##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 F O R M 1 0  K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 Commission file number: 000-31207
 BANK MUTUAL CORPORATION
  Wisconsin
    
    39-2004336(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)4949 West Brown Deer Road, Milwaukee, WI
    
    53223(Address of principal executive offices)
    
    (Zip Code)
 (414) 354-1500
  NONE
  Common Stock, $0.01 Par Value
   o þ
  o þ
  þ o
 þ
  o þ o
  o þ
 ®
 DOCUMENTS INCORPORATED BY REFERENCE
 Part of Form 10-K Into WhichDocument
    
    Portions of Document are IncorporatedProxy Statement for Annual Meeting of
    
    Part IIIShareholders on May 1, 2006




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##### 



BANK MUTUAL CORPORATION
 FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2005
 TABLE OF CONTENTS
 ITEM
    
    
    
    PAGEPART I1.
    
    Business
    
    
    3-331A.
    
    Risk Factors
    
    
    34-361B.
    
    Unresolved Staff Comments
    
    
    362.
    
    Properties
    
    
    37-393.
    
    Legal Proceedings
    
    
    404.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Executive Officers of the Registrant
    
    
    40PART II5.
    
    Market for
Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
    
    
    41-426.
    
    Selected Financial Data
    
    
    43-457.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    46-627A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    63-668.
    
    Financial Statements and Supplementary Data
    
    
    67-1029.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    1039A.
    
    Controls and Procedures (including Managements and Independent Auditors Report on Effectiveness of Internal Control Over Financial Reporting)
    
    
    103-1049B.
    
    Other Information
    
    
    105PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    10611.
    
    Executive Compensation
    
    
    10612.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    10613.
    
    Certain Relationships and Related Transactions
    
    
    10614.
    
    Principal Accountant Fees and Services
    
    
    106PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    107Signatures
    
    
    108List of SubsidiariesConsent of Independent Registered Public Accounting Firm302 Certification of Chairman, President and CEO302 Certification of CFO906 Certification of CEO and CFO
  2




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##### Table of Contents



Part 1
 
 Item 1. Business
 General
        Cautionary Factors
  3




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Market Area
      Competition
   4




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##### Table of Contents



Lending Activities
 Loan Portfolio Composition.
    5




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentOf
    
    
    
    
    
    
    Of
    
    
    
    
    
    
    Of
    
    
    
    
    
    
    Of
    
    
    
    
    
    
    OfAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in thousands)Mortgage loans:One- to four-family
    
    $
    1,048,881
    
    
    
    50.94
    %
    
    $
    903,498
    
    
    
    46.34
    %
    
    $
    793,247
    
    
    
    44.69
    %
    
    $
    827,648
    
    
    
    47.37
    %
    
    $
    992,126
    
    
    
    52.46
    %Multi-family
    
    
    155,908
    
    
    
    7.57
    
    
    
    161,641
    
    
    
    8.29
    
    
    
    124,494
    
    
    
    7.01
    
    
    
    112,189
    
    
    
    6.42
    
    
    
    131,925
    
    
    
    6.97Commercial real estate
    
    
    175,090
    
    
    
    8.50
    
    
    
    195,708
    
    
    
    10.04
    
    
    
    209,293
    
    
    
    11.79
    
    
    
    186,960
    
    
    
    10.70
    
    
    
    165,556
    
    
    
    8.75Construction and development
    
    
    155,205
    
    
    
    7.54
    
    
    
    141,394
    
    
    
    7.25
    
    
    
    122,436
    
    
    
    6.90
    
    
    
    127,174
    
    
    
    7.28
    
    
    
    125,611
    
    
    
    6.64Total mortgage loans
    
    
    1,535,084
    
    
    
    74.55
    
    
    
    1,402,241
    
    
    
    71.92
    
    
    
    1,249,470
    
    
    
    70.39
    
    
    
    1,253,971
    
    
    
    71.77
    
    
    
    1,415,218
    
    
    
    74.82Consumer loans:Fixed-term equity
    
    
    246,460
    
    
    
    11.97
    
    
    
    266,635
    
    
    
    13.67
    
    
    
    252,550
    
    
    
    14.22
    
    
    
    234,049
    
    
    
    13.40
    
    
    
    200,500
    
    
    
    10.61Home equity lines of credit
    
    
    88,266
    
    
    
    4.29
    
    
    
    88,444
    
    
    
    4.54
    
    
    
    78,567
    
    
    
    4.43
    
    
    
    77,697
    
    
    
    4.45
    
    
    
    76,472
    
    
    
    4.04Student
    
    
    19,821
    
    
    
    0.96
    
    
    
    20,519
    
    
    
    1.05
    
    
    
    20,546
    
    
    
    1.16
    
    
    
    22,636
    
    
    
    1.30
    
    
    
    25,410
    
    
    
    1.34Home improvement
    
    
    30,067
    
    
    
    1.46
    
    
    
    24,293
    
    
    
    1.25
    
    
    
    12,605
    
    
    
    0.71
    
    
    
    6,993
    
    
    
    0.40
    
    
    
    9,439
    
    
    
    0.50Automobile
    
    
    69,237
    
    
    
    3.36
    
    
    
    61,469
    
    
    
    3.15
    
    
    
    67,630
    
    
    
    3.81
    
    
    
    68,140
    
    
    
    3.90
    
    
    
    77,621
    
    
    
    4.10Other
    
    
    12,944
    
    
    
    0.63
    
    
    
    15,911
    
    
    
    0.82
    
    
    
    18,623
    
    
    
    1.05
    
    
    
    22,434
    
    
    
    1.28
    
    
    
    25,886
    
    
    
    1.37Total consumer loans
    
    
    466,795
    
    
    
    22.67
    
    
    
    477,271
    
    
    
    24.48
    
    
    
    450,521
    
    
    
    25.38
    
    
    
    431,949
    
    
    
    24.73
    
    
    
    415,328
    
    
    
    21.96Commercial business loans
    
    
    57,247
    
    
    
    2.78
    
    
    
    70,170
    
    
    
    3.60
    
    
    
    75,022
    
    
    
    4.23
    
    
    
    61,060
    
    
    
    3.50
    
    
    
    60,932
    
    
    
    3.22Total loans receivable
    
    
    2,059,126
    
    
    
    100.00
    %
    
    
    1,949,682
    
    
    
    100.00
    %
    
    
    1,775,013
    
    
    
    100.00
    %
    
    
    1,746,980
    
    
    
    100.00
    %
    
    
    1,891,748
    
    
    
    100.00
    %Less:Undisbursed loan proceeds
    
    
    60,014
    
    
    
    
    
    
    
    60,653
    
    
    
    
    
    
    
    47,743
    
    
    
    
    
    
    
    46,048
    
    
    
    
    
    
    
    44,467Allowance for loan losses
    
    
    12,090
    
    
    
    
    
    
    
    13,923
    
    
    
    
    
    
    
    13,771
    
    
    
    
    
    
    
    12,743
    
    
    
    
    
    
    
    12,245Deferred fees and discounts
    
    
    (3,470
    )
    
    
    
    
    
    
    (779
    )
    
    
    
    
    
    
    1,221
    
    
    
    
    
    
    
    2,527
    
    
    
    
    
    
    
    3,611Total loans receivable, net
    
    $
    1,990,492
    
    
    
    
    
    
    $
    1,875,885
    
    
    
    
    
    
    $
    1,712,278
    
    
    
    
    
    
    $
    1,685,662
    
    
    
    
    
    
    $
    1,831,155
  6




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Loan Maturity.
 At December 31, 2005Mortgage
    
    
    Consumer
    
    
    CommercialLoans
    
    
    Loans
    
    
    Business Loans
    
    
    Total(In thousands)Amounts Due:Within one year
    
    $
    69,495
    
    
    $
    41,181
    
    
    $
    22,073
    
    
    $
    132,749After one yearOne to two years
    
    
    44,212
    
    
    
    32,108
    
    
    
    10,797
    
    
    
    87,117Two to three years
    
    
    44,707
    
    
    
    30,814
    
    
    
    7,947
    
    
    
    83,468Three to five years
    
    
    60,140
    
    
    
    36,218
    
    
    
    9,171
    
    
    
    105,529Five to ten years
    
    
    112,697
    
    
    
    244,997
    
    
    
    5,561
    
    
    
    363,255Ten to twenty years
    
    
    468,124
    
    
    
    80,592
    
    
    
    1,476
    
    
    
    521,989Over twenty years
    
    
    735,715
    
    
    
    880
    
    
    
    221
    
    
    
    765,019Total due after one year
    
    
    1,465,595
    
    
    
    425,609
    
    
    
    35,173
    
    
    
    1,926,377Total loans receivable
    
    $
    1,535,090
    
    
    $
    466,790
    
    
    $
    57,246
    
    
    
    2,059,126Less:Undisbursed loan proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,014Allowance for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,090Deferred loan fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,470
    )Net loans receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,990,492
  Due after December 31, 2006Fixed
    
    
    Adjustable
    
    
    Total(In thousands)Mortgage loans
    
    $
    484,226
    
    
    $
    981,369
    
    
    $
    1,465,595Consumer loans
    
    
    283,800
    
    
    
    141,809
    
    
    
    425,609Commercial business loans
    
    
    25,027
    
    
    
    10,146
    
    
    
    35,173Total loans due after one year
    
    $
    793,053
    
    
    $
    1,133,324
    
    
    $
    1,926,377
 7




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##### Table of Contents



For the year ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance outstanding at beginning of period
    
    $
    1,954,669
    
    
    $
    1,779,069
    
    
    $
    1,793,951Originations:Mortgage loans
    
    
    388,106
    
    
    
    479,814
    
    
    
    899,766Consumer loans
    
    
    211,629
    
    
    
    268,521
    
    
    
    301,665Commercial business loans
    
    
    43,517
    
    
    
    41,018
    
    
    
    49,646643,252
    
    
    
    789,353
    
    
    
    1,251,077Purchases:One-to four-family mortgage loans
    
    
    258,707
    
    
    
    148,951
    
    
    
    41,214Less:Principal payments and repayments:Mortgage loans
    
    
    372,409
    
    
    
    349,951
    
    
    
    525,853Consumer loans
    
    
    222,105
    
    
    
    241,771
    
    
    
    283,093Commercial business loans
    
    
    56,415
    
    
    
    45,395
    
    
    
    35,684Total principal payments
    
    
    650,929
    
    
    
    637,117
    
    
    
    844,630Transfers to foreclosed properties, real estate owned
and repossessed assets
    
    
    538
    
    
    
    5,045
    
    
    
    1,461Loan sales:Mortgage loans
    
    
    143,698
    
    
    
    120,067
    
    
    
    461,082Commercial loans
    
    
    25
    
    
    
    475
    
    
    
    Total loan sales
    
    
    143,723
    
    
    
    120,542
    
    
    
    461,082Total loans receivable and loans held for sale
    
    $
    2,061,438
    
    
    $
    1,954,669
    
    
    $
    1,779,069
 Residential Mortgage Lending.
   8




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9




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##### Table of Contents



Percentage ofmortgage loanAmount
    
    
    originations(Dollars in millions)PeriodYear ended December 31, 2005
    
    $
    86.5
    
    
    
    22.3
    %Year ended December 31, 2004
    
    
    121.8
    
    
    
    37.0Year ended December 31, 2003
    
    
    381.1
    
    
    
    53.1
  Consumer Loans.
   10




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##### Table of Contents



1 2
  Multi-family and Commercial Real Estate Loans.
    11




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##### Table of Contents



Construction and Development Loans.
 Commercial Business Loans.
 Loan Approval Authority
     12




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##### Table of Contents



13




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##### Table of Contents



Asset Quality
  Delinquent Loans and Foreclosed Assets.
    14




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Non-accrual mortgage loans
    
    $
    2,214
    
    
    $
    1,485
    
    
    $
    2,894
    
    
    $
    1,399
    
    
    $
    1,814Non-accrual consumer loans
    
    
    616
    
    
    
    619
    
    
    
    961
    
    
    
    527
    
    
    
    444Non-accrual commercial business loans
    
    
    2,517
    
    
    
    3,579
    
    
    
    5,433
    
    
    
    5,357
    
    
    
    346Accruing loans delinquent 90 days or more
    
    
    487
    
    
    
    586
    
    
    
    1,084
    
    
    
    1,108
    
    
    
    936Total non-performing loans
    
    
    5,834
    
    
    
    6,269
    
    
    
    10,372
    
    
    
    8,391
    
    
    
    3,540Foreclosed properties, real estate owned
and repossessed assets, net
    
    
    708
    
    
    
    1,621
    
    
    
    630
    
    
    
    750
    
    
    
    383Total non-performing assets
    
    $
    6,542
    
    
    $
    7,890
    
    
    $
    11,002
    
    
    $
    9,141
    
    
    $
    3,923Non-performing loans to total loans
    
    
    0.29
    %
    
    
    0.33
    %
    
    
    0.61
    %
    
    
    0.50
    %
    
    
    0.19
    %Non-performing assets to total assets
    
    
    0.19
    %
    
    
    0.23
    %
    
    
    0.35
    %
    
    
    0.32
    %
    
    
    0.14
    %Interest income that would have been
recognized if non-accrual loans had been
current
    
    $
    1,159
    
    
    $
    831
    
    
    $
    384
    
    
    $
    375
    
    
    $
    139
       15




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##### Table of Contents



Charge-offs.
 Allowance for Loan Losses.
 At or for the Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Balance at beginning of period
    
    $
    13,923
    
    
    $
    13,771
    
    
    $
    12,743
    
    
    $
    12,245
    
    
    $
    12,238Provision for loan losses
    
    
    541
    
    
    
    1,330
    
    
    
    1,304
    
    
    
    760
    
    
    
    723Purchase of First Northern
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charge-offs:Mortgage loans
    
    
    
    
    
    
    (64
    )
    
    
    (67
    )
    
    
    (14
    )
    
    
    (65
    )Consumer loans
    
    
    (327
    )
    
    
    (373
    )
    
    
    (415
    )
    
    
    (428
    )
    
    
    (337
    )Commercial business loans
    
    
    (2,104
    )
    
    
    (816
    )
    
    
    (19
    )
    
    
    (39
    )
    
    
    (415
    )Total charge-offs
    
    
    (2,431
    )
    
    
    (1,253
    )
    
    
    (501
    )
    
    
    (481
    )
    
    
    (817
    )Recoveries:Mortgage loans
    
    
    
    
    
    
    9
    
    
    
    113
    
    
    
    66
    
    
    
    26Consumer loans
    
    
    49
    
    
    
    66
    
    
    
    107
    
    
    
    40
    
    
    
    57Commercial business loans
    
    
    8
    
    
    
    
    
    
    
    5
    
    
    
    113
    
    
    
    18Total recoveries
    
    
    57
    
    
    
    75
    
    
    
    225
    
    
    
    219
    
    
    
    101Net (charge-offs) recoveries
    
    
    (2,374
    )
    
    
    (1,178
    )
    
    
    (276
    )
    
    
    (262
    )
    
    
    (716
    )Balance at end of period
    
    $
    12,090
    
    
    $
    13,923
    
    
    $
    13,771
    
    
    $
    12,743
    
    
    $
    12,245Net charge-offs to average loans
    
    
    (0.12
    %)
    
    
    (0.07
    %)
    
    
    (0.02
    %)
    
    
    (0.01
    %)
    
    
    (0.04
    %)Allowance for loan losses to total
loans
    
    
    0.61
    %
    
    
    0.74
    %
    
    
    0.80
    %
    
    
    0.76
    %
    
    
    0.67
    %Allowance for loan losses to
non-performing loans
    
    
    207.23
    %
    
    
    222.09
    %
    
    
    132.77
    %
    
    
    151.87
    %
    
    
    345.90
    %
   
    
    One- to four-family
    
    Consumer
    
    Multi-family and commercial real estate
 16




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##### Table of Contents




    
    Commercial business
   Non-performing and Delinquent Loans.
    17




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentageof Loans
    
    
    
    
    
    
    of Loans
    
    
    
    
    
    
    of Loans
    
    
    
    
    
    
    of Loans
    
    
    
    
    
    
    of Loansin Category
    
    
    
    
    
    
    in Category
    
    
    
    
    
    
    in Category
    
    
    
    
    
    
    in Category
    
    
    
    
    
    
    in Categoryto Total
    
    
    
    
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    
    
    
    
    to TotalLoan Category
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansMortgage loansOne- to four-family
    
    $
    3,294
    
    
    
    50.94
    %
    
    $
    2,488
    
    
    
    46.34
    %
    
    $
    4,001
    
    
    
    44.69
    %
    
    $
    4,701
    
    
    
    47.37
    %
    
    $
    5,608
    
    
    
    52.46
    %Other
    
    
    2,424
    
    
    
    23.61
    
    
    
    3,222
    
    
    
    25.58
    
    
    
    3,150
    
    
    
    25.70
    
    
    
    3,160
    
    
    
    24.40
    
    
    
    2,875
    
    
    
    22.36Total mortgage loans
    
    
    5,718
    
    
    
    74.55
    
    
    
    5,710
    
    
    
    71.92
    
    
    
    7,151
    
    
    
    70.39
    
    
    
    7,861
    
    
    
    71.77
    
    
    
    8,483
    
    
    
    74.82Home equity lines
    
    
    483
    
    
    
    4.29
    
    
    
    663
    
    
    
    4.54
    
    
    
    481
    
    
    
    4.43
    
    
    
    496
    
    
    
    4.45
    
    
    
    490
    
    
    
    4.04Consumer
    
    
    2,118
    
    
    
    18.38
    
    
    
    2,929
    
    
    
    19.94
    
    
    
    2,398
    
    
    
    20.95
    
    
    
    2,380
    
    
    
    20.28
    
    
    
    2,320
    
    
    
    17.92Commercial business loans
    
    
    3,696
    
    
    
    2.78
    
    
    
    4,416
    
    
    
    3.60
    
    
    
    3,741
    
    
    
    4.23
    
    
    
    1,507
    
    
    
    3.50
    
    
    
    952
    
    
    
    3.22Unallocated
    
    
    75
    
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    Total allowance for
loan losses
    
    $
    12,090
    
    
    
    100.00
    %
    
    $
    13,923
    
    
    
    100.00
    %
    
    $
    13,771
    
    
    
    100.00
    %
    
    $
    12,743
    
    
    
    100.00
    %
    
    $
    12,245
    
    
    
    100.00
    %
 Investment Activities
 Investment Securities.
     Mortgage-related Securities.
 18




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##### Table of Contents



For the Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Investment securities available-for-sale:Carrying value at beginning of period
    
