SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file Number 0-21292

MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.

(262) 827-6700

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

Yes þ No o

As of May 05, 2005, 3,674,054 shares of Common Stock were outstanding.

MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.

FORM 10-Q

INDEX

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Part I. Financial Information

See Notes to unaudited consolidated financial statements.

Merchants and Manufacturers Bancorporation, Inc.

See notes to unaudited consolidated financial statements.

4

Merchants and Manufacturers Bancorporation, Inc. and Subsidiaries

See notes to unaudited consolidated financial statements

5

Merchants and Manufacturers Bancorporation, Inc.

NOTE A — Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Merchants and Manufacturers Bancorporation, Inc. and its wholly owned subsidiaries: Lincoln State Bank, Franklin State Bank, Grafton State Bank, Community Bank Financial, The Reedsburg Bank, Fortress Bank, Fortress Bank Cresco, Fortress Bank Minnesota, Wisconsin State Bank (collectively, the Banks), Merchants Merger Corp., Community Financial Group Services, Inc., Merchants New Merger Corp., Community Financial Group Mortgage, Inc. and Lincoln Neighborhood Redevelopment Corporation. Lincoln State Bank also includes the accounts of its wholly owned subsidiary, M&M Lincoln Investment Corporation. Grafton State Bank also includes the accounts of its wholly owned subsidiary, GSB Investments, Inc. and Community Bank Financial also includes the accounts of its wholly owned subsidiary, CBOC Investments, Inc. The Reedsburg Bank also includes the accounts of its wholly owned subsidiary, Reedsburg Investments, Inc. Fortress Bank also includes the accounts of its wholly owned subsidiary, Westby Investment Company, Inc. Wisconsin State Bank also includes the accounts of its wholly owned subsidiary Random Lake Investments, Inc. Community Financial Group Services, Inc. also includes the accounts of its wholly owned subsidiaries Community Financial Group, Inc. and Keith C. Winters & Associates. LTD (KCW). All significant intercompany balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ from those estimates.

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NOTE B — Earnings Per Share

Presented below are the calculations for basic and diluted earnings per share:

NOTE C — Comprehensive Income

The following table presents our comprehensive income.

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NOTE D — Loans Receivable

In 2005, the Corporation performed an evaluation of the purpose and collateral of each loan. This evaluation resulted in a reallocation of loan dollars between primarily commercial real estate and commercial loans. The following table shows the composition of our loan portfolio on the dates indicated (dollars in thousands):

NOTE E — Stock-Based Compensation Plan

At March 31, 2005 we had a stock-based key officer and employee compensation plan. We account for this plan under the recognitions and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in the income, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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In determining compensation cost using the fair value method prescribed in Statement No. 123, the value of each grant is estimated at the grant date with the following weighted-average assumptions used for grants at March 31, 2005: dividend yield of 2.00%; expected price volatility of 21.82%; blended risk-free interest rates of 4.50%; and expected life of 9.75 years.

NOTE F — Recent Acquisition

On August 12, 2004, we acquired Random Lake Bancorp, Ltd. (“Random Lake”) and its wholly-owned subsidiary, Wisconsin State Bank (“WSB”). The purchase price for Random Lake was $11.5 million including $1.3 million in cash and 334,200 shares of Merchants common stock valued at $10.2 million based on a $30.50 price. At the date of the acquisition Random Lake had assets of $102.3 million, loans of $72.9 million and deposits of $80.0 million. The quarter-to-quarter and year-to-year comparisons are impacted by our completion of the acquisition of Random Lake. The acquisition was accounted for using the purchase method of accounting, and accordingly, the assets and liabilities of Random Lake were recorded at their respective fair values on August 12, 2004 and account balances acquired are included in our financial results.

NOTE G — Recent Accounting Pronouncements

The Accounting Standards Executive Committee has issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This Statement applies to all loans acquired in a transfer, including those acquired in the acquisition of a bank or a branch, and provides that such loans be accounted for at fair value with no allowance for loan losses, or other valuation allowance, permitted at the time of acquisition. The difference between cash flows expected at the acquisition date and the investment in the loan should be recognized as interest income over the life of the loan. If contractually required payments for principal and interest are less than expected cash flows, this amount should not be recognized as a yield adjustment, a loss accrual, or a valuation allowance. For the Corporation this Statement is effective for calendar year 2005, and early adoption, although permitted, is not planned. No significant impact is expected on the consolidated financial statements at the time of adoption.

