UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


____________





FORM
10-Q


(Mark
One)





ý
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended June 30, 2008





OR





o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from ______________ to _____________




Commission
file number:  000-52674







HOMETOWN
BANCORP,
INC.


(Exact
name of registrant as specified in its charter)





United
      States
            02-0783010(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)








12 Main Street, Walden, New
York 12586


(Address
of principal executive offices)








(845)
778-2171


(Issuer’s
telephone number)





Not
Applicable


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes ý                       No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
accelerated filer o           Accelerated
filer o          Non-accelerated
filer o          Smaller
reporting company ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o                       No
ý





As of
August 14, 2008 there were 2,380,500 shares of the registrant’s common stock
outstanding.








HOMETOWN
BANCORP, INC.





FORM
10-Q





Index





Page
      No.PART I.  FINANCIAL INFORMATIONItem 1.
            Financial StatementsConsolidated Balance Sheets at June 30, 2008 and December 31,
      2007 (Unaudited)
            2Consolidated Statements of Income for the three and six months
      ended June 30, 2008 and 2007 (Unaudited)
            3Consolidated Statements of Stockholders’ Equity for the six
      months ended June 30, 2008 and 2007 (Unaudited)
            4Consolidated Statements of Cash Flows for the six months ended
      June 30, 2008 and 2007 (Unaudited)
            5Notes to Unaudited Consolidated Financial
      Statements
            6Item 2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            10Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            19Item 4.
            Controls and Procedures
            19PART II.  OTHER INFORMATIONItem 1.
            Legal Proceedings
            20Item 1A.
            Risk Factors
            20Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            20Item 3.
            Defaults upon Senior Securities
            20Item 4.
            Submission of Matters to a Vote of Security
      Holders
            20Item 5.
            Other Information
            21Item 6.
            Exhibits
            21Signatures








i
 Index


PART I. FINANCIAL INFORMATION





Item
1. Financial Statements


Hometown
Bancorp, Inc.


Consolidated Balance Sheets


(unaudited)


June
      30,
            
            December
      31,2008
            
            2007(Dollars
      in Thousands,
              Except
      Share Data)


Assets




Cash
      and due from banks
            
            $
            3,184
            
            
            $
            3,642Interest
      earning demand deposits with banks
            
            
            782
            
            
            
            371Cash
      and cash equivalents
            
            
            3,966
            
            
            
            4,013Securities
      available for sale
            
            
            1,008
            
            
            
            1,003Securities
      held to maturity (fair value at June 30, 2008 $1,619; and at December
      31, 2007 $1,776)
            
            
            1,601
            
            
            
            1,774Loans
      held for sale
            
            
            -
            
            
            
            528Loans
      receivable, net of allowance for loan losses (at June 30, 2008 $880;
      and at December 31, 2007 $787)
            
            
            126,813
            
            
            
            120,982Premises
      and equipment, net
            
            
            2,735
            
            
            
            2,797Federal
      Home Loan Bank stock, at cost
            
            
            326
            
            
            
            142Accrued
      interest receivable and other assets
            
            
            1,767
            
            
            
            1,451Total
      Assets
            
            $
            138,216
            
            
            $
            132,690


Liabilities
and Stockholders’ Equity




LiabilitiesDeposits:Non-interest
    bearing
            
            $
            18,310
            
            
            $
            17,441Interest bearing
            
            
            95,881
            
            
            
            94,620Total
      Deposits
            
            
            114,191
            
            
            
            112,061Federal
      Home Loan Bank advances
            
            
            3,000
            
            
            
            -Advances
      from borrowers for taxes and insurance
            
            
            785
            
            
            
            535Accrued
      interest payable
            
            
            180
            
            
            
            262Other
      liabilities
            
            
            1,200
            
            
            
            1,352Total
      Liabilities
            
            
            119,356
            
            
            
            114,210Commitments
      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 at June 30, 2008 and at December 31, 2007 2,380,500
      shares
            
            
            24
            
            
            
            24Paid-in
      capital
            
            
            10,122
            
            
            
            10,129Retained
      earnings
            
            
            9,581
            
            
            
            9,222Unearned
      ESOP shares, at cost
            
            
            (863
            )
            
            
            (886
            )Accumulated
      other comprehensive loss
            
            
            (4
            )
            
            
            (9
            )Total
      Stockholders’ Equity
            
            
            18,860
            
            
            
            18,480Total
      Liabilities and Stockholders’ Equity
            
            $
            138,216
            
            
            $
            132,690




See
notes to consolidated financial statements.


2
 Index


Hometown
Bancorp, Inc.


Consolidated
Statements of Income


(Unaudited)









Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007(Dollars
      in thousands, except per share data)Interest
      IncomeLoans
      receivable, including fees
                
                $
                2,101
                
                
                $
                1,993
                
                
                $
                4,233
                
                
                $
                3,913Securities,
      taxable
                
                
                29
                
                
                
                151
                
                
                
                59
                
                
                
                294Other
                
                
                19
                
                
                
                45
                
                
                
                39
                
                
                
                75Total
      Interest Income
                
                
                2,149
                
                
                
                2,189
                
                
                
                4,331
                
                
                
                4,282Interest
      ExpenseDeposits
                
                
                551
                
                
                
                788
                
                
                
                1,282
                
                
                
                1,498Stock
      subscription funds
                
                
                -
                
                
                
                3
                
                
                
                -
                
                
                
                3Federal
      Home Loan Bank advances
                
                
                17
                
                
                
                21
                
                
                
                21
                
                
                
                68Total
      Interest Expense
                
                
                568
                
                
                
                812
                
                
                
                1,303
                
                
                
                1,569Net
      Interest Income
                
                
                1,581
                
                
                
                1,377
                
                
                
                3,028
                
                
                
                2,713Provision
      for Loan Losses
                
                
                74
                
                
                
                35
                
                
                
                100
                
                
                
                94Net
      Interest Income after Provision for Loan Losses
                
                
                1,507
                
                
                
                1,342
                
                
                
                2,928
                
                
                
                2,619Non-interest
      IncomeBanking
      fees and service charges
                
                
                280
                
                
                
                298
                
                
                
                537
                
                
                
                566Mortgage
      banking income, net
                
                
                74
                
                
                
                96
                
                
                
                167
                
                
                
                223Investment
      brokerage fees
                
                
                16
                
                
                
                27
                
                
                
                33
                
                
                
                39Realized
      losses on sales of securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2
                )Other
                
                
                90
                
                
                
                20
                
                
                
                106
                
                
                
                42Total
      Non-interest Income
                
                
                460
                
                
                
                441
                
                
                
                843
                
                
                
                868Non-interest
      ExpensesSalaries
      and employee benefits
                
                
                965
                
                
                
