34,999
   Other income                                                                            181,517         178,507
                                                                                  ---------------------------------
              TOTAL NONINTEREST INCOME                                                     621,284         519,013
                                                                                  ---------------------------------
NONINTEREST EXPENSES:
   Salary                                                                                1,262,220       1,136,531
   Employee benefits (Note P)                                                              373,718         310,819
   Occupancy expense                                                                       189,408         173,772
   Furniture and equipment                                                                 208,749         173,627
   Data processing                                                                         248,279         241,262
   Other expense                                                                           497,575         490,436
                                                                                  ---------------------------------
              TOTAL NONINTEREST EXPENSES                                                 2,779,949       2,526,447
                                                                                  ---------------------------------

              INCOME BEFORE INCOME TAX EXPENSE                                           1,718,232       1,486,545
Income tax expense (Note L)                                                                574,459         515,384
                                                                                  ---------------------------------

              NET INCOME                                                          $      1,143,773  $      971,161
                                                                                  =================================

              BASIC EARNINGS PER SHARE                                            $          18.07  $        15.55
                                                                                  =================================

              DILUTED EARNINGS PER SHARE                                          $          17.31  $        14.58
                                                                                  =================================

              WEIGHTED AVERAGE NUMBER OF SHARES                                             63,288          62,454
                                                                                  =================================
</TABLE>

See Notes to Consolidated Financial Statements.



                                      E-11

<PAGE>   148


PYRAMID BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES
 IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998  AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                                                                 Other
                                                   Common                      Retained      Comprehensive
                                                   stock        Surplus        earnings          income           Total
                                              ------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>                <C>
BALANCES, December 31, 1996                   $       62,400 $   3,328,716  $   2,906,465  $       13,353     $  6,310,934
                                                                                                            ----------------
    Net income - 1997                                      -             -        971,161               -          971,161
   Change in net unrealized gain (loss) on
      available for sale securities, net of
      reclassification adjustment and
      tax effect                                           -             -              -          44,441           44,441
                                                                                                            ----------------
          Total comprehensive income                                                                             1,015,602
                                                                                                            ----------------
   Cash dividends paid - $1.00 per share                   -             -        (62,600)              -          (62,600)
   Exercise of stock options                             200        11,800              -               -           12,000
                                              ------------------------------------------------------------------------------

BALANCES, December 31, 1997                           62,600     3,340,516      3,815,026          57,794        7,275,936
                                                                                                            ----------------
   Net income - 1998                                       -             -      1,143,773               -        1,143,773
   Change in net unrealized gain (loss) on
      available for sale securities, net of
      reclassification adjustment and
      tax effect                                           -             -              -          20,658           20,658
                                                                                                            ----------------
          Total comprehensive income                                                                             1,164,431
                                                                                                            ----------------
   Cash dividends paid; $2.00 per share                    -             -       (127,220)              -         (127,220)
   Exercise of stock options                           2,135       125,965              -               -          128,100
                                              ------------------------------------------------------------------------------

BALANCES, December 31, 1998                   $       64,735 $   3,466,481  $   4,831,579  $       78,452    $   8,441,247
                                              ==============================================================================

</TABLE>


See Notes to Consolidated Financial Statements.




                                      E-12
<PAGE>   149


PYRAMID BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                       1998             1997
                                                                              -------------------------------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                 $       1,143,773  $        971,161
                                                                              -------------------------------------
   Adjustments to reconcile net income to net cash provided by operating
      activities:
        Depreciation                                                                    225,817           204,301
        Provision for loan losses                                                        64,000            35,000
        Provision (benefit) for deferred taxes                                          (54,056)          (59,215)
        Amortization and accretion of bond premiums and discounts, net                   60,830            39,741
        Gains on sales of mortgage loans held for sale                                 (102,374)          (34,999)
        Net decrease in mortgage loans held for sale                                    152,374           261,567
        Increase in cash surrender value of life insurance                              (74,328)          (71,806)
        Amortization of intangibles and organization expense                             70,695            70,695
        Decrease in accrued interest receivable and other assets                        202,025           309,683
        Increase in accrued interest payable and other liabilities                      150,291           198,797
                                                                              -------------------------------------
              TOTAL ADJUSTMENTS                                                         695,274           953,764
                                                                              -------------------------------------
              NET CASH PROVIDED BY OPERATING ACTIVITIES                               1,839,047         1,924,925
                                                                              -------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net decrease (increase) in interest bearing deposit with banks                     1,626,401        (1,329,936)
   Net increase in federal funds sold                                                (3,000,000)
   Proceeds from sales, maturities and repayments of securities                      11,532,054         8,401,505
   Purchase of securities                                                           (15,576,093)      (13,589,705)
   Net decrease in loans                                                             (7,130,362)       (2,370,779)
   Purchases of office buildings and equipment                                         (222,142)         (195,328)
                                                                              -------------------------------------
              NET CASH USED IN INVESTING ACTIVITIES                                 (12,770,142)       (9,084,243)
                                                                              -------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in deposits                                                          10,394,245         3,126,022
   Net increase (decrease) in securities sold under repurchase agreements            (2,737,826)          325,950
   Proceeds from Federal Home Loan Bank advances                                      5,750,000         1,000,000
   Net decrease in other borrowings                                                  (1,091,415)         (150,702)
   Payment on Federal Home Loan Bank advances                                        (1,740,000)       (1,450,000)
   Proceeds from exercise of stock options                                              128,100            12,000
   Payment of dividends                                                                (127,220)          (62,600)
                                                                              -------------------------------------
              NET CASH PROVIDED BY FINANCING ACTIVITIES                              10,575,884         2,800,670
                                                                              -------------------------------------

              DECREASE IN CASH AND DUE FROM BANKS                                      (355,211)       (4,358,648)
CASH AND DUE FROM BANKS, beginning of year                                            3,920,628         8,279,276
                                                                              -------------------------------------

CASH AND DUE FROM BANKS, end of year                                          $       3,565,417  $      3,920,628
                                                                              =====================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
      Interest                                                                $       3,427,881  $      3,456,893
                                                                              =====================================
      Income taxes                                                            $         726,000  $        520,264
                                                                              =====================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Net change in unrealized gain on available for sale securities             $          20,658  $         44,441
                                                                              =====================================
</TABLE>

See Notes to Consolidated Financial Statements.



                                      E-13
<PAGE>   150

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.   CONSOLIDATION:
The consolidated financial statements of Pyramid Bancorp, Inc. include the
accounts of its wholly owned subsidiary, Grafton State Bank. Grafton State Bank
includes the accounts of its wholly owned subsidiary, GSB Investments, Inc. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and conform to general practices within
the banking industry. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.


2.   NATURE OF BANKING ACTIVITIES:
The consolidated income of Pyramid Bancorp, Inc. is principally from income of
its wholly owned subsidiary. The subsidiary Bank grants commercial, residential
and consumer loans, accepts deposits and provides trust services to customers in
southeastern Wisconsin. The subsidiary Bank is subject to competition from other
financial institutions and non-financial institutions providing financial
products. Additionally, the Company and the subsidiary Bank are subject to the
regulations of certain regulatory agencies and undergo periodic examination by
those regulatory agencies.

3.   BASIS OF FINANCIAL STATEMENT PRESENTATION:
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.

4.   CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents are defined as
those amounts included in the balance sheet caption "cash and due from banks."

The subsidiary Banks maintain amounts due from banks which, at times, may exceed
federally insured limits. The subsidiary Banks have not experienced any losses
in such accounts.

5.   AVAILABLE FOR SALE SECURITIES:

Securities classified as available for sale are those debt securities that the
subsidiary Bank intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the subsidiary Bank's assets and
liabilities, liquidity needs, regulatory capital consideration and other similar
factors. Securities classified as available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in other
comprehensive income, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in earnings.

                                      E-14
<PAGE>   151

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

6.   HELD TO MATURITY SECURITIES:
Securities classified as held to maturity are those debt securities the
subsidiary Bank has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost, adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives. The sale of a security within three months of its maturity
date or after collection of at least 85 percent of the principal outstanding at
the time the security was acquired is considered a maturity for purposes of
classification and disclosure.

7.   MORTGAGE LOANS HELD FOR SALE:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income. All sales are made without recourse. The subsidiary Bank also services
loans that have been sold with servicing retained by the subsidiary Bank. Such
loans are not included in the accompanying consolidated balance sheet.

8.   LOANS:
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the amount of unpaid
principal, reduced by the allowance for loan losses. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is reasonable doubt as
to the borrower's ability to meet payment of interest or principal when they
become due. When the interest accrual is discontinued, all unpaid accrued
interest is reversed. Cash collections on impaired loans are credited to the
loan receivable balance, and no interest income is recognized on those loans
until the principal balance is current. Accrual of interest is generally resumed
when the customer is current on all principal and interest payments and has been
paying on a timely basis for a period of time.

9.   ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely. The
allowance for loan losses is adequate to cover probable credit losses relating
to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the allowance is provided for losses that have been incurred as of the balance
sheet date. The allowance is based on past events and current economic
conditions, and does not include the effects of expected losses on specific
loans or groups of loans that are related to future events or expected changes
in economic conditions. While management uses the best information available to
make its evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. Impaired loans are
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable the creditor will
be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement.

In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the subsidiary Bank to make additions to
the allowance for loan losses based on their judgments of collectability based
on information available to them at the time of their examination.

                                      E-15
<PAGE>   152

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

10.  OFFICE BUILDINGS AND EQUIPMENT:
Depreciable assets are stated at cost less accumulated depreciation. Provisions
for depreciation are computed on straight-line and accelerated methods over the
estimated useful lives of the assets, which range from 15 to 50 years for
buildings and 3 to 15 years for equipment.