    $
    68,753
    
    
    $
    67,854
    
    
    $
    73,247Purchases
    
    
    56,921
    
    
    
    26,480
    
    
    
    128,501Sales
    
    
    (11
    )
    
    
    
    
    
    
    (8,076
    )Calls
    
    
    
    
    
    
    
    
    
    
    (700
    )Maturities
    
    
    (60,780
    )
    
    
    (27,000
    )
    
    
    (124,051
    )Principal payments
    
    
    
    
    
    
    
    
    
    
    Premium amortization and discount accretion, net
    
    
    104
    
    
    
    20
    
    
    
    122(Decrease) increase in unrealized gains
    
    
    (1,626
    )
    
    
    1,399
    
    
    
    (1,189
    )Net increase (decrease) in investment securities
    
    
    (5,392
    )
    
    
    899
    
    
    
    (5,393
    )Carrying value at end of period
    
    $
    63,361
    
    
    $
    68,753
    
    
    $
    67,854Mortgage-related securities available-for-sale:Carrying value at beginning of period
    
    $
    1,266,224
    
    
    $
    1,053,349
    
    
    $
    618,123Purchases
    
    
    193,857
    
    
    
    523,334
    
    
    
    923,451Principal payments
    
    
    (352,866
    )
    
    
    (302,848
    )
    
    
    (470,994
    )Premium amortization and discount accretion, net
    
    
    (248
    )
    
    
    (375
    )
    
    
    (2,229
    )Increase (decrease) in unrealized gains
    
    
    (19,151
    )
    
    
    (7,236
    )
    
    
    (15,002
    )Net increase in mortgage-related securities
    
    
    (178,408
    )
    
    
    212,875
    
    
    
    435,226Carrying value at end of period
    
    $
    1,087,816
    
    
    $
    1,266,224
    
    
    $
    1,053,349
 19




---



##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003Carrying/
    
    
    Carrying/
    
    
    Carrying/Fair Value
    
    
    Fair Value
    
    
    Fair Value(Dollars in thousands)Money market investmentsInterest-earning deposits
    
    $
    27,872
    
    
    $
    707
    
    
    $
    20,119Federal funds sold
    
    
    
    
    
    
    
    
    
    
    30,000Total money market investments
    
    $
    27,872
    
    
    $
    707
    
    
    $
    50,119Investment securities available-for-saleMutual funds
    
    $
    46,408
    
    
    $
    45,390
    
    
    $
    44,697United States government and federal agency obligations
    
    
    14,585
    
    
    
    19,831
    
    
    
    21,736Stock in federal agencies
    
    
    2,368
    
    
    
    3,532
    
    
    
    1,421Total investment securities available-for-sale
    
    $
    63,361
    
    
    $
    68,753
    
    
    $
    67,854Mortgage-related securities available-for-sale by issuer:Freddie Mac
    
    $
    493,305
    
    
    $
    631,024
    
    
    $
    518,172Fannie Mae
    
    
    409,636
    
    
    
    542,803
    
    
    
    445,496Private placement CMOs
    
    
    122,302
    
    
    
    9,928
    
    
    
    543GNMA
    
    
    62,573
    
    
    
    82,469
    
    
    
    89,138Total mortgage-related securities
    
    $
    1,087,816
    
    
    $
    1,266,224
    
    
    $
    1,053,349Total investment portfolio
    
    $
    1,179,049
    
    
    $
    1,335,684
    
    
    $
    1,171,322
 20




---



##### Table of Contents



Carrying Values, Yields and Maturities.
 At December 31, 2005More than One Year
    
    
    More than FiveOne Year or Less
    
    
    to Five Years
    
    
    Years to Ten Years
    
    
    More than Ten Years
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedCarrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield(Dollars in thousands)Investment securities
available-for-sale:Mutual funds
    
    $
    46,408
    
    
    
    3.80
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    46,408
    
    
    
    3.80
    %United States government and
agencies
    
    
    14,585
    
    
    
    2.19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,585
    
    
    
    2.19Stock in Federal Agencies
    
    
    2,368
    
    
    
    4.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,368
    
    
    
    4.01Total investment securities
    
    $
    63,361
    
    
    
    3.44
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    63,361
    
    
    
    3.44Mortgage-related securities
available-for-sale:By issuer:GNMA pass-through
certificates
    
    $
    3
    
    
    
    8.00
    
    
    $
    29
    
    
    
    8.46
    
    
    $
    
    
    
    
    
    
    
    $
    1,094
    
    
    
    4.31
    
    
    $
    1,126
    
    
    
    4.42Fannie Mae pass-through
certificates
    
    
    
    
    
    
    
    
    
    
    697
    
    
    
    5.94
    
    
    
    45,218
    
    
    
    5.53
    
    
    
    49,739
    
    
    
    4.31
    
    
    
    95,654
    
    
    
    4.89Freddie Mac pass-through
certificates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    783
    
    
    
    5.81
    
    
    
    831
    
    
    
    6.63
    
    
    
    1,614
    
    
    
    6.23Private CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,302
    
    
    
    4.68
    
    
    
    122,302
    
    
    
    4.68Freddie Mac, Fannie Mae and
GNMA-REMICs
    
    
    
    
    
    
    
    
    
    
    704
    
    
    
    5.15
    
    
    
    89,581
    
    
    
    3.65
    
    
    
    776,835
    
    
    
    4.23
    
    
    
    867,120
    
    
    
    4.17Total mortgage-related
securities
    
    $
    3
    
    
    
    8.00
    
    
    $
    1,430
    
    
    
    5.60
    
    
    $
    135,582
    
    
    
    4.29
    
    
    $
    950,801
    
    
    
    4.30
    
    
    $
    1,087,816
    
    
    
    4.30By coupon type:Adjustable rate
    
    $
    
    
    
    
    
    
    
    $
    704
    
    
    
    5.15
    
    
    
    
    
    
    
    
    
    
    $
    151,598
    
    
    
    4.49
    
    
    
    152,302
    
    
    
    4.49Fixed rate
    
    
    3
    
    
    
    8.00
    
    
    
    726
    
    
    
    6.04
    
    
    
    135,582
    
    
    
    4.29
    
    
    
    799,203
    
    
    
    4.26
    
    
    
    935,514
    
    
    
    4.26Total mortgage-related
securities
    
    $
    3
    
    
    
    8.00
    %
    
    $
    1,430
    
    
    
    5.60
    %
    
    $
    135,582
    
    
    
    4.29
    %
    
    $
    950,801
    
    
    
    4.30
    %
    
    $
    1,087,816
    
    
    
    4.30
    %Total investment and
mortgage-related securities
portfolio
    
    $
    63,364
    
    
    
    3.44
    %
    
    $
    1,430
    
    
    
    5.60
    %
    
    $
    135,582
    
    
    
    4.29
    %
    
    $
    950,801
    
    
    
    4.30
    %
    
    $
    1,151,177
    
    
    
    4.25
    %
 Deposits
    21




---



##### Table of Contents



For the Year Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars in thousands)Total deposits at beginning of period
    
    $
    1,982,881
    
    
    $
    2,052,290
    
    
    $
    2,126,655Net deposits (withdrawals)
    
    
    59,571
    
    
    
    (112,771
    )
    
    
    (127,283
    )Interest credited, net of penalties
    
    
    44,370
    
    
    
    43,362
    
    
    
    52,918Total deposits at end of period
    
    $
    2,086,822
    
    
    $
    1,982,881
    
    
    $
    2,052,290Net increase (decrease)
    
    $
    103,941
    
    
    $
    (69,409
    )
    
    $
    (74,365
    )Percentage increase (decrease)
    
    
    5.24
    %
    
    
    (3.38
    %)
    
    
    (3.50
    %)
  Maturity
Period
    
    Amount(In thousands)Three months or less
    
    $
    42,970Over three months through six months
    
    
    28,067Over six months through 12 months
    
    
    28,463Over 12 months through 24 months
    
    
    70,089Over 24 months through 36 months
    
    
    5,005Over 36 months
    
    
    14,512Total
    
    $
    189,106
  At December 31,2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedPercent
    
    
    average
    
    
    
    
    
    
    Percent
    
    
    average
    
    
    
    
    
    
    Percent
    
    
    averageof total
    
    
    nominal
    
    
    
    
    
    
    of total
    
    
    nominal
    
    
    
    
    
    
    of total
    
    
    nominalAmount
    
    
    deposits
    
    
    rate
    
    
    Amount
    
    
    deposits
    
    
    rate
    
    
    Amount
    
    
    deposits
    
    
    rate(Dollars in thousands)Savings
    
    $
    224,408
    
    
    
    10.75
    %
    
    
    0.43
    %
    
    $
    247,439
    
    
    
    12.48
    %
    
    
    0.43
    %
    
    $
    240,543
    
    
    
    11.72
    %
    
    
    0.43
    %Interest-bearing demand
    
    
    174,620
    
    
    
    8.37
    
    
    
    0.21
    
    
    
    171,565
    
    
    
    8.65
    
    
    
    0.22
    
    
    
    157,231
    
    
    
    7.66
    
    
    
    0.22Money market
    
    
    271,418
    
    
    
    13.01
    
    
    
    2.88
    
    
    
    309,531
    
    
    
    15.61
    
    
    
    0.97
    
    
    
    358,003
    
    
    
    17.44
    
    
    
    1.05Non-interest bearing demand
    
    
    110,583
    
    
    
    5.30
    
    
    
    0.00
    
    
    
    111,855
    
    
    
    5.64
    
    
    
    0.00
    
    
    
    110,099
    
    
    
    5.36
    
    
    
    0.00Total
    
    
    781,029
    
    
    
    37.43
    
    
    
    1.17
    
    
    
    840,390
    
    
    
    42.38
    
    
    
    0.53
    
    
    
    865,876
    
    
    
    42.18
    
    
    
    0.59Certificates:Time deposits with original
maturities of:Three months or less
    
    
    111,068
    
    
    
    5.32
    
    
    
    3.91
    
    
    
    86,259
    
    
    
    4.35
    
    
    
    1.28
    
    
    
    136,756
    
    
    
    6.66
    
    
    
    1.22Over three months to twelve months
    
    
    280,756
    
    
    
    13.45
    
    
    
    3.73
    
    
    
    114,032
    
    
    
    5.75
    
    
    
    1.45
    
    
    
    172,181
    
    
    
    8.39
    
    
    
    1.48Over twelve months to
twenty-four months
    
    
    345,578
    
    
    
    16.56
    
    
    
    3.51
    
    
    
    209,038
    
    
    
    10.04
    
    
    
    2.25
    
    
    
    215,428
    
    
    
    10.50
    
    
    
    2.88Over twenty-four months to
thirty-six months
    
    
    187,215
    
    
    
    8.97
    
    
    
    3.38
    
    
    
    
    
    
    
    10.54
    
    
    
    3.12
    
    
    
    183,880
    
    
    
    8.96
    
    
    
    3.75Over thirty-six months to
forty-eight months
    
    
    45,616
    
    
    
    2.19
    
    
    
    3.97
    
    
    
    204,096
    
    
    
    10.29
    
    
    
    4.29
    
    
    
    202,155
    
    
    
    9.85
    
    
    
    4.29Over forty-eight months to sixty
months
    
    
    335,560
    
    
    
    16.08
    
    
    
    4.70
    
    
    
    329,855
    
    
    
    16.65
    
    
    
    4.84
    
    
    
    274,756
    
    
    
    13.40
    
    
    
    4.98Over sixty months
    
    
    
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    37
    
    
    
    0.00
    
    
    
    7.19
    
    
    
    1,258
    
    
    
    0.06
    
    
    
    6.66Total time deposits
    
    
    1,305,793
    
    
    
    62.58
    
    
    
    3.89
    
    
    
    1,142,491
    
    
    
    57.62
    
    
    
    3.37
    
    
    
    1,186,414
    
    
    
    57.82
    
    
    
    3.35Total deposits
    
    $
    2,086,822
    
    
    
    100.00
    %
    
    
    2.87
    %
    
    $
    1,982,881
    
    
    
    100.00
    %
    
    
    2.17
    %
    
    $
    2,052,290
    
    
    
    100.00
    %
    
    
    2.19
    %
 22




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##### Table of Contents



Borrowings
   At or For the Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in thousands)Balance outstanding at end of year:Notes payable to FHLB
    
    $
    765,796
    
    
    $
    623,925
    
    
    $
    299,491
    
    
    $
    332,299
    
    
    $
    442,025Overnight borrowings from FHLB
    
    
    
    
    
    
    137,600
    
    
    
    
    
    
    
    
    
    
    
    Other borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,679
    
    
    
    23,335Weighted average interest rate at end of year:Notes payable to FHLB
    
    
    3.58
    %
    
    
    2.89
    %
    
    
    5.52
    %
    
    
    5.57
    %
    
    
    5.75
    %Overnight borrowings from FHLB
    
    
    
    
    
    
    2.47
    %
    
    
    
    
    
    
    
    
    
    
    Other borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.99
    %
    
    
    1.39
    %Maximum amount outstanding during the year:Notes payable to FHLB
    
    $
    909,920
    
    
    $
    623,925
    
    
    $
    332,398
    
    
    $
    445,414
    
    
    $
    547,653Overnight borrowings from FHLB
    
    
    186,000
    
    
    
    289,800
    
    
    
    15,000
    
    
    
    5,480
    
    
    
    29,275Other borrowings
    
    
    500
    
    
    
    
    
    
    
    22,679
    
    
    
    19,835
    
    
    
    60,720Average amount outstanding during the year:Notes payable to FHLB
    
    
    811,937
    
    
    $
    325,861
    
    
    $
    318,942
    
    
    $
    395,351
    
    
    $
    491,248Overnight borrowings from FHLB
    
    
    50,712
    
    
    
    75,106
    
    
    
    72
    
    
    
    25
    
    
    
    6,348Other borrowings
    
    
    1
    
    
    
    
    
    
    
    430
    
    
    
    3,309
    
    
    
    5,285Weighted average interest rate during the year:Fixed interest rate notes payable to FHLB
    
    
    3.25
    %
    
    
    5.23
    %
    
    
    5.61
    %
    
    
    5.68
    %
    
    
    5.91
    %Overnight borrowings from FHLB
    
    
    2.95
    %
    
    
    2.03
    %
    
    
    1.38
    %
    
    
    1.53
    %
    
    
    5.74
    %Other borrowings
    
    
    3.04
    %
    
    
    
    
    
    
    0.98
    %
    
    
    1.45
    %
    
    
    3.38
    %
  Average Balance Sheet and Rate Yield Analysis
  Average Equity to Average Assets
  23




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##### Table of Contents



Cash Dividends
  Subsidiaries
      Employees
  24




---



##### Table of Contents



Regulation
  General
      Federal Regulation of the Bank
 General.
   Regulatory Capital Requirements
 25




---



##### Table of Contents



Dividend and Other Capital Distribution Limitations
    Qualified Thrift Lender Test
 Liquidity Standard
 Federal Home Loan Bank System
 26




---



##### Table of Contents



Federal Reserve System
 Deposit Insurance
   Transactions with Affiliates
  27




---



##### Table of Contents



Acquisitions and Mergers
 Prohibitions Against Tying Arrangements
 Customer Privacy
 Uniform Real Estate Lending Standards
  
    
    for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral;
    
    for land development loans (i.e., loans for the purpose of improving unimproved property prior to the erection of
structures), the supervisory limit is 75%;
    
    for loans for the construction of commercial, multi-family or other non-residential property, the supervisory limit is 80%;
    
    for loans for the construction of one- to four-family properties, the supervisory limit is 85%; and
    
    for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing
property, including non-owner occupied, one- to four-family property), the limit is 85%.
  Community Reinvestment Act
 28




---



##### Table of Contents




    
    a lending test, to evaluate the institutions record of making loans in its service areas;
    
    affordable housing, and programs benefiting low or moderate income individuals and businesses; and
    
    a service test, to evaluate the institutions delivery of services through its
branches, ATMs and other offices.
  Safety and Soundness Standards
 Prompt Corrective Action
 Total Capital to Risk
    
    Tier 1 Capital to Risk
    
    Tier 1 Capital toCategory
    
    Weighted Assets
    
    Weighted Assets
    
    Total AssetsWell capitalized
    
    3 10%
    
    3 6%
    
    3 5%Adequately capitalized
    
    3 8%
    
    3 4%
    
    3 4%*Under capitalized
    
    < 8%
    
    < 4%
    
    < 4%*Significantly undercapitalized
    
    < 6%
    
    < 3%
    
    < 3%Critically undercapitalized
    
    Tangible assets to capital of < 2%
   29




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##### Table of Contents




    
    an amount equal to five percent of the banks total assets at the time it became undercapitalized; and
    
    the amount that is necessary (or would have been necessary) to bring the bank into compliance with all capital standards
applicable with respect to such bank as of the time it fails to comply with the plan.
   Loans to Insiders
  The USA PATRIOT Act
  
    
    All financial institutions must establish anti-money laundering
programs that include, at minimum; (a) internal policies, procedures,
and controls; (b) specific designation of an anti-money laundering
compliance officer; (c) ongoing employee training programs, and (d) an
independent audit function to test the anti-money laundering program.
 30




---



##### Table of Contents




    
    The Secretary of the Treasury, in conjunction with other bank
regulators, may issue regulations that provide for minimum standards
with respect to customer identification at the time new accounts are
opened.
    
    Financial institutions that establish, maintain, or manage private banking accounts or
correspondent accounts in the United States for non-United States persons or their
representatives (including foreign individuals visiting the United States) must establish
appropriate, specific, and, where necessary, enhanced due diligence policies, procedures,
and controls designed to detect and report money laundering.
    
    Financial institutions are prohibited from establishing, maintaining,
administering or managing correspondent accounts for foreign shell
banks (foreign banks that do not have a physical presence in any
country), and will be subject to certain recordkeeping obligations
with respect to correspondent accounts of foreign banks.
    
