##### 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 June 30, 2006
 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
  o þ o
  o þ




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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 June 30, 2006, December 31, 2005, and June 30, 2005
    
    
    3Unaudited Consolidated Statements of Income for the Three and Six Months ended June 30, 2006 and June 30, 2005
    
    
    4Unaudited Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for the Six Months ended June 30, 2006 and June 30, 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2006 and June 30, 2005
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24Part II. Other InformationItems 1-6
    
    
    26Signatures
    
    
    282006 Stock Incentive PlanForm of Stock Option AgreementForm of Restricted Stock Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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##### Table of Contents



Part I. Financial Information
 Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Financial Condition
 June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Dollars in Thousands, Except Share and Per Share Amounts)ASSETSCash and due from banks
    
    $
    44,486
    
    
    $
    39,551
    
    
    $
    31,778Interest bearing deposits in banks
    
    
    4,332
    
    
    
    863
    
    
    
    1,328Federal funds sold
    
    
    267
    
    
    
    6,364
    
    
    
    970Cash and cash equivalents
    
    
    49,085
    
    
    
    46,778
    
    
    
    34,076Available-for-sale securities
    
    
    171,382
    
    
    
    173,639
    
    
    
    172,948Loans, less allowance for loan losses of $11,876 at June 30, 2006,
$13,051 at December 31, 2005 and $10,381 at June 30, 2005
    
    
    1,190,817
    
    
    
    1,120,616
    
    
    
    1,099,854Accrued interest receivable
    
    
    7,192
    
    
    
    6,875
    
    
    
    6,251FHLB stock
    
    
    14,886
    
    
    
    20,416
    
    
    
    20,118Premises and equipment
    
    
    33,769
    
    
    
    33,565
    
    
    
    30,876Goodwill and intangible assets
    
    
    35,037
    
    
    
    35,251
    
    
    
    35,530Other assets
    
    
    20,134
    
    
    
    21,808
    
    
    
    21,343Total assets
    
    $
    1,522,302
    
    
    $
    1,458,948
    
    
    $
    1,420,996LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    132,767
    
    
    $
    159,591
    
    
    $
    138,244Interest bearing
    
    
    1,010,139
    
    
    
    1,000,572
    
    
    
    932,221Total deposits
    
    
    1,142,906
    
    
    
    1,160,163
    
    
    
    1,070,465Short-term borrowings
    
    
    98,408
    
    
    
    44,332
    
    
    
    71,162Long-term borrowings
    
    
    126,946
    
    
    
    101,107
    
    
    
    123,926Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    46,394Accrued interest payable
    
    
    4,083
    
    
    
    3,631
    
    
    
    2,654Other liabilities
    
    
    11,131
    
    
    
    10,096
    
    
    
    12,044Total liabilities
    
    
    1,429,868
    
    
    
    1,365,723
    
    
    
    1,326,645Stockholders 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 June 30, 2006, December 31, 2005
and June 30, 2005; shares outstanding: 3,687,180 at
June 30, 2006, 3,701,621 at December 31, 2005 and
3,699,253 at June 30, 2005
    
    
    3,770
    
    
    
    3,770
    
    
    
    3,770Additional paid-in capital
    
    
    53,673
    
    
    
    53,614
    
    
    
    53,594Retained earnings
    
    
    39,991
    
    
    
    38,928
    
    
    
    38,605Accumulated other comprehensive income (loss)
    
    
    (2,781
    )
    
    
    (1,369
    )
    
    
    159Treasury stock, at cost (83,071 shares at June 30, 2006, 68,630 shares at
December 31, 2005, and 70,998 shares at June 30, 2005)
    
    
    (2,219
    )
    
    
    (1,718
    )
    
    
    (1,777
    )Total stockholders equity
    
    
    92,434
    
    
    
    93,225
    
    
    
    94,351Total liabilities and stockholders equity
    
    $
    1,522,302
    
    
    $
    1,458,948
    
    
    $
    1,420,996
 See notes to unaudited consolidated financial statements.
 3




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##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Income
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars In Thousands, Except Per Share Amounts)Interest income:Interest and fees on loans
    
    $
    20,890
    
    
    $
    17,016
    
    
    $
    40,210
    
    
    $
    32,812Interest and dividends on securities:Taxable
    
    
    303
    
    
    
    425
    
    
    
    646
    
    
    
    825Tax-exempt
    
    
    645
    
    
    
    561
    
    
    
    1,287
    
    
    
    1,173Interest on mortgage-backed securities
    
    
    1,032
    
    
    
    893
    
    
    
    2,001
    
    
    
    1,766Interest on interest bearing deposits in
banks and federal funds sold
    
    
    52
    
    
    
    36
    
    
    
    114
    
    
    
    74Total interest income
    
    
    22,922
    
    
    
    18,931
    
    
    
    44,258
    
    
    
    36,650Interest expense:Interest on deposits
    
    
    7,717
    
    
    
    4,605
    
    
    
    14,660
    
    
    
    8,522Interest on short-term borrowings
    
    
    1,381
    
    
    
    572
    
    
    
    2,464
    
    
    
    1,029Interest on long-term borrowings
    
    
    1,327
    
    
    
    1,165
    
    
    
    2,456
    
    
    
    2,245Interest on junior subordinated debt owed to
unconsolidated trusts
    
    
    903
    
    
    
    773
    
    
    
    1,766
    
    
    
    1,500Total interest expense
    
    
    11,328
    
    
    