11.  OTHER REAL ESTATE OWNED:
Other real estate owned, acquired through partial or total satisfaction of loans
is carried at the lower of cost or fair value less cost to sell. At the date of
acquisition losses are charged to the allowance for loan losses. Revenue and
expenses from operations and changes in the valuation allowance are included in
loss on foreclosed real estate.

12.  OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business, the subsidiary Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of credit
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.

13.  PROFIT-SHARING PLAN:
The Company has a contributory 401(k) profit-sharing plan in which contributions
are made in accordance with specified formulas or at the discretion of the Board
of Directors of the Company. The Plan covers substantially all employees.

14.  INCOME TAXES:
The Company files a consolidated federal income tax return and individual
subsidiary state income tax returns. Accordingly, amounts equal to tax benefits
of those companies having taxable federal losses or credits are reimbursed by
the other companies that incur federal tax liabilities.

Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The differences relate principally to the reserve
for loan losses, nonaccrual loan income, fixed assets, deferred compensation and
unrealized gains and losses on available for sale securities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.

15.  EARNINGS PER SHARE:
Basic earnings per share are based on the Company's weighted average number of
shares outstanding during the year. Diluted earnings per share is computed
assuming stock options are exercised at the beginning of each year and the
proceeds are used to purchase shares of the Company's common stock at the
average market price during the year.


                                      E-16
<PAGE>   153

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (continued)

16.  TRUST ASSETS AND FEES:
Property held for customers in fiduciary or agency capacities is not included in
the accompanying balance sheets, since such items are not assets of the Company.
In accordance with established industry practice, income from trust fees is
reported on the cash basis. Reporting of trust fees on an accrual basis would
have no material effect on reported income.

17.  FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. 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. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

         CARRYING AMOUNTS APPROXIMATE FAIR VALUES FOR THE FOLLOWING INSTRUMENTS:

           Cash and due from banks
           Federal funds sold
           Interest-bearing deposits in banks
           Short-term borrowings
           Accrued interest receivable
           Accrued interest payable
           Variable rate loans that reprice frequently where no
               significant change in credit risk has occurred
           Mortgage loans held for sale
           Demand deposits
           Variable rate money market accounts
           Variable rate certificate of deposit
           Available for sale securities
           Cash surrender value of life insurance

         QUOTED MARKET PRICES:

         Where available, or if not available, based on quoted market prices
         of comparable instruments for the following instrument:

           Held to maturity securities



                                      E-17
<PAGE>   154

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (continued)

17.  FAIR VALUE OF FINANCIAL INSTRUMENTS: (continued)

           DISCOUNTED CASH FLOWS:

           Using interest rates currently being offered on instruments with
           similar terms and with similar credit quality:

                All loans except variable rate loans described above
                Fixed rate certificates of deposit
                Long-term borrowings

           QUOTED FEES CURRENTLY BEING CHARGED FOR SIMILAR INSTRUMENTS:

           Taking into account the remaining terms of the agreements and the
           counterparties' credit standing:

                Off-balance-sheet instruments:
                    Guarantees
                    Letters of credit
                    Lending commitments

Since the majority of the Company's off-balance-sheet instruments consists of
nonfee-producing, variable rate commitments, the Company had determined it does
not have a distinguishable fair value.

NOTE B.   CASH AND DUE FROM BANKS

The Company's bank subsidiary is required to maintain certain vault cash and
reserve balances with the Federal Reserve Bank based upon a percentage of
deposits. These requirements approximated $439,000 and $434,000 at December 31,
1998 and 1997 respectively.

NOTE C.   AVAILABLE FOR SALE SECURITIES

Amortized costs and fair values of available for sale securities as of December
31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>

                                                                           December 31, 1998
                                                   ----------------------------------------------------------------
                                                                         Gross          Gross
                                                       Amortized       unrealized     unrealized         Fair
                                                          cost           gains          losses          value
                                                   ----------------------------------------------------------------
<S>                                                <C>               <C>            <C>            <C>
U.S. Treasury securities                           $      5,734,289  $      36,733  $       2,833  $     5,768,189
Obligations of other U.S. Government
   agencies and corporations                                554,115            286            --           554,401
Corporate securities                                         41,002             69            --            41,071
Obligations of states and political
   subdivisions                                             125,000          1,363            --           126,363
                                                   ----------------------------------------------------------------
                                                          6,454,406         38,451          2,833        6,490,024
Mortgage-backed securities                               15,648,848        116,330         33,083       15,732,095
Federal Home Loan Bank stock                                430,000           --              --           430,000
Federated Money Market fund                                 411,814           --              --           411,814
Bankers' Bank stock                                           1,150           --              --             1,150
                                                   ----------------------------------------------------------------

                                                   $     22,946,218  $     154,781  $      35,916  $    23,065,083
                                                   ================================================================
</TABLE>


                                      E-18
<PAGE>   155

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE C.  AVAILABLE FOR SALE SECURITIES (continued)
<TABLE>
<CAPTION>

                                                                           December 31, 1997
                                                   ----------------------------------------------------------------
                                                                         Gross          Gross
                                                       Amortized       unrealized     unrealized         Fair
                                                          cost           gains          losses          value
                                                   ----------------------------------------------------------------
<S>                                                <C>               <C>            <C>            <C>
U.S. Treasury securities                           $      5,410,759  $      14,095  $         239  $     5,424,615
Obligations of other U.S. Government
   agencies and corporations                              1,350,000            660            --         1,350,660
Corporate securities                                         80,058            260            --            80,318
Obligations of states and political
   subdivisions                                             125,000            875            --           125,875
                                                   ----------------------------------------------------------------
                                                          6,965,817         15,890            239        6,981,468
Mortgage-backed securities                               11,837,322         97,382         25,457       11,909,247
Federal Home Loan Bank stock                                271,000           --              --           271,000
Federated Money Market fund                                 177,649           --              --           177,649
Bankers' Bank stock                                           1,150           --              --             1,150
                                                   ----------------------------------------------------------------

                                                   $     19,252,938  $     113,272  $      25,696  $    19,340,514
                                                   ================================================================
</TABLE>

The amortized costs and fair value of available for sale securities as of
December 31, 1998 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities in mortgage-backed securities, equity
securities and mutual funds since the anticipated maturities are not readily
determinable. Therefore, these securities are not included in the maturity
categories in the following maturity summary:

<TABLE>
<CAPTION>

                                                      December 31, 1998
                                             ----------------------------------
                                                  Amortized          Fair
                                                     cost           value
                                             ----------------------------------
<S>                                          <C>               <C>
Due in one year or less                      $       2,953,088 $     2,969,439
Due after one year through 5 years                   3,156,201       3,175,113
Due after 5 years through 10 years                     255,000         255,000
Due after 10 years                                      90,117          90,472
                                             ----------------------------------

                                             $       6,454,406 $     6,490,024
                                             ==================================
</TABLE>

Available for sale securities with an amortized cost of $10,665,864 and
$12,322,521 as of December 31, 1998 and 1997 respectively were pledged as
collateral on public deposits and for other purposes as required or permitted by
law.



                                      E-19
<PAGE>   156
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE D. HELD TO MATURITY SECURITIES
Amortized costs and fair values of held to maturity securities as of December
31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                            December 31, 1998
                                                    ---------------------------------------------------------------
                                                                           Gross          Gross
                                                         Amortized      unrealized     unrealized        Fair
                                                            cost           gains         losses          value
                                                    ---------------------------------------------------------------
<S>                                                   <C>             <C>            <C>            <C>
Obligations of states and political subdivisions      $     5,793,676 $      187,190 $        1,229 $    5,979,637
Mortgage-backed securities                                  1,164,754          5,998          1,421      1,169,331
                                                    ---------------------------------------------------------------

                                                      $     6,958,430 $      193,188 $        2,650 $    7,148,968
                                                    ===============================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                            December 31, 1997
                                                    ---------------------------------------------------------------
                                                                           Gross          Gross
                                                         Amortized      unrealized     unrealized        Fair
                                                            cost           gains         losses          value
                                                    ---------------------------------------------------------------
<S>                                                   <C>              <C>             <C>           <C>
Obligations of other U.S. Government
   agencies and corporations                          $       200,000  $        --     $        500  $     199,500
Obligations of states and
   political subdivisions                                   4,390,600        115,522            --       4,506,122
                                                    ---------------------------------------------------------------
                                                            4,590,600        115,522            500      4,705,622
Mortgage-backed securities                                  2,077,900          9,176         10,374      2,076,702
                                                    ---------------------------------------------------------------

                                                      $     6,668,500 $      124,698   $     10,874  $   6,782,324
                                                    ===============================================================
</TABLE>

The amortized costs and fair value of securities held to maturity as of December
31, 1998 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities in mortgage-backed securities, equity
securities and mutual funds since the anticipated maturities are not readily
determinable. Therefore, these securities are not included in the maturity
categories in the following maturity summary:

<TABLE>
<CAPTION>

                                                              December 31, 1998
                                                     ----------------------------------
                                                          Amortized          Fair
                                                             cost           value
                                                     ----------------------------------
<S>                                                    <C>             <C>
Due in one year or less                                $       330,151 $       331,636
Due after one year through 5 years                             925,214         970,200
Due after 5 years through 10 years                           2,959,385       3,069,768
Due after 10 years                                           1,578,926       1,608,033
                                                     ----------------------------------

                                                       $     5,793,676 $     5,979,637
                                                     ==================================
</TABLE>



                                      E-20
<PAGE>   157
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE E.   LOANS

Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                -----------------------------------
                                                                                        1998             1997
                                                                                -----------------------------------
<S>                                                                              <C>              <C>
Commercial                                                                       $     16,343,671 $     14,259,976
Agricultural production                                                                    11,281           18,540
Real estate:
   Construction                                                                         4,340,535        4,055,194
   Commercial                                                                          15,017,517       15,307,816
   Agricultural                                                                           141,209          120,499
   Residential                                                                         23,003,256       18,234,151
Installment and consumer                                                                2,672,721        2,404,050
Municipal loans                                                                           132,413          155,963
                                                                                -----------------------------------
                                                                                       61,662,603       54,556,189
Allowance for loan losses                                                                 716,040          675,988
                                                                                -----------------------------------

              NET LOANS                                                          $     60,946,563 $     53,880,201
                                                                                ===================================
</TABLE>

Impairment of loans having a recorded investment at December 31, 1998 of
$504,535 and $576,310 at December 31, 1997 has been recognized in conformity
with FASB Statement No. 114 as amended by FASB Statement No. 118. The average
recorded investment in impaired loans during 1998 and 1997 was $625,884 and
$689,400 respectively. The total allowance for loan losses related to these
loans was $75,680 and $57,631 on December 31, 1998 and 1997 respectively.
Interest income on impaired loans of $16,333 and $18,209 was recognized for cash
payments received in 1998 and 1997 respectively.

