##### 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 March 31, 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 incorporation or
    
    (I.R.S. Employer Identification Number)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 March 31, 2006, December 31, 2005, and March 31, 2005
    
    
    3Unaudited Consolidated Statements of Income for the Three Months ended March 31, 2006 and March 31, 2005
    
    
    4Unaudited Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for the Three Months ended March 31, 2006 and March 31, 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2006 and March 31, 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
    
    
    21Item 4. Controls and Procedures
    
    
    21Part II. Other InformationItems 1-6
    
    
    22Signatures
    
    
    23Certification Pursuant to Section 302 by the CEOCertification Pursuant to Section 302 by the CFOCertification Pursuant to Section 906 by the CEOCertification Pursuant to Section 906 by the CFO
  2




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##### Table of Contents



Part I. Financial Information
Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Financial Condition
 March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005(Dollars in Thousands, Except Share and Per Share Amounts)ASSETSCash and due from banks
    
    $
    33,935
    
    
    $
    39,551
    
    
    $
    27,015Interest bearing deposits in banks
    
    
    420
    
    
    
    863
    
    
    
    2,657Federal funds sold
    
    
    370
    
    
    
    6,364
    
    
    
    5,346Cash and cash equivalents
    
    
    34,725
    
    
    
    46,778
    
    
    
    35,018Available-for-sale securities
    
    
    174,617
    
    
    
    173,639
    
    
    
    170,437Loans, less allowance for loan losses of $11,951 at March 31, 2006,
$13,051 at December 31, 2005 and $10,368 at March 31, 2005
    
    
    1,158,109
    
    
    
    1,120,616
    
    
    
    1,067,094Accrued interest receivable
    
    
    7,179
    
    
    
    6,875
    
    
    
    6,154FHLB stock
    
    
    20,372
    
    
    
    20,416
    
    
    
    19,931Premises and equipment
    
    
    33,803
    
    
    
    33,565
    
    
    
    29,888Goodwill and intangible assets
    
    
    35,155
    
    
    
    35,251
    
    
    
    35,665Other assets
    
    
    21,670
    
    
    
    21,808
    
    
    
    21,083Total assets
    
    $
    1,485,630
    
    
    $
    1,458,948
    
    
    $
    1,385,270LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    123,598
    
    
    $
    159,591
    
    
    $
    136,653Interest bearing
    
    
    991,306
    
    
    
    1,000,572
    
    
    
    915,753Total deposits
    
    
    1,114,904
    
    
    
    1,160,163
    
    
    
    1,052,406Short-term borrowings
    
    
    100,077
    
    
    
    44,332
    
    
    
    63,219Long-term borrowings
    
    
    117,355
    
    
    
    101,107
    
    
    
    119,387Junior subordinated debt owed to unconsolidated trusts
    
    
    46,394
    
    
    
    46,394
    
    
    
    46,394Accrued interest payable
    
    
    3,783
    
    
    
    3,631
    
    
    
    2,542Other liabilities
    
    
    9,695
    
    
    
    10,096
    
    
    
    9,606Total liabilities
    
    
    1,392,208
    
    
    
    1,365,723
    
    
    
    1,293,554Stockholders 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 March 31, 2006, December 31, 2005
and March 31, 2005; shares outstanding: 3,702,180 at
March 31, 2006, 3,701,621 at December 31, 2005 and
3,674,054 at March 31, 2005
    
    
    3,770
    
    
    
    3,770
    
    
    
    3,770Additional paid-in capital
    
    
    53,668
    
    
    
    53,614
    
    
    
    53,421Retained earnings
    
    
    39,290
    
    
    
    38,928
    
    
    
    37,628Accumulated other comprehensive loss
    
    
    (1,602
    )
    
    
    (1,369
    )
    
    
    (660
    )Treasury stock, at cost (68,071 shares at March 31, 2006, 68,630
shares at
December 31, 2005 and 96,197 shares at March 31, 2005)
    
    
    (1,704
    )
    
    
    (1,718
    )
    
    
    (2,443
    )Total stockholders equity
    
    
    93,422
    
    
    
    93,225
    
    
    
