UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


____________





FORM
10-Q


(Mark
One)





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended March 31, 2010





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO 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 x                       No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes  ̈                       No
 ̈





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  ̈
            Accelerated
      filer  ̈
            Non-accelerated
      filer  ̈
            Smaller
      reporting company x





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


Yes  ̈                       No
x





As of May
17, 2010 there were 2,326,939 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 March 31, 2010 and December 31,
      2009 (Unaudited)
            2Consolidated Statements of Income for the three months ended
      March 31, 2010 and 2009 (Unaudited)
            3Consolidated Statements of Stockholders’ Equity for the three
      months ended March 31, 2010 and 2009 (Unaudited)
            4Consolidated Statements of Cash Flows for the three months
      ended March 31, 2010 and 2009 (Unaudited)
            5Notes to Unaudited Consolidated Financial
      Statements
            6Item
      2.
            
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            14Item
      3.
            
            Quantitative and Qualitative Disclosures About Market
      Risk
            21Item
      4T.
            
            Controls and Procedures
            21PART
      II.  OTHER INFORMATIONItem
      1.
            
            Legal Proceedings
            22Item
      1A.
            
            Risk Factors
            22Item
      2.
            
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            22Item
      3.
            
            Defaults upon Senior Securities
            22Item
      4.
            
            Removed and Reserved
            22Item
      5.
            
            Other Information
            22Item
      6.
            
            Exhibits
            22Signatures


i
 Index


PART
I. FINANCIAL INFORMATION





Item 1. Financial Statements




Hometown Bancorp, Inc.
 Consolidated
Balance Sheets
 (Unaudited)


March
      31,
            
            
            December
      31,2010
            
            
            2009(Dollars
      in Thousands,
              Except Share
      Data)AssetsCash
      and due from banks
            
            $
            5,834
            
            
            $
            6,458Interest
      earning demand deposits with banks
            
            
            1,054
            
            
            
            1,654Cash
      and cash equivalents
            
            
            6,888
            
            
            
            8,112Certificates
      of deposit
            
            
            25
            
            
            
            -Securities
      available for sale
            
            
            1,002
            
            
            
            -Securities
      held to maturity (fair value at March 31, 2010 $1,260; and at December
      31,2009
      $1,323)
            
            
            1,231
            
            
            
            1,290Loans
      held for sale
            
            
            -
            
            
            
            1,175Loans
      receivable, net of allowance for loan losses (at March 31, 2010 $1,970;
      and atDecember
      31, 2009 $1,918)
            
            
            136,756
            
            
            
            136,793Premises
      and equipment, net
            
            
            4,047
            
            
            
            4,103Restricted
      investments in bank stock, at cost
            
            
            523
            
            
            
            491Other
      real estate owned
            
            
            1,795
            
            
            
            1,435Accrued
      interest receivable and other assets
            
            
            2,914
            
            
            
            2,868Total
      Assets
            
            $
            155,181
            
            
            $
            156,267Liabilities
      and Stockholders’ EquityLiabilitiesDeposits:Non-interest
      bearing
            
            $
            19,030
            
            
            $
            19,770Interest
      bearing
            
            
            112,127
            
            
            
            111,978Total
      Deposits
            
            
            131,157
            
            
            
            131,748Federal
      Home Loan Bank advances
            
            
            3,000
            
            
            
            3,000Advances
      from borrowers for taxes and insurance
            
            
            582
            
            
            
            736Accrued
      interest payable
            
            
            32
            
            
            
            33Other
      liabilities
            
            
            902
            
            
            
            1,461Total
      Liabilities
            
            
            135,673
            
            
            
            136,978Commitments
      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; 2,380,500 shares
      issued
            
            
            24
            
            
            
            24Paid-in
      capital
            
            
            10,083
            
            
            
            10,088Retained
      earnings
            
            
            10,495
            
            
            
            10,285Unearned
      ESOP shares, at cost
            
            
            (781
            )
            
            
            (793
            )Treasury
      stock, at cost, 53,561 shares at March 31, 2010 and at December 31,
      2009
            
            
            (311
            )
            
            
            (311
            )Accumulated
      other comprehensive loss
            
            
            (2
            )
            
            
            (4
            )Total
      Stockholders’ Equity
            
            
            19,508
            
            
            
            19,289Total
      Liabilities and Stockholders’ Equity
            
            $
            155,181
            
            
            $
            156,267


2
 Index


Hometown Bancorp, Inc.