Certain directors, executive officers, and principal shareholders of the Company
and their related interests, had loans outstanding in the aggregate amounts of
$599,442 and $513,553 at December 31, 1998 and 1997 respectively. During 1998,
$209,123 of new loans were made and repayments totaled $123,234. These loans
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other persons and did not involve more than normal risks of collectability
or present other unfavorable features.


NOTE F.   LOAN SERVICING

The unpaid principal balance of mortgage loans serviced for others, which are
not included on the consolidated balance sheets, was $67,665,576 and $58,288,587
at December 31, 1998 and 1997 respectively. Custodial escrow balances maintained
in connection with the foregoing loan servicing and included in demand deposits
were approximately $51,779 and $44,461 at December 31, 1998 and 1997
respectively.



                                      E-21

<PAGE>   158
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE G. ALLOWANCE FOR LOAN LOSSES


The allowance for loan losses reflected in the consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes
in the allowance is presented in the following tabulation:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                     ------------------------------
                                                                                            1998          1997
                                                                                     ------------------------------
<S>                                                                                  <C>           <C>
BALANCE, beginning of year                                                           $     675,988 $      670,873
   Charge-offs, net                                                                        (23,948)       (29,885)
   Provision charged to operations                                                          64,000         35,000
                                                                                     ------------------------------

BALANCE, end of year                                                                 $     716,040 $      675,988
                                                                                     ==============================
</TABLE>

NOTE H.   OFFICE BUILDINGS AND EQUIPMENT

Office buildings and equipment are stated at cost less accumulated depreciation
and are summarized as follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                  ---------------------------------
                                                                                         1998             1997
                                                                                  ---------------------------------
<S>                                                                               <C>               <C>
Land and land improvements                                                        $         63,018  $       63,018
Buildings and improvements                                                               2,181,816       2,181,816
Furniture and equipment                                                                  2,342,090       2,119,948
                                                                                  ---------------------------------
                                                                                         4,586,924       4,364,782
   Less accumulated depreciation                                                         3,217,894       2,992,077
                                                                                  ---------------------------------

              TOTAL OFFICE BUILDINGS AND EQUIPMENT                                $      1,369,030  $    1,372,705
                                                                                  =================================
</TABLE>

Depreciation expense amounted to $225,817 in 1998 and $204,301 in 1997.

NOTE I.   DEPOSITS

The aggregate amount of other Time deposits (including CD's), each with a
minimum denomination of $100,000, was approximately $4,775,532 and $1,769,695 in
1998 and 1997 respectively.

At December 31, 1998, the scheduled maturities of other Time deposits are as
follows:

<TABLE>
<S>                                                   <C>
   1999                                               $     17,397,268
   2000                                                      2,795,363
   2001                                                      1,013,197
   2002                                                          4,470
   2003                                                         82,592
                                                      -----------------

                                                      $     21,292,890
                                                      =================
</TABLE>






                                      E-22

<PAGE>   159
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE J.   SHORT-TERM BORROWINGS

Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                  ---------------------------------
                                                                                          1998            1997
                                                                                  ---------------------------------
<S>                                                                               <C>               <C>
Securities sold under repurchase agreements                                       $      4,809,135  $    7,546,961
Treasury tax and loan                                                                      213,686         805,101
Note payable - bank                                                                        300,000         800,000
                                                                                  ---------------------------------

              TOTAL SHORT-TERM BORROWINGS                                          $     5,322,821  $    9,152,062
                                                                                   ================================

</TABLE>

The Company entered into a note with Marshall & Ilsley Bank with interest paid
quarterly at 6.5% in 1998 and 7.28% in 1997, principal due October 31, 1999.

Securities sold under repurchase agreements generally mature within one to 120
days from the transaction date. Information concerning securities sold under
repurchase agreements is summarized as follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                 ----------------------------------
                                                                                         1998            1997
                                                                                 ----------------------------------
<S>                                                                              <C>               <C>
Average balance during the year                                                  $       7,747,004 $     6,293,793
Average interest rate during the year                                                         4.91%           5.10%
Maximum month-end balance during the year                                        $      11,577,245 $    11,478,501
Securities underlying the agreements at year-end:
   Carrying value                                                                $       4,808,235 $     7,399,000
   Estimated fair value                                                          $       4,821,000 $     7,405,154


</TABLE>

Interest expense on short-term borrowing consists of:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                      -----------------------------
                                                                                            1998          1997
                                                                                      -----------------------------
<S>                                                                                   <C>            <C>
Federal funds purchased                                                               $        5,269 $       1,526
Securities sold under repurchase agreements                                                  391,911       450,336
Treasury tax and loan                                                                         19,052        17,722
Note payable - bank                                                                           45,287        84,244
                                                                                      -----------------------------

                                                                                      $      461,519 $     553,828
                                                                                      =============================

</TABLE>




                                      E-23

<PAGE>   160
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE K.   LONG-TERM BORROWINGS
Long-term borrowing consists of:

<TABLE>
<CAPTION>
                                                                December 31,
                                                     ---------------------------------
                                                             1998            1997
                                                     ---------------------------------
<S>                                                  <C>               <C>
Federal Home Loan Bank                               $      8,600,000  $    4,450,000
Unsecured promissory note                                     150,000         290,000
                                                     ---------------------------------

              TOTAL LONG-TERM BORROWINGS             $      8,750,000  $    4,740,000
                                                     =================================
</TABLE>

On August 21, 1992, the Company entered into an advances, collateral pledge and
security agreement with the Federal Home Loan Bank (FHLB) which provides for
advances to a loanable collateral value. FHLB provides both fixed and floating
rate advances. Floating rates are tied to short-term market rates of interest,
such as Federal Funds and Treasury Bill rates. Fixed rate advances are priced in
reference to market rates of interest at the time of the advance, namely the
rates that FHLB pays to borrowers at various maturities. Various advances were
obtained with total outstanding balances of $8,600,000 and $4,450,000 at
December 31, 1998 and 1997 respectively, and bear applicable interest rates
ranging from 4.35% to 6.10%. Interest is payable monthly with principal payment
due at maturity. The advances are secured by security agreements pledging a
portion of the subsidiary Bank's real estate mortgages and securities
specifically assigned to the Federal Home Loan Bank. The carrying value of this
pledge was approximately $11,279,000 and $15,529,000 at December 31, 1998 and
1997 respectively.

During 1992, the Company entered into an agreement on an unsecured note with a
related party. The outstanding balance of the note was $150,000 and $290,000 at
December 31, 1998 and 1997, respectively, with an applicable interest rate of
7.28%. Interest is payable quarterly, and may be prepaid without penalty.

Future long-term borrowing principal payments required to be made are as
follows:

<TABLE>
<CAPTION>
Years ending December 31,
<S>                                               <C>
   1999                                           $      1,350,000
   2000                                                  1,200,000
   2001                                                  4,900,000
   2002                                                    900,000
   2003                                                    400,000
                                                  -----------------

                                                  $      8,750,000
                                                  =================
</TABLE>

Interest expense on long-term debt consists of:

<TABLE>
<CAPTION>

                                                                    December 31,
                                                           -----------------------------
                                                                 1998          1997
                                                           -----------------------------
<S>                                                        <C>            <C>
Federal Home Loan Bank advances                            $      340,963 $     271,576
Unsecured promissory note                                          15,184        21,547
                                                           -----------------------------

                                                           $      356,147 $     293,123
                                                           =============================
</TABLE>



                                      E-24

<PAGE>   161
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE L.   INCOME TAXES

The provision for income taxes included in the consolidated financial statements
consists of the following:
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                      -----------------------------
                                                                                            1998          1997
                                                                                      -----------------------------
<S>                                                                                   <C>            <C>
CURRENT TAXES:
   Federal                                                                            $     524,175  $    479,855
   State                                                                                    104,340        94,744
                                                                                      -----------------------------
                                                                                            628,515       574,599
DEFERRED INCOME TAXES (BENEFIT)                                                             (54,056)      (59,215)
                                                                                      -----------------------------

              TOTAL PROVISION FOR INCOME TAXES                                        $     574,459  $    515,384
                                                                                      =============================
</TABLE>

The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                      -----------------------------
                                                                                            1998          1997
                                                                                      -----------------------------
<S>                                                                                   <C>            <C>
DEFERRED TAX ASSETS:
   Allowance for loan losses                                                          $     172,466  $    156,761
   Depreciation                                                                               3,797         9,306
   Deferred compensation                                                                    191,581       150,105
   Other                                                                                     22,655        24,927
DEFERRED TAX LIABILITIES:
   Discount accretion                                                                          (979)       (5,635)
   Unrealized gain on available for sale securities                                         (22,200)      (29,779)
                                                                                      -----------------------------

              NET DEFERRED TAX ASSETS                                                 $     367,320  $    305,685
                                                                                      =============================
</TABLE>

Management believes it is more likely than not, that the gross deferred tax
assets will be fully realized. Therefore, no valuation allowance has been
recorded as of December 31, 1998 and 1997.


