Exhibit
13























2007
ANNUAL REPORT

















PRESIDENT’S
LETTER





Dear
Stockholders and Customers:





On behalf
of the Board of Directors and Management of Hometown Bancorp,
Inc.  and all associated with its subsidiary Walden Federal, I am
pleased to present our 2007 Annual Report to Stockholders.





The year
2007 was an historic year.  On June 28, 2007 the Company completed its
initial public stock offering during which the Company sold 1,071,225 shares of
common stock raising net proceeds of $10 million.  The Company also
issued 1,309,275 shares of its common stock to Hometown Bancorp, MHC, its parent
company.  Shares of Hometown Bancorp, Inc.  began trading on
June 29, 2007 on the OTC Bulletin Board under the symbol “HTWC.OB.” We believe
this additional capital has positioned your Company to achieve the goals set out
in its business plan.





The year
2007 was a very successful year for Hometown Bancorp, Inc.  We
produced solid results as we continued to implement our business
plan.  Strong earnings, significant growth and the addition of a new
branch office were highlights of the year.





For the
year ended December 31, 2007, total assets grew by $15.3 million to a record
$132.7 million – a 13.0% increase over the previous year. Deposit account
balances also increased by $7.5 million to $112.1 million – a 7.2% increase over
the previous year.





Lending
activity was robust throughout the year.   Our loan portfolio
grew from $97.8 million at year-end 2006 to $121.5 million at year-end
2007.  The Bank’s reputation as a trusted community lender is
reflected in our lending activity which produced a 24.2% increase in portfolio
loans over the previous year.  Additionally, our credit quality
remains extremely sound.  The ratio of non-performing loans to total
loans at December 31, 2007 was .10%.





Among our
accomplishments during 2007 was net income that totaled $850,000. We believe
that our performance in 2007 is the result of closely following and achieving
the goals set forth in our business plan.





We not
only grew financially, we grew our franchise.  Our new Newburgh branch
opened in September 2007, bringing our unique brand of banking to more area
residents.  Our new branch will also allow us to better serve our
existing customers from Newburgh and the surrounding area.





In 2007,
we introduced our Overdraft Privilege program, a courtesy overdraft service for
customers.  This program has been very popular with customers and has
provided non-interest income as well as creating operational
efficiencies.  We also joined the Allpoint surcharge-free ATM network
giving customers access to over 32,000 surcharge-free ATMs
nationwide.  Additionally, we recently formed an alliance with the
CDARS (Certificate of Deposit Account Registry Service) program, a unique
service offered through a partnership with Promontory Interfinancial Network,
LLC, which provides fully insured CD accounts up to $50 million for our
customers.





In 2007,
we also introduced a number of new loan programs, Campus Door and Auto
ARM.  Campus Door offers our customers an online student loan program
while AutoARM offers low cost automobile loans to our
customers.  Additionally we became approved by SONYMA (State of New
York Mortgage Agency) to participate in their “Keep the Dream” refinance
program.  We also participate in the Freddie Mac “Home Possible”
lending program, which helps consumers realize





1





the dream
of home ownership.  We also now offer “reverse mortgages” through our
affiliation with Wells Fargo.





Our
officers and employees volunteered hundreds of hours in community and
fundraising events, from walk-a-thons to town clean-up days to community
celebrations.  Again, I offer my sincere thanks to our officers and
employees.  Their dedication both during and after business hours
makes our Bank an active member of the communities we serve.





Despite
our achievements in 2007, the price of our common stock has declined from the
initial offering price of $10.00 per share.  The overall uncertainty
in the economy and subprime lending problems facing our nation have resulted in
a lack of confidence in the stock market and, more specifically, a lack of
confidence in the financial institutions industry.  These conditions
appear to have adversely affected the market value of the stock of all financial
institutions, including companies like Hometown Bancorp that do not purchase,
hold or originate subprime loans.  As I stated previously, our asset
quality remains sound.





Your
management team continues to focus on our future.  We need new
products and services to meet our customer needs in an efficient manner.
Therefore, 2008 will continue to be a building year for Hometown Bancorp,
Inc.  We will continue to pursue the strategies that are set forth in
our business plan.  These strategies include, but are not limited to,
new product and service offerings, such as online business banking and remote
deposit capture, business debit cards, expanding the Bank’s commercial/business
deposit activities, e-statements and on-line mortgage
applications.  We shall continue to seek out branching opportunities
that will complement our growth strategy.   Additionally, as the
Bank continues to grow and expand, it is critical to build expertise and
maintain sufficient staff to support our continued growth.  While
these strategies are designed to enhance shareholder value over the long term,
we understand that their execution may come at a cost to the short term
earnings; therefore, we understand that we may face earning challenges in 2008
as we continue to execute these strategies in the midst of a volatile interest
rate environment.





I am
proud of the many accomplishments we achieved in 2007.  I look forward
to working with our talented staff in exploring new and creative ways to achieve
our goals and better serve our customers in the coming years.





In
closing, I wish to thank our stockholders, borrowers and depositors, who have
placed their trust in us, as well as our dedicated Board of Directors, officers
and employees for making our success possible.





/s/
Thomas F. Gibney


Thomas F. Gibney


President
and Chief Executive Officer





2





Selected
Financial and Other Data





The
summary financial information presented below is derived, in part, from our
audited consolidated financial statements.  The following is only a
summary and you should read it in conjunction with the audited consolidated
financial statements and notes beginning on page 17.  The information
at December 31, 2007 and 2006 and for the years ended December 31,
2007 and 2006 is derived in part from the audited consolidated financial
statements that appear in this Annual Report.











At or for the Year Ended
              December31,(Dollars in thousands)
            
            2007
            
            
            2006Financial
      Condition Data:Total
      assets
            
            $
            132,690
            
            
            $
            117,413Investment
      securities
            
            
            2,777
            
            
            
            12,041Loans
      receivable, net (1)
            
            
            121,510
            
            
            
            97,833Deposits
            
            
            112,061
            
            
            
            104,518Borrowings
            
            
            -
            
            
            
            2,525Total
      stockholders’ equity
            
            
            18,480
            
            
            
            8,520Operating
      Data:Interest
      income
            
            $
            8,915
            
            
            $
            7,494Interest
      expense
            
            
            3,112
            
            
            
            2,303Net
      interest income
            
            
            5,803
            
            
            
            5,191Provision
      for loan losses
            
            
            185
            
            
            
            102Net
      interest income after provision for loan losses
            
            
            5,618
            
            
            
            5,089Noninterest
      income
            
            
            1,729
            
            
            
            1,607Noninterest
      expenses
            
            
            5,917
            
            
            
            5,316Income
      before taxes
            
            
            1,430
            
            
            
            1,380Income
      tax expense
            
            
            580
            
            
            
            517Net income
            
            $
            850
            
            
            $
            863





(1)
Includes held for sale loans of $528,000 and $1.2 million at December 31,
2007 and 2006, respectively.





3




At or for the Year Ended
              December31,2007
            
            
            2006Performance
      Ratios:Return
      on average assets
            
            
            0.67
            %
            
            
            0.78
            %Return
      on average equity
            
            
            6.24
            
            
            
            10.77Interest
      rate spread (1)
            
            
            4.02
            
            
            
            4.40Net
      interest margin (2)
            
            
            4.75
            
            
            
            4.92Noninterest
      income to average assets
            
            
            1.35
            
            
            
            1.45Noninterest
      expense to average assets
            
            
            4.63
            
            
            
            4.80Efficiency
      ratio (3)
            
            
            78.56
            
            
            
            78.20Average
      interest-earning assets to averageinterest-bearing
      liabilities
            
            
            128.79
            
            
            
            123.70Average
      equity to average assets
            
            
            10.67
            
            
            
            7.24Capital
      Ratios (4):Tangible
      capital
            
            
            10.80
            
            
            
            7.13Core
      capital
            
            
            10.80
            
            
            
            7.13Total
      risk-based capital
            
            
            15.14
            
            
            
            11.15Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
            
            
            0.64
            
            
            
            0.64Allowance
      for loan losses as a percent of nonperformingloans
            
            
            634.68
            
            
            
            141.91Net
      charge-offs to average outstanding loans during theperiod
            
            
            0.02
            
            
            
            0.01Nonperforming
      loans as a percent of total loans
            
            
            0.10
            
            
            
            0.45Other
      Data:Number
      of:Deposit
      accounts
            
            
            12,404
            
            
            
            12,225Offices
            
            
            6
            
            
            
            5


_____________________


(1)
            Represents
      the difference between the weighted average yield on average
      interest-earning assets and the weighted average cost of average
      interest-bearing liabilities.


(2)
            Represents
      net interest income as a percent of average interest-earning
      assets.


(3)
            Represents
      noninterest expense divided by the sum of net interest income and
      noninterest income.


(4)
            Capital
      ratios are for Walden Federal Savings and Loan
  Association.





4





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION





Management’s
discussion and analysis of the financial condition and results of operations is
intended to assist in understanding our financial condition and results of
operations.  You should read this discussion in conjunction with the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements included in this Annual Report.





Overview





Our
principal business is to acquire deposits from individuals and businesses in the
communities surrounding our offices and to use these deposits to fund
loans.  We focus on providing our products and services to two
segments of customers:  individuals and small businesses.





Income.Our primary
source of pre-tax income is net interest income.  Net interest income
is the difference between interest income, which is the income that we earn on
our loans and investments, and interest expense, which is the interest that we
pay on our deposits and borrowings.  Changes in levels of interest
rates affect our net interest income.  During most of 2007 and 2006,
short-term interest rates (which influence the rates we pay on deposits) have
increased, while longer-term interest rates (which influence the rates we earn
on loans) have not.  The narrowing of the spread between the interest
we earn on loans and investments and the interest we pay on deposits has
negatively affected our net interest income.





A
secondary source of income is noninterest income, which is revenue that we
receive from providing products and services.  The majority of our
noninterest income generally comes from service charges and fees on deposit
accounts and loans and mortgage-banking income.





Allowance for
Loan Losses.  The allowance for
loan losses is a valuation allowance for probable losses inherent in the loan
portfolio.  We evaluate the need to establish allowances against
losses on loans on a quarterly basis.  When additional allowances are
necessary, a provision for loan losses is charged to earnings.





Expenses.  The
noninterest expenses we incur in operating our business consist of salaries and
employee benefits expenses, occupancy and equipment expenses, data processing
expenses and other miscellaneous expenses, such as office supplies, telephone,
postage, advertising and professional services.





Our
largest noninterest expense is salaries and employee benefits, which consist
primarily of salaries and wages paid to our employees, payroll taxes, and
expenses for health insurance, retirement plans and other employee
benefits.  Our salaries and employee benefits expense has increased in
recent periods as a result of the addition of staff for our new branches in
Newburgh and Monroe.  As a result of the offering, our noninterest
expenses have increased as a result of operating as a public
company.  These additional expenses consist primarily of legal and
accounting fees and expenses of shareholder communications.





Occupancy
and equipment expenses, which are the fixed and variable costs of buildings and
equipment, consist primarily of branch lease expense, depreciation charges,
furniture and





5





equipment
expenses, maintenance, real estate taxes and costs of utilities.  Our
occupancy expenses have increased in recent periods because of the expansion of
our branch network.





Critical
Accounting Policies





We
consider accounting policies involving significant judgments and assumptions by
management that have, or could have, a material impact on the carrying value of
certain assets or on income to be critical accounting policies.  We
have identified the allowance for loan losses as our critical accounting
policy.





The
allowance for loan losses is the amount estimated by management as necessary to
cover losses inherent in the loan portfolio at the balance sheet
date.  The allowance is established through the provision for loan
losses, which is charged to income.  Determining the amount of the
allowance for loan losses necessarily involves a high degree of
judgment.  Among the material estimates required to establish the
allowance are:  loss exposure at default; the amount and timing of
future cash flows on impacted loans; value of collateral; and determination of
loss factors to be applied to the various elements of the
portfolio.  All of these estimates are susceptible to significant
change.  Management reviews the level of the allowance at least
quarterly and establishes the provision for loan losses based upon an evaluation
of the portfolio, past loss experience, current economic conditions and other
factors related to the collectibility of the loan portfolio.  Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluation.  In addition, the Office of Thrift Supervision, as an
integral part of its examination process, periodically reviews our allowance for
loan losses.  Such agency may require us to recognize adjustments to
the allowance based on its judgments about information available to it at the
time of its examination.  A large loss could deplete the allowance and
require increased provisions to replenish the allowance, which would adversely
affect earnings.  See note 1 of the notes to the consolidated
financial statements in this Annual Report for all the significant accounting
policies.





Operating
Strategy





Our
mission is to operate and grow a profitable community-oriented financial
institution.  We plan to achieve this by executing our strategy
of:





·
            Continuing
      to pursue opportunities to expand and diversify our lending
      portfolio;





·
            Increasing
      core deposits through aggressive marketing and the offering of new deposit
      products;





·
            Expanding
      our branch network to enable us to continue to build our lending and
      deposit franchise;





·
            Continuing
      to use conservative underwriting practices to maintain the high quality of
      our loan portfolio; and





·
            Continuing
      to provide superior service to attract and retain
    customers.










6




Continuing
to pursue opportunities to expand and diversify our lending
portfolio


In recent
years we have diversified our loan portfolio beyond residential mortgage
loans.  Since December 31, 2004, our multi-family and commercial
real estate, commercial business, land and construction loan portfolio has
increased $27.5 million, or 87.2%, and at December 31, 2007 was 48.6% of our
total loan portfolio.  During this period, we have taken advantage of
the significant growth in both residential and commercial real estate
development in our market area.  Based on the experience of our staff,
we have established a niche in land development and construction
financing.  We sell the majority of our longer-term fixed rate
residential mortgage loans to Freddie Mac or other investors on both a
servicing retained and servicing released basis.  We also sell
participation interests in portions of our non-residential loans in order to
manage risk and maintain regulatory compliance for loans to one borrower
limits.




