BANK MUTUAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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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 SEPTEMBER 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
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(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 21,797,671 shares, at November 8, 2002.

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BANK MUTUAL CORPORATION

10-Q INDEX

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See Notes to Unaudited Consolidated Financial Statements.

3

BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

See Notes to Unaudited Consolidated Financial Statements.

4

BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

See Notes to Unaudited Consolidated Financial Statements.

5

BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See Notes to Unaudited Consolidated Financial Statements.

6

BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

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BANK MUTUAL CORPORATION
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

See Notes to Unaudited Consolidated Financial Statements.

8

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 September 30, 2002 and December 31,
2001, the results of their income for the three and nine months ended September
30, 2002 and 2001, the changes in shareholders' equity for the nine months ended
September 30, 2002 and 2001, and their cash flows for the nine months ended
September 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 nine months ended
September 30, 2002, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.

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NOTE 2 - SECURITIES AVAILABLE-FOR-SALE

The amortized cost and fair value of investment securities available-for-sale
are as follows:

The amortized cost and fair values of investment securities by contractual
maturity at September 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.

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NOTE 3 - LOANS RECEIVABLE

Loans receivable consist of the following:

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.

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NOTE 4 - OTHER ASSETS

Other Assets are summarized as follows:

NOTE 5 - DEPOSITS

Deposits are summarized as follows:

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NOTE 6 - BORROWINGS

Borrowings consist of the following:

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 $32,476 and
$31,233 at September 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

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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 September
30, 2002, that the Banks meet or exceed all capital adequacy requirements to
which they are subject.

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.

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Following are reconciliations of the Banks' equity under generally accepted
accounting principles to capital as determined by regulators:

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 829,000 shares through September 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.

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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 September 30, 2002 and December 31, 2001 are as
follows:

Forward commitments to sell mortgage loans of $144.5 million at September 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.

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NOTE 9 - SHARES OUTSTANDING

The computation of basic and diluted earnings per share is presented in the
following table:

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 performed an impairment
test as of August 31, 2002 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

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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 third quarter of 2001 and the nine months ended September 30, 2001, so
as to allow for a comparative analysis to the third quarter of 2002 and for the
nine months ended September 30, 2002.

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 nine months ended September 30, 2002.

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NOTE 11 - AMORTIZING INTANGIBLE ASSETS

The carrying amount of intangible assets net of accumulated amortization and the
associated valuation allowance at September 30, 2002 is presented in the
following table.

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 September 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:

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NOTE 12 - CONTINGENT LIABILITY

Bank Mutual has entered into an agreement whereby, for an initial fee and annual
fee, certain of its United States Treasury notes are pledged as collateral for
an Industrial Development Revenue Bond which was issued by a local municipality
to finance commercial real estate owned by a third party, unrelated to Bank
Mutual. Under the terms of the agreement, Mutual must maintain with a trustee
collateral with a fair market value, as defined, aggregating 135% or more of the
sum of the outstanding principal balance of the bonds plus accrued interest on
the outstanding principal. Bank Mutual continues to receive interest payments on
the collateral.

At September 30, 2002, United States Treasury notes with outstanding principal
balances aggregating approximately $10.0 million were held by the trustee as
collateral for these bonds which had an outstanding principal balance of
approximately $4.6 million. The third-party borrower is current on all
scheduled payments due under the bond issue, which has a scheduled maturity of
December 15, 2009.

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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; negative developments
affecting particular borrowers; legislative and regulatory initiatives; monetary
and fiscal policies of the federal government; deposit flows; disintermediation;
the cost of funds and changes in those costs; 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. In
addition, by the very nature of this allowance, developments
as to particular loans can affect quarter-to-quarter provision
amounts. 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

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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 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 existing
goodwill is more than the goodwill that 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 SEPTEMBER 30, 2002 AND DECEMBER 31, 2001

TOTAL ASSETS. Bank Mutual's total assets increased $32.9 million in the first
nine months of 2002 primarily as a result of the increased federal funds sold
and mortgage-related securities. Total assets at September 30, 2002 were $2.94
billion as compared to $2.91 billion at December 31, 2001.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents increased $15.4 million in
the first nine months of 2002 primarily as a result of the cash generated from
prepayments of loans and the sales of loans which resulted in cash being
invested in federal funds sold.

