Bank Mutual Corporation Reports Earnings for the First Quarter of 2008

MILWAUKEE--(Business Wire)--
Bank Mutual Corporation (NASDAQ:BKMU) reported net income of $5.1
million or $0.10 diluted earnings per share for the three months ended
March 31, 2008 as compared to $4.7 million or $0.08 diluted earnings
per share during the same period in 2007. Net income increased for the
quarter ended March 31, 2008 primarily as a result of gains totaling
$1.5 million on the sale of investments, partially offset by the
non-recurrence in 2008 of a significant 2007 recovery of specific
allowance for loan loss in the first quarter of 2007 and a small
reduction in net interest income. Diluted earnings per share
calculations and net income were also affected by Bank Mutual's
ongoing stock repurchase programs.

"Although financial institutions are currently facing a difficult
operating environment, we are pleased to report improved quarterly
earnings. By avoiding risky lending, carefully managing liquidity,
controlling expenses and maintaining a strong capital position, the
company is well positioned to take advantage of opportunities as they
present themselves. While some companies are cutting their dividends
we take pride in rewarding our shareholders with total returns that
exceed the averages for our sector," stated Michael T. Crowley, Jr.,
Chairman, President and Chief Executive Officer of Bank Mutual
Corporation.

The reported results represent a 25% increase in diluted earnings
per share for the quarter ended March 31, 2008 as compared to the
comparable period in 2007. Net income for the quarter ended March 31,
2008 increased 7.5% as compared to the same period in 2007.

One-to-four-family mortgage loan originations and purchases were
$71.8 million for the first quarter of 2008 as compared to $61.8
million for the same period in 2007. The increased originations of
mortgage loans were the result of a brief period of refinance activity
partially offset by an intentional reduction in mortgage loan
purchases because of declining interest rates.

Multi-family and commercial real estate mortgage loan originations
were $28.2 million for the first quarter of 2008 as compared to $50.3
million for the same period in 2007. The decreased originations in the
multi-family and commercial real estate sectors were the result of a
general slowdown in the economy.

Loan sales were $57.7 million for the first quarter of 2008 as
compared to $25.2 million for the same period in 2007. Loan sales
increased because of increased fixed rate mortgage loan originations
that resulted from increased demand caused by steady to declining
interest rates and a decrease in demand for adjustable rate mortgages.
As a result of the increased loan sales, gains on the sales of loans
were $774,000 for the first quarter of 2008 as compared to $330,000
for the comparable period in 2007.

Consumer loan originations for the first quarter of 2008 were
$21.0 million as compared to $29.4 million for the comparable period
in 2007. The decreased originations in 2008 were primarily the result
of declining demand due to slower growth, or decline, in homeowners'
equity.

Commercial business loan originations increased slightly in the
first quarter of 2008 to $10.8 million as compared to $10.2 million in
the same period in 2007. The increase in first quarter of 2008 was
primarily the result of continued efforts by our loan personnel to
develop this portion of our loan portfolio.

In total, loan originations and purchases for the first quarter of
2008 were $131.9 million as compared to $151.7 million for comparable
period in 2007 due to the factors discussed above.

Total assets were approximately $3.5 billion at both March 31,
2008 and December 31, 2007.

The company's investment securities portfolio increased by $128.7
million and the mortgage-related securities portfolio decreased by
$82.2 million during the first quarter of 2008. Total securities
available for sale at fair value increased by $46.5 million. The
increase was primarily a result of the purchase of new investment
securities and an increase in the market value of the portfolios,
partially offset by the sale of mortgage-related securities and
repayments within the portfolios.

Deposits increased $53.8 million during the first quarter of 2008
to $2.2 billion as compared to $2.1 billion at December 31, 2007.
Within the deposit portfolio, certificates of deposit increased $26.5
million and our core deposits (checking, savings and money market
accounts) increased $27.3 million. The increase in deposits resulted
from the opening of new offices and our efforts to market deposit
plans at rates and terms that better appealed to our customer base.
The weighted average cost of deposits decreased 0.33% at March 31,
2008 as compared to December 31, 2007.

