##### 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, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file Number 0-21292
 MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
  Wisconsin
    
    39-1413328(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 
 
   
   þ o
  þ o




---



##### Table of Contents



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, 2005, December 31, 2004, and June 30, 2004
    
    
    3Unaudited Consolidated Statements of Income for the Three Months
and Six Months ended June 30, 2005 and June 30, 2004
    
    
    4Unaudited Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2005 and June 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
    
    
    28CertificationCertificationCertificationCertification
 2




---



##### Table of Contents



Part I. Financial Information
 Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Financial Condition
 June 30,
    
    December 31,
    
    June 30,2005
    
    2004
    
    2004(Dollars in Thousands, Except Share and Per Share Amounts)ASSETSCash and due from banks
    
    $
    31,778
    
    
    $
    33,839
    
    
    $
    25,040Interest bearing deposits in banks
    
    
    1,328
    
    
    
    1,178
    
    
    
    1,578Federal funds sold
    
    
    970
    
    
    
    9,253
    
    
    
    1,181Cash and cash equivalents
    
    
    34,076
    
    
    
    44,270
    
    
    
    27,799Available-for-sale securities
    
    
    172,948
    
    
    
    172,564
    
    
    
    157,434Loans, less allowance for loan losses of $10,381 at June 30, 2005,
$10,622 at December 31, 2004 and $9,716 at June 30, 2004
    
    
    1,099,854
    
    
    
    1,028,059
    
    
    
    894,686Accrued interest receivable
    
    
    6,251
    
    
    
    5,419
    
    
    
    4,639FHLB stock
    
    
    20,118
    
    
    
    19,649
    
    
    
    16,928Premises and equipment
    
    
    30,876
    
    
    
    30,355
    
    
    
    22,063Goodwill and intangible assets
    
    
    35,530
    
    
    
    35,714
    
    
    
    29,975Other assets
    
    
    21,343
    
    
    
    21,035
    
    
    
    22,358Total assets
    
    $
    1,420,996
    
    
    $
    1,357,065
    
    
    $
    1,175,882LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    138,244
    
    
    $
    148,482
    
    
    $
    115,187Interest bearing
    
    
    932,221
    
    
    
    884,564
    
    
    
    803,622Total deposits
    
    
    1,070,465
    
    
    
    1,033,046
    
    
    
    918,809Short-term borrowings
    
    
    71,162
    
    
    
    61,322
    
    
    
    34,065Long-term borrowings
    
    
    123,926
    
    
    
    111,054
    
    
    
    96,728Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    36,084Accrued interest payable
    
    
    2,654

    
    
    
    1,944
    
    
    
    1,575Other liabilities
    
    
    12,044
    
    
    
    11,566
    
    
    
    8,647Total liabilities
    
    
    1,326,645
    
    
    
    1,265,326
    
    
    
    1,095,908Stockholders 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, 2005 and
December 31, 2004, 3,436,036 at June 30, 2004;
shares outstanding: 3,699,253 at June 30, 2005, 3,674,054 at
December 31, 2004 and 3,335,930 at June 30, 2004
    
    
    3,770
    
    
    
    3,770
    
    
    
    3,436Additional paid-in capital
    
    
    53,594
    
    
    
    53,421
    
    
    
    43,615Retained earnings
    
    
    38,605
    
    
    
    36,486
    
    
    
    36,685Accumulated other comprehensive income (loss)
    
    
    159
    
    
    
    505
    
    
    
    (1,211
    )Treasury stock, at cost (70,998 shares at June 30, 2005, 96,197
shares at
December 31, 2004 and 100,106 shares at June 30, 2004)
    
    
    (1,777
    )
    
    
    (2,443
    )
    
    
    (2,551
    )Total stockholders equity
    
    
    94,351
    
    
    
    91,739
    
    
    
    79,974Total liabilities and stockholders equity
    
    $
    1,420,996
    
    
    $
    1,357,065
    
    
    $
    1,175,882
 See notes to unaudited consolidated financial statements.
 3




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Income
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars In Thousands, Except Per Share Amounts)Interest income:Interest and fees on loans
    
    $
    17,016
    
    
    $
    12,937
    
    
    $
    32,812
    
    
    $
    25,756Interest and dividends on securities:Taxable
    
    
    425
    
    
    
    436
    
    
    
    825
    
    
    
    904Tax-exempt
    
    
    561
    
    
    
    390
    
    
    
    1,173
    
    
    
    771Interest on mortgage-backed securities
    
    
    893
    
    
    
    769
    
    
    
    1,766
    
    
    
    1,415Interest on interest bearing deposits in
banks and federal funds sold
    
    
    36
    
    
    