                                      E-25
<PAGE>   162

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE L.    INCOME TAXES (continued)

A reconciliation of statutory federal income taxes based upon income before
taxes to the provision for federal and state income taxes, as summarized
previously, is as follows:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                  -------------------------------------------------
                                                                              1998                    1997
                                                                  -------------------------  ----------------------
                                                                                   % of                    % of
                                                                                  Pretax                  pretax
                                                                       Amount     Income       Amount     income
                                                                  -------------------------------------------------
<S>                                                               <C>              <C>      <C>            <C>
Reconciliation of statutory to effective taxes:
   Federal income taxes at statutory rate                         $     584,200    34.0%    $   505,425    34.0%
   Adjustments for:
      Tax-exempt interest on municipal obligations                      (88,148)   (5.1)        (57,938)   (3.9)
      Increases in taxes resulting from state income taxes               62,665     3.6          54,650     3.6
      Non-deductible amortization of cost over
        equity and core deposits                                         23,073     1.4          23,072     1.6
      Cash surrender value of life insurance                            (23,500)   (1.4)        (19,994)   (1.3)
      Other - net                                                        16,169     0.9          10,169     0.7
                                                                  -------------------------------------------------

              EFFECTIVE INCOME TAXES - OPERATIONS                 $     574,459    33.4%    $   515,384    34.7%
                                                                  =================================================
</TABLE>

NOTE M.   COMMITMENTS AND CONTINGENCIES

In the normal course of business, the subsidiary Bank is involved in various
legal proceedings. In the opinion of management, any liability resulting from
such proceedings would not have a material adverse effect on the consolidated
financial statements.

The subsidiary Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
financial guarantees and standby letters of credit. They involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.

The subsidiary Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The subsidiary Bank uses the same credit policies in making
commitments and issuing letters of credit as it does for on-balance-sheet
instruments.

A summary of the contract or notional amount of the subsidiary Bank's exposure
to off-balance-sheet risk as of December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                                         1998            1997
                                                                                 ----------------------------------
<S>                                                                              <C>               <C>
Financial instruments whose contract amounts represent credit risk:
   Commitments to extend credit                                                  $       8,389,576 $    11,378,081
   Credit card commitments                                                       $       2,235,083 $     1,516,368
   Standby letters of credit                                                     $       1,568,424 $       759,284
</TABLE>


                                      E-26
<PAGE>   163
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE M.   COMMITMENTS AND CONTINGENCIES (continued)

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional
commitments issued to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Credit card commitments are unsecured.

The Company and the subsidiary Bank do not engage in the use of interest rate
swaps, futures, forwards, or options contracts.

The subsidiary Bank has entered into license agreements to maintain and operate
a branch facility under a noncancelable lease agreement. The following is a
schedule by years of future minimum rental payments required under the
noncancelable lease agreement:
<TABLE>
<S>                                           <C>
   1999                                       $      5,928
   2000                                              5,928
   2001                                              5,928
   2002                                              5,928
   2003                                              5,434
                                              -------------
                                              $     29,146
                                              =============
</TABLE>

NOTE N.   CONCENTRATION OF CREDIT RISK

Practically all of the subsidiary Bank's loans, commitments and commercial and
standby letters of credit have been granted to customers in the subsidiary
Bank's market area. Although the subsidiary Bank has a diversified loan
portfolio, the ability of its debtors to honor their contracts is dependent on
the economic conditions of the counties surrounding the subsidiary Bank. The
concentration of credit by type of loan are set forth in Note E.


                                      E-27

<PAGE>   164

PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE O.   STOCK OPTION PLAN

The Company has granted options for 6,500 share of common stock to directors,
officers and employees of the Company. Options were granted in 1993 and
exercisable at an option price per share of $60 and must be exercised within a
ten year period. The options expire on August 24, 2003. Activity relating to the
options is summarized in the following table:

<TABLE>
<CAPTION>
                                                                                                       Option
                                                                         Options       Options         price
                                                                        available    outstanding     per share
                                                                      ---------------------------------------------
<S>                                                                         <C>            <C>        <C>
Balances, December 31, 1996                                                   6,500          6,500      $ 60
   Options exercised                                                            200            200
                                                                      -----------------------------

Balances, December 31, 1997                                                   6,300          6,300      $ 60
   Options exercised                                                          2,135          2,135
                                                                      -----------------------------

Balances, December 31, 1998                                                   4,165          4,165      $ 60
                                                                      =============================

</TABLE>

A reconciliation of the numerators and the denominators of earnings per share
and earnings per share assuming dilution are:

<TABLE>
<CAPTION>
                                                                                                   Per share
                                                                       Income           Shares        amount
                                                                  --------------------------------------------
<S>                                                                <C>                   <C>          <C>
1998:
   Earnings per share - basic                                      $      1,143,773      63,288       $ 18.07
                                                                                                      =======
   Effect of options                                                              -       2,800
                                                                   --------------------------------

EARNINGS PER SHARE - assuming dilution                             $      1,143,773      66,088       $ 17.31
                                                                                                      =======
                                                                   ================================


1997:
   Earnings per share - basic                                      $        971,161      62,454       $ 15.55
                                                                                                      =======
   Effect of options                                                              -       4,134
                                                                   --------------------------------

EARNINGS PER SHARE - assuming dilution                             $        971,161      66,588       $ 14.58
                                                                                                      =======
                                                                   ================================
</TABLE>

NOTE P.   EMPLOYEE BENEFITS

The subsidiary Bank has deferred compensation contracts with six current
officers of the subsidiary Bank. For the six officers, the subsidiary Bank is
contractually required to make fixed monthly payments for a minimum number of
years upon retirement. The officers' contracts are cancelable if the officer
resigns or is terminated for cause before retirement date. The approximate
present value of these obligations are included in accrued expenses and other
liabilities. Expense related to these contracts was $105,780 in 1998 and $98,618
in 1997.

                                      E-28
<PAGE>   165
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE P.   EMPLOYEE BENEFITS (continued)

The subsidiary Bank has a defined contribution plan (the "Plan"). The Plan
covers substantially all full-time employees who are at least twenty years of
age and have a minimum of six (6) months of full-time service. Under the Plan,
the subsidiary Bank matches the contribution made by each participant up to
fifty percent of five percent of the eligible employee's annual compensation.
The matched portion of a participant's contribution is fully vested at the
completion of five years of service. The Plan expense was $22,552 in 1998 and
$15,633 in 1997.

NOTE Q.   LEASES

The subsidiary Bank leases space in its building to tenants. Noncancelable
operating leases for such office space expire at various dates over the next
three years. Future minimum payments to be made by tenants as of December 31,
1998 are as follows:

<TABLE>
<S>                                                <C>
   1999                                            $    100,410
   2000                                                  37,100
   2001                                                   9,690
                                                   -------------

                                                   $    147,200
                                                   =============
</TABLE>

NOTE R.   RETAINED EARNINGS

The principal source of income and funds of Pyramid Bancorp, Inc. is dividends
from its subsidiary Bank. The subsidiary Bank is prohibited from declaring or
paying any dividends without prior regulatory approval in an amount greater than
$1,538,000. Maintenance of adequate capital at the subsidiary Bank effectively
restricts potential dividends to an amount less than $1,538,000.

NOTE S. REGULATORY CAPITAL REQUIREMENTS

The subsidiary Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the subsidiary Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary Bank must meet specific capital guidelines that involve
quantitative measures of the subsidiary Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk-weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the subsidiary Bank to maintain minimum amounts and ratios (set forth in
the table on the following page) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1998, the subsidiary Bank meets all capital adequacy requirements to which it is
subject.

As of December 31, 1998 and 1997, the most recent notification from the
regulatory agencies categorized the subsidiary Bank as well-capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the subsidiary Bank must maintain minimum total risk-based,
Tier I risk-based, and leverage ratios as set forth in the table. There are no
conditions or events since these notifications that management believes have
changed the institution's category.


