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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 000-31207
BANK MUTUAL CORPORATION
(Exact name of registrant as specified in its charter)
UNITED STATES 39-2004336
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4949 WEST BROWN DEER ROAD
MILWAUKEE, WI 53223
(414) 354-1500
---------------------------------------------------------------
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------
The number of shares outstanding of the issuer's common stock $0.01 par value
per share, was 21,963,371 shares, at August 9, 2002.
================================================================================
BANK MUTUAL CORPORATION
10-Q INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition
as of June 30, 2002 and December 31, 2001 3
Unaudited Consolidated Statements of Income
for the three months ended June 30, 2002 and 2001 4
Unaudited Consolidated Statements of Income
for the six months ended June 30, 2002 and 2001 5
Unaudited Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 2002 and 2001 6
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001 7
Notes to Unaudited Consolidated Financial Statements 8-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19-32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33-36
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 37
ITEM 5. OTHER INFORMATION 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 37
SIGNATURES 38
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31,
2002 2001
------------ --------------
(IN THOUSANDS)
ASSETS
Cash and due from banks $ 55,320 $ 41,574
Federal funds sold 140,000 175,000
Interest-earning deposits 53,144 35,338
------------ ------------
Cash and cash equivalents 248,464 251,912
Securities available-for-sale, at fair value:
Investment securities 81,901 93,059
Mortgage-related securities 603,223 521,084
Loans held for sale 8,313 32,321
Loans receivable, net 1,774,970 1,831,155
Goodwill 52,570 52,570
Deposit base intangibles 6,065 6,396
Other assets 119,341 117,293
------------ ------------
$ 2,894,847 $ 2,905,790
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 2,097,139 $ 2,090,440
Borrowings 423,695 465,360
Advance payments by borrowers for taxes and insurance 23,654 3,499
Other liabilities 34,110 42,393
------------ ------------
2,578,598 2,601,692
Shareholders' equity:
Preferred stock - $.01 par value:
Authorized - 10,000,000 shares in 2002 and 2001
Issued and outstanding - none in 2002 and 2001 - -
Common stock - $.01 per value:
Authorized - 100,000,000 shares in 2002 and 2001 Issued - 22,341,665 shares
in 2002 and 2001 Outstanding - 22,151,371 shares in 2002 and
22,337,165 in 2001 223 223
Additional paid-in capital 108,373 108,043
Retained earnings 213,301 201,777
Unearned ESOP shares (7,257) (7,850)
Accumulated other comprehensive income 8,925 6,018
Unearned deferred compensation (3,604) (4,047)
Treasury stock - 190,294 shares in 2002; 4,500 in 2001 (3,712) (66)
------------ ------------
316,249 304,098
------------ ------------
$ 2,894,847 $ 2,905,790
============ ============
See Notes to Unaudited Consolidated Financial Statements.
3
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
JUNE 30,
2002 2001
------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans $ 31,763 $ 37,299
Investments 1,401 2,107
Mortgage-related securities 8,127 7,411
Interest-earning deposits 847 1,236
----------- -----------
Total interest income 42,138 48,053
Interest expense:
Deposits 16,019 23,189
Borrowings 5,861 7,354
Advance payment by borrowers for taxes
and insurance 57 89
----------- -----------
Total interest expense 21,937 30,632
----------- -----------
Net interest income 20,201 17,421
Provision for loan losses 40 109
----------- -----------
Net interest income after provision for loan losses 20,161 17,312
Noninterest income:
Service charges on deposits 1,141 1,099
Brokerage and insurance commissions 933 696
Loan related fees 128 355
Gain on sales of loans 583 983
Other 1,072 1,027
----------- -----------
Total noninterest income 3,857 4,160
Noninterest expenses:
Compensation, payroll taxes and other
employee benefits 7,991 6,963
Occupancy and equipment 2,632 2,503
Amortization of goodwill - 774
Amortization of deposit base intangibles 166 166
Other 2,721 2,956
----------- -----------
Total noninterest expenses 13,510 13,362
----------- -----------
Income before income taxes 10,508 8,110
Income taxes 3,537 3,032
----------- -----------
Net income $ 6,971 $ 5,078
=========== ===========
Per share data:
Earnings per share-basic $ 0.33 $ 0.24
=========== ===========
Earnings per share-diluted $ 0.32 $ 0.24
=========== ===========
Cash dividends paid $ 0.08 $ 0.07
=========== ===========
See Notes to Unaudited Consolidated Financial Statements.
4
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
JUNE 30,
2002 2001
------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans $ 64,605 $ 76,006
Investments 2,863 4,235
Mortgage-related securities 16,067 15,183
Interest-earning deposits 1,570 1,923
----------- ------------
Total interest income 85,105 97,347
Interest expense:
Deposits 33,516 46,162
Borrowings 11,918 15,985
Advance payment by borrowers for taxes
and insurance 81 125
----------- ------------
Total interest expense 45,515 62,272
----------- ------------
Net interest income 39,590 35,075
Provision for loan losses 55 210
----------- ------------
Net interest income after provision for loan losses 39,535 34,865
Noninterest income:
Service charges on deposits 2,170 2,120
Brokerage and insurance commissions 1,746 1,218
Loan related fees 175 710
Gain on sales of loans 1,536 1,382
Other 2,073 2,079
----------- ------------
Total noninterest income 7,700 7,509
Noninterest expenses:
Compensation, payroll taxes and other
employee benefits 15,908 13,743
Occupancy and equipment 5,223 5,203
Amortization of goodwill - 1,549
Amortization of deposit base intangibles 331 331
Other 5,659 5,728
----------- ------------
Total noninterest expenses 27,121 26,554
----------- ------------
Income before income taxes 20,114 15,820
Income taxes 6,812 5,939
----------- ------------
Net income $ 13,302 $ 9,881
=========== ============
Per share data:
Earnings per share-basic $ 0.62 $ 0.46
=========== ============
Earnings per share-diluted $ 0.61 $ 0.46
=========== ============
Cash dividends paid $ 0.16 $ 0.14
=========== ============
See Notes to Unaudited Consolidated Financial Statements.
5
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL UNEARNED OTHER UNEARNED
COMMON PAID-IN RETAINED ESOP COMPREHENSIVE DEFERRED TREASURY
STOCK CAPITAL EARNINGS SHARES INCOME (LOSS) COMPENSATION STOCK TOTAL
------ ---------- -------- -------- ------------- ------------ -------- -----
(IN THOUSANDS)
For the Six Months Ended June 30, 2002
Balance at January 1, 2002 $ 223 $108,043 $201,777 $(7,850) $ 6,018 $(4,047) $ (66) $304,098
Comprehensive income:
Net income - - 13,302 - - - - 13,302
Other comprehensive income
Change in net unrealized
gain on securities available-
for-sale, net of deferred income
tax liability of $1,731 - - - - 2,907 - - 2,907
--------
Total comprehensive income - - - - - - 16,209
Purchase of treasury stock - - - - - (4,130) (4,130)
Committed ESOP shares - 458 - 593 - - - 1,051
Exercise of stock options (128) 484 356
Amortization of deferred compensation - - - - - 443 - 443
Cash dividends ($.16 per share) - - (1,778) - - - - (1,778)
----- -------- -------- ------- ------- ------- ------- --------
Balance at June 30, 2002 $ 223 $108,373 $213,301 $(7,257) $ 8,925 $(3,604) $(3,712) $316,249
===== ======== ======== ======= ======= ======= ======= ========
For the Six Months Ended June 30, 2001
Balance at January 1, 2001 $ 223 $108,151 $184,351 $(8,971) $ 643 $ - $ - $284,397
Comprehensive income:
Net income - - 9,881 - - - - 9,881
Other comprehensive income
Change in net unrealized
gain on securities
available-for-sale, net of
deferred income tax liability
of $1915 - - - - 3,406 - - 3,406
--------
Total comprehensive income - - - - - - - 13,287
Purchase of treasury stock (872) (872)
Cash dividends ($.14 per share) - - (1,561) - - - (1,561)
Purchase of ESOP shares - - - (29) - - - (29)
----- -------- -------- ------- ------ ------- ------- --------
Balance at June 30, 2001 $ 223 $108,151 $192,671 $(9,000) $4,049 $ - $ (872) $295,222
===== ======== ======== ======= ====== ======= ======= ========
See Notes to Unaudited Consolidated Financial Statements.