    7,115
    
    
    
    21,346
    
    
    
    13,296Net interest income
    
    
    11,594
    
    
    
    11,816
    
    
    
    22,912
    
    
    
    23,354Provision for loan losses
    
    
    390
    
    
    
    390
    
    
    
    780
    
    
    
    780Net interest income after provision for
loan losses
    
    
    11,204
    
    
    
    11,426
    
    
    
    22,132
    
    
    
    22,574Non-interest income:Service charges on deposit accounts
    
    
    1,104
    
    
    
    1,036
    
    
    
    2,156
    
    
    
    1,989Service charges on loans
    
    
    845
    
    
    
    949
    
    
    
    1,596
    
    
    
    1,674Securities gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of loans, net
    
    
    39
    
    
    
    96
    
    
    
    54
    
    
    
    199Gain on sale of fixed assets, net
    
    
    15
    
    
    
    
    
    
    
    190
    
    
    
    395Tax fees, brokerage and insurance commissions
    
    
    461
    
    
    
    475
    
    
    
    1,265
    
    
    
    1,040Other
    
    
    803
    
    
    
    876
    
    
    
    1,773
    
    
    
    2,228Total noninterest income
    
    
    3,267
    
    
    
    3,432
    
    
    
    7,034
    
    
    
    7,525Noninterest expenses:Salaries and employee benefits
    
    
    7,299
    
    
    
    6,971
    
    
    
    15,056
    
    
    
    14,218Premises and equipment
    
    
    1,672
    
    
    
    1,807
    
    
    
    3,501
    
    
    
    3,677Data processing fees
    
    
    860
    
    
    
    884
    
    
    
    1,770
    
    
    
    1,731Marketing and business development
    
    
    499
    
    
    
    657
    
    
    
    1,002
    
    
    
    1,051Other
    
    
    2,165
    
    
    
    2,106
    
    
    
    4,422
    
    
    
    4,325Total noninterest expense
    
    
    12,495
    
    
    
    12,425
    
    
    
    25,751
    
    
    
    25,002Income before income taxes
    
    
    1,976
    
    
    
    2,433
    
    
    
    3,415
    
    
    
    5,097Income taxes
    
    
    609
    
    
    
    794
    
    
    
    1,020
    
    
    
    1,655Net income
    
    $
    1,367
    
    
    $
    1,639
    
    
    $
    2,395
    
    
    $
    3,442Basic earnings per share
    
    $
    0.37
    
    
    $
    0.45
    
    
    $
    0.65
    
    
    $
    0.94Diluted earnings per share
    
    $
    0.37
    
    
    $
    0.44
    
    
    $
    0.65
    
    
    $
    0.93Dividends per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.36
    
    
    $
    0.36
 See notes to unaudited consolidated financial statements.
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##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
 Shares of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherStock
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Stock
    
    
    Total(In thousands, except Shares of Common Stock Outstanding and per share data)Six months ended June 30, 2005Balance at December 31, 2004
    
    
    3,674,054
    
    
    $
    3,770
    
    
    $
    53,421
    
    
    $
    36,486
    
    
    $
    505
    
    
    $
    (2,443
    )
    
    $
    91,739Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,442
    
    
    
    
    
    
    
    
    
    
    
    3,442Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (535
    )
    
    
    
    
    
    
    (535
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    189Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,096Cash dividend  $0.36 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,323
    )
    
    
    
    
    
    
    
    
    
    
    (1,323
    )Sale of 18,397 shares of treasury stock
    
    
    18,397
    
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    483
    
    
    
    713Exercise of stock options
    
    
    6,802
    
    
    
    
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    126Balance at June 30, 2005
    
    
    3,699,253
    
    
    $
    3,770
    
    
    $
    53,594
    
    
    $
    38,605
    
    
    $
    159
    
    
    $
    (1,777
    )
    
    $
    94,351Six months ended June 30, 2006Balance at December 31, 2005
    
    
    3,701,621
    
    
    $
    3,770
    
    
    $
    53,614
    
    
    $
    38,928
    
    
    $
    (1,369
    )
    
    $
    (1,718
    )
    
    $
    93,225Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,395
    
    
    
    
    
    
    
    
    
    
    
    2,395Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,173
    )
    
    
    
    
    
    
    (2,173
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    761
    
    
    
    
    
    
    
    761Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65Cash dividend  $0.36 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,332
    )
    
    
    
    
    
    
    
    
    
    
    (1,332
    )Purchase of 15,000 shares of treasury
stock
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (515
    )
    
    
    (515
    )Exercise of stock options
    
    
    559
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    8Balance at June 30, 2006
    
    
    3,687,180
    
    
    $
    3,770
    
    
    $
    53,673
    
    
    $
    39,991
    
    
    $
    (2,781
    )
    
    $
    (2,219
    )
    
    $
    92,434
 See notes to unaudited consolidated financial statements.
 5




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##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flows
 Six Months Ended June 30,2006
    
    
    2005(Dollars in Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    2,395
    
    
    $
    3,442Adjustments to reconcile net income to cash provided by operating activities:Provision for loan losses
    
    
    780
    
    
    
    780Depreciation
    
    
    1,383
    
    
    
    1,394Amortization and accretion of premiums and discounts, net
    
    
    224
    
    
    
    364Securities gains, net
    
    
    
    
    
    
    Gain on sale of loans, net
    
    
    (54
    )
    
    
    (199
    )Loans originated for sale
    
    
    (16,235
    )
    