    44
    
    
    
    74
    
    
    
    98Total interest income
    
    
    18,931
    
    
    
    14,576
    
    
    
    36,650
    
    
    
    28,944Interest expense:Interest on deposits
    
    
    4,605
    
    
    
    3,016
    
    
    
    8,522
    
    
    
    6,116Interest on short-term borrowings
    
    
    572
    
    
    
    145
    
    
    
    1,029
    
    
    
    296Interest on long-term borrowings
    
    
    1,165
    
    
    
    787
    
    
    
    2,245
    
    
    
    1,521Interest on junior subordinated debt owed to
unconsolidated trusts
    
    
    773
    
    
    
    555
    
    
    
    1,500
    
    
    
    1,112Total interest expense
    
    
    7,115
    
    
    
    4,503
    
    
    
    13,296
    
    
    
    9,045Net interest income
    
    
    11,816
    
    
    
    10,073
    
    
    
    23,354
    
    
    
    19,899Provision for loan losses
    
    
    390
    
    
    
    451
    
    
    
    780
    
    
    
    901Net interest income after provision for
loan losses
    
    
    11,426
    
    
    
    9,622
    
    
    
    22,574
    
    
    
    18,998Non-interest income:Service charges on deposit accounts
    
    
    1,036
    
    
    
    784
    
    
    
    1,989
    
    
    
    1,509Service charges on loans
    
    
    949
    
    
    
    354
    
    
    
    1,674
    
    
    
    781Securities gains, net
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    183Gain on sale of loans, net
    
    
    96
    
    
    
    150
    
    
    
    199
    
    
    
    294Gain on sale of fixed assets, net
    
    
    
    
    
    
    158
    
    
    
    395
    
    
    
    158Tax fees, brokerage and insurance commissions
    
    
    475
    
    
    
    380
    
    
    
    1,040
    
    
    
    999Other
    
    
    876
    
    
    
    822
    
    
    
    2,228
    
    
    
    1,425Total noninterest income
    
    
    3,432
    
    
    
    2,654
    
    
    
    7,525
    
    
    
    5,349Noninterest expenses:Salaries and employee benefits
    
    
    6,971
    
    
    
    5,767
    
    
    
    14,218
    
    
    
    11,627Premises and equipment
    
    
    1,807
    
    
    
    1,352
    
    
    
    3,677
    
    
    
    2,828Data processing fees
    
    
    884
    
    
    
    400
    
    
    
    1,731
    
    
    
    761Marketing and business development
    
    
    657
    
    
    
    574
    
    
    
    1,051
    
    
    
    908Sarbanes-Oxley implementation
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    67Other
    
    
    2,106
    
    
    
    1,981
    
    
    
    4,325
    
    
    
    4,032Total noninterest expense
    
    
    12,425
    
    
    
    10,141
    
    
    
    25,002
    
    
    
    20,223Income before income taxes
    
    
    2,433
    
    
    
    2,135
    
    
    
    5,097
    
    
    
    4,124Income taxes
    
    
    794
    
    
    
    663
    
    
    
    1,655
    
    
    
    1,245Net income
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,442
    
    
    $
    2,879Basic earnings per share
    
    $
    0.45
    
    
    $
    0.44
    
    
    $
    0.94
    
    
    $
    0.86Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.86Dividends per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.36
    
    
    $
    0.36
 See notes to unaudited consolidated financial statements.
 4




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flows
 Six Months Ended June 30,2005
    
    2004(Dollars in Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    3,442
    
    
    $
    2,879Adjustments to reconcile net income to cash provided by operating activities:Provision for loan losses
    
    
    780
    
    
    
    901Depreciation
    
    
    1,394
    
    
    
    929Amortization and accretion of premiums and discounts, net
    
    
    364
    
    
    
    492Securities gains, net
    
    
    
    
    
    
    (183
    )Gain on sale of loans, net
    
    
    (199
    )
    
    
    (294
    )Gain on sale of fixed assets, net
    
    
    (395
    )
    
    
    (158
    )Increase in accrued interest receivable
    
    
    (832
    )
    
    
    (218
    )Increase in accrued interest payable
    
    
    710
    
    
    
    158Other
    
    
    1,502
    
    
    
    354Net cash provided by operating activities before loan originations
and sales
    
    
    6,766
    
    
    
    4,860Loans originated for sale
    
    
    (20,764
    )
    
    
    (40,942
    )Proceeds from sales of loans
    
    
    21,772
    
    
    
    39,547Net cash provided by operating activities
    
    
    7,774
    
    
    
    3,465Cash Flows From Investing ActivitiesPurchase of available-for-sale securities
    
