##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    Transition Report Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to
 Commission file number 0-21292
 MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
  Wisconsin
    
    39-1413328(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 New Berlin, Wisconsin 53151
  Not Applicable
 Common Stock, par value $1.00 per share
 o þ
 o þ
 þ o
 þ
 o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### Table of Contents



MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
 *****
 ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2005
 PagePart IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    10Item 1B.
    
    Unresolved Staff Comments
    
    
    14Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    15Item 6.
    
    Selected Financial Data
    
    
    16Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 8.
    
    Financial Statements and Supplementary Data
    
    
    33Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
    
    
    34Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
    
    
    36Consolidated Balance Sheets
    
    
    37Consolidated Statements of Income
    
    
    38Consolidated Statements of Changes in Stockholders Equity
    
    
    39Consolidated Statements of Cash Flows
    
    
    40Notes to Consolidated Financial Statements
    
    
    42Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    71Item 9A.
    
    Controls and Procedures
    
    
    71Item 9B.
    
    Other Information
    
    
    72Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    72Item 11.
    
    Executive Compensation
    
    
    72Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    72Item 13.
    
    Certain Relationships and Related Transactions
    
    
    73Item 14.
    
    Principal Accountant Fees and Services
    
    
    73Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    74Signatures
    
    
    75SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive OfficerCertification of Principal Financial Officer
 2




---



##### Table of Contents



Special Note Regarding Forward-Looking Statements
  
 
 
 
  3




---



##### Table of Contents



PART I
 
 Item 1. Business
 General
      Growth Strategy
  Acquisitions.
 
    
    the profitability of the institution on a historical and forward looking basis;
    
    the stability and experience of the management team and board of directors;
    
    the growth potential of the geographical markets in which the institution operates; and
    
    the asset quality track record of the institution and management.
 Internal growth.
  Non-interest income.
 4




---



##### Table of Contents



Our Bank Subsidiaries
  Total Assets atBank
    
    Year Organized
    
    Year Acquired
    
    December 31, 2005
    
    Communities Served
    
    Number of Facilities(Dollars in Thousands)Lincoln State Bank
    
    1919
    
    1983
    
    $467,938
    
    Milwaukee, WI
    
    8Muskego, WI
    
    2Brookfield, WI
    
    1Greenfield, WI
    
    2Hales Corners, WI
    
    1New Berlin, WI
    
    2Pewaukee, WI
    
    1West Allis, WI
    
    2Grafton State Bank
    
    1906
    
    1999
    
    $190,770
    
    Grafton, WI
    
    2Cedarburg, WI
    
    1Saukville, WI
    
    1Franklin State Bank
    
    1982
    
    1984
    
    $88,786
    
    Franklin, WI
    
    3Community Bank Financial
    
    1989
    
    2001
    
    $92,638
    
    Oconto Falls, WI
    
    1Gillett, WI
    
    1Little Suamico, WI
    
    1Cecil, WI
    
    1Fortress Bank
    
    1992
    
    2002
    
    $171,905
    
    Westby, WI
    
    2Coon Valley, WI
    
    1West Salem, WI
    
    1Chaseburg, WI
    
    1Prairie du Chien, WI
    
    2Onalaska, WI
    
    1Fortress Bank of Cresco
    
    1996
    
    2002
    
    $76,914
    
    Cresco, IA
    
    1Fortress Bank Minnesota
    
    1993
    
    2002
    
    $54,540
    
    Houston, MN
    
    1Winona, MN
    
    1The Reedsburg Bank
    
    1867
    
    2003
    
    $205,250
    
    Reedsburg, WI
    
    2North Freedom, WI
    
    1Lime Ridge, WI
    
    1Wisconsin State Bank
    
    1905
    
    2004
    
    $92,856
    
    Random Lake, WI
    
    1Belgium, WI
    
    1Sheboygan Falls, WI
    
    1
 Our Banks
  Lincoln State Bank.
 5




---



##### Table of Contents



Grafton State Bank.
 Franklin State Bank.
 Community Bank Financial
 Fortress Bank.
 Fortress Bank of Cresco.
 Fortress Bank Minnesota.
 The Reedsburg Bank.
 Wisconsin State Bank.
 Our Operating Subsidiaries
 Community Financial Group Financial Services, Inc.
 Community Financial Group Mortgage, Inc.
 Lincoln Neighborhood Redevelopment Corporation
 
    
    providing home mortgage loans to customers with low to moderate income;
    
    working with local businesses to keep commercial areas strong and attractive;
    
    pursuing means to preserve and create jobs;
    
    encouraging appropriate land-use;
    
    involving community residents in economic planning; and
    
    retaining and attracting businesses.
  Merchants Merger Corp.
 Merchants New Merger Corp.
 6




---



##### Table of Contents



Other Subsidiaries
  Competition
   Employees
  Supervision and Regulation
    7




---



##### Table of Contents



Sarbanes-Oxley Act of 2002
  Anti-Money Laundering Laws
  Bank Holding Company Regulation
  Investments and Activities
 
 
 
   
 
 8




---



##### Table of Contents




    
    making or servicing loans and certain types of leases;
    
    engaging in certain insurance and discount brokerage activities;
    
    performing certain data processing services;
    
    acting in certain circumstances as a fiduciary or investment or financial advisor;
    
    owning savings associations; and
    
    making investments in corporations or projects designed to promote community welfare.
   Source of Strength
 Capital Requirements
  Dividends
 Bank Regulations
  9




---



##### Table of Contents



Available Information
 http://www.mmbancorp.com
 
 Item 1A. Risk Factors
  Risks Related to Our Business
 Changes in interest rates may adversely affect our earnings and cost of funds.
    Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan
portfolio.
  10




---



##### Table of Contents



We have a material weakness in our internal control over financial reporting, which could adversely
affect our ability to report our financial condition and results of operations accurately and on a
timely basis.
   Because our business is concentrated in certain local markets, a downturn in the economy in such
markets may adversely affect our business.
  We may be adversely affected by government monetary policy.
  
    
    engaging in open market transactions in United States government securities;
    
    setting the discount rate on member bank borrowings, and
    
    determining reserve requirements.
  Our business may be adversely affected by the highly regulated environment in which we operate.
  11




---



##### Table of Contents



Our future success will depend on our ability to compete effectively in the highly competitive
banking industry.
  
    
    other commercial banks;
    
    savings banks;
    
    credit unions;
    
    mortgage brokers;
    
    small-loan companies;
    
    insurance companies;
    
    investment banking firms; and
    
    large retail companies.
  We may not be able to maintain and increase our deposit base and secure adequate funding.
  We may be exposed to risks associated with our acquisition strategy.
  
    
    Our regulatory capital ratios may be reduced to the extent we use cash or debt as
part or all of the purchase price of acquisitions.
    
    A number of potential acquirers exist for most acquisition candidates, creating
intense competition, particularly with respect to price. In many cases this competition
involves organizations with significantly greater resources than we have available.
    
    We may be exposed to potential asset quality issues of the banks or businesses we acquire.
    
    We may be exposed to unknown or contingent liabilities of the banks or businesses we acquire.
    
    We may have difficulty in properly estimating the value of the banks or businesses we acquire.
    
    The purchase price we pay may dilute our tangible book value or earnings per share in the short and long term.
    
    We may not be able to identify acquisitions on terms acceptable or favorable to us or
we may be unable to obtain the required regulatory approvals for any proposed
acquisitions.
    
    The process of integrating the systems and procedures of the acquired entity may be
complicated and time consuming to us, and it can also be disruptive to the customers and
employees of the acquired business and it can divert the attention of our management
away from operating our business. If the integration process is not conducted
successfully and with minimal disruption to the business and its customers and
employees, we may not realize the anticipated economic benefits of particular
acquisitions within the expected time frame, and we may lose customers or employees of
the acquired business.
    
    We may be unable to realize the expected revenue and profitability, including cost
savings, anticipated from the acquisition.
 12




---



##### Table of Contents



We may incur significant costs if we foreclose on environmentally contaminated real estate.
  We rely upon our information systems to successfully operate our business.
  
    
    expose us to claims from third parties or customers or could cause us to expend
significant resources and time to fix such breaches, which could negatively impact our
customer relationships;
    
    reduce our ability to serve our customers and benefit from the initial efficiencies
created by the implementation of such systems; or
    
    result in providing an advantage to certain of our competitors that have effectively
implemented and maintain their information systems, which could result in such customers
becoming better equipped to serve our customers.
  Risks Related to an Investment in our Common Stock
 To the extent we must rely on dividends from our subsidiaries to pay any dividends on our
shares of our common stock, our available cash flow may be restricted and ability to pay dividends
on our common stock may be limited.
  
    
    federal and state regulatory limitations, generally based on current and retained
earnings and capital maintenance requirements, imposed by various bank regulatory
agencies;
    
    profitability, financial condition and capital expenditures and other cash flow requirements of the subsidiaries; and
    
    prior claims of creditors of the subsidiaries.
 The trading price of our common stock has been volatile and investors in our common stock may
experience substantial losses.
  
    
    our failure to meet the performance estimates of securities analysts, changes in the
financial estimates of our income and operating results or buy/sell recommendations by
securities analysts;
    
    the timing of announcements by us or our competitors concerning significant
acquisitions, financial performance or the introduction of new innovative products or
services;
    
    fluctuation in our quarterly operating results;
    
    substantial sales of our common stock; or
    
    general stock market or other economic conditions.
  Various restrictions in our articles of incorporation, by-laws and banking law could prevent or
delay a change in control of us which is not supported by our board of directors.
  13




---



##### Table of Contents



Item 1B. Unresolved Staff Comments
  
 Item 2 Properties
           
 Item 3 Legal Proceedings
  
 Item 4 Submission of Matters to a Vote of Security Holders
  14




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
   Quotation or PriceQuarter Ended
    
    Low Bid
    
    High BidMarch 31, 2004
    
    $
    43.65
    
    
    $
    46.50June 30, 2004
    
    
    33.05
    
    
    
    43.55September 30, 2004
    
    
    29.75
    
    
    
    34.50December 31, 2004
    
    
    31.00
    
    
    
    38.20March 31, 2005
    
    $
    34.75
    
    
    $
    37.80June 30, 2005
    
    
    35.00
    
    
    
    40.00September 30, 2005
    
    
    36.25
    
    
    
    39.25December 31, 2005
    
    
    36.90
    
    
    
    39.00
    15




---



##### Table of Contents



Item 6. Selected Financial Data
  At or for the Year Ended December 31,2005
    
    
    2004(1)
    
    
    2003(2)
    
    
    2002(3)
    
    
    2001(4)(Dollars in Thousands, Except Per Share Data)Income Statement Data:Interest income (taxable equivalent) (5)
    
    $
    78,882
    
    
    $
    63,058
    
    
    $
    51,871
    
    
    $
    40,421
    
    
    $
    43,782Interest expense
    
    
    30,268
    
    
    
    19,633
    
    
    
    15,871
    
    
    
    13,106
    
    
    
    19,798Net interest income
    
    
    48,614
    
    
    
    43,425
    
    
    
    36,000
    
    
    
    27,315
    
    
    
    23,984Provision for loan losses
    
    
    3,951
    
    
    
    1,793
    
    
    
    1,311
    
    
    
    1,156
    
    
    
    1,125Net interest income after provision for loan losses
    
    
    44,663
    
    
    
    41,632
    
    
    
    34,689
    
    
    
    26,159
    
    
    
    22,859Noninterest income
    
    
    13,914
    
    
    
    11,537
    
    
    
    11,163
    
    
    
    6,127
    
    
    
    4,682Noninterest expense
    
    
    49,898
    
    
    
    45,839
    
    
    
    32,736
    
    
    
    22,139
    
    
    
    18,554Income before provision for income taxes
    
    
    8,679
    
    
    
    7,330
    
    
    
    13,116
    
    
    
    10,147
    
    
    
    8,987Provision for income taxes
    
    
    2,242
    
    
    
    2,258
    
    
    
    4,067
    
    
    
    3,244
    
    
    
    2,733Less taxable equivalent adjustment
    
    
    1,339
    
    
    
    1,070
    
    
    
    821
    
    
    
    518
    
    
    
    546Net income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228
    
    
    $
    6,385
    
    
    $
    5,708Dividends:Common stock
    
    $
    2,656
    
    
    $
    2,523
    
    
    $
    2,213
    
    
    $
    1,790
    
    
    $
    1,802Dividends per share
    
    
    0.72
    
    
    
    0.72
    
    
    
    0.68
    
    
    
    0.72
    
    
    
    0.71Dividend payout ratio
    
    
    52.10
    %
    
    
    63.04
    %
    
    
    26.90
    %
    
    
    28.03
    %
    
    
    31.57
    %Per Share Data:(6)Net income-Basic
    
    $
    1.39
    
    
    $
    1.16
    
    
    $
    2.58
    
    
    $
    2.30
    
    
    $
    2.05Net income-Diluted
    
    
    1.38
    
    
    
    1.15
    
    
    
    2.56
    
    
    
    2.29
    
    
    
    2.04Book value
    
    
    25.18
    
    
    
    24.97
    
    
    
    24.04
    
    
    
    21.92
    
    
    
    19.07Balance Sheet Data:Investment securities
    
    $
    173,639
    
    
    $
    172,564
    
    
    $
    156,597
    
    
    $
    130,125
    
    
    $
    66,143Loans, net
    
    
    1,120,616
    
    
    
    1,028,059
    
    
    
    847,938
    
    
    
    657,775
    
    
    
    477,332Total assets
    
    
    1,458,948
    
    
    
    1,357,065
    
    
    
    1,145,607
    
    
    
    909,405
    
    
    
    608,020Total deposits
    
    
    1,160,163
    
    
    
    1,033,046
    
    
    
    911,948
    
    
    
    729,456
    
    
    
    477,785Short-term borrowings
    
    
    44,332
    
    
    
    61,322
    
    
    
    34,007
    
    
    
    18,088
    
    
    
    17,046Long-term borrowings
    
    
    101,107
    
    
    
    111,054
    
    
    
    59,528
    
    
    
    72,322
    
    
    
    55,800Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    36,084
    
    
    
    10,310
    
    
    
    Total stockholders equity
    
    
    93,225
    
    
    
    91,739
    
    
    
    79,974
    
    
    
    69,329
    
    
    
