UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended March 31, 2005

OR

Commission File Number 000-31207

BANK MUTUAL CORPORATION

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 þ       No o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ       No o

The number of shares outstanding of the issuer’s common stock $0.01 par value per share, was 63,710,562 shares, at May 6, 2005.

BANK MUTUAL CORPORATION

10-Q INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

See Notes to Unaudited Consolidated Financial Statements.

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BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

See Notes to Unaudited Consolidated Financial Statements.

4

BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

See Notes to Unaudited Consolidated Financial Statements.

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BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

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BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

See Notes to Unaudited Consolidated Financial Statements .

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BANK MUTUAL CORPORATION
     AND SUBSIDIARIES

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Bank Mutual Corporation (the “Company”), its wholly-owned subsidiary Bank Mutual (the “Bank”) and the Bank’s subsidiaries.

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 Corporation, 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 contain all adjustments, which are of a normal recurring nature, necessary to present fairly the consolidated financial position of Bank Mutual Corporation and subsidiaries at March 31, 2005 and December 31, 2004, the results of their income for the three months ended March 31, 2005 and 2004, and their cash flows for the three months ended March 31, 2005 and 2004. The accompanying Unaudited Consolidated Financial Statements and related notes should be read in conjunction with Bank Mutual Corporation’s 2004 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

As a result of the consolidation of the Arrowood Development, LLC (an entity established in the third quarter of 2004 in which the Corporation has a 50% interest), into Bank Mutual’s financial statements as required by Financial Interpretation Number (“FIN”) 46, other assets increased by $2.3 million. The increase in assets was accompanied by minority interest (the other partner’s ownership interests) of $2.3 million on the statement of financial condition as a mezzanine item, after liabilities and before shareholders’ equity.

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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 Company does not believe any individual unrealized loss as of March 31, 2005 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-backed securities relate primarily to securities issued by FNMA, FHLMC and private institutions. These unrealized losses are primarily attributable to changes in interest rates.

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The amortized cost and fair values of investment securities by contractual maturity at March 31, 2005, 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.

Note 3 - Loans Receivable

Loans receivable consist of the following:

Bank Mutual Corporation’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, Minnesota and Michigan. In addition, Bank Mutual has purchased some loans in other Midwest states.

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Note 4 – Goodwill, Other Intangible Assets and Mortgage Servicing Rights

The carrying amount of mortgage servicing rights net of accumulated amortization and the associated valuation allowance at March 31, 2005 and December 31, 2004 are presented in the following table.

The carrying amounts of the intangible assets, net of accumulated amortization, valuation allowance and net carrying amounts of intangible assets at March 31, 2005 are 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 March 31, 2005. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

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The following table shows the current period and estimated future amortization expense for amortizable intangible assets:

Note 5 - Other Assets

Other Assets are summarized as follows:

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Note 6 - Deposits

Deposits are summarized as follows:

Note 7 - Borrowings

Borrowings consist of the following:

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The Bank is required to maintain unencumbered mortgage loans in its portfolio aggregating at least 167% of the amount of outstanding advances from the FHLB as collateral. The Bank’s 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 advances are collateralized by FHLB stock of $44,307 and $38,186 at March 31, 2005 and December 31, 2004, respectively.

Note 8 - Shareholders’ Equity

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. OTS can initiate certain mandatory, and possible additional discretionary actions, which, if undertaken, could have a direct material effect on Bank Mutual Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the OTS about components, risk weightings and other factors.

Quantitative measures established by federal regulation to ensure capital adequacy require the Bank 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 March 31, 2005, that the Bank meets or exceeds all capital adequacy requirements to which it is subject.

Bank Mutual Corporation is not aware of any conditions or events which would change the Bank’s status from well capitalized. There are no conditions or events that management believes have changed the Bank’s category.

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Following are reconciliations of the Bank’s equity under generally accepted accounting principles to capital as determined by regulators:

Note 9 – Earnings Per Share

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

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Note 10 – Employee Benefit Plans

Bank Mutual Corporation has a discretionary, defined contribution savings plan (the Savings Plan). The Savings Plan is qualified under Sections 401 and 401(k) of the Internal Revenue Code and provides employees meeting certain minimum age and service requirements the ability to make contributions to the Savings Plan on a pretax basis. The Company then matches a percentage of the employee’s contributions. Matching contributions made by the Company were $42,000 in the first quarter of 2005 and $41,000 in the first quarter of 2004.