    
    (20,764
    )Proceeds from sales of loans
    
    
    15,555
    
    
    
    21,772Gain on sale of fixed assets, net
    
    
    (132
    )
    
    
    (395
    )Increase in accrued interest receivable
    
    
    (317
    )
    
    
    (832
    )Increase in accrued interest payable
    
    
    452
    
    
    
    710FHLB stock dividend
    
    
    
    
    
    
    (483
    )Other
    
    
    (101
    )
    
    
    1,370Net cash provided by operating activities
    
    
    3,950
    
    
    
    7,159Cash Flows From Investing ActivitiesPurchase of available-for-sale securities
    
    
    (17,626
    )
    
    
    (28,721
    )Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    26Proceeds from redemptions and maturities of available-for-sale securities
    
    
    19,135
    
    
    
    26,628Net increase in loans
    
    
    (70,847
    )
    
    
    (73,559
    )Purchase of premises and equipment
    
    
    (1,587
    )
    
    
    (1,520
    )Proceeds from sale of other real estate owned
    
    
    2,195
    
    
    
    Redemption of Federal Home Loan Bank stock
    
    
    5,530
    
    
    
    14Net cash used in investing activities
    
    
    (63,200
    )
    
    
    (77,132
    )Cash Flows From Financing ActivitiesNet increase (decrease) in deposits
    
    
    (17,257
    )
    
    
    37,419Dividends paid
    
    
    (1,332
    )
    
    
    (1,323
    )Net increase in short-term borrowings
    
    
    54,076
    
    
    
    9,840Proceeds from long-term borrowings
    
    
    54,655
    
    
    
    44,386Repayment of long-term borrowings
    
    
    (28,816
    )
    
    
    (31,514
    )Increase in advance payments by borrowers for taxes and insurance
    
    
    673
    
    
    
    132(Purchase) sale of treasury stock
    
    
    (515
    )
    
    
    713Common stock transactions, net
    
    
    8
    
    
    
    126Stock-based compensation expense
    
    
    65
    
    
    
    Net cash provided by financing activities
    
    
    61,557
    
    
    
    59,779Increase (decrease) in cash and cash equivalents
    
    
    2,307
    
    
    
    (10,194
    )Cash and cash equivalents at beginning of period
    
    
    46,778
    
    
    
    44,270Cash and cash equivalents at end of period
    
    $
    49,085
    
    
    $
    34,076Supplemental Cash Flow Information and Noncash Transactions:Interest paid
    
    $
    20,894
    
    
    $
    12,586Income taxes paid
    
    
    923
    
    
    
    490Loans transferred to other real estate owned
    
    
    600
    
    
    
    175Supplemental Schedules of Noncash Investing Activities:Change in accumulated other comprehensive income, unrealized
losses on available-for-sale securities, net
    
    $
    (1,412
    )
    
    $
    (346
    )
 See notes to unaudited consolidated financial statements
 6




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##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
   NOTE A  Basis of Presentation
    NOTE B  Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in Thousands, Except Per Share Data)Basic:Net income
    
    $
    1,367
    
    
    $
    1,639
    
    
    $
    2,395
    
    
    $
    3,442Weighted average shares outstanding
    
    
    3,696
    
    
    
    3,676
    
    
    
    3,699
    
    
    
    3,675Basic earnings per share
    
    $
    0.37
    
    
    $
    0.45
    
    
    $
    0.65
    
    
    $
    0.94Diluted:Net income
    
    $
    1,367
    
    
    $
    1,639
    
    
    $
    2,395
    
    
    $
    3,442Weighted average shares outstanding
    
    
    3,696
    
    
    
    3,676
    
    
    
    3,699
    
    
    
    3,675Effect of dilutive stock options outstanding
    
    
    1
    
    
    
    13
    
    
    
    5
    
    
    
    11Diluted weighted average shares outstanding
    
    
    3,697
    
    
    
    3,689
    
    
    
    3,704
    
    
    
    3,686Diluted earnings per share
    
    $
    0.37
    
    
    $
    0.44
    
    
    $
    0.65
    
    
    $
    0.93
 7




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##### Table of Contents



NOTE C  Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in Thousands)Net income
    
    $
    1,367
    
    
    $
    1,639
    
    
    $
    2,395
    
    
    $
    3,442Other comprehensive incomeChange in unrealized securities
gains (losses)
    
    
    649
    
    
    
    2,271
    
    
    
    (2,173
    )
    
    
    (535
    )Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax effect
    
    
    (226
    )
    
    
    (793
    )
    
    
    761
    
    
    
    189Total comprehensive income
    
    $
    1,790
    
    
    $
    3,117
    
    
    $
    983
    
    
    $
    3,096
 NOTE D  Loans Receivable
  June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Dollars in Thousands)First Mortgage:Conventional single-family residential
    
    $
    182,116
    
    
    $
    167,745
    
    
    $
    156,313Commercial and multifamily residential
    
    
    496,139
    
    
    
    474,840
    
    
    
    471,694Construction
    
    
    92,893
    
    
    
    81,651
    
    
    
    80,150Farmland
    
    
    61,231
    
    
    
    52,392
    
    
    
    55,863832,379
    
    
    
    776,628
    
    
    
    764,020Commercial business loans
    
    
    281,673
    
    
    
    270,101
    
    
    
    262,653Consumer and installment loans
    
    
    51,870
    
    
    
    50,663
    
    
    
    48,263Home equity loans
    
    
    29,968
    
    
    
