NEW BERLIN, Wis., May 4 /PRNewswire-FirstCall/ -- Merchants &
Manufacturers Bancorporation, Inc. ("Merchants") (OTC:MMBI)
(BULLETIN BOARD: MMBI) announced net income of $1.0 million, or
$0.28 per diluted share, for the three months ended March 31, 2006
compared to $1.8 million, or $0.49 per diluted share, for the three
months ended March 31, 2005, representing a 43.0% decrease in net
income. The decrease in earnings for the quarter ended 2006
compared to the quarter ended 2005 is partially attributable to
non-recurring items in 2005. The three months ended March 31, 2005
included non-recurring fee income of $490,000 related to the sale
of Pulse EFT Association to Discover Financial Services and gains
on the sale of assets of $395,000 compared to gains on the sale of
assets of $175,000 for the three months ended March 31, 2006.
Earnings in 2006 were also adversely affected by a decline in the
net interest margin to 3.42% for the three months ended March 31,
2006 compared to 3.74% for the same period last 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. On March 10th Merchants' announced we would incur an
additional provision to the loan loss allowance during the fourth
quarter of 2005 for potential losses relating to an officer at one
of our subsidiary banks who was operating outside of prescribed
bank lending policies and procedures. We believe the additional
provision for the loan loss allowance will be sufficient to absorb
losses relating to this matter. In addition, Merchants is
instituting changes to our policies, procedures and internal
controls that will mitigate risk going forward. In addition to the
non-recurring items listed above, Merchants received $194,000 in
partial restitution from the officer in question. Merchants intends
to continue to aggressively pursue any possible recoveries with
respect to this matter including those which may result from
potential insurance coverage from Merchants' financial institution
bond carrier, continued payments from borrowers with respect to the
loans relating to this matter and further restitution from the
officer in question. Effective January 1, 2006, the Corporation
adopted the fair value recognition provisions of FASB Statement No.
123(R), Share-Based Payment ("FAS 123(R)"), using the
modified-prospective-transition method. As a result, the
Corporation's income before taxes and net income for the three
month period ended March 31, 2006, are $60,000 and $40,000 lower,
respectively, than if it had continued to account for share-based
compensation under APB No. 25. Compensation expense for share-based
compensation as a result of the adoption of FAS 123(R) negatively
impacted diluted earnings per share for the three months ended
March 31, 2006 by $0.01. Merchants' total assets increased 7.2%
from $1.39 billion at March 31, 2005, to $1.49 billion at March 31,
2006. Gross loans increased 8.6% from $1.08 billion at March 31,
2005, to $1.18 billion at March 31, 2006 due to strong internal
growth. Total deposits grew 5.9% from $1.05 billion at March 31,
2005 to $1.11 billion at March 31, 2006 primarily due to an
increase in brokered deposits. Michael J. Murry, Chairman, stated,
"We spent a significant amount of time and energy during the first
quarter aggressively investigating the actions of a loan officer at
one of our subsidiary banks. We are confident this occurrence will
not impact the strength of our company or our ability to pay
dividends to our shareholders. I am proud of how the members of our
organization have come together to continue to focus on servicing
our customers while working to improve our controls to reduce risk
going forward. Despite all that occurred during the first quarter,
we remain on course with our plan for 2006 and beyond as we realize
the efficiencies we have created with our operational platform.