Bank Mutual Corporation also has a defined benefit pension plan covering employees meeting certain minimum age and service requirements and a supplemental pension plan for certain qualifying employees (collectively, “the Plan”). The supplemental pension plan is funded through a “rabbi trust” arrangement. The benefits are generally based on years of service and the employee’s average annual compensation for five consecutive calendar years in the last ten calendar years which produces the highest average. The Company’s funding policy is to contribute annually the amount necessary to satisfy the requirements of the Employee Retirement Income Security Act of 1974.

The following table sets forth the net periodic benefit cost:

Pension plan assets which consist primarily of immediate participation guarantee contracts with an insurance company are actively managed by investment professionals.

The investment objective is to minimize risk. Asset allocation strongly favors immediate participation contracts with an insurance company.

The Company expects to contribute $653,000 to the Plan during 2005 and will be accruing for this contribution throughout 2005. This amount was determined based on a number of factors, including the results of the actuarial valuation report as of January 1, 2005.

Bank Mutual has a deferred retirement plan, for non-officer directors who have provided at least five years of service. Four of the five existing eligible directors’ benefits have vested. In the event a director dies prior to completion of these payments, payments will go to the director’s heirs. Bank Mutual has funded these arrangements through “rabbi trust” arrangements, and based on actuarial analyses believes these obligations are adequately funded.

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First Northern Savings Bank, acquired by the Company in 2000, had an unfunded deferred retirement plan for its non-employee directors. All members of First Northern Savings Bank’s Board of Directors were eligible under the plan. Directors of predecessor institutions who were members of an advisory board were eligible at the discretion of First Northern Savings Bank. Currently there are four retired advisory board members in the plan. This plan was terminated as a consequence of the 2003 merger of First Northern Savings Bank into Bank Mutual and former First Northern Savings Bank directors began to receive payments.

First Northern Savings Bank also had supplemental retirement plans for several executives.

In May 2001, Bank Mutual Corporation shareholders approved the 2001 Stock Incentive Plan, providing for the grant of stock options up to 4,089,935 shares and restricted stock (“MRP”) awards up to 1,226,977 shares. Of these, 1,210,630 MRP shares were granted in 2001 to employees in management positions, directors and other key employees of which 124,737 shares were subsequently forfeited. In May 2004, the 2004 Stock Incentive Plan was approved by shareholders, providing for the grant of stock options to 4,106,362 shares and MRP awards up to 1,642,521 shares. On May 3, 2004, options for 2,382,000 shares and 955,000 MRP shares were granted. Total outstanding MRP grants had a fair value of $16.1 million at March 31, 2005. The grants under the MRP are being amortized to compensation expense as employees become vested in the awarded shares.

The amount of MRP awards amortized to expense was $1.1 million for the first quarter of 2005 and $199,000 for the same period in 2004. The substantial increase in the MRP expense is the result of the early vesting of MRP shares held by an officer of the Bank and the provision of his employment arrangements. This will result in the accelerated vesting of his unvested MRP shares upon completion of employment. The remaining unamortized cost of the MRP (unvested MRP shares) is unearned deferred compensation and is reflected as a reduction of shareholders’ equity.

Options to purchase 4,050,122 shares were granted on May 8, 2001 at an exercise price of $3.2056. On May 3, 2004, options to purchase 2,382,000 shares were granted at an exercise price of $10.673. In total, options for 5,273,353 shares remain outstanding at March 31, 2005, of which options for 1,470,858 shares were vested. In addition, since inception of the plans, options for 922,512 shares were exercised and options for 236,257 shares have been forfeited.

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The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the weighted average assumptions used in the model:

The Black-Scholes option valuation model was developed for use in estimating the fair value of publicly traded options that have no vesting restrictions and are fully transferable. Option valuation models such as the Black-Scholes require the input of highly subjective assumptions including the expected stock price volatility. Bank Mutual Corporation’s stock options have characteristics significantly different from traded options and inasmuch, changes in the subjective input assumptions can materially affect the fair value estimate. In management’s opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its stock options.