6
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
2002 2001
---------- -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net Income $ 13,302 $ 9,881
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 55 210
Provision for depreciation 1,400 1,282
Amortization of intangibles 331 1,880
Amortization of cost of stock benefit plans 1,495 -
Net discount amortization on securities (111) (545)
Net change in loans originated for sale 25,544 (11,412)
Gains from sales of loans originated for sale (1,536) (1,382)
Gains on sales of real estate (175) (251)
Decrease in other liabilities (9,019) (7,832)
(Increase) decrease in other assets (607) 371
Decrease in accrued interest receivable 262 1,435
---------- ----------
Net cash provided (used) by operating activities 30,941 (6,363)
INVESTING ACTIVITIES:
Net purchases of investments in mutual funds (534) (936)
Proceeds from maturities of investment securities 19,922 72,568
Purchases of investment securities (8,390) (103,102)
Purchases of mortgage-related securities (184,015) (56,133)
Principal repayments on mortgage-related securities 106,785 43,703
Net decrease in loans receivable 55,471 104,850
Proceeds from the sale of foreclosed properties 663 1,142
Net increase in Federal Home Loan Bank stock (864) (1,342)
Net purchases of premises and equipment (2,068) (1,234)
----------- -----------
Net cash provided by investing activities (13,030) 59,516
FINANCING ACTIVITIES:
Net increase in deposits 5,704 115,072
Net increase (decrease) in short-term borrowings (8,534) 8,875
Proceeds from long-term borrowings 3,740 52,460
Repayments on long-term borrowings (36,871) (131,203)
Cash dividends (1,778) (1,561)
Purchase of ESOP shares - (29)
Purchase of treasury stock (4,130) (872)
Proceeds from exercise of stock options 355 -
Net increase in advance payments by borrowers
for taxes and insurance 20,155 20,432
---------- ----------
Net cash provided (used) by financing activities (21,359) 63,174
Increase (decrease) in cash and cash equivalents (3,448) 116,327
Cash and cash equivalents at beginning of period 251,912 65,722
---------- ----------
Cash and cash equivalents at end of period $ 248,464 $ 182,049
========== ==========
SUPPLEMENTAL INFORMATION:
Interest paid on deposits $ 32,521 $ 47,010
Income taxes paid 6,661 6,596
Loans transferred to foreclosed properties
and repossessed assets 659 175
See Notes to Unaudited Consolidated Financial Statements.
7
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bank Mutual
Corporation ("Bank Mutual") and its wholly-owned subsidiaries Mutual Savings
Bank and First Northern Savings Bank and their subsidiaries.
Bank Mutual is a United States corporation chartered by the Office of Thrift
Supervision. It was chartered on November 1, 2000, to become the mid-tier
holding company in the regulatory restructuring of Mutual Savings Bank into
mutual holding company form.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
Rule 10-01 of Regulation S-X and the instructions to Form 10-Q. The financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial information. In
the opinion of Bank Mutual, the accompanying Unaudited Consolidated Statements
of Financial Condition, Unaudited Consolidated Statements of Income, Unaudited
Consolidated Statements of Shareholders' Equity and Unaudited Consolidated
Statements of Cash Flows contains all adjustments, which are of a normal
recurring nature, necessary to present fairly the consolidated financial
position of Bank Mutual and subsidiaries at June 30, 2002 and December 31, 2001,
the results of their income for the three and six months ended June 30, 2002 and
2001, the changes in shareholders' equity for the six months ended June 30, 2002
and 2001, and their cash flows for the six months ended June 30, 2002 and 2001.
The accompanying Unaudited Consolidated Financial Statements and related notes
should be read in conjunction with Bank Mutual's 2001 Annual Report on Form
10-K. Operating results for the six months ended June 30, 2002, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
8
NOTE 2 - SECURITIES AVAILABLE-FOR-SALE
The amortized cost and fair value of investment securities available-for-sale
are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
At June 30, 2002:
Investment securities:
U.S. government and federal agency obligations $ 35,891 $ 1,332 $ - $ 37,223
Corporate issue obligations 9,618 84 (10) 9,692
Mutual funds 33,654 20 (157) 33,517
Federal Home Loan Mortgage Corporation stock 1,440 29 - 1,469
---------- --------- --------- ---------
Total investment securities 80,603 1,465 (167) 81,901
Mortgage-related securities:
Federal Home Loan Mortgage Corporation 231,763 2,707 (251) 234,219
Federal National Mortgage Association 327,921 9,597 (77) 337,441
Private Placement CMOs 19,532 448 - 19,980
Government National Mortgage Association 11,469 126 (12) 11,583
---------- --------- --------- ---------
Total mortgage-related securities 590,685 12,878 (340) 603,223
---------- --------- --------- ---------
Total $ 671,288 $ 14,343 $ (507) $ 685,124
========== ========= ========= =========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
At December 31, 2001:
Investment securities:
U.S. government and federal agency obligations $ 39,667 $ 1,652 $ - $ 41,319
Corporate issue obligations 17,300 55 (166) 17,189
Mutual funds 33,120 19 (157) 32,982
Federal Home Loan Mortgage Corporation stock 1,440 129 - 1,569
---------- --------- --------- ----------
Total investment securities 91,527 1,855 (323) 93,059
Mortgage-related securities:
Federal Home Loan Mortgage Corporation 162,365 948 (1,418) 161,895
Federal National Mortgage Association 321,198 8,214 (782) 328,630
Private Placement CMOs 28,137 662 (16) 28,783
Government National Mortgage Association 1,716 60 - 1,776
---------- --------- --------- ----------
Total mortgage-related securities 513,416 9,884 (2,216) 521,084
---------- --------- --------- ----------
Total $ 604,943 $ 11,739 $ (2,539) $ 614,143
========== ========= ========= ==========
The amortized cost and fair values of investment securities by contractual
maturity at June 30, 2002, are shown below. Actual maturities may differ from
contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
9
AMORTIZED FAIR
COST VALUE
--------- ---------
Due in one year or less $ 12,350 $ 12,536
Due after one year through five years 33,159 34,379
Due after five years through ten years - -
Mutual funds 33,654 33,517
Federal Home Loan Mortgage Corporation stock 1,440 1,469
Mortgage-related securities 590,685 603,223
--------- ---------
$ 671,288 $ 685,124
========= =========
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following:
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
Mortgage loans:
One-to four-family $ 937,216 $ 992,126
Multifamily 120,450 131,925
Commercial real estate 169,315 165,556
Construction and development 139,435 125,611
----------- ------------
Total mortgage loans 1,366,416 1,415,218
Consumer loans:
Fixed equity 200,515 200,500
Home equity lines of credit 78,903 76,472
Student 24,595 25,410
Home improvement 8,118 9,439
Automobile 74,944 77,621
Other 24,308 25,886
----------- ------------
Total consumer loans 411,383 415,328
Total commercial business loans 65,975 60,932
----------- ------------
Total loans receivable 1,843,774 1,891,478
Less:
Undisbursed loan proceeds 53,783 44,467
Allowance for loan losses 12,339 12,245
Unearned loan fees and discounts 2,682 3,611
----------- ------------
Total loans receivable - net $ 1,774,970 $ 1,831,155
=========== ============
Bank Mutual's mortgage loans and home equity loans are primarily secured by
properties housing one-to-four families which are generally located in Bank
Mutual's local lending areas in Wisconsin and Minnesota.