SECURITIES AVAILABLE-FOR-SALE. Investment securities available-for-sale
decreased $12.0 million in the first nine months of 2002 as a result of maturing
investments.

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Mortgage-related securities available-for-sale increased $99.3 million primarily
as a result of the cash generated by loan sales and maturing investment
securities being invested in mortgage-related securities.

LOANS HELD FOR SALE. Loans held for sale at September 30, 2002 as compared to
December 31, 2001 increased $39.4 million as a result of increased fixed rate
mortgage loan originations. Currently, we sell all of our 30 year fixed rate
mortgage loan originations and some of our 20 and 15 year fixed rate mortgage
loan originations in the secondary mortgage market.

LOANS RECEIVABLE. Loans receivable decreased $111.2 million in the first nine
months of 2002 primarily as a result of loan sales of fixed rate single-family
mortgage loans. We sell a majority of our fixed rate mortgage loan originations
to reduce our interest rate risk.

The mortgage loan portfolio decreased $159.5 million in the first nine months of
2002 primarily as a result of consumers continuing to refinance their adjustable
rate mortgage loans to fixed rate mortgage loans and their existing fixed rate
mortgage loans to a lower fixed interest rate mortgage loan especially in the
third quarter of 2002. Market interest rates for fixed rate mortgages were
attractive in the first nine months of 2002. We retain all adjustable rate
mortgage loans in our portfolio and sell the majority of the fixed rate mortgage
loans. We sold $77.8 million of fixed rate mortgage loans in the third quarter
of 2002 and $182.8 million in the first nine months of 2002.

LOAN SALES

The consumer loan portfolio increased in the first nine months of 2002,
primarily as a result of strong second mortgage originations in the third
quarter of 2002. The increase of $774,000 in the first nine months of 2002 was
primarily the result of equity loan originations partially offset by 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 $4.7 million in the first nine months of 2002.

The commercial business loan portfolio increased $2.2 million during the nine
months ended September 30, 2002. This increase was the result of increased
commercial business loan originations and the use by commercial borrowers of
existing lines of credit.

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LOAN ORIGINATIONS AND PURCHASES

Management will continue to emphasize consumer, non-residential mortgage loan
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 $31.5 million in the first nine months of 2002. 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 $46.9 million in the first nine months of 2002,
to $418.5 million at September 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, loan prepayments 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 $30.4 million in the
first nine 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 $0.09 per share on
September 3, 2002, to shareholders of record on August 21, 2002. The third
quarter dividend payout ratio was 15.2% 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 September 30, 2002, had repurchased a
total of 829,000 shares at an average cost of $17.54 per share, including

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279,500 shares in the third quarter at a weighted average price of $19.64 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.

From October 1, 2002, through November 8, 2002, Bank Mutual repurchased an
additional 79,500 shares at an average price of $21.64.

The $11.0 million of accumulated other comprehensive income, which is a part of
shareholders' equity, consists primarily of increased market value of securities
available-for-sale.

ASSET QUALITY

The following table summarizes non-performing loans and assets:

NON-PERFORMING LOANS AND ASSETS

Total non-performing loans increased as of September 30, 2002, as compared to
December 31, 2001, primarily as a result of an increase in non-accrual business
and non-accrual consumer loans. Even with the reported increase, we believe
non-performing loans and assets, expressed as a percentage of total loans and
assets, are still below national averages for financial institutions, due in
part to our loan underwriting standards. The increase relating to consumer and
commercial loans results from the general decline in economic conditions.

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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
and second quarter, there is one condominium construction loan of $8.8 million
that is current as of September 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 and it is anticipated that a large portion of this loan will
be repaid by the end of 2002.

In the third quarter, developments on the following commercial business loans,
substantially affected non-performing loans:

o As previously reported, another commercial borrower has a loan
of $4.1 million that became 90 days past due in early July. At
present, we are working with the borrower to bring the loan
current or to get the loan paid off. Presently we anticipate
that the loan will be paid off since the borrower has an
apparent commitment from another lender to finance the
project. We have provided 15% of the $4.1 million to the loan
loss allowance in anticipation of a loss.

o A commercial borrower with loans that total $3.2 million
became non-performing in the third quarter of 2002 and remains
non-performing at September 30, 2002. We have provided 7.8% of
the $3.2 million to the loan loss allowance in anticipation of
a loss.

o Also, there is one commercial borrower that we continue to
have on our watch list. This commercial borrower has loans
that total $5.7 million and is current at September 30, 2002.
We have provided $277, 000 to the loan loss allowance on one
loan of $1.8 million, however at present, we do not anticipate
any loss from the other commercial loans of $3.9 million but
continue to carefully monitor those loans.