                862
                
                
                
                1,887
                
                
                
                1,725Occupancy
      and equipment
                
                
                177
                
                
                
                152
                
                
                
                357
                
                
                
                307Professional
      fees
                
                
                121
                
                
                
                55
                
                
                
                184
                
                
                
                83Advertising
      and marketing
                
                
                57
                
                
                
                62
                
                
                
                113
                
                
                
                122Data
      processing
                
                
                137
                
                
                
                117
                
                
                
                265
                
                
                
                235Telephone
      and postage
                
                
                51
                
                
                
                51
                
                
                
                91
                
                
                
                97Other
                
                
                138
                
                
                
                153
                
                
                
                296
                
                
                
                293Total
      Non-interest Expenses
                
                
                1,646
                
                
                
                1,452
                
                
                
                3,193
                
                
                
                2,862Income
      before Income Taxes
                
                
                321
                
                
                
                331
                
                
                
                578
                
                
                
                625Income
      Tax Expense
                
                
                119
                
                
                
                126
                
                
                
                219
                
                
                
                240Net
      Income
                
                $
                202
                
                
                $
                205
                
                
                $
                359
                
                
                $
                385
 
 Net
      Income per common share- basic
              
              $
              0.09
              
              
              $
              0.15
              
              
              $
              0.16
              
              
              $
              0.29Weighted
      average number of common shares outstanding – basic
              
              
              2,293
              
              
              
              1,342
              
              
              
              2,292
              
              
              
              1,326











See notes to consolidated financial
statements.


3
 Index


Hometown
Bancorp, Inc.


Consolidated
Statements of Stockholders’ Equity


Six
Months Ended June 30, 2008 and 2007


(In Thousandsexcept share data)(Unaudited)




Common
              Stock
            
            
            Paid-In
              Capital
            
            
            Retained
              Earnings
            
            
            Unearned
              ESOP
              Shares
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            TotalBalance
      - December 31, 2006
            
            $
            -
            
            
            $
            150
            
            
            $
            8,372
            
            
            $
            -
            
            
            $
            (2
            )
            
            $
            8,520Comprehensive
      income:Net income
            
            
            -
            
            
            
            -
            
            
            
            385
            
            
            
            -
            
            
            
            -
            
            
            
            385Change in net unrealized
      losses
              on securities available
      for
              sale, net
      of  taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      losses and past service liability for the Directors’ Retirement Plan,
      net of taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (15
            )
            
            
            (15
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            370Shares
      issued in public offering (2,380,500 shares)
            
            
            24
            
            
            
            9,959
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,983Shares
      purchased by ESOP
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (933
            )
            
            
            -
            
            
            
            (933
            )ESOP
      shares committed to be released (2,330 shares)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            23
            
            
            
            -
            
            
            
            23Balance
      - June 30, 2007
            
            $
            24
            
            
            $
            10,109
            
            
            $
            8,757
            
            
            $
            (910
            )
            
            $
            (17
            )
            
            $
            17,963Balance
      - December 31, 2007
            
            $
            24
            
            
            $
            10,129
            
            
            $
            9,222
            
            
            $
            (886
            )
            
            $
            (9
            )
            
            $
            18,480Comprehensive
      income:Net income
            
            
            -
            
            
            
            -
            
            
            
            359
            
            
            
            -
            
            
            
            -
            
            
            
            359Change in net unrealized
      gains
              on securities available
      for
              sale, net
      of  taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3
            
            
            
            3Net
      gains and past service liability for the Directors’ Retirement Plan,
      net of taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2
            
            
            
            2Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            364ESOP
      shares committed to be released (2,333 shares)
            
            
            -
            
            
            
            (7
            )
            
            
            -
            
            
            
            23
            
            
            
            -
            
            
            
            16Balance
      - June 30, 2008
            
            $
            24
            
            
            $
            10,122
            
            
            $
            9,581
            
            
            $
            (863
            )
            
            $
            (4
            )
            
            $
            18,860







See notes to consolidated financial
statements.





4
 Index


Hometown
Bancorp, Inc.


Consolidated
Statements of Cash Flows


(Unaudited)





Six
      Months Ended June 30,2008
              
              
              2007(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              359
              
              
              $
              385Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation and amortization
      expense
              
              
              119
              
              
              
              104Provision for loan
      losses
              
              
              100
              
              
              
              94Amortization of mortgage
      servicing rights
              
              
              76
              
              
              
              76Net accretion of securities
      premiums and discounts
              
              
              (1
              )
              
              
              (23
              )Net realized loss on sales of
      securities
              
              
              -
              
              
              
              2Net gain on sale of
      loans
              
              
              (63
              )
              
              
              (147
              )Loans originated for
      sale
              
              
              (6,672
              )
              
              
              (9,622
              )Proceeds from sale of
      loans
              
              
              7,263
              
              
              
              10,506ESOP
      expense
              
              
              16
              
              
              
              23Increase in accrued interest
      receivable and other assets
              
              
              (392
              )
              
              
              (233
              )(Decrease) increase in accrued
      interest payable and other liabilities
              
              
              (234
              )
              
              
              593Net
      Cash Provided by Operating Activities
              
              
              571
              
              
              
              1,758
 
 Cash
      Flows from Investing Activities
  Activity
      in held to maturity securities:Purchases
              
              
              -
              
              
              
              (9,000
              )Maturities, calls and principal
      repayments
              
              
              174
              
              
              
              157Proceeds
      from sales
              
              
              -
              
              
              
              8,997Net
      increase in loans receivable
              
              
              (5,931
              )
              
              
              (11,346
              )Net
      decrease (increase) in Federal Home Loan Bank stock
              
              
              (184
              )
              
              
              91Purchases
      of bank premises and equipment
              
              
              (57
              )
              
              
              (31
              )Net
      Cash Used by Investing Activities
              
              
              (5,998
              )
              
              
              (11,132
              )
 
 Cash
      Flows from Financing Activities
  Net
      increase in deposits
              
              
              2,130
              
              
              
              8,386Net
      increase (decrease) in short-term Federal Home Loan Bank
      advances
              
              
              3,000
              
              
              
              (2,525
              )Increase
      in advances from borrowers for taxes and insurance
              
              
              250
              
              
              
              210Net
      proceeds from common stock offering
              
              
              -
              
              
              
              9,983Purchase
      of shares for ESOP
              
              
              -
              
              
              
              (933
              )Net
      Cash Provided by Financing Activities
              
              
              5,380
              
              
              
              15,121Net
      Increase (Decrease) in Cash and Cash Equivalents
              
              
              (47
              )
              
              
              5,747Cash
      and Cash Equivalents - Beginning
              
              
              4,013
              
              
              
              3,265
 
 Cash
      and Cash Equivalents - Ending
              
              $
              3,966
              
              
              $
              9,012
  Supplementary
Cash Flows Information
  Interest
      paid
              
              $
              1,385
              
              
              $
              1,650Income
      taxes paid
              
              $
              342
              
              
              $
              213








See notes to consolidated financial
statements. 
  5
 Index


Hometown
Bancorp, Inc.