10
NOTE 4 - OTHER ASSETS
Other Assets are summarized as follows:
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
Accrued interest:
Mortgage-related securities $ 2,637 $ 2,431
Investment securities 1,531 1,721
Loans receivable 9,159 9,436
----------- ------------
Total accrued interest 13,327 13,588
Foreclosed properties and repossessed assets 429 382
Premises and equipment, net 43,856 43,187
Federal Home Loan Bank stock, at cost 32,076 31,233
Life insurance policies 16,584 15,938
Mortgage servicing rights 3,722 4,251
Other 9,347 8,714
----------- ------------
$ 119,341 $ 117,293
=========== ============
NOTE 5 - DEPOSITS
Deposits are summarized as follows:
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Checking accounts:
Noninterest-bearing $ 99,381 $ 96,362
Interest-bearing 139,260 137,317
------------ ------------
238,641 233,679
Money market accounts 352,851 335,946
Savings accounts 236,103 214,859
Certificate accounts:
Due within one year 717,418 934,378
After one but within two years 229,851 262,910
After two but within three years 142,048 57,514
After three but within four years 50,702 31,406
After four but within five years 129,525 19,748
After five years - -
------------ ------------
1,269,544 1,305,956
------------ ------------
$ 2,097,139 $ 2,090,440
============ ============
11
NOTE 6 - BORROWINGS
Borrowings consist of the following:
JUNE 30, 2002 DECEMBER 31, 2001
----------------------- ----------------------
Weighted- Weighted-
Average Average
Balance Rate Balance Rate
-------- --------- -------- ---------
Federal Home Loan Bank
advances maturing:
2002 $ 79,459 5.95% $116,339 6.21%
2003 60,892 5.50 60,905 5.50
2004 231,769 5.61 231,773 5.61
2005 17,992 5.21 17,995 5.20
2006 7,947 4.85 7,947 4.85
Thereafter 10,835 5.85 7,066 5.71
Other borrowings 14,801 1.49 23,335 1.39
-------- --------
$423,695 $465,360
======== ========
Advances that mature in the year 2004 consist of borrowings that are redeemable
at any time until then at the option of the FHLB.
The Banks are required to maintain unencumbered mortgage loans in their
portfolios aggregating at least 167% of the amount of outstanding advances from
the FHLB as collateral. The Banks' borrowings at the FHLB are limited to the
lesser of 35% of total assets or 60% of the book value of certain mortgage
loans. In addition, these notes are collateralized by FHLB stock of $32,076 and
$31,233 at June 30, 2002 and December 31, 2001, respectively.
The Banks are Treasury Tax & Loan (TT&L) depositories for the Federal Reserve
Bank (FRB), and as such, they accept TT&L deposits. The Banks are allowed to
borrow these deposits from the FRB until they are called. The interest rate is
the federal funds rate less 25 basis points. U.S. Treasury Securities with a
face value greater than or equal to the amount borrowed are pledged as a
condition of borrowing TT&L deposits.
NOTE 7 - SHAREHOLDERS' EQUITY
The Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possible additional discretionary, actions by
regulators, that, if undertaken, could have a direct material effect on Bank
Mutual's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks' assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks' capital
12
amounts and classifications are also subject to qualitative judgements by the
regulators about components, risk weightings and other factors.
Quantitative measures established by federal regulation to ensure adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-weighted assets (as these
terms are defined in regulations), and of Tier I capital to total assets (as
these terms are defined in regulations). Management believes, as of June 30,
2002, that the Banks meet or exceed all capital adequacy requirements to which
they are subject.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Mutual Savings Bank
As of June 30, 2002:
Total capital $151,111 16.26% $74,337 8.00% $92,921 10.00%
(to risk-weighted assets)
Tier 1 capital 144,282 15.53% 37,168 4.00% 55,753 6.00%
(to risk-weighted assets)
Tier 1 capital 144,282 7.56% 76,344 4.00% 95,430 5.00%
(to total assets)
First Northern Savings Bank
As of June 30, 2002:
Total capital $91,054 14.48% $50,313 8.00% $62,891 10.00%
(to risk-weighted assets)
Tier 1 capital 85,966 13.67% 25,157 4.00% 37,735 6.00%
(to risk-weighted assets)
Tier 1 capital 85,966 8.71% 39,496 4.00% 49,370 5.00%
(to total assets)
Bank Mutual is not aware of any conditions or events, which would change the
Banks' status as well capitalized. There are no conditions or events that
management believes have changed the Banks' category.
13
Following are reconciliations of the Banks' equity under generally accepted
accounting principles to capital as determined by regulators:
MUTUAL SAVINGS BANK FIRST NORTHERN SAVINGS BANK
------------------- ---------------------------
RISK- TIER I RISK- TIER I
BASED (CORE) BASED (CORE)
CAPITAL CAPITAL CAPITAL CAPITAL
------- ------- ------- -------
As of June 30, 2002:
Equity per bank records $163,067 $163,067 $135,374 $135,374
Unrealized gains on investments (7,997) (7,997) (1,086) (1,086)
Goodwill and deposit
base intangibles (8,451) (8,451) (47,754) (47,754)
Investment in "nonincludable"
subsidiaries (2,113) (2,113) (467) (467)
Disallowed servicing assets (203) (203) (101) (101)
Equity investments required
to be deducted (21) (21) (422) -
Allowance for loan losses 6,829 - 5,510 -
-------- -------- -------- --------
Regulatory capital $151,111 $144,282 $ 91,054 $ 85,966
======== ======== ======== ========
In May 2001, Bank Mutual shareholders approved the 2001 Stock Incentive Plan,
providing for the grant of stock options and restricted stock (Management
Recognition Plan ("MRP")) awards. Because of OTS regulatory requirements
resulting from the mutual holding company structure, Bank Mutual cannot newly
issue additional shares for awards which have been made under the Stock
Incentive Plan. Therefore, the 1.45 million shares that have been or can be
granted under the Stock Incentive Plan must be purchased in the open market.
Bank Mutual had repurchased 549,500 shares through June 30, 2002 and no specific
schedule was announced for the completion of these purchases. Because of the
options' vesting schedules under the Stock Incentive Plan, Bank Mutual would not
be required to repurchase in the near future all of the shares which the Stock
Incentive Plan will ultimately require.
Since the inception of the Stock Incentive Plan, 330,000 treasury shares were
reissued (of which 1,000 shares were forfeited) to recipients of the MRP awards
thereby creating unearned deferred compensation. The unearned deferred
compensation is an adjustment to shareholders' equity and will be adjusted as
the MRP shares are vested.
14
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Off-Balance sheet financial instruments whose contract amounts represent credit
and/or interest rate risk at June 30, 2002 and December 31, 2001 are as follows:
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
Unused consumer lines of credit $139,802 $130,269
Unused commercial lines of credit 20,483 21,376
Unused letters of credit 9,618 7,000
Commitments to extend credit:
Fixed rate 31,067 14,979
Adjustable rate 11,710 26,164
Credit enhancement under the Federal Home
Loan Bank of Chicago Mortgage Partnership
Finance program 31 34
Forward commitments to sell mortgage loans of $24.0 million at June 30, 2002,
represent commitments obtained by the Banks from a secondary market agency to
purchase mortgages from the Banks. Commitments to sell loans expose the Banks to
interest rate risk if market rates of interest decrease during the commitment
period. Commitments to sell loans are made to mitigate interest rate risk on
commitments to originate loans and loans held for sale. There were $41.3 million
of forward commitments at December 31, 2001.
15
NOTE 9 - SHARES OUTSTANDING
The computation of basic and diluted earnings per share is presented in the
following table:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
BASIC EARNINGS PER SHARE
Net Income $6,971 $5,078 $13,302 $9,881
========== ========== ========== ==========
Weighted average shares outstanding
(excludes unallocated ESOP shares) 21,172,468 21,423,786 21,209,898 21,436,845
Allocated ESOP shares 22,297 22,297 44,594 44,594
Vested MRP shares for period 16,449 6,800 32,898 6,800
---------- ---------- ---------- ----------
21,211,214 21,452,883 21,287,390 21,488,239
========== ========== ========== ==========
Basic earnings per share $0.33 $0.24 $0.62 $0.46
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Net Income $6,971 $5,078 $13,302 $9,881
========== ========== ========== ==========
Weighted average shares outstanding
used in basic earnings per share 21,211,214 21,452,883 21,287,390 21,488,239
Net dilutive effect of:
Stock option shares 351,832 59,196 309,872 26,598
Unvested MRP shares 77,113 12,550 63,606 6,275
---------- ---------- ---------- ----------
21,640,159 21,524,629 21,660,868 21,524,112
========== ========== ========== ==========
Diluted earnings per share $0.32 $0.24 $0.61 $0.46
========== ========== ========== ==========
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) is no longer amortized but will be subject to
annual impairment tests in accordance with the SFAS. Other intangible assets
will continue to be amortized over their useful lives.
