<PAGE>   1


                              MUTUAL SAVINGS BANK

                            BENEFIT RESTORATION PLAN
<PAGE>   2

                              MUTUAL SAVINGS BANK
                            BENEFIT RESTORATION PLAN



                                    ARTICLE 1

                                    PURPOSES

       The Mutual Savings Bank Benefit Restoration Plan (the "Restoration Plan")
is established by Mutual Savings Bank (the "Company") to provide eligible
employees with certain benefits which they are unable to receive under the
defined contribution retirement plans maintained by the Company because of the
limitations on contributions and benefits imposed by Sections 401(a)(17),
401(k), 401(m), 402(g) and 415 of the Internal Revenue Code (the "Code"). The
Plan will permit participants to defer compensation into the Restoration Plan
which could be contributed to the Mutual Savings Bank Savings and Investment
Plan (the "Savings Plan") in the absence of these limits. In addition, the
Restoration Plan will provide allocations to participants based upon the
allocations the individuals would have received under the Savings Plan and the
Bank Mutual Corporation Employee Stock Ownership Plan (the "ESOP") in the
absence of foregoing Internal Revenue Code limits.

                                    ARTICLE 2

                                  PARTICIPATION

         2.1 Selection of Participants. The Company's Board of Directors (the
"Board") shall select the officers and other management or highly compensated
employees of the Company who will be eligible to participate in the Restoration
Plan. Each selected individual shall be referred to as a "Participant."

         2.2 Limitation on Eligibility. No employee shall have any right to be a
Participant in the Restoration Plan unless approved by the Board.  It is
intended that participation in the Restoration Plan be limited to a select group
of management or highly compensated employees within the meaning of Title 1 of
the Employee Retirement Income Security Act ("ERISA") and that the designation
of Participants will generally occur near the end of a calendar year, to become
effective as of the start of the immediately following calendar year.

                                       1


<PAGE>   3




                                    ARTICLE 3

                          CONTRIBUTIONS AND ALLOCATIONS

         3.1  Compensation Deferrals. A Participant who has been designated by
the Board as eligible to participate in the Restoration Plan and who is
prevented from making the maximum percentage deferral election under the Savings
Plan may elect to defer compensation under the Restoration Plan. For example, a
Participant with compensation of $200,000 who is limited to a Savings Plan
salary deferral contribution of $7,500 would be permitted to make a compensation
deferral election to the Restoration Plan of $12,500. This amount is calculated
by multiplying the Participant's compensation ($200,000) times 10% (the maximum
deferral percentage under the Savings Plan), and subtracting the salary deferral
contribution to the Savings Plan. To defer compensation under the Restoration
Plan, a written deferral election form regarding the Participant's compensation
must be filed with the Company in accordance with rules established by the
Company.

         3.2  Matching Contribution. It is the intent of this Restoration Plan
that a Participant not suffer any loss with respect to an employer matching
contribution under the Savings Plan because of the Internal Revenue Code limits
on contributions and allocations. Therefore, the company will make a matching
contribution to the Restoration Plan equal to the additional employer matching
contribution that would have been made to the Savings Plan in the absence of the
limits. The matching contribution to the Restoration Plan will be based upon the
Participant's combined salary deferrals to the Savings Plan and the Restoration
Plan, the matching contribution formula in the Savings Plan and the matching
contribution actually allocated in the Savings Plan. For example, if the Savings
Plan Matching Contribution formula is equal to 20% of the first 5% deferred for
a plan year, a Participant with compensation of $200,000 who has Savings Plan
salary deferral contributions of $7,500 and Restoration Plan compensation
deferrals of at least $2,500 would receive a Restoration Plan matching
contribution of $5,000 less the matching contribution actually received under
the Savings Plan.

         3.3  ESOP Contribution. It is the intent of this Restoration Plan that
a Participant not suffer any loss with respect to an employer contribution under
the ESOP because of (a) the limitation on annual compensation under Section
401(a)(17) of the Code, or (b) any limitations on benefits and contributions
imposed by Section 415 of the Code. The allocation under the Restoration Plan
shall be determined by multiplying the Participant's compensation (without
regard to the limitation under Section 401(a)(17) of the Code) by the percentage
of contributions and forfeitures allocated to Participants under the ESOP, and
subtracting the allocation actually made to the Participant in the ESOP. To
illustrate, a Participant with compensation of $200,000 would receive an
allocation under the Restoration Plan of $1,200 if the allocation percentage in
the ESOP was 4% and the individual received an allocation of $6,800 under the
ESOP.