    52,929Earnings Ratios:Return on average total assets
    
    
    0.36
    %
    
    
    0.33
    %
    
    
    0.86
    %
    
    
    0.99
    %
    
    
    0.95
    %Return on average total stockholders equity
    
    
    5.41
    
    
    
    4.69
    
    
    
    11.29
    
    
    
    11.55
    
    
    
    11.15Net interest margin (7)
    
    
    3.75
    
    
    
    3.86
    
    
    
    4.03
    
    
    
    4.48
    
    
    
    4.21Efficiency ratio (8)
    
    
    81.55
    
    
    
    85.06
    
    
    
    70.64
    
    
    
    67.24
    
    
    
    65.98Asset Quality Ratios:Allowance for loan losses to loans
    
    
    1.15
    
    
    
    1.02
    
    
    
    1.07
    
    
    
    1.15
    
    
    
    1.15Nonaccrual loans to loans
    
    
    0.46
    
    
    
    0.85
    
    
    
    0.62
    
    
    
    0.48
    
    
    
    0.92Allowance for loan losses to nonperforming loans (9)
    
    
    248.73
    
    
    
    119.74
    
    
    
    172.96
    
    
    
    239.24
    
    
    
    125.60Nonperforming assets to total assets (10)
    
    
    0.48
    
    
    
    0.75
    
    
    
    0.63
    
    
    
    0.61
    
    
    
    0.75Net loan charge-offs to average loans
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.21
    
    
    
    0.12Capital Ratios:Total stockholders equity to total assets
    
    
    6.39
    
    
    
    6.76
    
    
    
    6.99
    
    
    
    7.63
    
    
    
    8.71Total capital to risk-weighted assets ratio
    
    
    10.04
    
    
    
    10.14
    
    
    
    10.23
    
    
    
    10.71
    
    
    
    11.53Tier 1 capital to risk-weighted assets ratio
    
    
    7.77
    
    
    
    7.83
    
    
    
    8.27
    
    
    
    9.63
    
    
    
    10.43Tier 1 capital to average assets ratio
    
    
    6.37
    
    
    
    6.62
    
    
    
    7.19
    
    
    
    9.41
    
    
    
    8.72
 
 1)
    
    Year-end data for 2004 includes Random Lake Bancorp Limited and subsidiaries acquired by
Merchants on August 12, 2004.2)
    
    Year-end data for 2003 includes Reedsburg Bancorporation, Inc. and subsidiaries acquired by
Merchants on November 1, 2003.3)
    
    Year-end data for 2002 includes Fortress Bancshares, Inc. and subsidiaries acquired by
Merchants on November 30, 2002.4)
    
    Restated to reflect the January 16, 2001 acquisition of CBOC, Inc. which was accounted for as
pooling-of-interests.5)
    
    Taxable-equivalent adjustments to interest income involve the conversion of tax-exempt
sources of interest income to the equivalent amounts of interest income that would be
necessary to derive the same net return if the investments had been subject to income taxes.
A 34% incremental income tax rate, consistent with our historical experience, is used in the
conversion of tax-exempt interest income to a tax-equivalent basis.6)
    
    All per share information presented in this report has been retroactively restated to give
effect to the 10% stock dividend declared in November 2003, as if it occurred as of January 1,
2001.7)
    
    Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis)
to average interest-earning assets.8)
    
    Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and
noninterest income.9)
    
    Nonperforming loans consist of nonaccrual loans and certain loans with restructured terms.10)
    
    Nonperforming assets consist of nonperforming loans and other real estate. 16




---



##### Table of Contents



For the Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in Thousands)Net interest income
    
    $
    47,275
    
    
    $
    42,355
    
    
    $
    35,179
    
    
    $
    26,797
    
    
    $
    23,438Tax-equivalent adjustment to net interest income
    
    
    1,339
    
    
    
    1,070
    
    
    
    821
    
    
    
    518
    
    
    
    546Net interest income, fully tax-equivalent basis
    
    $
    48,614
    
    
    $
    43,425
    
    
    $
    36,000
    
    
    $
    27,315
    
    
    $
    23,984
 Quarterly Financial Data
  Three Months Ended 2005
    
    
    
    
    
    
    
    
    
    Three Months Ended 2004December (2)
    
    September
    
    June
    
    March
    
    December (2)
    
    September
    
    June
    
    March(Dollars in Thousands Except Per Share Data)Interest income (taxable-equivalent)
(1)
    
    $
    21,237
    
    
    $
    20,235
    
    
    $
    19,241
    
    
    $
    18,079
    
    
    $
    17,466
    
    
    $
    16,132
    
    
    $
    14,805
    
    
    $
    14,859Interest expense
    
    
    8,966
    
    
    
    8,006
    
    
    
    7,115
    
    
    
    6,181
    
    
    
    5,586
    
    
    
    5,003
    
    
    
    4,503
    
    
    
    4,542Net interest income
    
    
    12,271
    
    
    
    12,319
    
    
    
    12,126
    
    
    
    11,898
    
    
    
    11,880
    
    
    
    11,129
    
    
    
    10,302
    
    
    
    10,047Provision for loan losses
    
    
    2,781
    
    
    
    390
    
    
    
    390
    
    
    
    390
    
    
    
    461
    
    
    
    431
    
    
    
    451
    
    
    
    450Noninterest income
    
    
    3,242
    
    
    
    3,147
    
    
    
    3,432
    
    
    
    4,093
    
    
    
    2,979
    
    
    
    3,209
    
    
    
    2,654
    
    
    
    2,695Noninterest expense
    
    
    12,713
    
    
    
    12,183
    
    
    
    12,425
    
    
    
    12,577
    
    
    
    14,574
    
    
    
    11,042
    
    
    
    10,141
    
    
    
    10,082Income (loss) before taxes
    
    
    19
    
    
    
    2,893
    
    
    
    2,743
    
    
    
    3,024
    
    
    
    (176
    )
    
    
    2,865
    
    
    
    2,364
    
    
    
    2,210Provision for income taxes
    
    
    (234
    )
    
    
    821
    
    
    
    794
    
    
    
    861
    
    
    
    337
    
    
    
    676
    
    
    
    663
    
    
    
    582Less taxable-equivalent adjustment
    
    
    327
    
    
    
    342
    
    
    
    310
    
    
    
    360
    
    
    
    298
    
    
    
    255
    
    
    
    229
    
    
    
    221Net income (loss)
    
    ($
    74
    )
    
    $
    1,730
    
    
    $
    1,639
    
    
    $
    1,803
    
    
    ($
    811
    )
    
    $
    1,934
    
    
    $
    1,472
    
    
    $
    1,407Basic earnings (loss) per share
    
    ($
    0.02
    )
    
    $
    0.47
    
    
    $
    0.45
    
    
    $
    0.49
    
    
    ($
    0.22
    )
    
    $
    0.55
    
    
    $
    0.44
    
    
    $
    0.42Diluted earnings (loss) per share
    
    ($
    0.02
    )
    
    $
    0.47
    
    
    $
    0.44
    
    
    $
    0.49
    
    
    ($
    0.22
    )
    
    $
    0.55
    
    
    $
    0.44
    
    
    $
    0.42Dividends per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
 
 (1)
    
    Taxable-equivalent adjustments to interest income involve the conversion of tax-exempt
sources of interest income to the equivalent amounts of interest income that would be
necessary to derive the same net return if the investments had been subject to income
taxes. A 34% incremental income tax rate, consistent with our historical experience, is
used in the conversion of tax-exempt interest income to a tax-equivalent basis.(2)
    
    A significant fourth quarter adjustment recognized in 2005 included a provision for
loan losses of $2.4 million before income taxes. Significant fourth quarter adjustments
recognized in 2004 included: (1) a pre-tax charge of $1.2 million for centralization and
data processing conversions, (2) a pre-tax charge of $450,000 related to Sarbanes-Oxley
compliance activities and (3) a pre-tax charge of $730,000 related to establishing a tax
reserve for potential payments due to the Wisconsin Department of Revenue. Fourth Quarter Results
    17




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
    Results of Operations
     18




---



##### Table of Contents



Net Interest Income
   19




---



##### Table of Contents



At or for the Year Ended December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in Thousands)AssetsLoans, net (1)(2)
    
    $
    1,090,879
    
    
    $
    69,546
    
    
    
    6.38
    %
    
    $
    929,412
    
    
    $
    54,908
    
    
    
    5.91
    %
    
    $
    724,469
    
    
    $
    45,184
    
    
    
    6.24
    %Loans exempt from federal income
taxes (3)
    
    
    3,616
    
    
    
    253
    
    
    
    7.00
    %
    
    
    4,082
    
    
    
    306
    
    
    
    7.50
    %
    
    
    3,481
    
    
    
    279
    
    
    
    8.01
    %Taxable investment securities (4)
    
    
    36,385
    
    
    
    1,617
    
    
    
    4.44
    %
    
    
    40,032
    
    
    
    1,671
    
    
    
    4.17
    %
    
    
    42,486
    
    
    
    2,080
    
    
    
    4.90
    %Mortgage-related securities (4)
    
    
    89,821
    
    
    
    3,534
    
    
    
    3.93
    %
    
    
    91,239
    
    
    
    3,176
    
    
    
    3.48
    %
    
    
    69,283
    
    
    
    1,988
    
    
    
    2.87
    %Investment securities exempt
from federal income taxes (3)(4)
    
    
    66,009
    
    
    
    3,686
    
    
    
    5.58
    %
    
    
    48,614
    
    
    
    2,842
    
    
    
    5.85
    %
    
    
    36,909
    
    
    
    2,136
    
    
    
    5.79
    %Other securities
    
    
    8,433
    
    
    
    246
    
    
    
    2.92
    %
    
    
    12,181
    
    
    
    155
    
    
    
    1.27
    %
    
    
    16,647
    
    
    
    204
    
    
    
    1.23
    %Interest earning assets
    
    
    1,295,143
    
    
    
    78,882
    
    
    
    6.09
    %
    
    
    1,125,560
    
    
    
    63,058
    
    
    
    5.60
    %
    
    
    893,275
    
    
    
    51,871
    
    
    
    5.81
    %Non interest earning assets
    
    
    125,640
    
    
    
    
    
    
    
    
    
    
    
    99,916
    
    
    
    
    
    
    
    
    
    
    
    67,559Average assets
    
    $
    1,420,783
    
    
    
    
    
    
    
    
    
    
    $
    1,225,476
    
    
    
    
    
    
    
    
    
    
    $
    960,834Liabilities and Stockholders
EquityNOW deposits
    
    $
    98,183
    
    
    
    571
    
    
    
    0.58
    %
    
    $
    88,067
    
    
    
    420
    
    
    
    0.48
    %
    
    $
    64,578
    
    
    
    400
    
    
    
    0.62
    %Money market deposits
    
    
    237,947
    
    
    
    4,016
    
    
    
    1.69
    %
    
    
    260,275
    
    
    
    2,889
    
    
    
    1.11
    %
    
    
    230,298
    
    
    
    3,320
    
    
    
    1.44
    %Savings deposits
    
    
    136,581
    
    
    
    1,321
    
    
    
    0.97
    %
    
    
    128,954
    
    
    
    1,094
    
    
    
    0.85
    %
    
    
    90,723
    
    
    
    623
    
    
    
    0.69
    %Time deposits
    
    
    472,621
    
    
    
    14,741
    
    
    
    3.12
    %
    
    
    354,332
    
    
    
    8,450
    
    
    
    2.38
    %
    
    
    283,156
    
    
    
    7,316
    
    
    
    2.58
    %Short-term borrowings
    
    
    59,493
    
    
    
    2,171
    
    
    
    3.65
    %
    
    
    40,420
    
    
    
    838
    
    
    
    2.07
    %
    
    
    25,493
    
    
    
    594
    
    
    
    2.33
    %Long-term borrowings
    
    
    112,074
    
    
    
    4,294
    
    
    
    3.83
    %
    
    
    96,617
    
    
    
    3,546
    
    
    
    3.67
    %
    
    
    67,235
    
    
    
    2,463
    
    
    
    3.66
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    3,154
    
    
    
    6.80
    %
    
    
    38,690
    
    
    
    2,396
    
    
    
    6.19
    %
    
    
    19,073
    
    
    
    1,155
    
    
    
    6.06
    %Interest bearing liabilities
    
    
    1,163,293
    
    
    
    30,268
    
    
    
    2.60
    %
    
    
    1,007,355
    
    
    
    19,633
    
    
    
    1.95
    %
    
    
    780,556
    
    
    
    15,871
    
    
    
    2.03
    %Demand deposits and other non
interest bearing liabilities
    
    
    163,313
    
    
    
    
    
    
    
    
    
    
    
    132,720
    
    
    
    
    
    
    
    
    
    
    
    107,404Stockholders equity
    
    
    94,177
    
    
    
    
    
    
    
    
    
    
    
    85,401
    
    
    
    
    
    
    
    
    
    
    
    72,874Average liabilities and
stockholders equity
    
    $
    1,420,783
    
    
    
    
    
    
    
    
    
    
    $
    1,225,476
    
    
    
    
    
    
    
    
    
    
    $
    960,834Net interest spread (5)
    
    
    
    
    
    $
    48,614
    
    
    
    3.49
    %
    
    
    
    
    
    $
    43,425
    
    
    
    3.65
    %
    
    
    
    
    
    $
    36,000
    
    
    
    3.78
    %Net interest earning assets
    
    $
    131,850
    
    
    
    
    
    
    
    
    
    
    $
    118,205
    
    
    
    
    
    
    
    
    
    
    $
    112,719Net interest margin on a fully
tax equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.75
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %
    
    
    
    
    
    
    
    
    
    
    4.03
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.65
    %
    
    
    
    
    
    
    
    
    
    
    3.76
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %Ratio of average
interest-earning assets to
average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    1.11
    
    
    
    
    
    
    
    
    
    
    
    1.12
    
    
    
    
    
    
    
    
    
    
    
    1.14
 
 (1)
    
    For the purpose of these computations, nonaccrual loans are included in the daily average
loan amounts outstanding.(2)
    
    Interest earned on loans includes loan fees (which are not material in amount) and interest
income which has been received from borrowers whose loans were removed from nonaccrual status
during the period indicated.(3)
    