                                      E-29
<PAGE>   166
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE S.    REGULATORY CAPITAL REQUIREMENTS (continued)

Below is a comparison of the Company and subsidiary Bank's 1998 and 1997 actual
with the minimum requirements for well-capitalized and adequately capitalized
banks, as defined by the federal regulatory agencies' Prompt Corrective Action
Rules:

<TABLE>
<CAPTION>
                                                                                                  To be well
                                                                                               capitalized under
                                                                          For capital          prompt corrective
                                                    Actual             adequacy purposes       action provisions
                                          -------------------------------------------------------------------------
                                                Amount     Ratio        Amount     Ratio        Amount     Ratio
                                          -------------------------------------------------------------------------
<S>                                         <C>              <C>    <C>               <C>   <C>              <C>
As of December 31, 1998:
   Total capital (to risk-weighted assets):
      Pyramid Bancorp, Inc.                 $   8,479,399    13.2%  $   5,128,997     8.0%  $         N/A
      Grafton State Bank                    $   8,952,265    14.0%  $   5,127,347     8.0%  $   6,409,184    10.0%

   Tier I capital (to risk-weighted assets):
      Pyramid Bancorp, Inc.                 $   7,763,359    12.1%  $   2,564,498     4.0%  $         N/A
      Grafton State Bank                    $   8,236,225    12.9%  $   2,563,674     4.0%  $   3,845,511     6.0%

   Tier I capital (to average assets):
      Pyramid Bancorp, Inc.                 $   7,763,359     7.9%  $   2,947,946     3.0%  $         N/A
      Grafton State Bank                    $   8,236,225     8.3%  $   2,972,605     3.0%  $   4,954,342     5.0%

As of December 31, 1997: Total capital (to risk-weighted assets):
      Pyramid Bancorp, Inc.                 $   7,202,051    13.0%  $   4,434,599     8.0%  $         N/A
      Grafton State Bank                    $   8,306,511    15.0%  $   4,434,599     8.0%  $   5,543,249    10.0%

   Tier I capital (to risk-weighted assets):
      Pyramid Bancorp, Inc.                 $   6,526,063    11.8%  $   2,217,299     4.0%  $         N/A
      Grafton State Bank                    $   7,630,523    13.8%  $   2,217,299     4.0%  $   3,325,949     6.0%

   Tier I capital (to average assets):
      Pyramid Bancorp, Inc.                 $   6,526,063     7.0%  $   3,718,925     4.0%  $         N/A
      Grafton State Bank                    $   7,630,523     8.2%  $   3,724,846     4.0%  $   4,656,058     5.0%
</TABLE>






                                      E-30


<PAGE>   167
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE T.   FAIR VALUE OF FINANCIAL INFORMATION

The estimated fair values of the Company's financial instruments are presented
below. Total assets at December 31, 1997 were less than $100,000,000, therefore,
fair value financial information was not required to be disclosed.
<TABLE>
<CAPTION>

                                                                                        December 31, 1998
                                                                               ------------------------------------
                                                                                     Carrying         Estimated
                                                                                      amount         fair value
                                                                               ------------------------------------
<S>                                                                              <C>              <C>
FINANCIAL ASSETS:
   Cash and due from banks                                                       $      3,565,417 $      3,565,417
                                                                               ====================================

   Interest-bearing deposits in banks                                            $      4,967,333 $      4,967,333
                                                                               ====================================

   Federal funds sold                                                            $      3,000,000 $      3,000,000
                                                                               ====================================

   Securities                                                                    $     30,023,513 $     30,214,051
                                                                               ====================================

   Net loans                                                                     $     60,946,563 $     61,482,549
                                                                               ====================================

   Accrued interest receivable                                                   $        620,893 $        620,893
                                                                               ====================================

   Cash surrender value of life insurance                                        $      1,386,729 $      1,386,729
                                                                               ====================================

FINANCIAL LIABILITIES:
   Deposits                                                                      $     82,974,207 $     83,022,709
                                                                               ====================================

   Short-term borrowings                                                         $      5,322,821 $      5,322,821
                                                                               ====================================

   Long-term borrowings                                                          $      8,750,000 $      8,753,736
                                                                               ====================================

   Accrued interest payable                                                      $        555,214 $        555,214
                                                                               ====================================
</TABLE>

The estimated fair value of fee income on letters of credit at December 31, 1998
and 1997 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1998
and 1997.

The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are less likely to prepay in a rising rate
environment and more likely to repay in a falling rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.




                                        E-31


<PAGE>   168
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE U.   PYRAMID BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                  ---------------------------------
CONDENSED BALANCE SHEETS                                                                  1998            1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>
ASSETS:
   Cash                                                                           $         74,647  $       71,291
   Investment in Bank                                                                    8,314,677       7,690,148
   Goodwill and organization costs                                                         620,051         690,246
                                                                                  ---------------------------------

              TOTAL ASSETS                                                        $      9,009,375  $    8,451,685
                                                                                 =================================

LIABILITIES:
   Short-term borrowings                                                          $        300,000  $      800,000
   Long-term borrowings                                                                    150,000         290,000
   Accrued interest payable and other liabilities                                          118,128          85,749
                                                                                  ---------------------------------
              TOTAL LIABILITIES                                                            568,128       1,175,749
                                                                                  ---------------------------------

STOCKHOLDERS' EQUITY:
   Common stock, $1 par value; 125,000 shares authorized; and 64,735 and 62,600
      shares issued and outstanding
      in 1998 and 1997 respectively                                                         64,735          62,600
   Surplus                                                                               3,466,481       3,340,516
   Retained earnings                                                                     4,831,579       3,815,026
                                                                                  ---------------------------------
                                                                                         8,362,795       7,218,142
   Accumulated other comprehensive income                                                   78,452          57,794
                                                                                  ---------------------------------
              TOTAL STOCKHOLDERS' EQUITY                                                 8,441,247       7,275,936
                                                                                  ---------------------------------

              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $      9,009,375  $    8,451,685
                                                                                  =================================
</TABLE>

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                   --------------------------------
CONDENSED STATEMENTS OF INCOME                                                            1998            1997
-------------------------------------------------------------------------------------------------------------------

INCOME:
<S>                                                                                <C>              <C>
   Dividends from subsidiary                                                       $       680,000  $      660,000
   Interest income                                                                           2,644           1,211
   Equity in undistributed net earnings of the Bank                                        603,870         450,466
                                                                                   --------------------------------
              TOTAL INCOME                                                               1,286,514       1,111,677
                                                                                   --------------------------------
EXPENSES:
   Interest                                                                                 60,471         105,791
   Other                                                                                   101,770          70,225
                                                                                   --------------------------------
              TOTAL EXPENSES                                                               162,241         176,016
                                                                                   --------------------------------

Income before income tax benefit                                                         1,124,273         935,661
Income tax benefit                                                                          19,500          35,500
                                                                                   --------------------------------

              NET INCOME                                                           $     1,143,773  $      971,161
                                                                                   ================================

</TABLE>



                                      E-32
<PAGE>   169
PYRAMID BANCORP, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE U.   PYRAMID BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
          (continued)
<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                   --------------------------------
CONDENSED STATEMENTS OF CASH FLOWS                                                         1998           1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                        $   1,143,773   $    971,161
                                                                                   --------------------------------
   Adjustments to reconcile net income to net cash provided by operating
      activities:
        Amortization of goodwill and organization costs                                     70,194         70,194
        Net increase (decrease) in accrued interest payable
           and other liabilities                                                            32,379         (1,493)
        Equity in undistributed income of Bank                                            (603,870)      (450,467)
                                                                                   --------------------------------
              TOTAL ADJUSTMENTS                                                           (501,297)      (381,766)
                                                                                   --------------------------------
              NET CASH PROVIDED BY OPERATING ACTIVITIES                                    642,476        589,395
                                                                                   --------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES -
   repayment of borrowings                                                                (640,000)      (500,000)
                                                                                   --------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Exercise of stock options                                                               128,100         12,000
   Payment of dividends                                                                   (127,220)       (62,600)
                                                                                   --------------------------------
              NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                              880        (50,600)
                                                                                   --------------------------------

              INCREASE IN CASH                                                               3,356         38,795

CASH, beginning of year                                                                     71,291         32,496
                                                                                   --------------------------------

CASH, end of year                                                                    $      74,647   $     71,291
                                                                                   ================================
</TABLE>

NOTE V.   SUBSEQUENT EVENT

The Pyramid Bancorp, Inc. announced in January 1999, that they have agreed in
principle to merge with Merchants and Manufacturers Bancorporation, Inc. The
merger will involve an exchange of Merchants and Manufacturers common stock for
Pyramid Bancorp common stock. It is also subject to approval by shareholders and
regulators. The transaction is anticipated to close by July 1999.





                                      E-33
<PAGE>   170


                      PYRAMID BANCORP, INC. AND SUBSIDIARY

                      UNAUDITED CONSOLIDATED BALANCE SHEET

                                  JUNE 30, 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<S>                                                                                        <C>
ASSETS
Cash and due from banks                                                                                  $ 4,475
Interest-bearing deposits in banks                                                                         4,444
Federal funds sold                                                                                         2,200
Available-for-sale securities at fair value:                                                              25,178
Held to maturity securities, fair value $7,356,702                                                         7,344
Loans, less allowance for loan losses of $753,761                                                         61,291
Cash surrender value of life insurance                                                                     1,419
Office buildings and equipment, net                                                                        1,294
Accrued interest receivable and other assets                                                               1,291
                                                                                             --------------------
TOTAL ASSETS                                                                                            $108,936
                                                                                             ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits
    Demand deposits                                                                                     $ 15,084
    Savings and NOW                                                                                       48,370
    Other Time                                                                                            20,002
                                                                                             --------------------
Total deposits                                                                                            83,456
  Short-term borrowings                                                                                    7,218
  Long-term borrowings                                                                                     8,150
  Accrued interest payable and other liabilities                                                           1,178
                                                                                             --------------------
TOTAL LIABILITIES                                                                                        100,002

STOCKHOLDERS' EQUITY
  Common stock $1 par value; 125,000 authorized;
    68,100 shares issued and outstanding:                                                                 $   68
  Surplus                                                                                                  3,665
  Retained earnings                                                                                        5,284
                                                                                             --------------------
                                                                                                           9,017
Accumulated other comprehensive loss                                                                        (83)
TOTAL STOCKHOLDERS' EQUITY                                                                                 8,934
                                                                                             --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                              $108,936
                                                                                             ====================

</TABLE>

See notes to unaudited consolidated financial statements.