    Bank regulators are directed to consider a holding companys
effectiveness in combating money laundering when ruling on Federal
Reserve Act and bank merger applications.Bank Mutual Corporation Regulation
 Holding Company Regulation
    Federal Securities Laws
  Sarbanes-Oxley Act of 2002
 31




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##### Table of Contents




    
    audit committees and auditor independence;
    
    certification of financial statements by the chief executive officer and the chief financial officer;
    
    management reporting, and auditor attestation, of internal control over financial reporting;
    
    the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuers securities if the
issuers financial statements later require restatement;
    
    a prohibition on insider trading during retirement plan black out periods;
    
    further disclosure of off-balance sheet transactions;
    
    a prohibition on many personal loans to directors and officers (with exceptions for financial institutions);
    
    expedited filing requirements for reporting of insiders transactions; and
    
    disclosure of a code of ethics and disclosure of a change or waiver of such code.
   Acquisition of Bank Mutual Corporation
   32




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##### Table of Contents



Federal and State Taxation
 Federal Taxation.
 Bad Debt Reserves
   State Taxation
 33




---



##### Table of Contents



Item 1A. Risk Factors .
  The Current Interest Rate Environment Is Having an Adverse Impact on Our Net Interest Income
    Increases in Market Interest Rates Are Also Likely to Adversely Affect Equity
  If Our Allowance for Loan Losses Is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could
Decrease
    34




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##### Table of Contents



Some of Our Lending Activities Are in Riskier Credits than Traditional Real Estate Loans
  Low Demand for Real Estate Loans May Lower Our Profitability
  Wisconsin Tax Developments Could Reduce Our Net Income
   Economic Conditions and World Events Could Affect Our Earnings
   Strong Competition Within Our Market Area May Reduce Our Customer Base
  35




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##### Table of Contents



Our Ability to Grow May Be Limited if We Cannot Make Acquisitions
  We Have Significant Intangible Assets Which We May Need to Write Off (Expense) in the Future
  We Are Subject to Security and Operational Risks Relating to Our Use of Technology that Could
Damage Our Reputation and Our Business
   
 Item 1B. Unresolved Staff Comments
  36




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##### Table of Contents



Item 2. Properties
  OriginalDate
    
    Leased
    
    
    
    Original Date
    
    
    LeasedLeased or
    
    or
    
    
    
    Leased or
    
    
    orLocation
    
    Acquired
    
    Owned*
    
    Location
    
    Acquired
    
    
    Owned*Executive Office:4949 West Brown Deer Road Brown Deer, WI 53223
    
    1991
    
    OwnedSoutheast Region:Milwaukee Metro Area:Bayshore Mall
    
    1971
    
    Leased
    
    Brookfield
    
    
    1973
    **
    
    Owned5900 N. Port Washington Road
    
    
    
    (2009)
    
    17100 W. Capitol DriveGlendale, WI 53217
    
    
    
    
    
    Brookfield, WI 53005Brookfield Square
    
    1975
    
    Leased
    
    Brown Deer
    
    
    1979
    
    
    Owned400 N. Moorland Road
    
    
    
    (2016)
    
    4801 W. Brown Deer RoadBrookfield, WI 53005
    
    
    
    
    
    Brown Deer, WI 53223Capitol Drive
    
    1976
    
    Owned
    
    Cedarburg
    
    
    1978
    **
    
    Leased8050 W. Capitol Drive
    
    
    
    
    
    W62 N248 Washington Avenue
    
    
    
    
    
    
    (2006
    )Milwaukee, WI 53222
    
    
    
    
    
    Cedarburg, WI 53012Downtown
    
    1955
    
    Owned
    
    Grafton
    
    
    1978
    
    
    Owned510 E. Wisconsin Avenue
    
    
    
    
    
    2030 Wisconsin AvenueMilwaukee, WI 53202
    
    
    
    
    
    Grafton, WI 53024Howell Avenue
    
    1977
    
    Owned
    
    Mayfair Mall
    
    
    2001
    
    
    Leased3847 S. Howell Avenue
    
    
    
    
    
    2600 N. Mayfair Road
    
    
    
    
    
    
    (2011
    )Milwaukee, WI 53207
    
    
    
    
    
    Wauwatosa, WI 53226Menomonee Falls
    
    2003
    
    Owned
    
    Mequon
    
    
    1970
    **
    
    OwnedW178 N9379 Water Tower Place
    
    
    
    
    
    11249 N. Port Washington RoadMenomonee Falls, WI.53051
    
    
    
    
    
    Mequon, WI 53092Oak Creek
    
    1972
    
    Owned
    
    Oklahoma Avenue
    
    
    1982
    
    
    Owned8780 S. Howell Avenue
    
    
    
    
    
    6801 W. Oklahoma AvenueOak Creek, WI 53154
    
    
    
    
    
    Milwaukee, WI 53219Sherman Park
    
    1950**
    
    Owned
    
    Southgate
    
    
    1967
    
    
    Owned4812 W. Burleigh Street
    
    
    
    
    
    3340 S. 27th StreetMilwaukee, WI 53210
    
    
    
    
    
    Milwaukee, WI 53215Southridge Mall
    
    1978
    
    Leased
    
    Thiensville
    
    
    1960
    **
    
    Owned5300 S. 76th Street
    
    
    
    (2008)
    
    208 N. Main StreetGreendale, WI 53129
    
    
    
    
    
    Thiensville, WI 53092West Allis
    
    1976
    
    Owned
    
    Waukesha  Grandview Plaza
    
    
    2005
    
    
    Owned10296 W. National Avenue
    
    
    
    
    
    1870 Meadow LaneWest Allis, WI 53227
    
    
    
    
    
    Pewaukee, WI 53072Racine Area:Racine  Douglas Avenue
    
    2005
    
    Owned
    
    Racine  Regency Mall
    
    
    2005
    
    
    Owned5133 Douglas Ave.
    
    
    
    
    
    3039 S. Green Bay RoadRacine, WI 53402
    
    
    
    
    
    Racine, WI 53406Madison Area:Downtown
    
    1980
    
    Leased
    
    West
    
    
    1982
    
    
    Leased23 S. Pinckney Street
    
    
    
    (2008)
    
    5521 Odana Road
    
    
    
    
    
    
    (2011
    )Madison, WI 53703
    
    
    
    
    
    Madison, WI 53719Middleton
    
    1978
    
    Owned
    
    Monona
    
    
    1981
    
    
    Owned6209 Century Avenue
    
    
    
    
    
    5320 Monona DriveMiddleton, WI 53562
    
    
    
    
    
    Monona, WI 53716
 37




---



##### Table of Contents



OriginalDate
    
    Leased
    
    
    
    Original Date
    
    
    LeasedLeased or
    
    Or
    
    
    
    Leased or
    
    
    orLocation
    
    Acquired
    
    Owned
    
    Location
    
    Acquired
    
    
    OwnedAdditional Southeast Locations:Sheboygan Area:Sheboygan
    
    1973
    
    Owned
    
    Sheboygan Motor Bank
    
    
    1984
    
    
    Owned801 N. 8th Street
    
    
    
    
    
    730 N. 9th StreetSheboygan, WI 53081
    
    
    
    
    
    Sheboygan, WI 53081Beaver Dam:
    
    1975
    
    Owned
    
    Beloit:
    
    
    1971
    
    
    Leased130 W. Maple Avenue
    
    
    
    
    
    3 Beloit Mall Shopping Center
    
    
    
    
    
    
    (2012
    )Beaver Dam, WI 53916
    
    
    
    
    
    Beloit, WI 53511Berlin:
    
    1973
    
    Owned
    
    Fond du Lac:
    
    
    2000
    
    
    Owned103 E. Huron Street
    
    
    
    
    
    W6606A Highway 23Berlin, WI 54923
    
    
    
    
    
    Fond du Lac, WI 54937Janesville:
    
    1973
    
    Owned
    
    Portage:
    
    
    1976
    
    
    Owned2111 Holiday Drive
    
    
    
    
    
    145 E. Cook StreetJanesville, WI 53545
    
    
    
    
    
    Portage, WI 53901Northeast Region:Greater Green Bay Area:201 N. Monroe Avenue
    
    1975**
    
    Owned
    
    2255 University Avenue
    
    
    1970
    **
    
    OwnedGreen Bay, WI 54301-4995
    
    
    
    
    
    Green Bay, WI 54308-80462357 S. Oneida Street
    
    1971**
    
    Owned
    
    2603 Glendale Avenue
    
    
    1986
    **
    
    OwnedGreen Bay, WI 54304-5286
    
    
    
    
    
    Green Bay, WI  54313-68232370 East Mason Street
    
    1985**
    
    Owned
    
    2424 West Mason Street
    
    
    1992
    **
    
    OwnedGreen Bay, WI 54302-3347
    
    
    
    
    
    Green Bay, WI 54303-4711749 Main Avenue
    
    1972**
    
    Owned
    
    330 North Broadway
    
    
    1979
    **
    
    OwnedDe Pere, WI 54115-5190
    
    
    
    
    
    De Pere, WI  54115-5250201 West Walnut St. (Operations Center)
    
    1999**
    
    LeasedGreen Bay, WI 54303
    
    
    
    (2009)Fox Valley Area:Appleton
    
    1985
    
    Leased
    
    Neenah
    
    
    1974
    
    
    Owned4323 W. Wisconsin Avenue
    
    
    
    (2009)
    
    101 W. Wisconsin AvenueFox River Mall
    
    
    
    
    
    Neenah, WI 54956Appleton, WI 54913Marinette Area:830 Pierce Avenue
    
    1972**
    
    Owned
    
    Pine Tree Mall
    
    
    1978
    **
    
    LeasedMarinette, WI 54143-0318
    
    
    
    
    
    2314 Roosevelt Road
    
    
    
    
    
    
    (2006
    )Marinette, WI  54143-0345Brillion:
    
    
    
    
    
    Crivitz:314 N. Main Street
    
    1973**
    
    Owned
    
    315 Highway 141
    
    
    1985
    **
    
    OwnedBrillion, WI 54110-1198
    
    
    
    
    
    Crivitz, WI   54114-0340Hortonville:
    
    
    
    
    
    Kiel:209 South Nash Street
    
    1979**
    
    Owned
    
    622 Fremont Street
    
    
    1970
    **
    
    OwnedHortonville, WI 54944
    
    
    
    
    
    Kiel, WI   53042-1321New Holstein:
    
    
    
    
    
    New London:2205 Wisconsin Avenue
    
    1976**
    
    Owned
    
    101 Park Street
    
    
    1969
    **
    
    OwnedNew Holstein, WI 53061-1291
    
    
    
    
    
    New London, WI 54961Peshtigo:
    
    
    
    
    
    Shawano:616 French Street
    
    1975**
    
    Owned
    
    835 E. Green Bay Avenue
    
    
    1981
    **
    
    OwnedPeshtigo, WI 54157-0193
    
    
    
    
    
    Shawano, WI  54166-0396Sturgeon Bay:1227 Egg Harbor Road
    
    1978**
    
    OwnedSturgeon Bay, WI 54235-0068
 38




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##### Table of Contents



OriginalDate
    
    Leased
    
    
    
    Original Date
    
    
    LeasedLeased or
    
    Or
    
    
    
    Leased or
    
    
    OrLocation
    
    Acquired
    
    Owned*
    
    Location
    
    Acquired
    
    
    Owned*Northwest Region:Eau Claire:Downtown
    
    1968**
    
    Owned
    
    Mall
    
    
    1972
    **
    
    Owned319 E. Grand Avenue
    
    
    
    
    
    2812 Mall DriveEau Claire, WI 54701
    
    
    
    
    
    Eau Claire, WI 54701Gordys Country Market
    
    1996**
    
    Leased
    
    Pinehurst
    
    
    1986
    **
    
    Owned2717 Birch Street
    
    
    
    (2010)
    
    2722 Eddy LaneEau Claire, WI 54703
    
    
    
    
    
    Eau Claire, WI 54703Chippewa Falls Area:Downtown
    
    1975**
    
    Owned
    
    Falls PickN Save
    
    
    1995
    **
    
    Leased35 W. Columbia
    
    
    
    
    
    303 Prairie View Road
    
    
    
    
    
    
    (2010
    )Chippewa Falls, WI 54729
    
    
    
    
    
    Chippewa Falls, WI 54729Menomonie Area:Downtown
    
    1967**
    
    Owned
    
    North
    
    
    1978
    **
    
    Owned717 Main Street
    
    
    
    
    
    2409 Hills Ct. N.EMenomonie, WI 54751
    
    
    
    
    
    Menomonie, WI 54751Barron:
    
    1995**
    
    Owned
    
    Bloomer:
    
    
    1995
    **
    
    Owned1512 E. Division Ave. (Hwy. 8)
    
    
    
    
    
    1203 17th AvenueBarron, WI 54812
    
    
    
    
    
    Bloomer, WI 54724Cornell:
    
    1980**
    
    Leased
    
    Ellsworth:
    
    
    1975
    **
    
    Owned422 Main Street
    
    
    
    (month to
    
    385 W. Main StreetCornell, WI 54732
    
    
    
    month)
    
    Ellsworth, WI 54011Hayward:
    
    1984**
    
    Owned
    
    Hudson:
    
    
    1979
    **
    
    Owned10562 Kansas Avenue
    
    
    
    
    
    2000 Crestview DriveHayward, WI 54843
    
    
    
    
    
    Hudson, WI 54016Rice Lake:
    
    1979**
    
    Owned
    
    Spooner:
    
    
    1995
    **
    
    Owned2850 Pioneer Avenue
    
    
    
    
    
    500 Front StreetRice Lake, WI 54868
    
    
    
    
    
    Spooner, WI 54801St. Croix Falls:
    
    1980**
    
    Owned
    
    Stanley:
    
    
    1978
    **
    
    Owned144 Washington Street N
    
    
    
    
    
    118 N. BroadwaySt. Croix Falls, WI 54024
    
    
    
    
    
    Stanley, WI 54768Woodbury, Minnesota:8420 City Centre Drive
    
    1995**
    
    OwnedWoodbury, MN 55125
 
 *
    
    If a leased property, the chart also shows year of lease expiration.**
    
    Date originally opened by an institution which was acquired by the Bank.   39




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##### Table of Contents



Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Executive Officers of the Registrant
  ExecutiveOfficerName and Age
    
    Offices and Positions with Bank Mutual Corporation and the Bank*
    
    Since (1)Michael T. Crowley, Jr., 63
    
    Chairman, President and Chief Executive Officer of Bank Mutual
Corporation and the Bank (2)
    
    
    1968Eugene H. Maurer, Jr., 60
    
    Senior Vice President and Secretary of Bank Mutual Corporation;
Senior Vice President, Chief Financial Officer, Treasurer and
Secretary of the Bank
    
    
    1982Rick B. Colberg, 53
    
    Chief Financial Officer of Bank Mutual Corporation; Vice
President of the Bank (3)
    
    
    1980Marlene M. Scholz, 60
    
    Senior Vice President and principal accounting officer of Bank
Mutual Corporation; Senior Vice President and Controller of the
Bank
    
    
    1981P. Terry Anderegg, 55
    
    Senior Vice PresidentRetail Operations of the Bank (4)
    
    
    1993Christopher J. Callen, 62
    
    Senior Vice PresidentLending of the Bank (4)
    
    
    1998
 
 *
    
    Excluding directorships and excluding positions with Bank subsidiaries. Those positions do
not constitute a substantial part of the officers duties.(1)
    
    Indicates date when individual first held an executive officer position with the Bank or
First Northern Savings. Each of these persons, other than Mr. Anderegg and Mr. Callen, became
a Bank Mutual Corporation executive officer in 2000 and, except as indicated, has held these
positions since that time.(2)
    
    Michael Crowley, Jr. became president of Bank Mutual Corporation in 2003 and Chairman of the
Bank in 2005.(3)
    
    Rick Colberg is the chief financial officer of Bank Mutual Corporation. He is also Vice
President of the Bank since 2003, when First Northern Savings merged into it. Previously he
was senior vice president, chief financial officer, and treasurer of First Northern Savings.(4)
    
    This position has been considered to be an executive officer position of Bank Mutual
Corporation since May 2003, as a result of the merger of the subsidiary banks. 40




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##### Table of Contents



Part II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and
Issuer Purchase of Equity Securities
 ®
    ®
 
 2005
    
    2004
    
    2003*High
    
    Low
    
    High
    
    Low
    
    High
    
    Low1st Quarter
    
    $
    12.35
    
    
    $
    11.50
    
    
    $
    11.55
    
    
    $
    10.90
    
    
    $
    6.937
    
    
    $
    6.2592nd Quarter
    
    $
    12.10
    
    
    $
    10.31
    
    
    $
    11.35
    
    
    $
    9.65
    
    
    $
    9.625
    
    
    $
    8.7233rd Quarter
    
    $
    11.55
    
    
    $
    10.35
    
    
    $
    12.40
    
    
    $
    10.50
    
    
    $
    11.846
    
    
    $
    10.0754th Quarter
    
    $
    10.95
    
    
    $
    10.00
    
    
    $
    12.59
    
    
    $
    11.80
    
    
    $
    12.600
    
    
    $
    11.000
  2005
    
    
    2004
    
    
    2003*1st Quarter
    
    $
    0.060
    
    
    $
    0.040
    
    
    $
    0.0272ndQuarter
    
    $
    0.060
    
    
    $
    0.040
    
    
    
    0.0273rd Quarter
    
    $
    0.065
    
    
    $
    0.050
    
    
    
    0.0304th Quarter
    
    $
    0.065
    
    
    $
    0.050
    
    
    
    0.035$
    0.250
    
    
    $
    0.180
    
    
    $
    0.120
 
 *
    
    Trading prices and per share cash dividends have been rounded and reflect the October 2003
exchange of 3.6686 shares of Bank Mutual Corporation for every share of the old Bank Mutual
Corporation.   41




---



##### Table of Contents



Total number
    
    Maximum number ofof shares purchased
    
    shares that may
    beTotal number
    
    Average
    
    as part of publicly
    
    purchased under theof shares
    
    price paid
    
    announced plans or
    
    recent plans orPeriod
    
    purchased
    
    per share
    
    programs
    
    programs*October 1 to 31, 2005
    
    
    311,619
    
    
    $
    10.22
    
    
    
    275,000
    
    
    
    2,145,500November 1 to 30, 2005
    
    
    413,419
    
    
    $
    10.50
    
    
    
    413,419
    
    
    
    1,732,081December 1 to 31, 2005
    
    
    207,398
    
    
    $
    10.69
    
    
    
    205,200
    
    
    
    1,526,881Total
    
    
    932,436
    
    
    
    
    
    
    
    893,619
 
 *
    
    At period end.  42




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##### Table of Contents



Item 6 . Selected Financial Data
 Selected Financial Highlights
   At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(In thousands except number of shares and per share amounts)Selected Financial Condition Data:Total assets
    
    $
    3,431,377
    
    
    $
    3,445,299
    
    
    $
    3,108,527
    
    
    $
    2,843,328
    
    
    $
    2,905,790Loans receivable, net
    
    
    1,990,492
    
    
    
    1,875,885
    
    
    
    1,712,278
    
    
    