    Taxable-equivalent adjustments were made using a 34% corporate tax rate for all years
presented in calculating interest income and yields.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the average yield on interest earning
assets and the average cost of interest bearing liabilities and is represented on a fully tax
equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average interest
earning assets. 20




---



##### Table of Contents



VOLUME, RATE AND MIX ANALYSIS OF NET INTEREST INCOME
 For the Year Ended December 31,2005 vs. 2004
    
    
    2004 vs. 2003Change
    
    
    Change
    
    
    
    
    
    
    Change
    
    
    ChangeDue to
    
    
    Due to
    
    
    Total
    
    
    Due to
    
    
    Due to
    
    
    TotalVolume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change(Dollars in Thousands)Interest-Earning Assets:Loans, net (1)
    
    $
    10,058
    
    
    $
    4,580
    
    
    $
    14,638
    
    
    $
    11,953
    
    
    $
    (2,229
    )
    
    $
    9,724Loans exempt from federal income
taxes (2)
    
    
    (33
    )
    
    
    (20
    )
    
    
    (53
    )
    
    
    43
    
    
    
    (16
    )
    
    
    27Taxable investment securities
    
    
    (186
    )
    
    
    132
    
    
    
    (54
    )
    
    
    (115
    )
    
    
    (294
    )
    
    
    (409
    )Mortgage-related securities
    
    
    (48
    )
    
    
    406
    
    
    
    358
    
    
    
    710
    
    
    
    478
    
    
    
    1,188Investment securities exempt from
federal income taxes (2)
    
    
    965
    
    
    
    (121
    )
    
    
    844
    
    
    
    684
    
    
    
    22
    
    
    
    706Other securities
    
    
    (28
    )
    
    
    119
    
    
    
    91
    
    
    
    (57
    )
    
    
    8
    
    
    
    (49
    )Total interest-earning assets
    
    $
    10,728
    
    
    $
    5,096
    
    
    $
    15,824
    
    
    $
    13,218
    
    
    $
    (2,031
    )
    
    $
    11,187Interest-Bearing Liabilities:NOW deposits
    
    $
    52
    
    
    $
    99
    
    
    $
    151
    
    
    $
    54
    
    
    $
    (34
    )
    
    $
    20Money market deposits
    
    
    (222
    )
    
    
    1,349
    
    
    
    1,127
    
    
    
    562
    
    
    
    (993
    )
    
    
    (431
    )Savings deposits
    
    
    67
    
    
    
    160
    
    
    
    227
    
    
    
    302
    
    
    
    169
    
    
    
    471Time deposits
    
    
    3,273
    
    
    
    3,018
    
    
    
    6,291
    
    
    
    1,635
    
    
    
    (501
    )
    
    
    1,134Short-term borrowings
    
    
    510
    
    
    
    823
    
    
    
    1,333
    
    
    
    301
    
    
    
    (57
    )
    
    
    244Long-term borrowings
    
    
    587
    
    
    
    161
    
    
    
    748
    
    
    
    107
    
    
    
    (174
    )
    
    
    (67
    )Junior subordinated debt owed to
unconsolidated trusts
    
    
    508
    
    
    
    250
    
    
    
    758
    
    
    
    2,648
    
    
    
    (257
    )
    
    
    2,391Total interest-bearing liabilities
    
    $
    4,775
    
    
    $
    5,189
    
    
    $
    10,635
    
    
    $
    5,609
    
    
    $
    (1,847
    )
    
    $
    3,762Net change in net interest income
    
    
    
    
    
    
    
    
    
    $
    5,189
    
    
    
    
    
    
    
    
    
    
    $
    7,425
 
 (1)
    
    Interest earned on loans includes loan fees (which are not material in amount) and interest
income which has been received from borrowers whose loans were removed from non-accrual during
the period indicated.(2)
    
    Taxable-equivalent adjustments were made using a 34% corporate tax rate for all years presented
in calculating interest income and yields. Provision For Loan Losses
  21




---



##### Table of Contents



Non-Interest Income
  For the Year Ended December 31,2005
    
    2004
    
    2003(Dollars in Thousands)Service charges on deposit accounts
    
    $
    4,229
    
    
    $
    3,566
    
    
    $
    2,649Service charges on loans
    
    
    3,362
    
    
    
    2,154
    
    
    
    2,565Tax fees, brokerage and insurance commissions
    
    
    1,651
    
    
    
    1,547
    
    
    
    1,165Securities gains, net
    
    
    
    
    
    
    191
    
    
    
    360Gain on sale of loans, net
    
    
    366
    
    
    
    494
    
    
    
    1,859Net gain on sale of premises
    
    
    286
    
    
    
    158
    
    
    
    2Other
    
    
    4,020
    
    
    
    3,427
    
    
    
    2,563Total non-interest income
    
    $
    13,914
    
    
    $
    11,537
    
    
    $
    11,163
        22




---



##### Table of Contents



Non-Interest Expense
  For the Year Ended December 31,2005
    
    2004
    
    2003(Dollars in Thousands)Salaries and employee benefits
    
    $
    28,137
    
    
    $
    24,646
    
    
    $
    18,655Premises and equipment
    
    
    7,119
    
    
    
    6,387
    
    
    
    4,079Marketing and business development
    
    
    2,261
    
    
    
    2,321
    
    
    
    1,509Data processing fees
    
    
    3,464
    
    
    
    2,296
    
    
    
    1,193Data processing conversions
    
    
    
    
    
    
    573
    
    
    
    System installations
    
    
    
    
    
    
    830
    
    
    
    Sarbanes-Oxley implementation
    
    
    
    
    
    
    783
    
    
    
    Other
    
    
    8,917
    
    
    
    8,003
    
    
    
    7,300Total noninterest expense
    
    $
    49,898
    
    
    $
    45,839
    
    
    $
    32,736
       23




---



##### Table of Contents



Income Taxes
  Loans Receivable
  At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in Thousands)First mortgage:Conventional single-family residential
    
    $
    167,745
    
    
    $
    142,926
    
    
    $
    113,479
    
    
    $
    98,075
    
    
    $
    78,377Commercial and multi-family residential
    
    
    474,480
    
    
    
    436,612
    
    
    
    283,433
    
    
    
    198,250
    
    
    
    180,102Construction
    
    
    81,651
    
    
    
    76,267
    
    
    
    47,894
    
    
    
    32,995
    
    
    
    34,744Farmland
    
    
    52,392
    
    
    
    55,710
    
    
    
    43,676
    
    
    
    20,847
    
    
    
    7,312776,628
    
    
    
    711,515
    
    
    
    488,482
    
    
    
    350,167
    
    
    
    300,535Commercial business loans
    
    
    270,101
    
    
    
    240,575
    
    
    
    294,645
    
    
    
    246,787
    
    
    
    140,671Consumer and installment loans
    
    
    50,663
    
    
    
    49,136
    
    
    
    51,886
    
    
    
    51,883
    
    
    
    32,401Home equity loans
    
    
    28,541
    
    
    
    26,592
    
    
    
    14,664
    
    
    
    9,492
    
    
    
    6,140Other
    
    
    7,734
    
    
    
    10,863
    
    
    
    7,397
    
    
    
    7,109
    
    
    
    3,148357,039
    
    
    
    327,166
    
    
    
    368,592
    
    
    
    315,271
    
    
    
    182,360Less: Allowance for loan losses
    
    
    (13,051
    )
    
    
    (10,622
    )
    
    
    (9,136
    )
    
    
    (7,663
    )
    
    
    (5,563
    )Loans, net
    
    $
    1,120,616
    
    
    $
    1,028,059
    
    
    $
    847,938
    
    
    $
    657,775
    
    
    $
    477,332
 24




---



##### Table of Contents



One to Five
    
    Over FiveWithin One Year
    
    Years
    
    Years
    
    Total(Dollars in Thousands)Commercial business loans
    
    $
    186,848
    
    
    $
    80,298
    
    
    $
    2,955
    
    
    $
    270,101First mortgage loans
    
    
    409,268
    
    
    
    350,439
    
    
    
    16,921
    
    
    
    776,628$
    596,116
    
    
    $
    430,737
    
    
    $
    19,876
    
    
    $
    1,046,729Loans maturing after one year
with:Fixed interest rates
    
    
    
    
    
    $
    394,153
    
    
    $
    19,416Variable interest rates
    
    
    
    
    
    
    36,584
    
    
    
    460$
    430,737
    
    
    $
    19,876
 Allowance For Loan Losses
   25




---



##### Table of Contents



At or for the Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in Thousands)Balance at beginning of year
    
    $
    10,622
    
    
    $
    9,136
    
    
    $
    7,663
    
    
    $
    5,563
    
    
    $
    5,010Charge-offs:Conventional single-family residential
    
    
    (172
    )
    
    
    (49
    )
    
    
    (84
    )
    
    
    (1
    )
    
    
    (6
    )Commercial and multifamily residential
    
    
    (241
    )
    
    
    (326
    )
    
    
    (69
    )
    
    
    (647
    )
    
    
    Agricultural loans
    
    
    (17
    )
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    Commercial business loans
    
    
    (1,271
    )
    
    
    (383
    )
    
    
    (532
    )
    
    
    (99
    )
    
    
    (210
    )Consumer and installment loans
    
    
    (688
    )
    
    
    (863
    )
    
    
    (746
    )
    
    
    (429
    )
    
    
    (379
    )Total charge-offs
    
    
    (2,389
    )
    
    
    (1,725
    )
    
    
    (1,431
    )
    
    
    (1,176
    )
    
    
    (595
    )Recoveries
    
    
    867
    
    
    
    419
    
    
    
    390
    
    
    
    112
    
    
    
    23Net charge-offs
    
    
    (1,522
    )
    
    
    (1,306
    )
    
    
    (1,041
    )
    
    
    (1,064
    )
    
    
    (572
    )Increase due to acquisition
    
    
    
    
    
    
    999
    
    
    
    1,203
    
    
    
    2,008
    
    
    
    Provisions charged to operations
    
    
    3,951
    
    
    
    1,793
    
    
    
    1,311
    
    
    
    1,156
    
    
    
    1,125Balance at end of year
    
    $
    13,051
    
    
    $
    10,622
    
    
    $
    9,136
    
    
    $
    7,663
    
    
    $
    5,563Ratios:Net charge-offs to average loans outstanding
    
    
    0.14
    %
    
    
    0.14
    %
    
    
    0.14
    %
    
    
    0.21
    %
    
    
    0.11
    %Net charge-offs to total allowance
    
    
    11.67
    %
    
    
    12.30
    %
    
    
    11.39
    %
    
    
    13.88
    %
    
    
    10.28
    %Allowance to year end gross loans outstanding
    
    
    1.15
    %
    
    
    1.02
    %
    
    
    1.07
    %
    
    
    1.15
    %
    
    
    1.15
    %
 Non-performing and Delinquent Loans
    At or for the Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in Thousands)Nonaccrual loans
    
    $
    5,247
    
    
    $
    8,871
    
    
    $
    5,282
    
    
    $
    3,203
    
    
    $
    4,429Other real estate owned
    
    
    1,812
    
    
    
    1,296
    
    
    
    1,945
    
    
    
    2,382
    
    
    
    139Total non-performing assets
    
    $
    7,059
    
    
    $
    10,167
    
    
    $
    7,227
    
    
    $
    5,585
    
    
    $
    4,568Ratios:Non-accrual loans to total loans
    
    
    0.46
    %
    
    
    0.85
    %
    
    
    0.62
    %
    
    
    0.48
    %
    
    
    0.92
    %Allowance to non-accrual loans
    
    
    248.73
    %
    
    
    119.74
    %
    
    
    172.96
    %
    
    
    239.24
    %
    
    
    125.60
    %Non-performing assets to total assets
    
    
    0.48
    %
    
    
    0.75
    %
    
    
    0.63
    %
    
    
    0.61
    %
    
    
    0.75
    %
 26




---



##### Table of Contents



Potential Problem Loans
   Investment Securities
    27




---



##### Table of Contents



At December 31,2005
    
    2004
    
    2003(Dollars in Thousands)U.S. Treasury and other U.S.
government securities
    
    $
    12,126
    
    
    $
    10,174
    
    
    $
    32,402State and political subdivision securities
    
    
    71,732
    
    
    
    68,297
    
    
    
    48,859Corporate bonds
    
    
    50
    
    
    
    75
    
    
    
    75Collateralized mortgage obligations
    
    
    54,154
    
    
    
    51,294
    
    
    
    34,249Mortgage-backed securities
    
    
    35,577
    
    
    
    42,724
    
    
    
    41,012$
    173,639
    
    
    $
    172,564
    
    
    $
    156,597
  Within One Year
    
    One to Five Years
    
    Five to Ten Years
    
    Over Ten YearsWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield(Dollars in Thousands)U.S. Treasury and other
government agency securities
    
    $
    2,250
    
    
    
    3.17
    %
    
    $
    9,250
    
    
    
    3.81
    %
    
    $
    626
    
    
    
    5.11
    %
    
    $
    
    
    
    
    
    %State and political subdivision securities
    
    
    3,139
    
    
    
    5.46
    
    
    
    18,898
    
    
    
    5.23
    
    
    
    35,234
    
    
    
    5.73
    
    
    
    14,461
    
    
    
    6.04Corporate bonds
    
    
    25
    
    
    
    6.20
    
    
    
    25
    
    
    
    2.25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations
    
    
    4,309
    
    
    
    3.53
    
    
    
    47,382
    
    
    
    4.25
    
    
    
    2,455
    
    
    
    4.54
    
    
    
    8
    
    
    
    Mortgage-backed securities
    
    
    232
    
    
    
    4.61
    
    
    
    33,018
    
    
    
    4.52
    
    
    
    2,297
    
    
    
    5.45
    
    
    
    30
    
    
    
    5.20$
    9,955
    
    
    
    4.09
    %
    
    $
    108,573
    
    
    
    4.47
    %
    
    $
    40,612
    
    
    
    5.63
    %
    
    $
    14,499
    
    
    
    6.04
    %
  Total Deposits
   At December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate(Dollars in Thousands)Non-interest-bearing demand deposits
    
    $
    136,190
    
    
    
    0.00
    %
    
    $
    119,839
    
    
    
    0.00
    %
    
    $
    95,351
    
    
    