Bank Mutual applied the new rules on accounting for goodwill and other
intangible assets in the first quarter of 2002. The nonamortization provisions
of the SFAS are expected to result in an increase in net income of approximately
$3.1 million ($0.14 per share) per year. Bank Mutual
16
performed an impairment test as of December 31, 2001 and found the goodwill and
deposit base intangible not to be impaired. Bank Mutual will perform the
required impairment tests at least annually; therefore, the expected increase in
net income as a result of the elimination of regular goodwill amortization may
be subject to change, and a determination of impairment would materially affect
results in any period in which it were to be determined.
The following table shows the effect of eliminating the goodwill amortization
for the second quarter of 2001 and the six months ended June 30, 2001, so as to
allow for a comparative analysis to the second quarter of 2002 and for the six
months ended June 30, 2002.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
(IN THOUSANDS EXCEPT (IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) PER SHARE AMOUNTS)
Stated net income $6,971 $5,078 $13,302 $ 9,881
Goodwill amortization expense - 774 - 1,549
------ ------ ------- -------
Adjusted net income $6,971 $5,852 $13,302 $11,430
====== ====== ======= =======
Stated earnings per share - diluted $0.32 $0.24 $0.61 $0.46
Goodwill amortization expense
per share - 0.03 - 0.07
------ ------ ------- -------
Adjusted earnings per share - diluted $0.32 $0.27 $0.61 $0.53
====== ====== ======= =======
Effective January 1, 2002, Bank Mutual adopted FASB Statement No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," ("FASB No. 144") which addresses how and when to measure
impairment on long-lived assets and how to account for long-lived assets that an
entity plans to dispose of either through sale, abandonment, exchange, or
distribution to owners. The new provisions supersede FASB No. 121, which
addressed asset impairment, and certain provisions of APB Opinion 30 related to
reporting the effects of the disposal of a business segment and requires
expected future operating losses from discontinued operations to be recorded in
the period in which the losses are incurred rather than the measurement date.
Under FASB No. 144, more dispositions may qualify for discontinued operations
treatment in the income statement. The adoption of FASB No. 144 had no material
impact on the Company's financial position or results of operations during the
quarter and six months ended June 30, 2002.
17
NOTE 11 - AMORTIZING INTANGIBLE ASSETS
The carrying amount of intangible assets net of accumulated amortization and the
associated valuation allowance at June 30, 2002 is presented in the following
table.
INTANGIBLE ASSET AMOUNT
NET OF ACCUMULATED VALUATION CARRYING
AMORTIZATION ALLOWANCE AMOUNT
----------------------- --------- ------
(IN THOUSANDS)
Amortized intangible assets:
Mortgage servicing rights $ 5,064 $(1,342) $3,722
Deposit base intangibles 6,065 - 6,065
-------- ------- ------
Total $ 11,129 $(1,342) $9,787
======== ======= ======
The projections of amortization expense shown below for mortgage servicing
rights are based on existing asset balances and the existing interest rate
environment as of June 30, 2002. Future amortization expense may be
significantly different depending upon changes in the mortgage servicing
portfolio, mortgage interest rates and market conditions.
The following table shows the current period and estimated future amortization
expense for amortized intangible assets:
MORTGAGE CORE
SERVICING DEPOSIT BASE
RIGHTS INTANGIBLES TOTAL
--------- ------------ -----
(IN THOUSANDS)
Quarter ended June 30, 2002 (actual) $ 623 $ 166 $ 789
Six months ended June 30, 2002 (actual) 1,360 331 1,691
Six months ending December 31, 2002 (estimate) 695 331 1,026
Estimate for year ending December 31,
2003 1,174 661 1,835
2004 924 661 1,585
2005 556 661 1,217
2006 367 661 1,028
2007 6 661 667
Thereafter - 2,429 2,429
------- ------- -------
$ 3,722 $ 6,065 $ 9,787
======= ======= =======
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document contains various forward-looking statements concerning Bank
Mutual's prospects that are based on the current expectations and beliefs of
management. Forward-looking statements may also be made by Bank Mutual from time
to time in other reports and documents as well as oral presentations. When used
in written documents or oral presentations, the words "anticipate," "believe,"
"estimate," "expect," "objective," "projection" and similar expressions or use
of verbs in the future tense 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 Bank Mutual's control, that could cause Bank Mutual'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 Bank Mutual: 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; changes in the quality or composition of the Banks' loan and
investment portfolios; general economic and political developments; and other
factors referred to in the reports filed by Bank Mutual with the Securities and
Exchange Commission (particularly under "Risk Factors" in Item 7 of Bank
Mutual's 2001 Report on Form 10-K).
SIGNIFICANT ACCOUNTING POLICIES
There are a number of accounting policies that we established which require us
to use our judgement. Some of the more significant policies are as follows:
- Establishing the amount of the allowance for loan losses requires the
use of our judgement. We evaluate our assets at least quarterly, and
review their risk components as a part of that evaluation. If we
misjudge a major component and experience a loss, it will likely affect
our earnings. We consistently challenge ourselves in the review of the
risk components to identify any changes in trends and their cause.
- Another valuation that requires our judgement relates to mortgage
servicing rights. Essentially, mortgage servicing rights are established
on loans (primarily mortgage loans) that we originate and sell. We
allocate a portion of a loan's book basis to mortgage servicing rights
when a loan is sold, based upon its relative fair value. The fair value
of mortgage servicing rights is the present value of estimated future
net cash flows from the servicing relationship using current market
assumptions for prepayments, servicing costs and other factors. As the
loans are repaid and net servicing revenue is earned, mortgage servicing
rights are amortized into expense. Net servicing revenues are expected
to
19
exceed this amortization expense. However, if our actual prepayment
experience exceeds what we originally anticipated, net servicing
revenues may be less than expected and mortgage servicing rights may be
impaired. This impairment would be recorded as a charge to earnings.
- We also use our judgement in the valuation of deposit base intangibles.
Core deposit base intangible assets have been recorded for core deposits
(defined as transaction accounts such as checking, money market and
savings deposits) that have been acquired in acquisitions that were
accounted for as purchase business combinations. The core deposit base
intangible assets have been recorded using the assumption that they
provide a more favorable source of funding than more expensive wholesale
borrowings. An intangible asset has been recorded for the present value
of the difference between the expected interest to be incurred on these
deposits and interest expense that would be expected if these deposits
were replaced by wholesale borrowings, over the expected lives of the
core deposits. We currently estimate the underlying core deposits have
lives of seven to fifteen years. If we find these deposits have a
shorter life, we will have to write down the asset by expensing the
amount that is impaired.
- We review goodwill at least annually for impairment, which requires the
use of our judgement. Goodwill has been recorded as a result of two
acquisitions in which we paid more than market value for their assets or
liabilities. We analyze the price paid for those acquisitions and
compare those to a number of current indices. In particular, we look at
the price paid as a percent of assets; price paid to deposits; premium
paid to core deposits; and other indicators. If the current indices are
such that would indicate that the goodwill is less than what would be
developed by doing the same transaction today, impairment would occur
and as such, would be charged to current earnings.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND DECEMBER 31, 2001
TOTAL ASSETS. Bank Mutual's total assets decreased $10.9 million in the first
six months of 2002 primarily as a result of the decreased loan portfolio and the
resulting use of this cash to reduce borrowings. Total assets at June 30, 2002
were $2.89 billion as compared to $2.91 billion at December 31, 2001.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased $3.4 million in
the first six months of 2002 primarily as a result of the investment of federal
funds sold into mortgage-related securities and use of cash to reduce
borrowings. Mortgage-related securities have historically yielded more than
federal funds.
SECURITIES AVAILABLE-FOR-SALE. Investment securities available-for-sale
decreased $11.2 million in the first six months of 2002 as a result of maturing
investments.
20
Mortgage-related securities available-for-sale increased $82.1 million primarily
as a result of federal funds sold and maturing investment securities being
invested in mortgage-related securities.
LOANS HELD FOR SALE. Loans held for sale at June 30, 2002 as compared to
December 31, 2001 decreased $24.0 million as a result of the decreased fixed
rate mortgage loan originations. Currently, we sell all of our 30 and 20 year
fixed rate mortgage loan originations and some of our 15 year fixed rate
mortgage loan originations in the secondary mortgage market.
LOANS RECEIVABLE. Loans receivable decreased $56.2 million in the first six
months of 2002 primarily as a result of loan sales and the prepayment of
multi-family and consumer loans. We sell a majority of our fixed rate mortgage
loan originations to reduce our interest rate risk.