    91,716Total liabilities and stockholders equity
    
    $
    1,485,630
    
    
    $
    1,458,948
    
    
    $
    1,385,270
 See notes to unaudited consolidated financial statements.
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Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Income
 Three Months EndedMarch 31,2006
    
    
    2005(Dollars In Thousands, Except Per Share Amounts)Interest and dividend income:Interest and fees on loans
    
    $
    19,320
    
    
    $
    15,796Interest and dividends on securities:Taxable
    
    
    343
    
    
    
    400Tax-exempt
    
    
    642
    
    
    
    612Interest on mortgage-backed securities
    
    
    969
    
    
    
    873Interest on interest bearing deposits in banks
and federal funds sold
    
    
    62
    
    
    
    38Total interest and dividend income
    
    
    21,336
    
    
    
    17,719Interest expense:Interest on deposits
    
    
    6,943
    
    
    
    3,917Interest on short-term borrowings
    
    
    1,083
    
    
    
    457Interest on long-term borrowings
    
    
    1,129
    
    
    
    1,080Interest on junior subordinated debt owed to
unconsolidated trusts
    
    
    863
    
    
    
    727Total interest expense
    
    
    10,018
    
    
    
    6,181Net interest income
    
    
    11,318
    
    
    
    11,538Provision for loan losses
    
    
    390
    
    
    
    390Net interest income after provision for loan losses
    
    
    10,928
    
    
    
    11,148Non-interest income:Service charges on deposit accounts
    
    
    1,052
    
    
    
    953Service charges on loans
    
    
    751
    
    
    
    725Securities gains, net
    
    
    
    
    
    
    Gain on sale of loans, net
    
    
    15
    
    
    
    103Net gain on sale of premises and equipment
    
    
    175
    
    
    
    395Tax fees, brokerage and insurance commissions
    
    
    804
    
    
    
    565Other
    
    
    970
    
    
    
    1,352Total noninterest income
    
    
    3,767
    
    
    
    4,093Noninterest expenses:Salaries and employee benefits
    
    
    7,757
    
    
    
    7,247Premises and equipment
    
    
    1,829
    
    
    
    1,870Data processing fees
    
    
    910
    
    
    
    847Marketing and business development
    
    
    503
    
    
    
    394Other
    
    
    2,257
    
    
    
    2,219Total noninterest expense
    
    
    13,256
    
    
    
    12,577Income before income taxes
    
    
    1,439
    
    
    
    2,664Income taxes
    
    
    411
    
    
    
    861Net income
    
    $
    1,028
    
    
    $
    1,803Basic earnings per share
    
    $
    0.28
    
    
    $
    0.49Diluted earnings per share
    
    $
    0.28
    
    
    $
    0.49Dividends per share
    
    $
    0.18
    
    
    $
    0.18
 See notes to unaudited consolidated financial statements.
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Merchants and Manufacturers Bancorporation, Inc.
 
 Unaudited Consolidated Statements of Changes in Shareholders 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)Three months ended March 31, 2005Balance at December 31, 2004
    
    
    3,674,054
    
    
    $
    3,770
    
    
    $
    53,421
    
    
    $
    36,486
    
    
    $
    505
    
    
    $
    (2,443
    )
    
    $
    91,739Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,803
    
    
    
    
    
    
    
    
    
    
    
    1,803Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,790
    )
    
    
    
    
    
    
    (1,790
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    625Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    638Cash dividend  $0.18 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (661
    )
    
    
    
    
    
    
    
    
    
    
    (661
    )Balance at March 31, 2005
    
    
    3,674,054
    
    
    $
    3,770
    
    
    $
    53,421
    
    
    $
    37,628
    
    
    $
    (660
    )
    
    $
    (2,443
    )
    
    $
    91,716Three months ended March 31, 2006Balance at December 31, 2005
    
    
    3,701,621
    
    
    $
    3,770
    
    
    $
    53,614
    
    
    $
    38,928
    
    
    $
    (1,369
    )
    
    $
    (1,718
    )
    
    $
    93,225Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,028
    
    
    
    
    
    
    
    
    
    
    
    1,028Change in net unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (357
    )
    
    
    
    
    