Increasing
core deposits through aggressive marketing and the offering of new deposit
products





Retail
deposits are our primary source of funds for investing and
lending.  Core deposits, which include all deposit account types
except certificates of deposit, comprise 43.5% of our total deposits at
December 31, 2007.  We value our core deposits because they
represent a lower cost of funding and are generally less sensitive to withdrawal
when interest rates fluctuate as compared to certificate of deposit
accounts.  We market core deposits through in-branch and local mail,
print and radio advertising, as well as programs that link various accounts and
services together, minimizing service fees.  We will continue to
customize existing deposit products and introduce new products to meet the needs
of our customers.  In 2007, we began offering a courtesy overdraft
service for our customers.  This service is available to most of our
personal checking account customers and, subject to certain restrictions,
ensures payment of checks written on customer checking accounts.  We
continue to promote our three-month “liquid” certificate of deposit, which gives
our customers more flexibility and access to their funds.  We have
developed a tiered savings account which was launched in 2007.  We
also hope to increase core deposits by pursuing expansion in our market area
through de novo branching and the acquisition of existing financial
institutions. While we continue to review potential branch sites, there can be
no assurance as to whether or when we will open such offices. We have not
entered into any binding commitments regarding our expansion plans.





Expanding
our branch network to enable us to continue to build our lending and deposit
franchise





We intend
to pursue a branch expansion program focusing on de novo branching within our
lending territory enabling us to continue to build our lending and deposit
franchise.  We also intend to consider acquisitions of branches of
other financial institutions located within our lending
territory.  Recently, our management began to implement a growth
strategy that expands our presence in other select markets in
Orange County.  As part of this growth strategy, in November,
2005, we opened a branch office in Otisville, New York, in June, 2006, we opened
a Shop Rite in-store branch in Monroe, New York, and in September 2007, we
opened a retail branch in the Town of Newburgh, New York.  We have not
entered into any binding commitments regarding our expansion plans. While we
continue to review potential branch sites, there can be no assurance as to
whether or when we will open such offices.





7





Continue
to use conservative underwriting practices to maintain the high quality of our
loan portfolio





We
believe that maintaining high asset quality is a key to long-term financial
success.  We have sought to grow and diversify our loan portfolio
while keeping nonperforming assets to a minimum.  We use underwriting
standards that we believe are conservative and we diligently monitor collection
efforts.  At December 31, 2007, our nonperforming loans were 0.10% of
our total loan portfolio.  We intend to continue our efforts to
originate residential mortgage loans, multi-family real estate loans, commercial
real estate loans, construction loans and land loans and to continue our
philosophy of managing large loan exposures through our conservative approach to
lending.





Continue
to provide superior service to attract and retain customers





As a
community-oriented financial institution, we emphasize providing superior
customer service as a means to attract and retain customers.  We
deliver personalized service and respond with flexibility to customer
needs.  We believe that our community orientation is attractive to our
customers and distinguishes us from the large banks that operate in our
area.  We also provide twenty-four hour telephone and on-line Internet
banking service as well as twenty-four hour access to automated teller machines
in most of our offices.





Average
Balance Sheets and Related Yields and Rates





The
following table presents information regarding average balances of assets and
liabilities, the total dollar amounts of interest income and dividends from
average interest-earning assets, the total dollar amounts of interest expense on
average interest-bearing liabilities, and the resulting annualized average
yields and costs.  The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented.  For purposes of
this table, average balances have been calculated using daily average balances,
and nonaccrual loans are included in average balances.  Loan fees and
costs are deferred and recognized as an adjustment in interest income on
loans.  None of the income reflected in the following table is
tax-exempt income.





8





Average
Balance Table





Year
      Ended December 31,2007
            
            
            2006(Dollars in thousands)
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              Cost
            
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              CostAssets:Interest-earning
      assets:Loans
            
            $
            109,347
            
            
            $
            8,272
            
            
            
            7.56
            %
            
            $
            89,188
            
            
            $
            6,768
            
            
            
            7.59
            %Investment
      securities, taxable
            
            
            9,574
            
            
            
            472
            
            
            
            4.93
            
            
            
            12,717
            
            
            
            551
            
            
            
            4.33Other
      interest-earning assets
            
            
            3,233
            
            
            
            171
            
            
            
            5.29
            
            
            
            3,591
            
            
            
            175
            
            
            
            4.87Total
      interest-earning assets
            
            
            122,154
            
            
            
            8,915
            
            
            
            7.30
            
            
            
            105,496
            
            
            
            7,494
            
            
            
            7.10Noninterest-earning
      assets
            
            
            5,545
            
            
            
            
            
            
            
            
            
            
            
            5,228Total
      assets
            
            $
            127,699
            
            
            
            
            
            
            
            
            
            
            $
            110,724Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
            
            $
            6,257
            
            
            
            16
            
            
            
            0.26
            
            
            $
            6,574
            
            
            
            15
            
            
            
            0.23Money
      market accounts
            
            
            12,488
            
            
            
            291
            
            
            
            2.33
            
            
            
            18,943
            
            
            
            482
            
            
            
            2.54Savings
      accounts
            
            
            13,312
            
            
            
            69
            
            
            
            0.52
            
            
            
            15,090
            
            
            
            74
            
            
            
            0.49Certificates
      of deposit
            
            
            60,754
            
            
            
            2,644
            
            
            
            4.35
            
            
            
            42,708
            
            
            
            1,627
            
            
            
            3.81Subscription
      funds
            
            
            398
            
            
            
            3
            
            
            
            0.75
            
            
            
            -
            
            
            
            -
            
            
            
            -Borrowings
            
            
            1,638
            
            
            
            89
            
            
            
            5.43
            
            
            
            1,968
            
            
            
            105
            
            
            
            5.34Total
      interest-bearing liabilities
            
            
            94,847
            
            
            
            3,112
            
            
            
            3.28
            
            
            
            85,283
            
            
            
            2,303
            
            
            
            2.70Noninterest-bearing
      demand deposits
            
            
            17,243
            
            
            
            
            
            
            
            
            
            
            
            16,207Other
      noninterest-bearing liabilities
            
            
            1,988
            
            
            
            
            
            
            
            
            
            
            
            1,219Total
      liabilities
            
            
            114,078
            
            
            
            
            
            
            
            
            
            
            
            102,709Stockholders’
      equity
            
            
            13,621
            
            
            
            
            
            
            
            
            
            
            
            8,015Total
      liabilities and stockholders’ equity
            
            $
            127,699
            
            
            
            
            
            
            
            
            
            
            $
            110,724Net
      interest income
            
            
            
            
            
            $
            5,803
            
            
            
            
            
            
            
            
            
            
            $
            5,191Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            4.02
            
            
            
            
            
            
            
            
            
            
            
            4.40Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.75
            
            
            
            
            
            
            
            
            
            
            
            4.92Average interest-earning assets toaverage
      interest-bearing liabilities
            
            
            128.79
            %
            
            
            
            
            
            
            
            
            
            
            123.70
            %





Rate/Volume
Analysis.  The following
table sets forth the effects of changing rates and volumes on our net interest
income.  The rate column shows the effects attributable to changes in
rate (changes in rate multiplied by prior volume).  The volume column
shows the effects attributable to changes in volume (changes in volume
multiplied by prior rate).  The net column represents the sum of the
prior columns.  For purposes of this table, changes attributable to
changes in both rate and volume that cannot be segregated have been allocated
proportionally based on the changes due to rate and the changes due to
volume.





9





Net
Interest Income – Changes Due to Rate and Volume





2007
      Compared to 2006(Dollars in thousands)
            
            Volume
            
            
            Rate
            
            
            NetInterest
      income:Loans
      receivable
            
            $
            1,525
            
            
            $
            (21
            )
            
            $
            1,504Investment
      securities
            
            
            (148
            )
            
            
            69
            
            
            
            (79
            )Other
      earning assets
            
            
            (18
            )
            
            
            14
            
            
            
            (4
            )Total
      interest income
            
            
            1,359
            
            
            
            62
            
            
            
            1,421Interest
      expense:Deposits
            
            
            598
            
            
            
            224
            
            
            
            822Subscription
      funds
            
            
            3
            
            
            
            -
            
            
            
            3Borrowings
            
            
            (18
            )
            
            
            2
            
            
            
            (16
            )Total
      interest expense
            
            
            583
            
            
            
            226
            
            
            
            809Increase (decrease) in net interest
      income
            
            $
            776
            
            
            $
            (164
            )
            
            $
            612





Comparison
of Financial Condition at December 31, 2007 and 2006





Total Assets.Total assets grew $15.3 million, or 13.0%, to $132.7 million at December
31, 2007 from $117.4 million at December 31, 2006, due primarily to loan growth
which was offset in part by a reduction in securities. Loans net, increased
$23.7 million, or 24.2%, from $97.8 million at December 31, 2006 to $121.5
million at December 31, 2007. Cash and cash equivalents increased by $748,000 to
$4.0 million at December 31, 2007, while securities decreased by $9.3 million to
$2.8 million at December 31, 2007.





Loans.At December 31,
2007, total loans, net, were $121.5 million, or 91.6% of total
assets.  During the year ended December 31, 2007, the loan portfolio
grew $23.7 million, or 24.2%. The growth was distributed across most
categories of the loan portfolio, particularly one- to four-family residential
real estate loans which increased by $9.3 million, non-residential real estate
loans which increased by $5.3 million, commercial business loans which increased
by $5.3 million and land loans which increased by $2.7 million. The growth
of the non-residential real estate and commercial business loan portfolio was
primarily the result of new development within parts of our market area and our
increased emphasis on this type of lending. We do not make subprime
loans.





Securities. The
investment securities portfolio was $2.8 million, or 2.1% of total assets, at
December 31, 2007 compared to $12.0 million or 10.3% of total assets at December
31, 2006. Our investment portfolio consists primarily of U.S. Government agency
securities and GNMA and FHLMC mortgage-backed securities. The decrease in
securities was primarily due to a $9.0 million security being called in
September 2007. Approximately $7.0 million of these funds were used to pay off
borrowings and the balance was invested in interest-earning
deposits.





Deposits. Our primary source of
funds is retail deposit accounts, which are comprised of noninterest-bearing
demand accounts, interest-bearing demand accounts, money market accounts,
savings accounts and certificates of deposit. During the year ended December 31,
2007, deposits grew $7.5 million or 7.2% to $112.1 million from $104.5 million
at December 31, 2006, which was net of withdrawals of approximately $1.7 million
from deposit accounts to purchase stock in the offering. The increase in
deposits was primarily due to our branch expansion, with the increase of $13.4
million predominately in certificates of deposit, offset by decreases in
money





10





market
accounts of $4.8 million. Certificates of deposit increased primarily due to
promotions to fund loan growth and customers’ preference for higher deposit
rates.





Borrowings.  We utilize
borrowings from the Federal Home Loan Bank of New York to supplement our supply
of funds for loans and investments.  We are able to utilize borrowings
when necessary or advantageous as an alternative to deposits when a pricing
advantage exists, as a temporary source of funds to meet liquidity needs or to
manage our asset and liability position.  We had $1.6 million in
average balances in overnight borrowings during the year ended December 31, 2007
as compared to $2.0 million in average balances in overnight borrowings during
the year ended December 31, 2006. Borrowings were used to help fund the increase
in loan growth in excess of the deposit growth. We had no borrowings at December
31, 2007 and $2.5 million in borrowings at December 31, 2006.





Stockholders’Equity.Total
stockholders’ equity increased $10.0 million from $8.5 million at December 31,
2006 to $18.5 million at December 31, 2007. The increase in equity was related
to completing our stock offering on June 28, 2007, during which we sold
1,071,225 shares of common stock to subscribers and the employee stock ownership
plan at a price of $10.00 per share.  We also issued 1,309,275 shares
of our common stock to Hometown Bancorp MHC. The net offering proceeds after
offering and ESOP expenses were $9.1 million, of which $6.0 million was
contributed to Walden Federal. Equity also increased by earnings of $850,000 for
the year ended December 31, 2007.





Results
of Operations for the Years Ended December 31, 2007 and 2006





Overview.  For
the year ended December 31, 2007, we reported net income of $850,000 compared to
$863,000 for 2006. Earnings in 2006 were higher than 2007 due primarily to a
$383,000 non-recurring gain on the sale of foreclosed assets, which, net of
taxes, contributed approximately $230,000 to net income for the year ended
December 31, 2006.





Net Interest
Income. Net
interest income increased $612,000, or 11.8% to $5.8 million for the year ended
December 31, 2007 from $5.2 million for the year ended December 31, 2006.
The increase in net interest income for the year ended December 31, 2007,
resulted primarily from a $7.1 million increase in the average balance of net
interest-earning assets, partially offset by a 38 basis point decrease in our
net interest rate spread in the comparable year periods. The net interest margin
decreased 17 basis points for the comparable annual periods ended December 31,
2007 and 2006.





Interest
income on loans increased $1.5 million, or 22.2%, to $8.3 million during the
year ended December 31, 2007 from $6.8 million for the year ended December
31, 2006, as the average balance of the loan portfolio grew $20.2 million, or
22.6%, while the average yield on the loan portfolio decreased 3 basis points to
7.56%. Loan growth was driven by an increase in all categories of the loan
portfolio, particularly one- to four-family residential real estate loans,
non-residential real estate loans, and commercial business loans. The decrease
in the average yield was primarily the result of the Federal Reserve reducing
federal funds rates by 1.00% since September 2007, which reduced the interest
rate on adjustable rate business and home equity loans.