On September 30, 2004, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) Issue No. 03-1-1 delaying the effective date of paragraphs 10-20 of EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which provides guidance for determining the meaning of “other-than-temporarily impaired” and its application to certain debt and equity securities within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. The delay of the effective date of EITF 03-1 will be superceded concurrent with the final issuance of proposed FSP Issue 03-1-a. Proposed FSP Issue 03-1-a is intended to provide implementation guidance with respect to all securities analyzed for impairment under paragraphs 10-20 of EITF 03-1. Management continues to closely monitor and evaluate how the provisions of EITF 03-1 and proposed FSP Issue 03-1-a will affect the Corporation.

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In December 2004, the FASB published FASB Statement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)” or the “Statement”). FAS 123(R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. FAS 123(R) is a replacement of FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretive guidance.

The effect of the Statement will be to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement.

On April 14, 2005, the Securities and Exchange Commission (“SEC”) adopted a new rule that amends the compliance dates for Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. Under the new rule, the Corporation is required to adopt FAS 123(R) in the first quarter of fiscal 2006, beginning January 1, 2006. The Corporation has not yet determined the method of adoption or the effect of adopting FASB 123(R), and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under Statement No. 123.

NOTE H — Commitments and Contingent Liabilities

In the normal course of business, the Corporation is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

The Corporation is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, financial guarantees, and standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets.

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The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in making commitments and issuing letters of credit as it does for on-balance-sheet instruments.

Off-balance-sheet financial instruments whose contracts represented credit and/or interest rate risk at March 31, 2005, December 31, 2004 and March 31, 2004, are as follows:

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by a Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The issuing Bank holds collateral, which may include accounts receivable, inventory, property, equipment, and income-producing properties, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the issuing Bank would be required to fund the commitment. The maximum potential amount of future payments the issuing Bank could be required to make is represented by the contractual amount shown in the summary above. If the commitment is funded, the issuing Bank would be entitled to seek recovery from the customer. Credit card commitments are unsecured. At March 31, 2005 no amounts have been recorded as liabilities for the issuing Banks’ potential obligations under these guarantees.

Except for the above-noted commitments to originate loans in the normal course of business, the Corporation and the Banks have not undertaken the use of off-balance-sheet derivative financial instruments for any purpose.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Corporation had net income of $1.8 million, or $0.49 per diluted share, for the three months ended March 31, 2005 compared to $1.4 million, or $0.42 per diluted share, for the three months ended March 31, 2004, representing a 28.1% increase in net income and a 16.7% increase in diluted earnings per share. The increase in net income for the current quarter compared to the prior year period is attributed to strong balance sheet growth, strength in our core banking business, increased operating efficiencies and one-time gains on the sale of assets.

The quarter-to-quarter comparisons are impacted by the Corporation’s completion of the Random Lake acquisition on August 12, 2004. The acquisition was accounted for using the purchase method of accounting, and accordingly, the assets and liabilities of Random Lake were recorded at their respective fair values on August 12, 2004. The Corporation acquired approximately $102.3 million in assets, $72.9 million in loans, $80.0 million in deposits and recognized goodwill and intangible assets of approximately $6.1 million related to the transaction.

Financial Condition

Total Assets

Total assets increased $28.2 million, or 2.1%, to $1.4 billion at March 31, 2005 compared to $1.4 billion at December 31, 2004. The asset growth can be attributed to significant loan growth.

Investment Securities

Available-for-sale investment securities decreased $2.1 million, or 1.2%, from $172.6 million at December 31, 2004, to $170.4 million at March 31, 2005. The investment security decline can be attributed to maturities and principal pay downs.