                                      E-34
<PAGE>   171


                      PYRAMID BANCORP, INC. AND SUBSIDIARY

                   UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

                     SIX MONTHS ENDED JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                      1999                     1998
                                                               --------------------    ---------------------
                                                                 (In Thousands, Except Per Share Amounts)
<S>                                                                         <C>                      <C>
INTEREST INCOME:
  Interest and fees on loans                                                $2,760                   $2,621
  Interest on investment securities:
    Taxable                                                                    692                      629
    Tax-exempt                                                                 154                      128
  Interest on federal funds sold                                                42                       39
  Interest on deposits with banks                                              146                      235
                                                               --------------------    ---------------------
TOTAL INTEREST INCOME                                                        3,794                    3,652

INTEREST EXPENSE:
  Interest on deposits                                                       1,328                    1,296
  Interest on short-term borrowings                                            168                      309
  Interest on long-term borrowings                                             227                      152
                                                               --------------------    ---------------------
TOTAL INTEREST EXPENSE                                                       1,723                    1,757

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                         2,071                    1,895
Provision for loan losses                                                       36                       12
                                                               --------------------    ---------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                          2,035                    1,883

NONINTEREST INCOME:
  Service fees                                                                 182                      158
  Gain on sales of loans                                                        31                       31
  Other income                                                                  98                       98
                                                               --------------------    ---------------------
TOTAL NONINTEREST INCOME                                                       311                      287

NONINTEREST EXPENSES:
  Salary                                                                       653                      599
  Employee benefits                                                            201                      184
  Occupancy expense                                                            106                       94
  Furniture and equipment                                                      106                       78
  Data processing                                                              132                      124
  Other expense                                                                279                      265
                                                               --------------------    ---------------------
TOTAL NONINTEREST EXPENSE                                                    1,477                    1,344

INCOME BEFORE INCOME TAX EXPENSE                                               869                      826
Income taxes expense                                                           281                      275
                                                               --------------------    ---------------------
NET INCOME                                                                    $588                     $551
                                                               ====================    =====================

BASIC EARNINGS PER SHARE                                                    $ 8.73                   $ 8.78
                                                               ====================    =====================

DILUTED EARNINGS PER SHARE                                                  $ 8.62                   $ 8.37
                                                               ====================    =====================

WEIGHTED AVERAGE NUMBER OF SHARES                                           67,364                   62,774
                                                               ====================    =====================

</TABLE>
See notes to unaudited consolidated financial statements.


                                      E-35
<PAGE>   172


                      PYRAMID BANCORP, INC. AND SUBSIDIARY

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

                     SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                                        1999                1998
                                                                                  -----------------   -----------------
                                                                                              (In thousands)
<S>                                                                               <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                                  $588                $551
  Adjustments to reconcile net income to cash provided by operating activities
       Depreciation                                                                            116                 105
       Provision for loan losses                                                                36                  12
       Amortization and accretion of bond premiums and discounts, net                           38                  18
       Gains on sales of mortgage loans held for sale                                         (31)                (31)
       Increase in cash surrender value of life insurance                                     (32)                (32)
       Amortization of intangibles and organization expense                                     36                  36
       Increase in accrued interest receivable and other assets                               (86)               (115)
       Decrease in accrued interest payable and other liabilities                            (243)                (57)
                                                                                  -----------------   -----------------
Total adjustments                                                                            (166)                (64)
                                                                                  -----------------   -----------------
Net cash provided by operating activities                                                      422                 487
                                                                                  -----------------   -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing deposits with banks                                           523                 349
Net decrease (increase) in federal funds sold                                                  800             (3,400)
Proceeds from sales, maturities and repayments of securities                                 4,515               5,276
Purchase of securities                                                                     (6,804)             (4,212)
Net increase in loans                                                                        (349)               (209)
Purchase of office buildings and equipment                                                    (41)               (115)
                                                                                  -----------------   -----------------
Net cash used in investing activities                                                      (1,356)             (2,311)

FINANCING ACTIVITIES
Net increase in deposits                                                                       482               2,876
Net increase (decrease) in securities sold under repurchase agreements                       1,481               (435)
Proceeds from Federal Home Loan Bank advances                                                   --               1,500
Net decrease (increase) in other borrowings                                                    264               (607)
Payment on Federal Home Loan Bank advances                                                   (450)               (950)
Proceeds from exercise of stock options                                                        202                  16
Payment of dividends                                                                         (135)                (63)
                                                                                  -----------------   -----------------
Net cash provided by financing activities                                                    1,844               2,337

Increase in cash and due from banks                                                            910                 513
Cash and due from banks, beginning of year                                                   3,565               3,921
                                                                                  -----------------   -----------------
Cash and due from banks, end of period                                                      $4,475              $4,434
                                                                                  =================   =================

Supplemental disclosures of cash flow information: Cash paid during the period
for:
  Interest                                                                                 $ 1,733             $ 1,632
                                                                                  =================   =================
  Income taxes                                                                               $ 158               $ 340
                                                                                  =================   =================
Supplemental schedule of non-cash investing and financing activities:
  Net change in unrealized loss on available for sale securities                           $ (161)               $ (9)
                                                                                  =================   =================
</TABLE>


See notes to unaudited consolidated financial statements


                                      E-36
<PAGE>   173


                      PYRAMID BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 1999 AND 1998
                                   (UNAUDITED)

NOTE 1 - GENERAL

The accounting and reporting policies of Pyramid Bancorp, Inc. and Subsidiary
(the "Company") conform to generally accepted accounting principles and to
general practices within the banking industry. Significantly accounting policies
used by the Company are described in the summary of significant accounting
policies included as a part of the December 31, 1998 and 1997 consolidated
financial statements.

The financial statements reflect adjustments, all of which are of a normal
recurring nature, and, in the opinion of management, necessary for a fair
statement of results for the interim periods. The operating results for the six
months ended June 30, 1999 and 1998 are not necessarily indicative of the
results, which may be expected for the entire year. The accompanying
consolidated financial statements should be read in conjunction with the
Company's December 31, 1998, and 1997 consolidated financial statements and
related notes.

NOTE 2 - ALLOWANCE FOR LOAN LOSSES

A summary of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>

                                                                                 Six months ended
                                                                                     June 30,
                                                                             1999                1998
                                                                       ------------------ -------------------
                                                                              (Amounts in thousands)
<S>                                                                    <C>                <C>
Balance, beginning of period                                                         716                 676
Provision charged to expense                                                          36                  12
Loans chargeoffs, net of recoveries                                                  (2)                   2
                                                                       ------------------ -------------------
Balance of allowance for loan losses at end of period                               $754                $686
Ratios:
Net charge-offs (recoveries) to loans outstanding at period end                  (0.00)%               0.00%
Net charge-offs (recoveries) to total allowance                                  (0.00)%               0.00%
Allowance to year end gross loans outstanding                                      1.22%               1.25%

</TABLE>






                                      E-37
<PAGE>   174



NOTE 3 - AVAILABLE FOR SALE SECURITIES

Amortized costs and fair values of available for sale securities as of June 30,
1999 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                     Gross             Gross
                                                  Amortized        unrealized        unrealized
                                                     cost            gains             losses        Fair value
                                              ----------------- ----------------- ---------------- -----------------
<S>                                                    <C>                   <C>             <C>            <C>
U.S. Treasury securities                               $ 5,901               $ 5             $ 28           $ 5,878
Obligations of other U.S. Government
    agencies and corporations                            2,230                 -               45             2,185
Corporate securities                                        25                 -                -                25
Obligations of states and political
    subdivisions                                           410                 1                -               411
                                              ----------------- ----------------- ---------------- -----------------
                                                         8,566                 6               73             8,499
Mortgage-backed securities                              15,970                85              146            15,909
Federal Home Loan Bank stock                               408                 -                -               408
Federated Money Market fund                                361                 -                -               361
Bankers' Bank stock                                          1                 -                -                 1
                                              ----------------- ----------------- ---------------- -----------------
                                                      $ 25,306              $ 91            $ 219          $ 25,178
                                              ================= ================= ================ =================
</TABLE>

NOTE 4 - HELD TO MATURITY SECURITIES

Amortized costs and fair values of held to maturity securities as of June 30,
1999 are summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                     Gross             Gross
                                               Amortized         unrealized        unrealized
                                                 cost                gains             losses          Fair value
                                              ----------------- ----------------- ---------------- -----------------
<S>                                                    <C>                  <C>              <C>            <C>
Obligations of states and political
    subdivisions                                       $ 6,385              $ 61             $ 49           $ 6,397
Mortgage-backed securities                                 959                 3                3               959
                                              ----------------- ----------------- ---------------- -----------------
                                                       $ 7,344              $ 64             $ 52           $ 7,356
                                              ================= ================= ================ =================
</TABLE>

NOTE 5 - COMPREHENSIVE INCOME

The Financial Accounting Standards Board (FASB) has issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. This
statement requires that all items are required to be recognized in a financial
statement that is displayed with the same prominence as other financial
statements. The Company adopted SFAS No. 130 on January 1, 1998.