    
    (28,721
    )
    
    
    (63,838
    )Proceeds from sales of available-for-sale securities
    
    
    26
    
    
    
    10,032Proceeds from redemptions and maturities of available-for-sale securities
    
    
    26,628
    
    
    
    49,786Net increase in loans
    
    
    (73,559
    )
    
    
    (46,514
    )Purchase of premises and equipment, net
    
    
    (1,520
    )
    
    
    (2,401
    )Purchase of Federal Home Loan Bank stock
    
    
    (469
    )
    
    
    (683
    )Net cash used in investing activities
    
    
    (77,615
    )
    
    
    (53,618
    )Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    37,419
    
    
    
    6,861Dividends paid
    
    
    (1,323
    )
    
    
    (1,200
    )Net increase in short-term borrowings
    
    
    9,840
    
    
    
    58Proceeds from long-term borrowings
    
    
    44,386
    
    
    
    42,941Repayment of long-term borrowings
    
    
    (31,514
    )
    
    
    (18,559
    )Proceeds from sale of treasury stock
    
    
    839
    
    
    
    196Net cash provided by financing activities
    
    
    59,647
    
    
    
    30,297Decrease in cash and cash equivalents
    
    
    (10,194
    )
    
    
    (19,856
    )Cash and cash equivalents at beginning of period
    
    
    44,270
    
    
    
    47,655Cash and cash equivalents at end of period
    
    $
    34,076
    
    
    $
    27,799Supplemental Cash Flow Information and Noncash Transactions:Interest paid
    
    $
    12,586
    
    
    $
    8,887Income taxes paid
    
    
    490
    
    
    
    2,149Loans transferred to other real estate owned
    
    
    175
    
    
    
    554Supplemental Schedules of Noncash Investing Activities:Change in accumulated other comprehensive income, unrealized
(losses) on available-for-sale securities, net
    
    $
    (346
    )
    
    $
    (1,874
    )
 See notes to unaudited consolidated financial statements
 5




---



##### Table of Contents



Merchants and Manufacturers Bancorporation, Inc.
 
   NOTE A  Basis of Presentation
    6




---



##### Table of Contents



NOTE B  Earnings Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in Thousands, Except Per Share Data)Basic:Net income
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,442
    
    
    $
    2,879Weighted average shares outstanding
    
    
    3,676
    
    
    
    3,336
    
    
    
    3,675
    
    
    
    3,334Basic earnings per share
    
    $
    0.45
    
    
    $
    0.44
    
    
    $
    0.94
    
    
    $
    0.86
 (Dollars in Thousands, Except Per Share Data)Diluted:Net income
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,442
    
    
    $
    2,879Weighted average shares outstanding
    
    
    3,676
    
    
    
    3,336
    
    
    
    3,675
    
    
    
    3,334Effect of dilutive stock options outstanding
    
    
    13
    
    
    
    23
    
    
    
    11
    
    
    
    30Diluted weighted average shares outstanding
    
    
    3,689
    
    
    
    3,359
    
    
    
    3,686
    
    
    
    3,364Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.86
 NOTE C  Comprehensive Income
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in Thousands)Net income
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,442
    
    
    $
    2,879Other comprehensive incomeChange in unrealized securities
gains (losses)
    
    
    2,271
    
    
    
    (6,644
    )
    
    
    (535
    )
    
    
    (3,084
    )Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    183Income tax effect
    
    
    (793
    )
    
    
    2,317
    
    
    
    189
    
    
    
    1,027Total comprehensive income (loss)
    
    $
    3,117
    
    
    $
    (2,849
    )
    
    $
    3,095
    
    
    $
    1,005
 7




---



##### Table of Contents



NOTE D  Loans Receivable
  June 30,
    
    December 31,
    
    June 30,2005
    
    2004
    
    2004(Dollars in Thousands)First Mortgage:Conventional single-family residential
    
    $
    156,313
    
    
    $
    142,926
    
    
    $
    114,011Commercial and multifamily residential
    
    
    471,694
    
    
    
    436,612
    
    
    
    387,459Construction
    
    
    80,150
    
    
    
    76,267
    
    
    
    58,722Farmland
    
    
    55,863
    
    
    
    55,710
    
    
    
    49,120764,020
    
    
    
    711,515
    
    
    
    609,312Commercial business loans
    
    
    262,653
    
    
    
    240,575
    
    
    
    225,680Consumer and installment loans
    
    
    48,263
    
    
    
    49,136
    
    
    
    46,737Home equity loans
    
    
    27,620
    
    
    
    26,592
    
    
    