    1,685,662
    
    
    
    1,831,155Loans held for sale
    
    
    2,312
    
    
    
    4,987
    
    
    
    4,056
    
    
    
    46,971
    
    
    
    32,321Securities available-for-sale, at fair value:Investment securities
    
    
    63,361
    
    
    
    68,753
    
    
    
    67,854
    
    
    
    73,226
    
    
    
    93,059Mortgage-related securities
    
    
    1,087,816
    
    
    
    1,266,224
    
    
    
    1,053,349
    
    
    
    618,123
    
    
    
    521,084Foreclosed properties and repossessed assets
    
    
    708
    
    
    
    1,621
    
    
    
    630
    
    
    
    750
    
    
    
    382Goodwill
    
    
    52,570
    
    
    
    52,570
    
    
    
    52,570
    
    
    
    52,570
    
    
    
    52,570Other intangible assets
    
    
    3,750
    
    
    
    4,412
    
    
    
    5,073
    
    
    
    5,734
    
    
    
    6,396Mortgage servicing rights
    
    
    4,771
    
    
    
    4,542
    
    
    
    4,698
    
    
    
    3,060
    
    
    
    4,251Deposits
    
    
    2,086,822
    
    
    
    1,982,881
    
    
    
    2,052,290
    
    
    
    2,126,655
    
    
    
    2,090,440Borrowings
    
    
    765,796
    
    
    
    761,525
    
    
    
    299,491
    
    
    
    354,978
    
    
    
    465,360Shareholders equity
    
    
    544,374
    
    
    
    670,454
    
    
    
    731,080
    
    
    
    323,075
    
    
    
    304,098Tangible shareholders equity
    
    
    484,786
    
    
    
    610,698
    
    
    
    670,771
    
    
    
    264,011
    
    
    
    243,486Number of shares outstanding  net of
treasury
stock(1)
    
    
    62,325,268
    
    
    
    73,485,113
    
    
    
    78,775,779
    
    
    
    79,802,950
    
    
    
    81,946,124Book value per share(1)
    
    
    8.73
    
    
    
    9.12
    
    
    
    9.28
    
    
    
    4.05
    
    
    
    3.71Tangible book value per share(1)
    
    
    7.78
    
    
    
    8.31
    
    
    
    8.51
    
    
    
    3.31
    
    
    
    2.97
 43




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##### Table of Contents



For the Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(In thousands except per share amount)Selected Operating Data:Total interest income
    
    $
    164,210
    
    
    $
    148,921
    
    
    $
    141,070
    
    
    $
    165,432
    
    
    $
    190,986Total interest expense
    
    
    77,231
    
    
    
    58,498
    
    
    
    69,482
    
    
    
    87,678
    
    
    
    119,372Net interest income
    
    
    86,979
    
    
    
    90,423
    
    
    
    71,588
    
    
    
    77,754
    
    
    
    71,614Provision for loan losses
    
    
    541
    
    
    
    1,330
    
    
    
    1,304
    
    
    
    760
    
    
    
    723Net interest income after provision for
loan losses
    
    
    86,438
    
    
    
    89,093
    
    
    
    70,284
    
    
    
    76,994
    
    
    
    70,891Total noninterest income
    
    
    17,441
    
    
    
    16,175
    
    
    
    19,618
    
    
    
    16,676
    
    
    
    16,480Noninterest expense:Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,098Amortization of other intangible assets
    
    
    661
    
    
    
    661
    
    
    
    661
    
    
    
    662
    
    
    
    662Total noninterest expense
    
    
    60,837
    
    
    
    60,082
    
    
    
    55,608
    
    
    
    54,169
    
    
    
    55,004Income before income taxes
    
    
    43,042
    
    
    
    45,186
    
    
    
    34,294
    
    
    
    39,501
    
    
    
    32,367Income tax expense
    
    
    15,016
    
    
    
    15,632
    
    
    
    11,695
    
    
    
    12,956
    
    
    
    12,084Net income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599
    
    
    $
    26,545
    
    
    $
    20,283Earnings per share-basic(1)
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    0.30
    
    
    $
    0.34
    
    
    $
    0.26Earnings per share-diluted(1)
    
    $
    0.43
    
    
    $
    0.38
    
    
    $
    0.29
    
    
    $
    0.34
    
    
    $
    0.26Cash dividends paid per share(1)
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.12
    
    
    $
    0.093
    
    
    $
    0.076
 At or for the Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Selected Financial Ratios:Net interest margin (3)
    
    
    2.62
    %
    
    
    3.00
    %
    
    
    2.58
    %
    
    
    2.88
    %
    
    
    2.67
    %Net interest rate spread
    
    
    2.15
    
    
    
    2.44
    
    
    
    2.17
    
    
    
    2.52
    
    
    
    2.22Return on average assets
    
    
    0.80
    
    
    
    0.93
    
    
    
    0.76
    
    
    
    0.92
    
    
    
    0.71Return on assets, excluding amortization
of goodwill(3)
    
    
    0.80
    
    
    
    0.93
    
    
    
    0.76
    
    
    
    0.92
    
    
    
    0.82Return on average shareholders equity
    
    
    4.84
    
    
    
    4.10
    
    
    
    5.45
    
    
    
    8.44
    
    
    
    6.85Return on average shareholders equity
excluding amortization of goodwill(3)
    
    
    4.84
    
    
    
    4.10
    
    
    
    5.45
    
    
    
    8.44
    
    
    
    7.89Efficiency ratio, excluding amortization
of goodwill (3)(4)
    
    
    58.26
    
    
    
    56.36
    
    
    
    60.97
    
    
    
    57.36
    
    
    
    58.92Noninterest expense (excluding amortization
of goodwill) as a percent of adjusted
average assets(3)
    
    
    1.74
    
    
    
    1.88
    
    
    
    1.88
    
    
    
    1.88
    
    
    
    1.82Shareholders equity to total assets
    
    
    15.86
    
    
    
    19.46
    
    
    
    23.52
    
    
    
    11.36
    
    
    
    10.47Tangible shareholders equity to adjusted
total assets (5)
    
    
    14.38
    
    
    
    18.04
    
    
    
    22.01
    
    
    
    9.48
    
    
    
    8.57Selected Asset Quality Ratios:Non-performing loans to loans receivable, net
    
    
    0.29
    %
    
    
    0.33
    %
    
    
    0.61
    %
    
    
    0.50
    %
    
    
    0.19
    %Non-performing assets to total assets
    
    
    0.19
    
    
    
    0.23
    
    
    
    0.35
    
    
    
    0.32
    
    
    
    0.14Allowance for loan losses to
non-performing loans
    
    
    207.23
    
    
    
    222.09
    
    
    
    132.77
    
    
    
    151.87
    
    
    
    345.90Allowance for loan losses to
non-performing assets
    
    
    184.81
    
    
    
    176.46
    
    
    
    125.17
    
    
    
    139.40
    
    
    
    312.13Allowance for loan losses to total loans
receivable, net
    
    
    0.61
    
    
    
    0.74
    
    
    
    0.80
    
    
    
    0.76
    
    
    
    0.67Charge-offs to average loans
    
    
    0.12
    
    
    
    0.07
    
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.04
 
 (1)
    
    Per share and share information prior to October 29, 2003 has been adjusted to reflect
the full conversion transaction and related 3.6686-for-one share exchange on that date.(2)
    
    Net interest margin is calculated by dividing net interest income by average earnings
assets.(3)
    
    In 2002, accounting rules concerning the amortization of goodwill changed. These
ratios are being presented excluding goodwill so as to make them comparable among the
years presented. 44




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##### Table of Contents



(4)
    
    Efficiency ratio is calculated by dividing noninterest expense by the sum of net
interest income and noninterest income.(5)
    
    The ratio is calculated by dividing total shareholders equity minus goodwill, other
intangible assets net of deferred taxes and mortgage servicing rights by the sum of total
assets minus goodwill, other intangible assets net of deferred taxes and mortgage servicing
rights. 45




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
     Significant Accounting Policies
  -
    
    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 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
 46




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##### Table of Contents



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, 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.
 Comparisons of Financial Condition at December 31, 2005 and 2004
     47




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##### Table of Contents



During the year ended December 31,2005
    
    2004(In thousands)Originations:Mortgage loans
    
    $
    388,106
    
    
    $
    479,814Consumer loans
    
    
    211,629
    
    
    
    268,521Commercial business loans
    
    
    43,517
    
    
    
    41,018Total loans originated
    
    
    643,252
    
    
    
    789,353Purchases:Mortgage loans
    
    
    258,707
    
    
    
    148,951Total loans originated and purchased
    
    $
    901,959
    
    
    $
    938,304
         48




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##### Table of Contents



At December 31,2005
    
    2004(In thousands)Accrued Interest:Mortgage-related securities
    
    $
    4,014
    
    
    $
    4,581Investment securities
    
    
    117
    
    
    
    172Loans receivable
    
    
    7,589
    
    
    
    6,599Total accrued interest
    
    
    11,720
    
    
    
    11,352Foreclosed properties and repossessed assets
    
    
    708
    
    
    
    1,621Premises and equipment
    
    
    47,588
    
    
    
    43,966Federal Home Loan Bank stock, at cost
    
    
    48,537
    
    
    
    38,186Bank owned life insurance
    
    
    20,359
    
    
    
    19,324Other
    
    
    27,978
    
    
    
    15,902$
    156,890
    
    
    $
    130,351
     49




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50




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##### Table of Contents



Average Balance Sheet and Yield/Rate Analysis
  AVERAGE BALANCE SHEET, INTEREST AND RATE PAIDYears ended December 31,2005
    
    2004
    
    2003Interest
    
    Average
    
    
    
    
    
    Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Earned/
    
    Yield/
    
    Average
    
    Earned/
    
    Yield/
    
    Average
    
    Earned/
    
    Yield/Balance
    
    Paid
    
    Cost
    
    Balance
    
    Paid
    
    Cost
    
    Balance
    
    Paid
    
    Cost(Dollars in thousands)Assets:Interest-Earning Assets (1):Loans receivable, net
    
    $
    1,970,990
    
    
    $
    107,553
    
    
    
    5.46
    %
    
    $
    1,799,670
    
    
    $
    97,330
    
    
    
    5.41
    %
    
    $
    1,739,572
    
    
    $
    104,623
    
    
    
    6.01
    %Mortgage-related securities
    
    
    1,217,647
    
    
    
    51,721
    
    
    
    4.25
    
    
    
    1,090,363
    
    
    
    47,431
    
    
    
    4.35
    
    
    
    665,804
    
    
    
    29,164
    
    
    
    4.38Investment securities (2)
    
    
    113,670
    
    
    
    4,168
    
    
    
    3.67
    
    
    
    104,681
    
    
    
    3,956
    
    
    
    3.78
    
    
    
    116,097
    
    
    
    4,654
    
    
    
    4.01Interest-earning deposits
    
    
    11,796
    
    
    
    356
    
    
    
    3.02
    
    
    
    11,834
    
    
    
    128
    
    
    
    1.08
    
    
    
    47,491
    
    
    
    423
    
    
    
    0.89Federal funds
    
    
    10,623
    
    
    
    412
    
    
    
    3.88
    
    
    
    5,546
    
    
    
    76
    
    
    
    1.37
    
    
    
    205,671
    
    
    
    2,206
    
    
    
    1.07Total interest-earning assets
    
    
    3,324,726
    
    
    
    164,210
    
    
    
    4.94
    
    
    
    3,012,094
    
    
    
    148,921
    
    
    
    4.95
    
    
    
    2,774,635
    
    
    
    141,070
    
    
    
    5.08Noninterest-earning assets
    
    
    161,927
    
    
    
    
    
    
    
    
    
    
    
    175,491
    
    
    
    
    
    
    
    
    
    
    
    185,530Total average assets
    
    $
    3,486,653
    
    
    
    
    
    
    
    
    
    
    $
    3,187,585
    
    
    
    
    
    
    
    
    
    
    $
    2,960,165Liabilities and Equity:Interest-Bearing Liabilities:Savings deposits
    
    $
    244,954
    
    
    
    1,048
    
    
    
    0.43
    
    
    $
    253,321
    
    
    
    1,084
    
    
    
    0.43
    
    
    $
    293,735
    
    
    
    1,490
    
    
    
    0.51Money market accounts
    
    
    283,958
    
    
    
    5,548
    
    
    
    1.95
    
    
    
    335,553
    
    
    
    3,301
    
    
    
    0.98
    
    
    
    347,901
    
    
    
    4,353
    
    
    
    1.25Interest-bearing
demand accounts
    
    
    168,962
    
    
    
    369
    
    
    
    0.22
    
    
    
    164,588
    
    
    
    359
    
    
    
    0.22
    
    
    
    143,331
    
    
    
    416
    
    
    
    0.29Time deposits
    
    
    1,191,364
    
    
    
    42,371
    
    
    
    3.56
    
    
    
    1,139,368
    
    
    
    37,373
    
    
    
    3.28
    
    
    
    1,261,281
    
    
    
    45,160
    
    
    
    3.58Total deposits
    
    
    1,889,238
    
    
    
    49,336
    
    
    
    2.61
    
    
    
    1,892,830
    
    
    
    42,117
    
    
    
    2.23
    
    
    
    2,046,248
    
    
    
    51,419
    
    
    
    2.51Advance payment by borrowers
for taxes and insurance
    
    
    19,412
    
    
    
    26
    
    
    
    0.13
    
    
    
    19,759
    
    
    
    36
    
    
    
    0.18
    
    
    
    19,205
    
    
    
    88
    
    
    
    0.46Borrowings
    
    
    862,649
    
    
    
    27,869
    
    
    
    3.23
    
    
    
    414,600
    
    
    
    16,345
    
    
    
    3.94
    
    
    
    319,348
    
    
    
    17,975
    
    
    
    5.63Total interest-bearing
liabilities
    
    
    2,771,299
    
    
    
    77,231
    
    
    
    2.79
    
    
    
    2,327,189
    
    
    
    58,498
    
    
    
    2.51
    
    
    
    2,384,801
    
    
    
    69,482
    
    
    
    2.91Noninterest-Bearing LiabilitiesNoninterest-bearing deposits
    
    
    103,762
    
    
    
    
    
    
    
    
    
    
    
    106,224
    
    
    
    
    
    
    
    
    
    
    
    111,955Other noninterest-
bearing liabilities
    
    
    32,369
    
    
    
    
    
    
    
    
    
    
    
    33,638
    
    
    
    
    
    
    
    
    
    
    
    48,481Total noninterest-
bearing liabilities
    
    
    136,131
    
    
    
    
    
    
    
    
    
    
    
    139,862
    
    
    
    
    
    
    
    
    
    
    
    160,436Total liabilities
    
    
    2,907,430
    
    
    
    
    
    
    
    
    
    
    
    2,467,051
    
    
    
    
    
    
    
    
    
    
    
    2,545,237Equity
    
    
    579,223
    
    
    
    
    
    
    
    
    
    
    
    720,534
    
    
    
    
    
    
    
    
    
    
    
    414,928Total average liabilities
and equity
    
    $
    3,486,653
    
    
    
    
    
    
    
    
    
    
    $
    3,187,585
    
    
    
    
    
    
    
    
    
    
    $
    2,960,165Net interest income and net
interest rate spread (3)
    
    
    
    
    
    $
    86,979
    
    
    
    2.15
    
    
    
    
    
    
    $
    90,423
    
    
    
    2.44
    
    
    
    
    
    
    $
    71,588
    
    
    
    2.17Net interest-earning assets
and net interest margin(4)
    
    $
    553,427
    
    
    
    
    
    
    
    2.62
    %
    
    $
    684,905
    
    
    
    
    
    
    
    3.00
    %
    
    $
    389,834
    
    
    
    
    
    
    
    2.58
    %Average interest-earnings
assets to average interest-
bearing liabilities
    
    
    1.20
    x
    
    
    
    
    
    
    
    
    
    
    1.29
    x
    
    
    
    
    
    
    
    
    
    
    1.16
    x
 
 (1)
    
    For the purposes of these computations, non-accruing loans and loans held for sale are
included in the average loans outstanding.(2)
    
    FHLB stock is included in investment securities dollars outstanding and yields.(3)
    
    Interest rate spread is the difference between the average yield on interest-earning assets
and the average cost on interest-bearing liabilities.(4)
    
    Net interest margin is determined by dividing net interest income by total interest-earning
assets. 51




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##### Table of Contents



Rate/Volume Analysis
 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.
  Year Ended December 31,2005 Compared to 2004Increase (Decrease) Due ToVolume (1)
    
    
    Rate (2)
    
    
    Net (3)(In thousands)Interest-earning assets:Loans receivable
    
    $
    9,315
    
    
    $
    908
    
    
    $
    10,223Mortgage-related securities
    
    
    5,431
    
    
    
    (1,141
    )
    
    
    4,290Investment securities
    
    
    333
    
    
    
    (121
    )
    
    
    212Interest-earning deposits
    
    
    
    
    
    
    228
    
    
    
    228Federal funds
    
    
    113
    
    
    
    223
    
    
    
    336Total
    
    
    15,192
    
    
    
    97
    
    
    
    15,289Interest-bearing liabilities:Savings deposits
    
    
    (36
    )
    
    
    
    
    
    
    (36
    )Money market deposits
    
    
    (573
    )
    
    
    2,820
    
    
    
    2,247Interest-bearing demand deposits
    
    
    10
    
    
    
    
    
    
    
    10Time deposits
    
    
    1,756
    
    
    
    3,242
    
    
    
    4,998Advance payment by borrowers for
taxes and insurance
    
    
    (1
    )
    
    
    (9
    )
    
    
    (10
    )Borrowings
    
    
    14,927
    
    
    
    (3,403
    )
    
    
    11,524Total
    
    
    16,083
    
    
    
    2,650
    
    
    
    18,733Net change in net interest income
    
    $
    (891
    )
    
    $
    (2,553
    )
    
    $
    (3,444
    )
 Year Ended December 31,2004 Compared to 2003Increase (Decrease) Due ToVolume (1)
    
    
    Rate (2)
    
    
    Net (3)(In thousands)Interest-earning assets:Loans receivable
    
    $
    3,519
    
    
    $
    (10,812
    )
    
    $
    (7,293
    )Mortgage-related securities
    
    
    18,470
    
    
    
    (203
    )
    
    
    18,267Investment securities
    
    
    (442
    )
    
    
    (256
    )
    
    
    (698
    )Interest-earning deposits
    
    
    (370
    )
    
    
    75
    
    
    
    (295
    )Federal funds
    
    
    (2,607
    )
    