Notes
to the Unaudited Consolidated Financial Statements





Note
1 - Basis of Presentation





The accompanying unaudited consolidated
financial statements of Hometown Bancorp, Inc. (the “Company”) and its
wholly-owned subsidiary, Walden Federal Savings and Loan Association (“Walden
Federal” or the “Bank”) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the instructions for Form
10-Q.  Accordingly, they do not include all of the information and
footnotes necessary for a complete presentation of consolidated financial
position, results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America.  In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for (i) a fair presentation and (ii) to make the financial
statements not misleading, have been included.  Operating results for
the three and six months ended June 30, 2008 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2008. The
Company is a wholly-owned subsidiary of Hometown Bancorp MHC, a federally
chartered mutual holding company.





The
unaudited consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements for the years ended
December 31, 2007 and 2006, included in its annual report on Form
10-KSB.





The unaudited consolidated financial
statements at June 30, 2008 and for the three and six months ended June 30, 2008
and 2007 include the accounts of the Company, the Bank and the Bank’s
wholly-owned subsidiaries, Ever-Green Financial Services, Inc. and Valley
Services, Inc. All intercompany balances and transactions have been eliminated
in consolidation.





Note
2 – Minority Stock Issuance





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 Bank’s
eligible account holders and the employee stock ownership plan (the “ESOP”),
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.  Costs of
approximately $717,000 were incurred in connection with the stock offering and
were deducted from the net offering proceeds.





Note
3 – Directors’ Retirement Plan





Effective March 2007, the Bank 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.  Net periodic pension expense for the six
months ended June 30, 2008 and 2007 are as follows (In thousands):








2008
            
            
            2007Service
      cost
            
            $
            22
            
            
            $
            41Interest
      cost
            
            
            2
            
            
            
            2Amortization
      of past service liability
            
            
            2
            
            
            
            5Net
      periodic pension expense
            
            $
            26
            
            
            $
            48


6
 Index


Note
4 – 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 gains and losses and past service
liabilities for pension plans, 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.




The components of other comprehensive
income (loss) and related tax effects for the three and six months ended June
30, 2008 and 2007 are as follows:




Three
      Months Ended
              June,
      30
            
            
            Six
      Months Ended
                June,
      302008
            
            
            2007
            
            
            2008
            
            
            2007(In
      Thousands)Unrealized
      holding gains (losses) on securities available for sale:Unrealized
      holding gains (losses) arising during the period
            
            $
            (7
            )
            
            $
            (2
            )
            
            $
            5
            
            
            $
            -Reclassification
      adjustment for losses included in net income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      unrealized gains (losses)
            
            
            (7
            )
            
            
            (2
            )
            
            
            5
            
            
            
            -Directors’
      retirement plan:Reclassification
      adjustment for pension gains and past service liability recognized in
      pension expense
            
            
            2
            
            
            
            (25
            )
            
            
            2
            
            
            
            (25
            )Net
      Change in Director’s retirement plan
            
            
            2
            
            
            
            (25
            )
            
            
            2
            
            
            
            (25
            )Other
      comprehensive income (loss) before tax
            
            
            (5
            )
            
            
            (27
            )
            
            
            7
            
            
            
            (25
            )Income
      tax effect
            
            
            2
            
            
            
            11
            
            
            
            (2
            )
            
            
            10Net
      of Tax Amount
            
            $
            (3
            )
            
            $
            (16
            )
            
            $
            5
            
            
            $
            (15
            )





At June 30,
2008 and 2007, the components of accumulated other comprehensive loss are as
follows:





2008
              
              
              2007(In
      Thousands)Unrealized
      gain (loss) on securities available for sale (net of tax effect 2008 $3;
      2007 ($2))
              
              $
              5
              
              
              $
              (2
              )Net
      gains and past service liability for the Directors’ retirement plan (net
      of tax effect 2008 ($6); 2007 ($10))
              
              
              (9
              )
              
              
              (15
              )$
              (4
              )
              
              $
              (17
              )








Note
5 – Employee Stock Ownership Plan (“ESOP”)





On June
28, 2007, the Bank 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 is shown as a reduction of
stockholders’ equity in the accompanying consolidated balance sheets. The ESOP
loan will be repaid principally from the Bank’s contributions to the ESOP in
annual payments


7
 Index


through
2027 at a fixed interest rate of 8.25%. Shares are released to participants
proportionately as the loan is repaid. The Bank will recognize 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 paid-in capital. Dividends on
allocated shares would be recorded as a reduction of retained earnings and
dividends on unallocated shares would be recorded as a reduction of debt. The
Company committed to release 2,333 shares and 2,330 shares to the ESOP during
the six months ended June 30, 2008 and 2007. The Company recognized $16,000 and
$23,000 of compensation expense related to this plan for the six months ended
June 30, 2008 and 2007. Unallocated ESOP shares are not “outstanding” for
purposes of earnings per share calculations.





Note
6 – Earnings Per Share





The Company had 100 shares of common
stock issued and outstanding January 1, 2007 to June 28,
2007.  On June 28, 2007, the Company issued 2,380,500 shares of
common stock and cancelled 100 shares.





Basic earnings per common share is
calculated by dividing 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 earnings per common share is computed in a manner similar to basic
earnings per share, except that the weighted average 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 three and six months ended June
30, 2008 and 2007, had no potentially dilutive common stock
equivalents.





Note
7 – 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.





Note
8 – Fair Value Measurements





The Financial Accounting StandardsBoard (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value
Measurements,” which establishes a fair value hierarchy that prioritizes the
inputs to valuation methods used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of fair value
hierarchy under SFAS No. 157 are as follows:





Level
      1:
            Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities.





Level
      2:
            Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liability.


8
 Index


Level
      3:
            Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (i.e. supported with little or
      no market activity).





An asset or liability’s level within
the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.





For assets measured at fair value on a
recurring basis, the fair value measurement by level within the fair value
hierarchy used at June 30, 2008 is as follows:





Description
            June
      30, 2008
            (Level
      1)
              Quoted
      Prices in
              Active
      Markets for
              Identical
      Assets
            (Level
      2)
              Significant
      Other
              Observable
      Inputs
            (Level
      3)
              Significant
              Unobservable
              Inputs(In
      thousands)Securities
      available for sale
            $  1,008
            $      -
            $  1,008
            $      -





Fair
values of available for sale securities are based on quoted market prices of
comparable instruments. When necessary, the Company utilizes matrix pricing from
a third party pricing vendor to determine fair value pricing. Matrix prices are
based on quoted prices for securities with similar coupons, ratings, and
maturities, rather than on specific bids and offers for the designated
security.





