Profile: Bank Mutual Corporation (BKMU.O)

Bank Mutual Corporation serves as a unitary savings and loan holding company for its wholly owned subsidiary, Bank Mutual (the Bank), a federal savings bank. The Bank is a community-oriented financial institution. Its principal business is originating mortgage loans, consumer loans, commercial real estate loans, and commercial business loans and attracting retail deposits from the general public. It also invests in various mortgage-related securities and investment securities. The principal lending is on one-to four-family, owner-occupied homes, home equity loans and lines of credit, automobile loans, multi-family and commercial real estate loans, and commercial business loans. The Bank’s revenues are derived principally from interest on loans and mortgage-related securities, interest and dividends on the investment securities, and non-interest income (including loan servicing fees, deposit servicing fees, gains on sales of loans and commissions on insurance, security and annuity sales). Its primary sources of funds are deposits, borrowings, scheduled amortization and prepayments of loan principal and mortgage-related securities, and maturities of investment securities and funds provided by operations. At February 27, 2009, the Bank had 78 banking offices located in 31 counties in Wisconsin, in addition to a Minnesota bank office.

Lending Activities

The Company’s loan portfolio primarily consists of mortgage loans. To a lesser degree, the loan portfolio includes consumer loans, including home equity lines of credit and fixed and adjustable rate home equity loans, automobile loans, as well as commercial business loans. At December 31, 2008, the total loans receivable was 52.4%. The Company originates adjustable rate mortgage (ARM) loans primarily for its own portfolio. It also originates fixed rate mortgage loans with terms of 10 to 30 years. The largest volume of the lending activity has been the origination and purchase of first mortgage loans secured by one-to four-family properties within its primary lending area. Most of these loans are owner-occupied; however, the Bank does not originate first mortgage loans on second homes, seasonal homes and investment properties.

The Company offers fixed rate mortgage loans and ARM loans with maturity dates up to 30 years. Fixed rate mortgage loans, except those fixed rate loans originated under special loan programs for low and moderate income households with maturities greater than 15 years, are sold without recourse, servicing retained, into the secondary market. The Company also originates jumbo single-family mortgage loans in excess of the Federal National Mortgage Association (Fannie Mae) maximum loan amount. Mortgage loan originations are solicited from real estate brokers, builders, existing customers, community groups, other referral sources, and residents of the local communities located in the primary market area. Consumer loan products offered within the Company’s market areas include home equity loans, home equity lines of credit, home improvement loans, automobile loans, recreational vehicle loans, marine loans, deposit account loans, overdraft protection lines of credit, unsecured consumer loans and unsecured consumer loans through credit card programs and federally guaranteed student loans. Home equity loan and home improvement loan originations are developed through the use of direct mail, cross-sales to existing customers, radio advertisements, and advertisements in local newspapers.

Investment Activities

At December 31, 2008, the Bank’s mutual fund investments were in funds, which invested primarily in mortgage-related securities. At December 31, 2008, substantially all investment securities were classified as available-for-sale. Most of its mortgage-related securities are directly or indirectly insured or guaranteed by the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (Fannie Mae). The rest of the securities are investment-grade private placement collateralized mortgage obligations (CMOs).

Sources of Funds

The Bank offers a variety of deposit accounts having a range of interest rates and terms. It offers regular savings accounts (consisting of passbook and statement savings accounts), interest-bearing demand accounts, non-interest-bearing demand accounts, money market accounts, and time deposits. The Bank also offers Individual Retirement Account time deposit accounts and health savings accounts. Core deposits (defined as regular savings accounts, money market accounts, and demand accounts) represented 37.3% of total deposits at December 31, 2008. In February 2008, the Bank launched a new High Yield Money Market product available only online through Bankmutualdirect. The product features high interest rates, Federal Deposit Insurance Corporation insurance, secure ACH account funding, around-the-clock access online or by phone and electronic statements. The Bank also borrows funds to finance its lending, investing and stock repurchase activities. Substantially all of its borrowings take the form of advances from the Federal Home Loan Bank of Chicago.

Subsidiary Activities

BancMutual Financial & Insurance Services, Inc. (BMFIS), a wholly owned subsidiary of the Bank, provides investment, brokerage and insurance services to the Bank’s customers and the general public. Investment services include tax deferred and tax free investments, mutual funds, and government securities. Personal insurance, business insurance, life and disability insurance and mortgage protection products are also offered by BMFIS. Mutual Investment Corporation, a wholly owned subsidiary of the Bank, owns and manages part of the investment portfolio. First Northern Investment Inc. (FNII), a wholly owned subsidiary of the Bank, also owns and manages investments and owns indirect automobile, recreational vehicle and boat loans from Savings Financial Corporation (SFC), a corporation 50% owned by the Bank. MC Development LTD (MC Development), a wholly owned subsidiary of the Bank, is involved in land development and sales. It owns five parcels of undeveloped land totaling 15 acres in Brown Deer, Wisconsin. SFC originated, sold, and serviced indirect automobile, recreational vehicles and boat loans. In addition, the Bank has four wholly owned subsidiaries that are inactive.