    17,656Other
    
    
    7,679
    
    
    
    10,863
    
    
    
    5,017346,215
    
    
    
    327,166
    
    
    
    295,090Total loans
    
    
    1,110,235
    
    
    
    1,038,681
    
    
    
    904,402Less allowance for loan losses
    
    
    10,381
    
    
    
    10,622
    
    
    
    9,716Loans, net
    
    $
    1,099,854
    
    
    $
    1,028,059
    
    
    $
    894,686
 NOTE E  Stock-Based Compensation Plan
 Accounting for
Stock Issued to Employees Accounting for
Stock-Based Compensation
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in Thousands, Except Per Share Data)Net income, as reported
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,442
    
    
    $
    2,879Deduct 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
    
    $
    1,639
    
    
    $
    1,472
    
    
    $
    3,436
    
    
    $
    2,545Earnings per share:Basic:As reported
    
    $
    0.45
    
    
    $
    0.44
    
    
    $
    0.94
    
    
    $
    0.86Pro forma
    
    $
    0.45
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.76Diluted:As reported
    
    $
    0.44
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.86Pro forma
    
    $
    0.44
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.76
 8




---



##### Table of Contents



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




---



##### Table of Contents



Share-Based Payment
   10




---



##### Table of Contents



NOTE H  Commitments and Contingent Liabilities
     June 30,
    
    December 31,
    
    June 30,2005
    
    2004
    
    2004(Dollars in Thousands)Commitments to originate mortgage loans
    
    $
    24,345
    
    
    $
    20,104
    
    
    $
    45,513Unused lines of credit:Commercial business
    
    
    162,552
    
    
    
    144,647
    
    
    
    105,559Home equity
    
    
    26,728
    
    
    
    21,935
    
    
    
    15,570Credit cards
    
    
    16,264
    
    
    
    18,865
    
    
    
    16,861Standby letters of credit
    
    
    15,109
    
    
    
    12,574
    
    
    
    11,025
   11




---



##### 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




---



##### Table of Contents



Total Deposits and Borrowings
    Capital Resources
   13




---



##### Table of Contents



Nonperforming Assets and Allowance for Losses
   June 30,
    
    December 31,
    
    June 30,2005
    
    2004
    
    2004(Dollars in Thousands)Non-accrual loans:Conventional single-family residential
    
    $
    1,126
    
    
    $
    726
    
    
    $
    642Commercial and multifamily residential
    
    
    2,921
    
    
    
    3,997
    
    
    
    2,302Commercial business loans
    
    
    1,383
    
    
    
    3,123
    
    
    
    588Consumer and installment loans
    
    
    791
    
    
    
    1,025
    
    
    
    1,167Total non-accrual loans
    
    
    6,221
    
    
    
    8,871
    
    
    
    4,699Other real estate owned
    
    
    1,471
    
    
    
    1,296
    
    
    
    1,907Total nonperforming assets
    
    $
    7,692
    
    
    $
    10,167
    
    
    $
    6,606Ratios:Non-accrual loans to total loans
    
    
    0.56
    %
    
    
    0.85
    %
    
    
    0.52
    %Nonperforming assets to total assets
    
    
    0.54
    %
    
    
    0.75
    %
    
    
    0.56
    %Loan loss allowance to non-accrual loans
    
    
    166.87
    %
    
    
    119.74
    %
    
    
    206.77
    %Loan loss allowance to total loans
    
    
    0.94
    %
    
    
    1.02
    %
    
    
    1.07
    %
   Three Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004(Dollars in Thousands)Balance at beginning of period
    
    $
    10,368
    
    
    $
    9,462
    
    
    $
    10,623
    
    
    $
    9,136Provision for loan losses
    
    
    390
    
    
    
    451
    
    
    
    780
    
    
    
    901Charge-offs:Commercial and multifamily residential
    
    
    19
    
    
    
    37
    
    
    
    27
    
    
    
    95Commercial business loans
    
    
    184
    
    
    
    109
    
    
    
    807
    
    
    
    197Consumer and installment loans
    
    
    246
    
    
    
    129
    
    
    
    347
    
    
    
    183Total charge-offs
    
    
    449
    
    
    
    275
    
    
    
    1,181
    
    
    
    475Recoveries:Commercial and multifamily residential
    
    
    3
    
    
    
    2
    
    
    
    15
    
    
    
    2Commercial business loans
    
    
    27
    
    
    
    31
    
    
    
    47
    
    
    
    69Consumer and installment loans
    
    
    42
    
    
    
    45
    
    
    
    97
    
    
    
    83Total recoveries
    
    
    72
    
    
    
    78
    
    
    
    159
    
    
    