Interest
income on investment securities decreased $79,000, or 14.3%, to $472,000 for the
year ended December 31, 2007 from $551,000 for the year ended December 31, 2006.
The average balance decreased by $3.1 million to $9.6 million for the year
ended December 31, 2007 from $12.7





11





million for
the year ended December 31, 2006, as a result of a call on a $9.0 million
security in September 2007, offset by an increase in the yield by 60 basis
points to 4.93% for 2007 as compared to 4.33% in 2006.





The shift
in the mix of interest-earning assets, combined with slightly higher market
rates, increased the average yield on interest earning assets to 7.30% during
the year ended December 31, 2007, compared to 7.10% for the prior
year.





Interest
expense increased 35.1% to $3.1 million for the year ended December 31, 2007
from $2.3 million for the year ended December 31, 2006. The increase in interest
expense was primarily the result of an increase in the average balance of
interest-bearing deposits during the year ended December 31, 2007 of $9.5
million, or 11.4%, compared with the prior year period. This was due primarily
to an $18.0 million increase in the average balance of certificates of deposit,
primarily due to customer preference for higher interest rates, which was
partially offset by an $8.2 million decrease in savings and money market
accounts. Increases in market interest rates, combined with the shift in the
deposit mix, increased the average cost of deposits to 3.25% in 2007 compared to
2.64% for 2006.





For the
year ended December 31, 2007, our net interest margin decreased 17 basis points
to 4.75% from 4.92% for the prior year period. If rates on loans continue to
reprice lower faster than rates on our deposits, we could continue to experience
compression of our net interest margin which could have a negative effect on our
profitability.





Provision for
Loan Losses. Provisions for loan
losses were $185,000 for the year ended December 31, 2007 compared to $102,000
for the year ended December 31, 2006. The change in the provision was due to an
increase in the size of the loan portfolio and our analysis of the inherent
losses in the portfolio. Specifically, our provision increased during the year
ended December 31, 2007 as compared to the prior year period because of
increases in our land loan, commercial business loan and commercial real estate
loan portfolios. In determining our loan loss provision, we take into account
the credit risks associated with these riskier types of lending as compared to
one- to four-family residential real estate loans.





We had
net charge-offs of $21,000 for the year ended December 31, 2007 compared to net
charge-offs of $10,000 for the year ended December 31, 2006.  Our
nonaccrual loans as a percentage of total loans decreased from 0.45% at December
31, 2006, to 0.10% as of December 31, 2007, primarily because of a decrease in
nonperforming loans of $315,000 to $124,000 as of December 31, 2007, from
$439,000 at December 31, 2006.  We used the same methodology and
generally similar assumptions in assessing the adequacy of the allowance for
loan losses for both periods.





The
allowance for loan losses was $787,000, or 0.64% of total loans outstanding as
of December 31, 2007, as compared with $623,000, or 0.64% as of December 31,
2006.





Noninterest
Income.Non-interest income increased $122,000, or 7.6% to
$1.7 million for the year ended December 31, 2007 compared to $1.6 million for
the year ended December 31, 2006. Excluding the effect of non-recurring gains on
foreclosed assets of $383,000 in 2006, non-interest income increased by
$505,000. Contributing to the increase in non-interest income for the year ended
December 31, 2007, were increases of $326,000, or 39.5% in banking fees and
service charges as a result of the branch expansion in 2007 and 2006 and new
deposit services. Mortgage banking income, net, increased by $94,000 as a result
of the increase in the volume of mortgages





12





sold and
the gains derived from such sales. Losses on security sales decreased to $2,000
in 2007 as compared to losses of $77,000 on the sale of securities in
2006.





Noninterest
Income Summary





Year Ended December 31, (Dollars in
      thousands)
            
            2007
            
            
            2006
            
            
            $ Change
            
            
            % ChangeBanking
      service charges and fees
            
            $
            1,152
            
            
            $
            826
            
            
            $
            326
            
            
            
            39.5
            %Mortgage
      banking income, net
            
            
            413
            
            
            
            319
            
            
            
            94
            
            
            
            29.5Loss
      on sale of securities
            
            
            (2
            )
            
            
            (77
            )
            
            
            75
            
            
            
            97.4Investment
      brokerage fees
            
            
            84
            
            
            
            76
            
            
            
            8
            
            
            
            10.5Foreclosed
      assets, net
            
            
            -
            
            
            
            383
            
            
            
            (383
            )
            
            
            (100.0
            )Other
            
            
            82
            
            
            
            80
            
            
            
            2
            
            
            
            2.5Total
            
            $
            1,729
            
            
            $
            1,607
            
            
            $
            122
            
            
            
            7.6
            %





Noninterest
Expense.Non-interest expense increased $601,000, or 11.3% to
$5.9 million for the year ended December 31, 2007 compared to $5.3 million for
2006. The primary reason for the increase in non-interest expense were the
expenses associated with the expansion of the branch offices including
compensation expenses for increased staffing. Non-interest expense includes
expenses of $148,000 for the year ended December 31, 2007, for the Bank’s newest
branch opened in September 2007 in the Town of Newburgh. For the year ended
December 31, 2007, compensation expense was incurred for the newly created
Employee Stock Ownership Plan of $42,000 related to the shares committed for
release under the plan, and additionally for the year ended December 31, 2007,
an expense of $48,000 was recorded for
the Director Retirement Plan, which was adopted in March 2007.
Other non-interest expenses increased by $154,000, primarily due to the branch
expansion and expenses of becoming a public company.





Noninterest
Expense Summary





Year Ended December 31, (Dollars in
      thousands)
            
            2007
            
            
            2006
            
            
            $ Change
            
            
            % ChangeSalaries
      and employee benefits
            
            $
            3,473
            
            
            $
            3,165
            
            
            $
            308
            
            
            
            9.7
            %Advertising
      and marketing
            
            
            272
            
            
            
            268
            
            
            
            4
            
            
            
            1.5Telephone
      and postage
            
            
            193
            
            
            
            188
            
            
            
            5
            
            
            
            2.7Occupancy
      and equipment
            
            
            637
            
            
            
            573
            
            
            
            64
            
            
            
            11.2Federal
      insurance premiums
            
            
            13
            
            
            
            11
            
            
            
            2
            
            
            
            18.2Data
      processing expenses
            
            
            504
            
            
            
            440
            
            
            
            64
            
            
            
            14.5Professional
      fees
            
            
            184
            
            
            
            182
            
            
            
            2
            
            
            
            1.1Printing
      and supplies
            
            
            81
            
            
            
            77
            
            
            
            4
            
            
            
            5.2Other
            
            
            560
            
            
            
            412
            
            
            
            148
            
            
            
            35.9Total
            
            $
            5,917
            
            
            $
            5,316
            
            
            $
            601
            
            
            
            11.3
            %





Income Tax
Expense. Income tax expense was $580,000 for the year ended December
31, 2007 as compared to $517,000 for the year ended December 31, 2006. Higher
levels of pre-tax income have resulted in an increase in income tax
expense.





Interest Rate
Risk Management.  Our earnings and the market value of our
assets and liabilities are subject to fluctuations caused by changes in the
level of interest rates.  We manage the interest rate sensitivity of
our interest-bearing liabilities and interest-earning assets in an effort to
minimize the adverse effects of changes in the interest rate
environment.  Deposit accounts typically react more quickly to changes
in market interest rates than mortgage loans because of the shorter maturities
of deposits.  As a result, sharp increases in interest rates may
adversely





13





affect
our earnings while decreases in interest rates may beneficially affect our
earnings.  To reduce the potential volatility of our earnings, we have
sought to improve the match between asset and liability maturities and rates,
while maintaining an acceptable interest rate spread.  Our strategy
for managing interest rate risk emphasizes:  originating loans with
adjustable interest rates; selling residential real estate fixed-rate loans with
terms greater than 10 years that we originate; and promoting core deposit
products and short-term time deposits.





We have
an Asset/Liability Management Committee to coordinate all aspects involving
asset/liability management.  The committee establishes and monitors
the volume, maturities, pricing and mix of assets and funding sources with the
objective of managing assets and funding sources to provide results that are
consistent with liquidity, growth, risk limits and profitability
goals.





We use an
interest rate sensitivity analysis prepared by the Office of Thrift Supervision
to review our level of interest rate risk.  This analysis measures
interest rate risk by computing changes in net portfolio value of our cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates.  Net portfolio value
represents the market value of portfolio equity and is equal to the market value
of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items.  This analysis assesses the risk of loss in
market risk sensitive instruments in the event of a sudden and sustained 100 to
300 basis point increase or 100 to 200 basis point decrease in market interest
rates with no effect given to any steps that we might take to counter the effect
of that interest rate movement.  We measure interest rate risk by
modeling the changes in net portfolio value over a variety of interest rate
scenarios.  The following table, which is based on information that we
provide to the Office of Thrift Supervision, presents the change in our net
portfolio value at December 31, 2007 that would occur in the event of an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, with no effect given to any steps that we might take to counteract
that change.





NPV
Analysis





Net
      Portfolio Value
              (Dollars
      in thousands)
            
            
            Net
      Portfolio Value as % of
              Portfolio
      Value of AssetsBasis Point (“bp”)
              Change in Rates
            
            
            $ Amount
            
            
            $ Change
            
            
            % Change
            
            
            NPV Ratio
            
            
            Change300
            
            
            $
            16,407
            
            
            $
            (3,288
            )
            
            
            (16.7
            )%
            
            
            12.20
            %
            
            
            (202
            )bp200
            
            
            
            17,780
            
            
            
            (1,915
            )
            
            
            (9.7
            )
            
            
            13.06
            
            
            
            (116
            )bp100
            
            
            
            18,993
            
            
            
            (703
            )
            
            
            (3.6
            )
            
            
            13.81
            
            
            
            (41
            )bp0
            
            
            
            19,695
            
            
            
            —
            
            
            
            —
            
            
            
            14.22
            
            
            
            —(100)
            
            
            
            20,085
            
            
            
            389
            
            
            
            2.0
            
            
            
            14.43
            
            
            
            21
            bp(200)
            
            
            
            20,386
            
            
            
            690
            
            
            
            3.5
            
            
            
            14.58
            
            
            
            36
            bp





The
Office of Thrift Supervision uses certain assumptions in assessing the interest
rate risk of savings associations.  These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among
others.  As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table.  For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates.  Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest





14





rates on
other types may lag behind changes in market rates.  Additionally,
certain assets, such as adjustable-rate mortgage loans, have features that
restrict changes in interest rates on a short-term basis and over the life of
the asset.  Further, in the event of a change in interest rates,
expected rates of prepayments on loans and early withdrawals from certificates
could deviate significantly from those assumed in calculating the
table.





Liquidity
Management.  Liquidity is the
ability to meet current and future financial obligations of a short-term nature.
Our primary sources of funds consist of deposit inflows, loan repayments,
maturities of and payments on investment securities and borrowings from the
Federal Home Loan Bank of New York.  While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.





We
regularly adjust our investments in liquid assets based upon our assessment of
(1) expected loan demand, (2) expected deposit flows, (3) yields available
on interest-earning deposits and securities and (4) the objectives of our
asset/liability management policy.





Our most
liquid assets are cash and cash equivalents.  The levels of these
assets depend on our operating, financing, lending and investing activities
during any given period.  At December 31, 2007, cash and cash
equivalents totaled $4.0 million.  In addition, at December 31, 2007,
we had arrangements to borrow up to $24.7 million from the Federal Home Loan
Bank of New York.  On December 31, 2007, we had no advances
outstanding.





A
significant use of our liquidity is the funding of loan
originations.  At December 31, 2007, we had $20.2 million in loan
commitments outstanding, which primarily consisted of $3.6 million in unadvanced
portions of construction loans, $4.9 million in commitments to fund one- to
four-family residential real estate loans, $3.4 million in unused home equity
lines of credit, $5.5 million in unused commercial lines of credit and $1.5
million in commitments to fund commercial loans.  Historically, many
of the commitments expire without being fully drawn; therefore, the total amount
of commitments do not necessarily represent future cash
requirements.  Another significant use of our liquidity is the funding
of deposit withdrawals.  Certificates of deposit due within one year
of December 31, 2007 totaled $60.9 million, or 96.2% of certificates of
deposit.  The large percentage of certificates of deposit that mature
within one year reflects customers’ hesitancy to invest their funds for long
periods in the recent low interest rate environment.  If these
maturing deposits do not remain with us, we will be required to seek other
sources of funds, including other certificates of deposit and
borrowings.  Depending on market conditions, we may be required to pay
higher than market rates on such deposits or other borrowings.  We
believe, however, based on past experience that a significant portion of our
certificates of deposit will remain with us.  We have the ability to
attract and retain deposits by adjusting the interest rates
offered.





Capital
Management.  We are subject to various regulatory capital
requirements administered by the Office of Thrift Supervision, including a
risk-based capital measure.  The risk-based capital guidelines include
both a definition of capital and a framework for calculating risk-weighted
assets by assigning balance sheet assets and off-balance sheet items to broad
risk categories.  At December 31, 2007, we exceeded all of our
regulatory capital requirements.





Our stock
offering increased our equity by $9.1 million to $18.5 million at December 31,
2007. Over time, the initial level of liquidity has been reduced as net
proceeds from the stock offering were used for general corporate purposes,
including the funding of lending activities.  Our financial condition
and results of operations have been enhanced by the capital from
the





15





offering,
resulting in increased net interest-earning assets and net interest
income.  However, the large increase in equity resulting from the
capital raised in the offering, initially, has had an adverse impact on our
return on equity.  We may use capital management tools such as cash
dividends and common share repurchases.  However, under Office of
Thrift Supervision regulations, we are not allowed to repurchase any shares
during the first year following the offering, except:  (1) in
extraordinary circumstances, we may make open market repurchases of up to 5% of
our outstanding stock if we receive the prior non-objection of the OTS of such
repurchases; (2) repurchases of qualifying shares of a director or if we conduct
an OTS-approved offer to repurchase made to all stockholders; (3) if we
repurchase shares to fund a restricted stock award plan that has been approved
by stockholders; or (4) if we repurchase shares to fund a tax-qualified employee
stock benefit plan.  All repurchases are prohibited, however, if the
repurchase would reduce Walden Federal’s regulatory capital below regulatory
required levels.