Borrowings decreased slightly to $911.2 million at March 31, 2008
as compared to $912.5 million at December 31, 2007. This was due to
the repayment of a maturing advance during the first quarter of 2008.

We have paid 29 consecutive cash dividends since our initial stock
offering. Cash dividends paid in the first quarter of 2008 were $0.09
per share as compared to $0.08 per share for the same period in 2007.
This cash dividend increase of $0.01 per share in the first quarter of
2008 is a 12.5% increase over the cash dividend paid in the first
quarter of 2007.

Non-performing loans to total loans at March 31, 2008 decreased to
0.64% as compared to 0.65% at December 31, 2007. This slight decrease
in non-performing loans during the quarter was due to normal
fluctuations in our business. Our allowance for loan losses at March
31, 2008 was $11.4 million or 93.2% of non-performing loans as
compared to $11.8 million or 91.0% of non-performing loans at December
31, 2007.

The net interest margin for the first quarter of 2008 decreased to
2.05% as compared to 2.07% for first quarter of 2007. This slight
decrease in net interest margin was primarily the result of our stock
repurchase program, offset by an increase in net interest rate spread
to 1.64% for the first quarter of 2008 as compared to 1.53% for the
first quarter of 2007. The increase in net interest rate spread is
primarily the result of the increase in yield on average assets and
the decrease in cost of deposits. Net earnings for the first quarter
of 2008 included a gain on the sale of certain mortgage-related
securities of $1.5 million. These securities were sold so that we
could reinvest the proceeds in securities that have higher rates of
return and a more predictable duration. The net earnings for the
quarter ended March 31, 2007 included a net recovery of loan losses of
$929,000 which includes the recognition of a net recovery of a
specific loan loss allowance on a non-performing loan that was repaid
during the first quarter of 2007.

The effective income tax rate for the first quarter of 2008 was
33.1% as compared to 33.5% for the first quarter of 2007.

Book value per share of company common stock was $8.80 at March
31, 2008. The annualized return on average equity (ROE) for the first
quarter of 2008 was 4.73%. The annualized return on average assets
(ROA) for the first quarter of 2008 was 0.58%. We repurchased
2,028,100 shares of company common stock during the first quarter of
2008 at an average price of $10.80 per share. We regularly review
market conditions and the cost of funds to determine when share
repurchases are appropriate. Further information regarding Bank Mutual
Corporation's assets, liabilities and operations is attached.

Bank Mutual Corporation is the fifth largest financial institution
holding company headquartered in the state of Wisconsin and its stock
is quoted on The NASDAQ Global Select Market(R) under the symbol
"BKMU". Its subsidiary bank, Bank Mutual, operates 77 offices in the
state of Wisconsin and one office in Minnesota.

Outlook

(The following are forward looking statements; see "Cautionary
Statements" below.) Bank Mutual Corporation's management has
identified a number of factors which may affect the Company's
operations and results in early 2008. They are as follows:

-- There may be an environment of continued economic slow down.
If that is the case, there are a number of effects that Bank
Mutual, like other financial institutions, would likely
experience.

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-- Loan originations could continue to be volatile, along with
related interest and fee income.
-- A continuing slow down in the appreciation of the value of
real estate or a decrease in value may occur. Reduced
property prices and a soft real estate market could
negatively affect the volume of home sales, which in turn
could affect mortgage and home equity loan originations and
prepayments.
-- A continuation of soft or declining real estate values could
also affect the value of the collateral securing our
mortgage loans. A decrease in value could, in turn, lead to
increased losses on loans in the event of foreclosures,
which would affect our provisions for loan losses and
profitability.
-- A general slow down in the economy or a recession may affect
our borrowers' ability to repay their loan obligations,
which could lead to increased loan losses or provisions.
-- If customer demand for real estate loans decreases, our
profits may decrease because our alternative investments,
primarily mortgage-related securities, earn less income
than real estate loans.
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-- Bank Mutual will continue to further emphasize commercial real
estate and commercial business loans, both of which can
present a higher risk than residential mortgages. Adding
personnel to continue this emphasis will increase our costs.
However, market conditions and other factors may continue to
affect our ability to increase our loan portfolio with these
types of loans, and a weak economy can increase the risk that
borrowers will not be able to repay these loans.

