Bank Mutual Corporation Reports Earnings for the First Quarter of 2007.

MILWAUKEE -- Bank Mutual Corporation (NASDAQ:BKMU) reported net earnings of $4.7 million or $0.08 diluted earnings per share for the three months ended March 31, 2007 as compared to $5.4 million or $0.09 diluted earnings per share during the same period in 2006. Earnings decreased for the first quarter of 2007 primarily as a result of a decrease in the net interest margin, partially offset by a recovery of previous provisions for loan losses. Diluted earnings per share calculations and net income were also affected by Bank Mutual's ongoing stock repurchase programs.

"In the first quarter of 2007, we expanded our customer product offerings by making arrangements to introduce an investment advisory service to our customer base and we continued to enhance our business cash management offerings. We anticipate these products will assist us in filling customer needs and in increasing our non-interest revenue. In addition, our first quarter earnings continued to be negatively impacted by the inverted yield curve, a slow housing market and strong competition for deposits and loans. To help offset the negative effects of these external factors, we continued to modify our existing operations by controlling expenses, resolving some non-performing loans, and remaining in an active repurchase program for our stock when market conditions are right", stated Michael T. Crowley, Jr., Chairman, President and Chief Executive Officer of Bank Mutual Corporation.

The reported results represent an 11.1% decrease in diluted earnings per share and a net income decrease of 12.3% for the first quarter of 2007 as compared to the same period in 2006.

One to four- family mortgage loan originations and purchases were $61.8 million for the first quarter of 2007 as compared to $90.4 million for the same period in 2006. The decreased originations and purchases of mortgage loans were the result of a decrease in our purchase of mortgage loans and decreased originations resulting from increased market interest rates on mortgage loan offerings and a related decrease in home sales, purchases and construction.

Multi-family and commercial real estate mortgage loan originations were $50.3 million for the first quarter of 2007 as compared to $36.6 million for the first quarter of 2006. The increased originations were the result of management's emphasis on these products, the hiring of new personnel and additional marketing efforts.

Loan sales were $25.2 million for the first three months of 2007 as compared to $16.9 million for the same period in 2006. Loan sales increased because of the increased fixed rate mortgage loan originations that resulted from the similarity of fixed rate market interest rates to adjustable rate market interest rates thereby making fixed rate mortgage loans desirable to the consumer. As a result of the increased loan sales, gains on the sales of loans were $330,000 for the three months ended March 31, 2007 as compared to $220,000 for the same periods in 2006.

Consumer loan originations for the first quarter of 2007 were $29.4 million as compared to $37.5 million for the same period in 2006. The decreased originations for the period were primarily the result of declining demand in the face of increased interest rates on consumer loan offerings, slower growth in homeowners' equity, and discontinued indirect automobile loan originations through our 50% owned subsidiary, Savings Financial Corporation, as previously disclosed, in the second quarter of 2006.

Commercial business loan originations increased in the first quarter of 2007 to $10.2 million as compared to $8.4 million in the first quarter of 2006. This increase for the period was primarily the result of the continued emphasis by management to develop this portion of our loan portfolio, including the hiring of new personnel.

In total, loan originations and purchases for the first quarter of 2007 were $151.7 million as compared to $172.9 million for the same period of 2006, with the decrease due to the factors discussed above.

Total assets at March 31, 2007 were $3.6 billion as compared to $3.5 billion at December 31, 2006.

Mortgage-related securities increased by $85.3 million in the first quarter of 2007 primarily as a result of borrowing $105.0 million and investing those dollars in mortgage-related securities and an improvement in the market value of the mortgage-related portfolio.

Deposits increased $46.8 million during the first quarter of 2007 to $2.2 billion; deposits also were $2.2 billion at December 31, 2006 as a result of rounding the deposit total. Within the deposit portfolio, certificates of deposit increased $40.9 million and our core deposits (checking, savings and money market accounts) increased $5.9 million. This deposit growth, along with an increase in the interest rates paid on deposits, resulted in an increase in the cost of deposits for the first quarter of 2007.