Note
9 - Recent Accounting Pronouncements





FSP
140-3





In
February 2008, the FASB issued  FASB Staff Position (FSP) FAS 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions.” This FSP addresses the issue of whether or not these transactions
should be viewed as two separate transactions or as one "linked" transaction.
The FSP includes a "rebuttable presumption" that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain criteria.
The FSP will be effective for fiscal years beginning after November 15, 2008 and
will apply only to original transfers made after that date; early adoption will
not be allowed. The Company believes that this new pronouncement will not have a
material impact on the Company’s consolidated financial statements in future
periods.





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 believes that this new pronouncement will not have a material impact on
the Company’s consolidated financial statements in future periods.





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


9
 Index


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 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.





SFAS No.
161




In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133”
(Statement 161).  Statement 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives
and strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives.  Statement 161 also requires entities to disclose
additional information about the amounts and location of derivatives located
within the financial statements, how the provisions of SFAS 133 have been
applied, and the impact that hedges have on an entity’s financial position,
financial performance, and cash flows.  Statement 161 is effective for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged.  The Company believes that this new
pronouncement will not have a material impact on the Company’s consolidated
financial statements in future periods.





SFAS
No. 162





In May
2008, the FASB issued SFAS No.162, “The Hierarchy of  General Accepted
Accounting Principles.” This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
General Accepted Accounting Principles.” The Company believes that this new
pronouncement will not have a material impact on the Company’s consolidated
financial statements in future periods.





Item
2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operation





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.  The
information contained in this section should be read in conjunction with the
Unaudited Consolidated Financial Statements and the notes thereto, appearing in
Part I, Item 1 of this report.





Forward-Looking
Statements





This quarterly report contains
forward-looking statements that are based on assumptions and may describe our
future plans, strategies and expectations.  These forward-looking
statements are generally identified by use of the words “believe,” “expect,”
“intend,” “anticipate,” “estimate,” “project” or similar
expressions.





Our
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse
effect on our operations include, but are not limited to, changes in interest
rates, national and regional economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the U.S. government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality and composition
of our loan and investment portfolios, demand for loan products, deposit
flows,


10
 Index


competition,
demand for financial services in our market area, changes in real estate market
values in our area, and changes in relevant accounting principles and
guidelines.





These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements.  Except as required by applicable law or regulation, we do
not undertake, and specifically disclaim any obligation, to release publicly the
result of any revisions that may be made to any forward-looking statements to
reflect events or circumstances after the date of the statements or to reflect
the occurrence of anticipated or unanticipated events.





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,
liabilities or on income to be critical accounting policies.  We have
identified the allowance for loan losses as our critical accounting
policy.





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 Bank’s past loan loss experience,
known and inherent credit 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.




A loan is considered impaired when,
based on current information and events, it is probable that the Bank 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 obtainable 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 Bank does not separately identify
individual consumer and residential loans for impairment disclosures, unless
such loans are the subject of a restructuring agreement.




General





Hometown Bancorp, Inc. is the holding
company for Walden Federal Savings and Loan Association.  Walden
Federal operates from six offices in Orange County, New York. As part of the
Bank’s growth strategy to expand its presence in other selected markets in
Orange County, the Bank opened its sixth office in the


11
 Index


Town of
Newburgh in September 2007. Walden Federal is primarily engaged in the business
of attracting deposits from the general public and using those funds to
originate one- to four-family real estate, multi-family and commercial real
estate loans and construction, land, commercial and consumer loans, which, with
the exception of long-term (more than 10 year terms) fixed-rate one- to
four-family real estate loans, we primarily hold for investment.  In
addition, a segment of our lending business involves the purchase and sale of
loan participation interests.  We also offer insurance and investment
services through Walden Federal.





The Company completed its stock
offering on June 28, 2007, during which the Company sold 1,071,225 shares of
common stock to subscribers at a price of $10 per share. The Company also issued
1,309,275 shares of its common stock to Hometown Bancorp MHC.





Balance
Sheet Analysis





Overview.Total assets
increased $5.5 million, or 4.2%, to $138.2 million during the six months
ended June 30, 2008, reflecting the results of our branch expansion and the
growth of our loan portfolio.  In the six months ended June 30, 2008,
the loan portfolio grew $5.3 million, or 4.4%, with the growth concentrated
primarily in the residential and land loan portfolios.





Asset growth during the six months
ended June 30, 2008 was partially funded through an increase in
deposits.  During the six months ended June 30, 2008, deposits grew
$2.1 million to $114.2 million. The increase in deposits was primarily due to
our branch expansion.  We had borrowings at June 30, 2008, of $3.0
million, consisting of FHLB advances, as compared to no borrowings at December
31, 2007. Cash and cash equivalents decreased by $47,000 to $4.0 million at June
30, 2008.





Total stockholders’ equity increased
$380,000 during the six months ended June 30, 2008 to $18.9 million due
primarily to net income of $359,000.




Comparison
of Financial Condition at June 30, 2008 and December 31, 2007





Loans.  At
June 30, 2008, total loans, net, were $126.8 million, or 91.7% of total assets
as compared with $121.5 million or 91.6% of total assets at December 31,
2007.  In the six months ended June 30, 2008, the loan portfolio grew
$5.3 million, or 4.4%, with the growth  particularly focused in one-to
four-family residential real estate loans which increased by $4.7 million, and
land loans which increased by $2.5 million, offset by a decrease in commercial
business loans of $1.5 million.  The growth in the loan portfolio has
slowed in 2008 due primarily to decreased mortgage originations in our market
area and a decline in the local economy.  The Bank does not make
subprime loans.





Nonperforming
Assets.  The following table provides information with respect
to our non-performing assets at the dates indicated.  The Company had
no troubled debt restructurings as of or during the six months ended June 30,
2008 or at December 31, 2007.  There were no accruing loans past due
90 days or more as of June 30, 2008 or December 31, 2007.