The Company's comprehensive income for the six-month periods ended June 30, 1999
and 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                                 1999                  1998
                                                                         --------------------- ---------------------
<S>                                                                                     <C>                   <C>
Net income                                                                              $ 588                 $ 551
Other comprehensive income, net of tax
  Unrealized holding losses on securities arising during the period
                                                                                        (161)                   (9)
                                                                         --------------------- ---------------------
Comprehensive income                                                                    $ 427                 $ 542
</TABLE>




                                      E-38

<PAGE>   175

NOTE 6 - CHANGES IN STOCKHOLDERS' EQUITY

Changes in stockholders' equity for the six months ended June 30, 1999 and 1998
are as follows (dollars in thousands, except share data):
<TABLE>
<CAPTION>

                                                                                 1999                  1998
                                                                         -------------------- ---------------------
<S>                                                                      <C>                   <C>
Common stock
  Balance, January 1                                                                     $ 65                  $ 63
  Proceeds from exercise of stock options                                                   3                    --
                                                                         --------------------- ---------------------
  Balance, June 30                                                                       $ 68                  $ 63
                                                                         ===================== =====================

Additional paid-in capital
  Balance January 1                                                                   $ 3,466               $ 3,341
  Proceeds from exercise of stock options                                                 199                    17
                                                                         --------------------- ---------------------
Balance, June 30                                                                      $ 3,665               $ 3,358
                                                                         ===================== =====================

Retained earnings
  Balance January 1                                                                   $ 4,831               $ 3,815
  Net income                                                                              588                   551
  Cash dividends paid; 1999, $2.00 per share;
   1998, $1.00 per share                                                                 (135)                  (63)
                                                                         --------------------- ---------------------
Balance, June 30                                                                      $ 5,284               $ 4,303
                                                                         ===================== =====================

Accumulated other comprehensive income
  Balance January 1                                                                      $ 78                  $ 58
  Unrealized loss on securities available-for-sale                                      (161)                   (9)
                                                                         --------------------- ---------------------
Balance, June 30                                                                       $ (83)                  $ 49
                                                                         ===================== =====================

</TABLE>

NOTE 7 - SUBSEQUENT EVENT

The Pyramid Bancorp, Inc. announced in January 1999, that they have agreed in
principle to merge with Merchants and Manufacturers Bancorporation, Inc. The
merger will involve an exchange of Merchants and Manufacturers common stock for
Pyramid Bancorp common stock. It is also subject to approval by shareholders and
regulators. The transaction is anticipated to close by September 1999.




                                      E-39
<PAGE>   176
                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         The Registrant is incorporated under the Wisconsin Business Corporation
Law (the "WBCL"). Under Section 180.0851 of the WBCL, the Registrant shall
indemnify a director or officer, to the extent such person is successful on the
merits or otherwise in the defense of a proceeding, for all reasonable expenses
incurred in the proceeding because he or she was a director or officer of the
Registrant. In all other cases, the Registrant shall indemnify a director or
officer against liability incurred in a proceeding to which such person was a
party because he or she was a director or officer of the Registrant; unless
liability was incurred because he or she breached or failed to perform a duty
owed to the Registrant and such breach or failure to perform constitutes: (i) a
willful failure to deal fairly with the Registrant or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the director or
officer had reasonable cause to believe his or her conduct was lawful or no
reasonable cause to believe his or her conduct was unlawful; (iii) a transaction
from which the director or officer derived an improper personal profit; or (iv)
willful misconduct. Section 180.0858 of the WBCL provides that subject to
certain limitations, the mandatory indemnification provisions do not preclude
any additional right to indemnification or allowance of expenses that a director
of officer may have under the Registrant's articles of incorporation, bylaws, a
written agreement between the director or officer and the Registrant or a
resolution of the Board of Directors or adopted by majority vote of the
Registrant's shareholders.

         Section 180.0859 of the WBCL provides that it is the public policy of
the State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 18.0858 of the WBCL for any liability incurred in connection with a
proceeding involving a federal or state statute, rule or regulation regulating
the offer, sale or purchase of securities.

         The Registrant's Articles of Incorporation contain no provisions in
relation to the indemnification of directors and officers o the Registrant.

         Under Article X of the Registrant's By-Laws, the Registrant extends
rights of indemnification to any person who is made or threatened to be made a
party to any action or claim or proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of the Registrant,
except as to matters in which he or she is finally adjudged to have been guilty
of fraud in the performance of his or her duty as such director, officer,
employee or agent. Indemnification is provided for expenses and amounts paid in
the final disposition of claims, actions, suits or proceedings including
settling of such matters. The rights of indemnification under the Registrant's
By-Laws are in addition to rights to which such persons may be entitled as a
matter of law, agreement, vote of shareholders or otherwise.

         Officers and directors of the Registrant and Registrant's subsidiaries
are covered by directors' and officers' liability insurance under which they are
insured (subject to certain exceptions and limitations specified in the policy)
against expenses and liabilities arising out of proceedings to which they are
parties by reason of being or having been directors or officers of Registrant or
Registrant's subsidiaries.


                                      II-1

<PAGE>   177



ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)      Exhibits

<TABLE>
<CAPTION>

Exhibit No.             Description                                                         Sequential Page No.
-----------             -----------                                                         -------------------
<S>                    <C>                                                                 <C>



   2(a)                 Agreement and Plan of Merger dated as of March 9, 1999
                        among the Registrant, Merchants Merger Corp. and Pyramid
                        Bancorp., Inc., incorporated by reference to Exhibits A
                        and A-1 to the Proxy Statement/Prospectus of the
                        Registrant and Pyramid Bancorp., Inc. (the "Proxy
                        Statement/Prospectus").

   2(b)                 Voting Agreement dated as of March 9, 1999 among certain
                        shareholders of Pyramid Bancorp., Inc. and the
                        Registrant incorporated by reference to Exhibit B to the
                        Proxy Statement/Prospectus.

   3(a)                 Articles of Incorporation, as amended of Registrant.

   3(b)                 Bylaws, of Registrant incorporated by reference to
                        Exhibit 3.2 of Registrant's Registration Statement on
                        Form S-1 filed on October 2, 1992 SEC File No. 33-53002.

   4                    The Registrant has outstanding certain long term debt.
                        None of such debt exceeds 10% of the total assets of
                        the Registrant and its consolidated subsidiaries. Thus,
                        copies of the constituent instruments defining the
                        rights of the holders of such debt are not included as
                        exhibits to this Registration Statement. The Registrant
                        agrees to furnish copies of such instruments to the
                        Commission upon request.

   5                    Opinion of Davis & Kuelthau, S.C. regarding legality of
                        issuance of the Registrant's securities.

   8                    Opinion of Davis & Kuelthau regarding certain federal
                        income tax matters

   10(a)                The 1996 Incentive Stock Option Plan of the Registrant.

   10(b)                Salary Continuation Agreement between Lincoln State Bank
                        and James Bomberg.
</TABLE>


                                      II-2

<PAGE>   178




   10(c)                Employment agreements between Registrant and Conrad
                        Kaminski and between Lincoln State Bank and James
                        Bomberg incorporated by reference to Exhibit 10.2 of
                        Registrant's Registration Statement on Form S-1 filed on
                        October 2, 1992, SEC File No. 33-53002.

                        Employment Agreements between Registrant and Michael
                        J. Murry, James Mroczkowski and John Krawczyk.

                        Employment Agreements between M&M Services, Inc.
                        and Robert Blonski and Gregory Stengel, respectively.

                        Employment Agreement between Achieve Mortgage
                        Corporation and Robert Donaj.

                        Employment Agreement between Grafton State Bank and
                        Thomas Sheehan.

                        Pursuant to Instruction 2 of Item 601 - Exhibits,
                        Employment Agreements between Grafton State Bank and
                        Peter J. Schumacher, Richard Belling and Jefford R.
                        Larson, respectively, are omitted. The terms of such
                        agreements are substantially identical in all material
                        respects to the agreement between Grafton State Bank and
                        Thomas Sheehan.

                        The only material difference between the Sheehan
                        Agreement and the three omitted agreements are reflected
                        in "Position and Duties" and "Base Salary" as follows:
<TABLE>
<CAPTION>

                               Name                  Position                   Base Salary

<S>                     <C>                        <C>                            <C>
                        Peter J. Schumacher        Controller                     $48,300
                        Richard L. Belling         V.P.-Mortgages                  67,000
                        Jefford R. Larson          V.P. Commercial                 62,000
                                                   Lending
</TABLE>

          21            List of Subsidiaries of the Registrant.
         23(a)          Consent of Ernst & Young, LLP as to the financial
                        statements of the Registrant.
         23(b)          Consent of Davis & Kuelthau, S.C. incorporated by
                        reference to Exhibits 5 and 8.
         23(c)          Consent of Virchow, Krause & Co. LLP as to financial
                        statements of Pyramid Bancorp., Inc.
         23(d)          Consent of Marshall Financial Consulting LLC, financial
                        adviser to Pyramid.


                                      II-3
<PAGE>   179




   23(e)                Consent of Michael Best & Friedrich LLC.

   23(f)                Rule 438 Consent of three directors of Pyramid who will
                        become directors of Registrant upon completion of the
                        Merger.

   24                   Powers of Attorney.

(b) No financial statement schedules are required to be filed herewith pursuant
    to Item 21(b) or (c) of this Form.

ITEM 22.  UNDERTAKINGS

(a)(1)   The undersigned Registrant hereby undertakes:

                 (i)       To file, during any period in which offers or sales
                           are being made, a post-effective amendment to this
                           registration statement: (x) to include any prospectus
                           required by Section 10(a)(3) of the Securities Act of
                           1933, as amended (the "Securities Act"); (y) to
                           reflect in the prospectus any facts or events arising
                           after the effective date of the registration
                           statement (or the most recent post-effective
                           amendment thereof) which, individually or in the
                           aggregate, represent a fundamental change in the
                           information set forth in the registration statement;
                           (z) to include any material information with respect
                           to the plan of distribution not previously disclosed
                           in the registration statement or any material change
                           to such information in the registration statement.

                 (ii)      That, for the purpose of determining any liability
                           under the Securities Act, each such post-effective
                           amendment shall be deemed to be a new registration
                           statement relating to the securities offered therein,
                           and the offering of such securities at such time
                           shall be deemed to be the initial bona fide offering
                           thereof.

                 (iii)     To remove from registration by means of a
                           post-effective amendment any of the securities being
                           registered which remain unsold at the termination of
                           the offering.