Off-Balance Sheet
Arrangements.  In the normal
course of operations, we engage in a variety of financial transactions that, in
accordance with generally accepted accounting principles, are not recorded in
our financial statements.  These transactions involve, to varying
degrees, elements of credit, interest rate and liquidity risk. Such transactions
are used primarily to manage customers’ requests for funding and take the form
of loan commitments and lines of credit.





For the
year ended December 31, 2007, we did not engage in any off-balance sheet
transactions reasonably likely to have a material effect on our financial
condition, results of operations or cash flows.





Impact
of Recent Accounting Pronouncements





For a
discussion of the impact of recent accounting pronouncements, see note 1 of
the notes to the financial statements included in this annual
report.





Effect
of Inflation and Changing Prices





The
financial statements and related financial data presented in this annual report
have been prepared in accordance with accounting principles generally
accepted in the United States of America, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation.  The primary impact of inflation on our operations is
reflected in increased operating costs.  Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature.  As a result, interest rates generally have a
more significant impact on a financial institution’s performance than do general
levels of inflation.  Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and
services.





16













Index
to Consolidated Financial Statements and Schedules











PageConsolidated
      Financial StatementsReport
      of Independent Registered Public Accounting Firm
            18Consolidated
      Balance Sheets
            19Consolidated
      Statements of Income
            20Consolidated
      Statements of  Stockholder’s
      Equity
            21Consolidated
      Statements of Cash Flows
            22Notes
      to Consolidated Financial Statements
            23








Schedules





All
schedules are omitted because the required information is not applicable or is
included in the consolidated financial statements and related
notes.





17














Report
of Independent Registered Public Accounting Firm








To the Board of Directors and Stockholders


Hometown
Bancorp, Inc.


Walden,
New York







We have
audited the accompanying consolidated balance sheets of Hometown Bancorp, Inc.
and subsidiary as of December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders’ equity, and cash flows for the years then
ended.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hometown Bancorp, Inc. and
subsidiary as of December 31, 2007 and 2006, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.














Beard
Miller Company LLP


Syracuse,
New York


March 28,
2008





18





Hometown
Bancorp, Inc.





Consolidated
Balance Sheets








December 31,2007
            
            
            2006(Dollars
      in Thousands,Except
      Share Data)AssetsCash
      and due from banks
            
            $
            3,642
            
            
            $
            2,726Interest
      bearing demand deposits with banks
            
            
            371
            
            
            
            539Cash
      and Cash Equivalents
            
            
            4,013
            
            
            
            3,265Securities
      available for sale
            
            
            1,003
            
            
            
            997Securities
      held to maturity (fair value 2007 $1,776; 2006 $11,016)
            
            
            1,774
            
            
            
            11,044Loans
      held for sale
            
            
            528
            
            
            
            1,168Loans
      receivable, net of allowance for loan losses (2007 $787; 2006
      $623)
            
            
            120,982
            
            
            
            96,665Premises
      and equipment, net
            
            
            2,797
            
            
            
            2,527Federal
      Home Loan Bank stock, at cost
            
            
            142
            
            
            
            233Accrued
      interest receivable and other assets
            
            
            1,451
            
            
            
            1,514Total Assets
            
            $
            132,690
            
            
            $
            117,413Liabilities
      and Stockholders’ EquityLiabilitiesDeposits:Noninterest
      bearing
            
            $
            17,441
            
            
            $
            18,692Interest
      bearing
            
            
            94,620
            
            
            
            85,826Total
      Deposits
            
            
            112,061
            
            
            
            104,518Federal
      Home Loan Bank advances
            
            
            -
            
            
            
            2,525Advances
      from borrowers for taxes and insurance
            
            
            535
            
            
            
            432Accrued
      interest payable
            
            
            262
            
            
            
            384Other
      liabilities
            
            
            1,352
            
            
            
            1,034Total
      Liabilities
            
            
            114,210
            
            
            
            108,893Commitments
      and Contingencies
            
            
            -
            
            
            
            -Stockholders’
      EquityPreferred
      stock, $0.01 par value; 3,000,000 shares authorized and
      unissued
            
            
            -
            
            
            
            -Common
      stock, $0.01 par value; 7,000,000 shares authorized; issued and
      outstanding (2007 2,380,500 shares; 2006 100 shares)
            
            
            24
            
            
            
            -Paid-in
      capital
            
            
            10,129
            
            
            
            150Retained
      earnings
            
            
            9,222
            
            
            
            8,372Unearned
      ESOP shares, at cost
            
            
            (886
            )
            
            
            -Accumulated
      other comprehensive loss
            
            
            (9
            )
            
            
            (2
            )Total
      Stockholders’ Equity
            
            
            18,480
            
            
            
            8,520Total
      Liabilities and Stockholders’ Equity
            
            $
            132,690
            
            
            $
            117,413





See
notes to consolidated financial statements.


19


Hometown
Bancorp, Inc.





Consolidated
Statements of Income








Years Ended
    December 31,2007
            
            
            2006(In
      Thousands except share data)Interest
      IncomeLoans
      receivable, including fees
            
            $
            8,272
            
            
            $
            6,768Securities,
      taxable
            
            
            472
            
            
            
            551Other
            
            
            171
            
            
            
            175Total
      Interest Income
            
            
            8,915
            
            
            
            7,494Interest
      ExpenseDeposits
            
            
            3,020
            
            
            
            2,198Stock
      subscription funds
            
            
            3
            
            
            
            -Federal
      Home Loan Bank advances
            
            
            89
            
            
            
            105Total
      Interest Expense
            
            
            3,112
            
            
            
            2,303Net
      Interest Income
            
            
            5,803
            
            
            
            5,191Provision
      for Loan Losses
            
            
            185
            
            
            
            102Net
      Interest Income after Provision for Loan Losses
            
            
            5,618
            
            
            
            5,089Non-interest
      IncomeBanking
      fees and service charges
            
            
            1,152
            
            
            
            826Mortgage
      banking income, net
            
            
            413
            
            
            
            319Investment
      brokerage fees
            
            
            84
            
            
            
            76Realized
      losses on sales of securities
            
            
            (2
            )
            
            
            (77
            )Foreclosed
      assets, net
            
            
            -
            
            
            
            383Other
            
            
            82
            
            
            
            80Total
      Non-interest Income
            
            
            1,729
            
            
            
            1,607Non-interest
      ExpensesSalaries
      and employee benefits
            
            
            3,473
            
            
            
            3,165Occupancy
      and equipment
            
            
            637
            
            
            
            573Professional
      fees
            
            
            184
            
            
            
            182Advertising
      and marketing
            
            
            272
            
            
            
            268Data
      processing
            
            
            504
            
            
            
            440Telephone
      and postage
            
            
            193
            
            
            
            188Other
            
            
            654
            
            
            
            500Total
      Non-interest Expenses
            
            
            5,917
            
            
            
            5,316Income
      before Income Taxes
            
            
            1,430
            
            
            
            1,380Income
      Tax Expense
            
            
            580
            
            
            
            517Net
      Income
            
            $
            850
            
            
            $
            863Net
      Income per common share - basic
            
            $
            0.47
            
            
            $
            0.66Weighted
      average number of common shares outstanding – basic
            
            
            1,812
            
            
            
            1,309





See
notes to consolidated financial statements.


20


Hometown
Bancorp, Inc.





Consolidated
Statements of Stockholders’ Equity


Years
Ended December 31, 2007 and 2006


(In
Thousands except share data)








Common Stock
            
            
            Paid-In Capital
            
            
            Retained Earnings
            
            
            Unearned ESOP Shares
            
            
            Accumulated Other Comprehensive
      Loss
            
            
            TotalBalance
      - December 31, 2005
            
            $
            -
            
            
            $
            -
            
            
            $
            7,809
            
            
            $
            -
            
            
            $
            (45
            )
            
            $
            7,764Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            863
            
            
            
            -
            
            
            
            -
            
            
            
            863Change
      in net unrealized losses on securities available for sale, net of
      reclassification adjustment and taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            43
            
            
            
            43Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            906Capitalization
      of Hometown Bancorp, Inc.
            
            
            -
            
            
            
            150
            
            
            
            (150
            )
            
            
            -
            
            
            
            -
            
            
            
            -Dividend
      paid to capitalize Hometown Bancorp MHC
            
            
            -
            
            
            
            -
            
            
            
            (150
            )
            
            
            -
            
            
            
            -
            
            
            
            (150
            )Balance
      - December 31, 2006
            
            
            -
            
            
            
            150
            
            
            
            8,372
            
            
            
            -
            
            
            
            (2
            )
            
            
            8,520Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            850
            
            
            
            -
            
            
            
            -
            
            
            
            850Change
      in net unrealized losses on securities available for sale, net of
      reclassification adjustment and taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4
            
            
            
            4Net
      gains and past service liability for the Directors’ Retirement Plan, net
      of taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (11
            )
            
            
            (11
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            843Shares
      issued in public offering (2,380,500 shares)
            
            
            24
            
            
            
            9,984
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,008Shares
      purchased by ESOP
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (933
            )
            
            
            -
            
            
            
            (933
            )ESOP
      shares committed to be released (4,666 shares)
            
            
            -
            
            
            
            (5
            )
            
            
            -
            
            
            
            47
            
            
            
            -
            
            
            
            42Balance
      - December 31, 2007
            
            $
            24
            
            
            $
            10,129
            
            
            $
            9,222
            
            
            $
            (886
            )
            
            $
            (9
            )
            
            $
            18,480





See
notes to consolidated financial statements.


21




Hometown
Bancorp, Inc.





Consolidated
Statements of Cash Flows








Years Ended December31,2007
            
            
            2006(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
            
            $
            850
            
            
            $
            863Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
            
            
            221
            
            
            
            209Provision
      for loan losses
            
            
            185
            
            
            
            102Amortization
      of mortgage servicing rights
            
            
            157
            
            
            
            180Net
      accretion of securities premiums and discounts
            
            
            (26
            )
            
            
            (74
            )Deferred
      income taxes (benefit)
            
            
            (48
            )
            
            
            (96
            )Net
      realized loss on sales of securities
            
            
            2
            
            
            
            77Net
      gain on sale of loans
            
            
            (264
            )
            
            
            (218
            )Loans
      originated for sale
            
            
            (17,561
            )
            
            
            (12,280
            )Proceeds
      from sale of loans
            
            
            18,465
            
            
            
            11,411Net
      realized gain on sale of foreclosed assets
            
            
            -
            
            
            
            (451
            )ESOP
      expense
            
            
            42
            
            
            
            -Increase
      in accrued interest receivable and other assets
            
            
            (94
            )
            
            
            (302
            )Increase
      in accrued interest payable and other liabilities
            
            
            233
            
            
            
            851Net
      Cash Provided by Operating Activities
            
            
            2,162
            
            
            
            272Cash
      Flows from Investing ActivitiesActivity
      in available for sale securities:Purchases
            
            
            (1,000
            )
            
            
            (1,051
            )Maturities,
      calls and principal repayments
            
            
            1,000
            
            
            
            -Proceeds
      from sales
            
            
            -
            
            
            
            3,000Activity
      in held to maturity securities:Purchases
            
            
            (9,500
            )
            
            
            (9,853
            )Maturities,
      calls and principal repayments
            
            
            9,795
            
            
            
            1,315Proceeds
      from sales
            
            
            8,997
            
            
            
            -Net
      increase in loans receivable
            
            
            (23,889
            )
            
            
            (11,675
            )Purchases
      of loan participations
            
            
            (613
            )
            
            
            (2,228
            )Proceeds
      from sale of foreclosed assets
            
            
            -
            
            
            
            673Net
      (increase) decrease in Federal Home Loan Bank stock
            
            
            91
            
            
            
            (125
            )Purchases
      of bank premises and equipment
            
            
            (491
            )
            
            
            (359
            )Net
      Cash Used by Investing Activities
            
            
            (15,610
            )
            
            
            (20,303
            )Cash
      Flows from Financing ActivitiesNet
      increase in deposits
            
            
            7,543
            
            
            
            15,083Net
      increase (decrease) in Federal Home Loan Bank advances
            
            
            (2,525
            )
            
            
            2,525Increase
      in advances from borrowers for taxes and insurance
            
            
            103
            
            
            
            36Net
      proceeds from common stock offering
            
            
            10,008
            
            
            
            -Purchase
      of shares for ESOP
            
            
            (933
            )
            
            
            -Dividend
      paid to Hometown Bancorp MHC
            
            
            -
            
            
            
            (150
            )Net
      Cash Provided by Financing Activities
            
            
            14,196
            
            
            
            17,494Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            748
            
            
            
            (2,537
            )Cash
      and Cash Equivalents - Beginning
            
            
            3,265
            
            
            
            5,802Cash
      and Cash Equivalents - Ending
            
            $
            4,013
            
            
            $
            3,265Supplementary
      Cash Flows InformationInterest
      paid
            
            $
            3,234
            
            
            $
            1,932Income
      taxes paid
            
            $
            523
            
            
            $
            703





See
notes to consolidated financial statements.