    
    (357
    )Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    124Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    795Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Cash dividend  $0.18 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (666
    )
    
    
    
    
    
    
    
    
    
    
    (666
    )Exercise of stock options
    
    
    559
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    8Balance at March 31, 2006
    
    
    3,702,180
    
    
    $
    3,770
    
    
    $
    53,668
    
    
    $
    39,290
    
    
    $
    (1,602
    )
    
    $
    (1,704
    )
    
    $
    93,422
 See notes to unaudited consolidated financial statements.
 5




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Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flows
 Three Months Ended March 31,2006
    
    
    2005(Dollars in Thousands)Cash Flows From Operating ActivitiesNet income
    
    $
    1,028
    
    
    $
    1,803Adjustments to reconcile net income to cash provided by operating activities:Provision for loan losses
    
    
    390
    
    
    
    390Depreciation
    
    
    673
    
    
    
    623Amortization and accretion of premiums and discounts, net
    
    
    126
    
    
    
    192Securities gains, net
    
    
    
    
    
    
    Gain on sale of loans, net
    
    
    (15
    )
    
    
    (103
    )Loans originated for sale
    
    
    (7,399
    )
    
    
    (10,284
    )Proceeds from sales of loans
    
    
    7,044
    
    
    
    11,474Gain on sale of fixed assets, net
    
    
    (175
    )
    
    
    (395
    )Increase in accrued interest receivable
    
    
    (304
    )
    
    
    (735
    )Increase in accrued interest payable
    
    
    152
    
    
    
    598FHLB stock dividend
    
    
    
    
    
    
    (258
    )Other
    
    
    (2,307
    )
    
    
    (990
    )Net cash provided by (used in) operating activities
    
    
    (787
    )
    
    
    2,315Cash Flows From Investing ActivitiesPurchase of available-for-sale securities
    
    
    (8,646
    )
    
    
    (8,875
    )Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    Proceeds from redemptions and maturities of available-for-sale securities
    
    
    8,358
    
    
    
    9,021Net increase in loans
    
    
    (38,113
    )
    
    
    (40,522
    )Purchase of premises and equipment, net
    
    
    (911
    )
    
    
    239Proceeds from sale of premises and equipment
    
    
    
    
    
    
    Proceeds from sale of other real estate owned
    
    
    1,638
    
    
    
    Redemption (purchase) of Federal Home Loan Bank stock
    
    
    44
    
    
    
    (24
    )Net cash used in investing activities
    
    
    (37,630
    )
    
    
    (40,161
    )Cash Flows From Financing ActivitiesNet increase (decrease) in deposits
    
    
    (45,259
    )
    
    
    19,360Dividends paid
    
    
    (666
    )
    
    
    (661
    )Net increase in short-term borrowings
    
    
    55,745
    
    
    
    1,897Proceeds from long-term borrowings
    
    
    27,055
    
    
    
    30,231Repayment of long-term borrowings
    
    
    (10,807
    )
    
    
    (21,899
    )Increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    228
    
    
    
    (334
    )Common stock transactions, net
    
    
    8
    
    
    
    Stock-based compensation expense
    
    
    60
    
    
    
    Net cash provided by financing activities
    
    
    26,364
    
    
    
    28,594Decrease in cash and cash equivalents
    
    
    (12,053
    )
    
    
    (9,252
    )Cash and cash equivalents at beginning of period
    
    
    46,778
    
    
    
    44,270Cash and cash equivalents at end of period
    
    $
    34,725
    
    
    $
    35,018Supplemental Cash Flow Information and Noncash Transactions:Interest paid
    
    $
    9,866
    
    
    $
    5,583Income taxes paid
    
    
    429
    
    
    
    200Loans transferred to other real estate owned
    
    
    600
    
    
    
    10Supplemental Schedules of Noncash Investing Activities:Change in accumulated other comprehensive income, unrealized
losses on available-for-sale securities, net
    
    $
    (233
    )
    
    $
    (1,165
    )
 See
notes to unaudited consolidated financial statements
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Merchants and Manufacturers Bancorporation, Inc.
 