         (2)      The undersigned registrant hereby undertakes that, for
                  purposes of determining any liability under the Securities
                  Act, each filing of the registrant's annual report pursuant to
                  Section 13(a) or Section 15(d) of the Securities Exchange Act
                  of 1934, as amended (the "Exchange Act") (and, where
                  applicable, each filing of an employee benefit plan's annual
                  report pursuant to Section 15(d) of the Exchange Act), that is
                  incorporated by reference in the registration statement shall
                  be deemed to be a new registration statement relating to the
                  securities offered therein, and the offering of such
                  securities at that time shall be deemed to be the initial bona
                  fide offering thereof.

         (3)      The undersigned registrant hereby undertakes as follows: that
                  prior to any public reoffering of the securities registered
                  hereunder through use of a prospectus which is a part of this
                  registration statement, by any person or party who is deemed
                  to be an underwriter within the meaning of Rule 145(c), the
                  issuer undertakes that such reoffering prospectus will contain
                  the information called for by the applicable registration form
                  with respect to

                                      II-4

<PAGE>   180



                  reofferings by persons who may be deemed underwriters, in
                  addition to the information called for by the other items of
                  the applicable form.

         (4)      The registrant undertakes that every prospectus (i) that is
                  filed pursuant to paragraph (3) immediately preceding, or (ii)
                  that purports to meet the requirements of section 10(a)(3) of
                  the Securities Act and is used in connection with an offering
                  of securities subject to Rule 415, will be filed as part of an
                  amendment to the registration statement and will not be used
                  until such amendment is effective, and that, for purposes of
                  determining any liability under the Securities Act, each such
                  post-effective amendment shall be deemed to be a new
                  registration statement relating to the securities offered
                  therein, and the offering of such securities at that time
                  shall be deemed to be the initial bona fide offering thereof.

         (5)      Insofar as indemnification for liabilities arising under the
                  Securities Act may be permitted to directors, officers and
                  controlling persons of the registrant pursuant to the
                  foregoing provisions, or otherwise, the registrant has been
                  advised that in the opinion of the Securities and Exchange
                  Commission such indemnification is against public policy as
                  expressed in the Securities Act and is, therefore,
                  unenforceable. In the event that a claim for indemnification
                  against such liabilities (other than the payment by the
                  registrant of expenses incurred or paid by a director, officer
                  or controlling person of the registrant in the successful
                  defense of any action, suit or proceeding) is asserted by such
                  director, officer or controlling person in connection with the
                  securities being registered, the registrant will, unless in
                  the opinion of its counsel the matter has been settled by
                  controlling precedent, submit to a court of appropriate
                  jurisdiction the question whether such indemnification by it
                  is against public policy, as expressed in the Securities Act
                  and will be governed by the final adjudication of such issue.

   (b)   The undersigned registrant hereby undertakes to respond to requests for
         information that is incorporated by reference into the prospectus
         pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
         day of receipt of such request, and to send the incorporated documents
         by first class mail or other equally prompt means. This includes
         information contained in documents filed subsequent to the effective
         date of the registration statement through the date of responding to
         the request.

   (c)   The undersigned registrant hereby undertakes to supply by means of a
         post-effective amendment all information concerning a transaction, and
         the company being acquired involved therein, that was not the subject
         of and included in the registration statement when it became effective.








                                      II-5

<PAGE>   181



                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New Berlin,
State of Wisconsin, on this 31st day of August, 1999.

                                       MERCHANTS AND MANUFACTURERS
                                       BANCORPORATION, INC.

                                       By:   /s/ Michael J. Murry
                                          --------------------------------------
                                              Michael J. Murry,
                                              Chairman of the Board of Directors

         Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

         Signature                                     Title                                             Date
      ----------------                          -------------------                                  ------------
<S>                                        <C>                                                     <C>
/s/Michael J. Murry                         Chairman of the Board of                                August 31, 1999
-----------------------------------------   Directors (Principal Executive
Michael J. Murry                            Officer)


/s/James Bomberg                            President and a Director                                August 31, 1999
----------------------------------------
James Bomberg

/s/James Mroczkowski                        Vice President, Chief Financial                         August 31, 1999
----------------------------------------    Officer, and Principal Financial
James Mroczkowski                           and Accounting Officer


            *                               Director                                                August 31, 1999
----------------------------------------
J. Michael Bartels

            *                               Director                                                August 31, 1999
----------------------------------------
Duane Cherek

            *                               Director                                                August 31, 1999
----------------------------------------
Robert Donaj

            *                               Director                                                August 31, 1999
----------------------------------------
Thomas Gapinski

            *                               Director                                                August 31, 1999
----------------------------------------
Casimir S. Janiszewski

            *                               Director                                                August 31, 1999
----------------------------------------
David Kaczynski
</TABLE>

                                      II-6

<PAGE>   182

<TABLE>
<CAPTION>
<S>                                        <C>                                                     <C>
            *                               Director                                                August 31, 1999
----------------------------------------
Conrad Kaminski

            *                               Director                                                August 31, 1999
----------------------------------------
John Krawczyk

            *                               Director                                                August 31, 1999
----------------------------------------
Nicholas Logarakis

            *                               Director                                                August 31, 1999
----------------------------------------
Longin Prazynski

            *                               Director                                                August 31, 1999
----------------------------------------
Gervaise Rose

            *                               Director                                                August 31, 1999
----------------------------------------
James Sass

            *                               Director                                                August 31, 1999
----------------------------------------
Keith Winters
</TABLE>

         *Michael J. Murry hereby signs this registration statement on August
31, 1999 on behalf of each of the indicated persons for whom he is
attorney-in-fact pursuant to a power of attorney filed herewith.

                                                         /s/ Michael J. Murry
                                                     --------------------------
                                                     Michael J. Murry

                                      II-7
<PAGE>   183
                                  EXHIBIT INDEX


Exhibit No.                     Description                        Sequential
                                                                     Page No.


    2(a)     Agreement and Plan of Merger dated as of March 9,
             1999 among the Registrant, Merchants Merger Corp.
             and Pyramid Bancorp.,  Inc.,  incorporated by
             reference to Exhibits A and A-1 to the Proxy
             Statement/Prospectus of the Registrant and Pyramid
             Bancorp., Inc. (the "Proxy Statement/Prospectus").

    2(b)     Voting Agreement dated as of March 9, 1999 among
             certain shareholders of Pyramid Bancorp., Inc. and
             the Registrant  incorporated  by reference to
             Exhibit B to the Proxy Statement/Prospectus.

    3(a)     Articles of Incorporation, as amended of Registrant.

    3(b)     Bylaws, of Registrant incorporated by reference to
             Exhibit 3.2 of Registrant's Registration Statement on
             Form S-1 filed on October 2, 1992 SEC File No. 33-
             53002.

     4       The Registrant has outstanding certain long term
             debt. None of such debt exceeds 10% of the total
             assets of the Registrant and its consolidated
             subsidiaries. Thus, copies of the constituent
             instruments defining the rights of the holders of
             such debt are not included as exhibits to this
             Registration Statement. The Registrant agrees to
             furnish  copies of such  instruments  to the
             Commission upon request.

     5       Opinion of Davis & Kuelthau, S.C. regarding
             legality of issuance of the Registrant's
             securities.

     8       Opinion of Davis & Kuelthau regarding certain federal
             income tax matters

    10(a)    The 1996 Incentive Stock Option Plan of the
             Registrant.

    10(b)    Salary Continuation Agreement between Lincoln State
             Bank and James Bomberg.


                                      II-8

<PAGE>   184




      10(c)    Employment  agreements  between Registrant and
               Conrad Kaminski and between Lincoln State Bank and
               James Bomberg incorporated by reference to Exhibit
               10.2 of Registrant's Registration Statement on
               Form S-1 filed on October 2, 1992, SEC File No.
               33-53002.

               Employment Agreements between Registrant and
               Michael J. Murry, James Mroczkowski and John
               Krawczyk.

               Employment Agreements between M&M Services,
               Inc. and Robert Blonski and Gregory Stengel,
               respectively.

               Employment Agreement between Achieve Mortgage
               Corporation and Robert Donaj.

               Employment Agreement between Grafton State Bank
               and Thomas Sheehan.

               Pursuant to Instruction 2 of Item 601 - Exhibits,
               Employment Agreements between Grafton State Bank
               and Peter J. Schumacher, Richard Belling and Jefford
               R. Larson, respectively, are omitted. The terms of
               such agreements are substantially identical in all
               material respects to the agreement between Grafton
               State Bank and Thomas Sheehan.

               The only material difference between the Sheehan
               Agreement and the three omitted agreements are
               reflected in "Position and Duties" and "Base Salary"
               as follows:
<TABLE>
<CAPTION>
                   Name                 Position          Base Salary
<S>            <C>                    <C>                  <C>
               Peter J. Schumacher    Controller           $48,300
               Richard L. Belling     V.P.-Mortgages        67,000
               Jefford R. Larson      V.P. Commercial       62,000
                                      Lending
</TABLE>


      21       List of Subsidiaries of the Registrant.
      23(a)    Consent of Ernst & Young, LLP as to the financial
               statements of the Registrant.


                                      II-9

<PAGE>   185



      23(b)    Consent of Davis & Kuelthau, S.C. incorporated by
               reference to Exhibits 5 and 8.

      23(c)    Consent of Virchow, Krause & Co. LLP as to financial
               statements of Pyramid Bancorp., Inc.

      23(d)    Consent of Marshall Financial Consulting LLC,
               financial adviser to Pyramid.

      23(e)    Consent of Michael Best & Friedrich LLC.

      23(f)    Rule 438 Consent of three directors of Pyramid who
               will become directors of Registrant upon completion
               of the Merger.

       24      Powers of Attorney.














                                     II-10