    
    477
    
    
    
    (2,130
    )Total
    
    
    18,570
    
    
    
    (10,719
    )
    
    
    7,851Interest-bearing liabilities:Savings deposits
    
    
    (191
    )
    
    
    (215
    )
    
    
    (406
    )Money market deposits
    
    
    (149
    )
    
    
    (903
    )
    
    
    (1,052
    )Interest-bearing demand deposits
    
    
    56
    
    
    
    (113
    )
    
    
    (57
    )Time deposits
    
    
    (4,168
    )
    
    
    (3,619
    )
    
    
    (7,787
    )Advance payment by borrowers for
taxes and insurance
    
    
    3
    
    
    
    (55
    )
    
    
    (52
    )Borrowings
    
    
    4,561
    
    
    
    (6,191
    )
    
    
    (1,630
    )Total
    
    
    112
    
    
    
    (11,096
    )
    
    
    (10,984
    )Net change in net interest income
    
    $
    18,458
    
    
    $
    377
    
    
    $
    18,835
 52




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##### Table of Contents



Comparisons of Operating Results for Years Ended December 31, 2005 and 2004
 General
  Net Interest Income
   Total Interest Income
      Interest Expense
  53




---



##### Table of Contents



Provision for Loan Losses
    Noninterest Income
        54




---



##### Table of Contents



Noninterest Expense
     Income Taxes
     55




---



##### Table of Contents



56




---



##### Table of Contents



Comparisons of Operating Results for Years Ended December 31, 2004 and 2003
 General
  Net Interest Income
   Total Interest Income
      Interest Expense
   57




---



##### Table of Contents



Provision for Loan Losses
   Noninterest Income
        Noninterest Expense
   58




---



##### Table of Contents



Income Taxes
   Liquidity and Capital Resources
      59




---



##### Table of Contents



Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements
   Payments Due InOne to
    
    Three to
    
    OverOne Year
    
    Three
    
    Five
    
    FiveOr Less
    
    Years
    
    Years
    
    Years
    
    Total(In thousands)Deposits without a stated
maturity (a)
    
    $
    781,029
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    781,029Certificates of deposits (a)
    
    
    718,634
    
    
    
    498,882
    
    
    
    88,277
    
    
    
    
    
    
    
    1,305,793Borrowed funds (a)
    
    
    607,955
    
    
    
    105,675
    
    
    
    
    
    
    
    52,166
    
    
    
    765,796Operating leases
    
    
    1,072
    
    
    
    1,685
    
    
    
    841
    
    
    
    163
    
    
    
    3,761Purchase obligations
    
    
    2,160
    
    
    
    4,320
    
    
    
    2,880
    
    
    
    
    
    
    
    9,360Deferred retirement plans and
deferred compensation plans
    
    
    333
    
    
    
    587
    
    
    
    504
    
    
    
    6,625
    
    
    
    8,049
 
 (a)
    
    Excludes interest to be paid in the periods indicated.    60




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##### Table of Contents



Payments Due InOne to
    
    Three to
    
    OverOne Year
    
    Three
    
    Five
    
    FiveOr Less
    
    Years
    
    Years
    
    Years
    
    Total(In thousands)Commitments to extend credit:Commercial
    
    $
    4,441
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,441Residential real estate
    
    
    63,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,508Revolving home equity
and credit card lines
    
    
    153,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153,133Standby letters of credit
    
    
    2,122
    
    
    
    1,141
    
    
    
    
    
    
    
    
    
    
    
    3,263Commercial letters of credit
    
    
    16,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,523Unused commercial lines
of credit
    
    
    5,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,930Net commitments to sell
mortgage loans
    
    
    3,943
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,943
  Impact of Inflation and Changing Prices
  61




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Quarterly Financial Information
  Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31(In thousands, except per share amounts)2005 (unaudited)Interest income
    
    $
    39,958
    
    
    $
    40,968
    
    
    $
    41,591
    
    
    $
    41,693Interest expense
    
    
    16,806
    
    
    
    18,650
    
    
    
    20,332
    
    
    
    21,443Net interest income
    
    
    23,152
    
    
    
    22,318
    
    
    
    21,259
    
    
    
    20,250Provision for loan losses
    
    
    117
    
    
    
    270
    
    
    
    92
    
    
    
    62Net income after provision
for loan losses
    
    
    23,035
    
    
    
    22,048
    
    
    
    21,167
    
    
    
    20,188Total noninterest income
    
    
    4,921
    
    
    
    3,787
    
    
    
    4,376
    
    
    
    4,357Total noninterest expense
    
    
    15,990
    
    
    
    14,887
    
    
    
    15,012
    
    
    
    14,948Income before income taxes
    
    
    11,966
    
    
    
    10,948
    
    
    
    10,531
    
    
    
    9,597Income taxes
    
    
    4,077
    
    
    
    3,750
    
    
    
    3,619
    
    
    
    3,570Net income
    
    $
    7,889
    
    
    $
    7,198
    
    
    $
    6,912
    
    
    $
    6,027Earnings per share  Basic
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    0.10Earnings per share  Diluted
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.10Cash dividend paid per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.065
    
    
    $
    0.0652004 (unaudited)Interest income
    
    $
    36,661
    
    
    $
    36,253
    
    
    $
    36,756
    
    
    $
    39,251Interest expense
    
    
    14,569
    
    
    
    14,370
    
    
    
    14,413
    
    
    
    15,146Net interest income
    
    
    22,092
    
    
    
    21,883
    
    
    
    22,343
    
    
    
    24,105Provision for loan losses
    
    
    490
    
    
    
    384
    
    
    
    267
    
    
    
    189Net income after provision
for loan losses
    
    
    21,602
    
    
    
    21,499
    
    
    
    22,076
    
    
    
    23,916Total noninterest income
    
    
    3,847
    
    
    
    4,429
    
    
    
    3,876
    
    
    
    4,023Total noninterest expense
    
    
    14,753
    
    
    
    15,019
    
    
    
    15,059
    
    
    
    15,251Income before income taxes
    
    
    10,696
    
    
    
    10,909
    
    
    
    10,893
    
    
    
    12,688Income taxes
    
    
    3,622
    
    
    
    3,791
    
    
    
    3,859
    
    
    
    4,360Net income
    
    $
    7,074
    
    
    $
    7,118
    
    
    $
    7,034
    
    
    $
    8,328Earnings per share  Basic
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.11doubleEarnings per share  Diluted
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.11Cash dividend paid per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.05
 Recent Accounting Developments
  62




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Management of Interest Rate Risk
      
    
    maintain earnings and capital within self-imposed parameters over a
range of possible interest rate environments;
    
    coordinate interest rate risk policies and procedures with other
elements of our business plan, all within the context of the current
business environment and our capital and liquidity requirements; and
    
    manage interest rate risk in a manner consistent with the approved
guidelines and policies set by our board of directors.
   
    
    emphasizing the origination of adjustable-rate and certain 15-year
fixed rate mortgage loans for our portfolio, and selling certain 15
and 20 year fixed rate mortgage loans and all 30-year fixed rate
mortgage loans;
    
    maintaining a significant level of investment securities and
mortgage-related securities with a weighted average life of less than
eight years or with interest rates that reprice in less than five
years; and
    
    managing deposits and borrowings to provide stable funding.
 63




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##### Table of Contents



Gap Analysis.
    i)
    
    Investment securities  based upon contractual maturities and if applicable, call dates.ii)
    
    Mortgage-related securities  based upon an independent outside source for determining cash
flows (prepayment speeds).iii)
    
    Loans  based upon contractual maturities, repricing date, 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.
 64




---



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At December 31, 2005Within
    
    Three to
    
    More Than
    
    More Than
    
    OverThree
    
    Twelve
    
    One Year -
    
    Three Years -
    
    FiveMonths
    
    Months
    
    Three Years
    
    Five Years
    
    Years
    
    Total(Dollars in thousands)Interest-earning assets:Loans receivable:Mortgage loans:Fixed
    
    $
    31,923
    
    
    $
    84,548
    
    
    $
    163,963
    
    
    $
    97,779
    
    
    $
    130,472
    
    
    $
    508,685Adjustable
    
    
    159,958
    
    
    
    262,779
    
    
    
    357,194
    
    
    
    182,638
    
    
    
    6,128
    
    
    
    968,697Consumer loans
    
    
    103,913
    
    
    
    127,408
    
    
    
    143,799
    
    
    
    53,083
    
    
    
    38,592
    
    
    
    466,795Commercial and industrial loans
    
    
    11,953
    
    
    
    20,528
    
    
    
    19,470
    
    
    
    4,165
    
    
    
    1,131
    
    
    
    57,247Interest-earning deposits
    
    
    27,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,872Investment securities
    
    
    48,962
    
    
    
    14,720
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,682Mortgage-related securities:Fixed
    
    
    64,798
    
    
    
    156,096
    
    
    
    344,755
    
    
    
    162,598
    
    
    
    230,920
    
    
    
    959,167Adjustable
    
    
    154,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,874Other interest-earning assets
    
    
    48,537
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,537Total interest-earning assets
    
    
    652,790
    
    
    
    666,079
    
    
    
    1,029,181
    
    
    
    500,263
    
    
    
    407,243
    
    
    
    3,255,556Noninterest-bearing and interest-
bearing liabilities:Noninterest-bearing demand
accounts
    
    
    4,736
    
    
    
    13,024
    
    
    
    27,414
    
    
    
    19,308
    
    
    
    46,101
    
    
    
    110,583Interest-bearing liabilities:Deposits:Interest-bearing demand accounts
    
    
    7,490
    
    
    
    20,599
    
    
    
    43,356
    
    
    
    30,536
    
    
    
    72,623
    
    
    
    174,604Savings accounts
    
    
    10,843
    
    
    
    28,284
    
    
    
    58,260
    
    
    
    39,778
    
    
    
    87,243
    
    
    
    224,408Money market accounts
    
    
    271,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271,093Time deposits
    
    
    372,031
    
    
    
    363,369
    
    
    
    480,126
    
    
    
    88,137
    
    
    
    
    
    
    
    1,303,663Advance payments by borrowers
for taxes and insurance
    
    
    
    
    
    
    2,529
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,529Borrowings
    
    
    76,164
    
    
    
    532,476
    
    
    
    107,323
    
    
    
    1,849
    
    
    
    47,984
    
    
    
    765,796Total interest-bearing
liabilities
    
    
    742,357
    
    
    
    960,281
    
    
    
    716,479
    
    
    
    179,608
    
    
    
    253,951
    
    
    
    2,852,676Interest rate sensitivity gap
    
    $
    (89,567
    )
    
    $
    (294,202
    )
    
    $
    312,702
    
    
    $
    320,655
    
    
    $
    153,292
    
    
    $
    402,880Cumulative interest rate
sensitivity gap
    
    $
    (89,567
    )
    
    $
    (383,769
    )
    
    $
    (71,067
    )
    
    $
    249,588
    
    
    $
    402,880Cumulative interest rate sensitivity
gap as a percentage total assets
    
    
    (2.61
    )%
    
    
    (11.18
    )%
    
    
    (2.07
    )%
    
    
    7.27
    %
    
    
    11.74
    %Cumulative interest-earning assets
as a percentage of interest
bearing liabilities
    
    
    87.93
    %
    
    
    77.46
    %
    
    
    97.06
    %
    
    
    109.60
    %
    
    
    114.12
    %
  65




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Present Value of Equity
   Present Value of Equityas Percent ofPresent Value of Equity
    
    Present Value of AssetsChange in
    
    Dollar
    
    Dollar
    
    Percent
    
    Present Value
    
    PercentInterest Rates
    
    Amount
    
    Change
    
    Change
    
    Ratio
    
    Change(Basis Points)
    
    (Dollars in thousands)+300
    
    $
    397,522
    
    
    $
    (184,076
    )
    
    
    (31.7
    )%
    
    
    12.70
    %
    
    
    (26.3
    )%+200
    
    
    460,922
    
    
    
    (120,676
    )
    
    
    (20.7
    )
    
    
    14.36
    
    
    
    (16.7
    )+100
    
    
    521,227
    
    
    
    (60,371
    )
    
    
    (10.4
    )
    
    
    15.83
    
    
    
    (8.1
    )0
    
    
    581,598
    
    
    
    
    
    
    
    
    
    
    
    17.23
    
    
    
    -100
    
    
    620,565
    
    
    
    38,967
    
    
    
    6.7
    
    
    
    18.00
    
    
    
    4.5-200
    
    
    631,860
    
    
    
    50,262
    
    
    
    8.6
    
    
    
    18.05
    
    
    
    4.8-300
    
    
    629,869
    
    
    
    48,271
    
    
    
    8.3
    
    
    
    17.78
    
    
    
    3.2
  66




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Item 8. Financial Statements and Supplementary Data
   
     /s/ Ernst & Young LLP 
 67




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Income
 December 312005
    
    2004(In Thousands)AssetsCash and due from banks
    
    $
    41,543
    
    
    $
    36,868Interest-earning deposits
    
    
    27,872
    
    
    
    707Cash and cash equivalents
    
    
    69,415
    
    
    
    37,575Securities available-for-sale, at fair value:Investment securities
    
    
    63,361
    
    
    
    68,753Mortgage-related securities
    
    
    1,087,816
    
    
    
    1,266,224Loans held for sale
    
    
    2,312
    
    
    
    4,987Loans receivable, net
    
    
    1,990,492
    
    
    
    1,875,885Goodwill
    
    
    52,570
    
    
    
    52,570Other intangible assets
    
    
    3,750
    
    
    
    4,412Mortgage servicing rights
    
    
    4,771
    
    
    
    4,542Other assets
    
    
    156,890
    
    
    
    130,351$
    3,431,377
    
    
    $
    3,445,299Liabilities and shareholders equityLiabilities:Deposits
    
    $
    2,086,822
    
    
    $
    1,982,881Borrowings
    
    
    765,796
    
    
    
    761,525Advance payments by borrowers for taxes and insurance
    
    
    2,529
    
    
    
    2,796Other liabilities
    
    
    29,513
    
    
    
    25,3482,884,660
    
    
    
    2,772,550Minority interest in real estate development
    
    
    2,343
    
    
    
    2,295Shareholders equity:Preferred stock  $.01 par value:Authorized 20,000,000 shares in 2005 and 2004Issued and outstanding  none in 2005 and 2004
    
    
    
    
    
    
    Common stock  $.01 par value:Authorized 200,000,000 shares in 2005 and 2004Issued  78,783,849 shares in 2005 and 2004Outstanding  62,325,268 shares in 2005 and 73,485,113 in 2004
    
    
    788
    
    
    
    788Additional paid-in capital
    
    
    497,589
    
    
    
    495,858Retained earnings
    
    
    269,913
    
    
    
    258,110Unearned ESOP shares
    
    
    (3,966
    )
    
    
    (4,865
    )Accumulated other comprehensive income
    
    
    (17,346
    )
    
    
    (4,844
    )Unearned deferred compensation
    
    
    (6,955
    )
    
    
    (10,076
    )Treasury stock  16,458,581 shares in 2005 and 5,298,736 in 2004
    
    
    (195,649
    )
    
    
    (64,517
    )Total shareholders equity
    
    
    544,374
    
    
    
    670,454$
    3,431,377
    
    
    $
    3,445,299
 See accompanying notes to consolidated financial statements.
 68




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Income
 Year ended December 312005
    
    2004
    
    2003(In Thousands, Except Per Share Amounts)Interest income:Loans
    
    $
    107,553
    
    
    $
    97,330
    
    
    $
    104,623Investment securities
    
    
    4,168
    
    
    
    3,956
    
    
    
    4,654Mortgage-related securities
    
    
    51,721
    
    
    
    47,431
    
    
    
    29,164Interest-earning deposits
    
    
    768
    
    
    
    204
    
    
    
    2,629Total interest income
    
    
    164,210
    
    
    
    148,921
    
    
    
    141,070Interest expense:Deposits
    
    
    49,336
    
    
    
    42,117
    
    
    
    51,419Borrowings
    
    
    27,869
    
    
    
    16,345
    
    
    
    17,975Advance payments by borrowers for taxes and insurance
    
    
    26
    
    
    
    36
    
    
    
    88Total interest expense
    
    
    77,231
    
    
    
    58,498
    
    
    
    69,482Net interest income
    
    
    86,979
    
    
    
    90,423
    
    
    
    71,588Provision for loan losses
    
    
    541
    
    
    
    1,330
    
    
    
    1,304Net interest income after provision for loan losses
    
    
    86,438
    
    
    
    89,093
    
    
    
    70,284Noninterest income:Service charges on deposits
    
    
    4,810
    
    
    
    4,630
    
    
    
    4,814Brokerage and insurance commissions
    
    
    2,470
    
    
    
    2,875
    
    
    
    2,527Loan related fees and servicing revenue
    
    
    1,364
    
    
    
    1,590
    
    
    
    636Gain on sales of loans
    
    
    1,863
    
    
    
    1,569
    
    
    
    6,855Gain on sales of securities
    
    
    1,785
    
    
    
    537
    
    
    
    121Gain on sale of real estate
    
    
    
    
    
    
    2,009
    
    
    
    Loss on retirement of debt
    
    
    
    
    
    
    (1,737
    )
    
    
    Other
    
    
    5,149
    
    
    
    4,702
    
    
    
    4,665Total noninterest income
    
    
    17,441
    
    
    
    16,175
    
    
    
    19,618Noninterest expenses:Compensation, payroll taxes and other employee benefits
    
    
    37,673
    
    
    
    36,214
    
    
    
    31,747Occupancy and equipment
    
    
    10,454
    
    
    
    10,853
    
    
    
    10,871Amortization of other intangible assets
    
    
    661
    
    
    
    661
    
    
    
    661Other
    
    
    12,049
    
    
    
    12,354
    
    
    
    12,329Total noninterest expenses
    
    
    60,837
    
    
    
    60,082
    
    
    
    55,608Income before income taxes
    
    
    43,042
    
    
    
    45,186
    
    
    
    34,294Income taxes
    
    
    15,016
    
    
    
    15,632
    
    
    
    11,695Net income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Per share data:Earnings per
share  basic
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    0.30Earnings per
share  diluted
    
    $
    0.43
    
    
    $
    0.38
    
    
    $
    0.29Cash dividends per share paid
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.12
 See accompanying notes to consolidated financial statements.
 69




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Income
 Additional
    
    
    
    
    
    UnearnedCommon
    
    Paid-In
    
    Retained
    
    ESOPStock
    
    Capital
    
    Earnings
    
    Shares(In Thousands, Except Per Share Amounts)Balances at January 1, 2003
    
    $
    820
    
    
    $
    108,477
    
    
    $
    224,932
    
    
    $
    (6,647
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    22,599
    
    
    