    28,541
    
    
    
    27,620Other
    
    
    6,803
    
    
    
    7,734
    
    
    
    7,679370,314
    
    
    
    357,039
    
    
    
    346,215Total loans
    
    
    1,202,693
    
    
    
    1,133,667
    
    
    
    1,110,235Less: Allowance for loan losses
    
    
    (11,876
    )
    
    
    (13,051
    )
    
    
    (10,381
    )Loans, net
    
    $
    1,190,817
    
    
    $
    1,120,616
    
    
    $
    1,099,854
 NOTE E  Stock-Based Compensation Plans
   8




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##### Table of Contents



Six months ended June 30, 2006WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Life*
    
    
    ValueOutstanding at beginning of period
    
    
    112,282
    
    
    $
    33.77Granted
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    Exercised
    
    
    (559
    )
    
    
    15.11Outstanding at end of period
    
    
    111,723
    
    
    $
    33.86
    
    
    
    5.2
    
    
    $
    525,000Options exercisable
    
    
    108,445
    
    
    $
    33.97
    
    
    
    5.2
    
    
    $
    511,000
  Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedExercise
    
    Number
    
    Average
    
    Average
    
    Number
    
    AveragePrice Range
    
    Outstanding
    
    Exercise Price
    
    Life*
    
    Outstanding
    
    Exercise Price$
    
    
    15.11
    
    
    
    5,584
    
    
    $
    15.11
    
    
    
    1.7
    
    
    
    5,584
    
    
    $
    15.1125.45-28.31
    
    
    
    46,017
    
    
    
    27.95
    
    
    
    2.7
    
    
    
    46,017
    
    
    
    27.9530.50-35.00
    
    
    
    20,700
    
    
    
    30.65
    
    
    
    8.4
    
    
    
    17,422
    
    
    
    30.6845.00-46.00
    
    
    
    39,422
    
    
    
    45.11
    
    
    
    7.6
    
    
    
    39,422
    
    
    
    45.11111,723
    
    
    $
    33.86
    
    
    
    
    
    
    
    108,445
    
    
    $
    33.97
 
 *
    
    Weighted average contractual life remaining in years.   WeightedAverageGrant DateOptions
    
    
    Fair ValueNonvested at beginning of period
    
    
    10,000
    
    
    $
    30.50Granted
    
    
    
    
    
    
    Vested
    
    
    (6,722
    )
    
    
    30.50Canceled
    
    
    
    
    
    
    Nonvested at end of period
    
    
    3,278
    
    
    $
    30.50
  9




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005(Dollars in Thousands, Except Per Share Data)Net income, as reported
    
    $
    1,639
    
    
    $
    3,442Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    
    
    
    
    6Pro forma net income
    
    $
    1,639
    
    
    $
    3,436Earnings per share:Basic:As reported
    
    $
    0.45
    
    
    $
    0.94Pro forma
    
    $
    0.45
    
    
    $
    0.93Diluted:As reported
    
    $
    0.44
    
    
    $
    0.93Pro forma
    
    $
    0.44
    
    
    $
    0.93
  10




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##### Table of Contents



NOTE F  Recent Accounting Pronouncements
   NOTE G  Commitments and Contingent Liabilities
     June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Dollars in Thousands)Commitments to originate mortgage loans
    
    $
    20,441
    
    
    $
    37,426
    
    
    $
    24,345Unused lines of credit:Commercial business
    
    
    205,437
    
    
    
    193,581
    
    
    
    162,552Home equity
    
    
    37,746
    
    
    
    31,582
    
    
    
    26,728Credit cards
    
    
    17,669
    
    
    
    21,031
    
    
    
    16,264Standby letters of credit
    
    
    6,310
    
    
    
    12,362
    
    
    
    15,109
   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
  12




---



##### Table of Contents



Federal Home Loan Bank Stock
  Loans Receivable
  Total Deposits and Borrowings
    Capital Resources
   Nonperforming Assets and Allowance for Losses
  13




---



##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Dollars in Thousands)Non-accrual loans:Conventional single-family residential
    
    $
    2,370
    
    
    $
    2,555
    
    
    $
    1,126Commercial and multifamily residential
    
    
    3,076
    
    
    
    508
    
    
    
    2,921Commercial business loans
    
    
    2,191
    
    
    
    1,358
    
    
    
    1,383Consumer and installment loans
    
    
    788
    
    
    
    826
    
    
    
    791Total non-accrual loans
    
    
    8,425
    
    
    
    5,247
    
    
    
    6,221Other real estate owned
    
    
    349
    
    
    
    1,812
    
    
    
    1,471Total nonperforming assets
    
    $
    8,774
    
    
    $
    7,059
    
    
    $
    7,692Ratios:Non-accrual loans to total loans
    
    
    0.70
    %
    
    
    0.46
    %
    
    
    0.56
    %Nonperforming assets to total assets
    
    
    0.58
    %
    
    
    0.48
    %
    
    
    0.54
    %Loan loss allowance to non-accrual loans
    
    
    140.96
    %
    
    
    248.73
    %
    
    
    166.87
    %Loan loss allowance to total loans
    
    
    0.99
    %
    
    
    1.15
    %
    
    
    0.94
    %
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in Thousands)Balance at beginning of period
    
    $
    11,951
    
    
    $
    10,368
    
    
    $
    13,051
    
    
    $
    10,623Provision for loan losses
    
    
    390
    
    
    
    390
    
    
    
    780
    
    
    