Consolidated
Statements of Income


(Unaudited)




Three
      Months Ended March 31,2010
            
            
            2009Interest
      Income
            
            (In
      thousands, except per share data)Loans
      receivable, including fees
            
            $
            1,981
            
            
            $
            2,122Securities,
      taxable
            
            
            13
            
            
            
            21Other
            
            
            8
            
            
            
            3Total
      Interest Income
            
            
            2,002
            
            
            
            2,146Interest
      ExpenseDeposits
            
            
            314
            
            
            
            563Federal
      Home Loan Bank advances
            
            
            6
            
            
            
            18Total
      Interest Expense
            
            
            320
            
            
            
            581Net
      Interest Income
            
            
            1,682
            
            
            
            1,565Provision
      for Loan Losses
            
            
            50
            
            
            
            160Net
      Interest Income after Provision for Loan Losses
            
            
            1,632
            
            
            
            1,405Non-interest
      IncomeBanking
      fees and service charges
            
            
            245
            
            
            
            240Mortgage
      banking income, net
            
            
            141
            
            
            
            266Investment
      brokerage fees
            
            
            15
            
            
            
            17Other
            
            
            11
            
            
            
            28Total
      Non-interest Income
            
            
            412
            
            
            
            551Non-interest
      ExpensesSalaries
      and employee benefits
            
            
            978
            
            
            
            986Occupancy
      and equipment
            
            
            191
            
            
            
            201Professional
      fees
            
            
            64
            
            
            
            72Advertising
      and marketing
            
            
            27
            
            
            
            25Data
      processing
            
            
            160
            
            
            
            145Telephone
      and postage
            
            
            41
            
            
            
            51FDIC
      premiums
            
            
            56
            
            
            
            24Other
      real estate owned expense
            
            
            44
            
            
            
            -Other
            
            
            107
            
            
            
            137Total
      Non-interest Expenses
            
            
            1,668
            
            
            
            1,641Income
      before Income Taxes
            
            
            376
            
            
            
            315Income
      Tax Expense
            
            
            145
            
            
            
            122Net
      Income
            
            $
            231
            
            
            $
            193Net
      Income per common share- basic
            
            $
            0.10
            
            
            $
            0.09Weighted
      average number of common shares outstanding–
      basic
            
            
            2,248
            
            
            
            2,248


3
 Index


Hometown Bancorp, Inc.


Consolidated
Statements of Stockholders’ Equity


Three
Months Ended March 31, 2010 and 2009


(In Thousands, except share
data)(Unaudited)





Common
              Stock
            
            
            Paid-In
              Capital
            
            
            Retained
              Earnings
            
            
            Unearned
              ESOP
              Shares
            
            
            Treasury
      Stock
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            TotalBalance
      - December 31, 2008
            
            $
            24
            
            
            $
            10,112
            
            
            $
            9,787
            
            
            $
            (840
            )
            
            $
            (284
            )
            
            $
            (5
            )
            
            $
            18,794Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            193
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            193Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            193Treasury
      stock purchase(7,061
      shares)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (27
            )
            
            
            -
            
            
            
            (27
            )ESOP
      shares committed to bereleased
      (1,167 shares)
            
            
            -
            
            
            
            (7
            )
            
            
            -
            
            
            
            12
            
            
            
            -
            
            
            
            -
            
            
            
            5Balance
      - March 31, 2009
            
            $
            24
            
            
            $
            10,105
            
            
            $
            9,980
            
            
            $
            (828
            )
            
            $
            (311
            )
            
            $
            (5
            )
            
            $
            18,965Balance
      - December 31, 2009
            
            $
            24
            
            
            $
            10,088
            
            
            $
            10,285
            
            
            $
            (793
            )
            