    0.00
    %NOW and money market deposits
    
    
    336,130
    
    
    
    1.37
    
    
    
    348,342
    
    
    
    0.95
    
    
    
    294,876
    
    
    
    1.26Savings deposits
    
    
    136,581
    
    
    
    0.97
    
    
    
    128,954
    
    
    
    0.85
    
    
    
    90,723
    
    
    
    0.69Time deposits
    
    
    472,621
    
    
    
    3.12
    
    
    
    354,332
    
    
    
    2.38
    
    
    
    283,156
    
    
    
    2.58Total
    
    $
    1,081,522
    
    
    
    1.91
    %
    
    $
    951,467
    
    
    
    1.35
    %
    
    $
    764,106
    
    
    
    1.52
    %
 28




---



##### Table of Contents



Amount atDecember 31, 2005(Dollars in Thousands)Three months or less
    
    $
    36,199Over three months through 6 months
    
    
    55,486Over six months through 12 months
    
    
    35,724Over twelve months
    
    
    93,896Total
    
    $
    221,305
 Borrowings
   At December 31,2005
    
    2004
    
    2003Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate(Dollars in Thousands)Federal Funds purchased
    
    $
    27,297
    
    
    
    3.97
    %
    
    $
    51,142
    
    
    
    2.59
    %
    
    $
    24,500
    
    
    
    1.29
    %Securities sold under
agreements to repurchase
    
    
    247
    
    
    
    0.86
    
    
    
    19
    
    
    
    0.85
    
    
    
    1,588
    
    
    
    1.27Other short-term borrowings
    
    
    16,788
    
    
    
    4.96
    
    
    
    10,161
    
    
    
    3.92
    
    
    
    7,919
    
    
    
    2.54Long-term borrowings
    
    
    101,107
    
    
    
    3.84
    
    
    
    111,054
    
    
    
    3.55
    
    
    
    72,346
    
    
    
    4.00Junior subordinated debt
owed to unconsolidated
trusts
    
    
    46,394
    
    
    
    7.37
    
    
    
    46,394
    
    
    
    6.16
    
    
    
    36,084
    
    
    
    6.30$
    191,833
    
    
    
    4.93
    %
    
    $
    218,770
    
    
    
    3.90
    %
    
    $
    142,437
    
    
    
    4.00
    %
  For the year ended December 31,2005
    
    2004
    
    2003(Dollars in Thousands)Federal Funds purchased
    
    $
    71,210
    
    
    $
    51,142
    
    
    $
    24,500Securities sold under
agreements to repurchase
    
    
    247
    
    
    
    2,424
    
    
    
    8,425Other short-term borrowings
    
    
    18,416
    
    
    
    13,770
    
    
    
    16,222Long-term borrowings
    
    
    123,893
    
    
    
    112,467
    
    
    
    83,879Junior subordinated debt
owed to unconsolidated
trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    36,084$
    260,160
    
    
    $
    226,197
    
    
    $
    169,110
 29




---



##### Table of Contents



For the year ended December 31,2005
    
    2004
    
    2003Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate(Dollars in Thousands)Federal Funds purchased
    
    $
    46,975
    
    
    
    3.24
    %
    
    $
    29,757
    
    
    
    1.72
    %
    
    $
    7,245
    
    
    
    1.57
    %Securities sold under
agreements to repurchase
    
    
    127
    
    
    
    0.86
    
    
    
    804
    
    
    
    1.25
    
    
    
    5,059
    
    
    
    1.28Other short-term borrowings
    
    
    12,391
    
    
    
    4.96
    
    
    
    9,859
    
    
    
    3.23
    
    
    
    11,124
    
    
    
    2.70Long-term borrowings
    
    
    112,074
    
    
    
    3.83
    
    
    
    96,617
    
    
    
    3.67
    
    
    
    69,300
    
    
    
    3.71Junior subordinated debt
owed to unconsolidated
trusts
    
    
    46,394
    
    
    
    6.80
    
    
    
    38,690
    
    
    
    6.19
    
    
    
    19,073
    
    
    
    6.06$
    217,961
    
    
    
    4.41
    %
    
    $
    175,727
    
    
    
    3.86
    %
    
    $
    111,801
    
    
    
    3.77
    %
 Capital Resources and Adequacy
      Liquidity and Capital Resources
  30




---



##### Table of Contents



For the year ended December 31,2005
    
    
    2004
    
    
    2003(Dollars in Thousands)Cash and cash equivalents at beginning of period
    
    $
    44,270
    
    
    $
    47,655
    
    
    $
    61,755Operating activities:Net income
    
    
    5,098
    
    
    
    4,002
    
    
    
    8,228Adjustments to reconcile net income to net cash
provided by operating activities
    
    
    9,479
    
    
    
    4,511
    
    
    
    1,397Net cash provided by operating activities
    
    
    14,577
    
    
    
    8,513
    
    
    
    9,625Net cash used in investing activities
    
    
    (109,783
    )
    
    
    (118,676
    )
    
    
    (109,462
    )Net cash provided by financing activities
    
    
    97,714
    
    
    
    106,778
    
    
    
    85,737Increase (decrease) in cash and cash equivalents
    
    
    2,508
    
    
    
    (3,385
    )
    
    
    (14,100
    )Cash and cash equivalents at end of period
    
    $
    46,778
    
    
    $
    44,270
    
    
    $
    47,655
    Time deposits
    
    Long-term debt(1)
    
    Operating leases
    
    Total(Dollars in Thousands)2006
    
    $
    296,545
    
    
    $
    25,281
    
    
    $
    922
    
    
    $
    322,7482007
    
    
    97,992
    
    
    
    26,750
    
    
    
    583
    
    
    
    125,3252008
    
    
    43,184
    
    
    
    31,441
    
    
    
    566
    
    
    
    75,1912009
    
    
    29,860
    
    
    
    11,500
    
    
    
    538
    
    
    
    41,8982010
    
    
    35,608
    
    
    
    2,500
    
    
    
    391
    
    
    
    38,499Thereafter
    
    
    
    
    
    
    50,029
    
    
    
    
    
    
    
    50,029Total
    
    $
    503,189
    
    
    $
    147,501
    
    
    $
    3,000
    
    
    $
    653,690Commitments to originate mortgage loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,426Unused lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    246,194Standby letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,362
 
 (1)
    
    Long-term debt includes junior subordinated debt owed to
unconsolidated trusts Asset/Liability Management
  31




---



##### Table of Contents



Amounts Maturing or Repricing as of December 31, 2005Within
    
    
    Six to Twelve
    
    
    One to Five
    
    
    OverSix months
    
    
    Months
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in Thousands)Interest-earning assets:Fixed-rate mortgage loans
    
    $
    126,808
    
    
    $
    73,994
    
    
    $
    313,855
    
    
    $
    16,461
    
    
    $
    531,118Adjustable-rate mortgage loans
    
    
    195,642
    
    
    
    12,824
    
    
    
    36,584
    
    
    
    460
    
    
    
    245,510Total mortgage loans
    
    
    322,450
    
    
    
    86,818
    
    
    
    350,439
    
    
    
    16,921
    
    
    
    776,628Commercial business loans
    
    
    163,957
    
    
    
    22,891
    
    
    
    80,298
    
    
    
    2,955
    
    
    
    270,101Consumer loans
    
    
    17,041
    
    
    
    6,621
    
    
    
    25,594
    
    
    
    1,407
    
    
    
    50,663Home equity loans
    
    
    20,841
    
    
    
    2
    
    
    
    7,012
    
    
    
    686
    
    
    
    28,541Other loans
    
    
    4,548
    
    
    
    147
    
    
    
    1,919
    
    
    
    1,120
    
    
    
    7,734Mortgage-related securities
    
    
    7,847
    
    
    
    8,979
    
    
    
    54,690
    
    
    
    18,106
    
    
    
    89,622Fixed rate investment securities and other
    
    
    906
    
    
    
    4,642
    
    
    
    28,148
    
    
    
    50,321
    
    
    
    84,017Variable rate investment securities and other
    
    
    28,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,716Total interest-earning assets
    
    $
    566,306
    
    
    $
    130,100
    
    
    $
    548,100
    
    
    $
    91,516
    
    
    $
    1,336,022Interest-bearing liabilities:DepositsTime deposits
    
    $
    185,465
    
    
    $
    111,080
    
    
    $
    206,496
    
    
    $
    148
    
    
    $
    503,189NOW accounts
    
    
    6,562
    
    
    
    6,562
    
    
    
    65,614
    
    
    
    30,621
    
    
    
    109,359Savings accounts
    
    
    8,042
    
    
    
    8,110
    
    
    
    80,421
    
    
    
    37,530
    
    
    
    134,103Money market accounts
    
    
    27,958
    
    
    
    14,423
    
    
    
    144,232
    
    
    
    67,308
    
    
    
    253,921Short-term borrowings
    
    
    44,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,332Long-term borrowings
    
    
    19,286
    
    
    
    6,005
    
    
    
    72,211
    
    
    
    3,605
    
    
    
    101,107Junior subordinated debt owed to unconsolidated trusts
    
    
    28,352
    
    
    
    
    
    
    
    
    
    
    
    18,042
    
    
    
    46,394Total interest-bearing liabilities
    
    $
    319,997
    
    
    $
    146,180
    
    
    $
    568,974
    
    
    $
    157,254
    
    
    $
    1,192,405Interest-earning assets less interest-bearing liabilities
    
    $
    246,309
    
    
    $
    (16,080
    )
    
    $
    (20,874
    )
    
    $
    (65,738
    )
    
    $
    143,617Cumulative interest rate sensitivity gap
    
    $
    246,309
    
    
    $
    230,229
    
    
    $
    209,355
    
    
    $
    143,617Cumulative interest rate sensitivity gap as a
percentage of total assets
    
    
    16.86
    %
    
    
    15.75
    %
    
    
    14.33
    %
    
    
    9.83
    %
   
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   32




---



##### Table of Contents



Percent Change in Net Interest IncomeChange in Interest Rates
    
    2005
    
    2004+ 200 basis points
    
    
    10.70
    %
    
    
    8.17
    %+ 150 basis points
    
    
    8.15
    %
    
    
    6.12
    %+ 100 basis points
    
    
    5.60
    %
    
    
    3.45
    %+ 50 basis points
    
    
    3.05
    %
    
    
    0.69
    %Base Scenario
    
    
    0.00
    %
    
    
    0.00
    %- 50 basis points
    
    
    (2.06
    )%
    
    
    (4.92
    )%- 100 basis points
    
    
    (3.89
    )%
    
    
    (6.88
    )%- 150 basis points
    
    
    (6.92
    )%
    
    
    (10.90
    )%- 200 basis points
    
    
    (8.91
    )%
    
    
    (13.72
    )%
   
 Item 8. Financial Statements and Supplementary Data
  33




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm  on Internal Control over Financial Reporting
 
     
 34




---



##### Table of Contents



35




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm  on Consolidated Financial Statements
 
      
 
 36




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 December 31, 2005 and 2004
 Assets
    
    2005
    
    
    2004(Dollars In Thousands, ExceptShare and Per Share Amounts)Cash and Due From Banks (Note 3)
    
    $
    39,551
    
    
    $
    33,839Interest Bearing Deposits in Banks
    
    
    863
    
    
    
    1,178Federal Funds Sold
    
    
    6,364
    
    
    
    9,253Cash and cash equivalents
    
    
    46,778
    
    
    
    44,270Available-for-Sale Securities (Note 4)
    
    
    173,639
    
    
    
    172,564Loans, less allowance for loan losses of $13,051 and $10,622
at December 31, 2005 and 2004, respectively (Note 5 and Note 9)
    
    
    1,120,616
    
    
    
    1,028,059FHLB Stock
    
    
    20,416
    
    
    
    19,649Premises and Equipment (Note 6)
    
    
    33,565
    
    
    
    30,355Goodwill (Note 7)
    
    
    31,983
    
    
    
    31,885Intangible Assets (Note 7)
    
    
    3,268
    
    
    
    3,829Accrued Interest Receivable
    
    
    6,875
    
    
    
    5,419Other Assets
    
    
    21,808
    
    
    
    21,035Total assets
    
    $
    1,458,948
    
    
    $
    1,357,065Liabilities and Stockholders EquityLiabilitiesDeposits:Non-interest bearing
    
    $
    159,591
    
    
    $
    148,482Interest bearing
    
    
    1,000,572
    
    
    
    884,564Total deposits (Note 8)
    
    
    1,160,163
    
    
    
    1,033,046Short-term borrowings (Note 9)
    
    
    44,332
    
    
    
    61,322Long-term borrowings (Note 9)
    
    
    101,107
    
    
    
    111,054Junior subordinated debt owed to unconsolidated trusts (Note 10)
    
    
    46,394
    
    
    
    46,394Accrued interest payable
    
    
    3,631
    
    
    
    1,944Other liabilities
    
    
    10,096
    
    
    
    11,566Total liabilities
    
    
    1,365,723
    
    
    
    1,265,326Commitments and Contingent Liabilities (Note 15)Stockholders Equity (Note 17)Preferred stock, $1.00 par value; 250,000 shares authorized, shares
issued and shares outstanding  none
    
    
    
    
    
    
    Common stock $1.00 par value; 25,000,000 shares authorized; shares issued: 3,770,251 - 2005 and 2004; shares outstanding: 3,701,621 - 2005; 3,674,054 - 2004
    
    
    3,770
    
    
    
    3,770Additional paid-in capital
    
    
    53,614
    
    
    
    53,421Retained earnings
    
    
    38,928
    
    
    
    36,486Accumulated other comprehensive income (loss)
    
    
    (1,369
    )
    
    
    505Treasury stock, at cost (68,630 shares - 2005; 96,197 shares - 2004)
    
    
    (1,718
    )
    
    
    (2,443
    )Total stockholders equity
    
    
    93,225
    
    
    
    91,739Total liabilities and stockholders equity
    
    $
    1,458,948
    
    
    $
    1,357,065
  37




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Consolidated Statements of Income
 Years Ended December 31, 2005, 2004, and 2003
 2005
    
    
    2004
    
    
    2003(Dollars In Thousands, Except Per Share Amounts)Interest and dividend income:Interest and fees on loans
    
    $
    69,713
    
    
    $
    55,110
    
    
    $
    45,368Interest and dividends on securities:Taxable
    
    
    1,617
    
    
    