    780Charge-offs:Commercial and multifamily residential
    
    
    (1
    )
    
    
    (19
    )
    
    
    (254
    )
    
    
    (27
    )Commercial business loans
    
    
    (382
    )
    
    
    (184
    )
    
    
    (1,410
    )
    
    
    (807
    )Consumer and installment loans
    
    
    (206
    )
    
    
    (246
    )
    
    
    (492
    )
    
    
    (347
    )Total charge-offs
    
    
    (589
    )
    
    
    (449
    )
    
    
    (2,156
    )
    
    
    (1,181
    )Recoveries:Commercial and multifamily residential
    
    
    7
    
    
    
    3
    
    
    
    11
    
    
    
    15Commercial business loans
    
    
    109
    
    
    
    27
    
    
    
    115
    
    
    
    47Consumer and installment loans
    
    
    8
    
    
    
    42
    
    
    
    75
    
    
    
    97Total recoveries
    
    
    124
    
    
    
    72
    
    
    
    201
    
    
    
    159Net charge-offs
    
    
    (465
    )
    
    
    (377
    )
    
    
    (1,955
    )
    
    
    (1,022
    )Balance at end of period
    
    $
    11,876
    
    
    $
    10,381
    
    
    $
    11,876
    
    
    $
    10,381
 14




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##### Table of Contents



Potential Problem Loans
   15




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##### Table of Contents



Comparison of Three and Six Months Ended June 30, 2006 and 2005
 Net Income
  Net Interest Income
  16




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##### Table of Contents



AVERAGE BALANCES, INTEREST RATES AND YIELDS
 For the Three Months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,178,487
    
    
    $
    20,854
    
    
    
    7.10
    %
    
    $
    1,089,378
    
    
    $
    16,975
    
    
    
    6.25
    %Loans exempt from federal income taxes (3)
    
    
    3,280
    
    
    
    55
    
    
    
    6.67
    %
    
    
    3,416
    
    
    
    62
    
    
    
    7.29
    %Taxable investment securities (4)
    
    
    34,302
    
    
    
    303
    
    
    
    3.54
    %
    
    
    35,516
    
    
    
    425
    
    
    
    4.80
    %Mortgage-related securities (4)
    
    
    91,156
    
    
    
    1,032
    
    
    
    4.54
    %
    
    
    89,817
    
    
    
    893
    
    
    
    3.99
    %Investment securities exempt from federal income taxes
(3)(4)
    
    
    69,073
    
    
    
    977
    
    
    
    5.67
    %
    
    
    63,669
    
    
    
    850
    
    
    
    5.35
    %Other securities
    
    
    4,421
    
    
    
    52
    
    
    
    4.72
    %
    
    
    6,041
    
    
    
    36
    
    
    
    2.39
    %Interest earning assets
    
    
    1,380,719
    
    
    
    23,273
    
    
    
    6.76
    %
    
    
    1,287,837
    
    
    
    19,241
    
    
    
    5.99
    %Non interest earning assets
    
    
    123,710
    
    
    
    
    
    
    
    
    
    
    
    126,142Average assets
    
    $
    1,504,429
    
    
    
    
    
    
    
    
    
    
    $
    1,413,979Liabilities and Stockholders EquityNOW deposits
    
    $
    105,161
    
    
    
    218
    
    
    
    0.83
    %
    
    $
    98,075
    
    
    
    141
    
    
    
    0.58
    %Money market deposits
    
    
    236,414
    
    
    
    1,779
    
    
    
    3.02
    %
    
    
    224,590
    
    
    
    836
    
    
    
    1.49
    %Savings deposits
    
    
    127,063
    
    
    
    383
    
    
    
    1.21
    %
    
    
    137,065
    
    
    
    306
    
    
    
    0.90
    %Time deposits
    
    
    521,864
    
    
    
    5,337
    
    
    
    4.10
    %
    
    
    460,864
    
    
    
    3,322
    
    
    
    2.89
    %Short-term borrowings
    
    
    102,388
    
    
    
    1,381
    
    
    
    5.41
    %
    
    
    72,193
    
    
    
    572
    
    
    
    3.18
    %Long-term borrowings
    
    
    123,638
    
    
    
    1,327
    
    
    
    4.30
    %
    
    
    118,865
    
    
    
    1,165
    
    
    
    3.93
    %Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    903
    
    
    
    7.81
    %
    
    
    46,394
    
    
    
    773
    
    
    
    6.68
    %Interest bearing liabilities
    
    
    1,262,922
    
    
    
    11,328
    
    
    
    3.60
    %
    
    
    1,158,046
    
    
    
    7,115
    
    
    
    2.46
    %Demand deposits and other non interest bearing liabilities
    
    
    147,681
    
    
    
    
    
    
    
    
    
    
    
    162,410Stockholders equity
    
    
    93,826
    
    
    
    
    
    
    
    
    
    
    
    93,523Average liabilities and stockholders equity
    
    $
    1,504,429
    
    
    
    
    
    
    
    
    
    
    $
    1,413,979Net interest spread (5)
    
    
    
    
    
    $
    11,945
    
    
    
    3.16
    %
    
    
    
    
    
    $
    12,126
    
    
    
    3.53
    %Net interest earning assets
    
    $
    117,797
    
    
    
    
    
    
    
    
    
    
    $
    129,791Net interest margin on a fully tax equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.47
    %
    
    
    
    
    
    
    
    
    
    
    3.78
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.37
    %
    
    
    