 
 NOTE A  Basis of Presentation
    NOTE B  Earnings Per Share
  Three Months EndedMarch 31,Basic:
    
    2006
    
    
    2005(Dollars In Thousands, Except Per ShareAmounts)Net income
    
    $
    1,028
    
    
    $
    1,803Weighted average shares outstanding
    
    
    3,702
    
    
    
    3,674Basic earnings per share
    
    $
    0.28
    
    
    $
    0.49Diluted:(Dollars In Thousands, Except Per ShareAmounts)Net income
    
    $
    1,028
    
    
    $
    1,803Weighted average shares outstanding
    
    
    3,702
    
    
    
    3,674Effect of dilutive stock options outstanding
    
    
    9
    
    
    
    8Diluted weighted average shares outstanding
    
    
    3,711
    
    
    
    3,682Diluted earnings per share
    
    $
    0.28
    
    
    $
    0.49
 7




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##### Table of Contents



NOTE C  Comprehensive Income
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in Thousands)Net income
    
    $
    1,028
    
    
    $
    1,803Other comprehensive income:Change in unrealized securities losses
    
    
    (357
    )
    
    
    (1,790
    )Reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    Income tax effect
    
    
    124
    
    
    
    625Total comprehensive income
    
    $
    795
    
    
    $
    638
 NOTE D  Loans Receivable
  March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005(Dollars in Thousands)First Mortgage:Conventional single-family residential
    
    $
    178,175
    
    
    $
    167,745
    
    
    $
    150,269Commercial and multifamily residential
    
    
    483,593
    
    
    
    474,840
    
    
    
    454,909Construction
    
    
    89,825
    
    
    
    81,651
    
    
    
    76,226Farmland
    
    
    55,261
    
    
    
    52,392
    
    
    
    55,694806,854
    
    
    
    776,628
    
    
    
    737,098Commercial business loans
    
    
    280,907
    
    
    
    270,101
    
    
    
    260,174Consumer and installment loans
    
    
    47,881
    
    
    
    50,663
    
    
    
    45,594Home equity loans
    
    
    28,202
    
    
    
    28,541
    
    
    
    27,078Other
    
    
    6,216
    
    
    
    7,734
    
    
    
    7,518363,206
    
    
    
    357,039
    
    
    
    340,364Total loans
    
    
    1,170,060
    
    
    
    1,133,667
    
    
    
    1,077,462Less: Allowance for loan losses
    
    
    (11,951
    )
    
    
    (13,051
    )
    
    
    (10,368
    )Loans, net
    
    $
    1,158,109
    
    
    $
    1,120,616
    
    
    $
    1,067,094
 NOTE E  Stock-Based Compensation Plan
  8




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##### Table of Contents



Three months ended March 31, 2006WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at beginning of period
    
    
    112,282
    
    
    $
    33.77Granted
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    Exercised
    
    
    (559
    )
    
    
    15.11Outstanding at end of period
    
    
    111,723
    
    
    $
    33.86
    
    
    
    5.5
    
    
    $
    580,000Options exercisable
    
    
    108,445
    
    
    $
    15.11 46.00
    
    
    
    5.5
    
    
    $
    562,000
  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
    
    
    
    2.0
    
    
    
    5,584
    
    
    $
    15.1125.45-28.31
    
    
    
    46,017
    
    
    
    27.95
    
    
    
    3.0
    
    
    
    46,017
    
    
    
    27.9530.50-35.00
    
    
    
    20,700
    
    
    
    30.65
    
    
    
    8.6
    
    
    
    17,422
    
    
    
    30.6845.00-46.00
    
    
    
    39,422
    
    
    
    45.11
    
    
    
    7.8
    
    
    
    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 monthsended March31, 2005(Dollars inThousands, ExceptPer Share Data)Net income, as reported
    
    $
    1,803Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    5Pro forma net income
    
    $
    1,798Earnings per share:Basic:As reported
    
    $
    0.49Pro forma
    
    $
    0.49Diluted:As reported
    
    $
    0.49Pro forma
    
    $
    0.49
  10




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##### Table of Contents



NOTE F  Recent Accounting Pronouncements
   NOTE G  Commitments and Contingent Liabilities
     March 31,
    
