Why momentum and energy conservation differ in ballistic pendulum stages

[IKonquer]

In solving a ballistic pendulum problem, you can break it up into two parts:

(1) A bullet is fired and it lodges into a block.
Momentum is conserved because there is no net external force.
Energy is not conserved because there is friction between the block and bullet.

(2) Once the bullet is lodged into the block, the block moves up a certain vertical distance.

Could someone explain:

Why is momentum not conserved in this case?

Why is energy conserved in this case?

 

[MalachiK]

Don't you have the parts in bold the wrong way around?