-- Bank Mutual anticipates opening two new offices in 2008. The
addition of new offices increases our occupancy and related
personnel costs going forward.

-- Like many Wisconsin financial institutions, Bank Mutual has
non-Wisconsin subsidiaries that hold and manage investment
assets, the income from which has not been subject to
Wisconsin tax. The Wisconsin Department of Revenue has
instituted an audit program specifically aimed at out-of-state
investment subsidiaries. Depending upon the terms and
circumstances, an adverse resolution of these matters could
result in additional Wisconsin tax obligations for prior
periods and/or higher Wisconsin taxes going forward, with a
substantial negative impact on our earnings. Although we
believe we have reported income and paid Wisconsin taxes in
accordance with applicable legal requirements and the
Department's long-standing interpretations of them, our
position may not prevail in court or other actions may occur
which give rise to liabilities. We also may incur further
costs in the future to address and defend these issues.

Cautionary Statements

The discussions in this earnings release that are not historical
statements contain forward-looking statements that involve risks and
uncertainties. Statements which are not historical statements include
those under "Outlook" and those in the future tense or which use terms
such as "believe," "expect," and "anticipate." Bank Mutual
Corporation's actual future results could differ in important and
material ways from those discussed. Many factors could cause or
contribute to such differences. These factors include changing
interest rates and related yield curves, changes in demand for loans
or other services, competition from other institutions, the results of
our lending activities and loan loss experience, changes in real
estate values, negative developments in the credit and lending
markets, developments in the war on terrorism and other international
developments, other general economic and political developments, those
items discussed under "Outlook," and other factors discussed in our
filings with the Securities and Exchange Commission, particularly in
"Risk Factors", Item 1A. of our 2007 Annual Report on Form 10-K.

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BANK MUTUAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, December 31,
2008 2007
------------ ------------
(In thousands)
Assets
Cash and due from banks $ 26,876 $ 36,235
Federal funds sold 95,000 -
Interest-earning deposits 5,856 2,714
------------ ------------
Cash and cash equivalents 127,732 38,949
Securities available-for-sale, at fair
value:
Investment securities 228,141 99,450
Mortgage-related securities 1,017,725 1,099,922
Loans held for sale 9,548 7,952
Loans receivable, net 1,918,610 1,994,556
Goodwill 52,570 52,570
Other intangible assets 2,262 2,428
Mortgage servicing rights 4,702 4,708
Other assets 186,326 187,511
------------ ------------
$ 3,547,616 $ 3,488,046
============ ============

Liabilities and Shareholders' Equity
Liabilities:
Deposits $ 2,166,749 $ 2,112,968
Borrowings 911,198 912,459
Advance payments by borrowers for taxes
and insurance 11,427 1,815
Other liabilities 32,291 27,859
------------ ------------
3,121,665 3,055,101
------------ ------------

Minority interest in real estate development 2,909 2,910
------------ ------------

Shareholders' equity:
Preferred stock - $.01 par value:
Authorized - 20,000,000 shares in 2008
and 2007
Issued and outstanding - none in 2008
and 2007 - -
Common stock - $.01 per value:
Authorized - 200,000,000 shares in 2008
and 2007
Issued - 78,783,849 shares in 2008 and
2007
Outstanding - 48,085,675 in 2008 and
49,834,756 in 2007 788 788
Additional paid-in capital 497,676 498,408
Retained earnings 273,973 273,330
Unearned ESOP shares (1,941) (2,166)
Accumulated other comprehensive income 5,239 (6,069)
Treasury stock - 30,698,174 in 2008 and
28,949,093 in 2007 (352,693) (334,256)
------------ ------------
Total shareholders' equity 423,042 430,035