12
 Index





(Dollars
      in thousands)
            June
      30, 2008
            
            December
      31, 2007Nonaccrual
      loans:One-
      to four-family residential real estate
            
            $
            389
            
            
            $
            86Construction
            
            
            —
            
            
            
            —Multi-family
      and commercial real estate
            
            
            580
            
            
            
            —Land
            
            
            —
            
            
            
            16Commercial
            
            
            —
            
            
            
            —Consumer
            
            
            19
            
            
            
            22Total
            
            
            988
            
            
            
            124Foreclosed
      real estate
            
            
            —
            
            
            
            —Other
      nonperforming assets
            
            
            —
            
            
            
            —Total
      nonperforming assets
            
            
            988
            
            
            
            124Troubled
      debt restructurings
            
            
            —
            
            
            
            —Troubled
      debt restructurings and
              total
      nonperforming assets
            
            $
            988
            
            
            $
            124Total
      nonperforming loans to total loans
            
            
            0.77
            %
            
            
            0.10
            %Total
      nonperforming loans to total assets
            
            
            0.71
            
            
            
            0.09Total
      nonperforming assets and troubled
              debt
      restructurings to total assets
            
            
            0.71
            
            
            0.09








Included
in the one-to four-family residential real estate loans are three first liens on
residential properties totaling $203,000, all with low loan to value ratios. The
Company always works with the owners to avoid foreclosure. Two other loans
totaling $186,000 are secured by junior liens on one-to-four family residential
properties. Included in the multi-family and commercial real estate loans are
two loans secured by non-residential properties. Management believes that all
loans in non-accrual status are supported by sufficient collateral.





As
previously disclosed in our Form 10-Q for the quarter ended March 31, 2008, our
largest lending relationship, consisting of two loans to a real estate developer
totaling $3.0 million, was determined by the Office of Thrift Supervision to be
in excess of our loans to one borrower limit. The Bank sold a participation in
these two loans in June 2008 to another institution bringing such lending
relationship into compliance with our loans to one borrower limit.





Securities.The
investment securities portfolio was $2.6 million, or 1.9% of total assets, at
June 30, 2008 compared to $2.8 million or 2.1% of total assets, at December 31,
2007.  Our investment portfolio consists primarily of U.S. Government
and agency securities and GNMA and FHLMC mortgage-backed securities. The
decrease of $168,000 in investment securities was primarily due to principal
repayments on the mortgage-backed securities.





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 six months ended June 30, 2008, deposits grew $2.1 million to $114.2
million. The increase was predominately in core deposits of $3.7 million offset
by a decrease in certificates of deposit of $1.6 million mostly due to
promotional certificates of deposit maturing and our decision to use lower cost
borrowings from the FHLB to fund the loan growth.





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.  The Bank had $1.7
million in average balances in overnight borrowings during the six month period
ended June 30, 2008. The borrowings were used to help fund the increase in loan
growth in excess of the deposit growth. We had borrowings at June 30, 2008 of
$3.0 million compared with no borrowings at December 31, 2007.


13
 Index





Stockholders’
Equity.Total stockholders’ equity increased $380,000 from
$18.5 million at December 31, 2007 to $18.9 million at June 30, 2008. Equity
increased primarily due to earnings of $359,000 for the six months ended June
30, 2008.





Results
of Operations for the Three Months Ended June 30, 2008 and 2007





Financial
Highlights.Net income decreased $3,000, or 1.5%, to $202,000 for the
three months ended June 30, 2008 compared to $205,000 for the same period in the
prior year.  The decrease reflected an increase in the provision for
loan losses and higher noninterest expenses as a result of our branch expansion,
mostly offset by higher net interest income and non-interest
income.





Net Interest
Income.Net interest income increased $204,000, or 14.8%, to
$1.6 million during the three months ended June 30, 2008 compared to $1.4
million for the prior year period, primarily as a result of an increase in
interest income on loans and a reduction in interest expense offset by a
decrease in investment and other interest income.  Interest income on
loans increased $108,000, or 5.4%, to $2.1 million during the three months ended
June 30, 2008 as the average balance of the loan portfolio grew $18.1 million,
or 16.9%, to $125.3 million, while the average yield on the loan portfolio
decreased 73 basis points to 6.71% for the three months ended June 30,
2008.  Loan growth was driven by an increase in one- to four-family
residential real estate loans and land loans.  The decrease in the
average yield on loans was mostly the result of the decreases in market interest
rates.





Interest income on investment
securities decreased $122,000 for the three months ended June 30, 2008 to
$29,000 compared to the prior year period, as the average balance of the
securities portfolio decreased $9.3 million during the three months ended June
30, 2008 to $2.7 million compared to $12.0 million in the prior year period, and
the average yield on investment securities decreased 69 basis points to
4.36%.  The decrease in the investment portfolio primarily reflected
the call of a $9.0 million U.S. Treasury in September 2007, of which most of the
proceeds were used to fund loan growth in 2007.





The shift in the mix of
interest-earning assets, combined with lower market rates, decreased the average
yield on interest earning assets to 6.60% during the three months ended June 30,
2008, compared to 7.13% for the three months ended June 30, 2007.





Interest expense decreased from
$812,000 for the three months ended June 30, 2007, to $568,000 for the three
months ended June 30, 2008, a decrease of $244,000, or 30.0%. The primary reason
for the decrease was maturing certificates of deposit repricing to lower
interest rates. The average balance of interest-bearing deposits during the
three months ended June 30, 2008 decreased $469,000, or 0.5% to $95.8 million,
compared with $96.3 million in the prior year period, due primarily to a $1.5
million decrease in the average balance of money market accounts and a decrease
of $213,000 in certificates of deposit, offset by an increase of $1.4 million in
savings accounts.  Decreases in market interest rates in late 2007 and
early 2008, combined with the shift in the deposit mix, decreased the average
cost of deposits to 2.30%, for the three months ended June 30, 2008, compared to
3.27% for the three months ended June 30, 2007.





For the three months ended June 30,
2008, our net interest margin increased 36 basis points to 4.85% from 4.49% for
the prior year period and the interest rate spread increased by 44 basis points
to 4.30% for the three months ended June 30, 2008 from 3.86% for the prior year
period.  These increases for the quarter were primarily due to the
recent decline in short-term interest rates implemented by the Federal Open
Market Committee, resulting in repricing of many of the Company’s
interest-bearing assets and liabilities.





The
following table summarizes average balances and average yields and costs of
interest-earning assets and interest-bearing liabilities for the three months
ended June 30, 2008 and 2007.