Loans Receivable

Loans receivable, net of allowance for loan losses, increased $39.0 million from $1.0 billion at December 31, 2004 to $1.1 billion at March 31, 2005. The growth in loans can be attributed to the growth in commercial business loans, commercial real estate loans and multifamily mortgage loans that were partially offset by the decrease in consumer and installment loans. Currently, loans receivable consists mainly of commercial loans secured by business assets, real estate and guarantees as well as mortgages secured by residential properties located in our primary market areas. At March 31, 2005 we designated $1.0 million of loans as held for sale.

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Total Deposits and Borrowings

Total deposits increased $19.4 million, or 1.9%, from $1.0 billion on December 31, 2004 to $1.1 billion on March 31, 2005. The increase in deposits can be attributed to the growth in certificates of deposit and commercial checking accounts currently offered by our subsidiary banks.

Short-term borrowings totaled $63.2 million at March 31, 2005, compared to $61.3 million at December 31, 2004, an increase of 3.1%. Short-term borrowings consist of federal funds borrowed from correspondent banks, repurchase agreements and a holding company line of credit from our primary correspondent bank. Long-term debt increased by $8.3 million, or 7.5%, from $111.1 million on December 31, 2004 to $119.4 million on March 31, 2005. Long-term debt consists of Federal Home Loan Bank advances and acquisition notes associated with the Reedsburg transaction.

Subordinated Debentures totaled $46.4 million at both March 31, 2005 and December 31, 2004. We had obligations represented by subordinated debentures at March 31, 2005 totaling $46.4 million with our wholly-owned trusts that were created for the purpose of issuing trust preferred securities. The subordinated debentures were the sole assets of the trusts at March 31, 2005. In accordance with FIN 46, we began deconsolidating the wholly-owned trusts that issued the trust preferred securities in 2004. As a result, these securities no longer are consolidated on our balance sheet. Instead, the subordinated debentures held by the trusts are disclosed on the balance sheet as subordinated debentures.

Capital Resources

Stockholders’ equity totaled $91.7 million at both March 31, 2005 and December 31, 2004. The component changes in stockholders’ equity consist of net income of $1.8 million, a $1.2 million net decrease in accumulated other comprehensive income, less payments of dividends to shareholders of $661,000. We and our banks continue to exceed our regulatory capital requirements.

Under the Federal Reserve Board’s risk-based guidelines, capital is measured against our subsidiary banks’ risk-weighted assets. Our tier 1 capital (common stockholders’ equity less goodwill) to risk-weighted assets was 7.76% at March 31, 2005, above the 4.0% minimum required. Total capital to risk-adjusted assets was 9.94%; also above the 8.0% minimum requirement. The leverage ratio was at 6.59% compared to the 4.0% minimum requirement. According to FDIC capital guidelines, our subsidiary banks are considered to be “well capitalized” as well.

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Nonperforming Assets and Allowance for Losses

Generally a loan is classified as nonaccrual and the accrual of interest on such loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Nonperforming assets are summarized, for the dates indicated, as follows (dollars in thousands):

Nonperforming assets decreased by $3.1 million from $10.2 million at December 31, 2004 to $7.1 million at March 31, 2005, a decrease of 30.6%. We believe any losses on current non-accrual loans balances will be negligible, due to the collateral position in each situation. However, additional charge offs may occur upon sale of the other real estate.

The following table presents changes in the allowance for loan losses (dollars in thousands):

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We believe the allowance for loan losses accounting policy is critical to the portrayal and understanding of our financial condition and results of operations. As such, selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition or results of operations is a reasonable likelihood.

We maintain our allowance for loan losses at a level that management believes will be adequate to absorb probable losses on existing loans based on an evaluation of the collectibility of loans and prior loss experience. We also use a risk rating system to evaluate the adequacy of the allowance for loan losses. With this system, each loan is risk rated between one and ten by the originating loan officer or loan committee, with one being the best case and ten being a loss or the worst case. Historical loan loss reserve factors are multiplied against the balances for each loan type to determine an appropriate level for the allowance for loan losses. Loans with risk ratings between six and nine are monitored much closer by the officers. Control of our loan quality is continually monitored by management and is reviewed by the Board of Directors. We consistently apply our methodology for determining the adequacy of the allowance for loan losses, but may make adjustments to its methodologies and assumptions based on historical information related to charge-offs and management’s evaluation of the current loan portfolio.