    December 31,
    
    March 31,2006
    
    2005
    
    2005(Dollars in Thousands)Commitments to originate mortgage loans
    
    $
    22,768
    
    
    $
    37,426
    
    
    $
    26,469Unused lines of credit:Commercial business
    
    
    198,045
    
    
    
    193,581
    
    
    
    158,676Home equity
    
    
    35,389
    
    
    
    31,582
    
    
    
    24,450Credit cards
    
    
    17,381
    
    
    
    21,031
    
    
    
    16,274Standby letters of credit
    
    
    14,267
    
    
    
    12,362
    
    
    
    12,477
   11




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005(Dollars in Thousands)Non-accrual loans:Conventional single-family residential
    
    $
    2,197
    
    
    $
    2,555
    
    
    $
    897Commercial and multifamily residential
    
    
    2,498
    
    
    
    508
    
    
    
    2,867Commercial business loans
    
    
    1,889
    
    
    
    1,358
    
    
    
    1,143Consumer and installment loans
    
    
    850
    
    
    
    826
    
    
    
    840Total non-accrual loans
    
    
    7,434
    
    
    
    5,247
    
    
    
    5,747Other real estate owned
    
    
    949
    
    
    
    1,812
    
    
    
    1,306Total nonperforming assets
    
    $
    8,383
    
    
    $
    7,059
    
    
    $
    7,053Ratios:Non-accrual loans to total loans
    
    
    0.64
    %
    
    
    0.46
    %
    
    
    0.53
    %Nonperforming assets to total assets
    
    
    0.56
    %
    
    
    0.48
    %
    
    
    0.51
    %Loan loss
allowance to non-accrual loans
    
    
    160.76
    %
    
    
    248.73
    %
    
    
    180.41
    %Loan loss allowance to total loans
    
    
    1.02
    %
    
    
    1.15
    %
    
    
    0.96
    %
   Three Months EndedMarch 31,2006
    
    
    2005(Dollars in Thousands)Balance at beginning of period
    
    $
    13,051
    
    
    $
    10,622Provision for loan losses
    
    
    390
    
    
    
    390Charge-offs:Commercial and multifamily residential
    
    
    (253
    )
    
    
    (8
    )Commercial business loans
    
    
    (1,028
    )
    
    
    (623
    )Consumer and installment loans
    
    
    (286
    )
    
    
    (100
    )Total charge-offs
    
    
    (1,567
    )
    
    
    (731
    )Recoveries:Commercial and multifamily residential
    
    
    4
    
    
    
    12Commercial business loans
    
    
    6
    
    
    
    20Consumer and installment loans
    
    
    67
    
    
    
    55Total recoveries
    
    
    77
    
    
    
    87Net charge-offs
    
    
    (1,490
    )
    
    
    (644
    )Balance at end of period
    
    $
    11,951
    
    
    $
    10,368
 th
 14




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##### Table of Contents



Potential Problem Loans
   15




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##### Table of Contents



Comparison of Three Months Ended March 31, 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 March 31,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsLoans, net (1)(2)
    
    $
    1,134,915
    
    
    $
    19,283
    
    
    
    6.89
    %
    
    $
    1,047,163
    
    
    $
    15,750
    
    
    
    6.10
    %Loans exempt from federal income taxes (3)
    
    
    3,386
    
    
    
    56
    
    
    
    6.71
    %
    
    
    3,656
    
    
    
    68
    
    
    
    7.56
    %Taxable investment securities (4)
    
    
    37,919
    
    
    
    343
    
    
    
    3.67
    %
    
    
    33,423
    
    
    
    395
    
    
    
    4.79
    %Mortgage-related securities (4)
    
    
    89,415
    
    
    
    969
    
    
    
    4.40
    %
    
    
    92,991
    
    
    
    873
    
    
    
    3.81
    %Investment securities exempt from federal
income taxes (3)(4)
    
    
    69,280
    
    
    
    973
    
    
    
    5.69
    %
    
    
    64,865
    
    
    
    930
    
    
    
    5.82
    %Other securities
    
    
    5,560
    
    
    
    62
    
    
    