The mortgage loan portfolio decreased $48.8 million in the first six months of
2002 as a result of fixed rate mortgage loan originations and the subsequent
sale of $41.0 million of fixed rate mortgage loans. Market interest rates for
fixed rate mortgages were attractive early in the first quarter of 2002 and
again in the later part of the second quarter of 2002. Consumers continued to
refinance their adjustable rate mortgage loans to fixed rate mortgage loans. We
retain all adjustable rate mortgage loans in our portfolio and sell the majority
of the fixed rate mortgage loans.
LOAN SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands) (In thousands)
Mortgage loans $41,047 $93,662 $105,052 $131,756
Educations loans - 324 - 494
------- ------- -------- --------
Total loans sales $41,047 $93,986 $105,052 $132,250
======= ======= ======== ========
The consumer loan portfolio also decreased in the first six months of 2002, even
though originations were higher in 2002 than in 2001. The decrease of $3.9
million was the result of fixed equity loans being refinanced into first
mortgage loans and the reduction in automobile loan originations. As car
manufacturers provided and promoted 0% financing on their cars, our automobile
loan originations decreased. This decrease in automobile loan originations and
continued repayments and prepayments of existing automobile loans resulted in
the automobile portfolio decreasing $2.7 million in the first six months of
2002.
The commercial business loan portfolio increased $5.0 million during the six
months ended June 30, 2002. This increase was the result of increased commercial
business loan originations and the use by borrowers of existing lines of credit.
21
LOAN ORIGINATIONS AND PURCHASES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands) (In thousands)
Originations:
Mortgage loans $124,716 $168,894 $250,694 $265,061
Consumer loans 67,520 65,733 118,626 114,523
Commercial business loans 9,148 6,043 18,308 10,048
-------- -------- --------- ---------
Total loan originations 201,384 240,670 387,628 389,632
Purchases:
Mortgage loans 769 1,013 3,793 2,004
-------- -------- --------- ---------
Total loans purchased 769 1,013 3,793 2,004
-------- -------- --------- ---------
Total loans originated and purchased $202,153 $241,683 $391,421 $391,636
======== ======== ======== ========
Management will continue to emphasize consumer and commercial loan originations,
as we believe it will continue to add to the overall profitability and aid in
the management of interest rate risk. However, these loans can present higher
risks than residential mortgage loans.
DEPOSITS. Deposits increased $6.7 million in the first six months of 2002. This
deposit increase was the result of increases to our checking, money market and
regular savings. We continue to emphasize and market checking accounts, as we
believe this is a core account to establish further business. We also believe
that deposit growth (or shrinkage) in the balance of 2002 and future periods
will depend, in significant part, on the performance of other investment
alternatives and world events.
BORROWINGS. Borrowings decreased $41.7 million in the first six months of 2002,
to $423.7 million at June 30, 2002, as compared to $465.4 million at December
31, 2001. This decrease is the result of using proceeds of the mortgage loan
sales and federal funds to repay maturing borrowings.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payments by
borrowers for taxes and insurance ("escrows") increased $20.2 million in the
first six months of 2002. The increase of escrow dollars was the result of
payments received for customers' escrow accounts and is seasonally normal.
Historically, a large portion of the escrow account balances are disbursed in
December and January to pay customers' real estate taxes.
SHAREHOLDERS' EQUITY. Bank Mutual paid a cash dividend of $0.08 per share on
June 3, 2002, to shareholders of record on May 22. The second quarter dividend
payout ratio was 12.7% since Mutual Savings Bancorp, MHC has elected to waive
cash dividends in 2002 for the 11,193,174 Bank Mutual shares that it owns. In
addition, Bank Mutual at June 30, 2002, had repurchased
22
a total of 549,500 shares at an average cost of $16.47 per share, including
180,000 shares in the second quarter at a weighted average price of $19.65 per
shares. Of the total shares repurchased, 330,000 shares have been granted as
awards to MRP recipients (of which 1,000 MRP shares were forfeited). Unvested
MRP shares are a decrease to shareholders' equity. See Notes to Unaudited
Consolidated Financial Statements - Note 7. Shareholders' Equity.
ASSET QUALITY
The following table summarizes non-performing loans and assets:
NON-PERFORMING LOANS AND ASSETS
AT JUNE 30, AT DECEMBER 31,
2002 2001
------------ ---------------
(Dollars in thousands)
Non-accrual mortgage loans $ 1,255 $ 1,814
Non-accrual consumer loans 515 444
Non-accrual commercial business loans 1,018 346
Accruing loans delinquent 90 days or more 911 936
-------- -------
Total non-performing loans 3,699 3,540
Foreclosed properties and repossessed assets, net 429 383
-------- -------
Total non-performing assets $ 4,128 $ 3,923
======== =======
Non-performing loans to total loans 0.21% 0.19%
==== ====
Non-performing assets to total assets 0.14% 0.14%
==== ====
Additional interest income that would have been
recognized if non-accrual loans had been current $154 $139
==== ====
Allowance for loan losses as a percent of
non-performing assets 298.91% 312.13%
====== ======
Total non-performing loans increased as of June 30, 2002, as compared to
December 31, 2001, primarily as a result of an increase in non-accrual consumer
and non-accrual business loans. We believe non-performing loans and assets,
expressed as a percentage of total loans and assets, are below national averages
for financial institutions, due in part to our loan underwriting standards and
the current relative strength of the Wisconsin economy. The increase relating to
consumer and commercial loans results from the general decline in economic
conditions.
23
In view of the continuing weakness in the economy, we have been increasing the
amount of management time to monitor the commercial loan portfolio since that is
an area particularly sensitive to economic downturns. As discussed in the first
quarter, there is one condominium construction loan of $8.8 million that is
current as of June 30, 2002, but we restructured the loan (the maximum loan
outstanding will not exceed $10.5 million) to facilitate completion of the
project by the developer. After evaluating the project, it appears that no loss
will occur; however, we continue to work with the developer to facilitate
completion of the project and sale of the completed condominium units.
Also, there are two commercial borrowers that we have on our watch list. One of
the commercial borrowers has commercial loans that total $5.7 million and is
current at June 30, 2002. At present, we do not anticipate any loss from this
sale.
The other commercial borrower has a commercial loan of $4.1 million that became
90 day past due in early July and we have commenced legal action to rectify the
delinquency. At present, we are gathering information to determine if there is a
potential loss. The ultimate results with these, and other, commercial loans
will depend on the success of the related business or projects, economic
performance and other factors affecting loans and borrowers.
24
A summary of the allowance for loan losses is shown below:
ALLOWANCE FOR LOAN LOSSES
AT AND FOR THE AT AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
---------------- -----------------
(Dollars in thousands)
Balance at the beginning of the period $12,245 $12,238
Provisions for the period 55 723
Charge-offs:
Mortgage loans - (65)
Consumer loans (166) (337)
Commercial business loans - (415)
------- -------
Total charge-offs (166) (817)
Recoveries:
Mortgage loans 66 26
Consumer loans 26 57
Commercial business loans 113 18
------- -------
Total recoveries 205 101
------- -------
Net recoveries (charge-offs) 39 (716)
------- -------
Balance at the end of the period $12,339 $12,245
======= =======
Net recoveries (charge-offs) to average loans 0.00% (0.04)%
====== =======
Allowance as a percent of total loans 0.70% 0.67%
====== =======
Allowance as a percent of non-performing loans 333.58% 345.90%
====== =======
The allowance for loan losses has been determined in accordance with accounting
principles generally accepted in the United States. We are responsible for the
timely and periodic determination of the amount of the allowance required. We
believe that our allowance for loan losses is adequate to cover specifically
identifiable loan losses as well as estimated losses inherent in our portfolio
for which certain losses are probable but not specifically identifiable.
Allowance goals have been established by an internal risk evaluation by loan
category. Various factors are taken into consideration including: historical
loss experience, economic factors and other factors, that in management's
judgement would affect the collectibility of the portfolio as of the evaluation
date. Shortfalls in the allowance for loan losses are charged against operations
as provision for loan losses, to maintain allowances at the desired levels.