    1,671
    
    
    
    2,080Tax-exempt
    
    
    2,433
    
    
    
    1,876
    
    
    
    1,410Interest on mortgage-backed securities
    
    
    3,534
    
    
    
    3,176
    
    
    
    1,988Interest on interest bearing deposits in banks and
federal funds sold
    
    
    246
    
    
    
    155
    
    
    
    204Total interest and dividend income
    
    
    77,543
    
    
    
    61,988
    
    
    
    51,050Interest expense:Interest on deposits
    
    
    20,649
    
    
    
    12,853
    
    
    
    11,659Interest on short-term borrowings
    
    
    2,171
    
    
    
    838
    
    
    
    479Interest on long-term borrowings
    
    
    4,294
    
    
    
    3,546
    
    
    
    2,578Interest on junior subordinated debt owed to unconsolidated trusts
    
    
    3,154
    
    
    
    2,396
    
    
    
    1,155Total interest expense
    
    
    30,268
    
    
    
    19,633
    
    
    
    15,871Net interest income
    
    
    47,275
    
    
    
    42,355
    
    
    
    35,179Provision for loan losses (Note 5)
    
    
    3,951
    
    
    
    1,793
    
    
    
    1,311Net interest income after provision for loan losses
    
    
    43,324
    
    
    
    40,562
    
    
    
    33,868Noninterest income:Service charges on deposit accounts
    
    
    4,229
    
    
    
    3,566
    
    
    
    2,649Service charges on loans
    
    
    3,362
    
    
    
    2,154
    
    
    
    2,565Securities gains, net
    
    
    
    
    
    
    191
    
    
    
    360Gain on sale of loans, net
    
    
    366
    
    
    
    494
    
    
    
    1,859Net gain on sale of premises and equipment
    
    
    286
    
    
    
    158
    
    
    
    2Tax fees, brokerage and insurance commissions
    
    
    1,651
    
    
    
    1,547
    
    
    
    1,165Other
    
    
    4,020
    
    
    
    3,427
    
    
    
    2,563Total noninterest income
    
    
    13,914
    
    
    
    11,537
    
    
    
    11,163Noninterest expenses:Salaries and employee benefits
    
    
    28,137
    
    
    
    24,646
    
    
    
    18,655Premises and equipment
    
    
    7,119
    
    
    
    6,387
    
    
    
    4,079Data processing fees
    
    
    3,464
    
    
    
    2,296
    
    
    
    1,193Data processing conversions
    
    
    
    
    
    
    573
    
    
    
    Marketing and business development
    
    
    2,261
    
    
    
    2,321
    
    
    
    1,509System installations
    
    
    
    
    
    
    830
    
    
    
    Sarbanes-Oxley implementation
    
    
    
    
    
    
    783
    
    
    
    Other
    
    
    8,917
    
    
    
    8,003
    
    
    
    7,300Total noninterest expenses
    
    
    49,898
    
    
    
    45,839
    
    
    
    32,736Income before income taxes
    
    
    7,340
    
    
    
    6,260
    
    
    
    12,295Income taxes (Note 14)
    
    
    2,242
    
    
    
    2,258
    
    
    
    4,067Net income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228Basic earnings per share
    
    $
    1.39
    
    
    $
    1.16
    
    
    $
    2.58Diluted earnings per share
    
    $
    1.38
    
    
    $
    1.15
    
    
    $
    2.56
  38




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Stockholders Equity
 Years Ended December 31, 2005, 2004, and 2003
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Total(Dollars In Thousands, Except Share and Per Share Amounts)Balance at December 31, 2002
    
    $
    2,977
    
    
    $
    26,308
    
    
    $
    41,489
    
    
    $
    1,448
    
    
    $
    2,893
    
    
    $
    69,329Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,228
    
    
    
    
    
    
    
    
    
    
    
    8,228Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (789
    )
    
    
    
    
    
    
    (789
    )Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (360
    )
    
    
    
    
    
    
    (360
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    364Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,443Issuance of 146,792 shares of stock
for acquisition
    
    
    147
    
    
    
    5,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,396Sale of 159 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Purchase of 25 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Stock dividend
    
    
    312
    
    
    
    12,169
    
    
    
    (12,497
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Cash dividends paid  $0.69 per share
    
    
    
    
    
    
    
    
    
    
    (2,213
    )
    
    
    
    
    
    
    
    
    
    
    (2,213
    )Exercise of stock options
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    31Balance at December 31, 2003
    
    
    3,436
    
    
    
    43,691
    
    
    
    35,007
    
    
    
    663
    
    
    
    (2,823
    )
    
    
    79,974Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    4,002
    
    
    
    
    
    
    
    
    
    
    
    4,002Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    (80
    )Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    (191
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    113Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,844Issuance of 334,200 shares of stock
for acquisition
    
    
    334
    
    
    
    9,854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,188Cash dividends paid  $0.72 per share
    
    
    
    
    
    
    
    
    
    
    (2,523
    )
    
    
    
    
    
    
    
    
    
    
    (2,523
    )Exercise of stock options
    
    
    
    
    
    
    (124
    )
    
    
    
    
    
    
    
    
    
    
    380
    
    
    
    256Balance at December 31, 2004
    
    
    3,770
    
    
    
    53,421
    
    
    
    36,486
    
    
    
    505
    
    
    
    (2,443
    )
    
    
    91,739Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    5,098
    
    
    
    
    
    
    
    
    
    
    
    5,098Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,880
    )
    
    
    
    
    
    
    (2,880
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,006
    
    
    
    
    
    
    
    1,006Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,224Cash dividends paid  $0.72 per share
    
    
    
    
    
    
    
    
    
    
    (2,656
    )
    
    
    
    
    
    
    
    
    
    
    (2,656
    )Sale of 20,206 shares of treasury stock
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    783Exercise of stock options
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    197
    
    
    
    135Balance at December 31, 2005
    
    $
    3,770
    
    
    $
    53,614
    
    
    $
    38,928
    
    
    $
    (1,369
    )
    
    $
    (1,718
    )
    
    $
    93,225
  39




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 Years Ended December 31, 2005, 2004, and 2003
 2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228Adjustments to reconcile net income to cash provided by operating activities:Provision for loan losses
    
    
    3,951
    
    
    
    1,793
    
    
    
    1,311Depreciation
    
    
    2,800
    
    
    
    2,246
    
    
    
    1,681Amortization and accretion of premiums and discounts, net
    
    
    673
    
    
    
    998
    
    
    
    817Amortization of intangibles
    
    
    561
    
    
    
    588
    
    
    
    417Deferred income taxes
    
    
    (995
    )
    
    
    648
    
    
    
    (46
    )Securities gains, net
    
    
    
    
    
    
    (191
    )
    
    
    (360
    )Gain on sale of loans, net
    
    
    (366
    )
    
    
    (494
    )
    
    
    (1,859
    )Net gain on sale of premises and equipment
    
    
    (286
    )
    
    
    (158
    )
    
    
    (2
    )FHLB stock dividend
    
    
    (876
    )
    
    
    
    
    
    
    Decrease (increase) in cash surrender value
    
    
    (295
    )
    
    
    960
    
    
    
    144Decrease (increase) in accrued interest receivable
    
    
    (1,456
    )
    
    
    (570
    )
    
    
    414(Decrease) increase in accrued interest payable
    
    
    1,687
    
    
    
    255
    
    
    
    (256
    )Other, net
    
    
    1,974
    
    
    
    248
    
    
    
    (3,037
    )Net cash provided by operations before loan originations and sales
    
    
    12,470
    
    
    
    10,325
    
    
    
    7,452Loans originated for sale
    
    
    (41,934
    )
    
    
    (63,742
    )
    
    
    (181,297
    )Proceeds from sales of loans
    
    
    44,041
    
    
    
    61,930
    
    
    
    183,470Net cash provided by operating activities
    
    
    14,577
    
    
    
    8,513
    
    
    
    9,625Cash Flows From Investing ActivitiesPurchase of available-for-sale securities
    
    
    (50,486
    )
    
    
    (102,371
    )
    
    
    (78,454
    )Proceeds from sales of available-for-sale securities
    
    
    26
    
    
    
    14,085
    
    
    
    15,093Proceeds from redemptions and maturities of available-for-sale securities
    
    
    45,057
    
    
    
    82,745
    
    
    
    59,701Net increase in loans
    
    
    (99,038
    )
    
    
    (109,343
    )
    
    
    (95,901
    )Purchases of premises and equipment, net
    
    
    (7,241
    )
    
    
    (9,751
    )
    
    
    (3,195
    )Proceeds from sales of premises and equipment
    
    
    1,517
    
    
    
    
    
    
    
    Proceeds from sales of other real estate
    
    
    273
    
    
    
    2,261
    
    
    
    817Cash received (paid) in acquisition
    
    
    
    
    
    
    4,837
    
    
    
    (6,405
    )(Purchases) redemption of FHLB stock
    
    
    109
    
    
    
    (1,139
    )
    
    
    (1,118
    )Net cash (used in) investing activities
    
    
    (109,783
    )
    
    
    (118,676
    )
    
    
    (109,462
    )Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    127,117
    
    
    
    41,066
    
    
    
    61,268Net increase (decrease) in short-term borrowings
    
    
    (16,990
    )
    
    
    27,315
    
    
    
    15,919Dividends paid
    
    
    (2,656
    )
    
    
    (2,523
    )
    
    
    (2,213
    )Proceeds from long-term borrowings
    
    
    49,418
    
    
    
    55,354
    
    
    
    15,000Repayment of long-term borrowings
    
    
    (56,802
    )
    
    
    (25,381
    )
    
    
    (29,794
    )Issuance of junior subordinated debt owed to unconsolidated trusts
    
    
    
    
    
    
    10,310
    
    
    
    25,000Repayment of acquisition note
    
    
    (2,563
    )
    
    
    
    
    
    
    Increase (decrease) in advance payments by borrowers for taxes and
    
    
    (728
    )
    
    
    381
    
    
    
    538Stock dividend
    
    
    
    
    
    
    
    
    
    
    (16
    )Common stock transactions, net
    
    
    918
    
    
    
    256
    
    
    
    35Net cash provided by financing activities
    
    
    97,714
    
    
    
    106,778
    
    
    
    85,737Increase (decrease) in cash and cash equivalents
    
    
    2,508
    
    
    
    (3,385
    )
    
    
    (14,100
    )Cash and cash equivalents at beginning of year
    
    
    44,270
    
    
    
    47,655
    
    
    
    61,755Cash and cash equivalents at end of year
    
    $
    46,778
    
    
    $
    44,270
    
    
    $
    47,655
  40




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2005, 2004, and 2003
 2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Supplemental Cash Flow Information and Noncash Transactions:Interest paid
    
    $
    28,581
    
    
    $
    19,106
    
    
    $
    16,127Income taxes paid
    
    
    1,530
    
    
    
    3,581
    
    
    
    4,277Loans transferred to other real estate owned
    
    
    789
    
    
    
    1,612
    
    
    
    380Supplemental Schedules of Noncash Investing Activities:Change in accumulated other comprehensive income, unrealized
gains (losses) on available-for-sale securities, net
    
    $
    (1,874
    )
    
    $
    (158
    )
    
    $
    (785
    )Acquisitions (Note 2)Assets acquired:Cash and cash equivalents
    
    $
    
    
    
    $
    6,137
    
    
    $
    13,956Available-for-sale securities
    
    
    
    
    
    
    11,507
    
    
    
    24,715Accrued interest receivable
    
    
    
    
    
    
    428
    
    
    
    587Loans, net
    
    
    
    
    
    
    71,878
    
    
    
    96,267FHLB stock
    
    
    
    
    
    
    2,265
    
    
    
    487Premises and equipment, net
    
    
    
    
    
    
    2,101
    
    
    
    3,693Other
    
    
    
    
    
    
    1,628
    
    
    
    4,281Core deposit and other intangibles
    
    
    
    
    
    
    858
    
    
    
    1,291Excess of cost over fair value of net assets acquired
    
    
    
    
    
    
    5,203
    
    
    
    19,384
    
    
    
    102,005
    
    
    
    164,661Liabilities assumed:Deposits
    
    
    
    
    
    
    80,032
    
    
    
    121,224Accrued interest payable
    
    
    
    
    
    
    272
    
    
    
    270Short-term borrowings
    
    
    
    
    
    
    6,725
    
    
    
    Long-term borrowings
    
    
    
    
    
    
    2,010
    
    
    
    2,000Other liabilities
    
    
    
    
    
    
    1,478
    
    
    
    2,312
    
    
    
    90,517
    
    
    
    125,806Net assets acquired
    
    $
    
    
    
    $
    11,488
    
    
    $
    38,855Cash paid
    
    $
    
    
    
    $
    1,300
    
    
    $
    20,361Note issued
    
    
    
    
    
    
    
    
    
    
    13,098Stock issued
    
    
    
    
    
    
    10,188
    
    
    
    5,396Total price paid
    
    $
    
    
    
    $
    11,488
    
    
    $
    38,855
  41




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 
 Note 1. Summary of Significant Accounting Policies
 Nature of Banking Activities
 Consolidation
 Use of Estimates
 Presentation of Cash Flows
 Cash and Due From Banks
 Available-for-Sale Securities
 42




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies (Continued)
  Loans
 Mortgage Loans Held for Sale
     Allowance for Loan Losses
 43




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies (Continued)
   Credit Related Financial Instruments
 Transfers of Financial Assets
 Premises and Equipment
 Goodwill
 Intangible Assets
 Other Real Estate Owned
 44




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies (Continued)
 Stock-Based Compensation Plan Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands, Except Per Share Data)Net income, as reported
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228Deduct total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects
    
    
    6
    
    
    
    301
    
    
    
    876Pro forma net income
    
    $
    5,092
    
    
    $
    3,701
    
    
    $
    7,352Earnings per share:Basic:As reported
    
    $
    1.39
    
    
    $
    1.16
    
    
    $
    2.58Pro forma
    
    
    1.38
    
    
    
    1.07
    
    
    
    2.30Diluted:As reported
    
    
    1.38
    
    
    
    1.15
    
    
    
    2.56Pro forma
    
    
    1.38
    
    
    
    1.06
    
    
    