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.

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A summary of the allowance for loan losses is shown below:

ALLOWANCE FOR LOAN LOSSES

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 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

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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. See "Non-performing loans" also for factors affecting some
particular loans which affected the provisions for the period.

COMPARISON OF OPERATING RESULTS

The national and local economies have generally experienced significant
challenges, disruptions, and weaknesses in recent periods, and equity markets
have experienced declines and volatility. Among other things, the continuing
slowdown, market events, 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 nine months ended
September 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.

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AVERAGE BALANCE SHEET, INTEREST AND RATE PAID

(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.

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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.

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COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001

GENERAL. Net income was $6.4 million for the third quarter of 2002 as compared
to $4.9 million for the third quarter of 2001 and $19.7 million for the nine
months ended September 30, 2002 as compared to $14.8 million in 2001. The
increased net income for both periods is primarily the result of: increased net
interest margin, continued gains from loan sales and the elimination of goodwill
amortization partially offset by the cost of implementation of our stock benefit
plans, increased provisions to the loan loss allowance and impairment of our
originated mortgage servicing rights.

INTEREST INCOME. Total interest income decreased $6.3 million in the third
quarter of 2002 as compared to the third quarter of 2001 and decreased $18.6
million for the nine months ended September 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 $5.9 million for the third quarter of 2002
and $17.3 million for the first nine 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 also allowed some customers with our adjustable interest rate
mortgage loans to reduce their interest rate for a fee, before the expiration of
their initial lock-in period or next adjustment date. 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 $766,000 for the third quarter of 2002
and $2.1 million for the first nine 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 generally at
interest rates that were below the existing yield on the portfolio.

Interest income on mortgage-related securities increased $753,000 for the third
quarter of 2002 and $1.6 million for the nine 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 $433,000 in the third
quarter and $786,000 for the nine months ended September 30, 2002 as a result of
a decrease in the yields earned partially

31

offset by our increase in the dollar amount of interest-earning 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 nine
months of 2002 increased $81.5 million as compared to the first nine months of
2001. 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
third quarter of 2002. Interest expense on deposits decreased $6.5 million for
the third quarter of 2002 and $19.1 million for the nine months ended September
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 in the fourth quarter of 2002.

Interest expense on borrowings decreased $1.2 million for the third quarter of
2002 and $5.3 million for the first nine 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 $1.4 million in the third
quarter of 2002 and increased $5.9 million for the nine months ended September
30, 2002 as a result of an increased net interest margin. The net interest
margin for the third quarter of 2002 was 2.83% as compared to 2.65% for the same
period in 2001 and 2.91% for the nine months ended September 30, 2002 compared
to 2.66% for the nine months ended September 30, 2001. We anticipate our net
interest margin will remain flat or shrink in the fourth quarter of 2002 as a
result of the cash generated by loan sales being reinvested either in loans or
securities at interest rates that are less than existing interest rates and a
slowing down in the reduction in the cost of funds.

PROVISIONS FOR LOAN LOSSES. Provisions for loan losses were $940,000 for the
third quarter of 2002 and $995,000 for the first nine months of 2002. These
increases in the provisions as compared to the same periods in 2001 are
primarily the result of $6.8 million of commercial loans becoming non-performing
in the third quarter of 2002. The total allowance for loan losses at September
30, 2002 was $13.2 million or 0.77% of the total loan portfolio.

NONINTEREST INCOME. Service charges on deposits grew in the third quarter of
2002 and first nine 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.

32

Brokerage and insurance commissions increased $122,000 in the third quarter of
2002 and increased $650,000 in the first nine months of 2002. These increases
are the result of increased fixed rate tax deferred annuity sales and increased
brokerage commissions.

Loan related fees decreased $345,000 in the third quarter of 2002 and decreased
$880,000 in the first nine months of 2002 primarily as a result of the
impairment of mortgage servicing rights. In light of increased prepayments of
mortgage loans sold, a review of the originated mortgage servicing rights on
loans sold with servicing retained, identified some impairment. The impairment
for the third quarter was $326,000 and for the nine months ended September 30,
2002, the impairment was $991,000. This impairment is reflected as a decrease to
servicing fee income.

