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Bank Mutual Corporation (NASDAQ:BKMU)

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On Thursday, Shares of Bank Mutual Corporation (NASDAQ:BKMU), lost -1.58% and closed at $9.35 in the last trading session. The last trading range of the stock ranges between $9.25 and $9.65. Bank Mutual Corporation (BKMU) stated net income of $3.6 million or $0.08 per diluted share in the first quarter of 2017 contrast to $4.5 million or $0.10 per diluted share in the same quarter of last year.  This decrease was mostly because of a $717,000 provision for loan loss in the 2017 quarter contrast to a recovery of $573,000 in the same quarter of last year.  Also contributing were lower loan-related fees, lower brokerage, advisory, and insurance revenue, lower mortgage banking revenue, and higher compensation- and occupancy-related expenses.  These developments were mostly offset by an improvement in net interest income, lower deposit insurance premiums, and lower other non-interest expense.

David A. Baumgarten, President and Chief Executive Officer of Bank Mutual, commented, “Absent the tax-effected change in our provision for loan loss, we believe our earnings in the first quarter would have been comparable to the prior year.”  He added, “We are certainly happy with the improvement in our net interest income, which was driven by continued growth in our earning assets and modest expansion of our net interest margin, apart from the consideration of call premiums in prior periods.”  He continued, “However, we are less than satisfied with the decline in revenue from our mortgage banking and brokerage, advisory, and insurance lines of business.”  Baumgarten concluded, “We have recently taken actions to reverse the trend for these revenue sources and we remain optimistic about the future.”

Bank Mutual’s net interest income raised by $904,000 or 5.1% during the first quarter of 2017 contrast to the same quarter in 2016.  Included in the prior-year quarter was a $482,000 call premium that Bank Mutual received on a mortgage-related security that was called during that period.  Apart From this call premium, net interest income in the first quarter of 2017 raised by $1.4 million or 8.1% contrast to the same quarter in 2016.  Most of this increase was because of a boost in Bank Mutual’s average earning assets, which raised by $157.7 million or 6.9% during the three months ended March 31, 2017, contrast to the same period in 2016.  This increase was mainly attributable to a boost in average loans receivable.  Contributing to a lesser degree to the increase in net interest income in the 2017 period was an improvement in Bank Mutual’s net interest margin, apart from the impact of the aforementioned call premium in the 2016 period.  Finally, contributing to the increase in net interest income was a boost in funding from non-interest bearing checking accounts.

Bank Mutual’s net interest margin was 3.02% during the first quarter of 2017 contrast to 2.99% during the first quarter of 2016 (apart from eight basis points of benefit related to the aforementioned call premium).  In recent months administration has noted that Bank Mutual’s net interest margin has begun to improve modestly.  Specifically, the 3.02% net interest margin in the first quarter of 2017 compares to 3.00% in the fourth quarter of 2016 (also apart from three basis points related to a call premium in that quarter).  Administration has observed in recent months that increases in the yield on Bank Mutual’s earning assets have been slightly greater than the increases in its cost of funds.  This has occurred in an environment of rising interest rates, due in part to recent increases in the fed funds rate by the Federal Reserve.  Administration attributes the modest increases in Bank Mutual’s net interest margin to an overall interest rate risk exposure that it is slightly asset sensitive.  That is, administration believes that the sensitivity of Bank Mutual’s earning assets to changes in market interest rates is slightly greater than its interest-bearing liabilities.  As such, administration anticipates that Bank Mutual’s net interest margin may continue to show slight improvement in the foreseeable future, although there can be no assurances.

Bank Mutual’s net interest margin is subject to competitive pricing pressures for loans and deposits, changes in borrower and depositor preferences, and other economic and market factors that are outside of administration’s control.  Of particular concern to administration are possible future changes in the competitive environment for interest rates on interest-bearing checking, savings, and money market deposit accounts.  If competitive or market pressures require Bank Mutual to increase the interest rates it pays on these deposit accounts, and such increases are not exceeded or matched by increases in the yield on its earning assets, Bank Mutual’s net interest margin could be adversely influenced in future periods.  Also of concern to administration are possible future changes in depositor preferences for certain types of deposit products.  Specifically, administration believes that the relatively low interest rate environment that has persisted for the past few years has encouraged many deposit customers to switch to transaction deposits in an effort to retain flexibility in the event market interest rates increase.  If market interest rates continue to increase in the future, customers’ preferences may shift from transaction deposits to certificates of deposit, which generally have a higher interest cost.  This development could also have an adverse impact on Bank Mutual’s net interest margin in future periods.

Analyst recommendation for this stock stands at 2.80.