    154Net charge-offs
    
    
    377
    
    
    
    197
    
    
    
    1,022
    
    
    
    321Balance at end of period
    
    $
    10,381
    
    
    $
    9,716
    
    
    $
    10,381
    
    
    $
    9,716
 14




---



##### Table of Contents



Potential Problem Loans
  15




---



##### Table of Contents



Comparison of Three and Six Months Ended June 30, 2005 and 2004
 Net Income
  Net Interest Income
  16




---



##### Table of Contents



AVERAGE BALANCES, INTEREST RATES AND YIELDS
 For the Three Months Ended June 30,2005
    
    2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,089,378
    
    
    $
    16,975
    
    
    
    6.25
    %
    
    $
    886,342
    
    
    $
    12,883
    
    
    
    5.85
    %Loans exempt from federal income taxes (3)
    
    
    3,416
    
    
    
    62
    
    
    
    7.29
    %
    
    
    4,418
    
    
    
    82
    
    
    
    7.46
    %Taxable investment securities (4)
    
    
    35,516
    
    
    
    425
    
    
    
    4.80
    %
    
    
    40,475
    
    
    
    436
    
    
    
    4.33
    %Mortgage-related securities (4)
    
    
    89,817
    
    
    
    893
    
    
    
    3.99
    %
    
    
    92,360
    
    
    
    769
    
    
    
    3.35
    %Investment securities exempt from federal
income taxes (3)(4)
    
    
    63,669
    
    
    
    850
    
    
    
    5.35
    %
    
    
    42,760
    
    
    
    390
    
    
    
    3.67
    %Other securities
    
    
    6,041
    
    
    
    36
    
    
    
    2.39
    %
    
    
    9,087
    
    
    
    44
    
    
    
    1.95
    %Interest earning assets
    
    
    1,287,837
    
    
    
    19,241
    
    
    
    5.99
    %
    
    
    1,075,442
    
    
    
    14,604
    
    
    
    5.46
    %Non interest earning assets
    
    
    126,142
    
    
    
    
    
    
    
    
    
    
    
    94,594Average assets
    
    $
    1,413,979
    
    
    
    
    
    
    
    
    
    
    $
    1,170,036Liabilities and Stockholders EquityNOW deposits
    
    $
    98,075
    
    
    
    141
    
    
    
    0.58
    %
    
    $
    87,049
    
    
    
    101
    
    
    
    0.47
    %Money market deposits
    
    
    224,590
    
    
    
    836
    
    
    
    1.49
    %
    
    
    255,746
    
    
    
    671
    
    
    
    1.06
    %Savings deposits
    
    
    137,065
    
    
    
    306
    
    
    
    0.90
    %
    
    
    124,592
    
    
    
    261
    
    
    
    0.84
    %Time deposits
    
    
    460,864
    
    
    
    3,322
    
    
    
    2.89
    %
    
    
    336,471
    
    
    
    1,983
    
    
    
    2.37
    %Short-term borrowings
    
    
    72,193
    
    
    
    572
    
    
    
    3.18
    %
    
    
    35,039
    
    
    
    145
    
    
    
    1.66
    %Long-term borrowings
    
    
    118,865
    
    
    
    1,165
    
    
    
    3.93
    %
    
    
    88,850
    
    
    
    787
    
    
    
    3.56
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    773
    
    
    
    6.68
    %
    
    
    36,084
    
    
    
    555
    
    
    
    6.19
    %Interest bearing liabilities
    
    
    1,158,046
    
    
    
    7,115
    
    
    
    2.46
    %
    
    
    963,831
    
    
    
    4,503
    
    
    
    1.88
    %Demand deposits and other non interest
bearing liabilities
    
    
    162,410
    
    
    
    
    
    
    
    
    
    
    
    124,853Stockholders equity
    
    
    93,523
    
    
    
    
    
    
    
    
    
    
    
    81,352Average liabilities and stockholders equity
    
    $
    1,413,979
    
    
    
    
    
    
    
    
    
    
    $
    1,170,036Net interest spread (5)
    
    
    
    
    
    $
    12,126
    
    
    
    3.53
    %
    
    
    
    
    
    $
    10,101
    
    
    
    3.58
    %Net interest earning assets
    
    $
    129,791
    
    
    
    
    
    
    
    
    
    
    $
    111,611Net interest margin on a fully tax
equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.78
    %
    
    
    
    
    
    
    
    
    
    
    3.78
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.68
    %
    
    
    
    
    
    
    
    
    
    
    3.77
    %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




---



##### Table of Contents



AVERAGE BALANCES, INTEREST RATES AND YIELDS
 For the Six Months Ended June 30,2005
    