Bank Mutual Corporation accounts for the stock options in accordance with APB Opinion 25, as allowed under FAS No. 123, and, therefore, no compensation cost has been recognized in connection with stock options granted in any year. Pursuant to FAS No. 123 disclosure requirements as amended by FAS No. 148, pro forma net income and earnings per share are presented below as if compensation cost for stock options was determined under the fair value method and amortized to expense over the options’ vesting periods.

The pro forma amounts may not be indicative of the effect on reported net income and earnings per share for future years as current options vest over five years.

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Note 11 – Financial Instruments with Off-Balance Sheet Risk

Off-balance sheet financial instruments or obligations whose contract amounts represent credit and/or interest rate risk at March 31, 2005 and December 31, 2004 are as follows:

Forward commitments to sell mortgage loans of $15.2 million at March 31, 2005 represent commitments obtained by the Bank from a secondary market agency to purchase mortgages from the Bank. Commitments to sell loans expose the Bank 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 $10.6 million of forward commitments at December 31, 2004.

Note 12 – Recent Accounting Developments

Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan Commitments” was issued on March 9, 2004 and is effective for commitments to originate mortgage loans to be held for sale that are entered into after March 31, 2004. SAB No. 105 requires that fair-value measurement include only differences between the guaranteed interest rate in the loan commitment and a market interest rate, excluding expected future cash flows related to the customers relationship or loan servicing. Because of the SAB’s limit on the types of cash flows that can be considered in the fair-value measurement, mortgage-loan commitments could be recognized as liabilities if the guaranteed rate in the commitment is less than the market interest rate. In addition, SAB No. 105 requires registrants to disclose their accounting policy for loan commitments pursuant to APB Opinion No. 22, including methods and assumptions used to estimate fair value and any associated hedging strategies, as required by Statement No. 107, Statement No. 133 and Item No. 305 of Regulation S-K (Quantitative and Qualitative Disclosures About Market Risk). The provisions of SAB No. 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. This SAB had minimal impact on our financial condition or the results of operations.

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On April 14, 2005, the Securities and Exchange Commission (“SEC”) announced a delay in the compliance dates for the adoption of Financial Accounting Standards Board Statement No. 123 (revised 2004) Share-Based Payment (“FAS 123(R)”), the accounting standard that required public companies to expense stock options. FAS 123(R) was previously scheduled to become mandatory for public companies at the beginning of the first fiscal quarter after June 15, 2005. The SEC’s new rule allows companies to implement FAS 123(R) at the beginning of their next fiscal year or January 1, 2006 in Bank Mutual Corporation’s case. See Note 10. Employee Benefit Plans for an approximate stock option expense amount that may be incurred beginning in 2006.

The Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) issued EITF No. 03-01 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” to provide guidance on certain accounting issues. Specifically, it provided guidance to better define when and whether unrealized losses in the investment category of “Available-for-Sale” should be deemed other than temporary and if the unrealized losses are other than temporary requiring immediate recognition through the statement of income. FASB, after receiving input from businesses, delayed the implementation of certain aspects of the issue which addresses the determination of other-than –temporary issues until further discussions can be held.

Note 13 – Reclassifications

Certain 2004 amounts have been reclassified to conform to the 2005 presentation.

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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 Corporation’s prospects that are based on the current expectations and beliefs of management. Forward-looking statements may also be made by Bank Mutual Corporation 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, and any discussions of periods after the quarter for which this report is filed, are also 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 Corporation’s control, that could cause Bank Mutual Corporation’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 Corporation: 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 Bank Mutual’s loan and investment portfolios; general economic and political developments; and other factors referred to in the reports filed by Bank Mutual Corporation with the Securities and Exchange Commission (particularly under “Risk Factors” in Item 7 of Bank Mutual Corporation’s 2004 Annual Report on Form 10-K).

Significant Accounting Policies

There are a number of accounting policies that we established which require us to use our judgment and make estimates. Some of the more significant policies are as follows:

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Establishing the amount of the allowance for loan losses requires the use of our judgment. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in specific industries and geographical areas, including unemployment levels, and other pertinent factors, including regulatory guidance and general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s