    2.29
  Income Taxes
  Trust Assets
 45




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies (Continued)
 Earnings Per Share
  2005
    
    
    2004
    
    
    2003(Dollars In Thousands, Except Share Amounts)Net income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228Weighted average common shares
outstanding
    
    
    3,688,248
    
    
    
    3,464,766
    
    
    
    3,190,207Effect of dilutive options
    
    
    11,827
    
    
    
    13,011
    
    
    
    18,376Weighted average common shares
outstanding used to calculate diluted
earnings per common share
    
    
    3,700,075
    
    
    
    3,477,777
    
    
    
    3,208,583
 Comprehensive Income
 Current Accounting Developments Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Share-Based Payment
  46




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies (Continued)
 Accounting for Certain Investments in Debt and
Equity Securities, Accounting for Certain Investments Held by
Not-for-Profit Organizations, The Equity Method of Accounting for
Investments in Common Stock. EITF Abstracts,
  Note 2. Business Combinations
    47




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 2. Business Combinations (Continued)
  2004(Dollars In Thousands,Except Per Share Amounts)Net interest income
    
    $
    44,623Net income
    
    $
    4,582Basic earnings per common share
    
    $
    1.25Diluted earnings per common share
    
    $
    1.24
  Note 3. Cash and Due From Banks
  48




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 4. Available-for-Sale Securities
  December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    Value(Dollars In Thousands)U.S. treasury and other U.S.
government agency securities
    
    $
    12,366
    
    
    $
    
    
    
    $
    (240
    )
    
    $
    12,126State and political subdivisions
    
    
    72,143
    
    
    
    397
    
    
    
    (808
    )
    
    
    71,732Corporate bonds
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Collateralized mortgage obligations
    
    
    55,402
    
    
    
    17
    
    
    
    (1,265
    )
    
    
    54,154Mortgage-backed securities
    
    
    35,784
    
    
    
    82
    
    
    
    (289
    )
    
    
    35,577$
    175,745
    
    
    $
    496
    
    
    $
    (2,602
    )
    
    $
    173,639
 December 31, 2004Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    Value(Dollars In Thousands)U.S. treasury and other U.S.
government agency securities
    
    $
    10,208
    
    
    $
    34
    
    
    $
    (68
    )
    
    $
    10,174State and political subdivisions
    
    
    67,467
    
    
    
    1,000
    
    
    
    (170
    )
    
    
    68,297Corporate bonds
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Collateralized mortgage obligations
    
    
    51,578
    
    
    
    129
    
    
    
    (413
    )
    
    
    51,294Mortgage-backed securities
    
    
    42,462
    
    
    
    339
    
    
    
    (77
    )
    
    
    42,724$
    171,790
    
    
    $
    1,502
    
    
    $
    (728
    )
    
    $
    172,564
 49




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 4. Available-for-Sale Securities (Continued)
  Less than 12 months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars In Thousands)December 31, 2005U.S. treasury and other U.S.
government agency securities
    
    $
    7,956
    
    
    $
    (179
    )
    
    $
    3,665
    
    
    $
    (61
    )
    
    $
    11,621
    
    
    $
    (240
    )State and political subdivisions
    
    
    34,480
    
    
    
    (656
    )
    
    
    11,757
    
    
    
    (152
    )
    
    
    46,237
    
    
    
    (808
    )Collateralized mortgage obligations
    
    
    22,042
    
    
    
    (887
    )
    
    
    29,617
    
    
    
    (378
    )
    
    
    51,659
    
    
    
    (1,265
    )Mortgage-backed securities
    
    
    8,628
    
    
    
    (248
    )
    
    
    10,655
    
    
    
    (41
    )
    
    
    19,283
    
    
    
    (289
    )Total temporarily impaired securities
    
    $
    73,106
    
    
    $
    (1,970
    )
    
    $
    55,694
    
    
    $
    (632
    )
    
    $
    128,800
    
    
    $
    (2,602
    )
 Less than 12 months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars In Thousands)December 31, 2004U.S. treasury and other U.S.
government agency securities
    
    $
    1,282
    
    
    $
    (18
    )
    
    $
    3,624
    
    
    $
    (50
    )
    
    $
    4,906
    
    
    $
    (68
    )State and political subdivisions
    
    
    13,065
    
    
    
    (158
    )
    
    
    1,225
    
    
    
    (12
    )
    
    
    14,290
    
    
    
    (170
    )Collateralized mortgage obligations
    
    
    21,572
    
    
    
    (277
    )
    
    
    14,046
    
    
    
    (136
    )
    
    
    35,618
    
    
    
    (413
    )Mortgage-backed securities
    
    
    11,530
    
    
    
    (47
    )
    
    
    4,507
    
    
    
    (30
    )
    
    
    16,037
    
    
    
    (77
    )Total temporarily impaired securities
    
    $
    47,449
    
    
    $
    (500
    )
    
    $
    23,402
    
    
    $
    (228
    )
    
    $
    70,851
    
    
    $
    (728
    )
   50




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 4. Available-for-Sale Securities (Continued)
  Amortized
    
    
    FairCost
    
    
    Value(Dollars In Thousands)Due in one year or less
    
    $
    5,386
    
    
    $
    5,389Due after one year through five years
    
    
    28,435
    
    
    
    28,149Due after five years through ten years
    
    
    36,084
    
    
    
    35,860Due after ten years
    
    
    14,654
    
    
    
    14,51084,559
    
    
    
    83,908Collateralized mortgage obligations
    
    
    55,402
    
    
    
    54,154Mortgage-backed securities
    
    
    35,784
    
    
    
    35,577$
    175,745
    
    
    $
    173,639
   51




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 5. Loans
  December 31,2005
    
    
    2004(Dollars In Thousands)First mortgage:Conventional single-family residential
    
    $
    167,745
    
    
    $
    142,926Commercial and multi-family residential
    
    
    474,840
    
    
    
    436,612Construction
    
    
    81,651
    
    
    
    76,267Farmland
    
    
    52,392
    
    
    
    55,710776,628
    
    
    
    711,515Commercial business loans
    
    
    270,101
    
    
    
    240,575Consumer and installment loans
    
    
    50,663
    
    
    
    49,136Home equity loans
    
    
    28,541
    
    
    
    26,592Other
    
    
    7,734
    
    
    
    10,863357,039
    
    
    
    327,166Less: Allowance for loan losses
    
    
    (13,051
    )
    
    
    (10,622
    )Loans, net
    
    $
    1,120,616
    
    
    $
    1,028,059
  December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Balance at beginning of year
    
    $
    10,622
    
    
    $
    9,136
    
    
    $
    7,663Increase due to acquisition
    
    
    
    
    
    
    999
    
    
    
    1,203Provisions charged to expense
    
    
    3,951
    
    
    
    1,793
    
    
    
    1,311Recoveries
    
    
    867
    
    
    
    419
    
    
    
    390Charge-offs
    
    
    (2,389
    )
    
    
    (1,725
    )
    
    
    (1,431
    )Balance at end of year
    
    $
    13,051
    
    
    $
    10,622
    
    
    $
    9,136
 52




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 5. Loans (Continued)
  December 31,2005
    
    
    2004(Dollars In Thousands)Impaired loans for which an allowance
has been provided
    
    $
    13,543
    
    
    $
    3,068Impaired loans for which no allowance
has been provided
    
    
    
    
    
    
    2,562Total loans determined to be impaired
    
    $
    13,543
    
    
    $
    5,630Allowance provided for impaired loans,
included in the allowance for loan losses
    
    $
    3,662
    
    
    $
    1,385
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Average investment in impaired loans
    
    $
    7,003
    
    
    $
    5,842
    
    
    $
    4,645
    53




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 5. Loans (Continued)
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Balance at beginning of year
    
    $
    1,991
    
    
    $
    1,712
    
    
    $
    703Mortgage servicing rights capitalized
    
    
    798
    
    
    
    1,064
    
    
    
    1,542Mortgage servicing rights amortized
    
    
    (861
    )
    
    
    (785
    )
    
    
    (533
    )Balance at end of year
    
    $
    1,928
    
    
    $
    1,991
    
    
    $
    1,712
 Note 6. Premises and Equipment
  December 31,2005
    
    
    2004(Dollars In Thousands)Land
    
    $
    4,740
    
    
    $
    4,767Office buildings and improvements
    
    
    30,151
    
    
    
    26,085Furniture and equipment
    
    
    19,792
    
    
    
    18,07754,683
    
    
    
    48,929Less: accumulated depreciation
    
    
    (21,118
    )
    
    
    (18,574
    )$
    33,565
    
    
    $
    30,355
 Note 7. Goodwill and Intangible Assets
  2005
    
    
    2004(Dollars In Thousands)Balance at beginning of year
    
    $
    31,885
    
    
    $
    26,682Goodwill acquired during year
    
    
    98
    
    
    
    5,203Balance at end of year
    
    $
    31,983
    
    
    $
    31,885
  54




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 7. Goodwill and Intangible Assets (Continued)
  2005
    
    
    2004(Dollars In Thousands)Core deposit intangibles
    
    $
    4,301
    
    
    $
    4,301Other intangibles
    
    
    563
    
    
    
    5634,864
    
    
    
    4,864Less: accumulated amortization
    
    
    (1,596
    )
    
    
    (1,035
    )Intangible assets, net
    
    $
    3,268
    
    
    $
    3,829
    Years Ending December 31,(Dollars in Thousands)2006
    
    $
    4642007
    
    
    4072008
    
    
    3952009
    
    
    3952010
    
    
    395
 55




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 8. Deposits
  2005
    
    
    2004(Dollars In Thousands)Negotiable Order of Withdrawal (NOW) accounts:Non-interest bearing
    
    $
    159,591
    
    
    $
    148,482Interest-bearing
    
    
    109,359
    
    
    
    98,723Savings deposits
    
    
    134,103
    
    
    
    131,513Money market investment accounts
    
    
    253,921
    
    
    
    258,852Time deposits and certificate accounts
    
    
    503,189
    
    
    
    395,476$
    1,160,163
    
    
    $
    1,033,046
   Years Ending December 31,(Dollars in Thousands)2006
    
    $
    296,5452007
    
    
    97,9922008
    
    
    43,1842009
    
    
    29,8602010
    
    
    35,608$
    503,189
  56




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 9. Borrowings
  Weighted AverageInterest RateDecember 31
    
    
    Matures in fiscal
    
    
    December 31Description
    
    2005
    
    
    2004
    
    
    year ended
    
    
    2005
    
    
    2004(Dollars In Thousands)Short-term borrowings:Federal funds purchased
    
    
    3.97
    %
    
    
    2.59
    %
    
    Daily overnight
    
    $
    27,297
    
    
    $
    51,142Federal Reserve Bank Treasury,
tax & loan advances
    
    
    
    
    
    
    
    
    
    Daily overnight
    
    
    569
    
    
    
    364Securities sold under agreements
to repurchase
    
    
    
    
    
    
    0.85
    
    
    
    2005
    
    
    
    
    
    
    
    190.86
    
    
    
    
    
    
    
    2006
    
    
    
    247
    
    
    
    Lines of credit with unaffiliated banks
    
    
    
    
    
    
    3.99
    
    
    
    2005
    
    
    
    
    
    
    
    9,7974.96
    
    
    
    
    
    
    
    2006
    
    
    
    16,219
    
    
    
    Total short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,332
    
    
    $
    61,322Long-term borrowings:Acquisition notes payable
    
    
    5.35
    
    
    
    5.35
    
    
    
    2008
    
    
    
    7,691
    
    
    
    10,254Advances from Federal Home
Loan Bank of Chicago
    
    
    
    
    
    
    2.85
    
    
    
    2005
    
    
    
    
    
    
    
    27,6553.29
    
    
    
    3.02
    
    
    
    2006
    
    
    
    25,281
    
    
    
    16,0003.31
    
    
    
    3.17
    
    
    
    2007
    
    
    
    26,750
    
    
    
    22,2504.20
    
    
    
    4.17
    
    
    
    2008
    
    
    
    23,750
    
    
    
    20,2503.90
    
    
    
    3.74
    
    
    
    2009
    
    
    
    11,500
    
    
    
    9,0005.02
    
    
    
    5.05
    
    
    2010 and after
    
    
    6,135
    
    
    
    5,645Total long-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    101,107
    
    
    $
    111,054Total borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    145,439
    
    
    $
    172,376
   2005
    
    2004(Dollars In Thousands)Average daily balance during the year
    
    $
    46,930
    
    
    $
    29,757Average daily interest rate during the year
    
    
    3.24
    %
    
    
    1.71
    %Maximum month-end balance during the year
    
    $
    71,210
    
    
    $
    51,142Weighted average rate as of December 31
    
    
    3.97
    %
    
    
    2.59
    %
 57




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 9. Borrowings (Continued)
     Note 10. Junior Subordinated Debt Owed to Unconsolidated Trusts
  Trust I
    
    Trust II
    
    Trust III
    
    Trust IV
    
    Trust V(Dollars in Thousands)Date of issuance
    
    November 2002
    
    May 2003
    
    October 2003
    
    October 2003
    
    September 2004Amount issued
    
    $10,000
    
    $10,000
    
    $7,500
    
    $7,500
    
    $10,000Rate of interest
    
    3-month LIBOR
    
    8.25%
    
    3-month LIBOR
    
    8.25%
    
    3-month LIBORplus 3.35%
    
    
    
    plus 2.95%
    
    
    
    plus 2.05%Fixed/Variable
    
    Variable
    
    Fixed
    
    Variable
    
    Fixed
    
    VariableRate of interest as of
December 31, 2005
    
    7.88%
    
    8.25%
    
    7.48%
    
    8.25%
    
    6.58%Date of maturity
    
    November 11, 2032
    
    May 30, 2033
    
    October 15, 2033
    
    October 15, 2033
    
    September 30, 2034Common equity
securities
    
    $310
    
    $310
    
    $232
    
    $232
    
    $310Debentures issued
    
    $10,310
    
    $10,310
    
    $7,732
    
    $7,732
    
    $10,310Debt issuance costs
    
    $44
    
    $210
    
    $9
    
    $9
    
    Underwriting fees
    
    $300
    
    $300
    
    $169
    
    $169
    
    
  58




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 10. Junior Subordinated Debt Owed to Unconsolidated Trusts (Continued)
  Note 11. Stock Based Compensation
   Weighted-
    