    4.52
    %
    
    
    10,505
    
    
    
    63
    
    
    
    2.43
    %Interest earning assets
    
    
    1,340,475
    
    
    
    21,686
    
    
    
    6.56
    %
    
    
    1,252,603
    
    
    
    18,079
    
    
    
    5.85
    %Non interest earning assets
    
    
    138,444
    
    
    
    
    
    
    
    
    
    
    
    110,583Average assets
    
    $
    1,478,919
    
    
    
    
    
    
    
    
    
    
    $
    1,363,186Liabilities and Stockholders EquityNOW deposits
    
    $
    107,187
    
    
    
    199
    
    
    
    0.75
    %
    
    $
    94,709
    
    
    
    133
    
    
    
    0.57
    %Money market deposits
    
    
    243,051
    
    
    
    1,569
    
    
    
    2.62
    %
    
    
    242,963
    
    
    
    788
    
    
    
    1.32
    %Savings deposits
    
    
    131,126
    
    
    
    413
    
    
    
    1.28
    %
    
    
    134,732
    
    
    
    297
    
    
    
    0.89
    %Time deposits
    
    
    504,632
    
    
    
    4,762
    
    
    
    3.83
    %
    
    
    424,842
    
    
    
    2,699
    
    
    
    2.58
    %Short-term borrowings
    
    
    87,343
    
    
    
    1,083
    
    
    
    5.03
    %
    
    
    62,510
    
    
    
    457
    
    
    
    2.96
    %Long-term borrowings
    
    
    112,621
    
    
    
    1,129
    
    
    
    4.07
    %
    
    
    117,045
    
    
    
    1,080
    
    
    
    3.74
    %Junior subordinated debt owed to
unconsolidated trusts
    
    
    46,394
    
    
    
    863
    
    
    
    7.54
    %
    
    
    46,394
    
    
    
    727
    
    
    
    6.36
    %Interest bearing liabilities
    
    
    1,232,354
    
    
    
    10,018
    
    
    
    3.30
    %
    
    
    1,123,195
    
    
    
    6,181
    
    
    
    2.23
    %Demand deposits and other non interest
bearing liabilities
    
    
    152,421
    
    
    
    
    
    
    
    
    
    
    
    146,115Stockholders equity
    
    
    94,144
    
    
    
    
    
    
    
    
    
    
    
    93,876Average liabilities and stockholders equity
    
    $
    1,478,919
    
    
    
    
    
    
    
    
    
    
    $
    1,363,186Net interest spread (5)
    
    
    
    
    
    $
    11,668
    
    
    
    3.26
    %
    
    
    
    
    
    $
    11,898
    
    
    
    3.62
    %Net interest earning assets
    
    $
    108,121
    
    
    
    
    
    
    
    
    
    
    $
    129,408Net interest margin on a fully tax
equivalent basis (6)
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.85
    %Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.09
    
    
    
    
    
    
    
    
    
    
    
    1.12
 
 (1)
    
    For the purpose of these computations, nonaccrual loans are included in the daily average
loan amounts outstanding.(2)
    
    Interest earned on loans includes loan fees (which are not material in amount) and interest
income which has been received from borrowers whose loans were removed from nonaccrual status
during the period indicated.(3)
    
    Taxable-equivalent adjustments were made using a 34% corporate tax rate for all years
presented in calculating interest income and yields.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the average yield on interest earning
assets and the average cost of interest bearing liabilities and is represented on a fully tax
equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average interest
earning assets. 17




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##### Table of Contents



VOLUME, RATE AND MIX ANALYSIS OF NET INTEREST INCOME
 Three Months Ended March 31, 2006Compared to March 31, 2005Change
    
    
    ChangeDue to
    
    
    Due to
    
    
    TotalVolume
    
    
    Rate
    
    
    Change(Dollars in Thousands)Interest-Earning Assets:Loans, net (1)
    
    $
    1,387
    
    
    $
    2,146
    
    
    $
    3,533Loans exempt from federal income
taxes (2)
    
    
    (5
    )
    
    
    (7
    )
    
    
    (12
    )Taxable investment securities
    
    
    70
    
    
    
    (122
    )
    