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		periodic evaluation of the factors previously mentioned, as well as other pertinent factors. Evaluations are conducted at least quarterly and more often if deemed necessary. If we misjudge a major component and experience a loss, it will likely affect our earnings. Developments affecting loans can also cause the allowance to vary significantly between quarters. 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 judgment relates to mortgage servicing rights. Mortgage servicing rights are recorded as an asset when loans are sold with servicing rights retained. The total cost of loans sold is allocated between the loan balance and the servicing asset based on their relative fair values. The capitalized value of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net future servicing revenue. Mortgage servicing rights are carried at the lower of the initial carrying value, adjusted for amortization, or estimated fair value. The carrying values are periodically evaluated for impairment. For purposes of measuring impairment, the servicing rights are stratified into pools based on term and interest rate. Impairment represents the excess of the remaining capitalized cost of a stratified pool over its fair value, and is recorded through a valuation allowance. The fair value of each servicing rights pool is calculated based on the present value of estimated future cash flows using a discount rate, given current market conditions. Estimates of fair value include assumptions about prepayment speeds, interest rates and other factors which are subject to change over time. Changes in these underlying assumptions could cause the fair value of mortgage servicing rights, and the related valuation allowance, if any, to change significantly in the future.
	-	We also use our judgment in the valuation of other intangible assets (core deposit base intangibles). Core deposit base intangible assets have been recorded for core deposits (defined 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 judgment. Goodwill has been recorded as a result of two acquisitions in which the purchase price exceeded the fair value of tangible net assets acquired. If goodwill is determined to be impaired, it would be expensed in the period in which it became impaired.
	-	The assessment of our tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions,

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regulatory actions or interpretations, or changes in positions of federal and state taxing authorities will not differ from management’s current assessment. The impact of these matters could be significant to the consolidated results of operations and reported earnings.

Comparison of Financial Condition at March 31, 2005 and December 31, 2004

Total Assets. Bank Mutual Corporation’s total assets increased modestly for the first three months, by $23.3 million; total assets at March 31, 2005 were $3.5 billion as compared to $3.4 billion at December 31, 2004. The increase was largely attributed to the growth of the loan portfolio partially offset by a decrease in the securities portfolio.

Cash and Cash Equivalents. Cash and cash equivalents decreased $6.8 million in the first three months of 2005 primarily as a result of a reduction in the dollar amount of checks that were in the Federal Reserve or check clearing system (due to December 31, 2004 being a Friday and March 31, 2005 being a Thursday).

Securities Available-for-Sale. Investment securities decreased $4.3 million in the first three months of 2005 primarily as a result of maturing investment securities.

Mortgage-related securities decreased $24.3 million primarily as a result of payments and prepayments of the underlying mortgage loans which collateralize the mortgage-related securities and a decrease in market value. Funds obtained from repayments on these securities were also used to fund increases in loans receivable.

Loans Held for Sale. Loans held for sale increased $2.0 million as a result of fixed rate mortgage loan originations exceeding the sales of fixed rate mortgage loans. Currently, we sell most of our 30 and 20 year fixed rate mortgage loan originations and some of our 15 year fixed rate mortgage loan originations.

Loans Receivable. Loans receivable increased $43.2 million in the first three months of 2005, primarily as a result of an increase in mortgage and commercial business loan portfolios partially offset by reductions in the construction and consumer loan portfolios.

The mortgage loan portfolio increased $36.7 million in the first three months of 2005 primarily as a result of an increase in the one-to-four family and multi-family mortgage loan portfolios. The one-to-four family mortgage loans increased $34.1 million in the first three months of 2005 primarily as a result of an increase in adjustable rate mortgage loan originations and purchases which are held in the portfolio, and decreased prepayments. We have supplemented our mortgage loan originations by purchasing mortgage loans (primarily adjustable rate single family mortgage loans) from various Wisconsin sources. Most of these purchased mortgage loans are in Wisconsin or in states adjacent to Wisconsin. These purchased loans are individually underwritten by our staff and conform to our underwriting standards.

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Multi-family mortgage loans increased $11.7 million in the first quarter of 2005 primarily as a result of our focus on increasing this type of lending and increased demand.

The commercial business real estate portfolio decreased $4.6 million in the first three months of 2005 primarily as a result of prepayments of commercial real estate loans.

Construction and development mortgage loan portfolio decreased $4.4 million in the three months ended March 31, 2005 primarily as the result of reduced single-and multi-family construction loan originations.

The consumer loan portfolio decreased $3.5 million, primarily as a result of reduced originations. This decrease in consumer loan originations was the result of the increasing interest rate environment.

