##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 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
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 
 
   
   þ o
  þ o
  þ o




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MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
 FORM 10-Q
 INDEX
 Page NumberPart I. Financial InformationItem 1.
    
    Financial StatementsUnaudited Consolidated Statements of Financial Condition as of September 30, 2005, December 31, 2004, and September 30, 2004
    
    
    3Unaudited Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 2005 and September 30, 2004
    
    
    4Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2005 and September 30, 2004
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25Part II. Other InformationItems 1-6.
    
    
    
    
    26Signatures
    
    
    27Certification of CEOCertification of CFOCertification of CEOCertification of CFO
  2




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##### Table of Contents



Part I. Financial Information
 Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Financial Condition
 September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004(Dollars in Thousands, Except Share and Per Share Amounts)ASSETSCash and due from banks
    
    $
    34,371
    
    
    $
    33,839
    
    
    $
    31,400Interest bearing deposits in banks
    
    
    1,051
    
    
    
    1,178
    
    
    
    1,364Federal funds sold
    
    
    4,061
    
    
    
    9,253
    
    
    
    4,288Cash and cash equivalents
    
    
    39,483
    
    
    
    44,270
    
    
    
    37,052Available-for-sale securities
    
    
    174,027
    
    
    
    172,564
    
    
    
    176,225Loans, less allowance for loan losses of $10,482 at September 30, 2005,
$10,622 at December 31, 2004 and $10,725 at September 30, 2004
    
    
    1,107,907
    
    
    
    1,028,059
    
    
    
    996,774Accrued interest receivable
    
    
    6,795
    
    
    
    5,419
    
    
    
    5,706FHLB stock
    
    
    20,234
    
    
    
    19,649
    
    
    
    19,443Premises and equipment
    
    
    32,380
    
    
    
    30,355
    
    
    
    30,099Goodwill and intangible assets
    
    
    35,390
    
    
    
    35,714
    
    
    
    35,881Other assets
    
    
    22,127
    
    
    
    21,035
    
    
    
    22,280Total assets
    
    $
    1,438,343
    
    
    $
    1,357,065
    
    
    $
    1,323,460LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    133,154
    
    
    $
    148,482
    
    
    $
    127,292Interest bearing
    
    
    993,134
    
    
    
    884,564
    
    
    
    871,329Total deposits
    
    
    1,126,288
    
    
    
    1,033,046
    
    
    
    998,621Short-term borrowings
    
    
    46,332
    
    
    
    61,322
    
    
    
    56,554Long-term borrowings
    
    
    105,912
    
    
    
    111,054
    
    
    
    112,467Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    46,394Accrued interest payable
    
    
    3,347
    
    
    
    1,944
    
    
    
    1,847Other liabilities
    
    
    14,891
    
    
    
    11,566
    
    
    
    14,077Total liabilities
    
    
    1,343,164
    
    
    
    1,265,326
    
    
    
    1,229,960Stockholders equityPreferred 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 at September 30, 2005, December 31, 2004
and September 30, 2004; shares outstanding: 3,701,621 at
September 30, 2005, 3,674,054 at December 31, 2004 and
3,670,145 at September 30, 2004
    
    
    3,770
    
    
    
    3,770
    
    
    
    3,770Additional paid-in capital
    
    
    53,614
    
    
    
    53,421
    
    
    
    53,470Retained earnings
    
    
    39,669
    
    
    
    36,486
    
    
    
    37,959Accumulated other comprehensive income (loss)
    
    
    (156
    )
    
    
    505
    
    
    
    852Treasury stock, at cost (68,630 shares at September 30, 2005, 96,197
December 31, 2004 and 100,106 shares at September 30, 2004)
    
    
    (1,718
    )
    
    
    (2,443
    )
    
    
    (2,551
    )Total stockholders equity
    
    
    95,179
    
    
    
    91,739
    
    
    
    93,500Total liabilities and stockholders equity
    
    $
    1,438,343
    
    
    $
    1,357,065
    
    
    $
    1,323,460
 See notes to unaudited consolidated financial statements.
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##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars In Thousands, Except Per Share Amounts)Interest income:Interest and fees on loans
    
    $
    18,019
    
    
    $
    14,079
    
    
    $
    50,831
    
    
    $
    39,835Interest and dividends on securities:Taxable
    
    
    422
    
    
    
    311
    
    
    
    1,247
    
    
    
    1,215Tax-exempt
    
    
    621
    
    
    
    545
    
    
    
    1,794
    
    
    
    1,316Interest on mortgage-backed securities
    
    
    872
    
    
    
    867
    
    
    
    2,638
    
    
    
    2,282Interest on interest bearing deposits in
banks and federal funds sold
    
    
    49
    
    
    
    75
    
    
    
    123
    
    
    
    173Total interest income
    
    
    19,983
    
    
    