22


Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies





Organization
and Nature of Operations





In May
2006, Walden Federal Savings and Loan Association (the “Association”)
reorganized into the two-tier mutual holding company structure.  As
part of the reorganization, the Association formed Hometown Bancorp, Inc. (the
“Company”), a federally chartered mid-tier stock holding company, and Hometown
Bancorp, MHC (the “Mutual Holding Company”), a federally chartered mutual
holding company.  The Association became a federally chartered stock
savings association, and a wholly-owned subsidiary of the
Company.  The Company became the wholly-owned subsidiary of the Mutual
Holding Company, whose activity is not included in the accompanying consolidated
financial statements.  The Company and the Mutual Holding Company were
capitalized in the amount of $150,000 each by the Association.  The
same directors and officers who manage the Association, also manage the Company
and the Mutual Holding Company.





This
reorganization was completed on May 18, 2006 in accordance with a Plan of
Reorganization from a Mutual Savings Association to a Mutual Holding Company
(the “Plan”) approved and adopted by the Association’s Board of Directors on
January 5, 2006, and the Association’s eligible voting members on April 12,
2006.  The Association, the Mutual Holding Company and the Company are
subject to regulation and supervision by the Office of Thrift
Supervision.





On June
28, 2007, the Company completed its minority stock offering of 45% of the
aggregate total voting stock of the Company.  In connection with the
minority offering, 2,380,500 shares of common stock were issued, of which
1,071,225 shares were sold to the Association’s eligible account holders and the
employee stock ownership plan (the “ESOP”) for $10 per share, resulting in net
proceeds of approximately $9.1 million after offering expenses and
ESOP.  Currently, 55% of the Company’s outstanding common stock, or
1,309,275 shares, are owned by Hometown Bancorp MHC.  These shares
were sold at $0.01 per share. Costs of approximately $717,000 were incurred in
connection with the stock offering and were deducted from the net offering
proceeds.





The
Association maintains its executive offices and main branch in Walden, New York,
with branches in Montgomery, Monroe, Newburgh and Otisville, New
York.  The Association is a community-oriented savings institution
whose business primarily consists of accepting deposits from customers within
its market area and investing those funds principally in mortgage loans secured
by one-to-four family residences, multi-family and commercial properties,
consumer loans and mortgage-backed securities.





The
Association has two wholly-owned subsidiaries, Ever-Green Financial Services,
Inc., which holds a 50% interest in Evergreen Title Agency, LP and Valley
Services, Inc., which leases certain premises used by the Association and holds
foreclosed real estate.





Principles
of Consolidation





The
consolidated financial statements include the accounts of the Company, the
Association and the Association’s wholly-owned subsidiaries, Ever-Green
Financial Services, Inc. and Valley Services, Inc.  All intercompany
transactions and balances have been eliminated in consolidation.





Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period.  Actual results could differ from those
estimates.  Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses.




23




Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Concentrations
of Credit Risk





Most of
the Company’s activities are with customers located within Orange County, New
York and to a lesser extent the adjacent counties of Ulster and
Sullivan.  Note 2 discusses the types of securities that the
Association invests in.  Note 3 discusses the types of lending that
the Association engages in.   Although the Association has a
diversified loan portfolio, its debtors’ ability to honor their contracts is
influenced by the region’s economy.  The Association does not have any
significant concentrations in any one industry or customer.





Presentation
of Cash Flows





For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and interest-bearing deposits with an original
maturity of three months or less.





Securities





Management
determines the appropriate classification of debt securities at the time of
purchase.





Securities
classified as available for sale are those securities that the Association
intends to hold for an indefinite period of time but not necessarily to
maturity.  Any decision to sell a security classified as available for
sale would be based on various factors, including significant movement in
interest rates, changes in maturity mix of the Association’s assets and
liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair
value.  Unrealized gains and losses are reported in other
comprehensive income (loss), net of the related deferred tax
effect.  Realized gains or losses, determined on the basis of the cost
of the specific securities sold, are included in earnings.  Premiums
and discounts are recognized in interest income using the level yield method
which does not vary materially from the effective interest method over the terms
of the securities.





Securities
classified as held to maturity are those debt securities the Association has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic
conditions.  These securities are carried at cost adjusted for the
amortization of premium and accretion of discount, recognized in interest income
using the level yield method which does not vary materially from the
effective  interest method over the terms of the
securities.





Declines
in the fair value of held to maturity and available for sale securities below
their cost that are deemed to be other-than-temporary are reflected in earnings
as realized losses.  In estimating other-than-temporary impairment
losses, management considers (1) the length of time and the extent to which the
fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Association to
retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value.





Federal
law requires a member institution of the Federal Home Loan Bank system to hold
restricted stock of its district Federal Home Loan Bank according to a
predetermined formula.  The restricted stock is carried at
cost.





24





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Loans
Receivable





Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at their outstanding
unpaid principal balances, net of an allowance for loan losses and any deferred
fees and costs.  Interest income is accrued on the unpaid principal
balance.  Loan origination fees and costs are deferred and recognized
as an adjustment of interest income on the related loans.  The
Association is amortizing these amounts over the expected life of the
loan.





The
accrual of interest is generally discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing.  A loan may remain on accrual status if
it is in the process of collection and is either guaranteed or well
secured.  When a loan is placed on nonaccrual status, unpaid interest
is reversed against interest income.  Interest received on nonaccrual
loans generally is either applied against principal or reported as interest
income, according to management’s judgment as to the collectibility of
principal.  Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.





The
Association has issued letters of credit on behalf of customers primarily to
secure construction or land development projects that involve public
improvements.  The letters of credit are fully secured by a note and a
mortgage placed on the related property.  The note contains provisions
that waive any interest payments provided there are no drawdowns on the letter
of credit.  Funds equal to the full amount of the letters of credit
are advanced and placed in a non-interest bearing deposit account in order to
enhance the Association’s collateral position under New York State Lien
Law.  These loans and deposits are reported gross in the consolidated
balance sheets as the Association does not intend to offset them. Interest
is not imputed on these loans and deposits as it is a customary lending and
deposit activity of the Association.





Allowance
for Loan Losses





The
allowance for loan losses is established through provisions for loan losses
charged against income.  Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.





The
allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated.  Management’s
periodic evaluation of the adequacy of the allowance is based on the
Association’s past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower’s ability to repay,
the estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant
factors.  This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant revision as more
information becomes available.





The
allowance consists of specific and general components.  The specific
component relates to loans that are classified as either doubtful, substandard,
or special mention.  For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than
the carrying amount of that loan.  The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors.





25





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Allowance
for Loan Losses (Continued)





A loan is
considered impaired when, based on current information and events, it is
probable that the Association will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan by loan
basis for commercial, commercial real estate and construction loans by either
the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s observable market price, or the fair value
of the collateral if the loan is collateral dependent.





Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly, the Association does not separately identify
individual consumer and residential loans for impairment disclosures, unless
such loans are the subject of a restructuring agreement.





Loans
Held for Sale and Loan Servicing





Loans
held for sale represent residential mortgage loans originated for sale on a
whole-loan basis.  These loans are carried at the lower of cost or
estimated fair value, as determined on an aggregate basis.  Net
unrealized losses are recognized in a valuation allowance by charges to
operations.  Premiums and discounts and origination fees and costs on
loans held for sale are deferred and recognized as a component of the gain or
loss on sale.  Commitments to originate loans that will be held for
sale and forward commitments to sell such loans are derivative instruments which
are required to be recognized as assets or liabilities at fair
value.  Fair value is determined based solely on the effect of changes
in secondary market interest rates and yield requirements from the commitment
date to the date of the financial statements.  The fair values of
these commitments have had an immaterial effect on the Company’s financial
position and results of operations.





The
Association sells residential mortgage loans to third parties.  These
transactions are accounted for as sales based on application of the criteria set
forth in the Statement of Financial Accounting Standards (“SFAS”) No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.”  These criteria provide that the Association, as
transferor, must surrender control over the transferred assets (i.e., the loans
sold) in order to record a sale.  The criteria specify that (i) the
transferred assets have been isolated from the transferor (put presumptively
beyond the reach of the transferor and its creditors, even in bankruptcy or
other receivership); (ii) each transferee has the right to pledge or exchange
the assets it received; and (iii) the transferor does not maintain effective
control over the transferred assets through an agreement to repurchase the
assets or an ability to unilaterally cause the holder to return specific
assets.





Gains and
losses on sales of loans are recognized when the sales proceeds are received,
and are measured in accordance with SFAS No. 140 (including consideration of
assets obtained and liabilities incurred in the transfer, if any, such as
servicing rights and recourse obligations).  Recourse liabilities on
loan sales through December 31, 2007 are not material to the Company’s financial
position and results of operations.  Loan servicing income is reported
in mortgage banking income, net.





26





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Loans
Held for Sale and Loan Servicing (Continued)





Originated
mortgage servicing rights are recorded at their fair value when loans are sold
and are amortized in proportion to and over the period of estimated net
servicing income or loss.  The carrying value of originated mortgage
servicing rights is periodically evaluated for impairment.





Premises
and Equipment





Premises
and equipment are recorded at cost.  Depreciation is computed using
the straight-line method over the expected useful lives of the related assets,
which is generally 15 to 40 years for buildings and building improvements and 3
to 10 years for furniture, equipment, computers and
software.  Leasehold improvements are amortized over the related terms
of the leases or their useful life if shorter.





Foreclosed
Real Estate





Real
estate acquired in settlement of loans is carried at the fair value of the
property at the date of acquisition.  Write-downs from cost to fair
value less estimated selling costs which are required at the time of foreclosure
or repossession are charged to the allowance for loan
losses.  Subsequent write-downs to fair value, net of estimated
selling costs, are charged to foreclosed real estate expenses.





Transfers
of Financial Assets





Transfers
of financial assets are accounted for as sales, when control over the assets has
been surrendered.  Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Association, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Association does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.





Advertising
Costs





The
Company follows the policy of charging the costs of advertising to expense as
incurred.





Income
Taxes





Deferred
taxes are provided on the liability method whereby deferred tax assets are
recognized for deductible temporary differences and deferred tax liabilities are
recognized for taxable temporary differences.  Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax basis.  Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of the deferred tax assets will not be
realized.  Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.  The Company and its subsidiary file a consolidated federal
income tax return.





Net
Income  Per Common Share





Basic net
income per common share is calculated by dividing the net income by the
weighted-average number of common shares outstanding during the period. The
1,309,275 common shares issued to Hometown Bancorp MHC are assumed to be
outstanding for all periods represented, consistent with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No.128, Earnings per Share,
pertaining to changes in capital structure. The 1,071,225 shares issued to the
public are included in the weighted average common shares outstanding
calculation since the closing of the stock offering on June 28, 2007. Diluted
net income per common share is computed in a manner similar to basic earnings
per share, except that the weighted average





27





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements







Note
1 - Significant Accounting Policies (Continued)





Net
Income  Per Common Share (Continued)





number of
common shares outstanding is increased to include the incremental common
shares  (as computed using the treasury stock method) that would have
been outstanding if all potentially dilutive common stock equivalents were
issued during the period. Common stock equivalents may include restricted stock
awards and stock options. The Company has a simple capital structure as it has
not granted any restricted stock awards or stock options and, during the years
ended December 31, 2007 and 2006, had no potentially dilutive common stock
equivalents. Unallocated common shares held by the ESOP are not included in the
weighted-average number of common shares outstanding for purposes of calculating
both basic and diluted earnings per common share until they are committed to be
released.





Off-Balance
Sheet Financial Instruments





In the
ordinary course of business, the Association has entered into off-balance sheet
financial instruments consisting of commitments to extend credit and letters of
credit.  Such financial instruments are recorded in the balance sheet
when they are funded.





Segment
Reporting





The
Company does not presently have discrete financial information available that
properly allocates expenses between its community banking and investment
brokerage segments.  As a result, segment information is not presently
available.  Revenues from the investment brokerage segment are not
material to the consolidated results of operations.





Comprehensive
Income





Accounting
principles generally accepted in the United States of America require that
recognized revenue, expenses, gains, and losses be included in net
income.  Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale securities and unrecognized
pension losses and past service liability are reported as a separate component
of the equity section of the balance sheet, such items, along with net income,
are components of comprehensive income.





28





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Comprehensive
Income (Continued)





The
components of other comprehensive income (loss) and related tax effects for the
years ended December 31, 2007 and 2006 are as follows:








2007
            
            
            2006(In
      Thousands)Unrealized
      holding gains (losses) on securities available for sale:Unrealized
      holding gains (losses) arising during the year
            
            $
            6
            
            
            $
            (6
            )Reclassification
      adjustment for losses included in net income
            
            
            -
            
            
            
            77Net
      Unrealized Gains
            
            
            6
            
            
            
            71Directors’
      retirement plan:Past
      service liability
            
            
            (27
            )
            
            
            -Pension
      gains
            
            
            5
            
            
            
            -Reclassification
      adjustment for pension gains and past service liability recognized in
      pension expense
            
            
            5
            
            
            
            -Net
      Change in Director’s retirement plan liability
            
            
            (17
            )
            
            
            -Other
      comprehensive income (loss) before tax
            
            
            (11
            )
            
            
            71Income
      tax effect
            
            
            4
            
            
            
            (28
            )Net
      of Tax Amount
            
            $
            (7
            )
            
            $
            43





At
December 31, 2007 and 2006, the components of accumulated other comprehensive
loss are as follows:





2007
            
            
            2006(In
      Thousands)Unrealized
      gain (loss) on securities available for sale (net of tax effect 2007 ($1);
      2006 ($1)
            
            $
            2
            
            
            $
            (2
            )Net
      gains and past service liability for Directors’ retirement plan (net of
      tax effect 2007 $6)
            
            
            (11
            )
            
            
            -$
            (9
            )
            
            $
            (2
            )





29





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Recent
Accounting Pronouncements





SFAS
157





In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, “Fair Value Measurements,” which defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosure about fair
value measurements. SFAS No. 157 applies to other accounting pronouncements that
require or permit fair value measurements. The new guidance is effective for the
Company on January 1, 2008. The Company is evaluating the impact, if any, that
the adoption of SFAS No. 157 will have on its consolidated financial
statements.