Gain on sales of loans increased $286,000 in the third quarter 2002 as compared
to 2001 and $440,000 for the nine months ended September 30, 2002. The increases
were the result of increased gains on the loans sold. We sold $77.8 million of
loans in the third quarter of 2002 as compared to $58.6 million in the third
quarter of 2001 and $182.8 million for the nine months ended September 30, 2002
as compared to $190.9 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 decreased $236,000 in the third quarter of 2002 and
$242,000 for the first nine months of 2002 primarily as a result of a settlement
of a life insurance policy which resulted in $223,000 of other noninterest
income in the third quarter of 2001.

NONINTEREST EXPENSE. Total noninterest expense decreased $791,000 for the third
quarter of 2002 and $224,000 for the nine months ended September 30, 2002,
primarily as a result of the elimination of the amortization of goodwill and
reduction in other expenses.

Compensation increased $340,000 for the third quarter and $2.5 million for the
nine months ended September 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 third quarter of
2002 and $2.3 million for the nine months ended September 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 Consolidated Financial Statements -- Note 11. -
Recent Accounting Pronouncements.

Other expenses decreased $409,000 in the third quarter of 2002 and $478,000 in
the first nine months of 2002 primarily as a result of decreased marketing
expense. In the third quarter of

33

2001, we embarked on a large advertising campaign and hence, an increase in
marketing expense. We anticipate we will increase marketing expense in the
fourth quarter of 2002 and the first six months of 2003 to announce and promote
the combination of the two banking subsidiaries.

Mutual Savings Bank and First Northern Savings Bank are currently operating as
separate subsidiaries. However, the two operating subsidiaries are anticipated
to be combined under a new name 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.

INCOME TAXES. The effective tax rate for the third quarter of 2002 was 31.6% as
compared to 36.7% for the third quarter of 2001 and 33.1% for the first nine
months of 2002 as compared to 37.3% 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.

LIQUIDITY AND CAPITAL RESOURCES

The term "liquidity" refers to our ability to generate adequate amounts of cash
to fund loan originations, loan purchases, deposit withdrawals, and operating
expenses. Our primary sources of funds are deposits, scheduled amortization, and
prepayments of loan principal and mortgage-related securities, maturities and
calls of investment securities, borrowings from the FHLB of Chicago and funds
provided by our operations. Historically, these sources of funds have been
adequate to maintain liquidity, with the subsidiary banks borrowing
correspondingly more in periods in which their operations generate less cash. In
the event these sources of liquidity would become inadequate, Bank Mutual
believes that it could access the wholesale deposit market, although there can
be no assurances that of liquidity would be available if needed.

Loan repayments and maturing investment securities are a relatively predictable
source of funds. However, deposit flows, calls of investment securities and
prepayments of loans and mortgage-related securities are strongly influenced by
interest rates, general and local economic conditions and competition in the
marketplace. For example, during the first nine months of 2002, loan prepayments
increased significantly because of the reduced interest rate environment;
another

34

very different interest rate environment could lead to a significantly different
result. These factors reduce the predictability of the timing of these sources
of funds.

We are committed to maintaining a strong liquidity position; therefore, we
monitor our liquidity position on a daily basis. Based upon our historical
experience and available sources of liquidity, we anticipate that we will have
sufficient funds to meet current funding commitments. See also "Qualitative and
Quantitative Disclosures about Market Risk - Gap Analysis" in Item 3 hereof,
which is incorporated herein by reference, which discusses maturities.

Our primary investing activities are the origination and purchase of one-to
four-family real estate loans, multi-family and commercial real estate loans,
home equity loans, other consumer loans, commercial business loans, the purchase
of mortgage-related securities, and to a lesser extent, the purchase of
investment securities. These investing activities were funded by principal
payments on mortgage loans and mortgage-related securities, calls and maturities
on investment securities, borrowings, deposit growth, and funds provided by our
operating activities.

Cash and cash equivalents increased $15.4 million during the first nine months
of 2002. Bank Mutual was provided $27.2 million in cash in investing activities,
primarily as a result of the decrease in the loan portfolio (caused by the sale
of fixed rate mortgage loans), principal repayments on mortgage-related
securities and proceeds from maturities of investment securities, offset by
purchase of mortgage-related and investment securities. Cash provided by
financing activities of $2.2 million resulted primarily from deposit growth and
increases in advance payments by borrowers, offset by net repayments on long
term borrowings, purchases of treasury shares and payment of cash dividends. Net
cash used by operating activities of $14.1 million consisted primarily of an
increase in loans originated for sale, offset by net income and the effect of
non-cash expense items.