14
 Index





Three Months Ended
      June 30,2008
            
            
            2007(Dollars
      in thousands)
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              Cost
            
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              CostAssets:Interest-earning
      assets:Loans
            
            $
            125,335
            
            
            $
            2,101
            
            
            
            6.71
            %
            
            $
            107,200
            
            
            $
            1,993
            
            
            
            7.44
            %Investment
      securities
            
            
            2,662
            
            
            
            29
            
            
            
            4.36
            
            
            
            11,952
            
            
            
            151
            
            
            
            5.05Other
      interest-earning assets
            
            
            2,318
            
            
            19
            
            
            
            3.28
            
            
            
            3,647
            
            
            45
            
            
            
            4.94Total
      interest-earning assets
            
            
            130,315
            
            
            
            2,149
            
            
            
            6.60
            
            
            
            122,799
            
            
            
            2,189
            
            
            
            7.13Non-interest-earning
      assets
            
            
            5,772
            
            
            
            
            
            
            
            
            
            
            
            4,762Total
      assets
            
            $
            136,087
            
            
            
            
            
            
            
            
            
            
            $
            127,561Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
            
            $
            6,295
            
            
            
            5
            
            
            
            0.32
            
            
            $
            6,457
            
            
            
            4
            
            
            
            0.25Money
      market accounts
            
            
            11,401
            
            
            
            43
            
            
            
            1.51
            
            
            
            12,866
            
            
            
            74
            
            
            
            2.30Savings
      accounts
            
            
            14,857
            
            
            
            20
            
            
            
            0.54
            
            
            
            13,486
            
            
            
            17
            
            
            
            0.50Certificates
      of deposit
            
            
            63,236
            
            
            
            483
            
            
            
            3.06
            
            
            
            63,449
            
            
            
            693
            
            
            
            4.37Stock
      subscription funds
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            1,596
            
            
            
            3
            
            
            
            0.75Borrowings
            
            
            2,806
            
            
            17
            
            
            
            2.42
            
            
            
            1,527
            
            
            21
            
            
            
            5.50Total
      interest-bearing liabilities
            
            
            98,595
            
            
            
            568
            
            
            
            2.30
            
            
            
            99,381
            
            
            
            812
            
            
            
            3.27Non-interest-bearing
      demand deposits
            
            
            16,941
            
            
            
            
            
            
            
            
            
            
            
            17,295Other
      non-interest-bearing liabilities
            
            
            1,740
            
            
            
            
            
            
            
            
            
            
            
            1,708Total
      liabilities
            
            
            117,276
            
            
            
            
            
            
            
            
            
            
            
            118,384Stockholders’
      equity
            
            
            18,811
            
            
            
            
            
            
            
            
            
            
            
            9,177Total
      liabilities and stockholders’ equity
            
            $
            136,087
            
            
            
            
            
            
            
            
            
            
            $
            127,561Net
      interest income
            
            
            
            
            
            $
            1,581
            
            
            
            
            
            
            
            
            
            
            $
            1,377Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            4.30
            
            
            
            
            
            
            
            
            
            
            
            3.86Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.85
            
            
            
            
            
            
            
            
            
            
            
            4.49Average
      interest-earning assets to
              average
      interest-bearing liabilities
            
            
            132.17
            %
            
            
            
            
            
            
            
            
            
            
            123.56
            %




Provision for
Loan Losses.  Provisions for loan losses were $74,000 for the
three months ended June 30, 2008 compared to $35,000 for the three months ended
June 30, 2007.  The increase in the three month provision reflected
the increase in the levels of nonperforming loans and weakening economic
conditions. Approximately $24,000 of the $39,000 increase in the provision for
loans losses in the comparable period was for the nonperforming loans.
Nonperforming loans as a percentage of total loans increased from 0.10% at
December 31, 2007, to 0.77% as of June 30, 2008, primarily because of an
increase of $864,000 in nonperforming loans to $988,000 as of June 30,
2008.





Non-Interest
Income.  Non-interest income increased $19,000, or 4.3%, to
$460,000 for the three months ended June 30, 2008 as compared to the prior year
period.  Contributing primarily to the increase in non-interest income
for the three months ended June 30, 2008, was a reduction of an accrued
liability due to the settlement of a litigation matter of approximately $81,000,
offset by decreases in banking fees and service charges of $18,000 as compared
to the three months ended June 30, 2007, as a result of customer preference for
service charge free accounts and the competitive banking environment. Mortgage
banking income, net, decreased $22,000 for the three months ended June 30, 2008
as compared to the same period in 2007, as a result of the decrease in the
volume of mortgages sold during the period and the gains derived from these
sales.




Non-Interest
Expenses.  Non-interest expenses increased $194,000, or 13.4%,
to $1.6 million, during the three months ended June 30, 2008 as compared to the
prior year period. The primary reason for the increase in non-interest expenses
during the comparable periods was the expenses associated with the opening of a
new branch office and the related compensation expenses for increased staffing.
Non-interest expenses included


15
 Index


expenses
of $84,000 during the second quarter of 2008 for the Bank’s newest branch opened
in September 2007, in the Town of Newburgh. Professional fees increased by
$66,000, primarily due to expenses relating to being a public company.





Income Tax
Expense.The
income tax expense was $119,000 for the three months ended June 30, 2008 as
compared to $126,000 for the three months ended June 30, 2007. Lower levels of
pre-tax income have resulted in a decrease in income tax expense. The effective
tax rate was 37.1% for the three months ended June 30, 2008 and 38.1% for the
three months ended June 30, 2007.




Results
of Operations for the Six Months Ended June 30, 2008 and 2007





Financial
Highlights.Net income decreased $26,000, or 6.8%, to $359,000 for the
six months ended June 30, 2008 compared to $385,000 for the same period in the
prior year.  The primary reasons for the decrease were higher
noninterest expenses as a result of our branch expansion, mostly offset by
higher net interest income.





Net Interest
Income.Net interest income increased $315,000, or 11.6%, to
$3.0 million during the six months ended June 30, 2008 compared to $2.7 million
for the prior year period, primarily as a result of an increase in interest
income on loans and a reduction in interest expense offset by a decrease in
investment income.





Interest
income on loans increased $320,000, or 8.2%, to $4.2 million during the six
months ended June 30, 2008 as the average balance of the loan portfolio grew
$19.4 million, or 18.6%, to $123.6 million, while the average yield on the loan
portfolio decreased 65 basis points to 6.85% for the six months ended June 30,
2008.  Loan growth was driven by an increase in one- to four-family
residential real estate loans and land loans. The decrease in the average yield
on loans was mostly the result of the decreases in the prime interest rate since
September 2007 totaling 325 basis points.





Interest income on investment
securities decreased $235,000 for the six months ended June 30, 2008 to $59,000
compared to the prior year period, as the average balance of the securities
portfolio decreased $9.3 million, during the six months ended June 30, 2008 to
$2.7 million compared to $12.0 million in the prior year period, and the average
yield on investment securities decreased 55 basis points to
4.36%.  The decrease in the investment portfolio primarily reflected
the call of a $9.0 million U.S. Treasury in September 2007, of which most of the
proceeds were used to fund loan growth in 2007.