    
    
    
    
    
    
    
    3.68
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.09
    
    
    
    
    
    
    
    
    
    
    
    1.11
 
 (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 Six Months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,163,307
    
    
    $
    40,137
    
    
    
    6.96
    %
    
    $
    1,068,354
    
    
    $
    32,727
    
    
    
    6.18
    %Loans exempt from federal income taxes (3)
    
    
    3,332
    
    
    
    111
    
    
    
    6.69
    %
    
    
    3,535
    
    
    
    129
    
    
    
    7.35
    %Taxable investment securities (4)
    
    
    35,624
    
    
    
    646
    
    
    
    3.66
    %
    
    
    34,720
    
    
    
    825
    
    
    
    4.79
    %Mortgage-related securities (4)
    
    
    90,395
    
    
    
    2,001
    
    
    
    4.46
    %
    
    
    92,383
    
    
    
    1,766
    
    
    
    3.85
    %Investment securities exempt from federal income taxes
(3)(4)
    
    
    69,176
    
    
    
    1,950
    
    
    
    5.68
    %
    
    
    63,961
    
    
    
    1,777
    
    
    
    5.60
    %Other securities
    
    
    4,987
    
    
    
    114
    
    
    
    4.61
    %
    
    
    8,260
    
    
    
    74
    
    
    
    1.81
    %Interest earning assets
    
    
    1,366,821
    
    
    
    44,959
    
    
    
    6.63
    %
    
    
    1,271,213
    
    
    
    37,298
    
    
    
    5.92
    %Non interest earning assets
    
    
    124,923
    
    
    
    
    
    
    
    
    
    
    
    122,015Average assets
    
    $
    1,491,744
    
    
    
    
    
    
    
    
    
    
    $
    1,393,228Liabilities and Stockholders EquityNOW deposits
    
    $
    105,505
    
    
    
    417
    
    
    
    0.80
    %
    
    $
    97,448
    
    
    
    274
    
    
    
    0.57
    %Money market deposits
    
    
    240,377
    
    
    
    3,348
    
    
    
    2.81
    %
    
    
    232,679
    
    
    
    1,624
    
    
    
    1.41
    %Savings deposits
    
    
    129,083
    
    
    
    796
    
    
    
    1.24
    %
    
    
    135,667
    
    
    
    603
    
    
    
    0.90
    %Time deposits
    
    
    513,296
    
    
    
    10,099
    
    
    
    3.97
    %
    
    
    443,042
    
    
    
    6,021
    
    
    
    2.74
    %Short-term borrowings
    
    
    94,907
    
    
    
    2,464
    
    
    
    5.24
    %
    
    
    67,429
    
    
    
    1,029
    
    
    
    3.08
    %Long-term borrowings
    
    
    118,160
    
    
    
    2,456
    
    
    
    4.19
    %
    
    
    117,909
    
    
    
    2.245
    
    
    
    3.84
    %Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    1,766
    
    
    
    7.68
    %
    
    
    46,394
    
    
    
    1,500
    
    
    
    6.52
    %Interest bearing liabilities
    
    
    1,247,722
    
    
    
    21,346
    
    
    
    3.45
    %
    
    
    1,140,568
    
    
    
    13,296
    
    
    
    2.35
    %Demand deposits and other non interest bearing liabilities
    
    
    150,038
    
    
    
    
    
    
    
    
    
    
    
    159,471Stockholders equity
    
    
    93,984
    
    
    
    
    
    
    
    
    
    
    
    93,189Average liabilities and stockholders equity
    
    $
    1,491,744
    
    
    
    
    
    
    
    
    
    
    $
    1,393,228Net interest spread (5)
    
    
    
    
    
    $
    23,613
    
    
    
    3.18
    %
    
    
    
    
    
    $
    24,002
    
    
    
    3.57
    %Net interest earning assets
    
    $
    119,099
    
    
    
    
    
    
    
    
    
    
    $
    130,645Net interest margin on a fully tax equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.48
    %
    
    
    
    
    
    
    
    
    
    
    3.81
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.10
    
    
    
    
    
    
    
    
    
    
    
    1.11
 
 (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 June 30, 2006
    
    
    Six Months Ended June 30, 2006Compared to June 30, 2005
    
    
    Compared to June 30, 2005Change
    
    
    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)
    
    $
    1,447
    
    
    $
    2,432
    
    
    $
    3,879
    
    
    $
    3,039
    
    
    $
    4,371
    
    
    $
    7,410Loans exempt from federal income taxes (2)
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )
    
    
    (6
    )
    
    
    (12
    )
    
    
    (18
    )Taxable investment securities
    
    
    (14
    )
    
    
    (108
    )
    
    
    (122
    )
    
    
    22
    
    
    
    (201
    )
    
    
    (179
    )Mortgage-related securities
    
    
    13
    
    
    
    126
    
    
    
    139
    
    
    
    (37
    )
    
    
    272
    
    
    
    235Investment securities exempt from federal income taxes (2)
    
    
    75
    
    
    
    52
    
    
    
    127
    
    
    
    147
    
    
    
    26
    
    
    
    173Other securities
    
    
    (6
    )
    
    
    22
    
    
    
    16
    
    
    
    (14
    )
    
    
    54
    
    
    
