Merchants & Manufacturers Bancorporation, Inc. 2nd Quarter 2006 Results Announced

NEW BERLIN, Wis., Aug. 1 /PRNewswire-FirstCall/ -- Merchants & Manufacturers Bancorporation, Inc. ("Merchants") (OTC:MMBI) (BULLETIN BOARD: MMBI) announced net income of $1.4 million, or $0.37 per diluted share, for the three months ended June 30, 2006 compared to $1.6 million, or $0.44 per diluted share for the three months ended June 30, 2005, representing a 16.6% decrease in net income. Net income for the six months ended June 30, 2006 was $2.4 million; a 30.4% decrease from the $3.4 million earned for the same period in 2005. Diluted earnings per share for the six months ended June 30, 2006 were $0.65, a 30.1% decrease from the $0.93 earned in the same period in the prior year. The decrease in earnings for the six months ended June 30, 2006 compared to the same period in the prior year is partially attributable to non- recurring items incurred during 2005. The six months ended June 30, 2006 included pre-tax non-recurring income of $150,000 compared to $935,000 for the same period in 2005. Earnings were also affected by a decline in the net interest margin to 3.38% for the six months ended June 30, 2006 compared to 3.70% for the same period in the prior year. The decrease in our net interest margin is due to our funding solid loan growth with more expensive wholesale funding compared to the lower cost of core deposits. Merchants' total assets increased 7.1% from $1.4 billion at June 30, 2005, to $1.5 billion at June 30, 2006. Gross loans increased 8.3% from $1.1 billion at June 30, 2005, to $1.2 billion at June 30, 2006 due to strong internal loan growth. Total deposits grew 6.8% from $1.07 billion at June 30, 2005 to $1.14 billion at June 30, 2006 primarily due to an increase in brokered deposits. Michael J. Murry, Chairman, stated, "Loan demand continues to be strong but we have struggled to attract core demand deposits. Thus, like many banks, net interest margin pressure has partially negated our earnings growth as we have funded our loan growth with higher cost wholesale funding. We believe, however, our margins will begin to stabilize throughout the remainder of 2006 as our assets continue to reprice higher while strong competition on deposit pricing earlier in the year has begun to subside. We are pleased with the continued growth of our core fee income and we continue to work hard to gain efficiencies in our operating expenses despite significant increase in health insurance costs." Net interest income was $11.6 million for the three months ended June 30, 2006 compared to $11.8 million for the same period in the prior year, and $22.9 million for the six months ended June 30, 2006 compared to $23.4 million for the same period in the prior year. The net interest margin was 3.37% and 3.38% for the three and six months ended June 30, 2006, respectively, compared to 3.68% and 3.70% for the same periods in the prior year. The decline in net interest margin was due to strong loan growth which was funded with higher cost wholesale funding instead of lower cost core deposits. Despite the year over year decline in net interest margin we believe that our margin has begun to stabilize as we potentially near the end of the current interest rate cycle. For the three and six months ended June 30, 2006 and 2005, the provision for loan losses was $390,000 and $780,000, respectively, in each period. The ratio of allowance for loan losses to total loans was 0.99% and 0.94% at June 30, 2006 and 2005, respectively. The ratio of allowance for loan losses to non-performing loans was 141.0% at June 30, 2006 compared to 166.9% at June 30, 2005. The ratio of non-performing assets to total assets equaled 0.58% at June 30, 2006 compared to 0.54% at June 30, 2005. Non-interest income for the three and six months ended June 30, 2006 was $3.3 million and $7.0 million, respectively, compared to $3.4 million and $7.5 million for the three and six months ended June 30, 2005, a decrease of 4.8% for the quarter and a decrease of 6.5% year-to-date. We continue to have modest increases in service charges on deposit accounts that are partially offset by small decreases in loan fee income and continued slowing of the mortgage loan market as interest rates continue to climb. The year over year decrease in non-interest income for the six month period is also attributable to one-time net gains of $935,000 during 2005 compared to $150,000 in 2006. Non-interest expense for the three and six months ended June 30, 2006 was $12.5 million and $25.8 million, respectively, compared to $12.4 million and $25.0 million for the same periods in the prior year, an increase of 0.6% and 3.0%, respectively. Salaries and employee benefits increased $328,000 for the quarter and $838,000 year-to-date primarily due to a significant increase in the cost of health insurance and normal pay increases. Most other operating expenses continue to trend down as occupancy expense decreased $135,000 for the quarter and $176,000 year-to-date, data processing fees decreased $24,000 for the quarter and increased $39,000 year-to-date and marketing and business development decreased $158,000 for the quarter and $49,000 year-to-date. Effective January 1, 2006, the Corporation adopted FAS 123(R) which resulted in additional compensation cost of $5,000 and $65,000 for the three and six months ended June 30, 2006, respectively. UNAUDITED Three Months Ended June 30, Six Months Ended June 30, 2006 2005 