Loan growth was significant during the quarter but we experienced a
seasonal decline in core deposits related to large commercial
clients that resulted in significant decrease of our net interest
margin. Thus, like many banks, the net interest margin pressure
partially negated our earnings growth. 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 increases in health insurance costs." Net interest
income was $11.3 million for the first quarter of 2006 compared to
$11.5 million for the first quarter of 2005. The net interest
margin was 3.42% for the three months ended March 31, 2006 compared
to 3.74% for the same period in 2005. 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. Like
many other financial institutions in our market area, core deposit
growth has been difficult to achieve at reasonable interest rate
levels due to the rising rate environment and aggressive
competition. In addition, our net interest margin has been under
pressure as we have seen our deposit base shift from lower paying
variable rate deposit accounts into higher fixed rate instruments
such as certificate of deposits. For the three months ended March
31, 2006 and 2005, the provision for loan losses was $390,000 in
each period. The ratio of allowance for loan losses to total loans
was 1.02% and 0.96% at March 31, 2006 and 2005, respectively. The
ratio of allowance for loan losses to non-performing loans was
160.8% at March 31, 2006 compared to 180.4% at March 31, 2005. The
ratio of non-performing assets to total assets equaled 0.56% at
March 31, 2006 compared to 0.51% at March 31, 2005. Non-interest
income for the three ended March 31, 2006 was $3.8 million compared
to $4.1 million for the three months ended March 31, 2005, a
decrease of 8.0%. Service charges on deposit accounts increased
$99,000 to $1.1 million for the three months ended March 31, 2006.
Service charges on loans increased $26,000 to $751,000 for the
three months ended March 31, 2006. Gains on sales of mortgage loans
were $15,000 for the three months ended March 31, 2006 compared to
$103,000 for the same period in the prior year. The gains on the
sale of assets amounted to $175,000 for the three months ended
March 31, 2006 compared to $395,000 for the same period in the
prior year. Other fee income for the year ended March 31, 2005
included non-recurring fee income of $490,000 related to the sale
of Pulse EFT Association to Discover Financial Services.
Non-interest expense for the three months ended March 31, 2006 was
$13.3 million compared to $12.6 million for the same period in the
prior year, an increase of 5.4%. For the three months ended March
31, 2006 salaries and employee benefits increased $510,000,
occupancy expense decreased $41,000, data processing fees increased
$63,000 and marketing and business development increased $109,000.
Effective January 1, 2006, the Corporation adopted FAS 123(R) which
resulted in additional pre-tax compensation cost of $60,000 for the
three months ended March 31, 2006. UNAUDITED Three Months Ended
March 31, 2006 2005 Change (Dollars In Millions, Except Per Share
Amounts) Net Income $1.028 $1.803 (42.98) Basic EPS $0.28 $0.49
(42.86) Diluted EPS $0.28 $0.49 (42.86) 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. 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 March 31, 2006 2005 % Change (Dollars In
Thousands, Except Share and Per Share Amounts) For the Period:
Interest Income $21,336 $17,719 20.41% Interest Expense 10,018
6,181 62.08% Net Interest Income 11,318 11,538 (1.91%) Provision
for Loan Losses 390 390 0.00% Non-Interest Income 3,767 4,093
(7.96%) Non-Interest Expense 13,256 12,577 5.40% Income Before
Income Taxes 1,439 2,664 (45.98%) Income Taxes 411 861 (52.26%) Net
Income $1,028 $1,803 (42.98%) End of Period: 3/31/06 3/31/05 %
Change Assets $1,485,630 $1,385,270 7.24% Loans (gross) 1,170,060
1,077,462 8.59% Allowance for Loan Losses 11,951 10,368 15.27%
Deposits 1,114,904 1,052,406 5.94% Shareholders' Equity 93,422
91,716 1.86% Per Share: Net Income (basic) $0.28 $0.49 (42.86%) Net
Income (diluted) $0.28 $0.49 (42.86%) Book Value $25.23 $24.96
1.09% Dividends Declared $0.18 $0.18 0.00% Average Shares
Outstanding (basic) 3,701,770 3,674,054 Average Shares Outstanding
(diluted) 3,710,873 3,682,110 Ending Shares Outstanding 3,702,180
3,674,054 Key Ratios: Net Interest Margin 3.42% 3.74% Return on
Average Assets 0.28% 0.54% Return on Average Common Equity 4.37%
7.92% Shareholders Equity to Assets Ratio 6.29% 6.62% Tier 1
Capital to Average Assets Ratio 6.33% 6.59% Non-performing
Loans/Total Loans 0.64% 0.53% Non-performing Assets/Total Assets
0.56% 0.51% Allowance for Loan Losses/ Non-performing Loans 160.76%
180.41% 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. Web site:
http://www.communitybancgroup.com/
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