    40Total interest-earning assets
    
    $
    1,515
    
    
    $
    2,517
    
    
    $
    4,032
    
    
    $
    3,151
    
    
    $
    4,510
    
    
    $
    7,661Interest-Bearing Liabilities:NOW deposits
    
    $
    11
    
    
    $
    66
    
    
    $
    77
    
    
    $
    24
    
    
    $
    119
    
    
    $
    143Money market deposits
    
    
    46
    
    
    
    897
    
    
    
    943
    
    
    
    55
    
    
    
    1,669
    
    
    
    1,724Savings deposits
    
    
    (20
    )
    
    
    97
    
    
    
    77
    
    
    
    (28
    )
    
    
    221
    
    
    
    193Time deposits
    
    
    484
    
    
    
    1,531
    
    
    
    2,015
    
    
    
    1,067
    
    
    
    3,011
    
    
    
    4,078Short-term borrowings
    
    
    300
    
    
    
    509
    
    
    
    809
    
    
    
    524
    
    
    
    911
    
    
    
    1,435Long-term borrowings
    
    
    48
    
    
    
    114
    
    
    
    162
    
    
    
    5
    
    
    
    206
    
    
    
    211Junior subordinated debt owed to unconsolidated trusts
    
    
    
    
    
    
    130
    
    
    
    130
    
    
    
    
    
    
    
    266
    
    
    
    266Total interest-bearing liabilities
    
    $
    869
    
    
    $
    3,344
    
    
    $
    4,213
    
    
    $
    1,647
    
    
    $
    6,403
    
    
    $
    8,050Net change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (181
    )
    
    
    
    
    
    
    
    
    
    $
    (389
    )
 
 (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. 19




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##### Table of Contents



Provision for Loan Losses
  Non-Interest Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in Thousands)Service charges on deposit accounts
    
    $
    1,104
    
    
    $
    1,036
    
    
    $
    2,156
    
    
    $
    1,989Service charges on loans
    
    
    845
    
    
    
    949
    
    
    
    1,596
    
    
    
    1,674Securities gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of loans, net
    
    
    39
    
    
    
    96
    
    
    
    54
    
    
    
    199Gain on sale of fixed assets, net
    
    
    15
    
    
    
    
    
    
    
    190
    
    
    
    395Tax fees, brokerage and insurance commissions
    
    
    461
    
    
    
    475
    
    
    
    1,265
    
    
    
    1,040Other
    
    
    803
    
    
    
    876
    
    
    
    1,773
    
    
    
    2,228Total non-interest income
    
    $
    3,267
    
    
    $
    3,432
    
    
    $
    7,034
    
    
    $
    7,525
       20




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##### Table of Contents



Non-Interest Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in Thousands)Salaries and employee benefits
    
    $
    7,299
    
    
    $
    6,971
    
    
    $
    15,056
    
    
    $
    14,218Premises and equipment
    
    
    1,672
    
    
    
    1,807
    
    
    
    3,501
    
    
    
    3,677Data processing fees
    
    
    860
    
    
    
    884
    
    
    
    1,770
    
    
    
    1,731Marketing and business development
    
    
    499
    
    
    
    657
    
    
    
    1,002
    
    
    
    1,051Other
    
    
    2,165
    
    
    
    2,106
    
    
    
    4,422
    
    
    
    4,325Total noninterest expense
    
    $
    12,495
    
    
    $
    12,425
    
    
    $
    25,751
    
    
    $
    25,002
      Income Taxes
  Liquidity
   21




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##### Table of Contents



Asset/Liability Management
  22




---



##### Table of Contents



Amounts Maturing or Repricing as of June 30, 2006Within
    
    
    Six to Twelve
    
    
    One to Five
    
    
    OverSix months
    
    
    Months
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in Thousands)Interest-earning assets:Fixed-rate mortgage loans
    
    $
    126,236
    
    
    $
    88,956
    
    
    $
    360,865
    
    
    $
    16,995
    
    
    $
    593,052Adjustable-rate mortgage loans
    
    
    176,244
    
    
    
    21,528
    
    
    
    40,648
    
    
    
    907
    
    
    
    239,327Total mortgage loans
    
    
    302,480
    
    
    
    110,484
    
    
    
    401,513
    
    
    
    17,902
    
    
    
    832,379Commercial business loans
    
    
    156,650
    
    
    
    32,792
    
    
    
    87,328
    
    
    
    4,903
    
    
    
    281,673Consumer loans
    
    
    15,629
    
    
    
    8,768
    
    
    
    25,793
    
    
    
    1,680
    
    
    
    51,870Home equity loans
    
    
    22,327
    
    
    
    
    
    
    
    7,472
    
    
    
    169
    
    
    
    29,968Other loans
    
    
    3,699
    
    
    
    482
    
    
    
    1,748
    
    
    
    874
    
    
    
    6,803Mortgage-related securities
    
    
    6,734
    
    
    
    6,699
    
    
    
    49,308
    
    
    
    28,685
    
    
    
    91,426Fixed rate investment securities and other
    
    
    204
    
    
    
    3,012
    
    
    
    28,709
    
    
    
    48,031
    
    
    
    79,956Variable rate investment securities and other
    
    
    20,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,578Total interest-earning assets
    
    $
    528,301
    
    
    $
    162,237
    
    
    $
    601,871
    
    
    $
    102,244
    
    
    $
    1,394,653Interest-bearing liabilities:DepositsTime deposits
    
    $
    163,565
    
    
    $
    137,905
    
    
    $
    229,905
    
    
    $
    13,434
    
    
    $
    544,809NOW accounts
    
    
    6,288
    
    
    