    15,877
    
    
    
    56,633
    
    
    
    44,821Interest expense:Interest on deposits
    
    
    5,486
    
    
    
    3,176
    
    
    
    14,008
    
    
    
    9,292Interest on short-term borrowings
    
    
    636
    
    
    
    244
    
    
    
    1,665
    
    
    
    540Interest on long-term borrowings
    
    
    1,076
    
    
    
    1,001
    
    
    
    3,321
    
    
    
    2,522Interest on junior subordinated debt owed to
unconsolidated trusts
    
    
    808
    
    
    
    582
    
    
    
    2,308
    
    
    
    1,694Total interest expense
    
    
    8,006
    
    
    
    5,003
    
    
    
    21,302
    
    
    
    14,048Net interest income
    
    
    11,977
    
    
    
    10,874
    
    
    
    35,331
    
    
    
    30,773Provision for loan losses
    
    
    390
    
    
    
    431
    
    
    
    1,170
    
    
    
    1,332Net interest income after provision for
loan losses
    
    
    11,587
    
    
    
    10,443
    
    
    
    34,161
    
    
    
    29,441Non-interest income:Service charges on deposit accounts
    
    
    1,173
    
    
    
    1,003
    
    
    
    3,162
    
    
    
    2,512Service charges on loans
    
    
    861
    
    
    
    742
    
    
    
    2,535
    
    
    
    1,523Securities gains, net
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    190Gain on sale of loans, net
    
    
    102
    
    
    
    70
    
    
    
    301
    
    
    
    364Gain (loss) on sale of fixed assets, net
    
    
    (102
    )
    
    
    
    
    
    
    293
    
    
    
    158Tax fees, brokerage and insurance commissions
    
    
    290
    
    
    
    237
    
    
    
    1,330
    
    
    
    1,236Other
    
    
    823
    
    
    
    1,150
    
    
    
    3,051
    
    
    
    2,575Total noninterest income
    
    
    3,147
    
    
    
    3,209
    
    
    
    10,672
    
    
    
    8,558Noninterest expenses:Salaries and employee benefits
    
    
    6,990
    
    
    
    6,013
    
    
    
    21,208
    
    
    
    17,640Premises and equipment
    
    
    1,695
    
    
    
    1,663
    
    
    
    5,372
    
    
    
    4,491Data processing fees
    
    
    845
    
    
    
    533
    
    
    
    2,576
    
    
    
    1,294Marketing and business development
    
    
    517
    
    
    
    684
    
    
    
    1,568
    
    
    
    1,592Sarbanes-Oxley implementation
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    333Other
    
    
    2,136
    
    
    
    1,883
    
    
    
    6,461
    
    
    
    5,915Total noninterest expense
    
    
    12,183
    
    
    
    11,042
    
    
    
    37,185
    
    
    
    31,265Income before income taxes
    
    
    2,551
    
    
    
    2,610
    
    
    
    7,648
    
    
    
    6,734Income taxes
    
    
    821
    
    
    
    676
    
    
    
    2,476
    
    
    
    1,921Net income
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,172
    
    
    $
    4,813Basic earnings per share
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.41
    
    
    $
    1.41Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.40
    
    
    $
    1.41Dividends per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.54
    
    
    $
    0.54
 See notes to unaudited consolidated financial statements.
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Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flows
 Nine Months Ended September 30,2005
    
    
    2004(Dollars in Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    5,172
    
    
    $
    4,813Adjustments to reconcile net income to cash provided by operating activities:Provision for loan losses
    
    
    1,170
    
    
    
    1,332Depreciation
    
    
    2,068
    
    
    
    1,375Amortization and accretion of premiums and discounts, net
    
    
    529
    
    
    
    790Securities gains, net
    
    
    
    
    
    
    (190
    )Gain on sale of loans, net
    
    
    (301
    )
    
    
    (364
    )Gain on sale of fixed assets, net
    
    
    (293
    )
    
    
    (158
    )Increase in accrued interest receivable
    
    
    (1,376
    )
    
    
    (857
    )Increase in accrued interest payable
    
    
    1,403
    
    
    
    158FHLB stock dividend
    
    
    (693
    )
    
    
    Other
    
    
    3,873
    
    
    
    10,930Net cash provided by operating activities before loan originations
and sales
    
    
    11,552
    
    
    
    17,829Loans originated for sale
    
    
    (34,802
    )
    
    
    (49,157
    )Proceeds from sales of loans
    
    
    35,735
    
    
    
    47,252Net cash provided by operating activities
    
    
    12,485
    
    
    
    15,924Cash Flows From Investing ActivitiesPurchase of available-for-sale securities
    
    
    (38,974
    )
    
    
    (84,976
    )Proceeds from sales of available-for-sale securities
    
    
    26
    
    
    
    10,032Proceeds from redemptions and maturities of available-for-sale securities
    
    
    34,934
    
    
    