Borrowings increased to $887.8 million at March 31, 2007 as compared to $705.0 million at December 31, 2006 primarily as a result of borrowing $105.0 million and investing those dollars into mortgage-related securities. The additional $77.8 million of borrowing was done in the first quarter of 2007, in anticipation of funding outstanding loan commitments.

We have paid twenty-five consecutive cash dividends since our initial stock offering. Cash dividends paid in the first quarter of 2007 were $0.08 per share as compared to $0.07 per share for the same period in 2006. This cash dividend increase of $0.01 per share in the first quarter of 2007 is a 14.3% increase over the cash dividends paid in the first quarter of 2006.

Non-performing loans to total loans at March 31, 2007 decreased to 0.68% as compared to 0.72% at December 31, 2006. This decrease in non-performing loans was primarily the result of one non-performing commercial business loan being paid-off. As a result of this loan being repaid, we recovered a net amount of approximately $929,000 of loan loss provisions in the first quarter of 2007. Our allowance for loan losses at March 31, 2007 was $11.6 million or 84.1% of non-performing loans and 77.0% of non-performing assets.

The net interest margin for the first quarter of 2007 decreased to 2.07% as compared to 2.37% for the first quarter of 2006. The decreased net interest margin was primarily the result of the rising cost of deposits and borrowings, the inversion of the yield curve and the effects of our stock repurchase programs. Specifically, the inversion of the yield curve reduced our ability to price our loan offerings at interest rates that would allow us to increase the yield on our loan portfolio faster than the increase in our cost of funds, thus compressing our net interest margin. In addition, contract terms of existing loans can affect our ability to reprice those assets.

The effective income tax rate in the first quarter of 2007 was 33.5% as compared to 35.0% for the first quarter of 2006 primarily as a result of the purchase of Bank Owned Life Insurance in the fourth quarter of 2006. The increase in cash value of Bank Owned Life Insurance usually is not taxable.

Book value per share was $8.82 at March 31, 2007. The annualized return on average equity (ROE) for the first quarter of 2007 was 3.63%. The annualized return on average assets (ROA) for the first quarter of 2007 was 0.54%. We repurchased 3,110,000 shares during the first quarter of 2007 at an average price of $11.72 per share. We regularly review market conditions and costs 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 fourth 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 76 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 2007. They are as follows:

* There may be an environment of continued economic slow down and an inverted or flat interest rate yield curve throughout 2007. If that is the case, there are a number of effects that Bank Mutual, like other financial institutions, would likely experience.

           -- Loan originations could continue to decrease, along with
              related interest and fee income.
           -- A slow down in the appreciation of the value of real
              estate or even a decrease in value may occur. Reduced
              property prices could negatively affect the volume of
              home sales, which in turn could affect mortgage loan
              originations and prepayments. It may also impact the
              quality of some of our loans as a result of increased
              delinquencies.
           -- A continuation of stabilizing and softening real estate
              values could 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. Also, 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.

* An inverted or flat yield curve will also likely continue to affect our net interest margin. The net interest margin would continue to be compressed as a result of the cost of deposits and borrowings rising faster than the yield on loans. Such a compression could negatively affect our net income.

* Bank Mutual will continue to further emphasize consumer, commercial real estate and commercial business loans, all of which can present a higher risk than residential mortgages. Adding personnel to continue this emphasis will increase our costs. Market conditions and other factors may continue to affect our ability to increase our loan portfolio with these types of loans.

* We have opened one new office in first quarter of 2007, and anticipate opening up to two or three additional new offices in 2007. The addition of new offices increases our occupancy and related personnel costs going forward, which will increase our costs for 2007.

* 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 news release which are not historical statements contain forward-looking statements that involve risk 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, customer response to new products and services, competition from other institutions, the results of our lending activities and loan loss experience, changes in real estate values, 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.

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