                                       2



<PAGE>   4




         3.4  Time of Crediting. A Participant's Deferrals shall be credited to
the Participant's Deferral Account as soon as practical following the date they
are withheld from the Participant's Compensation. Company Matching Contributions
and ESOP contributions for a Plan Year shall be credited to eligible
Participants' Company Contribution Accounts at substantially the same time as
such amounts would have been allocated to the Participant in the Savings Plan or
ESOP if allowed thereunder.

                                    ARTICLE 4

                                   ACCOUNTING

         4.1  Separate Accounts. A separate Deferral Account, Matching Account
and ESOP Account will be maintained for each Participant in the Restoration
Plan. The Accounts shall be adjusted by deemed earnings or losses provided in
Section 4.2 below. The establishment and maintenance of a separate account for
each Participant shall not be construed as giving the Participant or any other
person any interest in any specific asset of the Company.

         4.2  Earnings or Losses.   For purposes of determining the earnings or
losses on a Participant's Account, the following apply:

         (a)  Each Participant may select, from among the investment
              alternatives designated by the Company from time to time, the
              investment alternative(s) in which all or part of his Account
              shall be deemed to be invested.

         (b)  The Participant shall make an investment designation in the form
              and manner prescribed by the Company or its designee, which shall
              remain effective until another valid designation has been made by
              the Participant as herein provided. The Participant may amend his
              investment designation at such times and in such manner as
              prescribed by the Company or its designee. A timely change to the
              Participant's investment designation shall become effective as
              soon as administratively practicable in accordance with procedures
              established by the Company or its designee.

         (c)  The investment alternatives deemed to be made available to the
              Participant, and any limitation on the maximum or minimum
              percentages of the Participant's Account that may be deemed to be
              invested in any particular alternative, shall be determined by the
              Company in its sole discretion.

         (d)  Except as provided below, the Participant's Account shall be
              deemed to be invested in accordance with his investment
              designations, and the Account shall be credited with earnings (or
              losses) as if invested as directed by the Participant. If the
              Participant does not furnish complete investment instructions, or
              the investment instructions from the Participant are unclear, then
              the Account shall be

                                       3

<PAGE>   5

             credited with earnings (or losses) at a rate equal to five percent
             (5%) per year. The Accounts maintained pursuant to this Plan are
             for bookkeeping purposes only and the Company is under no
             obligation to invest such amounts.

         (e) Notwithstanding the foregoing, the Company may determine that
             earnings and losses in a Participant's ESOP Account shall be based
             upon the return on Bank Mutual Corporation common stock.

                                    ARTICLE 5

                                     VESTING



         5.1  Vesting in Deferrals.  Each Participant shall at all times be
fully vested in his or her Deferral Account.

         5.2  Vesting in Company Contributions.   A Participant shall be vested
in his or her Matching Account under the Restoration Plan in the same percentage
as the Participant is vested in any matching contributions under the Savings
Plan.

         5.3  Vesting in ESOP Contributions.   A Participant shall be vested in
any ESOP contributions under the Restoration Plan in the same percentage as the
Participant is vested in any ESOP contributions under the ESOP.

         5.4  Forfeitures.   Any amounts credited to a Participant's Matching
and ESOP Account in which the Participant is not vested shall be forfeited upon
the date that the Participant terminates employment for any reason.

                                    ARTICLE 6

                            DISTRIBUTION OF BENEFITS

         6.1  Timing of Distribution.   Distribution of the vested Accounts of
a Participant whose employment terminated for any reason shall commence within
sixty (60) days following the close of the calendar year in which the
termination of employment occurs.

         6.2  Form of Distribution.   A Participant shall receive a distribution
in substantially equal annual payments over a period of five (5) years. Each
annual installment shall be an amount equal to the Participant's vested Account
balance on the year-end valuation date of the preceding year, divided by the
number of installments remaining. Notwithstanding the foregoing, a Participant
may receive an alternative form of distribution, with the Company's consent, by
requesting such alternative form of distribution at least six (6) months before
the distribution is to commence.

                                       4

<PAGE>   6



                                    ARTICLE 7

                                CLAIMS PROCEDURES


          7.1  Claims Procedures. Following a Participant's termination of
employment, the Company shall calculate the amount payable under the Plan. A
Participant who disagrees with the calculation may file a request for any
additional amount that the Participant believes is payable. Claims made for
additional benefits under the Plan shall be processed in accordance with the
following claims procedures:

          (a)  Claims. Claims for additional benefits shall be made in writing
               to the Company.