    
    (52
    )Mortgage-related securities
    
    
    (32
    )
    
    
    128
    
    
    
    96Investment securities exempt from
federal income taxes (2)
    
    
    61
    
    
    
    (19
    )
    
    
    42Other securities
    
    
    1
    
    
    
    (2
    )
    
    
    (1
    )Total interest-earning assets
    
    $
    1,482
    
    
    $
    2,124
    
    
    $
    3,606Interest-Bearing Liabilities:NOW deposits
    
    $
    19
    
    
    $
    47
    
    
    $
    66Money market deposits
    
    
    
    
    
    
    781
    
    
    
    781Savings deposits
    
    
    (8
    )
    
    
    124
    
    
    
    116Time deposits
    
    
    576
    
    
    
    1,487
    
    
    
    2,063Short-term borrowings
    
    
    227
    
    
    
    399
    
    
    
    626Long-term borrowings
    
    
    (38
    )
    
    
    87
    
    
    
    49Junior subordinated debt owed to
unconsolidated trusts
    
    
    
    
    
    
    136
    
    
    
    136Total interest-bearing liabilities
    
    $
    776
    
    
    $
    3,061
    
    
    $
    3,837Net change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (231
    )
 
 (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
  18




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##### Table of Contents



Non-Interest Income
  Three Months Ended March 31,2006
    
    
    2005(Dollars in Thousands)Service charges on deposit accounts
    
    $
    1,052
    
    
    $
    953Service charges on loans
    
    
    751
    
    
    
    725Gain on sale of loans, net
    
    
    15
    
    
    
    103Gain (loss) on sale of fixed assets, net
    
    
    175
    
    
    
    395Tax fees, brokerage and insurance commissions
    
    
    804
    
    
    
    565Other
    
    
    970
    
    
    
    1,352Total non-interest income
    
    $
    3,767
    
    
    $
    4,093
       Non-Interest Expense
  Three Months Ended March 31,2006
    
    
    2005(Dollars in Thousands)Salaries and employee benefits
    
    $
    7,757
    
    
    $
    7,247Premises and equipment
    
    
    1,829
    
    
    
    1,870Data processing fees
    
    
    910
    
    
    
    847Marketing and business development
    
    
    503
    
    
    
    394Other
    
    
    2,257
    
    
    
    2,219Total noninterest expense
    
    $
    13,256
    
    
    $
    12,577
  19




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##### Table of Contents



Income Taxes
  Liquidity
   Asset/Liability Management
  20




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##### Table of Contents



Amounts Maturing or Repricing as of March 31, 2006Within
    
    
    Six to Twelve
    
    
    One to Five
    
    
    OverSix months
    
    
    Months
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in Thousands)Interest-earning assets:Fixed-rate mortgage loans
    
    $
    118,989
    
    
    $
    87,048
    
    
    $
    322,297
    
    
    $
    16,904
    
    
    $
    545,238Adjustable-rate mortgage loans
    
    
    199,779
    
    
    
    20,308
    
    
    
    40,835
    
    
    
    694
    
    
    
    261,616Total mortgage loans
    
    
    318,768
    
    
    
    107,356
    
    
    
    363,132
    
    
    
    17,598
    
    
    
    806,854Commercial business loans
    
    
    165,554
    
    
    
    26,139
    
    
    
    85,565
    
    
    
    3,649
    
    
    
    280,907Consumer loans
    
    
    14,087
    
    
    
    6,603
    
    
    
    24,951
    
    
    
    2,240
    
    
    
    47,881Home equity loans
    
    
    21,861
    
    
    
    28
    
    
    
    5,875
    
    
    
    438
    
    
    
    28,202Other loans
    
    
    3,065
    
    
    
    469
    
    
    
    1,781
    
    
    
    901
    
    
    
    6,216Mortgage-related securities
    
    
    5,179
    
    
    
    10,031
    
    
    
    52,259
    
    
    
    21,368
    
    
    
    88,837Fixed rate investment securities and other
    
    
    5,459
    
    
    
    1,078
    
    
    
    29,577
    
    
    
    49,666
    
    
    