------------ ------------
$ 3,547,616 $ 3,488,046
============ ============

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BANK MUTUAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,
2008 2007
----------------- ------------------
(In thousands, except per share data)

Interest income:
Loans $ 30,027 $ 29,943
Investments 2,030 1,019
Mortgage-related securities 12,650 13,030
Interest-earning deposits 476 423
----------------- ------------------
Total interest income 45,183 44,415
Interest expense:
Deposits 18,399 18,631
Borrowings 9,838 8,703
Advance payment by borrowers
for taxes and insurance 2 2
----------------- ------------------
Total interest expense 28,239 27,336
----------------- ------------------
Net interest income 16,944 17,079
Provision for (recovery of) loan
losses 156 (929)
----------------- ------------------
Net interest income after
provision for loan losses 16,788 18,008
Noninterest income:
Service charges on deposits 1,518 1,496
Brokerage and insurance
commissions 655 613
Loan related fees and
servicing revenue 21 382
Gains on sale of investments 1,470 -
Gain on sales of loans 774 330
Other 1,937 2,124
----------------- ------------------
Total noninterest income 6,375 4,945
Noninterest expenses:
Compensation, payroll taxes
and other employee benefits 9,318 9,643
Occupancy and equipment 2,937 2,827
Amortization of other
intangible assets 165 165
Other 3,180 3,241
----------------- ------------------
Total noninterest expenses 15,600 15,876
----------------- ------------------
Income before income taxes 7,563 7,077
Income taxes 2,501 2,370
----------------- ------------------
Net income $ 5,062 $ 4,707
================= ==================

Per share data:
Earnings per share-basic $ 0.11 $ 0.08
================= ==================
Earnings per share-diluted $ 0.10 $ 0.08
================= ==================
Cash dividends paid $ 0.09 $ 0.08
================= ==================

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Bank Mutual Corporation and Subsidiaries
Supplemental Financial Information (Unaudited)
(Dollars in thousands except per share amounts and ratios)

During the quarter ended March 31,
2008 2007
---------------- ----------------
Originations
Mortgage loans
One-to four-family $ 66,645 $ 43,984
Multi-family 7,535 25,674
Commercial Real Estate 20,705 $ 24,618
---------------- ----------------
Total Mortgage Loans 94,885 94,276
---------------- ----------------
Consumer loans 21,004 29,396
Commercial business loans 10,826 10,167
---------------- ----------------
Total loan originations $ 126,715 $ 133,839
================ ================

Purchases
Mortgage loans 5,138 17,811
---------------- ----------------
Total loan purchases 5,138 17,811
---------------- ----------------
Total loans originated and
purchased $ 131,853 $ 151,650
================ ================
Loan Sales $ 57,674 $ 25,189
================ ================

Loan Portfolio Analysis
-----------------------------------
March 31, December 31,
2008 2007
---------------- ----------------
Mortgage loans:
One-to four-family $ 983,882 $ 1,059,307
Multi-family 211,342 206,640
Commercial real estate 211,488 202,528
Construction and development 157,309 170,401
---------------- ----------------
Total mortgage loans 1,564,021 1,638,876
Consumer loans 358,633 379,558
Commercial business loans 54,657 53,784
---------------- ----------------
Total loans receivable 1,977,311 2,072,218
Deductions to gross loans 58,701 77,662
---------------- ----------------
Total loans receivable, net $ 1,918,610 $ 1,994,556
================ ================