The appropriateness of the allowance is reviewed by senior management based upon
its evaluation of then-existing economic and business conditions affecting the
key lending areas of
25
Bank Mutual. Other outside factors such as credit quality trends, collateral
values, loan volumes and concentrations, specific industry conditions within
portfolio segments and recent loss experience in particular segments of the
portfolio that existed as of the balance sheet date and the impact that such
conditions were believed to have had on the collectibility of the loan are also
considered. Our subsidiary boards of directors also review the adequacy of the
allowance for loan losses on at least a quarterly basis.
COMPARISON OF OPERATING RESULTS
The national and local economies and securities markets have generally
experienced significant challenges and disruptions in recent periods. Among
other things, the slowdown and world events could affect the ability of
individual and business borrowers to repay their obligations to the Banks, or
otherwise affect our operations or financial condition in future periods.
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS
The following table presents certain information regarding Bank Mutual's
financial condition and net interest income at and for the six months ended June
30, 2002 and 2001. The table presents the average yield on interest-earning
assets and the average cost of interest-bearing liabilities for the periods
indicated. The yields and costs are derived by dividing income or expense by the
average balance of interest-earnings assets or interest-bearing liabilities
respectively, for the periods shown. The average balances are derived from daily
balances over the periods indicated. Interest income includes fees, which we
considered adjustments to yields. Net interest spread is the difference between
the yield on interest-earning assets and the rate paid on interest-bearing
liabilities. Net interest margin is derived by dividing net interest income by
net interest-earning assets. No tax-equivalent adjustments have been made as
Bank Mutual has no investments that are tax exempt.
26
AVERAGE BALANCE SHEET, INTEREST AND RATE PAID
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
---------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS:
INTEREST-EARNING ASSETS:
Loans receivable (1) $1,824,676 $64,605 7.08% $1,956,741 $76,006 7.77%
Mortgage-related securities 552,768 16,067 5.81 454,928 15,183 6.67
Investment securities 120,937 2,863 4.73 141,109 4,235 6.00
Interest-earning deposits 28,876 234 1.62 24,786 561 4.53
Federal funds 154,641 1,336 1.73 59,458 1,362 4.58
---------- ------- ---- ---------- ------- ----
Total interest earnings assets 2,681,898 85,105 6.35 2,637,022 97,347 7.38
Noninterest-earning assets 180,550 173,316
---------- ----------
Total average assets $2,862,448 $2,810,338
========== ==========
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings deposits $ 225,602 1,284 1.14 $ 200,637 2,170 2.16
Money market accounts 345,400 3,465 2.01 302,219 7,159 4.74
Interest-bearing demand accounts 136,104 441 0.65 121,654 694 1.14
Time deposits 1,267,957 28,326 4.47 1,228,269 36,139 5.88
---------- -------- ---- ---------- -------- ----
Total deposits 1,975,063 33,516 3.39 1,852,779 46,162 4.98
Advance payments by borrowers
for taxes and insurance 13,476 81 1.20 13,416 125 1.86
Borrowings 423,963 11,918 5.62 533,482 15,985 5.99
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities 2,412,502 45,515 3.77 2,399,677 62,272 5.19
---------- -------- ---- ---------- -------- ----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 91,433 79,237
Other noninterest-bearing
liabilities 48,126 39,922
---------- ----------
Total noninterest-bearing
liabilities 139,559 119,159
---------- ----------
Total liabilities 2,552,061 2,518,836
Shareholders' equity 310,387 291,502
---------- ----------
Total average liabilities
and equity $2,862,448 $2,810,338
========== ==========
Net interest income and net
interest rate spread (2) $ 39,590 2.58% $ 35,075 2.19%
======== ==== ======== ====
Net interest margin (3) 2.95% 2.66%
==== ====
Average interest-earning assets
to average interest-bearing
liabilities 1.11x 1.10x
27
(1) For the purposes of these computations, non-accruing loans and loans
held for sale are included in the average loans outstanding.
(2) Interest rate spread is the difference between the average yield on
interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin is determined by dividing annualized net interest
income by total interest- earning assets.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to:
(1) changes attributable to changes in volume (change in volume multiplied
by prior rate);
(2) changes attributable to change in rate (changes in rate multiplied by
prior volume); and
(3) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
SIX MONTHS ENDED
-----------------------------------------------------
JUNE 30, 2002 COMPARED TO JUNE 30, 2001
-----------------------------------------------------
INCREASE (DECREASE) DUE TO:
-----------------------------------------------------
VOLUME (1) RATE (2) NET (3)
---------- -------- -------
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable $ (4,934) $ (6,467) $ (11,401)
Mortgage-related securities 3,000 (2,116) 884
Investment securities (554) (818) (1,372)
Interest-earning deposits 80 (407) (327)
Federal funds 1,203 (1,229) (26)
------------ ------------- -------------
Total (1,205) (11,037) (12,242)
------------ ------------- -------------
INTEREST-BEARING LIABILITIES:
Savings deposits 243 (1,129) (886)
Money market deposits 906 (4,600) (3,694)
Interest-bearing demand deposits 75 (328) (253)
Time deposits 1,134 (8,947) (7,813)
------------ ------------- -------------
Total Deposits 2,358 (15,004) (12,646)
Advance payments by borrowers for
taxes and insurance 1 (45) (44)
Borrowings (3,124) (943) (4,067)
----------- ------------- -------------
Total (765) (15,992) (16,757)
------------ ------------- -------------
Net change in net interest income $ (440) $ 4,955 $ 4,515
============ ============= =============
28
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002
AND 2001
GENERAL. Net income was $7.0 million for the second quarter of 2002 as compared
to $5.1 million for the second quarter of 2001 and $13.3 million for the six
months ended June 30, 2002 as compared to $9.9 million in 2001. The increased
net income for both periods is primarily the result of: (a) increased net
interest margin, (b) reduced provisions to the loan loss allowance, (c)
continued gains from loan sales and (d) the elimination of goodwill
amortization, partially offset by the cost of implementation of our stock
benefit plans.
INTEREST INCOME. Total interest income decreased $5.9 million in the second
quarter of 2002 as compared to the second quarter of 2001 and decreased $12.2
million for the six months ended June 30, 2002 as compared to the same period in
2001. The decreases were primarily the result of yields on both the loan and
investment portfolio decreasing and the loan portfolio decreasing in dollars
outstanding.
Interest income on loans decreased $5.5 million for the second quarter of 2002
and $11.4 million for the first six months of 2002. These decreases were the
result of the reductions in the dollar amount of the loan portfolio and
decreases in the yield on the loan portfolio. Market interest rates remained at
a level at which consumers were attracted to fixed interest rate mortgage loans.
These consumers, in a large part, are existing customers and they refinanced
their existing adjustable interest rate or fixed interest rate mortgage loan and
consolidated their other debt into a new fixed rate mortgage loan at a lower
interest rate. We sell the majority of fixed rate mortgage loan originations to
the secondary market. In addition, both adjustable and fixed rate mortgage loan
originations were at interest rates that were below the existing yield on the
loan portfolio. We retain all of the adjustable interest rate loans in the
portfolio.
Interest income on investments decreased $706,000 for the second quarter of 2002
and $1.4 million for the first six months of 2002 as a result of the decreased
size of the portfolio and the decreased yield on investment securities. As
investment securities matured, they were primarily reinvested into
mortgage-related securities or reinvested into another investment security.
However, these reinvestments into new investment securities were at interest
rates that were below the existing yield on the portfolio.
Interest income on mortgage-related securities increased $716,000 for the second
quarter of 2002 and $884,000 for the six months of 2002 as a result of the
increased dollars outstanding in the portfolio. Mortgage-related securities have
historically had a higher yield than other forms of investments.
Interest income on interest-earning deposits decreased $389,000 in the second
quarter as a result of a decrease in the yields earned partially offset by our
increase in deposits. A large portion of interest-earning deposits are federal
funds sold which are overnight investments that earn overnight market interest
rates. As market interest rates decline or increase, interest rates on federal
funds sold move in the same direction. The average federal funds outstanding in
the first six months of
29
2002 increased $95.2 million as compared to the first six months of 2001 even
though the quarter-end balance was reduced from year-end. This increase was the
result of cash generated from deposit growth, operations and loan sales. We
anticipate using federal funds to fund loan originations and to continue to
invest in securities (mortgage-related or investment).