    Other comprehensive incomeChange in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax liability of $5,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Committed ESOP Shares
    
    
    
    
    
    
    2,087
    
    
    
    352
    
    
    
    881Exercise of stock options
    
    
    1
    
    
    
    (253
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    Cash dividends ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    (5,925
    )
    
    
    Proceeds from sale of stock
    
    
    (33
    )
    
    
    385,645
    
    
    
    
    
    
    
    Balances at December 31, 2003
    
    
    788
    
    
    
    495,990
    
    
    
    241,958
    
    
    
    (5,766
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    29,554
    
    
    
    Other comprehensive incomeChange in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax liability of $2,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability, net of deferred
Income tax benefit of $800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of management recognition plan shares
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    Committed ESOP shares
    
    
    
    
    
    
    2,800
    
    
    
    
    
    
    
    901Exercise of stock options
    
    
    
    
    
    
    (2,910
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends ($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    (13,402
    )
    
    
    Balances at December 31, 2004
    
    
    788
    
    
    
    495,858
    
    
    
    258,110
    
    
    
    (4,865
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    28,026Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax benefit of $7,663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability, net of
deferred income tax benefit of $411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Committed ESOP shares
    
    
    
    
    
    
    2,748
    
    
    
    
    
    
    
    899Exercise of stock options
    
    
    
    
    
    
    (1,017
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends ($0.25 per share)
    
    
    
    
    
    
    
    
    
    
    (16,223
    )
    
    
    Balances at December 31, 2005
    
    $
    788
    
    
    $
    497,589
    
    
    $
    269,913
    
    
    $
    (3,966
    )
 70




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Changes in Shareholders Equity
 Accumulated Other
    
    
    UnearnedComprehensive
    
    
    Deferred
    
    
    TreasuryIncome (Loss)
    
    
    Compensation
    
    
    Stock
    
    
    Total(In Thousands, Except
Per Share Amounts)Balances at January 1, 2003
    
    $
    10,487
    
    
    $
    (3,133
    )
    
    $
    (11,861
    )
    
    $
    323,075Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,599Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax liability of $5,853
    
    
    (10,338
    )
    
    
    
    
    
    
    
    
    
    
    (10,338
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,261Purchase of shares for the ESOP
    
    
    
    
    
    
    
    
    
    
    (8,011
    )
    
    
    (8,011
    )Committed ESOP Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,320Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    1,192
    
    
    
    940Amortization of deferred compensation
    
    
    
    
    
    
    1,094
    
    
    
    (461
    )
    
    
    667Cash dividends ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,925
    )Proceeds from sale of stock
    
    
    
    
    
    
    
    
    
    
    19,141
    
    
    
    404,753Balances at December 31, 2003
    
    
    149
    
    
    
    (2,039
    )
    
    
    
    
    
    
    731,080Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,554Other comprehensive incomeChange in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax liability of $2,036
    
    
    (3,801
    )
    
    
    
    
    
    
    
    
    
    
    (3,801
    )Minimum pension liability, net of deferred
income tax benefit of $800
    
    
    (1,192
    )
    
    
    
    
    
    
    
    
    
    
    (1,192
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,561Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (78,859
    )
    
    
    (78,859
    )Issuance of management recognition plan shares
    
    
    
    
    
    
    (10,193
    )
    
    
    10,215
    
    
    
    Committed ESOP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,701Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    4,127
    
    
    
    1,217Amortization of deferred compensation
    
    
    
    
    
    
    2,156
    
    
    
    
    
    
    
    2,156Cash dividends ($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,402
    )Balances at December 31, 2004
    
    
    (4,844
    )
    
    
    (10,076
    )
    
    
    (64,517
    )
    
    
    670,454Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,026Other comprehensive incomeChange in net unrealized gain (loss) on
securities available-for-sale, net of
deferred income tax benefit of $7,663
    
    
    (13,116
    )
    
    
    
    
    
    
    
    
    
    
    (13,116
    )Minimum pension liability, net of deferred
income tax benefit of $411
    
    
    614
    
    
    
    
    
    
    
    
    
    
    
    614Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,524Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (134,542
    )
    
    
    (134,542
    )Committed ESOP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,647Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    3,410
    
    
    
    2,393Amortization of deferred compensation
    
    
    
    
    
    
    3,121
    
    
    
    
    
    
    
    3,121Cash dividends ($0.25 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,223
    )Balance at December 31, 2005
    
    $
    (17,346
    )
    
    $
    (6,955
    )
    
    $
    (195,649
    )
    
    $
    544,374
 71




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Cash Flows
 Year ended December 312005
    
    2004
    
    2003(In Thousands)Operating activities:Net income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Adjustments to reconcile net income to net cash provided
by operating activities:Provision for loan losses
    
    
    541
    
    
    
    1,330
    
    
    
    1,304Provision for depreciation
    
    
    2,699
    
    
    
    3,253
    
    
    
    3,021Amortization of intangibles
    
    
    661
    
    
    
    661
    
    
    
    661Net (increase) decrease in mortgage servicing rights
    
    
    (228
    )
    
    
    156
    
    
    
    (1,638
    )Amortization of cost of stock benefit plans
    
    
    6,768
    
    
    
    5,857
    
    
    
    3,987Net premium amortization on securities
    
    
    144
    
    
    
    355
    
    
    
    2,107Net increase in Federal Home Loan Bank stock
    
    
    (10,351
    )
    
    
    (2,688
    )
    
    
    (2,613
    )Loans originated for sale
    
    
    (141,048
    )
    
    
    (121,473
    )
    
    
    (418,167
    )Proceeds from loan sales
    
    
    145,586
    
    
    
    122,111
    
    
    
    467,937Net gain on sale of available-for-sale securities
    
    
    (1,785
    )
    
    
    (537
    )
    
    
    (121
    )Gain on sales of loans originated for sale
    
    
    (1,863
    )
    
    
    (1,569
    )
    
    
    (6,855
    )Gain on sale of investment real estate
    
    
    
    
    
    
    (2,009
    )
    
    
    Gain on sale of real estate owned
    
    
    (44
    )
    
    
    (19
    )
    
    
    (48
    )Increase (decrease) in other liabilities
    
    
    14,049
    
    
    
    5,166
    
    
    
    (8,022
    )Increase in other assets
    
    
    (12,941
    )
    
    
    (14,633
    )
    
    
    (5,447
    )(Increase) decrease in accrued interest receivable
    
    
    (369
    )
    
    
    (530
    )
    
    
    575Net cash provided by operating activities
    
    
    29,845
    
    
    
    24,985
    
    
    
    59,280Investing activities:Net purchases of investments in mutual funds
    
    
    (1,493
    )
    
    
    (968
    )
    
    
    (10,903
    )Proceeds from maturities of investment securities
    
    
    60,780
    
    
    
    27,000
    
    
    
    124,872Purchases of investment securities
    
    
    (55,428
    )
    
    
    (25,512
    )
    
    
    (117,598
    )Purchases of mortgage-related securities
    
    
    (193,857
    )
    
    
    (523,334
    )
    
    
    (923,451
    )Principal repayments on mortgage-related securities
    
    
    352,866
    
    
    
    302,848
    
    
    
    470,994Proceeds from sale of investment securities
    
    
    1,804
    
    
    
    537
    
    
    
    8,076Net (increase) decrease in loans receivable
    
    
    (115,686
    )
    
    
    (159,892
    )
    
    
    (26,459
    )Proceeds from sale of investment real estate
    
    
    
    
    
    
    2,182
    
    
    
    Proceeds from sale of foreclosed properties
    
    
    1,341
    
    
    
    3,223
    
    
    
    1,003Net purchases of premises and equipment
    
    
    (6,345
    )
    
    
    (2,029
    )
    
    
    (3,896
    )Net cash provided (used) by investing activities
    
    
    43,982
    
    
    
    (375,945
    )
    
    
    (477,362
    )
 72




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Consolidated Statements of Cash Flows (continued)
 Year ended December 312005
    
    2004
    
    2003(In Thousands)Financing activities:Net increase (decrease) in deposits
    
    $
    102,381
    
    
    $
    (68,767
    )
    
    $
    (73,371
    )Net increase (decrease) in short-term borrowings
    
    
    (87,600
    )
    
    
    287,600
    
    
    
    (22,679
    )Proceeds from long-term borrowings
    
    
    110,232
    
    
    
    406,446
    
    
    
    28,125Repayments on long-term borrowings
    
    
    (18,361
    )
    
    
    (232,012
    )
    
    
    (60,933
    )Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (267
    )
    
    
    (191
    )
    
    
    (73
    )Proceeds from sale of stock
    
    
    
    
    
    
    
    
    
    
    404,753Proceeds from exercise of stock options
    
    
    2,393
    
    
    
    1,217
    
    
    
    940Cash dividends
    
    
    (16,223
    )
    
    
    (13,402
    )
    
    
    (5,925
    )Purchase of treasury stock
    
    
    (134,542
    )
    
    
    (78,859
    )
    
    
    (8,011
    )Net cash provided (used) by financing activities
    
    
    (41,987
    )
    
    
    302,032
    
    
    
    262,826Increase (decrease) in cash and cash equivalents
    
    
    31,840
    
    
    
    (48,928
    )
    
    
    (155,256
    )Cash and cash equivalents at beginning of year
    
    
    37,575
    
    
    
    86,503
    
    
    
    241,759Cash and cash equivalents at end of year
    
    $
    69,415
    
    
    $
    37,575
    
    
    $
    86,503Supplemental information:Interest paid on deposits and borrowings
    
    $
    75,100
    
    
    $
    58,719
    
    
    $
    70,630Income taxes paid
    
    
    13,040
    
    
    
    13,881
    
    
    
    11,764Loans transferred to foreclosed properties
and repossessed assets
    
    
    538
    
    
    
    5,045
    
    
    
    1,461Issuance of management recognition plan shares
    
    
    
    
    
    
    10,193
    
    
    
    
 73




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies
 Organization
      Business
  Principles of Consolidation
  74




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
  Cash and Cash Equivalents
  Federal Home Loan Bank Stock
  Investment and Mortgage-Related Securities Available-for-Sale
   Loans Held for Sale
  Loans Receivable and Related Interest Income
  Loan Fees and Related Costs
  75




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
 Allowance for Loan Losses
  Mortgage Servicing Rights
  Mortgage Banking Loan Commitments
   76




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
 Foreclosed Properties and Repossessed Assets
  Premises and Equipment
  Goodwill and Other Intangible Assets
  Life Insurance Policies
  Income Taxes
  77




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
 Earnings Per Share
  Pension Costs
  Segment Information
  Stock Compensation
     78




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
  For the Year Ended December 312005
    
    
    2004
    
    
    2003Stock
    
    
    Weighted
    
    
    Stock
    
    
    Weighted
    
    
    Stock
    
    
    WeightedOptions
    
    
    Avg. Cost
    
    
    Options
    
    
    Avg. Cost
    
    
    Options
    
    
    Avg. CostOutstanding at beginning
of year
    
    
    5,276,953
    
    
    $
    6.5760
    
    
    
    3,298,590
    
    
    $
    3.2056
    
    
    
    3,819,346
    
    
    $
    3.2056Granted
    
    
    
    
    
    
    
    
    
    
    2,382,000
    
    
    $
    10.6730
    
    
    
    
    
    
    
    Exercised
    
    
    354,702
    
    
    $
    3.2056
    
    
    
    403,637
    
    
    $
    3.2056
    
    
    
    368,143
    
    
    $
    3.2056Forfeited
    
    
    3,200
    
    
    $
    10.6730
    
    
    
    
    
    
    
    
    
    
    
    152,613
    
    
    $
    3.2056Outstanding at end of year
    
    
    4,919,051
    
    
    $
    6.8170
    
    
    
    5,276,953
    
    
    $
    6.5760
    
    
    
    3,298,590
    
    
    $
    3.2056
 At December 31, 2005Unexercisable Stock Options
    
    Exercisable Stock OptionsRemainingPrice
    
    Shares
    
    Contractual Life
    
    Shares
    
    Exercise Price$3.2056
    
    
    636,892
    
    
    5.4 years
    
    
    1,903,359
    
    
    $
    3.2056$10.6730
    
    
    1,838,400
    
    
    8.4 years
    
    
    540,400
    
    
    $
    10.6730
  2005
    
    2004
    
    2003Risk-free interest rate
    

    4.81  5.30%

    

    4.81  5.30%

    
    
    5.30
    %Dividend yield
    
    
    2.00
    %
    
    
    2.00
    %
    
    
    2.00
    %Expected stock volatility
    

    22.40  26.30%

    

    22.40  26.30%

    
    
    26.30
    %Expected years until exercise
    

    4.00  8.25

    

    5.00  9.25

    
    
    6.00
  79




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
  Year Ended December 312005
    
    2004
    
    2003Net income:As reported
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Pro forma
    
    $
    27,086
    
    
    $
    28,689
    
    
    $
    21,880Basic earnings per share:As reported
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    0.30Pro forma
    
    $
    0.43
    
    
    $
    0.38
    
    
    $
    0.29Diluted earnings per share:As reported
    
    $
    0.43
    
    
    $
    0.38
    
    
    $
    0.29Pro forma
    
    $
    0.42
    
    
    $
    0.37
    
    
    $
    0.28
  Variable Interest Entities
   80




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
 Recent Accounting Changes
     The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments
 81




---



##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 1. Summary of Significant Accounting Policies (continued)
 Accounting for Debt and Equity Securities, The Equity Method of
Accounting for Investments in Common Stock.
 Reclassifications
  82




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 2. Securities, Available-for-Sale
  Gross
    
    Gross
    
    EstimatedAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueAt December 31, 2005:Investment securities:U.S. government and federal agency obligations
    
    $
    14,720
    
    
    $
    
    
    
    $
    (135
    )
    
    $
    14,585Mutual funds
    
    
    47,512
    
    
    
    
    
    
    
    (1,104
    )
    
    
    46,408Stock in federal agencies
    
    
    1,450
    
    
    
    918
    
    
    
    
    
    
    
    2,368Total investment securities
    
    
    63,682
    
    
    
    918
    
    
    
    (1,239
    )
    
    
    63,361Mortgage-related securities:Federal Home Loan Mortgage Corporation
    
    
    506,116
    
    
    
    155
    
    
    
    (12,966
    )
    
    
    493,305Federal National Mortgage Association
    
    
    419,552
    
    
    
    915
    
    
    
    (10,831
    )
    
    
    409,636Private Placement CMOs
    
    
    124,335
    
    
    
    
    
    
    
    (2,033
    )
    
    
    122,302Government National Mortgage Association
    
    
    64,037
    
    
    
    8
    
    
    
    (1,472
    )
    
    
    62,573Total mortgage-related securities
    
    
    1,114,040
    
    
    
    1,078
    
    
    
    (27,302
    )
    
    
    1,087,816Total
    
    $
    1,177,722
    
    
    $
    1,996
    
    
    $
    (28,541
    )
    
    $
    1,151,177
  Less than 12 months
    
    Greater than 12 monthsIn an unrealized loss position
    
    In an unrealized loss positionTotal
    
    TotalUnrealized
    
    Number
    
    
    
    
    
    Unrealized
    
    Number
    
    Estimated
    
    Unrealized
    
    EstimatedLoss
    
    of
    
    Estimated
    
    Loss
    
    of
    
    Fair
    
    Loss
    
    FairAmount
    
    Securities
    
    Fair Value
    
    Amount
    
    Securities
    
    Value
    
    Amount
    
    ValueInvestment securities:U.S. government and federal agency
obligations
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    (135
    )
    
    
    3
    
    
    $
    14,585
    
    
    $
    (135
    )
    
    $
    14,585Mutual funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,104
    )
    
    
    2
    
    
    
    45,709
    
    
    
    (1,104
    )
    
    
    45,709Total investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    5
    
    
    
    60,294
    
    
    
    (1,239
    )
    
    
    60,294Mortgage-related securities:Federal Home Loan Mortgage Corporation
    
    
    (3,389
    )
    
    
    40
    
    
    
    170,019
    
    
    
    (9,577
    )
    
    
    79
    
    
    
    311,034
    
    
    
    (12,966
    )
    
    
    481,053Federal National Mortgage Association
    
    
    (1,625
    )
    
    
    23
    
    
    
    85,617
    
    
    
    (9,206
    )
    
    
    65
    
    
    
    292,618
    
    
    
    (10,831
    )
    
    
    378,235Government National Mortgage Association
    
    
    (123
    )
    
    
    2
    
    
    
    10,296
    
    
    
    (1,349
    )
    
    
    9
    
    
    
    52,099
    
    
    
    (1,472
    )
    
    
    62,395Private placement CMOs
    
    
    (1,978
    )
    
    
    16
    
    
    
    114,531
    
    
    
    (55
    )
    
    
    1
    
    
    
    7,771
    
    
    
    (2,033
    )
    
    
    122,302Total mortgage-related securities
    
    
    (7,115
    )
    
    
    81
    
    
    
    380,463
    
    
    
    (20,187
    )
    
    
    154
    
    
    
    663,522
    
    
    
    (27,302
    )
    
    
    1,043,985Total
    
    $
    (7,115
    )
    
    
    81
    
    
    $
    380,463
    
    
    $
    (21,426
    )
    
    
    159
    
    
    $
    723,816
    
    
    $
    (28,541
    )
    
    $
    1,104,279
  83




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 2. Securities, Available-for-Sale (continued)
 Gross
    
    Gross
    
    EstimatedAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueAt December 31, 2004:Investment securities:U.S. government and federal agency obligations
    
    $
    19,967
    
    
    $
    46
    
    
    $
    (182
    )
    
    $
    19,831Mutual funds
    
    
    46,018
    
    
    
    12
    
    
    
    (640
    )
    
    
    45,390Stock in federal agencies
    
    
    1,461
    
    
    
    2,071
    
    
    
    
    
    
    
    3,532Total investment securities
    
    
    67,446
    
    
    
    2,129
    
    
    
    (822
    )
    
    
    68,753Mortgage-related securities:Federal Home Loan Mortgage Corporation
    
    
    635,806
    
    
    
    1,525
    
    
    
    (6,307
    )
    
    
    631,024Federal National Mortgage Association
    
    
    544,928
    
    
    
    2,709
    
    
    
    (4,834
    )
    
    
    542,803Private Placement CMOs
    
    
    9,928
    
    
    
    
    
    
    
    
    
    
    