          (b)  Notice of Denial. If a claim made for benefits by a Participant
               is not approved in its entirety, the Participant shall be so
               notified in writing by the Company within ninety (90) days.
               Notice wholly or partially denying a claim shall be written in a
               manner calculated to be understood by the Participant and
               contain: (i) the specific reason or reasons for the denial, (ii)
               specific reference to the pertinent Plan provisions on which the
               denial is based, (iii) description of any additional material or
               information necessary for the Participant to perfect the claim
               and an explanation of why such material or information is
               necessary, and (iv) an explanation of the review procedure set
               forth in this Section 7.1. If such written notice of denial is
               not furnished within the prescribed time, the claim shall be
               deemed denied for purposes of proceeding to the review stage
               described below.

          (c)  Request for Review. A Participant whose claim for benefits which
               has been wholly or partially denied, or his duly authorized
               representative, may request a review of such denial by the Board
               of Directors of the Company. A request for review shall be made
               in writing to the Board of Directors of the Company within sixty
               (60) days after receipt by the Participant of written
               notification of denial of such claim and may contain issues and
               comments with respect to the claim.

          (d)  Review Process. Upon receipt of a request for review of a claim
               denial, the Board of Directors of the Company shall, within sixty
               (60) days, review in detail the nature and foundations of the
               claim, including any issues and comments submitted by the
               Participant or his duly authorized representative and the reasons
               for the prior denial of the claim. After a full and fair review,
               the Board of Directors of the Company shall render its decision
               in writing to the Participant. The decision on review shall
               include the specific reasons for the decision, be written in a
               manner calculated to be understood by the Participant, and shall
               include specific references to the pertinent Plan provisions on
               which the decision is based.


                                       5

<PAGE>   7


          (e)  Authority of Board of Directors. The Board of Directors of the
               Company shall have full and complete authority to determine
               eligibility for benefits, to construe the terms of the Plan and
               to decide any matters presented through the claims procedure. Any
               final determination by the Board of Directors of the Company
               shall be binding on all parties. If challenged in court, such
               determination shall not be subject to de novo review and shall
               not be overturned unless proven to be arbitrary and capricious
               upon the evidence considered by the Board of Directors of the
               Company at the time of such determination.

                                    ARTICLE 8

                                 PLAN AMENDMENT

          8.1  Amendment. The Board reserves the right to amend, modify or
terminate this Restoration Plan at any time; provided, however, no such action
will reduce the amounts then credited to any Participant's account, without the
consent of the Participant, if living, or the Participant's designated
beneficiary or beneficiaries, if the Participant is not living.

                                    ARTICLE 9

                                  MISCELLANEOUS

          9.1  No Assignment. Neither the Company nor the Participant nor any
beneficiary shall have the power to transfer, assign or encumber any amounts
payable hereunder.

          9.2  Tax Withholding. The Company shall have the right to withhold
from any amounts payable hereunder any taxes or other amounts required by any
governmental authority to be withheld.

          9.3  Grantor Trust. The Company may establish a grantor trust to serve
as a vehicle to hold such contributions as the Company may choose to make to
pre-fund its obligations for benefits hereunder, but the trust shall be designed
so that this Restoration Plan remains an unfunded plan and a Participant's
rights to benefits under this Restoration Plan shall be those of an unsecured
creditor of the Company.

          9.4  Competency of Payees. Every person receiving or claiming payments
under this Restoration Plan shall be conclusively presumed to be mentally
competent until the date on which the Company receives a written notice, in form
and manner acceptable to it, that such person is incompetent and that a
guardian, conservator, or other person legally vested with the care of such
person's estate has been appointed. In the event a guardian or conservator of
the estate of any person receiving or claiming payments under this Restoration
Plan shall be appointed by a court of competent jurisdiction, payments may be
made to such guardian or conservator provided that proper proof of appointment
and continuing qualification is furnished


                                       6
<PAGE>   8


in a form and manner acceptable to the Company. Any such payment so made shall
be a complete discharge of any liability therefor.

          9.5  No Right to Employment. Participation in this Restoration Plan,
or any modifications thereof, or the payment of any benefits hereunder, shall
not be construed as giving to the Participant any right to be retained in the
service of the Company or its affiliates, limiting in any way the right of the
Company or its affiliates to terminate the Participant's employment at any time,
evidencing any agreement or understanding, express or implied, that the Company
or its affiliates will employ the Participant in any particular position or at
any particular rate of compensation and/or guaranteeing the Participant any
right to receive a salary increase in any year, such increase being granted only
at the sole discretion of the Board.


                                       7