The shift in the mix of
interest-earning assets was more than offset by lower market rates, which
decreased the average yield on interest earning assets to 6.69% during the six
months ended June 30, 2008, compared to 7.16% for the six months ended June 30,
2007.





Interest expense decreased $266,000,
from $1.6 million to $1.3 million, or 17.0% for the six months ended June 30,
2008. The primary reason for the decrease was maturing certificates of deposit
repricing to lower interest rates. The average balance of interest-bearing
deposits during the six months ended June 30, 2008 increased $2.7 million,
or 2.9% to $95.5 million, compared with $92.9 million in the prior year period,
due primarily to a $4.8 million increase in the average balance of certificates
of deposit, primarily due to customers’ preference for higher
rates.  This increase was offset by a $2.8 million average
balance decline in money market accounts.  Decreases in market
interest rates in late 2007 and early 2008,  decreased the average
cost of deposits to 2.68%, for the six months ended June 30, 2008, compared to
3.23% for the six months ended June 30, 2007.





For the six months ended June 30, 2008,
our net interest margin increased 14 basis points to 4.68% from 4.54% for the
prior year period and the interest rate spread increased by 11 basis points to
4.01% for the six months ended June 30, 2008 compared to 3.90% for the six
months ended June 30, 2007.


16
 Index


On September 18, 2007, the Federal Open
Market Committee of the Federal Reserve Board of Governors (the “FOMC”) reduced
the overnight lending rate (the “fed funds rate”) by 50 basis points to
4.75%.  This was the first reduction in the fed funds rate in 13
quarters.  As of June 30, 2008, the FOMC had reduced the fed funds
rate by an additional 275 basis points to 2.00%. Although the reductions in the
fed funds rate triggered a reduction in market rates of interest, the impact of
the FOMC's rate reduction is unknown at this time.If rates on deposits
reprice slower than rates on our loans and investments, we could experience
compression of our net interest margin which could have a negative effect on our
profitability.





The
following table summarizes average balances and average yields and costs of
interest-earning assets and interest-bearing liabilities for the six months
ended June 30, 2008 and 2007.





Six Months Ended June
      30,2008
            
            
            2007(Dollars
      in thousands)
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              Cost
            
            
            Average
              Balance
            
            
            Interest
              and
              Dividends
            
            
            Yield/
              CostAssets:Interest-earning
      assets:Loans
            
            $
            123,641
            
            
            $
            4,233
            
            
            
            6.85
            %
            
            $
            104,278
            
            
            $
            3,913
            
            
            
            7.50
            %Investment
      securities
            
            
            2,706
            
            
            
            59
            
            
            
            4.36
            
            
            
            11,983
            
            
            
            294
            
            
            
            4.91Other
      interest-earning assets
            
            
            3,125
            
            
            39
            
            
            
            2.50
            
            
            
            3,272
            
            
            75
            
            
            
            4.58Total
      interest-earning assets
            
            
            129,472
            
            
            
            4,331
            
            
            
            6.69
            
            
            
            119,533
            
            
            
            4,282
            
            
            
            7.16Non-interest-earning
      assets
            
            
            4,831
            
            
            
            
            
            
            
            
            
            
            
            4,763Total
      assets
            
            $
            134,303
            
            
            
            
            
            
            
            
            
            
            $
            124,296Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
            
            $
            6,137
            
            
            
            9
            
            
            
            0.29
            
            
            $
            6,337
            
            
            
            8
            
            
            
            0.25Money
      market accounts
            
            
            11,169
            
            
            
            98
            
            
            
            1.75
            
            
            
            13,976
            
            
            
            169
            
            
            
            2.42Savings
      accounts
            
            
            14,279
            
            
            
            41
            
            
            
            0.57
            
            
            
            13,447
            
            
            
            33
            
            
            
            0.49Certificates
      of deposit
            
            
            63,964
            
            
            
            1,134
            
            
            
            3.55
            
            
            
            59,121
            
            
            
            1,288
            
            
            
            4.36Stock
      subscription funds
            
            
            -
            
            
            
            -
            
            
            
            0.00
            
            
            
            803
            
            
            
            3
            
            
            
            0.75Borrowings
            
            
            1,687
            
            
            21
            
            
            
            2.49
            
            
            
            2,479
            
            
            68
            
            
            
            5.49Total
      interest-bearing liabilities
            
            
            97,236
            
            
            
            1,303
            
            
            
            2.68
            
            
            
            96,163
            
            
            
            1,569
            
            
            
            3.26Non-interest-bearing
      demand deposits
            
            
            16,532
            
            
            
            
            
            
            
            
            
            
            
            17,374Other
      non-interest-bearing liabilities
            
            
            1,808
            
            
            
            
            
            
            
            
            
            
            
            1,837Total
      liabilities
            
            
            115,576
            
            
            
            
            
            
            
            
            
            
            
            115,374Stockholders’
      equity
            
            
            18,727
            
            
            
            
            
            
            
            
            
            
            
            8,922Total
      liabilities and stockholders’ equity
            
            $
            134,303
            
            
            
            
            
            
            
            
            
            
            $
            124,296Net
      interest income
            
            
            
            
            
            $
            3,028
            
            
            
            
            
            
            
            
            
            
            $
            2,713Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            4.01
            
            
            
            
            
            
            
            
            
            
            
            3.90Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.68
            
            
            
            
            
            
            
            
            
            
            
            4.54Average
      interest-earning assets to
              average
      interest-bearing liabilities
            
            
            133.15
            %
            
            
            
            
            
            
            
            
            
            
            124.30
            %




Provision for
Loan Losses.  Provisions for loan losses were $100,000 for the
six months ended June 30, 2008 compared to $94,000 for the six months ended June
30, 2007.  The increase in the six month provision reflects the
increase in the levels of nonperforming loans and weakening economic conditions.
This was offset by management’s assessment of the change in the composition of
the loan portfolio resulting from an increase in the amount of lower risk
residential mortgages in the portfolio as compared to non-residential portfolio
loans and also reflects the decrease in the volume of loan originations in the
six months of 2008 as compared to the same period in
2007.  Nonperforming loans as a percentage of total loans increased
from 0.10% at December 31, 2007, to 0.77% as of June 30, 2008, primarily because
of an increase of $864,000 in nonperforming loans to $988,000 as of June 30,
2008.





17
 Index


Non-Interest
Income.  Non-interest income decreased $25,000, or 2.9%, to
$843,000 for the six months ended June 30, 2008 as compared to the prior year
period.  Non-interest income declined during the six months ended June
30, 2008 primarily due to decreases in banking fees and service charges of
$29,000 as compared to the six months ended June 30, 2007, as a result of
customer preference for service charge free accounts and the competitive banking
environment. Mortgage banking income, net, decreased $56,000 for the six months
ended June 30, 2008 as compared to the same period in 2007, as a result of the
decrease in the volume of mortgages sold during the period and the gains derived
from these sales. The decrease in non-interest income was partially offset by
the $81,000 reduction in the accrued liability due to the settlement of a
litigation matter as discussed in the three month analysis.