    66,361Net increase in loans
    
    
    (82,200
    )
    
    
    (76,866
    )Purchase of premises and equipment, net
    
    
    (5,317
    )
    
    
    (8,999
    )Proceeds from sale of premises and equipment
    
    
    1,517
    
    
    
    Redemption (purchase) of Federal Home Loan Bank stock
    
    
    108
    
    
    
    (3,198
    )Cash received in acquisition
    
    
    
    
    
    
    4,837Net cash used in investing activities
    
    
    (89,906
    )
    
    
    (97,646
    )Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    93,242
    
    
    
    7,134Dividends paid
    
    
    (1,989
    )
    
    
    (1,861
    )Net increase (decrease) in short-term borrowings
    
    
    (14,990
    )
    
    
    20,737Proceeds from long-term borrowings
    
    
    48,395
    
    
    
    54,941Repayment of long-term borrowings
    
    
    (53,537
    )
    
    
    (21,770
    )Issuance of junior subordinated debt owed to unconsolidated trusts
    
    
    
    
    
    
    10,310Increase in advance payments by borrowers for taxes and insurance
    
    
    595
    
    
    
    1,432Proceeds from sale of treasury stock
    
    
    918
    
    
    
    196Net cash provided by financing activities
    
    
    72,634
    
    
    
    71,119Decrease in cash and cash equivalents
    
    
    (4,787
    )
    
    
    (10,603
    )Cash and cash equivalents at beginning of period
    
    
    44,270
    
    
    
    47,655Cash and cash equivalents at end of period
    
    $
    39,483
    
    
    $
    37,052Supplemental Cash Flow Information and Noncash Transactions:Interest paid
    
    $
    19,899
    
    
    $
    13,618Income taxes paid
    
    
    721
    
    
    
    3,353Loans transferred to other real estate owned
    
    
    550
    
    
    
    554Supplemental Schedules of Noncash Investing Activities:Change in accumulated other comprehensive income, unrealized gains
(losses) on available-for-sale securities, net
    
    $
    (661
    )
    
    $
    189
 See notes to unaudited consolidated financial statements
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Merchants and Manufacturers Bancorporation, Inc.
 
   NOTE A  Basis of Presentation
    6




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NOTE B  Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Basic:
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands, Except Share and Per Share Amounts)Net income
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,172
    
    
    $
    4,813Weighted average shares outstanding
    
    
    3,700
    
    
    
    3,518
    
    
    
    3,684
    
    
    
    3,395Basic earnings per share
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.41
    
    
    $
    1.41
 Diluted:(Dollars in Thousands, Except Per Share Data)Net income
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,172
    
    
    $
    4,813Weighted average shares outstanding
    
    
    3,700
    
    
    
    3,518
    
    
    
    3,684
    
    
    
    3,395Effect of dilutive stock options outstanding
    
    
    14
    
    
    
    13
    
    
    
    11
    
    
    
    26Diluted weighted average shares outstanding
    
    
    3,714
    
    
    
    3,531
    
    
    
    3,695
    
    
    
    3,421Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.40
    
    
    $
    1.41
 NOTE C  Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands)Net income
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,172
    
    
    $
    4,813Other comprehensive income:Change in unrealized securities
gains (losses)
    
    
    (592
    )
    
    
    3,153
    
    
    
    (1,127
    )
    
    
    69Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    190Income tax effect
    
    
    278
    
    
    
    (1,097
    )
    
    
    466
    
    
    
    (70
    )Total comprehensive income
    
    $
    1,416
    
    
    $
    3,997
    
    
    $
    4,511
    
    
    $
    5,002
 7




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NOTE D  Loans Receivable
  September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004(Dollars in Thousands)First Mortgage:Conventional single-family residential
    
    $
    163,291
    
    
    $
    142,926
    
    
    $
    140,399Commercial and multifamily residential
    
    
    471,289
    
    
    
    436,612
    
    
    
    417,585Construction
    
    
    77,827
    
    
    
    76,267
    
    
    
    68,043Farmland
    
    
    55,553
    
    
    
    55,710
    
    
    
    54,350767,960
    
    
    
    711,515
    
    
    
    680,377Commercial business loans
    
    
    266,769
    
    
    
    240,575
    
    
    
    244,795Consumer and installment loans
    
    
    48,213
    
    
    
    49,136
    
    
    
    48,998Home equity loans
    
    
    28,465
    
    
    
    26,592
    
    
    
    25,066Other
    
    
    6,982
    
    
    
    10,863
    
    
    
    8,263350,429
    
    
    
    327,166
    
    
    
    327,122Total loans
    
    
    1,118,389
    
    
    
    1,038,681
    
    
    
    1,007,499Less allowance for loan losses
    
    
    10,482
    
    
    
    10,622
    
    
    