    2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,068,354
    
    
    $
    32,727
    
    
    
    6.18
    %
    
    $
    873,615
    
    
    $
    25,653
    
    
    
    5.91
    %Loans exempt from federal income taxes (3)
    
    
    3,535
    
    
    
    129
    
    
    
    7.35
    %
    
    
    4,184
    
    
    
    156
    
    
    
    7.50
    %Taxable investment securities (4)
    
    
    34,720
    
    
    
    825
    
    
    
    4.79
    %
    
    
    43,361
    
    
    
    904
    
    
    
    4.19
    %Mortgage-related securities (4)
    
    
    92,383
    
    
    
    1,766
    
    
    
    3.85
    %
    
    
    86,162
    
    
    
    1,415
    
    
    
    3.30
    %Investment securities exempt from federal
income taxes (3)(4)
    
    
    63,961
    
    
    
    1,777
    
    
    
    5.60
    %
    
    
    43,333
    
    
    
    771
    
    
    
    3.58
    %Other securities
    
    
    8,260
    
    
    
    74
    
    
    
    1.81
    %
    
    
    13,130
    
    
    
    98
    
    
    
    1.50
    %Interest earning assets
    
    
    1,271,213
    
    
    
    37,298
    
    
    
    5.92
    %
    
    
    1,063,785
    
    
    
    28,997
    
    
    
    5.48
    %Non interest earning assets
    
    
    122,015
    
    
    
    
    
    
    
    
    
    
    
    93,919Average assets
    
    $
    1,393,228
    
    
    
    
    
    
    
    
    
    
    $
    1,157,704Liabilities and Stockholders EquityNOW deposits
    
    $
    97,448
    
    
    
    274
    
    
    
    0.57
    %
    
    $
    86,344
    
    
    
    206
    
    
    
    0.48
    %Money market deposits
    
    
    232,679
    
    
    
    1,624
    
    
    
    1.41
    %
    
    
    259,231
    
    
    
    1,403
    
    
    
    1.09
    %Savings deposits
    
    
    135,667
    
    
    
    603
    
    
    
    0.90
    %
    
    
    120,190
    
    
    
    495
    
    
    
    0.83
    %Time deposits
    
    
    443,042
    
    
    
    6,021
    
    
    
    2.74
    %
    
    
    334,958
    
    
    
    4,012
    
    
    
    2.41
    %Short-term borrowings
    
    
    67,429
    
    
    
    1,029
    
    
    
    3.08
    %
    
    
    35,964
    
    
    
    296
    
    
    
    1.66
    %Long-term borrowings
    
    
    117,909
    
    
    
    2.245
    
    
    
    3.84
    %
    
    
    83,541
    
    
    
    1,521
    
    
    
    3.66
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    1,500
    
    
    
    6.52
    %
    
    
    36,084
    
    
    
    1,112
    
    
    
    6.20
    %Interest bearing liabilities
    
    
    1,140,568
    
    
    
    13,296
    
    
    
    2.35
    %
    
    
    956,312
    
    
    
    9,045
    
    
    
    1.90
    %Demand deposits and other non interest
bearing liabilities
    
    
    159,471
    
    
    
    
    
    
    
    
    
    
    
    120,173Stockholders equity
    
    
    93,189
    
    
    
    
    
    
    
    
    
    
    
    81,219Average liabilities and stockholders equity
    
    $
    1,393,228
    
    
    
    
    
    
    
    
    
    
    $
    1,157,704Net interest spread (5)
    
    
    
    
    
    $
    24,002
    
    
    
    3.57
    %
    
    
    
    
    
    $
    19,952
    
    
    
    3.58
    %Net interest earning assets
    
    $
    130,645
    
    
    
    
    
    
    
    
    
    
    $
    107,473Net interest margin on a fully tax
equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.81
    %
    
    
    
    
    
    
    
    
    
    
    3.77
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    3.76
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.11
    
    
    
    
    
    
    
    
    
    
    
    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




---



##### Table of Contents



VOLUME, RATE AND MIX ANALYSIS OF NET INTEREST INCOME
 Three Months Ended June 30, 2005
    
    Six Months Ended June 30, 2005Compared to June 30, 2004
    
    Compared to June 30, 2004Change
    
    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)
    
    $
    3,143
    
    
    $
    949
    
    
    $
    4,092
    
    
    $
    5,861
    
    
    $
    1,213
    
    
    $
    7,074Loans exempt from federal income
taxes (2)
    
    
    (18
    )
    
    
    (2
    )
    
    
    (20
    )
    
    
    (24
    )
    