FSP
157-2





In
February 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date
of FASB Statement No. 157,” that permits a one-year deferral in applying
the measurement provisions of Statement No. 157 to non-financial assets and
non-financial liabilities (non-financial items) that are not recognized or
disclosed at fair value in an entity’s financial statements on a recurring basis
(at least annually). Therefore, if the change in fair value of a non-financial
item is not required to be recognized or disclosed in the financial statements
on an annual basis or more frequently, the effective date of application of
Statement 157 to that item is deferred until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. The
Company is currently evaluating the impact, if any, that the adoption of FSP
157-2 will have on its consolidated financial statements.





SFAS
159





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of SFAS No.
115.”  SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected will be recognized in earnings at each subsequent
reporting date.  SFAS No. 159 is effective for the Company on January
1, 2008.  The Company is evaluating the impact, if any, that the
adoption of SFAS No. 159 will have on its consolidated financial
statements.





SFAS
No. 141(R)





SFAS No.
141 (R) “Business Combinations” was issued in December of 2007. This Statement
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The Statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective January 1, 2009. This new pronouncement will impact the Company’s
accounting for business combinations completed beginning January 1,
2009.





SFAS
No. 160





SFAS No.
160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment
of ARB No. 51” was issued in December of 2007. This Statement establishes
accounting and reporting standards for the





30





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
1 - Significant Accounting Policies (Continued)





Recent
Accounting Pronouncements (Continued)





noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective January 1, 2009. The Company believes that this
new pronouncement will not have a material impact on the Company’s consolidated
financial statements in future periods.





Staff
Accounting Bulletin No. 109 (SAB 109)





SAB
109,"Written Loan Commitments Recorded at Fair Value Through Earnings" expresses
the views of the staff regarding written loan commitments that are accounted for
at fair value through earnings under generally accepted accounting principles.
To make the staff's views consistent with current authoritative accounting
guidance, the SAB revises and rescinds portions of SAB No. 105, "Application of
Accounting Principles to Loan Commitments."  Specifically, the SAB
revises the SEC staff's views on incorporating expected net future cash flows
related to loan servicing activities in the fair value measurement of a written
loan commitment. The SAB retains the staff's views on incorporating expected net
future cash flows related to internally-developed intangible assets in the fair
value measurement of a written loan commitment. The staff expects registrants to
apply the views in Question 1 of SAB 109 on a prospective basis to derivative
loan commitments issued or modified in fiscal quarters beginning after December
15, 2007. The Company does not expect SAB 109 to have a material impact on its
consolidated financial statements.





31





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
2 - Securities





The
amortized cost of securities and their approximate fair values are summarized as
follows:





Amortized Cost
            
            
            Gross Unrealized Gains
            
            
            Gross Unrealized Losses
            
            
            Fair Value(In
      Thousands)Available
      for Sale:December
      31, 2007:U.S.
      Government agencies
            
            $
            1,000
            
            
            $
            3
            
            
            $
            -
            
            
            $
            1,003December
      31, 2006:U.S.
      Government agencies
            
            $
            1,000
            
            
            $
            -
            
            
            $
            3
            
            
            $
            997Held
      to Maturity:December
      31, 2007:U.S.
      Government agencies
            
            $
            500
            
            
            $
            2
            
            
            $
            -
            
            
            $
            502Mortgage-backed
      securities
            
            
            1,274
            
            
            
            9
            
            
            
            9
            
            
            
            1,274$
            1,774
            
            
            $
            11
            
            
            $
            9
            
            
            $
            1,776December
      31, 2006:U.S.
      Treasury and Government agencies
            
            $
            9,475
            
            
            $
            -
            
            
            $
            15
            
            
            $
            9,460Mortgage-backed
      securities
            
            
            1,569
            
            
            
            5
            
            
            
            18
            
            
            
            1,556$
            11,044
            
            
            $
            5
            
            
            $
            33
            
            
            $
            11,016





32





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
2 - Securities (Continued)





The
amortized cost and fair value of securities as of December 31, 2007, by
contractual maturity, are shown below.  Expected maturities may differ
from contractual maturities because the borrowers may have the right to prepay
obligations with or without any penalties.





Available forSale
            
            
            Held to MaturityAmortized
      Cost
            
            
            Fair
      Value
            
            
            Amortized
      Cost
            
            
            Fair
      Value(In
      Thousands)
            
            
            (In
      Thousands)Due
      in one year or less
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Due
      after one year through five years
            
            
            1,000
            
            
            
            1,003
            
            
            
            500
            
            
            
            502Due
      after five years through ten years
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Due
      after ten years
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            1,274
            
            
            
            1,274$
            1,000
            
            
            $
            1,003
            
            
            $
            1,774
            
            
            $
            1,776





Gross
losses of $2,000 and $77,000 were realized on sales of securities in 2007 and
2006, respectively.  On March 28, 2007, we sold a $9.0 million
held-to-maturity U.S. Treasury note scheduled to mature on March 31,
2007.  The sale transaction did not taint our held-to-maturity
securities portfolio as the sale occurred so close to the maturity of the
investment security.





The
following table shows the Association’s investments’ gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at
December 31, 2007 and 2006:





Less than 12 Months
            
            
            12 Months or More
            
            
            TotalFair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized Losses(In
      Thousands)December
      31, 2007:Available
      for Sale:U.S.
      Government Agencies
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Held
      to Maturity:U.S.
      Government agencies
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            118
            
            
            
            1
            
            
            
            369
            
            
            
            8
            
            
            
            487
            
            
            
            9118
            
            
            
            1
            
            
            
            369
            
            
            
            8
            
            
            
            487
            
            
            
            9$
            118
            
            
            $
            1
            
            
            $
            369
            
            
            $
            8
            
            
            $
            487
            
            
            $
            9





33





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
2 - Securities (Continued)





Less than 12 Months
            
            
            12 Months or More
            
            
            TotalFair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized Losses(In
      Thousands)December
      31, 2006:Available
      for Sale:U.S.
      Government Agencies
            
            $
            997
            
            
            $
            3
            
            
            $
            -
            
            
            $
            -
            
            
            $
            997
            
            
            $
            3Held
      to Maturity:U.S.
      Treasury and Government agencies
            
            
            9,460
            
            
            
            15
            
            
            
            -
            
            
            
            -
            
            
            
            9,460
            
            
            
            15Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            668
            
            
            
            18
            
            
            
            668
            
            
            
            189,460
            
            
            
            15
            
            
            
            668
            
            
            
            18
            
            
            
            10,128
            
            
            
            33$
            10,457
            
            
            $
            18
            
            
            $
            668
            
            
            $
            18
            
            
            $
            11,125
            
            
            $
            36





At
December 31, 2007, the Association had two securities in an unrealized loss
position of which one has been in a continuous loss position for 12 months or
more.  In management’s opinion, the decline in fair value is due only
to interest rate fluctuations.  As the Association has the intent and
ability to hold such investments until maturity, no securities are deemed to be
other-than-temporarily impaired.  None of the individual unrealized
losses is significant.





At
December 31, 2007 and 2006, securities with a carrying value of $500,000
were pledged to secure public deposits and for other purposes required or
permitted by law.





34





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
3 - Loans Receivable and Allowance for Loan Losses





The
composition of loans receivable at December 31, 2007 and 2006 is as
follows:





2007
            
            
            2006(In
      Thousands)First
      mortgage loans:Residential
            
            $
            49,558
            
            
            $
            40,807Construction
            
            
            10,990
            
            
            
            10,760Multi-family
            
            
            2,791
            
            
            
            1,702Commercial
            
            
            19,525
            
            
            
            14,236Land
            
            
            10,309
            
            
            
            7,648Total
      First Mortgage Loans
            
            
            93,173
            
            
            
            75,153Other
      loans:Commercial
            
            
            15,479
            
            
            
            10,163Consumer
            
            
            336
            
            
            
            413Home
      equity loans and credit lines
            
            
            12,538
            
            
            
            11,381Loans
      on savings accounts
            
            
            189
            
            
            
            170Total
      Loans
            
            
            121,715
            
            
            
            97,280Deferred
      loan origination costs, net
            
            
            54
            
            
            
            8Allowance
      for loan losses
            
            
            (787
            )
            
            
            (623
            )Net
      Loans
            
            $
            120,982
            
            
            $
            96,665





The
Association grants commercial, residential and consumer loans to customers
primarily within Orange County, New York, and to a lesser extent, portions
of the adjacent counties of Ulster and Sullivan.  A large portion of
the loan portfolio is secured by real estate.  Although the
Association has a diversified loan portfolio, its debtors’ ability to honor
their contracts is influenced by the region’s economy.





The
following table presents changes in the allowance for loan losses for the years
ended December 31, 2007 and 2006:





2007
            
            
            2006(In
      Thousands)Balance,
      beginning
            
            $
            623
            
            
            $
            531Provision
      for loan losses
            
            
            185
            
            
            
            102Loans
      charged off
            
            
            (25
            )
            
            
            (10
            )Loan
      recoveries
            
            
            4
            
            
            
            -Balance,
      ending
            
            $
            787
            
            
            $
            623





35





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
3 - Loans Receivable and Allowance for Loan Losses
(Continued)





At
December 31, 2007 and 2006, the Association had no loans that are considered to
be impaired under SFAS No. 114.  The Association had nonaccrual loans,
which management expects will eventually be paid in full, amounting to
approximately $124,000 and $439,000 at December 31, 2007 and 2006,
respectively.  Interest not recognized on nonaccrual loans was not
material in 2007 and 2006.  There were no loans past due 90 days or
more and still accruing interest at December 31, 2007 and 2006.





At
December 31, 2007 and 2006, one-to-four family residential mortgage loans
serviced for others amounted to approximately $83.5 million and $90.0 million,
respectively.  Advances from borrowers for taxes and insurance related
to loans serviced for others amounted to approximately $443,000 and $384,000,
respectively, at December 31, 2007 and 2006.  These loans and related
advances are not included in the accompanying consolidated balance
sheets.





The
following summarizes activity pertaining to mortgage servicing rights for the
years ended December 31, 2007 and 2006:





2007
            
            
            2006(In
      Thousands)Balance,
      beginning
            
            $
            503
            
            
            $
            635Capitalized
      during the year
            
            
            40
            
            
            
            48Amortization
            
            
            (157
            )
            
            
            (180
            )Balance,
      ending
            
            $
            386
            
            
            $
            503





Note
4 - Premises and Equipment





The
components of premises and equipment at December 31, 2007 and 2006 are as
follows:





2007
            
            
            2006(In
      Thousands)Land
            
            $
            551
            
            
            $
            551Buildings
      and leasehold improvements
            
            
            2,450
            
            
            
            2,138Furniture
      and equipment
            
            
            934
            
            
            
            834Automobiles
            
            
            61
            
            
            
            613,996
            
            
            
            3,584Accumulated
      depreciation
            
            
            1,199
            
            
            
            1,057$
            2,797
            
            
            $
            2,527





36





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements







Note
5 - Foreclosed Assets





Income
(expenses) applicable to foreclosed assets include the following for the years
ended December 31, 2007 and 2006:





2007
            
            
            2006(In
      Thousands)Net
      gain on sales of foreclosed assets
            
            $
            -
            
            
            $
            451Expenses
            
            
            -
            
            
            
            (68
            )$
            -
            
            
            $
            383





Note
6 - Deposits





Deposits
at December 31, 2007 and 2006 consist of the following major
classifications:





2007
            
            
            2006(In
      Thousands)Non-interest
      bearing demand
            
            $
            17,441
            
            
            $
            18,692NOW
            
            
            6,446
            
            
            
            6,546Money
      market
            
            
            11,170
            
            
            
            15,968Savings
            
            
            13,645
            
            
            
            13,343Certificates
      of deposit
            
            
            63,359
            
            
            
            49,969$
            112,061
            
            
            $
            104,518





A summary
of certificates of deposit by maturity at December 31, 2007 is as follows (in
thousands):





Year
      ending December 31:2008
            
            $
            60,9332009
            
            
            1,7552010
            
            
            3062011
            
            
            1092012
            
            
            256$
            63,359





The
aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $24.7 million and $17.9 million at December 31, 2007 and 2006,
respectively.  As defined in Federal Deposit Insurance Corporation
(FDIC) regulations, deposits in excess of $100,000 are generally not
insured.  At December 31, 2007, $10.0 million of certificates of
deposit consisted of one municipal deposit from the New York State Office
of the Comptroller which is secured by a municipal letter of credit issued by
the Federal Home Loan Bank (see Note 7).





37





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
6 - Deposits (Continued)





A summary
of interest expense on deposits for the years ended December 31, 2007 and 2006
is as follows:





2007
            
            
            2006(In
      Thousands)NOW
      and money market demand
            
            $
            307
            
            
            $
            497Savings
            
            
            69
            
            
            
            74Certificates
      of deposit
            
            
            2,644
            
            
            
            1,627$
            3,020
            
            
            $
            2,198





Note
7 - Federal Home Loan Bank Advances





The
Association has various line of credit facilities with the Federal Home Loan
Bank, which mature on July 31, 2008, and provide for borrowings of up to $24.7
million of which none was outstanding as of December 31, 2007 and $2.5 million
was outstanding at December 31, 2006.





The
borrowings are secured by qualifying assets of the Association which include the
Federal Home Loan Bank stock, securities and first mortgage
loans.  The Association has a maximum borrowing capacity with the
Federal Home Loan Bank of approximately $39.8 million, including line of credit
facilities, of which $10.0 million was used at December 31, 2007, to secure a
municipal letter of credit.