    10,725Loans, net
    
    $
    1,107,907
    
    
    $
    1,028,059
    
    
    $
    996,774
 NOTE E  Stock-Based Compensation Plan
 Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands, Except Per Share Data)Net income, as reported
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,172
    
    
    $
    4,813Deduct total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    334Pro forma net income
    
    $
    1,730
    
    
    $
    1,934
    
    
    $
    5,166
    
    
    $
    4,479Earnings per share:Basic:As reported
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.41
    
    
    $
    1.41Pro forma
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.40
    
    
    $
    1.32Diluted:As reported
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.40
    
    
    $
    1.41Pro forma
    
    $
    0.47
    
    
    $
    0.55
    
    
    $
    1.40
    
    
    $
    1.31
 8




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NOTE F  Recent Acquisition
  NOTE G  Recent Accounting Pronouncements
   9




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Share-Based Payment
   10




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NOTE H  Commitments and Contingent Liabilities
     September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004(Dollars in Thousands)Commitments to originate mortgage loans
    
    $
    26,788
    
    
    $
    20,104
    
    
    $
    35,506Unused lines of credit:Commercial business
    
    
    193,766
    
    
    
    144,647
    
    
    
    125,204Home equity
    
    
    29,242
    
    
    
    21,935
    
    
    
    19,634Credit cards
    
    
    20,455
    
    
    
    18,865
    
    
    
    18,199Standby letters of credit
    
    
    15,677
    
    
    
    12,574
    
    
    
    12,115
   11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Financial Condition
 Total Assets
  Investment Securities
  Loans Receivable
  12




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Total Deposits and Borrowings
    Capital Resources
   Nonperforming Assets and Allowance for Losses
  13




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##### Table of Contents



September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004(Dollars in Thousands)Non-accrual loans:Conventional single-family residential
    
    $
    2,063
    
    
    $
    726
    
    
    $
    687Commercial and multifamily residential
    
    
    1,880
    
    
    
    3,997
    
    
    
    2,269Commercial business loans
    
    
    1,126
    
    
    
    3,123
    
    
    
    1,549Consumer and installment loans
    
    
    908
    
    
    
    1,025
    
    
    
    865Total non-accrual loans
    
    
    5,977
    
    
    
    8,871
    
    
    
    5,370Other real estate owned
    
    
    1,846
    
    
    
    1,296
    
    
    
    1,987Total nonperforming assets
    
    $
    7,823
    
    
    $
    10,167
    
    
    $
    7,357Ratios:Non-accrual loans to total loans
    
    
    0.53
    %
    
    
    0.85
    %
    
    
    0.53
    %Nonperforming assets to total assets
    
    
    0.54
    %
    
    
    0.75
    %
    
    
    0.56
    %Loan loss allowance to non-accrual loans
    
    
    175.37
    %
    
    
    119.74
    %
    
    
    199.72
    %Loan loss allowance to total loans
    
    
    0.94
    %
    
    
    1.02
    %
    
    
    1.06
    %
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands)Balance at beginning of period
    
    $
    10,381
    
    
    $
    10,461
    
    
    $
    10,623
    
    
    $
    9,881Increase due to acquisition
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    449Provision for loan losses
    
    
    390
    
    
    
    431
    
    
    
    1,170
    
    
    
    1,332Charge-offs:Commercial and multifamily residential
    
    
    34
    
    
    
    64
    
    
    
    61
    
    
    
    159Commercial business loans
    
    
    268
    
    
    
    36
    
    
    
    1,075
    
    
    
    233Consumer and installment loans
    
    
    89
    
    
    
    633
    
    
    
    436
    
    
    
    816Total charge-offs
    
    
    391
    
    
    
    733
    
    
    
    1,572
    
    
    
    1,208Recoveries:Commercial and multifamily residential
    
    
    4
    
    
    
    1
    
    
    
    19
    
    
    
    3Commercial business loans
    
    
    28
    
    
    
    94
    
    
    
    75
    
    
    
    163Consumer and installment loans
    
    
    70
    
    
    
    22
    
    
    
    167
    
    
    
    105Total recoveries
    
    
    102
    
    
    
    117
    
    
    
    261
    
    
    
    271Net charge-offs
    
    
    289
    
    
    
    616
    
    
    
    1,311
    
    
    
    937Balance at end of period
    
    $
    10,482
    
    
    $
    10,725
    
    
    $
    10,482
    
    
    $
    10,725
  14




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##### Table of Contents



Potential Problem Loans
   15




---



##### Table of Contents



Comparison of Three and Nine Months Ended September 30, 2005 and 2004
 Net Income
  Net Interest Income
  16




---



##### Table of Contents



AVERAGE BALANCES, INTEREST RATES AND YIELDS
 For the Three Months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,105,990
    
    
    $
    17,976
    
    
    