    
    Weighted-Average
    
    
    AverageNumber
    
    
    Exercise Price
    
    
    Remainingof Shares
    
    
    Per Share
    
    
    Contractual Life
    
    
    ExercisableTotal outstanding at December 31, 2002
    
    
    68,587
    
    
    $
    26.24
    
    
    
    4.82
    
    
    
    68,587Stock dividend
    
    
    6,659Granted
    
    
    Exercised
    
    
    (1,990
    )
    
    $
    15.15Forfeited
    
    
    Total outstanding at December 31, 2003
    
    
    73,256
    
    
    $
    24.15
    
    
    
    5.20
    
    
    
    73,256Granted
    
    
    59,422
    
    
    $
    40.19Exercised
    
    
    (13,735
    )
    
    $
    18.60Forfeited
    
    
    Total outstanding at December 31, 2004
    
    
    118,943
    
    
    $
    32.81
    
    
    
    6.24
    
    
    
    102,221Granted
    
    
    700
    
    
    $
    35.00Exercised
    
    
    (7,361
    )
    
    $
    18.29Forfeited
    
    
    
    
    
    
    Total outstanding at December 31, 2005
    
    
    112,282
    
    
    $
    33.77
    
    
    
    5.72
    
    
    
    102,282
 59




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 11. Stock Based Compensation (Continued)
  Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual Life
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Price
    
    Outstanding
    
    
    (In Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$15.11
    
    
    6,143
    
    
    
    2.3
    
    
    $
    15.11
    
    
    
    6,143
    
    
    $
    15.11$25.45 to $28.31
    
    
    46,017
    
    
    
    3.2
    
    
    $
    27.95
    
    
    
    46,017
    
    
    $
    27.95$30.50 to $35.00
    
    
    20,700
    
    
    
    8.8
    
    
    $
    30.65
    
    
    
    10,700
    
    
    $
    30.79$45.00 to $46.00
    
    
    39,422
    
    
    
    8.1
    
    
    $
    45.11
    
    
    
    39,422
    
    
    $
    45.11112,282
    
    
    
    
    
    
    
    
    
    
    
    102,282
 Note 12. Profit-Sharing and Pension Plan
 Profit-Sharing Plan:
 Pension Plan:
 Note 13. Salary Continuation Agreement
   60




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 14. Income Taxes
  December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Current
    
    $
    3,237
    
    
    
    1,610
    
    
    $
    4,113Deferred
    
    
    (995
    )
    
    
    648
    
    
    
    (46
    )$
    2,242
    
    
    $
    2,258
    
    
    $
    4,067
  2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPretax
    
    
    
    
    
    
    Pretax
    
    
    
    
    
    
    PretaxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    Income(Dollars In Thousands)Computed expected tax expense
    
    $
    2,569
    
    
    
    35.0
    %
    
    $
    2,191
    
    
    
    35.0
    %
    
    $
    4,303
    
    
    
    35.0
    %Effect of graduated tax rates
    
    
    (73
    )
    
    
    (1.0
    )
    
    
    (63
    )
    
    
    (1.0
    )
    
    
    (123
    )
    
    
    (1.0
    )State income taxes, net
of federal benefit
    
    
    679
    
    
    
    9.3
    
    
    
    1,050
    
    
    
    16.8
    
    
    
    552
    
    
    
    4.5Tax-exempt income, net
    
    
    (810
    )
    
    
    (11.0
    )
    
    
    (851
    )
    
    
    (13.6
    )
    
    
    (643
    )
    
    
    (5.2
    )Other, net
    
    
    (123
    )
    
    
    (1.7
    )
    
    
    (69
    )
    
    
    (1.1
    )
    
    
    (22
    )
    
    
    (0.2
    )$
    2,242
    
    
    
    30.5
    %
    
    $
    2,258
    
    
    
    36.1
    %
    
    $
    4,067
    
    
    
    33.1
    %
  December 31,2005
    
    
    2004(Dollars In Thousands)Deferred tax assets:Allowance for loan losses
    
    $
    5,022
    
    
    $
    3,870Net operating loss carryforwards
    
    
    2,608
    
    
    
    2,073Deferred compensation
    
    
    1,637
    
    
    
    1,423Unrealized loss on available-for-sale securities
    
    
    735Other assets
    
    
    852
    
    
    
    1,023Total deferred tax assets
    
    
    10,854
    
    
    
    8,389Valuation allowance
    
    
    (2,608
    )
    
    
    (2,073
    )8,246
    
    
    
    6,316Deferred tax liabilities:Depreciation
    
    
    (1,385
    )
    
    
    1,313Purchase accounting
    
    
    (1,871
    )
    
    
    2,126Unrealized gain on available-for-sale securities
    
    
    
    
    
    
    268Other liabilities
    
    
    (3,375
    )
    
    
    2,992Total deferred tax liabilities
    
    
    (6,631
    )
    
    
    6,699Net deferred tax asset (liability)
    
    $
    1,615
    
    
    $
    (383
    )
 61




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 14. Income Taxes (Continued)
  Note 15. Commitments and Contingent Liabilities
     December 31,2005
    
    
    2004(Dollars In Thousands)Commitments to originate mortgage loans
    
    $
    37,426
    
    
    $
    20,104Unused lines of credit:Commercial business
    
    
    193,581
    
    
    
    144,647Home equity
    
    
    31,582
    
    
    
    21,935Credit cards
    
    
    21,031
    
    
    
    18,865Standby letters of credit
    
    
    12,362
    
    
    
    12,574
   62




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 15. Commitments and Contingent Liabilities (Continued)
   Years Ending December 31,(Dollars in Thousands)2006
    
    
    9222007
    
    
    5832008
    
    
    5662009
    
    
    5382010
    
    
    391$
    3,000
 Note 16. Concentration of Credit Risk
   Note 17. Regulatory Capital Requirements and Restrictions of Dividends
    63




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 17. Regulatory Capital Requirements and Restrictions of Dividends (Continued)
  To Be Well CapitalizedFor Capital
    
    
    Under Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars In Thousands)As of December 31, 2005Total capital (to risk
-weighted assets):Consolidated
    
    $
    117,201
    
    
    
    10.04
    %
    
    $
    93,351
    
    
    
    8.00
    %
    
    $
    116,689
    
    
    
    N/ALincoln State Bank
    
    
    42,588
    
    
    
    10.61
    
    
    
    32,119
    
    
    
    8.00
    
    
    
    40,149
    
    
    
    10.00
    %Franklin State Bank
    
    
    9,351
    
    
    
    11.72
    
    
    
    6,385
    
    
    
    8.00
    
    
    
    7,981
    
    
    
    10.00Grafton State Bank
    
    
    16,127
    
    
    
    10.75
    
    
    
    11,998
    
    
    
    8.00
    
    
    
    14,998
    
    
    
    10.00Community Bank Financial
    
    
    7,908
    
    
    
    10.32
    
    
    
    6,130
    
    
    
    8.00
    
    
    
    7,662
    
    
    
    10.00Fortress Bank
    
    
    13,630
    
    
    
    10.50
    
    
    
    10,384
    
    
    
    8.00
    
    
    
    12,980
    
    
    
    10.00Fortress Bank of Cresco
    
    
    6,468
    
    
    
    11.49
    
    
    
    4,505
    
    
    
    8.00
    
    
    
    5,631
    
    
    
    10.00Fortress Bank Minnesota
    
    
    5,463
    
    
    
    13.57
    
    
    
    3,220
    
    
    
    8.00
    
    
    
    4,025
    
    
    
    10.00The Reedsburg Bank
    
    
    15,968
    
    
    
    10.65
    
    
    
    12,000
    
    
    
    8.00
    
    
    
    15,000
    
    
    
    10.00Wisconsin State Bank
    
    
    10,197
    
    
    
    15.30
    
    
    
    5,330
    
    
    
    8.00
    
    
    
    6,663
    
    
    
    10.00Tier 1 capital (to risk
-weighted assets):Consolidated
    
    $
    90,681
    
    
    
    7.77
    %
    
    $
    46,676
    
    
    
    4.00
    %
    
    $
    70,014
    
    
    
    N/ALincoln State Bank
    
    
    39,306
    
    
    
    9.79
    
    
    
    16,060
    
    
    
    4.00
    
    
    
    24,089
    
    
    
    6.00
    %Franklin State Bank
    
    
    8,352
    
    
    
    10.46
    
    
    
    3,192
    
    
    
    4.00
    
    
    
    4,789
    
    
    
    6.00Grafton State Bank
    
    
    14,932
    
    
    
    9.96
    
    
    
    5,999
    
    
    
    4.00
    
    
    
    8,999
    
    
    
    6.00Community Bank Financial
    
    
    7,273
    
    
    
    9.49
    
    
    
    3,065
    
    
    
    4.00
    
    
    
    4,597
    
    
    
    6.00Fortress Bank
    
    
    11,981
    
    
    
    9.23
    
    
    
    5,192
    
    
    
    4.00
    
    
    
    7,788
    
    
    
    6.00Fortress Bank of Cresco
    
    
    5,942
    
    
    
    10.55
    
    
    
    2,252
    
    
    
    4.00
    
    
    
    3,378
    
    
    
    6.00Fortress Bank Minnesota
    
    
    4,976
    
    
    
    12.36
    
    
    
    1,610
    
    
    
    4.00
    
    
    
    2,415
    
    
    
    6.00The Reedsburg Bank
    
    
    14,719
    
    
    
    9.81
    
    
    
    6,000
    
    
    
    4.00
    
    
    
    9,000
    
    
    
    6.00Wisconsin State Bank
    
    
    9,393
    
    
    
    14.10
    
    
    
    2,665
    
    
    
    4.00
    
    
    
    3,998
    
    
    
    6.00Tier 1 capital (to average assets):Consolidated
    
    $
    90,681
    
    
    
    6.37
    %
    
    $
    56,932
    
    
    
    4.00
    %
    
    $
    71,165
    
    
    
    N/ALincoln State Bank
    
    
    39,306
    
    
    
    8.38
    
    
    
    18,771
    
    
    
    4.00
    
    
    
    23,463
    
    
    
    5.00
    %Franklin State Bank
    
    
    8,352
    
    
    
    9.46
    
    
    
    3,532
    
    
    
    4.00
    
    
    
    4,415
    
    
    
    5.00Grafton State Bank
    
    
    14,932
    
    
    
    7.95
    
    
    
    7,517
    
    
    
    4.00
    
    
    
    9,396
    
    
    
    5.00Community Bank Financial
    
    
    7,273
    
    
    
    8.01
    
    
    
    3,631
    
    
    
    4.00
    
    
    
    4,538
    
    
    
    5.00Fortress Bank
    
    
    11,981
    
    
    
    7.09
    
    
    
    6,755
    
    
    
    4.00
    
    
    
    8,444
    
    
    
    5.00Fortress Bank of Cresco
    
    
    5,942
    
    
    
    8.14
    
    
    
    2,920
    
    
    
    4.00
    
    
    
    3,650
    
    
    
    5.00Fortress Bank Minnesota
    
    
    4,976
    
    
    
    9.30
    
    
    
    2,139
    
    
    
    4.00
    
    
    
    2,674
    
    
    
    5.00The Reedsburg Bank
    
    
    14,719
    
    
    
    7.99
    
    
    
    7,372
    
    
    
    4.00
    
    
    
    9,215
    
    
    
    5.00Wisconsin State Bank
    
    
    9,393
    
    
    
    11.03
    
    
    
    3,405
    
    
    
    4.00
    
    
    
    4,256
    
    
    
    5.00
 64




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 17. Regulatory Capital Requirements and Restrictions of Dividends (Continued)
 To Be Well CapitalizedFor Capital
    
    
    Under Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars In Thousands)As of December 31, 2004Total capital (to risk
-weighted assets):Consolidated
    
    $
    110,946
    
    
    
    10.14
    %
    
    $
    87,560
    
    
    
    8.00
    %
    
    $
    109,450
    
    
    
    N/ALincoln State Bank
    
    
    38,766
    
    
    
    10.02
    
    
    
    30,942
    
    
    
    8.00
    
    
    
    38,678
    
    
    
    10.00
    %Franklin State Bank
    
    
    9,512
    
    
    
    11.42
    
    
    
    6,662
    
    
    
    8.00
    
    
    
    8,328
    
    
    
    10.00Grafton State Bank
    
    
    15,806
    
    
    
    11.55
    
    
    
    10,951
    
    
    
    8.00
    
    
    
    13,689
    
    
    
    10.00Community Bank Financial
    
    
    7,935
    
    
    
    10.51
    
    
    
    6,039
    
    
    
    8.00
    
    
    
    7,549
    
    
    
    10.00Fortress Bank
    
    
    11,948
    
    
    
    11.18
    
    
    
    8,550
    
    
    
    8.00
    
    
    
    10,687
    
    
    
    10.00Fortress Bank of Cresco
    
    
    6,417
    
    
    
    12.72
    
    
    
    4,037
    
    
    
    8.00
    
    
    
    5,046
    
    
    
    10.00Fortress Bank Minnesota
    
    
    5,281
    
    
    
    12.45
    
    
    
    3,394
    
    
    
    8.00
    
    
    
    4,242
    
    
    
    10.00The Reedsburg Bank
    
    
    14,119
    
    
    
    11.11
    
    
    
    10,168
    
    
    
    8.00
    
    
    
    12,710
    
    
    
    10.00Wisconsin State Bank
    
    
    8,768
    
    
    
    12.27
    
    
    
    5,716
    
    
    
    8.00
    
    
    
    7,146
    
    
    
    10.00Tier 1 capital (to risk
-weighted assets):Consolidated
    
    $
    85,735
    
    
    
    7.83
    %
    
    $
    43,780
    
    
    
    4.00
    %
    
    $
    65,670
    
    
    
    N/ALincoln State Bank
    
    
    35,445
    
    
    
    9.16
    
    
    
    15,471
    
    
    
    4.00
    
    
    
    23,207
    
    
    
    6.00
    %Franklin State Bank
    
    
    8,470
    
    
    
    10.17
    
    
    
    3,331
    
    
    
    4.00
    
    
    
    4,997
    
    
    
    6.00Grafton State Bank
    
    
    14,719
    
    
    