INTEREST EXPENSE. Interest expense on deposits continued to decrease in the
second quarter of 2002. Interest expense on deposits decreased $7.2 million for
the second quarter of 2002 and $12.6 million for the six months ended June 30,
2002 as compared to the same periods in 2001. These decreases were primarily as
a result of a decrease in the cost of those deposits. As market interest rates
declined in 2001 and stabilized in 2002, market interest rates on deposits
declined and as time deposits matured, most were reinvested at a lower cost than
the existing cost of deposits. If interest rates continue to be stable at
current levels, we anticipate the cost of deposits to stabilize or even trend
upward for the third and fourth quarters of 2002.
Interest expense on borrowings decreased $1.5 million for the second quarter of
2002 and $4.1 million for the first six months of 2002 primarily as a result of
maturing borrowings being paid off. We primarily borrow from the Federal Home
Loan Bank ("FHLB") of Chicago and those borrowings have fixed terms and interest
rates.
NET INTEREST INCOME. Net interest income increased $2.8 million in the second
quarter of 2002 and increased $4.5 million for the six months ended June 30,
2002 as a result of an increased net interest margin. The net interest margin
for the second quarter of 2002 was 3.00% as compared to 2.63% for the same
period in 2001 and 2.95% for the six months ended June 30, 2002 compared to
2.66% for the six months ended June 30, 2001. If market rates continue to
stabilize, we anticipate our net interest margin to continue to increase in the
third quarter; however, if interest rates rise, our net interest margin will
remain flat or shrink depending on the size and speed of the increase.
PROVISIONS FOR LOAN LOSSES. Provisions for loan losses were $40,000 for the
second quarter of 2002 and $55,000 for the first six months of 2002. These are
substantial decreases in the provisions as compared to the same periods in 2001;
however, the reductions are the result of the decrease in the dollar amount of
the loan portfolio and the net recoveries of previous charge-offs. The total
allowance for loan losses at June 30, 2002 was $12.3 million or 0.70% of the
total loan portfolio.
NONINTEREST INCOME. Service charges on deposits grew in the second quarter of
2002 and first six months of 2002 primarily as a result of the growth in
checking accounts and debit card usage. The 2002 marketing efforts to promote
checking accounts began in the latter part of the first quarter of 2002 and
helped us to grow this noninterest income item.
Brokerage and insurance commissions increased $237,000 in the second quarter of
2002 and increased $528,000 in the first six months of 2002. These increases are
the result of increased fixed rate tax deferred annuity sales and increased
brokerage commissions.
30
Loan related fees decreased $227,000 in the second quarter of 2002 and decreased
$535,000 in the fist six months of 2002 as a result of decreased loan
modification fees and the impairment of mortgage servicing rights. Loan
modification fees decreased as market interest rates increased and the
advantages of adjusting an existing loan interest rate decreased. Loan
modification fees are charged on adjustable rate mortgage loans if interest
rates are adjusted before their adjustment period and if interest rates on fixed
interest rate mortgage loans held in the portfolio are adjusted. In addition, a
review of the originated mortgage servicing rights on loans sold with servicing
retained, identified some impairment. This impairment is reflected as a decrease
to servicing fee income.
Gain on sales of loans decreased in the second quarter 2002 as compared to 2001.
The decrease was $400,000 for the second quarter and resulted from reduced loan
sales. However, the gain on loan sales increased $154,000 for the six months
ended June 30, 2002 as compared to the same period in 2001 as a result of the
higher level of gains on the loans sold. We sold $41.0 million of loans in the
second quarter of 2002 as compared to $94.0 million in the second quarter of
2001 and $105.1 million for the six months ended June 30, 2002 as compared to
$132.3 million for the same period in 2001. "See Comparison of Financial
Condition - Loans Receivable." Gains on the sales of loans are primarily
dependent on the dollar amount of fixed rate mortgage loan originations and the
sale of those loans. If interest rates remain flat or increase, these gains
could be reduced in future periods.
Other noninterest income increased $45,000 in the second quarter of 2002 as a
result of a gain on the sale of real estate owned.
NONINTEREST EXPENSE. Total noninterest expense increased $148,000 for the second
quarter of 2002 and $567,000 for the six months ended June 30, 2002, primarily
as a result of increased compensation expense partially offset by the
elimination of the amortization of goodwill. Compensation increased $1.0 million
for the second quarter and $2.2 million for the six months ended June 30, 2002
primarily as a result of the implementation of stock benefit plans in May 2001.
The elimination of $774,000 of goodwill amortization for the second quarter of
2002 and $1.5 million for the six months ended June 30, 2002 was the result of
the implementation of SFAS No. 142. SFAS No. 142 eliminated the amortization of
goodwill. It also retains goodwill on the statement of financial condition and
requires that it be tested, at least annually, for impairment. If goodwill is
found to be impaired, the impaired amount will be expensed to current operations
in the period in which the impairment is identified. Other identifiable
intangible assets will continue to be expensed over their useful lives. See
Notes to Unaudited Financial Statements - Note 11. - Recent Accounting
Pronouncements.
Mutual Savings Bank and First Northern Savings Bank are currently operating as
separate subsidiaries. However, the two operating subsidiaries are anticipated
to be combined in early 2003. This schedule is a projection and remains subject
to change and refinement. Not all of the costs of the combination have yet been
determined. However, some of the preliminary cost estimates are as follows:
marketing costs, which include signage changes, $1.7 million; and systems
upgrades, $1.8 million. A majority of these estimated expenditures would be
capitalized and depreciated over their expected useful lives.
31
INCOME TAXES. The effective tax rate for the second quarter of 2002 was 33.7% as
compared to 37.4% for the second quarter of 2001 and 33.9% for the first six
months of 2002 as compared to 37.5% for the same period in 2001. These
differences in effective tax rates are primarily the result of the elimination
of the amortization of goodwill. Goodwill amortization is not a tax deduction
for income tax purposes.
IMPACT OF INFLATION AND CHANGING PRICES. The financial statements and
accompanying notes of Bank Mutual have been prepared in accordance with the
generally accepted accounting principles ("GAAP"). GAAP generally requires the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, our assets and
liabilities are primarily monetary in nature. As a result, changes in market
interest rates have a greater impact on performance than do the effects of
inflation.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GAP ANALYSIS. Repricing characteristics of assets and liabilities may be
analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring a financial institution's interest
rate sensitivity "gap." An asset or liability is said to be "interest rate
sensitive" within a specific time period if it will mature or reprice within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-bearing assets maturing or repricing within a
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period.
A gap is considered positive when the amount of interest-earning assets maturing
or repricing within a specific time period exceeds the amount of
interest-bearing liabilities maturing or repricing within that specific time
period. A gap is considered negative when the amount of interest-bearing
liabilities maturing or repricing within a specific time period exceeds the
amount of interest-earning assets maturing or repricing within the same period.
During a period of rising interest rates, a financial institution with a
negative gap position would be expected, absent the effects of other factors, to
experience a greater increase in the costs of its liabilities relative to the
yields of its assets and thus a decrease in the institution's net interest
income. An institution with a positive gap position would be expected, absent
the effect of other factors, to experience the opposite result. Conversely,
during a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to reduce
net interest income.
At June 30, 2002, based on the assumptions below, our interest-bearing assets
maturing or repricing within one year exceeded our interest-earning liabilities
maturing or repricing within the same period by $37.6 million. This represents a
positive cumulative one-year interest rate sensitivity gap of 1.30%, and a ratio
of interest-earning assets maturing or repricing within one year to
interest-bearing liabilities maturing or repricing within one year of 103.00%.
The cumulative gap ratio is significantly affected by $200.0 million of
long-term FHLB borrowings which had an original call option in the second
quarter of 2001 and which are quarterly callable thereafter. For the June 30,
2002 GAP analysis, we have placed the $200 million long-term borrowing in its
finally maturing period as market interest rates are lower than the interest
rate on the borrowing and as such, the likelihood of the FHLB calling this
borrowing is significantly reduced. This call option is at the FHLB of Chicago's
discretion; however if the borrowings are called, the FHLB of Chicago has given
us indications that alternative borrowings would be available. While we have no
reason to believe that the FHLB of Chicago would not follow through on its
indications, there is no binding commitment and we therefore cannot provide an
assurance that these alternatives would be available. A call of these
obligations without a replacement would materially adversely affect our
liquidity, and we would need to find an alternative source of funds.