    6.45
    %
    
    $
    954,722
    
    
    $
    14,029
    
    
    
    5.85
    %Loans exempt from federal income taxes (3)
    
    
    3,846
    
    
    
    65
    
    
    
    6.72
    %
    
    
    4,094
    
    
    
    76
    
    
    
    7.39
    %Taxable investment securities (4)
    
    
    38,309
    
    
    
    422
    
    
    
    4.37
    %
    
    
    36,616
    
    
    
    311
    
    
    
    3.38
    %Mortgage-related securities (4)
    
    
    87,808
    
    
    
    872
    
    
    
    3.94
    %
    
    
    96,793
    
    
    
    867
    
    
    
    3.56
    %Investment securities exempt from federal
income taxes (3)(4)
    
    
    67,526
    
    
    
    941
    
    
    
    5.53
    %
    
    
    48,763
    
    
    
    826
    
    
    
    6.74
    %Other securities
    
    
    4,535
    
    
    
    49
    
    
    
    4.29
    %
    
    
    11,442
    
    
    
    75
    
    
    
    2.61
    %Interest earning assets
    
    
    1,308,014
    
    
    
    20,325
    
    
    
    6.16
    %
    
    
    1,152,430
    
    
    
    16,184
    
    
    
    5.59
    %Non interest earning assets
    
    
    129,124
    
    
    
    
    
    
    
    
    
    
    
    100,582Average assets
    
    $
    1,437,138
    
    
    
    
    
    
    
    
    
    
    $
    1,253,012Liabilities and Stockholders EquityNOW deposits
    
    $
    97,526
    
    
    
    126
    
    
    
    0.51
    %
    
    $
    86,044
    
    
    
    96
    
    
    
    0.44
    %Money market deposits
    
    
    233,005
    
    
    
    1,058
    
    
    
    1.80
    %
    
    
    262,227
    
    
    
    718
    
    
    
    1.09
    %Savings deposits
    
    
    136,719
    
    
    
    331
    
    
    
    0.96
    %
    
    
    135,801
    
    
    
    293
    
    
    
    0.86
    %Time deposits
    
    
    491,147
    
    
    
    3,971
    
    
    
    3.21
    %
    
    
    355,835
    
    
    
    2,069
    
    
    
    2.31
    %Short-term borrowings
    
    
    63,944
    
    
    
    636
    
    
    
    3.95
    %
    
    
    43,207
    
    
    
    244
    
    
    
    2.25
    %Long-term borrowings
    
    
    110,187
    
    
    
    1,076
    
    
    
    3.87
    %
    
    
    107,696
    
    
    
    1,001
    
    
    
    3.70
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    808
    
    
    
    6.91
    %
    
    
    36,199
    
    
    
    582
    
    
    
    6.40
    %Interest bearing liabilities
    
    
    1,178,922
    
    
    
    8,006
    
    
    
    2.69
    %
    
    
    1,027,009
    
    
    
    5,003
    
    
    
    1.94
    %Demand deposits and other non interest
bearing liabilities
    
    
    163,013
    
    
    
    
    
    
    
    
    
    
    
    140,823Stockholders equity
    
    
    95,203
    
    
    
    
    
    
    
    
    
    
    
    85,180Average liabilities and stockholders equity
    
    $
    1,437,138
    
    
    
    
    
    
    
    
    
    
    $
    1,253,012Net interest spread (5)
    
    
    
    
    
    $
    12,319
    
    
    
    3.47
    %
    
    
    
    
    
    $
    11,181
    
    
    
    3.65
    %Net interest earning assets
    
    $
    129,092
    
    
    
    
    
    
    
    
    
    
    $
    125,421Net interest margin on a fully tax
equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    3.75
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.11
    
    
    
    
    
    
    
    
    
    
    
    1.12
 
 (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. 17




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##### Table of Contents



AVERAGE BALANCES, INTEREST RATES AND YIELDS
 For the Nine Months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,080,469
    
    
    $
    50,703
    
    
    
    6.27
    %
    
    $
    900,651
    
    
    $
    39,682
    
    
    
    5.89
    %Loans exempt from federal income taxes (3)
    
    
    3,640
    
    
    
    194
    
    
    
    7.12
    %
    
    
    4,154
    
    
    
    232
    
    
    
    7.45
    %Taxable investment securities (4)
    
    
    35,908
    
    
    
    1,247
    
    
    
    4.64
    %
    
    
    41,346
    
    
    
    1,215
    
    
    
    3.93
    %Mortgage-related securities (4)
    
    
    90,754
    
    
    
    2,638
    
    
    
    3.89
    %
    
    
    89,698
    
    
    
    2,282
    
    
    
    3.40
    %Investment securities exempt from federal
income taxes (3)(4)
    
    
    64,995
    
    
    
    2,718
    
    
    