    9,928Government National Mortgage Association
    
    
    82,635
    
    
    
    111
    
    
    
    (277
    )
    
    
    82,469Total mortgage-related securities
    
    
    1,273,297
    
    
    
    4,345
    
    
    
    (11,418
    )
    
    
    1,266,224Total
    
    $
    1,340,743
    
    
    $
    6,474
    
    
    $
    (12,240
    )
    
    $
    1,334,977
  Amortized
    
    FairCost
    
    ValueDue in one year or less
    
    $
    14,720
    
    
    $
    14,585Due after one year through five years
    
    
    
    
    
    
    Due after five years through ten years
    
    
    
    
    
    
    Mutual funds
    
    
    47,512
    
    
    
    46,408Stock in Federal Agencies
    
    
    1,450
    
    
    
    2,368Mortgage-related securities
    
    
    1,114,040
    
    
    
    1,087,816$
    1,177,722
    
    
    $
    1,151,177
  2005
    
    2004
    
    2003Change in unrealized holding gain (loss) on
available-for-sale securities during the periodUnrealized net gains (losses)
    
    $
    (20,779
    )
    
    $
    (5,837
    )
    
    $
    (16,070
    )Related tax expense (benefit)
    
    
    (7,663
    )
    
    
    (2,036
    )
    
    
    (5,809
    )(13,116
    )
    
    
    (3,801
    )
    
    
    (10,261
    )Less: Reclassification adjustment for gains included in incomeRelated gains on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    121Related tax expense
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    77Change in other comprehensive income
    
    $
    (13,116
    )
    
    $
    (3,801
    )
    
    $
    (10,338
    )
 84




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 2. Securities, Available-for-Sale (continued)
  3. Loans Receivable
  December 312005
    
    2004Mortgage loans:One-to-four family
    
    $
    1,048,881
    
    
    $
    903,498Multifamily
    
    
    155,908
    
    
    
    161,641Commercial real estate
    
    
    175,090
    
    
    
    195,708Construction and development
    
    
    155,205
    
    
    
    141,394Total mortgage real estate loans
    
    
    1,535,084
    
    
    
    1,402,241Consumer and other loans:Fixed equity
    
    
    246,460
    
    
    
    266,635Home equity lines of credit
    
    
    88,266
    
    
    
    88,444Student
    
    
    19,821
    
    
    
    20,519Home improvement
    
    
    30,067
    
    
    
    24,293Automobile
    
    
    69,237
    
    
    
    61,469Other
    
    
    12,944
    
    
    
    15,911Total consumer and other loans
    
    
    466,795
    
    
    
    477,271Total commercial business loans
    
    
    57,247
    
    
    
    70,170Total loans receivable
    
    
    2,059,126
    
    
    
    1,949,682Less:Undisbursed loan proceeds
    
    
    60,014
    
    
    
    60,653Allowance for loan losses
    
    
    12,090
    
    
    
    13,923Unearned loan fees and discounts
    
    
    (3,470
    )
    
    
    (779
    )68,634
    
    
    
    73,797Total loans receivable  net
    
    $
    1,990,492
    
    
    $
    1,875,885
   Year ended December 312005
    
    2004
    
    2003Balance at beginning of year
    
    $
    13,923
    
    
    $
    13,771
    
    
    $
    12,743Provisions
    
    
    541
    
    
    
    1,330
    
    
    
    1,304Charge-offs
    
    
    (2,431
    )
    
    
    (1,253
    )
    
    
    (501
    )Recoveries
    
    
    57
    
    
    
    75
    
    
    
    225Balance at end of year
    
    $
    12,090
    
    
    $
    13,923
    
    
    $
    13,771
  85




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 3. Loans Receivable (continued)
  December 312005
    
    2004Impaired loans for which an allowance has been provided
    
    $
    7,280
    
    
    $
    7,153Impaired loans for which no allowance has been provided
    
    
    2,430
    
    
    
    1,503Total loans determined to be impaired
    
    $
    9,710
    
    
    $
    8,656Allowance for loan losses related to impaired loans
    
    $
    2,392
    
    
    $
    3,524
 Year ended December 312005
    
    2004
    
    2003Average recorded investment in impaired loans
    
    $
    10,141
    
    
    $
    8,706
    
    
    $
    9,397Cash basis interest income recognized from impaired loans
    
    $
    233
    
    
    $
    293
    
    
    $
    409
 4. Goodwill, Other Intangible Assets and Mortgage Servicing Rights
    2005
    
    2004
    
    2003Mortgage servicing rights at beginning of year
    
    $
    4,542
    
    
    $
    4,698
    
    
    $
    6,149Additions
    
    
    1,777
    
    
    
    1,529
    
    
    
    4,480Amortization
    
    
    (1,548
    )
    
    
    (1,685
    )
    
    
    (5,931
    )Mortgage servicing rights at end of year
    
    
    4,771
    
    
    
    4,542
    
    
    
    4,698Valuation allowance
    
    
    
    
    
    
    
    
    
    
    Balance
    
    $
    4,771
    
    
    $
    4,542
    
    
    $
    4,698
  86




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 4. Goodwill, Other Intangible Assets and Mortgage Servicing Rights (continued)
   MortgageServicing
    
    Deposit BaseRights
    
    Intangibles
    
    TotalTwelve months ended December 31, 2005 (actual)
    
    $
    1,548
    
    
    $
    661
    
    
    $
    2,209Estimate for year ending December 31,2006
    
    $
    1,157
    
    
    $
    661
    
    
    $
    1,8182007
    
    
    1,155
    
    
    
    661
    
    
    
    1,8162008
    
    
    1,134
    
    
    
    618
    
    
    
    1,7522009
    
    
    792
    
    
    
    405
    
    
    
    1,1972010
    
    
    391
    
    
    
    405
    
    
    
    796Thereafter
    
    
    142
    
    
    
    1,000
    
    
    
    1,142$
    4,771
    
    
    $
    3,750
    
    
    $
    8,521
 5. Other Assets
  December 312005
    
    2004Accrued interest:Mortgage-related securities
    
    $
    4,014
    
    
    $
    4,581Investment securities
    
    
    117
    
    
    
    172Loans receivable
    
    
    7,589
    
    
    
    6,599Total accrued interest
    
    
    11,720
    
    
    
    11,352Foreclosed properties and repossessed assets
    
    
    708
    
    
    
    1,621Premises and equipment
    
    
    47,588
    
    
    
    43,966Federal Home Loan Bank stock, at cost
    
    
    48,537
    
    
    
    38,186Bank owned life insurance
    
    
    20,359
    
    
    
    19,324Other
    
    
    27,978
    
    
    
    15,902$
    156,890
    
    
    $
    130,351
 87




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 5. Other Assets (continued)
  December 312005
    
    2004Acquired by foreclosure or in lieu of foreclosure
    
    $
    702
    
    
    $
    1,589Repossessed collateral
    
    
    6
    
    
    
    32$
    708
    
    
    $
    1,621
  December 312005
    
    2004Land and land improvements
    
    $
    14,451
    
    
    $
    12,478Office buildings
    
    
    44,614
    
    
    
    41,342Furniture and equipment
    
    
    16,225
    
    
    
    15,979Leasehold improvements
    
    
    944
    
    
    
    92976,234
    
    
    
    70,728Less accumulated depreciation and amortization
    
    
    28,646
    
    
    
    26,762$
    47,588
    
    
    $
    43,966
   2006
    
    $
    1,0722007
    
    
    9512008
    
    
    7342009
    
    
    5322010
    
    
    309Thereafter
    
    
    163Total
    
    $
    3,761
  88




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 6. Deposits
  December 312005
    
    2004Checking accounts:Noninterest-bearing
    
    $
    110,583
    
    
    $
    111,855Interest-bearing
    
    
    174,620
    
    
    
    171,565285,203
    
    
    
    283,420Money market accounts
    
    
    271,418
    
    
    
    309,531Savings accounts
    
    
    224,408
    
    
    
    247,439Certificate accounts:Due within one year
    
    
    718,634
    
    
    
    584,172After one but within two years
    
    
    453,386
    
    
    
    241,059After two but within three years
    
    
    45,496
    
    
    
    225,987After three but within four years
    
    
    66,397
    
    
    
    30,636After four but within five years
    
    
    21,880
    
    
    
    60,637After five years
    
    
    
    
    
    
    1,305,793
    
    
    
    1,142,491$
    2,086,822
    
    
    $
    1,982,881
   Year ended December 312005
    
    2004
    
    2003Interest-bearing checking accounts
    
    $
    369
    
    
    $
    359
    
    
    $
    416Money market accounts
    
    
    5,548
    
    
    
    3,301
    
    
    
    4,353Savings accounts
    
    
    1,048
    
    
    
    1,084
    
    
    
    1,490Certificate accounts
    
    
    42,371
    
    
    
    37,373
    
    
    
    45,160$
    49,336
    
    
    $
    42,117
    
    
    $
    51,419
 89




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 7. Borrowings
  December 312005
    
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    RateFederal Home Loan Bank
advances maturing:2005
    
    $
    
    
    
    
    0.0
    %
    
    $
    168,010
    
    
    
    2.43
    %2006
    
    
    607,955
    
    
    
    3.35
    
    
    
    407,955
    
    
    
    2.802007
    
    
    104,650
    
    
    
    4.08
    
    
    
    
    
    
    
    2008
    
    
    1,025
    
    
    
    5.90
    
    
    
    1,025
    
    
    
    5.902009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    Thereafter
    
    
    52,166
    
    
    
    5.18
    
    
    
    46,935
    
    
    
    5.22Open-line of credit
    
    
    
    
    
    
    
    
    
    
    137,600
    
    
    
    2.47Other borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    765,796
    
    
    
    
    
    
    $
    761,525
   8. Shareholders Equity
  90




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 8. Shareholders Equity (continued)
  To Be WellCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioBank MutualAs of December 31, 2005:Total capital
    
    $
    421,835
    
    
    
    24.96
    %
    
    $
    135,188
    
    
    
    8.00
    %
    
    $
    168,985
    
    
    
    10.00
    %(to risk-weighted assets)Tier 1 capital
    
    
    409,745
    
    
    
    24.25
    
    
    
    67,594
    
    
    
    4.00
    
    
    
    101,391
    
    
    
    6.00(to risk-weighted assets)Tier 1 capital
    
    
    409,745
    
    
    
    12.07
    
    
    
    135,829
    
    
    
    4.00
    
    
    
    169,786
    
    
    
    5.00(to average assets)Bank MutualAs of December 31, 2004:Total capital
    
    $
    479,279
    
    
    
    28.85
    %
    
    $
    132,895
    
    
    
    8.00
    %
    
    $
    166,119
    
    
    
    10.00
    %(to risk-weighted assets)Tier 1 capital
    
    
    465,356
    
    
    
    28.01
    
    
    
    66,447
    
    
    
    4.00
    
    
    
    99,671
    
    
    
    6.00(to risk-weighted assets)Tier 1 capital
    
    
    465,356
    
    
    
    13.74
    
    
    
    135,504
    
    
    
    4.00
    
    
    
    169,380
    
    
    
    5.00(to average assets)
  91




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 8. Shareholders Equity (continued)
  Bank MutualRisk-
    
    Tier IBased
    
    (Core)Capital
    
    CapitalAs of December 31, 2005:Equity per bank records
    
    $
    451,599
    
    
    $
    451,599Unrealized gains on investments
    
    
    16,767
    
    
    
    16,767Goodwill and intangibles
    
    
    (54,817
    )
    
    
    (54,817
    )Investment in nonincludable subsidiaries
    
    
    (3,518
    )
    
    
    (3,518
    )Disallowed servicing assets
    
    
    (286
    )
    
    
    (286
    )Allowance for loan losses
    
    
    12,090
    
    
    
    Regulatory capital
    
    $
    421,835
    
    
    $
    409,745
 9. Earnings Per Share
  Year ended December 312005
    
    2004
    
    2003Basic earnings per shareNet income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Weighted average shares outstanding
    
    
    62,238,425
    
    
    
    74,672,199
    
    
    
    75,779,184Allocated ESOP shares during the period
    
    
    327,194
    
    
    
    327,194
    
    
    
    327,194Vested MRP shares during the period
    
    
    428,305
    
    
    
    328,384
    
    
    
    223,14162,993,924
    
    
    
    75,327,777
    
    
    
    76,329,519Basic earnings per share
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    0.30Diluted earnings per shareNet income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Weighted average shares outstanding used
in basic earnings per share
    
    
    62,993,924
    
    
    
    75,327,777
    
    
    
    76,329,519Net dilutive effect of:Stock option shares
    
    
    1,747,484
    
    
    
    1,958,592
    
    
    
    1,884,239Unvested MRP shares
    
    
    135,009
    
    
    
    292,133
    
    
    
    353,99264,876,417
    
    
    
    77,578,502
    
    
    
    78,567,750Diluted earnings per share
    
    $
    0.43
    
    
    $
    0.38
    
    
    $
    0.29
 92




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 10. Employee Benefit Plans
 Bank Mutual Corporation
    2005
    
    
    2004Change in Benefit ObligationBenefit obligation at beginning of year
    
    $
    27,076
    
    
    $
    22,596Service cost
    
    
    1,937
    
    
    
    1,659Interest cost
    
    
    1,604
    
    
    
    1,394Actuarial loss
    
    
    394
    
    
    
    1,845Benefits paid
    
    
    (635
    )
    
    
    (419
    )Benefit obligation at end of year
    
    $
    30,376
    
    
    $
    27,075Change in Plan AssetsFair value of plan assets at beginning of year
    
    $
    29,131
    
    
    $
    24,188Actual return on plan assets
    
    
    889
    
    
    
    2,011Employer contributions
    
    
    2,590
    
    
    
    3,351Benefits paid
    
    
    (635
    )
    
    
    (419
    )Fair value of plan assets at end of year
    
    $
    31,975
    
    
    $
    29,131Funded StatusFunded status at end of year
    
    $
    (90
    )
    
    $
    2,056Unrecognized net actuarial loss
    
    
    2,505
    
    
    
    1,151Unamortized prior service cost
    
    
    211
    
    
    
    334Contributions made after 10/31/05 but before 12/31/05
    
    
    1,814
    
    
    
    Unrecognized additional liability
    
    
    (967
    )
    
    
    (2,187
    )Prepaid benefit cost
    
    $
    3,473
    
    
    $
    1,354Amount Recognized in the Statement of Financial
Position Consists of:Prepaid benefit cost
    
    $
    4,316
    
    
    $
    3,347Intangible assets
    
    
    124
    
    
    
    194Accumulated other comprehensive income
    
    
    (967
    )
    
    
    (2,187
    )Net amount recognized
    
    $
    3,473
    
    
    $
    1,354
 93




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 10. Employee Benefit Plans (continued)
 Accumulated Benefit Obligations
  Weighted-average assumptions used in cost calculations:Discount rate
    
    
    5.50
    %
    
    
    6.00
    %Rate of increase in compensation levels
    
    
    3.50
    %
    
    
    4.00
    %Expected long-term rate of return on plan assets
    
    
    7.00
    %
    
    
    7.00
    %
  2005
    
    2004
    
    2003Components of Net Periodic Benefit CostService cost
    
    $
    1,938
    
    
    $
    1,659
    
    
    $
    1,419Interest cost
    
    
    1,604
    
    
    
    1,394
    
    
    
    1,260Expected return on plan assets
    
    
    (889
    )
    
    
    (2,011
    )
    
    
    (1,567
    )Amortization of prior service cost
    
    
    123
    
    
    
    128
    
    
    
    129Recognized actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    Amortization of gain from prior periods
    
    
    165
    
    
    
    107
    
    
    
    (42
    )Asset gain
    
    
    (1,126
    )
    
    
    339
    
    
    
    114Total net periodic benefit cost
    
    $
    1,815
    
    
    $
    1,616
    
    
    $
    1,313
   Year
    Projected Benefit Payments2006

    $
    9572007

    
    1,1332008

    
    1,6512009

    
    1,7912010

    
    1,9362011  2015

    

12,554$
    20,022
 94




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 10. Employee Benefit Plans (continued)
  At October 312005
    
    2004Asset CategoryEquity securities
    
    
    5.0
    %
    
    
    4.8
    %Debt securities
    
    
    20.0
    
    
    
    14.1Immediate participation guarantee contracts
    
    
    75.0
    
    
    
    81.1Total
    
    
    100.0
    %
    
    
    100.0
    %
 Investment Policy
  Contributions
  Bank Mutual
   95




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 11. Stock-Based Benefit Plans
   2005
    
    2004
    
    2003Shares allocated to participants
    
    
    327,194
    
    
    
    327,194
    
    
    
    327,194Unallocated and unearned shares
    
    
    1,435,420
    
    
    
    1,762,614
    
    
    
    2,089,808Fair value of unearned ESOP shares
    
    $
    15,215
    
    
    $
    21,451
    
    
    $
    23,803
 12. Income Taxes
  Year ended December 312005
    
    2004
    
    2003Current:Federal
    
    $
    13,968
    
    
    $
    14,269
    
    
    $
    10,030State
    
    
    96
    
    
    
    400
    
    
    
    41514,064
    
    
    
    14,669
    
    
    
    10,445Deferred expense (benefit):Federal
    
    
    954
    
    
    
    976
    
    
    
    1,520State
    
    
    (2
    )
    
    
    (13
    )
    
    
    (270
    )952
    
    
    
    963
    
    
    
    1,250$
    15,016
    
    
    $
    15,632
    
    
    $
    11,695
  96




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 12. Income Taxes (continued)
  Year ended December 312005
    
    2004
    
    2003Income before provision for income taxes
    
    $
    43,042
    
    
    $
    45,186
    
    
    $
    34,294Tax expense at federal statutory rate
    
    $
    15,065
    
    
    $
    15,815
    
    
    $
    12,003Increase (decrease) in taxes resulting from:State income taxes  net of federal tax benefit
    
    
    87
    
    
    
    291
    
    
    
    117Bank Owned Life insurance
    
    
    (362
    )
    
    
    (382
    )
    
    
    (432
    )Executive compensation in excess of Section
162(m) limit
    
    
    350
    
    
    
    
    
    
    
    Other
    
    
    (124
    )
    
    
    (92
    )
    
    
    7Provision for income taxes
    
    $
    15,016
    
    
    $
    15,632
    
    
    $
    11,695
   December 312005
    
    2004Deferred tax assets:State net operating losses
    
    $
    947
    
    
    $
    863Loan loss reserves
    
    
    4,841
    
    
    
    5,578Pension
    
    
    3,621
    
    
    