The allowance for loan losses is based on estimates, and ultimate losses will vary from current estimates. These estimates are reviewed quarterly, and as adjustments, either positive or negative, become necessary, a corresponding increase or decrease is made in the provision for loan losses. The methodology used to determine the adequacy of the allowance for loan losses for the first three months of 2005 is consistent with prior periods.

Potential Problem Loans

We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At least quarterly, a list is presented to each subsidiary bank’s Board of Directors showing all loans listed as “Special Mention”, “Substandard”, “Doubtful” and “Loss.” A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date. An asset is classified Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and viewed as non-bankable assets, worthy of charge-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that may or may not be within the control of the customer are deemed to be Watch loans. As of March 31, 2005, loans classified as Special Mention, Substandard, Doubtful and Loss loans totaled $45.2 million compared to $40.9 million as of December 31, 2004, an increase of $4.3 million or 10.5%. Management believes the quality of the loan portfolio remains strong due to the collateral position of our classified loans.

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Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Banks’ primary regulators, which can order the establishment of additional general or specific loss allowances. The FDIC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (i) institutions have effective systems and controls to identify, monitor and address asset quality problems; (ii) management has analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and (iii) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. We have established an adequate allowance for probable loan losses. We analyze the process regularly, with modifications made if needed, and report those results four times per year to each subsidiary bank’s Board of Directors. However, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially increase our allowance for loan losses at the time. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.

Comparison of Three Months Ended March 31, 2005 and 2004

Net Interest Income

Net interest income equals the difference between interest earned on assets and the interest paid on liabilities and is a measure of how effectively management has balanced and allocated our interest rate sensitive assets and liabilities as well being the most significant component of earnings. Net interest income on a fully taxable-equivalent basis for the three months ended March 31, 2005 was $11.9 million, an increase of 18.2% from the $10.0 million reported for the same period in 2004. The increase is due partly from revenue resulting from the acquisition Wisconsin State Bank as well as the increase in loan and investment volume funded by an increase in deposits and long-term borrowings. Our net interest margin on a fully taxable-equivalent basis was 3.85% and 3.84% for the first quarter of 2005 and 2004, respectively. The slowly rising interest rate environment, the incremental effect of the acquisition as well as the increased amortization of purchase accounting premiums associated with our acquisitions resulted in slightly higher margins. The increase in market interest rates offset by an increase in premium amortization during the first quarter caused the average rate on a fully taxable-equivalent basis earned on interest earning assets to increase from 5.58% for the three months ended March 31, 2004 to 5.85% for the three month period ended March 31, 2005. Similarly, the increase in market interest rates offset by an increase in premium amortization during the first quarter caused the average rate on a fully taxable-equivalent basis paid on interest bearing liabilities to increase from 1.93% for the three months ended March 31, 2004 to 2.24% for the three month period ended March 31, 2005.

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The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):

AVERAGE BALANCES, INTEREST RATES AND YIELDS

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The following table sets forth the effects of changing interest rates and volumes of interest earning assets and interest bearing liabilities on our net interest income. Information is provided with respect to (i) effect on net interest income attributable to changes in volume (changes in volume multiplied by prior rate), (ii) effects on net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate. (dollars in thousands):

VOLUME, RATE AND MIX ANALYSIS OF NET INTEREST INCOME

Provision for Loan Losses

For the three months ended March 31, 2005, the provision for loan losses was $390,000 compared to $450,000 for the same period in 2004. We use a risk-based assessment of our loan portfolio to determine the level of the loan loss allowance. This procedure is based on internal reviews intended to determine the adequacy of the loan loss allowance in view of presently known factors. However, changes in economic conditions in the future financial conditions of borrowers cannot be predicted and may result in increased future provisions to the loan loss allowance.

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Non-Interest Income

Non-interest income for the three months ended March 31, 2005, was $4.1 million compared to $2.7 million for the three months ended March 31, 2004, an increase of $1.4 million, or 51.9%. All categories of non-interest income are affected by the acquisition of Wisconsin State Bank. The composition of non-interest income is shown in the following table (dollars in thousands).