Note
8 - Legal Contingencies





Various
legal claims arise from time to time in the normal course of business, which in
the opinion of management will have no material effect on the Company’s
consolidated financial statements.





Note
9 - Restrictions on Dividends, Loans and Advances





Federal
and state banking regulations place certain restrictions on dividends paid and
loans or advances made by the Association to the Company.  The total
amount of dividends which may be paid at any date is generally limited to
retained net income of the Association for the current and preceding two
years.  Loans or advances are limited to 10% of the Association’s
capital and surplus on a secured basis.





At
December 31, 2007, the Association’s retained earnings available for the payment
of dividends was approximately $2.5 million.  Funds available for
loans or advances by the Association to the Company amounted to approximately
$1.4 million.





In
addition, dividends paid by the Association to the Company would be prohibited
if the effect thereof would cause the Association’s capital to be reduced below
minimum capital requirements.





The
Company’s ability to pay dividends is dependent on the Association’s ability to
pay dividends to the Company.





38





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
10 - Lease Commitments and Total Rental Expense





The
Association leases five branch locations under long-term operating
leases.  Future minimum lease payments by year and in the aggregate,
under noncancellable operating leases with initial or remaining terms of one
year or more, consisted of the following at December 31, 2007 (in
thousands):





Years
      ending December 31:2008
            
            $
            1402009
            
            
            1392010
            
            
            1252011
            
            
            762012
            
            
            50$
            530





The
leases contain options to extend for periods from two to ten
years.  The cost of such rentals is not included above.  The
total rental expense for all leases for the years ended December 31, 2007 and
2006 was approximately $124,000 and $77,000, respectively.





Note
11 - Income Taxes





The
income tax provision (benefit) consists of the following for the years ended
December 31, 2007 and 2006:





2007
            
            
            2006(In
      Thousands)Federal:Current
            
            $
            544
            
            
            $
            528Deferred
            
            
            (41
            )
            
            
            (75
            )503
            
            
            
            453StateCurrent
            
            
            84
            
            
            
            85Deferred
            
            
            (7
            )
            
            
            (21
            )77
            
            
            
            64Income
      Tax Expense
            
            $
            580
            
            
            $
            517





39





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
11 - Income Taxes (Continued)





A
reconciliation of the statutory federal income tax at a rate of 34% to the
income tax expense included in the consolidated statements of income at December
31, 2007 and 2006 is as follows:





2007
            
            
            2006Amount
            
            
            % of Pretax Income
            
            
            Amount
            
            
            % of Pretax
    Income(Dollars
      in Thousands)Federal
      income tax at statutory rate
            
            $
            486
            
            
            
            34.0
            %
            
            $
            469
            
            
            
            34.0
            %State
      income taxes, net of federal tax benefit
            
            
            51
            
            
            
            3.6
            
            
            
            42
            
            
            
            3.0Other
            
            
            43
            
            
            
            3.0
            
            
            
            6
            
            
            
            0.5$
            580
            
            
            
            40.6
            %
            
            $
            517
            
            
            
            37.5
            %





Items
that gave rise to significant portions of deferred taxes are as
follows:





December 31,2007
            
            
            2006(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
            
            $
            261
            
            
            $
            246Unrealized
      losses on securities available for sale
            
            
            -
            
            
            
            1Other
            
            
            26
            
            
            
            18287
            
            
            
            265Deferred
      tax liabilities:Premises
      and equipment
            
            
            101
            
            
            
            86Mortgage
      servicing rights
            
            
            154
            
            
            
            201Unrealized
      gains on securities available for sale
            
            
            1
            
            
            
            -256
            
            
            
            287Net Deferred Tax Asset (Liability)
            
            $
            31
            
            
            $
            (22
            )





40





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
11 - Income Taxes (Continued)





As a
thrift institution, the Association is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves.  These reserves consist
primarily of a defined base-year amount for Federal and New York income tax
purposes.  Deferred tax liabilities are recognized with respect to any
portion of the base-year amount which is expected to become taxable (or
“recaptured”) in the foreseeable future.





Under
current tax laws, Federal base-year reserves would be subject to recapture if
the Association pays a cash dividend in excess of earnings and profits or
liquidates.  In order for the Association to permissibly maintain a
New York State tax bad debt reserve for thrifts, certain thrift
definitional tests must be satisfied on an ongoing basis.  These
definitional tests include maintaining at least 60% of assets in thrift
qualifying assets, as defined for tax purposes, and maintaining a thrift
charter.  The Association expects that it will take no action in the
foreseeable future which would require the establishment of a tax liability
associated with these bad debt reserves.





In
accordance with SFAS No. 109, deferred tax liabilities have not been recognized
with respect to the Federal base-year reserve of approximately $500,000 at
December 31, 2007, and the New York State base-year reserve of
approximately $4.2 million at December 31, 2007, since the Association does not
expect that these amounts will become taxable in the foreseeable
future.  The unrecognized deferred tax liability with respect to the
Federal and New York State base-year reserves was approximately $170,000
and $198,000 (net of federal benefit), respectively, at December 31,
2007.





The
Company adopted the provisions of FASB Interpretation No. 48. “Accounting for
Uncertainty in Income Taxes” (FIN 48) effective January 1, 2007. FIN 48 provides
clarification on accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The adoption of FIN 48 did not have
any impact on the Company’s consolidated results of operations and financial
position. The Company recognized no adjustment for unrecognized income tax
benefits for the year ended December 31, 2007. The Company’s policy is to
recognize interest and penalties on unrecognized tax benefits in income tax
expense in the consolidated statements of income. The Company’s Federal and
New York tax returns, constituting the returns of the major taxing
jurisdictions, are subject to examination by the taxing authorities for all open
years as prescribed by applicable statue. No waivers have been executed that
would extend the period subject to examination beyond the period prescribed by
statute. As of December 31, 2007 there has been no material change in any
uncertain tax position.





Note
12 - Employee Benefit Plans





401(K)





The
Association has a 401(k) savings plan, which is offered to all eligible
employees, defined as those who are 21 years of age that have worked for the
Association for one year and work a minimum of 1,000 hours per Plan
year.  The Plan permits tax deferred employee contributions of up to
15% of compensation and provides for employer discretionary matching and
additional contributions determined annually by the Board of
Directors.  Employer contributions are subject to the employee
completing 1,000 hours of service during the Plan year and being employed on the
last day of the Plan year.  Employer contributions vest to the
employee at the rate of 20% after completion of two years of service and 20% per
year, thereafter, becoming 100% vested upon the completion of six years of
service.





41





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
12 - Employee Benefit Plans Continued)





401(K)
(Continued)





In 2007
and 2006, the Board of Directors approved matching contributions of 100% of
employee contributions up to 2% of the employee’s
compensation.  Matching contributions amounted to $38,000 and $33,000
in 2007 and 2006, respectively.  In 2007 and 2006, the Board of
Directors approved additional contributions of 8% and 10%, respectively, of
employees’ compensation.  Additional contributions were $139,000 and
$164,000, respectively, for 2007 and 2006.





Employee
Stock Ownership Plan (‘ESOP”)





On June
28, 2007, the Association established an ESOP which acquired 93,315 shares
of the Company’s common stock in the stock offering with funds provided by a
loan from the Company. The stock acquired by the ESOP but not yet released to
participants is shown as a reduction of stockholders’ equity in the accompanying
consolidated balance sheets. The ESOP loan will be repaid principally from the
Association’s contributions to the ESOP in annual payments through 2027 at a
fixed interest rate of 8.25%. Shares are released to participants on a
straight-line basis over the loan term and allocated based on participant
compensation. The Association recognizes compensation benefit expense as shares
are committed for release at their current market price. The difference between
the market price and the cost of shares committed to be released is recorded as
an adjustment to additional paid-in capital. Dividends on allocated shares are
recorded as a reduction of retained earnings and dividends on unallocated shares
are recorded as a reduction of debt. The Company recognized $42,000 of
compensation expense related to this plan for the year ended December 31, 2007.
At December 31, 2007, there were 88,649 shares not yet released having an
aggregate market value of $666,000. Participant eligibility requirements and
vesting provisions for the ESOP are the same as the 401(k) savings plan outlined
above.





Directors’
Retirement Plan





Effective
March 9, 2007, the Association adopted an unfunded directors’ retirement
plan for the benefit of non-employee directors.  Under the plan,
directors who have attained the normal retirement age of 65 receive a retirement
benefit based on their length of service upon termination. Benefits vest at the
rate of 20% per year over a five year period commencing on the date of adoption
for existing directors or the initial date of service for directors who join the
Board of Directors after the adoption date.  The plan’s funded status as of
the December 31, 2007  measurement date, activity in the plan and the
amounts recognized in the accompanying consolidated financial statements
follows:





Year
      EndedDecember31, 2007(in
      thousands)Change
      in projected benefit obligation:Projected
      benefit obligation at beginning of year
            
            $
            -Service
      cost
            
            
            41Interest
      cost
            
            
            2Gain
            
            
            (5
            )Changes
      due to adoption of plan
            
            
            27Projected
      benefit obligation at end of year (funded status)
            
            $
            65





The
discount rate used to determine the benefit obligation at December 31, 2007 was
6.00%.





42





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
12 - Employee Benefit Plans (Continued)





Directors’
Retirement Plan (Continued)





Amounts
recognized in accumulated other comprehensive loss were:





December 31,2007(in
      thousands)Net
      gain
            
            $
            5Past
      service liability
            
            
            (22
            )Pre-tax
      adjustment
            
            
            (17
            )Income
      tax effect
            
            
            6Net
      adjustment
            
            $
            (11
            )





The
estimated cost that will be amortized from accumulated other
comprehensive loss into net periodic pension expense for the year ending
December 31, 2008 is $-0- of net gain and $5,000 of past service
liability.





Using an
actuarial measurement date of December 31, 2007, the components of net periodic
pension expense follow (in thousands):





Service
      cost
            
            $
            41Interest
      cost
            
            
            2Amortization
      of past service liability
            
            
            5Net
      periodic pension expense
            
            $
            48





The
following assumptions were used to determine net periodic pension expense for
the year ended December 31, 2007; an amortization period of 5.3 years and a
discount rate of 5.75%.




The
Company does not expect to contribute to the plan in 2008.





The
following table shows the expected benefit payments to be paid to participants
for the years indicated (in thousands):





Years ending December
      31,2008
            
            $
            -2009
            
            
            -2010
            
            
            -2011
            
            
            -2012
            
            
            382013
      - 2017
            
            
            187





Note
      13 - Transactions with Officers and
Directors





The
Association has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its executive officers,
directors, their immediate families, and affiliated companies (commonly referred
to as related parties), on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with persons not related to the Association.  These
persons





43





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
13 - Transactions with Officers and Directors (Continued)





were
indebted to the Association for loans totaling $564,000 and $676,000 at December
31, 2007 and 2006, respectively.  During 2007, $95,000 of new loans
and $207,000 of repayments were made.





Deposits
from related parties held by the Association at December 31, 2007 and 2006
amounted to $1.2 million and $1.3 million, respectively.





A
director of the Company is associated with a law firm which provides legal
services to the Association and its subsidiaries.  During 2007 and
2006, the law firm was paid approximately $273,000 and $277,000, respectively,
for legal services of which $44,000 and $87,000, respectively, is included in
professional fees and foreclosed assets expense in the accompanying consolidated
statements of income.  The balance was paid by customers of the
Association in connection with loan transactions.





Note
14 - Financial Instruments with Off-Balance Sheet Risk





The
Association is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its
customers.  These financial instruments include commitments to extend
credit and standby letters of credit.  Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the balance sheets.





The
Association’s exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments.  The
Association uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.





A summary
of the Association’s financial instruments with off-balance sheet risk at
December 31, 2007 and 2006 is as follows:





2007
            
            
            2006(In
      Thousands)Commitments
      to grant loans
            
            $
            10,380
            
            
            $
            15,286Unfunded
      commitments under lines of credit
            
            
            9,231
            
            
            
            7,118Letters
      of credit
            
            
            633
            
            
            
            363$
            20,244
            
            
            $
            22,767





Fixed
rate commitments to grant loans amounted to approximately $3.9 million at
December 31, 2007, and had interest rates that ranged from 5.00% to
18.00%.





Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.  Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee.  The
Association evaluates each customer’s credit worthiness on a case-by-case
basis.  The amount of collateral obtained, if deemed necessary by the
Association upon extension of credit, is based on management’s credit
evaluation.  Collateral held varies, but includes principally
residential or commercial real estate.





44





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
14 - Financial Instruments with Off-Balance Sheet Risk
(Continued)





Standby
letters of credit are conditional commitments issued by the Association to
guarantee the performance of a customer to a third party and generally expire
within one year.  Those guarantees are primarily issued to
municipalities to ensure the completion of public improvements in residential
subdivisions by contractors that are customers of the
Association.  The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.  The Association holds savings accounts as collateral
supporting these commitments for which collateral is deemed
necessary.  At December 31, 2007 and 2006, such collateral amounted to
$575,000 and $248,000, respectively.  The current amount of the
liability as of December 31, 2007 and 2006 for guarantees under standby letters
of credit issued is not material.





Note
15 - Regulatory Capital Requirements





The
Association is required to maintain a cash reserve balance in vault cash or with
the Federal Reserve Bank.  The total of this reserve balance was
approximately $479,000 and $465,000 at December 31, 2007 and 2006,
respectively.





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





Quantitative
measures established by regulation to ensure capital adequacy require the
Association to maintain minimum amounts and ratios (set forth in the table
below) of tangible, core, and risk-based capital as defined in the
regulations.  Management believes, as of December 31, 2007, that the
Association met all capital adequacy requirements to which it is
subject.