    5.59
    %
    
    
    45,143
    
    
    
    1,994
    
    
    
    5.90
    %Other securities
    
    
    7,005
    
    
    
    123
    
    
    
    2.35
    %
    
    
    12,342
    
    
    
    173
    
    
    
    1.87
    %Interest earning assets
    
    
    1,282,771
    
    
    
    57,623
    
    
    
    6.01
    %
    
    
    1,093,334
    
    
    
    45,578
    
    
    
    5.57
    %Non interest earning assets
    
    
    125,356
    
    
    
    
    
    
    
    
    
    
    
    96,139Average assets
    
    $
    1,408,127
    
    
    
    
    
    
    
    
    
    
    $
    1,189,473Liabilities and Stockholders EquityNOW deposits
    
    $
    96,080
    
    
    
    400
    
    
    
    0.56
    %
    
    $
    86,244
    
    
    
    302
    
    
    
    0.47
    %Money market deposits
    
    
    234,183
    
    
    
    2,682
    
    
    
    1.53
    %
    
    
    260,230
    
    
    
    2,119
    
    
    
    1.09
    %Savings deposits
    
    
    136,022
    
    
    
    920
    
    
    
    0.90
    %
    
    
    125,394
    
    
    
    788
    
    
    
    0.84
    %Time deposits
    
    
    459,436
    
    
    
    10,006
    
    
    
    2.91
    %
    
    
    341,917
    
    
    
    6,083
    
    
    
    2.38
    %Short-term borrowings
    
    
    66,254
    
    
    
    1,665
    
    
    
    3.36
    %
    
    
    38,378
    
    
    
    540
    
    
    
    1.88
    %Long-term borrowings
    
    
    115,307
    
    
    
    3,321
    
    
    
    3.85
    %
    
    
    91,593
    
    
    
    2,522
    
    
    
    3.68
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    2,308
    
    
    
    6.65
    %
    
    
    36,122
    
    
    
    1,694
    
    
    
    6.26
    %Interest bearing liabilities
    
    
    1,153,676
    
    
    
    21,302
    
    
    
    2.47
    %
    
    
    979,878
    
    
    
    14,048
    
    
    
    1.92
    %Demand deposits and other non interest
bearing liabilities
    
    
    160,583
    
    
    
    
    
    
    
    
    
    
    
    127,056Stockholders equity
    
    
    93,868
    
    
    
    
    
    
    
    
    
    
    
    82,539Average liabilities and stockholders equity
    
    $
    1,408,127
    
    
    
    
    
    
    
    
    
    
    $
    1,189,473Net interest spread (5)
    
    
    
    
    
    $
    36,321
    
    
    
    3.54
    %
    
    
    
    
    
    $
    31,530
    
    
    
    3.65
    %Net interest earning assets
    
    $
    129,095
    
    
    
    
    
    
    
    
    
    
    $
    113,456Net interest margin on a fully tax
equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.79
    %
    
    
    
    
    
    
    
    
    
    
    3.85
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.68
    %
    
    
    
    
    
    
    
    
    
    
    3.76
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.11
    
    
    
    
    
    
    
    
    
    
    
    1.12
 
 (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. 18




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##### Table of Contents



VOLUME, RATE AND MIX ANALYSIS OF NET INTEREST INCOME
 Three Months Ended September 30, 2005
    
    
    Nine Months Ended September 30, 2005Compared to September 30, 2004
    
    
    Compared to September 30, 2004Change Due to Volume
    
    
    Change Due to Rate
    
    
    Total Change
    
    
    Change Due to Volume
    
    
    Change Due to Rate
    
    
    Total Change(Dollars in Thousands)Interest-Earning Assets:Loans, net (1)
    
    $
    2,391
    
    
    $
    1,556
    
    
    $
    3,947
    
    
    $
    8,281
    
    
    $
    2,740
    
    
    $
    11,021Loans exempt from federal income
taxes (2)
    
    
    (4
    )
    
    
    (7
    )
    
    
    (11
    )
    
    
    (28
    )
    
    
    (10
    )
    
    
    (38
    )Taxable investment securities
    
    
    15
    
    
    
    96
    
    
    
    111
    
    
    
    (82
    )
    
    
    114
    
    
    
    32Mortgage-related securities
    
    
    (36
    )
    
    
    41
    
    
    
    5
    
    
    
    27
    
    
    
    329
    
    
    
    356Investment securities exempt from
federal income taxes (2)
    
    
    216
    
    
    
    (101
    )
    
    
    115
    
    
    
    822
    
    
    
    (98
    )
    
    
    724Other securities
    
    
    390
    
    
    
    (416
    )
    
    
    (26
    )
    
    
    (121
    )
    
    
    71
    
    
    