    
    (3
    )
    
    
    (27
    )Taxable investment securities
    
    
    (92
    )
    
    
    81
    
    
    
    (11
    )
    
    
    (279
    )
    
    
    200
    
    
    
    (79
    )Mortgage-related securities
    
    
    (21
    )
    
    
    145
    
    
    
    124
    
    
    
    106
    
    
    
    245
    
    
    
    351Investment securities exempt from
federal income taxes (2)
    
    
    237
    
    
    
    223
    
    
    
    460
    
    
    
    459
    
    
    
    547
    
    
    
    1,006Other securities
    
    
    (25
    )
    
    
    17
    
    
    
    (8
    )
    
    
    (53
    )
    
    
    29
    
    
    
    (24
    )Total interest-earning assets
    
    $
    3,224
    
    
    $
    1,413
    
    
    $
    4,637
    
    
    $
    6,070
    
    
    $
    2,231
    
    
    $
    8,301Interest-Bearing Liabilities:NOW deposits
    
    $
    14
    
    
    $
    26
    
    
    $
    40
    
    
    $
    28
    
    
    $
    40
    
    
    $
    68Money market deposits
    
    
    (69
    )
    
    
    234
    
    
    
    165
    
    
    
    (119
    )
    
    
    340
    
    
    
    221Savings deposits
    
    
    28
    
    
    
    17
    
    
    
    45
    
    
    
    66
    
    
    
    42
    
    
    
    108Time deposits
    
    
    840
    
    
    
    499
    
    
    
    1,339
    
    
    
    1,408
    
    
    
    601
    
    
    
    2,009Short-term borrowings
    
    
    230
    
    
    
    197
    
    
    
    427
    
    
    
    370
    
    
    
    363
    
    
    
    733Long-term borrowings
    
    
    289
    
    
    
    89
    
    
    
    378
    
    
    
    647
    
    
    
    77
    
    
    
    724Junior subordinated debt owed to
unconsolidated trusts
    
    
    170
    
    
    
    48
    
    
    
    218
    
    
    
    328
    
    
    
    60
    
    
    
    388Total interest-bearing liabilities
    
    $
    1,502
    
    
    $
    1,110
    
    
    $
    2,612
    
    
    $
    2,728
    
    
    $
    1,523
    
    
    $
    4,251Net change in net interest income
    
    
    
    
    
    
    
    
    
    $
    2,025
    
    
    
    
    
    
    
    
    
    
    $
    4,050
 
 (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




---



##### Table of Contents



Non-Interest Income
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in Thousands)Service charges on deposit accounts
    
    $
    1,036
    
    
    $
    784
    
    
    $
    1,989
    
    
    $
    1,509Service charges on loans
    
    
    949
    
    
    
    354
    
    
    
    1,674
    
    
    
    781Securities gains, net
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    183Gain on sale of loans, net
    
    
    96
    
    
    
    150
    
    
    
    199
    
    
    
    294Gain on sale of fixed assets, net
    
    
    
    
    
    
    158
    
    
    
    395
    
    
    
    158Tax fees, brokerage and insurance commissions
    
    
    475
    
    
    
    380
    
    
    
    1,040
    
    
    
    999Other
    
    
    876
    
    
    
    822
    
    
    
    2,228
    
    
    
    1,425Total non-interest income
    
    $
    3,432
    
    
    $
    2,654
    
    
    $
    7,525
    
    
    $
    5,349
       20




---



##### Table of Contents



Non-Interest Expense
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in Thousands)Salaries and employee benefits
    
    $
    6,971
    
    
    $
    5,767
    
    
    $
    14,218
    
    
    $
    11,627Premises and equipment
    
    
    1,807
    
    
    
    1,352
    
    
    
    3,677
    
    
    
    2,828Data processing fees
    
    
    884
    
    
    
    400
    
    
    
    1,731
    
    
    
    761Marketing and business development
    
    
    657
    
    
    
    574
    
    
    
    1,051
    
    
    
    908Sarbanes-Oxley implementation
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    67Other
    
    
    2,106
    
    
    
    1,981
    
    
    
    4,325
    
    
    
    4,032Total noninterest expense
    
    $
    12,425
    
    
    $
    10,141
    
    
    $
    25,002
    
    
    $
    20,223
     21




---



##### Table of Contents



Income Taxes
  Liquidity
   22




---



##### Table of Contents



Asset/Liability Management
   Amounts Maturing or Repricing as of June 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
    
    $
    93,149
    
    
    $
    96,272
    
    
    $
    305,063
    
    
    $
    15,120
    
    
    $
    509,604Adjustable-rate mortgage loans
    
    
    207,844
    
    
    