As of
December 31, 2007, the most recent notification from the regulators categorized
the Association as “well capitalized” under the regulatory framework for prompt
corrective action.  To be categorized as well capitalized, the
Association must maintain minimum core, Tier 1 risk-based and total risk-based
ratios as set forth in the table below.  There are no conditions or
events since that notification that management believes have changed the
Association’s category.





45





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
15 - Regulatory Capital Requirements (Continued)





The
Association’s actual capital amounts and ratios are presented
below.





Actual
            
            
            For Capital Adequacy
      Purposes
            
            
            To be Well Capitalized Under Prompt
      Corrective Action ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
      in Thousands)As
      of December 31, 2007:Tangible
            
            $
            14,329
            
            
            
            10.80
            %
            
            $
            31,991
            
            
            
            31.5
            %
            
            
            N/A
            
            
            
            N/ACore
      (leverage)
            
            
            14,329
            
            
            
            10.80
            
            
            
            35,310
            
            
            
            34.0
            
            
            $
            36,638
            
            
            
            3 5.0
            %Tier
      1 risk-based
            
            
            14,329
            
            
            
            14.36
            
            
            
            33,994
            
            
            
            34.0
            
            
            
            35,990
            
            
            
            3 6.0Total
      risk-based
            
            
            15,116
            
            
            
            15.14
            
            
            
            37,987
            
            
            
            38.0
            
            
            
            39,984
            
            
            
            310.0As
      of December 31, 2006:Tangible
            
            $
            8,375
            
            
            
            7.13
            %
            
            $
            >1,761
            
            
            
            >1.5
            %
            
            
            N/A
            
            
            
            N/ACore
      (leverage)
            
            
            8,375
            
            
            
            7.13
            
            
            
            >4,697
            
            
            
            >4.0
            
            
            $
            >5,871
            
            
            
            >5.0
            %Tier
      1 risk-based
            
            
            8,375
            
            
            
            10.38
            
            
            
            >3,228
            
            
            
            >4.0
            
            
            
            >4,841
            
            
            
            >6.0Total
      risk-based
            
            
            8,998
            
            
            
            11.15
            
            
            
            >6,455
            
            
            
            >8.0
            
            
            
            >8,070
            
            
            
            >10.0





The
following table presents a reconciliation of the Company’s consolidated equity
as determined using accounting principles generally accepted in the United
States of America (“GAAP”) and the Association’s regulatory capital amounts as
of December 31:





2007
            
            
            2006(In
      Thousands)Consolidated
      GAAP equity
            
            $
            18,480
            
            
            $
            8,520Hometown
      Bancorp, Inc.’s equity in excess of its investment in the
      Association
            
            
            (4,160
            )
            
            
            (147
            )Association
      GAAP equity
            
            
            14,320
            
            
            
            8,373Net
      other comprehensive loss, net of income taxes
            
            
            9
            
            
            
            2Tangible
      capital, core capital and Tier I risk-based capital
            
            
            14,329
            
            
            
            8,375Allowance
      for loan losses
            
            
            787
            
            
            
            623Total
      risk-based capital
            
            $
            15,116
            
            
            $
            8,998





46





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
16 - Fair Value of Financial Instruments





Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
their respective year ends, and have not been reevaluated or updated for
purposes of these financial statements subsequent to those respective
dates.  As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year end.





The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities.  Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures, and those of other
companies may not be meaningful.  The following methods and
assumptions were used to estimate the fair values of the Company’s financial
instruments at December 31, 2007 and 2006:





Cash
and Cash Equivalents





The
carrying amounts of these instruments approximate their fair value.





Securities





Fair
values for securities are based on quoted market prices, where
available.  If quoted market prices are not available, fair values are
based on quoted market prices of comparable securities.





Loans
Held for Sale





Fair
values for loans held for sale are based on existing commitments from investors
or prevailing market prices.





Loans
Receivable





For
variable-rate loans that reprice frequently and which entail no significant
changes in credit risk, fair values are based on carrying values.  The
fair value of fixed-rate loans are estimated using discounted cash flow analyses
at interest rates currently offered for loans with similar terms to borrowers of
similar credit quality.





Federal
Home Loan Bank Stock





The
carrying amount of Federal Home Loan Bank stock approximates fair
value.





Mortgage
Servicing Rights





The
carrying amount of mortgage servicing rights approximates fair
value.





Accrued
Interest Receivable and Payable





The
carrying amount of accrued interest receivable and payable approximates fair
value.





Deposit
Liabilities





Fair
values for demand deposits, savings accounts and certain money market deposits
are, by definition, equal to the amount payable on demand at the reporting
date.  Fair values of fixed-maturity certificates of
deposit





47





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
16 - Fair Value of Financial Instruments (Continued)





are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on similar instruments with similar
maturities.





Federal
Home Loan Bank Advances





The
carrying amount of Federal Home Loan Bank Advances approximates fair
value.





Off-Balance
Sheet Financial Instruments





Fair
values of commitments to extend credit and letters of credit are estimated using
the fees currently charged to enter into similar agreements, taking into account
market interest rates, the remaining terms, and present credit worthiness of the
counterparties.  At December 31, 2007 and 2006, the fair value of
these instruments was not material.





The
estimated fair values of the Company’s financial instruments at December 31,
2007 and 2006 were as follows:





December 31,2007
            
            
            2006Carrying Amount
            
            
            Fair Value
            
            
            Carrying Amount
            
            
            Fair Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
            
            $
            4,013
            
            
            $
            4,013
            
            
            $
            3,265
            
            
            $
            3,265Securities
      available for sale
            
            
            1,003
            
            
            
            1,003
            
            
            
            997
            
            
            
            997Securities
      held to maturity
            
            
            1,774
            
            
            
            1,776
            
            
            
            11,044
            
            
            
            11,016Loans
      held for sale
            
            
            528
            
            
            
            528
            
            
            
            1,168
            
            
            
            1,168Loans
      receivable, net
            
            
            120,982
            
            
            
            122,110
            
            
            
            96,665
            
            
            
            96,796Federal
      Home Loan Bank stock
            
            
            142
            
            
            
            142
            
            
            
            233
            
            
            
            233Accrued
      interest receivable
            
            
            645
            
            
            
            645
            
            
            
            648
            
            
            
            648Mortgage
      servicing rights
            
            
            386
            
            
            
            386
            
            
            
            503
            
            
            
            503Financial
      liabilities:Non-interest
      bearing demand accounts
            
            
            17,441
            
            
            
            17,441
            
            
            
            18,692
            
            
            
            18,692NOW
      accounts
            
            
            6,446
            
            
            
            6,446
            
            
            
            6,546
            
            
            
            6,546Money
      market accounts
            
            
            11,170
            
            
            
            11,170
            
            
            
            15,968
            
            
            
            15,968Savings
      accounts
            
            
            13,645
            
            
            
            13,645
            
            
            
            13,343
            
            
            
            13,343Certificates
      of deposit
            
            
            63,359
            
            
            
            63,455
            
            
            
            49,969
            
            
            
            49,740Federal
      Home Loan Bank Advances
            
            
            -
            
            
            
            -
            
            
            
            2,525
            
            
            
            2,525Accrued
      interest payable
            
            
            262
            
            
            
            262
            
            
            
            384
            
            
            
            384Off-balance
      sheet financial instruments:Commitments
      to extend credit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Letters
      of credit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -





48





Hometown Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
17 - Hometown Bancorp, Inc. (Parent Company Only) Financial
Information





Balance
Sheets





December 31, 2007
            
            
            December 31,
2006(In
      Thousands)AssetsCash
            
            $
            3,284
            
            
            $
            145Loan
      receivable from ESOP
            
            
            879
            
            
            
            -Investment
      in subsidiary
            
            
            14,320
            
            
            
            8,373Other
      assets
            
            
            -
            
            
            
            2Total
      Assets
            
            $
            18,483
            
            
            $
            8,520Other
      liabilities
            
            $
            3
            
            
            
            -Stockholders’
      Equity
            
            
            18,480
            
            
            $
            8,520Total
      Liabilities and Stockholders’ Equity
            
            $
            18,483
            
            
            $
            8,520





Statements
of Income





Year Ended December 31,
      2007
            
            
            May 19, 2006to December 31, 2006(In
      Thousands)Interest
      income on ESOP loan
            
            $
            39
            
            
            $
            -Operating
      expenses
            
            
            30
            
            
            
            5Income
      (loss) before income taxes and equity in undistributed earnings of
      subsidiary
            
            
            9
            
            
            
            (5
            )Income
      tax (expense) benefit
            
            
            (4
            )
            
            
            2Income
      (loss) before equity in undistributed earnings of
    subsidiary
            
            
            5
            
            
            
            (3
            )Equity
      in undistributed earnings of subsidiary
            
            
            845
            
            
            
            596Net
      Income
            
            $
            850
            
            
            $
            593





49





Hometown
Bancorp, Inc.





Notes
to Consolidated Financial Statements








Note
17 - Hometown Bancorp, Inc. (Parent Company Only) Financial Information
(Continued)





Statements
of Cash Flows





Year Ended December 31,
      2007
            
            
            May 19, 2006to December 31, 2006(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
            
            $
            850
            
            
            $
            593Adjustments
      to reconcile net income to net cash provided (used) in operating
      activities:Equity
      in undistributed earnings of subsidiary
            
            
            (845
            )
            
            
            (596
            )Decrease
      (increase) in other assets
            
            
            2
            
            
            
            (2
            )Increase
      in other liabilities
            
            
            3
            
            
            
            -Net
      Cash Provided by (Used in) Operating Activities
            
            
            10
            
            
            
            (5
            )Cash
      flows from Investing ActivitiesLoan
      to ESOP
            
            
            (933
            )
            
            
            -Repayments
      received on ESOP loan
            
            
            54
            
            
            
            -Investment
      in bank subsidiary
            
            
            (6,000
            )
            
            
            -Net
      Cash Used in Investing Activities
            
            
            (6,879
            )
            
            
            -Cash
      Flows from Financing ActivitiesProceeds
      from capital contribution
            
            
            -
            
            
            
            150Net
      proceeds from common stock offering
            
            
            10,008
            
            
            
            -Net
      Cash provided by Financing Activities
            
            
            10,008
            
            
            
            150Net
      Increase in Cash
            
            
            3,139
            
            
            
            145Cash
      - Beginning of Period
            
            
            145
            
            
            
            -Cash
      - End of Period
            
            $
            3,284
            
            
            $
            145





50





Hometown
Bancorp, Inc.





STOCKHOLDER
      INFORMATION
              
              Corporate
      Office
              Hometown
      Bancorp, Inc.
              12
      Main Street
              Walden,
      NY 12586
              (845)
      778-2171
              
              Annual Meeting of
      Stockholders
              The
      annual meeting of Hometown Bancorp, Inc. will be held May 14, 2008 at
      4:00pm at the Company’s office, 12 Main Street, Walden,
      NY 12586.
              
              Annual Report on Form
      10-KSB
              For
      the 2007 fiscal year, Hometown Bancorp, Inc. has filed an Annual Report on
      Form 10-KSB with the Securities and Exchange Commission. The Form 10-KSB
      is available at www.sec.gov as part
      of the SEC EDGAR database. Stockholders may also obtain a
      copy free of charge by writing to Hometown Bancorp, Inc.,12 Main Street,Walden,NY12586, Attention: Corporate
      Secretary.
              
              Stock Transfer Agent
      & Registrar
              Stockholders
      wishing to change name, address or ownership of stock, or to report lost
      certificates or to consolidate accounts should contact the Company’s stock
      registrar and transfer agent directly at:
              
              Registrar
      & Transfer Company
              10
      Commerce Drive
              Cranford,
      NJ 07016-3572
              (800)
      368-5948
              
              Regulatory
      Counsel
              Luse Gorman Pomerenk
      & Schick, P.C.
              5335
      Wisconsin Avenue, N.W. Suite 400
              Washington,
      DC 20015
              
              Independent
      Auditor
              Beard
      Miller Company LLP
              115
      Solar Street, Suite 100
              Syracuse,
      NY 13204
            
            Market
      Information for Common Stock
              The
      common stock of Hometown Bancorp, Inc. trades on the Over-the-Counter
      market under the symbol “HTWC.OB”. At December 31, 2007, there were
      approximately 324 stockholders of record, not including the number of
      persons or entities holding stock in nominee or street names through
      various brokers and banks.
              
              Hometown
      Bancorp, Inc. common stock was issued at $10.00 per share in connection
      with the Company’s initial minority public offering completed on June 28,
      2007.
              
              DIRECTORSANDOFFICERS
              Hometown
      Bancorp, Inc.
              
              Board of
      Directors
              GrahamS.Jamison:Chairman of the Board,
      Retired dairy farmer and Supervisor for the Town of Crawford,
      NY
              
              ThomasF.Gibney:President & Chief
      Executive Officer, Hometown Bancorp, Inc.
              
              JosephB.Horan:President and funeral
      Director of Gridley Horan, Inc.
              
              GeraldN.Jacobowitz:Senior partner in the
      law firm of Jacobowitz and Gubits, LLP
              
              StephenE.Sabine:Retired Division
      Manager from New York State Electric & Gas Corp.
              
              KennethR.Schliphack:Retired from B&C
      Fuel Oil Co. Inc.
              
              CurtisJ.Schoeberl,Sr.:Assessor for the Town
      of Shawangunk, NY
              
              Officers
              ThomasF.Gibney:President & Chief
      Executive Officer, Hometown Bancorp, Inc.
              
              JudithB.Weyant:Senior Vice President
      and Chief Operating Officer and Corporate Secretary
              
              L.BruceLott:Senior Vice President
      and Chief Lending Officer
              
              StephenW.Dederick:Vice President and
      Chief Financial Officer