Asset Quality Ratios
-----------------------------------
March 31, December 31,
2008 2007
----------------------------------
Non-performing mortgage loans $ 10,424 $ 11,251
Non-performing consumer loans 1,194 930
Non-performing commercial business
loans 137 159
Accruing loans delinquent 90 days
or more 471 602
---------------- ----------------
Total non-performing loans $ 12,226 $ 12,942
================ ================
Total non-performing assets $ 16,668 $ 16,629
================ ================

Non-performing loans to loans
receivable, net 0.64% 0.65%
Non-performing assets to total
assets 0.47% 0.48%
Allowance for loan losses to non-
performing loans 93.20% 90.98%
Allowance for loan losses to non-
performing assets 68.36% 70.80%
Allowance for loan losses to total
loans 0.59% 0.59%

Net recoveries (charge-offs ) $ (535) $ (528)
Net recoveries (charge-offs) to
avg loans (annualized) -0.11% -0.03%
Allowance for loan losses $ 11,395 $ 11,774

Deposit Analysis
March 31, December 31,
2008 2007
----------------------------------
Noninterest-bearing checking $ 94,032 $ 97,506
Interest-bearing checking 165,972 170,986
Savings accounts 190,337 183,756
Money Market accounts 309,645 280,442
Certificate accounts 1,406,763 1,380,278
---------------- ----------------
Total Deposits $ 2,166,749 $ 2,112,968
================ ================

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Bank Mutual Corporation and Subsidiaries
Supplemental Financial Information (Unaudited)
(Dollars in thousands except per share amounts and ratios)

Operating Ratios (annualized) For the Three Months ended March 31,
--------------------------------
2008 2007
----------------- -----------------

Net interest margin (1) 2.05% 2.07%
Net interest rate spread 1.64% 1.53%
Return on average assets 0.58% 0.54%
Return on average shareholders'
equity 4.73% 3.63%
Return on average tangible
shareholders' equity (2) 5.49% 4.09%
Efficiency ratio (3) 66.90% 72.08%
Non-interest expense as a
percent of average assets 1.77% 1.81%
(1) Net interest margin is determined by dividing net interest income
by average earning assets for the periods indicated.
(2) Return on average tangible shareholders' equity is determined by
dividing net income by the net shareholders' equity minus goodwill,
other intangible assets, mortgage servicing rights and applicable
deferred taxes. Since many analysts establish financial matrices
utilizing this ratio, Bank Mutual has chosen to provide this
information.
(3) Efficiency ratio is determined by dividing noninterest expense by
the sum of net interest income and noninterest income for the
periods indicated.

For the Three Months ended March 31,
Other Information 2008 2007
-------------------------------- ----------------- -----------------

Average earning assets $ 3,306,066 $ 3,293,324
Average assets $ 3,521,074 $ 3,499,935
Average interest bearing
liabilities $ 2,953,195 $ 2,830,708
Average shareholders' equity $ 427,628 $ 519,385
Average tangible shareholders'
equity (4) $ 368,922 $ 460,344
Weighted average number of
shares outstanding
-used in basic earnings per
share 47,877,325 57,565,620
-used in diluted earnings per
share 48,926,045 59,046,780
(4) Average tangible shareholders' equity is average total
shareholders' equity minus goodwill, other intangible assets,
mortgage servicing rights and applicable deferred taxes

March 31, December 31,
2008 2007
----------------- -----------------
Number of shares outstanding
(net of treasury shares) 48,085,675 49,834,756
Book value per share $ 8.80 $ 8.63

Weighted Average Net Interest
Rate Spread At March 31, At December 31,
--------------------------------
2008 2007
----------------- -----------------
Yield on loans 6.20% 6.26%
Yield on investments 4.53% 4.63%
Combined yield on loans and
investments 5.50% 5.64%
Cost of deposits 3.28% 3.61%
Cost of borrowings 4.27% 4.27%
Total cost of funds 3.57% 3.81%
Interest rate spread 1.93% 1.83%
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Bank Mutual Corporation
Michael T. Crowley Jr.
Chairman, President and Chief Executive Officer
414-354-1500

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