Service charges on deposit accounts for the three months ended March 31, 2005 was $953,000 compared to $725,000 for the three months ended March 31, 2004, an increase of $228,000, or 31.4%. The increase in 2005 is the result of growth in deposit accounts, both internal and through acquisition, fee structure modifications company wide and the acquisition of Wisconsin State Bank.

Service charges on loans for the three months ended March 31, 2005 was $725,000 compared to $427,000 for the three months ended March 31, 2004, an increase of $298,000, or 69.8%. The increase is due directly to an increase in commercial loan fees, mortgage related servicing and fee income and the acquisition of Wisconsin State Bank.

We recorded no net gain on the sale of securities in the first quarter of 2005 compared to a gain of $177,000 on the sale of $7.3 million of securities during the same period in 2004.

Gains on the sale of loans were $103,000 for the three months ended March 31, 2005 compared to $144,000 for the three months ended March 31, 2004. Slightly higher market interest rates led to lower secondary market sales volume of 15 and 30 year residential mortgage loans in the first quarter of 2005.

Other fee income for the three month period ending March 31, 2005 included non-recurring fee income of $490,000 related to the sale of Pulse EFT Association to Discover Financial Services as well as additional income related to the acquisition of Wisconsin State Bank.

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Non-Interest Expense

Non-interest expense for the three months ended March 31, 2005 was $12.6 million compared to $10.1 million for the three months ended March 31, 2004, an increase of $2.5 million, or 24.7%. Generally speaking, the increase in 2005 expenses are in part the result of the cost of implementing our “Vision Unlimited” program throughout 2004 and the acquisition of Wisconsin State Bank. Vision Unlimited is the company-wide project of standardizing policies and procedures across the organization and as well as centralizing many operational functions. There were no non-recurring costs associated with data processing conversions, system installations or Sarbanes-Oxley implementation during the period ended March 31, 2004 or the similar period in 2005.

Salaries and employee benefits for the three months ended March 31, 2005 was $7.2 million compared to $5.9 million for the three months ended March 31, 2004, an increase of $1.4 million, or 23.7%. The increase in salaries and benefits is due in part to including Wisconsin State Bank’s 2005 operating results. Also impacting salaries and employee benefits in the 2004 were additional staff hires particularly in holding company management, marketing and information technology areas, higher benefit costs, changes in personnel and normal pay raises.

Premises and equipment expense for the three months ended March 31, 2005 was $1.9 million compared to $1.5 million for the three months ended March 31, 2004, an increase of $394,000, or 26.7%. Higher utility costs, building lease payments, depreciation, maintenance of our facilities and acquisitions contributed to the increase.

Data processing fees for the three months ended March 31, 2005 was $847,000 compared to $361,000 for the three months ended March 31, 2004, an increase of $486,000, or 134.6%. The increase was due to our system wide conversion to a single data processing system corporate wide in between July and October of 2004 as well as equipment and software upgrades.

Marketing and business development expense for the three months ended March 31, 2005 was $394,000 compared to $334,000 for the three months ended March 31, 2004, an increase of $60,000, or 18.0%. The increase was due increased donations and contributions and the inclusion of Wisconsin State Bank’s marketing and business development expenses.

Other expenses for the three months ended March 31, 2005 was $2.2 million compared to $2.0 million for the three months ended March 31, 2004, an increase of $173,000, or 8.6%. The increase in 2005 other expenses is solely due the acquisition of Wisconsin State Bank. We are focused on controlling expenses during 2005.

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Income Taxes

Income taxes for the three-month period ended March 31, 2005 was $861,000 compared to $582,000 for the three months ended March 31, 2004, an increase of $279,000, or 47.9%. The effective tax rate for the three months ended March 31, 2005 was 32.3% compared to 29.3% for the same period in 2004. The increased tax rate is due to the fully taxed income nature of the non-recurring income experienced during the period ended March 31, 2005.

Net Income

On an after tax basis, for the three month period ended March 31, 2005, we reported net income of $1.8 million compared to $1.4 million for the same period in 2004, an increase of 28.1%.