    3,235Deferred compensation
    
    
    1,580
    
    
    
    1,445Unrealized gain on investment securities
    
    
    9,780
    
    
    
    2,117Total deferred tax assets
    
    
    20,769
    
    
    
    13,238Valuation allowance
    
    
    (274
    )
    
    
    (414
    )Deferred tax assets, net of valuation allowance
    
    
    20,495
    
    
    
    12,824Deferred tax liabilities:Property and equipment depreciation
    
    
    1,144
    
    
    
    1,227FHLB stock dividends
    
    
    5,422
    
    
    
    4,578Deferred loan fees
    
    
    2,146
    
    
    
    1,675Purchase accounting adjustments
    
    
    4,998
    
    
    
    5,358Other
    
    
    1,198
    
    
    
    1,034Total deferred tax liabilities
    
    
    14,908
    
    
    
    13,872Net deferred tax asset(liability)
    
    $
    5,587
    
    
    $
    (1,048
    )
 97




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Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 13. Financial Instruments with Off-Balance-Sheet Risk
    December 312005
    
    2004Unused consumer lines of credit
    
    $
    153,133
    
    
    $
    154,213Unused commercial lines of credit
    
    
    16,523
    
    
    
    22,261Commitments to extend credit:Fixed rate
    
    
    18,569
    
    
    
    16,550Adjustable rate
    
    
    49,380
    
    
    
    57,289
  98




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Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 14. Fair Value of Financial Instruments
     Cash and Cash Equivalents
 Investment and Mortgage-Related Securities
 Loans Receivable and Loans Held-for-Sale
 Mortgage Servicing Rights
 Federal Home Loan Bank Stock
 Accrued Interest Receivable
 Deposits and Advance Payments by Borrowers for Taxes and Insurance
 99




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Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 14. Fair Value of Financial Instruments (continued)
 Borrowings
 December 31
    
    December 312005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    ValueCash and cash equivalents
    
    $
    41,543
    
    
    $
    41,543
    
    
    $
    36,868
    
    
    $
    36,868Investment and mortgage-related securities
    
    
    1,151,177
    
    
    
    1,151,177
    
    
    
    1,334,977
    
    
    
    1,334,977Loans receivable, net
    
    
    1,990,492
    
    
    
    1,972,640
    
    
    
    1,875,885
    
    
    
    1,916,114Loans held for sale
    
    
    2,312
    
    
    
    2,312
    
    
    
    4,987
    
    
    
    4,987Mortgage servicing rights
    
    
    4,771
    
    
    
    7,527
    
    
    
    4,542
    
    
    
    5,659Federal Home Loan Bank stock
    
    
    48,537
    
    
    
    48,537
    
    
    
    38,186
    
    
    
    38,186Accrued interest receivable
    
    
    11,720
    
    
    
    11,720
    
    
    
    11,352
    
    
    
    11,352Deposits and accrued interest
    
    
    2,086,822
    
    
    
    2,044,991
    
    
    
    1,982,881
    
    
    
    1,961,948Advance payments by borrowers
    
    
    2,529
    
    
    
    2,529
    
    
    
    2,796
    
    
    
    2,796Borrowings
    
    
    765,796
    
    
    
    758,428
    
    
    
    761,525
    
    
    
    754,994
  100




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##### Table of Contents



Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 15. Condensed Parent Company Only Financial Statements
 STATEMENT OF FINANCIAL CONDITION
 December 312005
    
    2004Assets:Cash and cash equivalents
    
    $
    76,958
    
    
    $
    140,138Investment in subsidiaries
    
    
    451,600
    
    
    
    519,548Due from subsidiaries
    
    
    12,506
    
    
    
    6,392Receivable from ESOP
    
    
    3,947
    
    
    
    4,847Other assets
    
    
    6
    
    
    
    $
    545,017
    
    
    $
    670,925Liabilities and shareholders equity:Liabilities:Due to subsidiaries
    
    $
    
    
    
    $
    Other liabilities
    
    
    643
    
    
    
    471643
    
    
    
    471Shareholders equity:Preferred stock  $.01 par valueAuthorized 20,000,000 shares in 2005 and 2004
    
    
    
    
    
    
    Issued and outstanding  none in 2005 and 2004
    
    
    
    
    
    
    Common stock  $.01 par value:Authorized  200,000,000 shares in 2005 and 2004Issued  78,783,849 shares in 2005 and 2004Outstanding  62,325,268 in 2005 and 73,485,113 shares
in 2004
    
    
    788
    
    
    
    788Additional paid-in capital
    
    
    497,589
    
    
    
    495,858Retained earnings
    
    
    269,913
    
    
    
    258,110Unearned ESOP shares
    
    
    (3,966
    )
    
    
    (4,865
    )Accumulated other comprehensive income
    
    
    (17,346
    )
    
    
    (4,844
    )Unearned deferred compensation
    
    
    (6,955
    )
    
    
    (10,076
    )Treasury stock  16,458,581 shares in 2005 and 5,298,736
shares in 2004
    
    
    (195,649
    )
    
    
    (64,517
    )Total shareholders equity
    
    
    544,374
    
    
    
    670,454$
    545,017
    
    
    $
    670,925
 101




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Bank Mutual Corporation and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2005  (Dollars in Thousands, Except Per Share Amounts)
 15. Condensed Parent Company Only Financial Statements (continued)
 STATEMENT OF INCOME
 Year ended December 312005
    
    2004
    
    2003Interest income
    
    $
    1,854
    
    
    $
    2,735
    
    
    $
    1,723Equity in earnings of subsidiaries
    
    
    27,754
    
    
    
    28,394
    
    
    
    22,129Gain on sale of investments
    
    
    
    
    
    
    537
    
    
    
    Other
    
    
    
    
    
    
    5
    
    
    
    7Total income
    
    
    29,608
    
    
    
    31,671
    
    
    
    23,859Total expenses
    
    
    1,399
    
    
    
    1,335
    
    
    
    944Income before provision for income taxes
    
    
    28,209
    
    
    
    30,336
    
    
    
    22,915Provision for income taxes
    
    
    183
    
    
    
    782
    
    
    
    316Net income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599
 STATEMENT OF CASH FLOWS
 Year ended December 312005
    
    2004
    
    2003Operating activities:Net income
    
    $
    28,026
    
    
    $
    29,554
    
    
    $
    22,599Adjustment to reconcile net income to net cash provided by
(used in) operating activities:Equity in earnings of subsidiaries
    
    
    (27,754
    )
    
    
    (28,394
    )
    
    
    (22,129
    )Amortization of cost of stock benefit plans
    
    
    6,768
    
    
    
    5,857
    
    
    
    3,987Decrease in due from subsidiaries
    
    
    (6,114
    )
    
    
    (4,397
    )
    
    
    (5,450
    )Change in other operating activities and liabilities
    
    
    166
    
    
    
    836
    
    
    
    (1,215
    )Net cash provided in operating activities
    
    
    1,092
    
    
    
    3,456
    
    
    
    (2,208
    )Investing activities:Stock proceeds invested in subsidiary
    
    
    
    
    
    
    
    
    
    
    (202,399
    )Dividends from Company subsidiaries
    
    
    83,200
    
    
    
    13,600
    
    
    
    9,600Net cash provided by investing activities
    
    
    83,200
    
    
    
    13,600
    
    
    
    (192,799
    )Financing activities:Sale of stock
    
    
    
    
    
    
    
    
    
    
    404,753Cash dividends
    
    
    (16,223
    )
    
    
    (13,402
    )
    
    
    (5,925
    )Purchase of treasury stock
    
    
    (134,542
    )
    
    
    (78,859
    )
    
    
    (8,011
    )Proceeds from exercise of stock options
    
    
    2,393
    
    
    
    1,217
    
    
    
    940Payments received on ESOP
    
    
    900
    
    
    
    900
    
    
    
    900Net cash used by financing activities
    
    
    (147,472
    )
    
    
    (90,144
    )
    
    
    392,657Decrease in cash and cash equivalents
    
    
    (63,180
    )
    
    
    (73,088
    )
    
    
    197,650Cash and cash equivalents at beginning of year
    
    
    140,138
    
    
    
    213,226
    
    
    
    15,576Cash and cash equivalents at end of year
    
    $
    76,958
    
    
    $
    140,138
    
    
    $
    213,226
 102




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures :
 Change in Internal Control Over Financial Reporting :
 Managements Report on Internal Control over Financial Reporting
    103




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##### Table of Contents



Ernst & Young LLP, Report on Effectiveness of Internal Control Over Financial Reporting
  
     .
  /s/ Ernst & Young LLP
 
 104




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##### Table of Contents



Item 9B . Other Information .
  105




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##### Table of Contents



Part III
 
 Item 10 . Directors and Executive Officers of the Registrant
  
 Item 11 . Executive Compensation
  
 Item 12 . Security Ownership of Certain Beneficial Owners and Management
  Equity Compensation Plan Information
  Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    for future issuance underto be issued upon
    
    Weighted-average
    
    equity compensationexercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflectedPlan category
    
    warrants and rights (1)
    
    warrants and rights
    
    in 1st column) (2)Equity compensation
plans approved by
security holders
    
    
    4,919,321
    
    
    $
    6.82
    
    
    
    2,416,683Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    4,919,321
    
    
    $
    6.82
    
    
    
    2,416,683
 
 (1)
    
    Represents options granted under the 2001 Plan or 2004 Stock Incentive Plan, which were
approved by Company shareholders in 2001 and 2004, respectively.(2)
    
    Represents options or restricted stock which may be granted under the 2004 Plan. No further
awards may be made under the 2001 Plan. 
 Item 13 . Certain Relationships and Related Transactions
  
 Item 14 . Principal Accountant Fees and Services
  106




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##### Table of Contents



Part IV
 
 Item 15 . Exhibits and Financial Statement Schedules
 (a)
    
    Documents filed as part of the Report:
1. and 2. Financial Statements and Financial Statement Schedules.
          (b).
    
    Exhibits. See Exhibit Index following the signature page of this report, which
is incorporated herein by reference. Each management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk following
its exhibit number.
 107




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##### Table of Contents



SIGNATURES
  BANK
    
    MUTUAL CORPORATIONMarch 7, 2006By:
    
    /s/Michael T. Crowley, Jr.Michael T. Crowley, Jr.Chairman, President and Chief Executive Officer
 POWER OF ATTORNEY
  
  Signature and Title
 /s/Michael T. Crowley, Jr.
    
    /s/Raymond W. Dwyer, Jr.Michael T. Crowley, Jr., Chairman, President
    
    Raymond W. Dwyer, Jr., DirectorChief Executive Officer and Director(Principal Executive Officer)/s/Rick B. Colberg
    
    /s/Thomas J. Lopina, Sr.Rick B. Colberg, Chief Financial Officer
    
    Thomas J. Lopina, Sr., Director(Principal Financial Officer)/s/Marlene M. Scholz
    
    /s/William J. MielkeMarlene M. Scholz, Senior Vice President
    
    William J. Mielke, Director(Principal Accounting Officer)/s/Thomas H. Buestrin
    
    /s/Robert B. OlsonThomas H. Buestrin, Director
    
    Robert B. Olson, Director/s/Mark C. Herr
    
    /s/David J. RolfsMark C. Herr, Director
    
    David J. Rolfs, Director/s/Jelmer G. SwobodaJelmer G. Swoboda, Director
 
 *
    
    Each of the above signatures is affixed as of March 7, 2006. 108




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##### Table of Contents



BANK MUTUAL CORPORATION
(Bank Mutual Corporation or the Company)**
Commission File No. 000-32107
 EXHIBIT INDEX
TO
2005 REPORT ON FORM 10-K
  Incorporated Herein
    
    FiledExhibit
    
    Description
    
    By Reference To
    
    Herewith3(i)
    
    Restated Articles of Incorporation, as
last amended May 29, 2003, of Bank
Mutual Corporation (the Articles)
    
    Exhibit 3(i) to the
Companys Registration
Statement on Form S-1,
Registration No.
333-105685 (the 2003
S-1)3(ii)
    
    Bylaws, as last amended May 29, 2003, of
Bank Mutual Corporation
    
    Exhibit 3(ii) to 2003 S-14.1
    
    The Articles
    
    Exhibit 3(i) above4.2
    
    The Plan
    
    Exhibit 2.1 above10.1*
    
    Bank Mutual Corporation Savings
Restoration Plan and Bank Mutual
Corporation ESOP Restoration Plan
    
    Exhibit 10.1(b) to the
Companys Annual Report on
Form 10-K for the year
ended December 31, 2003
(2003 10-K)10.2*
    
    Mutual Savings Bank Outside Directors
Retirement Plan
    
    Exhibit 10.2 to Bank
Mutual Corporations
Registration Statement on
Form S-1, Registration No.
333-39362 (the 2000 S-1)10.3*
    
    Mutual Savings Bank Executive Excess
Benefit Plan
    
    Exhibit 10.3 to 2000 S-110.4*
    
    Agreement regarding deferred
compensation dated May 16, 1988 between
Mutual Savings Bank and Michael T.
Crowley, Sr.
    
    Exhibit 10.4 to 2000 S-110.5(a)*
    
    Employment Agreement between Mutual
Savings Bank and Michael T. Crowley Jr.
    
    Exhibit 10.5(a) to 2000 S-110.5(b)*
    
    Amendment thereto dated February 17, 1998
    
    Exhibit 10.5(b) to 2000 S-110.6(a)*
    
    Employment Agreement between Mutual
Savings Bank and Michael T. Crowley, Sr.
dated December 31, 1993
    
    Exhibit 10.6(a) to 2000 S-110.6(b)*
    
    Amendment thereto dated February 17, 1998
    
    Exhibit 10.6(b) to 2000 S-1
 EI-1




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##### Table of Contents



Incorporated Herein
    
    FiledExhibit
    
    Description
    
    By Reference To
    
    Herewith10.7*
    
    Form of Employment Agreements
of Mr. Maurer, Ms. Scholz,
Mr. Anderegg and Mr. Callen
with Mutual Savings Bank,
each dated as of January 1,
2001 (continuing through
2006)
    
    Exhibit 10.7 to 2000 S-110.8(a)*
    
    Employment Agreement between
First Northern Savings Bank
and Rick B. Colberg dated as
of November 1, 2000
(continuing, as amended,
through 2006)
    
    Exhibit 10.9 to Bank
Mutuals Annual Report on
Form 10-K for the year
ended December 31, 2000
(2000 10-K)10.8(b)*
    
    Amendment thereto, dated as of
August 2, 2002
    
    Exhibit 10.9(b) to 2003 10-K10.8(c)*
    
    Second Amendment thereto,
dated as of August 19, 2003
    
    Exhibit 10.9(c) to 2003 10-K10.9(a)*
    
    Form of Supplemental
Retirement Agreement dated as
of January 1, 1994 between
First Northern Savings Bank
and Rick B. Colberg
    
    Exhibit 10.11(a) to 2000
10-K10.9(b)*
    
    Form of Amendment No. 1
thereto dated as of September
20, 1995
    
    Exhibit 10.11(b) to 2000
10-K10.9(c)*
    
    Form of Amendment No. 2
thereto, dated as of October
15, 1998
    
    Exhibit 10.6.4 to FNCC 1998
10-K10.10(a)*
    
    Non-Qualified Deferred
Retirement Plan for Directors
of First Northern Savings
Bank
    
    Exhibit 10.10(a) to 2000
10-K10.10(b)*
    
    Amendment No. 1 thereto
    
    Exhibit 10.3.2 to First
Northern Capital Corp.s
Annual Report on Form 10-K
for the fiscal year ended
December 31, 1998 (FNCC
1998 10-K)10.11*
    
    Bank Mutual Corporation 2001
Stock Incentive Plan, as
amended May 7, 2002
(superseded, except as to
outstanding awards)
    
    Exhibit 10.1 to Bank Mutual
Corporations Quarterly
Report on Form 10-Q for the
quarter ended March 31,
200210.12(a)*
    
    Bank Mutual Corporation 2004
Stock Incentive Plan
    
    Exhibit A to Proxy
Statement for 2004 Annual
Meeting of Shareholders10.12(b)*
    
    Form of Option Agreement
thereunder  Bank Mutual
Corporation Director Stock
Option Agreement
    
    Exhibit 10.1(b) to the
Companys Report on Form
10-Q for the quarter ended
June 20, 2004 (6-30-04
10-Q)
 EI-2




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##### Table of Contents



Incorporated Herein
    
    FiledExhibit
    
    Description
    
    By Reference To
    
    Herewith10.12(c)*
    
    Form of Option Agreement
thereunder  Bank Mutual
Corporation Incentive Stock
Option Agreement
    
    Exhibit 10.1(c ) to
the 6-30-04 10-Q10.12(d)*
    
    Form of Restricted Stock
Agreement thereunder  Bank
Mutual Corporation
Directors Management
Recognition Award
    
    Exhibit 10.1(d) to
the 6-30-04 10-Q10.12(e)*
    
    Form of Restricted Stock
Agreement thereunder  Bank
Mutual Corporation Officers
Management Recognition
Award
    
    Exhibit 10.1(e) to
the 6-30-04 10-Q10.13*
    
    Mutual Savings Bank/First
Northern Savings Bank
Management Incentive
Compensation Plan
    
    Exhibit 10.12(b) to
Post-Effective
Amendment No. 1 to
S-121.1
    
    List of Subsidiaries
    
    
    
    X23.1
    
    Consent of Ernst & Young LLP
    
    
    
    X24.1
    
    Powers of Attorney
    
    Signature Page31.1
    
    Sarbanes-Oxley Act Section
302 Certification signed by
the Chairman, President and
Chief Executive Officer of
Bank Mutual Corporation
    
    
    
    X31.2
    
    Sarbanes-Oxley Act Section
302 Certification signed by
the Chief Financial Officer
of Bank Mutual Corporation
    
    
    
    X32.1
    
    Certification pursuant to
18 U.S. C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002 signed by the
Chairman, President and
Chief Executive Officer of
Bank Mutual Corporation
    
    
    
    X32.2
    
    Certification pursuant to
18 U.S. C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002 signed by the
Chief Financial Officer of
Bank Mutual Corporation
    
    
    
    X
 
 *
    
    Designates management or compensatory agreements, plans or arrangements required to be filed
as exhibits pursuant to Item 14(c) of Form 10-K**
    
    As used in this Exhibit Index, references to Bank Mutual Corporation and the Company also
include, where appropriate, Bank Mutual Corporation, a federally-chartered corporation and the
predecessor of the current registrant.***
    
    Mutual Savings Bank is now known as Bank Mutual. EI-3