    18,314
    
    
    
    27,526
    
    
    
    732
    
    
    
    254,416Total mortgage loans
    
    
    300,993
    
    
    
    114,586
    
    
    
    332,589
    
    
    
    15,852
    
    
    
    764,020Commercial business loans
    
    
    156,335
    
    
    
    30,074
    
    
    
    73,816
    
    
    
    2,428
    
    
    
    262,653Consumer loans
    
    
    16,025
    
    
    
    7,442
    
    
    
    23,509
    
    
    
    1,287
    
    
    
    48,263Home equity loans
    
    
    26,646
    
    
    
    2
    
    
    
    751
    
    
    
    221
    
    
    
    27,620Other loans
    
    
    4,530
    
    
    
    350
    
    
    
    1,817
    
    
    
    982
    
    
    
    7,679Mortgage-related securities
    
    
    11,064
    
    
    
    10,944
    
    
    
    53,377
    
    
    
    14,470
    
    
    
    89,855Fixed rate investment securities and other
    
    
    1,605
    
    
    
    6,550
    
    
    
    25,960
    
    
    
    48,978
    
    
    
    83,093Variable rate investment securities and other
    
    
    23,473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,473Total interest-earning assets
    
    $
    540,671
    
    
    $
    169,948
    
    
    $
    511,819
    
    
    $
    84,218
    
    
    $
    1,306,656Interest-bearing liabilities:DepositsTime deposits
    
    $
    191,132
    
    
    $
    131,648
    
    
    $
    147,844
    
    
    $
    3,235
    
    
    $
    473,859NOW accounts
    
    
    5,729
    
    
    
    5,729
    
    
    
    57,291
    
    
    
    26,736
    
    
    
    95,485Savings accounts
    
    
    8,196
    
    
    
    8,344
    
    
    
    81,959
    
    
    
    38,248
    
    
    
    136,747Money market accounts
    
    
    28,530
    
    
    
    12,613
    
    
    
    126,127
    
    
    
    58,860
    
    
    
    226,130Short-term borrowings
    
    
    71,162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,162Long-term borrowings
    
    
    20,249
    
    
    
    19,250
    
    
    
    79,287
    
    
    
    5,140
    
    
    
    123,926Junior subordinated debt owed to unconsolidated trusts
    
    
    28,352
    
    
    
    
    
    
    
    
    
    
    
    18,042
    
    
    
    46,394Total interest-bearing liabilities
    
    $
    353,350
    
    
    $
    177,584
    
    
    $
    492,508
    
    
    $
    150,261
    
    
    $
    1,173,703Interest-earning assets less interest-bearing liabilities
    
    $
    187,321
    
    
    
    ($7,636
    )
    
    $
    19,311
    
    
    
    ($66,043
    )
    
    $
    132,953Cumulative interest rate sensitivity gap
    
    $
    187,321
    
    
    $
    179,685
    
    
    $
    198,996
    
    
    $
    132,953Cumulative interest rate sensitivity gap as a
percentage of total assets
    
    
    13.18
    %
    
    
    12.65
    %
    
    
    14.00
    %
    
    
    9.36
    %
 23




---



##### Table of Contents



Forward-Looking Statements
    24




---



##### Table of Contents



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




---



##### Table of Contents



Part II. Other Information
 
            Total votes
    
    Votes represented
    
    Votes cast FORDirector
    
    eligible to be cast
    
    in person or proxy
    
    the reelection
    
    Votes WithheldJ. Michael Bartels
    
    
    3,674,054
    
    
    
    2,883,929
    
    
    
    2,861,198
    
    
    
    22,731Thomas J. Sheehan
    
    
    3,674,054
    
    
    
    2,883,929
    
    
    
    2,850,110
    
    
    
    33,819Rodney T. Goodell
    
    
    3,674,054
    
    
    
    2,883,929
    
    
    
    2,872,371
    
    
    
    11,558James A. Sass
    
    
    3,674,054
    
    
    
    2,883,929
    
    
    
    2,865,392
    
    
    
    18,537
 26




---



##### Table of Contents



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. 27




---



##### Table of Contents



SIGNATURES
  MERCHANTS AND MANUFACTURERSBANCORPORATION, INC.(Registrant)Date August 5, 2005
    
    /s/ Michael J. MurryMichael J. MurryChairman of the Board of Directorsand Chief Executive OfficerPrincipal Executive OfficerDate August 5, 2005
    
    /s/ Frederick R. KlugFrederick R. KlugExecutive Vice President & ChiefFinancial OfficerPrincipal Financial Officer
 28




---



##### 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. 29