    85,780Variable rate investment securities and other
    
    
    22,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,243Total interest-earning assets
    
    $
    556,216
    
    
    $
    151,704
    
    
    $
    563,140
    
    
    $
    95,860
    
    
    $
    1,366,920Interest-bearing liabilities:DepositsTime deposits
    
    $
    172,572
    
    
    $
    120,325
    
    
    $
    212,543
    
    
    $
    130
    
    
    $
    505,570NOW accounts
    
    
    6,579
    
    
    
    6,579
    
    
    
    65,791
    
    
    
    30,702
    
    
    
    109,651Savings accounts
    
    
    8,051
    
    
    
    8,139
    
    
    
    80,509
    
    
    
    37,571
    
    
    
    134,270Money market accounts
    
    
    24,152
    
    
    
    13,893
    
    
    
    138,934
    
    
    
    64,836
    
    
    
    241,815Short-term borrowings
    
    
    100,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,077Long-term borrowings
    
    
    14,533
    
    
    
    16,255
    
    
    
    85,962
    
    
    
    605
    
    
    
    117,355Junior subordinated debt owed to unconsolidated trusts
    
    
    28,352
    
    
    
    
    
    
    
    
    
    
    
    18,042
    
    
    
    46,394Total interest-bearing liabilities
    
    $
    354,316
    
    
    $
    165,191
    
    
    $
    583,739
    
    
    $
    151,886
    
    
    $
    1,255,132Interest-earning assets less interest-bearing liabilities
    
    $
    201,900
    
    
    
    ($13,487
    )
    
    
    ($20,599
    )
    
    
    ($56,026
    )
    
    $
    111,788Cumulative interest rate sensitivity gap
    
    $
    201,900
    
    
    $
    188,413
    
    
    $
    167,814
    
    
    $
    111,788Cumulative interest rate sensitivity gap as a
percentage of total assets
    
    
    13.59
    %
    
    
    12.68
    %
    
    
    11.30
    %
    
    
    7.52
    %
   21




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##### Table of Contents



Forward-Looking Statements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   22




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##### 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.
  23




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##### Table of Contents



Part II. Other Information
 
 Item 1.
    
    Legal ProceedingsAs of March 31, 2006 there were no material pending legal
proceedings, other than ordinary routine litigation incidental to
the business of the Corporation, to which the Corporation or any
of its subsidiaries was a party or to which any of their property
was subject.Item 1A.
    
    Risk FactorsThere have been no material changes from the risk factors
previously disclosed in Part I, Item 1A, Risk Factors, of our
Form 10-K for the year ended December 31, 2005. Please refer to
that section for disclosures regarding the risks and
uncertainties relating to our business.Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds(a)
    
    NONE(b)
    
    NONE(c)
    
    NONEItem 3.
    
    Defaults upon Senior Securities  NONEItem 4.
    
    Submission of Matters to Vote of Security Holders  NONEItem 5.
    
    Other Information  NONEItem 6.
    
    ExhibitsThe following exhibits are filed as part of this report:
 EXHIBIT 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by the Chief Executive OfficerEXHIBIT 31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by the Chief Financial OfficerEXHIBIT 32.1*
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by the Chief Executive OfficerEXHIBIT 32.2*
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by the Chief Financial Officer
 
 *
    
    These certifications are not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended. 24




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##### Table of Contents



SIGNATURES
  MERCHANTS
AND MANUFACTURERS BANCORPORATION, INC.(Registrant)Date       May 8 2006.
    /s/ Michael J. MurryMichael J. MurryChairman of the Board of Directors
and Chief Executive Officer 

Principal Executive Officer Date       May 8, 2006.
    /s/ Frederick R. KlugFrederick R. KlugExecutive Vice President & Chief
Financial Officer
Principal Financial Officer 25




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##### Table of Contents



10-Q EXHIBIT LIST
 EXHIBIT NO.
    
    DESCRIPTIONEXHIBIT 31.1
    
    Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive OfficerEXHIBIT 31.2
    
    Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial OfficerEXHIBIT 32.1*
    
    Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive OfficerEXHIBIT 32.2*
    
    Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
 
 *
    
    These certifications are not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended. 26