The following table presents the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2002, which we anticipate
to reprice or mature in each of the future time periods shown. The information
presented in the following table is based on the following assumptions:
i) Investment securities - based upon contractual maturities and if
applicable, call dates.
33
ii) Mortgage-related securities - based upon an independent outside source
for determining estimated cash flows (prepayment speeds).
iii) Loans - based upon contractual maturities, repricing dates, if
applicable, scheduled repayments of principal and projected
prepayments of principal based upon our historical experience or
anticipated prepayments.
iv) Deposits - based upon contractual maturities and our historical decay
rates.
v) Borrowings - based upon the earlier of call date or final maturity.
AT JUNE 30, 2002
-----------------------------------------------------------------------------
MORE THAN MORE THAN
SIX TO ONE YEAR SIX YEARS
WITHIN SIX TWELVE TO THREE TO OVER
MONTHS MONTHS YEARS FIVE YEARS FIVE YEARS TOTAL
---------- ------ --------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans receivable:
Mortgage loans:
Fixed $ 46,963 $112,842 $191,286 $ 99,705 $ 100,879 $ 551,675
Adjustable 135,804 251,164 274,223 101,195 6,883 769,269
Consumer loans 131,022 121,636 133,958 16,563 8,205 411,384
Commercial and industrial loans 24,081 21,571 20,150 174 - 65,976
Interest-earning deposits 210,245 - - - - 210,245
Investment securities 39,442 8,601 23,431 9,129 - 80,603
Mortgage-related securities:
Fixed 31,393 76,481 214,184 126,851 95,065 543,974
Adjustable 46,711 - - - - 46,711
Other interest-earning assets 32,097 - - - 32,097
---------- ---------- ---------- --------- ---------- ----------
Total interest-earning assets 697,758 592,295 857,232 353,617 211,032 2,711,934
Interest-bearing liabilities:
Deposits:
Interest-bearing demand accounts $ 697 $ 2,092 $ 5,086 $ 4,495 $ 126,859 $ 139,229
Savings accounts 3,848 11,375 27,450 23,909 169,516 236,098
Money market accounts 342,981 973 2,109 1,594 4,936 352,593
Time deposits 306,261 446,446 333,348 179,992 - 1,266,047
Advance payments by borrowers for
taxes and insurance - 23,654 - - - 23,654
Borrowings 60,459 53,636 275,095 23,805 10,836 423,831
---------- ---------- ---------- --------- ---------- ----------
Total interest-bearing liabilities 714,246 538,176 643,088 233,795 312,147 2,441,452
---------- --------- ---------- --------- ---------- ----------
Interest rate sensitivity gap $ (16,488) $ 54,119 $ 214,144 $ 119,822 $ (101,115) $ 270,482
========== ========= ========== ========= ========== ==========
Cumulative interest rate sensitivity gap $ (16,488) $ 37,631 $ 251,775 $ 371,597 $ 270,482
========== ========= ========== ========= ==========
Cumulative interest rate sensitivity
gap as a percentage of total assets (0.57)% 1.30% 8.70% 12.84% 9.34%
Cumulative interest-earning assets
as a percentage of interest
bearing liabilities 97.69% 103.00% 113.28% 117.45% 111.08%
34
The methods used in the previous table have some shortcomings. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. 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. Certain assets, such as
adjustable-rate loans, have features which limit changes in interest rates on a
short-term basis and over the life of the loan. If interest rates change,
prepayment, and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of borrowers to
make payments on their adjustable-rate loans may decrease if interest rates
increase.
NET EQUITY SENSITIVITY
In addition to the gap analysis table, we also use simulation models to monitor
interest rate risk. The models report the present value of equity in different
interest rate environments, assuming an instantaneous and permanent interest
rate shock to all interest rate-sensitive assets and liabilities. The present
value of equity is the difference between the present value of expected cash
flows of interest rate-sensitive assets and liabilities. The changes in market
value of assets and liabilities due to changes in interest rates reflect the
interest rate sensitivity of those assets and liabilities as their values are
derived from the characteristics of the asset or liability (i.e., fixed rate,
adjustable-rate, caps, floors) relative to the current interest rate
environment. For example, in a rising interest rate environment the fair market
value of a fixed rate asset will decline, whereas the fair market value of an
adjustable-rate asset, depending on its repricing characteristics, may not
decline. Increases in the market value of assets will increase the present value
of equity whereas decreases in market value of assets will decrease the present
value of equity. Conversely, increases in the market value of liabilities will
decrease the present value of equity whereas decreases in the market value of
liabilities will increase the present value of equity.
The following table presents the estimated present value of equity over a range
of interest rate change scenarios at June 30, 2002. The present value ratio
shown in the table is the present value of equity as a percent of the present
value of total assets in each of the different rate environments. For purposes
of this table, we have made assumptions such as prepayment rates and decay rates
similar to those used for the gap analysis table.
PRESENT VALUE OF EQUITY
AS A PERCENT OF
PRESENT VALUE OF EQUITY PRESENT VALUE OF ASSETS
----------------------------------------------------- ---------------------------
CHANGE IN DOLLAR DOLLAR PERCENT PRESENT VALUE PERCENT
INTEREST RATES AMOUNT CHANGE CHANGE RATIO CHANGE
-------------- ------ ------ ------- ------------- -------
(BASIS POINTS) (DOLLARS IN THOUSANDS)
+300 $337,126 $(41,214) (10.89)% 11.82% (6.86)%
+200 353,378 (24,962) (6.60) 12.21 (3.78)
+100 367,567 (10,773) (2.85) 12.51 (1.42)
0 378,340 - 0.00 12.69 0.00
-100 385,286 6,946 1.84 12.72 0.24
-200 373,977 (4,363) (1.15) 12.18 (4.02)
-300 392,200 13,860 3.66 12.60 (0.71)
35
As in the case of the gap analysis table, the methods we used in the previous
table have some shortcomings. This type of modeling requires that we make
assumptions which may not reflect the manner in which actual yields and costs
respond to changes in market interest rates. For example, we make assumptions
regarding the acceleration rate of the prepayment speeds of higher yielding
mortgage loans. Prepayments will accelerate in a falling rate environment and
the reverse will occur in a rising rate environment. We also assume that decay
rates on core deposits will accelerate in a rising rate environment and the
reverse in a falling rate environment. The table assumes that we will take no
action in response to the changes in interest rates, when in practice rate
changes on certain products, such as savings deposits, may lag market changes.
In addition, prepayment estimates and other assumptions within the model are
subjective in nature, involve uncertainties, and therefore cannot be determined
with precision. Accordingly, although the present value of equity model may
provide an estimate of our interest rate risk at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in interest rates on our present value of equity.
36
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant reported on the results of its May 8, 2002 annual
meeting of shareholders in Part II, Item 4 of its Report on Form 10-Q
for the quarter ended March 31, 2002; that Item is incorporated
herein by reference.
ITEM 5. OTHER INFORMATION
The officers' certifications required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been submitted to the Securities and
Exchange Commission accompanying this Report on Form 10-Q. See
Exhibits 99.1 and 99.2 hereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index, which follows the signature
page hereof.
(b) Reports on Form 8-K: In the quarter ended June 30, 2002, the
Registrant did not file any Reports on Form 8-K.
37
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.
BANK MUTUAL CORPORATION
-----------------------
(Registrant)
Date: August 13, 2002
--------------- /s/ Michael T. Crowley, Jr.
---------------------------
Michael T. Crowley, Jr.
Chairman and Chief Executive Officer
Date: August 13, 2002
--------------- /s/ Rick B. Colberg
-------------------
Rick B. Colberg
Chief Financial Officer
38
EXHIBIT INDEX
BANK MUTUAL CORPORATION
Form 10-Q for Quarter Ended June 30, 2002
Exhibit No. Description Filed Herewith
- ----------- ----------- --------------
99.1 Certification required by Section 906 of the X
Sarbanes-Oxley Act of 2002 signed by the Chairman and
Chief Executive Officer of Bank Mutual Corporation
99.2 Certification required by Section 906 of the X
Sarbanes-Oxley Act of 2002 signed by the Chief Financial
Officer of Bank Mutual Corporation