Change 2006 2005 Change (Dollars In Millions, Except Per Share Amounts) Net Income $1.367 $1.639 (16.6%) $2.395 $3.442 (30.4%) Basic EPS $0.37 $0.45 (17.8%) $0.65 $0.94 (30.9%) Diluted EPS $0.37 $0.44 (15.9%) $0.65 $0.93 (30.1%) Merchants & Manufacturers Bancorporation, Inc. is a financial holding company headquartered in New Berlin, Wisconsin, a suburb of Milwaukee. Through our Community Financial Group network, we operate seven banks in Wisconsin (Community Bank Financial, Fortress Bank, Franklin State Bank, Grafton State Bank, Lincoln State Bank, The Reedsburg Bank and Wisconsin State Bank), one bank in Minnesota (Fortress Bank Minnesota) and one bank in Iowa (Fortress Bank Cresco). Our banks are separately chartered with each having its own name, management team, board of directors and community commitment. Together, our banks operate 48 offices in the communities they serve with more than 100,000 clients and total assets of $1.5 billion. In addition to traditional banking services, our Community Financial Group network also provides our clients with a full range of financial services including investment and insurance products, residential mortgage services, private banking capabilities and tax consultation and tax preparation services. Merchants' shares trade on the "bulletin-board" section of the NASDAQ Stock Market under the symbol "MMBI." Certain statements contained in this press release constitute or may constitute forward-looking statements about Merchants which we believe are covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. This release contains forward-looking statements concerning the Corporation's prospects that are based on the current expectations and beliefs of management. When used in written documents, the words anticipate, believe, estimate, expect, objective and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond the Corporation's control, that could cause the Corporation's actual results and performance to differ materially from what is expected. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could impact the business and financial prospects of the Corporation: general economic conditions; legislative and regulatory initiatives; monetary and fiscal policies of the federal government; deposit flows; disintermediation; the cost of funds; general market rates of interest; interest rates or investment returns on competing investments; demand for loan products; demand for financial services; changes in accounting policies or guidelines; and changes in the quality or composition of the Corporation's loan and investment portfolio; and the result of the Corporation's discussions with the WDR. Such uncertainties and other risk factors are discussed further in the Corporation's filings with the Securities and Exchange Commission. The Corporation undertakes no obligation to make any revisions to forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release. UNAUDITED At or for the Three Months Ended June 30, 2006 2005 % Change (Dollars In Thousands, Except Share and Per Share Amounts) For the Period: Interest Income $22,922 $18,931 21.08% Interest Expense 11,328 7,115 59.21% Net Interest Income 11,594 11,816 (1.88%) Provision for Loan Losses 390 390 0.00% Non-Interest Income 3,267 3,432 (4.81%) Non-Interest Expense 12,495 12,425 0.56% Income Before Income Taxes 1,976 2,433 (18.78%) Income Taxes 609 794 (23.30%) Net Income $1,367 $1,639 (16.60%) End of Period: 6/30/06 6/30/05 % Change Assets $1,522,302 $1,420,996 7.13% Loans (gross) 1,202,693 1,110,235 8.33% Allowance for Loan Losses 11,876 10,381 14.40% Deposits 1,142,906 1,070,465 6.77% Shareholders' Equity 92,434 94,351 (2.03%) Per Share: Net Income (basic) $0.37 $0.45 (17.78%) Net Income (diluted) $0.37 $0.44 (15.91%) Book Value $25.07 $25.51 (1.71%) Dividends Declared $0.18 $0.18 0.00% Average Shares Outstanding (basic) 3,695,752 3,676,129 Average Shares Outstanding (diluted) 3,697,328 3,688,793 Ending Shares Outstanding 3,687,180 3,699,253 Key Ratios: Net Interest Margin 3.37% 3.68% Return on Average Assets 0.36% 0.46% Return on Average Common Equity 5.71% 7.03% Shareholders Equity to Assets Ratio 6.07% 6.64% Tier 1 Capital to Average Assets Ratio 6.24% 6.52% Non-performing Loans/Total Loans 0.70% 0.56% Non-performing Assets/Total Assets 0.58% 0.54% Allowance for Loan Losses/ Non-performing Loans 140.96% 166.87% UNAUDITED For the Six Months Ended June 30, 2006 2005 % Change (Dollars In Thousands, Except Share and Per Share Amounts) For the Period: Interest Income $44,258 $36,650 20.76% Interest Expense 21,346 13,296 60.54% Net Interest Income 22,912 23,354 (1.89%) Provision for Loan Losses 780 780 0.0% Non-Interest Income 7,034 7,525 (6.52%) Non-Interest Expense 25,751 25,002 3.00% Net Before Tax 3,415 5,097 (33.00%) Income Tax 1,020 1,655 (38.37%) Net Income $2,395 $3,442 (30.42%) Per Share: Net Income (basic) $0.65 $0.94 (30.85%) Net Income (diluted) $0.65 $0.93 (30.11%) Average Shares Outstanding (basic) 3,698,744 3,675,098 Average Shares Outstanding (diluted) 3,704,175 3,685,565 Dividends Declared $0.36 $0.36 0.0% Key Ratios: Net Interest Margin 3.38% 3.70% Return on Average Assets 0.32% 0.50% Return on Average Common Equity 5.05% 7.48% DATASOURCE: Merchants & Manufacturers Bancorporation, Inc. CONTACT: Michael J. Murry, Chairman of the Board of Directors, +1-414-425-5334, or Frederick R. Klug, Executive Vice President and Chief Financial Officer, +1-262-827-5632, both of Merchants & Manufacturers Bancorporation, Inc.