    (50
    )Total interest-earning assets
    
    $
    2,972
    
    
    $
    1,169
    
    
    $
    4,141
    
    
    $
    8,899
    
    
    $
    3,146
    
    
    $
    12,045Interest-Bearing Liabilities:NOW deposits
    
    $
    14
    
    
    $
    16
    
    
    $
    30
    
    
    $
    37
    
    
    $
    61
    
    
    $
    98Money market deposits
    
    
    (70
    )
    
    
    410
    
    
    
    340
    
    
    
    (183
    )
    
    
    746
    
    
    
    563Savings deposits
    
    
    2
    
    
    
    36
    
    
    
    38
    
    
    
    69
    
    
    
    63
    
    
    
    132Time deposits
    
    
    943
    
    
    
    959
    
    
    
    1,902
    
    
    
    2,370
    
    
    
    1,553
    
    
    
    3,923Short-term borrowings
    
    
    152
    
    
    
    240
    
    
    
    392
    
    
    
    540
    
    
    
    585
    
    
    
    1,125Long-term borrowings
    
    
    25
    
    
    
    50
    
    
    
    75
    
    
    
    676
    
    
    
    123
    
    
    
    799Junior subordinated debt owed to
unconsolidated trusts
    
    
    176
    
    
    
    50
    
    
    
    226
    
    
    
    504
    
    
    
    110
    
    
    
    614Total interest-bearing liabilities
    
    $
    1,242
    
    
    $
    1,761
    
    
    $
    3,003
    
    
    $
    4,013
    
    
    $
    3,241
    
    
    $
    7,254Net change in net interest income
    
    
    
    
    
    
    
    
    
    $
    1,138
    
    
    
    
    
    
    
    
    
    
    $
    4,791
 
 (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
  19




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##### Table of Contents



Non-Interest Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands)Service charges on deposit accounts
    
    $
    1,173
    
    
    $
    1,003
    
    
    $
    3,162
    
    
    $
    2,512Service charges on loans
    
    
    861
    
    
    
    742
    
    
    
    2,535
    
    
    
    1,523Securities gains, net
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    190Gain on sale of loans, net
    
    
    102
    
    
    
    70
    
    
    
    301
    
    
    
    364Gain (loss) on sale of fixed assets, net
    
    
    (102
    )
    
    
    
    
    
    
    293
    
    
    
    158Tax fees, brokerage and insurance commissions
    
    
    290
    
    
    
    237
    
    
    
    1,330
    
    
    
    1,236Other
    
    
    823
    
    
    
    1,150
    
    
    
    3,051
    
    
    
    2,575Total non-interest income
    
    $
    3,147
    
    
    $
    3,209
    
    
    $
    10,672
    
    
    $
    8,558
       20




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##### Table of Contents



Non-Interest Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands)Salaries and employee benefits
    
    $
    6,990
    
    
    $
    6,013
    
    
    $
    21,208
    
    
    $
    17,640Premises and equipment
    
    
    1,695
    
    
    
    1,663
    
    
    
    5,372
    
    
    
    4,491Data processing fees
    
    
    845
    
    
    
    533
    
    
    
    2,576
    
    
    
    1,294Marketing and business development
    
    
    517
    
    
    
    684
    
    
    
    1,568
    
    
    
    1,592Sarbanes-Oxley implementation
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    333Other
    
    
    2,136
    
    
    
    1,883
    
    
    
    6,461
    
    
    
    5,915Total noninterest expense
    
    $
    12,183
    
    
    $
    11,042
    
    
    $
    37,185
    
    
    $
    31,265
     21




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##### Table of Contents



Income Taxes
  Liquidity
   22




---



##### Table of Contents



Asset/Liability Management
   Amounts Maturing or Repricing as of September 30, 2005Within
    
    
    Six to Twelve
    
    
    One to Five
    
    
    OverSix months
    
    
    Months
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in Thousands)Interest-earning assets:Fixed-rate mortgage loans
    
    $
    114,410
    
    
    $
    73,476
    
    
    $
    310,735
    
    
    $
    15,794
    
    
    $
    514,415Adjustable-rate mortgage loans
    
    
    209,893
    
    
    
    12,571
    
    
    
    30,508
    
    
    
    573
    
    
    
    253,545Total mortgage loans
    
    
    324,303
    
    
    
    86,047
    
    
    
    341,243
    
    
    
    16,367
    
    
    
    767,960Commercial business loans
    
    
    164,821
    
    
    
    27,582
    
    
    
    71,917
    
    
    
    2,449
    
    
    
    266,769Consumer loans
    
    
    15,977
    
    
    
    6,817
    
    
    
    23,894
    
    
    
    1,525
    
    
    
    48,213Home equity loans
    
    
    23,522
    
    
    
    3
    
    
    
    4,156
    
    
    
    784
    
    
    
    28,465Other loans
    
    
    4,148
    
    
    
    128
    
    
    
    1,761
    
    
    