Commercial business loan originations increased in the first quarter of 2005 as compared to the first quarter of 2004 as a result of a modest economic improvement in our market areas, and the experienced commercial loan officers recently added to our lending staff. The commercial business loan portfolio increased $1.9 million in the first three months of 2005.

The following table sets forth our mortgage, consumer and commercial loan originations and purchases:

LOAN ORIGINATIONS AND PURCHASES

Management will continue to emphasize consumer, non-residential mortgage loan and commercial loan originations, as we believe they will continue to add to the overall profitability and aid in the management of interest rate risk. However, these loans can present higher credit risks than residential mortgage loans.

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Other Assets. Other assets increased $13.5 million, during the first three months of 2005. This increase is primarily the result of an increase in Federal Home Loan Bank stock. See Note 4. Other Assets.

Deposits. Deposits decreased $14.9 million in the first three months of 2005 as a result of pricing our deposit offerings at market averages rather than above average pricing of such deposits. We also believe that deposit growth (or shrinkage) in the balance of 2005 and future periods will depend, in significant part, on the performance of other investment alternatives and world events.

Borrowings. Borrowings increased $122.0 million in the first three months of 2005 as a result of borrowing to fund stock repurchases, the decrease in deposits and the increase in loan originations and purchases. Management determined to use additional borrowing, rather than liquidating existing investments or other sources of liquidity, for these purposes as a result of prevailing market interest rate rates and trends. Additionally, management believes that it was appropriate to incur additional borrowing and reduce capital through stock repurchases as a result of the Company’s strong capital position which resulted from stock sales in connection with the Company’s 2003 full conversion transaction. We primarily borrowed overnight or short-term in the first quarter of 2005.

Advance Payments by Borrowers for Taxes and Insurance; Other Liabilities. Advance payments by borrowers for taxes and insurance (“escrow”) increased $8.4 million in the first three months of 2005. The increase of escrow dollars was the result of payments received for customers’ escrow accounts and is seasonally normal, as these payments tend to increase during the course of the calendar year until checks in payment of real estate tax obligations are paid out in December or January of the next year. In addition, other liabilities increased $5.0 million, as a result of increases to a number of various liabilities.

Shareholders’ Equity. Shareholders’ equity decreased $97.3 million in the first three months of 2005, primarily as a result of stock repurchases and a decrease in other comprehensive income, and cash dividends paid, offset by our net income.

In 2004, the Corporation repurchased a total of 6,642,521 shares at an average cost of $11.87 per share. On December 20, 2004, the Company announced an additional stock repurchase program whereby the Company may repurchase up to 5.0 million shares and on February 21, 2005 announced it was modifying the stock repurchase program by increasing the number of shares the Company is authorized to purchase to 10.0 million shares. During the quarter ended March 31, 2005, the Company repurchased 7,533,000 shares at an average price of $12.20 per share. No timing was given for completion. The Company can give no assurance as to the timing or terms of any such repurchases. During April 2005, an additional 736,233 shares were repurchased at an average price of $11.13 per share.

The stock repurchase program has the effect of lowering capital, which does not have an interest cost. Management nonetheless determined that it was appropriate to repurchase shares as a result of the Corporation’s very strong capital position which had resulted from stock sales in connection with the Corporation’s 2003 full conversion transaction.

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Comprehensive income (net of tax) decreased as a result of marking the available-for-sale investments to current market value; decreases in value resulted from recent increase in market interest rates.

In addition, a cash dividend of $0.06 per share was paid March 1, 2005 to shareholders of record on February 17, 2005. The dividend payout ratio was 53.4% in the first three months of 2005.

ASSET QUALITY

The following table summarizes non-performing loans and assets:

NON-PERFORMING LOANS AND ASSETS

Total non-performing loans increased as of March 31, 2005, as compared to December 31, 2004, as a result of increased non performing mortgage and commercial business loans. Commercial business loan delinquencies increased primarily as a result of adding three particular loans made to two borrowers, to non-performing loans.

In spite of some economic improvement, the national and local economies and securities markets have continued to experience challenges. The Company has also experienced commercial loan delinquencies, impairments and foreclosures, and has continued allocating management time to monitoring the loan portfolio and the loan loss allowance. Among other things, a reversal of the economic recovery and consequences of world events could affect the ability of individual and business borrowers to repay their obligations to Bank Mutual or otherwise affect the Company’s operations and financial condition.

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

ALLOWANCE FOR LOAN LOSSES