    10.75
    
    
    
    5,475
    
    
    
    4.00
    
    
    
    8,213
    
    
    
    6.00Community Bank Financial
    
    
    7,316
    
    
    
    9.69
    
    
    
    3,020
    
    
    
    4.00
    
    
    
    4,529
    
    
    
    6.00Fortress Bank
    
    
    10,802
    
    
    
    10.11
    
    
    
    4,275
    
    
    
    4.00
    
    
    
    6,412
    
    
    
    6.00Fortress Bank of Cresco
    
    
    5,846
    
    
    
    11.59
    
    
    
    2,018
    
    
    
    4.00
    
    
    
    3,028
    
    
    
    6.00Fortress Bank Minnesota
    
    
    4,751
    
    
    
    11.20
    
    
    
    1,697
    
    
    
    4.00
    
    
    
    2,545
    
    
    
    6.00The Reedsburg Bank
    
    
    12,919
    
    
    
    10.16
    
    
    
    5,084
    
    
    
    4.00
    
    
    
    7,626
    
    
    
    6.00Wisconsin State Bank
    
    
    7,872
    
    
    
    11.02
    
    
    
    2,858
    
    
    
    4.00
    
    
    
    4,287
    
    
    
    6.00Tier 1 capital (to average assets):Consolidated
    
    $
    85,735
    
    
    
    6.62
    %
    
    $
    51,835
    
    
    
    4.00
    %
    
    $
    64,793
    
    
    
    N/ALincoln State Bank
    
    
    35,445
    
    
    
    8.59
    
    
    
    16,506
    
    
    
    4.00
    
    
    
    20,633
    
    
    
    5.00
    %Franklin State Bank
    
    
    8,470
    
    
    
    9.29
    
    
    
    3,645
    
    
    
    4.00
    
    
    
    4,557
    
    
    
    5.00Grafton State Bank
    
    
    14,719
    
    
    
    8.54
    
    
    
    6,897
    
    
    
    4.00
    
    
    
    8,621
    
    
    
    5.00Community Bank Financial
    
    
    7,316
    
    
    
    8.25
    
    
    
    3,545
    
    
    
    4.00
    
    
    
    4,432
    
    
    
    5.00Fortress Bank
    
    
    10,802
    
    
    
    8.13
    
    
    
    5,314
    
    
    
    4.00
    
    
    
    6,642
    
    
    
    5.00Fortress Bank of Cresco
    
    
    5,846
    
    
    
    8.93
    
    
    
    2,619
    
    
    
    4.00
    
    
    
    3,274
    
    
    
    5.00Fortress Bank Minnesota
    
    
    4,751
    
    
    
    8.73
    
    
    
    2,178
    
    
    
    4.00
    
    
    
    2,723
    
    
    
    5.00The Reedsburg Bank
    
    
    12,919
    
    
    
    8.29
    
    
    
    6,233
    
    
    
    4.00
    
    
    
    7,792
    
    
    
    5.00Wisconsin State Bank
    
    
    7,872
    
    
    
    7.85
    
    
    
    4,012
    
    
    
    4.00
    
    
    
    5,015
    
    
    
    5.00
 65




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 17. Regulatory Capital Requirements and Restrictions of Dividends (Continued)
    Note 18. Fair Values of Financial Instruments
 Disclosures About Fair Value of Financial Instruments
  Cash and due from banks
 Interest bearing deposits in banks
 Federal funds sold
 Available-for-sale securities
 Loans
 FHLB stock
 Accrued interest receivable and payable
 66




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 18. Fair Values of Financial Instruments (Continued)
 Deposits
 Short-term borrowings
 Long-term borrowings
 Junior subordinated debt owed to unconsolidated trusts
 Off-balance-sheet instruments
  2005
    
    
    2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars In Thousands)Financial assets:Cash and due from banks
    
    $
    39,551
    
    
    $
    39,551
    
    
    $
    33,839
    
    
    $
    33,839Interest bearing deposits in banks
    
    
    863
    
    
    
    863
    
    
    
    1,178
    
    
    
    1,178Federal funds sold
    
    
    6,364
    
    
    
    6,364
    
    
    
    9,253
    
    
    
    9,253Available-for-sale securities
    
    
    173,639
    
    
    
    173,639
    
    
    
    172,564
    
    
    
    172,564Loans, net
    
    
    1,120,616
    
    
    
    1,128,574
    
    
    
    1,028,059
    
    
    
    1,032,960Accrued interest receivable
    
    
    6,875
    
    
    
    6,875
    
    
    
    5,419
    
    
    
    5,419FHLB stock
    
    
    20,416
    
    
    
    20,416
    
    
    
    19,649
    
    
    
    19,649Financial liabilities:Deposits
    
    
    1,160,163
    
    
    
    1,161,451
    
    
    
    1,033,046
    
    
    
    1,033,069Short-term borrowings
    
    
    44,332
    
    
    
    44,332
    
    
    
    61,322
    
    
    
    61,322Long-term borrowings
    
    
    101,107
    
    
    
    101,191
    
    
    
    111,054
    
    
    
    111,215Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    53,771
    
    
    
    46,394
    
    
    
    47,461Accrued interest payable
    
    
    3,631
    
    
    
    3,631
    
    
    
    1,944
    
    
    
    1,944
 67




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 19. Parent Company Only Condensed Financial Information
 Condensed Balance Sheets
(Parent Company Only)
 December 31,2005
    
    
    2004(Dollars In Thousands)AssetsCash and cash equivalents
    
    $
    20
    
    
    $
    Loans receivable
    
    
    
    
    
    
    85Investment in subsidiaries
    
    
    154,098
    
    
    
    145,832Premises and equipment
    
    
    7,662
    
    
    
    8,040Other assets
    
    
    3,733
    
    
    
    3,346Total assets
    
    $
    165,513
    
    
    $
    157,303LiabilitiesShort-term borrowings
    
    $
    14,975
    
    
    $
    7,000Long-term borrowings
    
    
    7,691
    
    
    
    10,254Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394Other liabilities
    
    
    3,228
    
    
    
    1,916Total liabilities
    
    
    72,288
    
    
    
    65,564Stockholders equityCommon stock
    
    
    3,770
    
    
    
    3,770Additional paid-in capital
    
    
    53,614
    
    
    
    53,421Retained earnings
    
    
    38,928
    
    
    
    36,486Accumulated other comprehensive income
    
    
    (1,369
    )
    
    
    505Treasury stock
    
    
    (1,718
    )
    
    
    (2,443
    )Total stockholders equity
    
    
    93,225
    
    
    
    91,739Total liabilities and stockholders equity
    
    $
    165,513
    
    
    $
    157,303
 68




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 19. Parent Company Only Condensed Financial Information (Continued)
 Condensed Statements of Income
(Parent Company Only)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Income:Interest on loans, including fees
    
    $
    
    
    
    $
    3
    
    
    $
    23Dividends from subsidiaries
    
    
    10,862
    
    
    
    8,314
    
    
    
    7,298Other
    
    
    9,635
    
    
    
    7,728
    
    
    
    2,91520,497
    
    
    
    16,045
    
    
    
    10,236Expenses:Salaries and employee benefits
    
    
    9,007
    
    
    
    7,378
    
    
    
    3,870Occupancy
    
    
    2,120
    
    
    
    1,816
    
    
    
    1,465Interest
    
    
    4,171
    
    
    
    3,310
    
    
    
    1,419Other
    
    
    3,085
    
    
    
    5,204
    
    
    
    1,66918,383
    
    
    
    17,708
    
    
    
    8,423Income (loss) before income tax benefit and equity
in undistributed net income of subsidiaries
    
    
    2,114
    
    
    
    (1,663
    )
    
    
    1,813Income tax benefit
    
    
    3,014
    
    
    
    3,404
    
    
    
    1,876Income before equity in undistributed net income
of subsidiaries
    
    
    5,128
    
    
    
    1,741
    
    
    
    3,689Equity in undistributed net income (loss) of subsidiaries
    
    
    (30
    )
    
    
    2,261
    
    
    
    4,539Net income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228
 69




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 19. Parent Company Only Condensed Financial Information (Continued)
 Condensed Statements of Cash Flows
(Parent Company Only)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    5,098
    
    
    $
    4,002
    
    
    $
    8,228Adjustments to reconcile net income to net cash provided by (used in) operating activities:Equity in undistributed net (income) loss of subsidiaries
    
    
    30
    
    
    
    (2,261
    )
    
    
    (4,539
    )Depreciation
    
    
    717
    
    
    
    530
    
    
    
    156Gain on sale of premises and equipment
    
    
    (263
    )
    
    
    
    
    
    
    Other, net
    
    
    925
    
    
    
    1,537
    
    
    
    3,123Net cash provided by (used in) operating activities
    
    
    6,507
    
    
    
    3,808
    
    
    
    6,968Cash Flows From Investing ActivitiesPayment for acquisition
    
    
    
    
    
    
    (1,300
    )
    
    
    (20,282
    )Net change in loans
    
    
    85
    
    
    
    (85
    )
    
    
    500Capital infusion, subsidiaries
    
    
    (10,170
    )
    
    
    (125
    )
    
    
    (8,825
    )Investment in Merchants and Manufacturers
Statutory Trusts
    
    
    
    
    
    
    (310
    )
    
    
    (774
    )Purchases of premises and equipment, net
    
    
    (1,380
    )
    
    
    (7,092
    )
    
    
    (1,065
    )Proceeds from sales of premises and equipment
    
    
    1,304
    
    
    
    
    
    
    
    Net cash (used in) investing activities
    
    
    (10,161
    )
    
    
    (8,912
    )
    
    
    (30,446
    )Cash Flows From Financing ActivitiesNet increase (decrease) in short-term borrowings
    
    
    7,975
    
    
    
    (375
    )
    
    
    (325
    )Payments on long-term borrowings
    
    
    (2,563
    )
    
    
    (2,564
    )
    
    
    Dividends paid
    
    
    (2,656
    )
    
    
    (2,523
    )
    
    
    (2,213
    )Issuance of junior subordinated debt owed to
unconsolidated trusts
    
    
    
    
    
    
    10,310
    
    
    
    25,774Stock dividend
    
    
    
    
    
    
    
    
    
    
    (16
    )Common stock transactions, net
    
    
    918
    
    
    
    256
    
    
    
    35Net cash provided by financing activities
    
    
    3,674
    
    
    
    5,104
    
    
    
    23,255Increase (decrease) in cash and cash equivalents
    
    
    20
    
    
    
    
    
    
    
    (223
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    
    
    
    
    223Cash and cash equivalents at end of year
    
    $
    20
    
    
    $
    
    
    
    $
    
 70




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
      Internal Control -
Integrated Framework.
  71




---



##### Table of Contents



Internal Control  Integrated Framework
   
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  Equity Compensation Plan Information
  Number of
    
    
    
    
    
    Number ofcommon shares to be
    
    
    
    
    
    common sharesissued upon exercise
    
    Weighted-average
    
    available for futureof outstanding
    
    exercise price of
    
    issuance underoptions,
    
    outstanding options,
    
    equityPlan Category
    
    warrants, and rights
    
    warrants, and rights
    
    compensation plansEquity compensation
plans approved by
stockholders
    
    
    112,282
    
    
    $
    33.77
    
    
    
    97,718Equity compensation
plans not approved
by stockholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    112,282
    
    
    $
    33.77
    
    
    
    97,718
 72




---



##### Table of Contents



Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  73




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Documents Filed:1 and 2.
    Financial Statements and Financial Statement Schedules.The following
financial statements of Merchants and Manufacturers Bancorporation, Inc. and
subsidiaries are filed as a part of this report under Item 8. Financial Statements and
Supplementary Data:
 Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2005 and 2004Consolidated Statements of Income for the years ended December 31, 2005, 2004, and
2003Consolidated Statements of Changes in Stockholders Equity for the years ended
December 31, 2005, 2004, and 2003Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004
and 2003Notes to Consolidated Financial StatementsAll financial statement schedules have been omitted as they are not applicable or
because the information is included in the financial statements or notes thereto.
 3. Exhibits.
    All required exhibits have been furnished in connection with and are
incorporated by reference to previous filing, except for the exhibits set forth on the
Exhibit List appearing elsewhere in this filing.
 74




---



##### Table of Contents



SIGNATURES
  MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.By:
    /s/ Michael J. MurryMichael J. MurryChairman of the Board of Directors & Chief Executive
OfficerDate: March 15, 2006  PRINCIPAL EXECUTIVE OFFICERS/s/ Michael J. Murry
    
    Chairman of the Board of Directors
    
    March 15, 2006Michael J. Murry
    
    &
Chief Executive Officer/s/ Frederick R. Klug
    
    Executive Vice President & Chief
    
    March 15, 2006Frederick R. Klug
    
    Financial
OfficerDIRECTORS/s/ Michael J. Murry
    
    Chairman of the Board of Directors
    
    March 15, 2006Michael J. Murry/s/ Nicholas S. Logarakis
    
    Director
    
    March 15, 2006Nicholas S. Logarakis/s/ Rodney T. Goodell
    
    Director
    
    March 15, 2006Rodney Goodell/s/ Donald A. Zellmer
    
    Director
    
    March 15, 2006Donald Zellmer/s/ James A. Sass
    
    Director
    
    March 15, 2006James A. Sass/s/ Thomas J. Sheehan
    
    Director
    
    March 15, 2006Thomas J. Sheehan/s/ J. Michael Bartels
    
    Director
    
    March 15, 2006J. Michael Bartels/s/ William L. Adamany
    
    Director
    
    March 15, 2006William L. Adamany/s/ Steven R. Blakeslee
    
    Director
    
    March 15, 2006Steven R. Blakeslee/s/ Sr. Joel Read
    
    Director
    
    March 15, 2006Sr. Joel Read/s/ Harold J. Mueller
    
    Director
    
    March 15, 2006Harold J. Mueller
 75




---



##### Table of Contents



10-K EXHIBIT LIST
 EXHIBIT NO.
    
    DESCRIPTIONEXHIBIT 21.1
    
    SubsidiariesEXHIBIT 23.1
    
    Consent of Independent Registered Public Accounting FirmEXHIBIT 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002EXHIBIT 31.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002EXHIBIT 32.1*
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002EXHIBIT 32.2*
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    This certification is not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended. 76