    945
    
    
    
    6,982Mortgage-related securities
    
    
    11,428
    
    
    
    7,744
    
    
    
    51,342
    
    
    
    13,749
    
    
    
    84,263Fixed rate investment securities and other
    
    
    4,521
    
    
    
    5,123
    
    
    
    27,100
    
    
    
    53,020
    
    
    
    89,764Variable rate investment securities and other
    
    
    26,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,409Total interest-earning assets
    
    $
    575,129
    
    
    $
    133,444
    
    
    $
    521,413
    
    
    $
    88,839
    
    
    $
    1,318,825Interest-bearing liabilities:DepositsTime deposits
    
    $
    186,087
    
    
    $
    116,210
    
    
    $
    194,478
    
    
    $
    149
    
    
    $
    496,924NOW accounts
    
    
    6,240
    
    
    
    6,241
    
    
    
    62,404
    
    
    
    29,121
    
    
    
    104,006Savings accounts
    
    
    8,474
    
    
    
    8,637
    
    
    
    84,737
    
    
    
    39,544
    
    
    
    141,392Money market accounts
    
    
    25,537
    
    
    
    14,379
    
    
    
    143,793
    
    
    
    67,103
    
    
    
    250,812Short-term borrowings
    
    
    46,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,332Long-term borrowings
    
    
    12,020
    
    
    
    14,500
    
    
    
    75,754
    
    
    
    3,638
    
    
    
    105,912Junior subordinated debt owed to unconsolidated trusts
    
    
    28,352
    
    
    
    
    
    
    
    
    
    
    
    18,042
    
    
    
    46,394Total interest-bearing liabilities
    
    $
    313,042
    
    
    $
    159,967
    
    
    $
    561,166
    
    
    $
    157,597
    
    
    $
    1,191,772Interest-earning assets less interest-bearing liabilities
    
    $
    262,087
    
    
    $
    (26,523
    )
    
    $
    (39,753
    )
    
    $
    (68,758
    )
    
    $
    127,053Cumulative interest rate sensitivity gap
    
    $
    262,087
    
    
    $
    235,564
    
    
    $
    195,811
    
    
    $
    127,053Cumulative interest rate sensitivity gap as a
percentage of total assets
    
    
    18.22
    %
    
    
    16.38
    %
    
    
    13.61
    %
    
    
    8.83
    %
 23




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##### Table of Contents



Forward-Looking Statements
    24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   25




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##### Table of Contents



Part II. Other Information
 
 Item 1.
    
    Legal ProceedingsAs of September 30, 2005 there were no material pending legal
proceedings, other than ordinary routine litigation incidental to
the business of the Corporation, to which the Corporation or any
of its subsidiaries was a party or to which any of their property
was subject.Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds(a) On July 26, 2005 and August 10, 2005, the Company sold 1,809
shares of common stock out of treasury to three accredited
investors at a price of $38.75 per share, for aggregate proceeds
of approximately $70,000. The investors are directors of bank
subsidiaries of the Company. The Company believes it has
satisfied the exemption from the securities registration
requirement provided by section 4(2) of the Securities Act and
Regulation D promulgated thereunder in this offering since the
shares of common stock were sold in a private placement to
sophisticated, accredited investors, each of whom provided
representations which the Company deemed necessary to satisfy
itself that he was an accredited investor and was purchasing for
investment and not with a view to resale in connection with a
public offering.(b) NONE(c) NONEItem 3.
    
    Defaults upon Senior Securities
 NONEItem 4.
    
    Submission of Matters to Vote of Security Holders  NONEItem 5.
    
    Other Information  NONEItem 6.
    
    ExhibitsThe following exhibits are filed as part of this report:
 EXHIBIT 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by the Chief Executive OfficerEXHIBIT 31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by the Chief Financial OfficerEXHIBIT 32.1*
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by the Chief Executive OfficerEXHIBIT 32.2*
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by the Chief Financial Officer
 
 *
    
    These certifications are 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. 26




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##### Table of Contents



SIGNATURES
  MERCHANTS
AND MANUFACTURERS BANCORPORATION, INC.
 Date
November 3, 2005.
    
    /s/ Michael J. MurryMichael J. MurryChairman of the Board of Directorsand Chief Executive OfficerPrincipal Executive OfficerDate November 3, 2005.
    
    /s/ Frederick R. KlugFrederick R. KlugExecutive Vice President & ChiefFinancial OfficerPrincipal Financial Officer
 27




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##### Table of Contents



10-Q EXHIBIT LIST
 EXHIBIT NO.
    
    DESCRIPTIONEXHIBIT 31.1
    
    Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive OfficerEXHIBIT 31.2
    
    Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial OfficerEXHIBIT 32.1*
    
    Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive OfficerEXHIBIT 32.2*
    
    Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
 
 *
    
    These certifications are 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.