Non-Interest
Expenses.  Non-interest expenses increased $331,000, or 11.6%,
to $3.2 million, during the six months ended June 30, 2008 as compared to the
prior year period. The primary reason for the increase in non-interest expenses
during the comparable periods was the expenses associated with the opening of a
new branch office and the related compensation expenses for increased staffing.
Non-interest expenses include expenses of $167,000 during the first six months
of 2008 for the Bank’s newest branch opened in September 2007, in the Town of
Newburgh. Professional fees increased by $101,000, primarily due to expenses
relating to being a public company.





Income Tax
Expense.Income
tax expense was $219,000 for the six months ended June 30, 2008 as compared to
$240,000 for the six months ended June 30, 2007. Lower levels of pre-tax income
have resulted in a decrease in income tax expense. The effective tax rate was
37.9% for the six months ended June 30, 2008 and 38.4% for the six months ended
June 30, 2007.





Liquidity
and Capital Management





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 June 30, 2008, cash and cash equivalents totaled $4.0
million.  In addition, at June 30, 2008, we had arrangements to borrow
up to $24.7 million from the Federal Home Loan Bank of New York.  On
June 30, 2008, we had short-term advances outstanding of $3.0
million.





A significant use of our liquidity is
the funding of loan originations.  At June 30, 2008, we had $23.4
million in loan commitments outstanding, which primarily consisted of $2.8
million in unadvanced portions of construction loans, $9.8 million in
commitments to fund one- to four-family residential real estate loans, $1.3
million in commercial real estate and business loans, $3.3 million in
unused home equity lines of credit and $5.4 million in unused commercial
lines of credit.  Historically, many of the commitments expire without
being fully drawn; therefore, the total amount of commitments does 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 June 30,
2008 totaled $59.4 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 than we currently
pay on the certificates of deposit due on or before June 30,


18
 Index


2009.  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.The Bank is 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 June 30, 2008, the Bank exceeded all of our
regulatory capital requirements and is considered “well capitalized” under
regulatory guidelines.





We
may use capital management tools such as cash dividends and common share
repurchases.  However, under the Office of Thrift Supervision
regulations, we were not allowed to repurchase any shares during the first year
following the offering, except under limited circumstances.





On July 28, 2008, the Company announced
that it approved a stock repurchase program to purchase up to 5% of its
outstanding shares (excluding shares held by Hometown Bancorp, MHC, the
Company’s mutual holding company), or up to 53,561 shares for a period of up to
12 months. The repurchases will depend on certain factors, including but not
limited to, market conditions and prices, the Company’s liquidity requirements
and alternative uses of capital. Any repurchases will be held as treasury stock
and will be available for general corporate purposes. The Company anticipates
conducting such repurchases in accordance with a Rule 10b5-1 trading plan
administered by a broker dealer.





Off-Balance
Sheet Arrangements





In the normal course of operations, we
engage in a variety of financial transactions that, in accordance with
accounting principles generally accepted in the United States of America, 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 and letters of credit.





For the six months ended June 30, 2008,
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.





Item
3.  Quantitative and Qualitative Disclosures About
Market Risk





Not applicable because the Company is a
smaller reporting company.





Item
4.  Controls and Procedures





The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  Based upon their evaluation, the principal executive officer
and principal financial officer concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.  There have been no changes in the Company’s internal
control over financial reporting identified in connection with the evaluation
required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting. The report of
management’s attestation regarding internal controls over financial reporting
will be required with this year’s annual report since the Company had a
transition period that was established by rules of the Securities and Exchange
Commission for newly public companies.


19
 Index





PART
II.  OTHER INFORMATION





Item
1.    Legal Proceedings





Hometown
Bancorp is not involved in any pending legal proceedings.  Walden
Federal is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business.  Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to its financial condition and results of operations.





Item
1A. Risk Factors





Not applicable because the Company is a
smaller reporting company





Item
2.   Unregistered Sales of Equity Securities and Use
of Proceeds





Not
Applicable.





Item
3.   Defaults upon Senior Securities





Not Applicable.





Item
4.   Submission of Matters to a Vote of Security
Holders





The annual meeting of the stockholders
of the Company was held on May 14, 2008 at which time two nominees for director,
as set forth in the proxy materials for the meeting, were elected by the
following vote:





For
              
              WithheldGerald
      N. Jacobowitz
              
              2,091,922
              
              88,354Curt
      J. Schoeberl
              
              2,092,022
              
              88,254





In addition, the stockholders approved the Company’s 2008 Equity Incentive
Plan.





2008
      Equity
                Incentive Plan
              
              2008
      Equity
                Incentive
      Plan
                (excluding
      MHC
                shares)For
              
              1,714,822
              
              405,547Against
              
              153,381
              
              153,381Abstentions
              
              6,930
              
              6,930Broker
      Non-votes
              
              305,143
              
              305,143





In addition, the stockholders approved
the ratification and appointment of Beard Miller Company LLP as our independent
registered public accounting firm.





Ratification
      of
                Beard
      Miller
                Company LLPFor
              
              2,141,008Against
              
              20,308Abstentions
              
              18,960Broker
      Non-votes
              
              -





20
 Index





Item
5. Other Information





None.





Item
6.  Exhibits




3.1
            Charter
      of Hometown Bancorp, Inc. (1)




3.2
            Bylaws
      of Hometown Bancorp, Inc. (2)




4.0
            Stock
      Certificate of Hometown Bancorp, Inc.
(1)




31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer




31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer




32.0
            Section
      1350 Certification





_________________________________


(1)
            Incorporated
      by reference into this document from the Exhibits filed with the
      Securities and Exchange Commission on the Registration Statement on Form
      SB-2, and any amendments thereto, Registration No.
    333-141351.




(2)
            Incorporated
      by reference into this document from Exhibit 3.2 of the Form 8-K filed
      with the Securities and Exchange Commission on July 25, 2008 (File No.
      000-52674).




21
 Index


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








HOMETOWN
      BANCORP, INC.Dated:
      August 14, 2008
            By:
      /s/ Thomas F.
      GibneyThomas
      F. GibneyPresident
      and Chief Executive Officer(principal
      executive officer)Dated:
      August 14, 2008
            By:
      /s/ Stephen W.
      DederickStephen
      W. DederickVice
      President andChief
      Financial Officer(principal
      financial and accounting officer)







22