    6,289
    
    
    
    62,885
    
    
    
    29,346
    
    
    
    104,808Savings accounts
    
    
    7,552
    
    
    
    7,625
    
    
    
    75,521
    
    
    
    35,243
    
    
    
    125,941Money market accounts
    
    
    25,323
    
    
    
    13,357
    
    
    
    133,569
    
    
    
    62,332
    
    
    
    234,581Short-term borrowings
    
    
    98,408
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,408Long-term borrowings
    
    
    14,029
    
    
    
    18,255
    
    
    
    94,062
    
    
    
    600
    
    
    
    126,946Junior subordinated debt owed to unconsolidated trusts
    
    
    28,352
    
    
    
    
    
    
    
    
    
    
    
    18,042
    
    
    
    46,394Total interest-bearing liabilities
    
    $
    343,517
    
    
    $
    183,431
    
    
    $
    595,942
    
    
    $
    158,997
    
    
    $
    1,281,887Interest-earning assets less interest-bearing liabilities
    
    $
    184,784
    
    
    
    ($21,194
    )
    
    $
    5,929
    
    
    
    ($56,753
    )
    
    $
    112,766Cumulative interest rate sensitivity gap
    
    $
    184,784
    
    
    $
    163,590
    
    
    $
    169,519
    
    
    $
    112,766Cumulative interest rate sensitivity gap as a
percentage of total assets
    
    
    12.14
    %
    
    
    10.75
    %
    
    
    11.14
    %
    
    
    7.41
    %
   23




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##### Table of Contents



Forward-Looking Statements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   24




---



##### Table of Contents



.
 
    
    Remediate the material weakness through changes in the Corporations internal control
over financial reporting at all of the Corporations subsidiary banks, including increasing
centralized loan documentation, review and oversight at the holding company level to reduce
the ability of individual bank loan officers to operate outside of bank lending policies
and procedures.
    
    Strengthen the Corporations Whistleblower Policy and related training.
    
    Strengthen the loan review function through an improvement in policies and procedures.
    
    Strengthen the Corporations internal audit function through an enhancement in the audit program.
  25




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##### Table of Contents



Part II. Other Information
 
      (a)
    
    NONE(b)
    
    NONE(c)
    
    Issuer Purchases of Equity Securities
 Total
    
    
    Average
    
    
    Total Number
    
    
    Maximum NumberNumber
    
    
    Price
    
    
    of Shares Purchased
    
    
    of Shares that Mayof Shares
    
    
    Paid Per
    
    
    As Part of Publicly
    
    
    Yet be PurchasedPeriod
    
    Purchased
    
    
    Share
    
    
    Announced Program
    
    
    Under the ProgramApril 1, 2006  April 30, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    May 1, 2006  May 31, 2006
    
    
    15,000
    
    
    $
    34.35
    
    
    
    
    
    
    
    June 1, 2006  June 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    15,000
    
    
    $
    34.35
    
    
    
    
    
    
    
    
   Votes cast FORthe reelection
    
    Votes WithheldNominees for Director for Three-Year
Term Expiring in 2009:Steven R. Blakeslee
    
    
    2,555,730
    
    
    
    555,136Harold J. Mueller
    
    
    2,551,889
    
    
    
    558,977Sister Joel Read
    
    
    2,591,454
    
    
    
    519,412Donald A. Zellmer
    
    
    2,517,978
    
    
    
    592,888
 26




---



##### Table of Contents



Votes cast
    
    Votes cast
    
    
    
    
    
    BrokerFOR
    
    AGAINST
    
    Votes Abstained
    
    Non-VotesApproval of Merchants 2006
Stock Incentive Plan
    
    
    1,876,434
    
    
    
    619,365
    
    
    
    137,686
    
    
    
    477,381Shareholder proposal:Engagement of an
investment banking firm
to explore the sale of
Merchants.
    
    
    742,649
    
    
    
    1,866,683
    
    
    
    24,157
    
    
    
    477,377
     EXHIBIT 10.1
    
    Merchants and Manufacturers Bancorporation, Inc. 2006 Stock Incentive PlanEXHIBIT 10.2
    
    Form of Stock Option Agreement for Merchants and Manufacturers Bancorporation, Inc. 2006 Stock
Incentive PlanEXHIBIT 10.3
    
    Form of Restricted Stock Agreement for Merchants and Manufacturers Bancorporation, Inc. 2006 Stock
Incentive PlanEXHIBIT 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. 27




---



##### Table of Contents



SIGNATURES
  MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
                      
                      
     (Registrant)Date August 7, 2006
    /s/ Michael J. MurryMichael J. MurryChairman of the Board of Directors
and Chief Executive Officer

Principal Executive Officer Date August 7, 2006
    /s/ Frederick R. KlugFrederick R. KlugExecutive Vice President & Chief
Financial Officer
Principal Financial Officer 28




---



##### Table of Contents



10-Q EXHIBIT LIST
 EXHIBIT NO.
    
    DESCRIPTIONEXHIBIT 10.1
    
    Merchants and Manufacturers Bancorporation, Inc. 2006
Stock Incentive PlanEXHIBIT 10.2
    
    Form of Stock Option Agreement for Merchants and
Manufacturers Bancorporation, Inc. 2006 Stock Incentive
PlanEXHIBIT 10.3
    
    Form of Restricted Stock Agreement for Merchants and
Manufacturers Bancorporation, Inc. 2006 Stock Incentive
PlanEXHIBIT 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.