At September 30, 2002, we exceeded each of the applicable regulatory capital
requirements for both savings bank subsidiaries. In order to be classified as
"well-capitalized" by the FDIC we are required to have leverage (tier 1) capital
to average assets of at least 5.00%. To be classified as a well-capitalized bank
by the FDIC, we must also have a risk-based total capital to risk-weighted
assets ratio of at least 10.00%. At September 30, 2002, Mutual Savings Bank had
a risk-based total capital ratio of 16.81% and First Northern Savings Bank had a
risked-based total capital ratio of 14.48%. See Notes to Unaudited Consolidated
Financial Statements - Note 7. Shareholders' Equity.

Off-Balance Sheet Obligations

Because Bank Mutual is in the financial services industry; it regularly commits
to lend funds in the ordinary course of its business. Those lending commitments
give rise to potential future obligations and potential liquidity needs that are
not, and cannot meaningfully be, reflected on Bank Mutual's balance sheet. At
September 30, 2002, Bank Mutual had:

o outstanding loan commitments to borrowers of approximately
$68.5 million;

o unused commercial lines of credit of approximately $24.8
million;

35

o unused letters of credit of approximately $9.5 million; and

o available home equity, overdraft lines of credit and unused
credit card lines of credit of approximately $140.7 million.

See Notes to Unaudited Consolidated Financial Statements - Note 8. Financial
Instruments with Off-Balance Sheet Risk. Other than a credit enhancement
instrument of $25,000, there were no outstanding commitments to purchase
securities at September 30, 2002. Other than these commitments and future
obligations under leases and similar contracts, Bank Mutual does not engage in
off-balance sheet financing or have other off balance sheet obligations.

36

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 September 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 $230.3 million. This
represents a positive cumulative one-year interest rate sensitivity gap of
7.84%, and a ratio of interest-earning assets maturing or repricing within one
year to interest-bearing liabilities maturing or repricing within one year of
117.93%. 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 September
30, 2002 GAP analysis, we have placed the $200 million long-term borrowing in
its finally maturing period of 2004 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 September 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.

37

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.

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

38

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 September 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.

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

39

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.

40

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. In response
to the adoption of the Sarbanes-Oxley Act of 2002, Bank Mutual
and the certifying officers of this report have implemented
disclosure controls and procedures to ensure that material
information relating to Bank Mutual is made known to the
signing officers, and consequently reflected in periodic SEC
reports. These controls and procedures build upon Bank
Mutual's pre-existing practices. Bank Mutual and those
officers have evaluated for this report, and will regularly
evaluate, the effectiveness of those disclosures controls and
procedures within 90 days prior to filing of any periodic SEC
report, including this report. Bank Mutual and the certifying
officers believe that these disclosure controls and procedures
are effective, based upon this evaluation.

(b) Changes in internal controls. During the period covered by
this report, there were not any significant changes in Bank
Mutual's internal controls or in other factors that could
significantly effect these controls subsequent to the date of
their evaluation, including any corrective actions with
respect to significant deficiencies and material weaknesses.

(c) Asset-backed issuers. Not applicable.

41

PART II. OTHER INFORMATION

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 September 30, 2002,
the Registrant did not file any Reports on Form 8-K.

42

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: November 14, 2002
-----------------
/s/ Michael T. Crowley, Jr.
------------------------------------
Michael T. Crowley, Jr.
Chairman and Chief Executive Officer

Date: November 14, 2002
-----------------

/s/ Rick B. Colberg
------------------------------------
Rick B. Colberg
Chief Financial Officer

43

CERTIFICATIONS

I, Michael T. Crowley, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bank Mutual
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

44

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Michael T. Crowley, Jr.
------------------------------------
Michael T. Crowley, Jr.
Chairman and Chief Executive Officer

45

I, Rick B. Colberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bank Mutual
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

46

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Rick B. Colberg
-----------------------
Rick B. Colberg
Chief Financial Officer

47

EXHIBIT INDEX

BANK MUTUAL CORPORATION

Form 10-Q for Quarter Ended September 30, 2002