Liquidity

Our cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities was $2.2 million for the three months ended March 31, 2005, compared to $1.6 million provided by operating activities in 2004, an increase of $689,000. Net cash used in investing activities increased by $13.7 million, to $40.4 million for the three months ended March 31, 2005, from $26.7 million used in the same period in 2004. Net cash provided by financing activities was $28.9 million for the three months ended March 31, 2005 compared to $12.7 million provided by financing activities during the three-month period in 2004, an increase of $16.2 million.

The Corporation expects to have available cash to meet its liquidity needs. Liquidity management is monitored by the Asset/Liability Management committee, which takes into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. In the event that additional short-term liquidity is needed, the Banks have established relationships with our correspondent banks to provide short-term borrowings in the form of federal funds purchased. While there are no firm lending commitments in place, we believe that the Banks could borrow $101.2 million for a short time from these banks on a collective basis. The Banks are members of the Federal Home Loan Bank (FHLB) and each has the ability to borrow from the FHLB. As a contingency plan for significant funding needs, the Asset/Liability Management committee may also consider the sale of investment securities, selling securities under agreement to repurchase or the temporary curtailment of lending activities.

Asset/Liability Management

Financial institutions are subject to interest rate risk to the extent their interest-bearing liabilities (primarily deposits) mature or reprice at different times and on a different basis than their interest-earning assets (consisting primarily of loans and securities). Interest rate sensitivity management seeks to match maturities on assets and liabilities and avoid fluctuating net interest margins while enhancing net interest income during periods of changing interest rates. The difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within the same time period is referred to as an interest rate gap. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During periods of falling interest rates, a negative gap tends to positively affect net interest income while a positive gap tends to result in a decrease in net interest income. During a period of rising interest rates, a positive gap tends to result in an increase in net interest income while a negative gap tends to adversely affect net interest income.

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The following table shows the interest rate sensitivity gap for four different time intervals as of March 31, 2005. Certain assumptions regarding prepayment and withdrawal rates made are based upon the Corporation’s historical experience and management believes such assumptions are reasonable.

At March 31, 2005, the Corporation’s cumulative interest-rate sensitive gap as a percentage of total assets was a positive 12.50% for six months and a positive 14.59% for one-year maturities. Therefore, we are positively gapped at one year and may benefit from rising interest rates.

Certain shortcomings are inherent in the method of analysis presented in the above schedule. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates, on a short-term basis over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the schedule.

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Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q and in other filings with the Securities and Exchange Commission, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write — offs; (2) changes in management’s estimate of the adequacy of the allowance for loan losses; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and our net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) our ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (7) our ability to access cost-effective funding; (8) changes in financial markets and general economic conditions; (9) new legislation or regulatory changes; and (10) changes in accounting principles, policies or guidelines.

We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Corporation has not experienced any material changes to its market risk position since December 31, 2004, from that disclosed in the Corporation’s 2004 Form 10-K Annual Report.

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Item 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation’s Chairman of the Board and Chief Executive Officer and the Corporation’s Chief Financial Officer carried out an evaluation, with the participation of other members of management as they deemed appropriate, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that evaluation, the Chairman of the Board and Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Corporation (and its consolidated subsidiaries) required to be included in the periodic reports the Corporation is required to file and submit to the SEC under the Exchange Act. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Corporation has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives and, based on the evaluation described above, the Corporation’s Chairman of the Board and Chief Executive Officer and the Corporation’s Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective at reaching that level of reasonable assurance.

There was no change in the Corporation’s internal control over financial reporting during the Corporation’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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Part II. Other Information

Item 1.          Legal Proceedings

As of March 31, 2005 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.

     The following exhibits are filed as part of this report:

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERCHANTS AND MANUFACTURERS BANCORPORATION, INC. (Registrant)
Date May 06, 2005.	/s/ Michael J. Murry
	Michael J. Murry
	Chairman of the Board of Directors and Chief Executive Officer Principal Executive Officer

Date May 06 , 2005.	/s/ Frederick R. Klug
	Frederick R. Klug
	Executive Vice President & Chief Financial Officer Principal Financial Officer

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10-Q EXHIBIT LIST