            $
            (311
            )
            
            $
            (4
            )
            
            $
            19,289Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            231
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            231Other
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2
            
            
            
            2Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            233Cash
      dividends declared($0.02
      per share)
            
            
            -
            
            
            
            -
            
            
            
            (21
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (21
            )ESOP
      shares committed tobe
      released (1,167 shares)
            
            
            -
            
            
            
            (5
            )
            
            
            -
            
            
            
            12
            
            
            
            -
            
            
            
            -
            
            
            
            7Balance
      - March 31, 2010
            
            $
            24
            
            
            $
            10,083
            
            
            $
            10,495
            
            
            $
            (781
            )
            
            $
            (311
            )
            
            $
            (2
            )
            
            $
            19,508








See
notes to consolidated financial statements


4
 Index


Hometown Bancorp, Inc.


Consolidated
Statements of Cash Flows


(Unaudited)





Three
      Months Ended March 31,2010
            
            
            2009(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
            
            $
            231
            
            
            $
            193Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
            
            
            67
            
            
            
            62Provision
      for loan losses
            
            
            50
            
            
            
            160Amortization
      of mortgage servicing rights
            
            
            36
            
            
            
            48Net
      accretion of securities premiums and discounts
            
            
            (1
            )
            
            
            (2
            )Net
      gain on sale of loans
            
            
            (76
            )
            
            
            (205
            )Loans
      originated for sale
            
            
            (2,689
            )
            
            
            (11,179
            )Proceeds
      from sale of loans
            
            
            3,940
            
            
            
            10,124ESOP
      expense
            
            
            7
            
            
            
            5Increase
      in accrued interest receivable and other assets
            
            
            (82
            )
            
            
            (211
            )Decrease
      in accrued interest payable and other liabilities
            
            
            (560
            )
            
            
            (907
            )Net
      Cash Provided (Used) by Operating Activities
            
            
            923
            
            
            
            (1,912
            )Cash
      Flows from Investing ActivitiesPurchases
      of certificates of deposit
            
            
            (25
            )
            
            
            -Activity
      in available for sale securities:Purchases
            
            
            (1,000
            )Activity
      in held to maturity securities:Maturities,
      calls and principal repayments
            
            
            60
            
            
            
            71Net
      increase in loans receivable
            
            
            (373
            )
            
            
            (365
            )Net
      (increase) decrease in restricted investment in Bank stock
            
            
            (32
            )
            
            
            22Purchases
      of bank premises and equipment
            
            
            (11
            )
            
            
            (3
            )Net
      Cash Used by Investing Activities
            
            
            (1,381
            )
            
            
            (275
            )Cash
      Flows from Financing ActivitiesNet
      (decrease) increase in deposits
            
            
            (591
            )
            
            
            3,234Net
      decrease in Federal Home Loan Bank advances
            
            
            -
            
            
            
            (1,050
            )Decrease
      in advances from borrowers for taxes and insurance
            
            
            (154
            )
            
            
            (114
            )Dividends
      paid
            
            
            (21
            )
            
            
            -Treasury
      stock purchased
            
            
            -
            
            
            
            (27
            )Net
      Cash (Used) Provided by Financing Activities
            
            
            (766
            )
            
            
            2,043Net
      Decrease in Cash and Cash Equivalents
            
            
            (1,224
            )
            
            
            (144
            )Cash
      and Cash Equivalents - Beginning
            
            
            8,112
            
            
            
            3,203Cash
      and Cash Equivalents - Ending
            
            $
            6,888
            
            
            $
            3,059Supplementary
      Cash Flows InformationInterest
      paid
            
            $
            321
            
            
            $
            639Income
      taxes paid
            
            $
            70
            
            
            $
            236Supplemental
      Schedule of Noncash Investing ActivitiesLoans
      transferred to foreclosed real estate
            
            $
            360
            
            
            $
            83








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 months ended March 31, 2010 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2010.





The
unaudited consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements for the years ended
December 31, 2009 and 2008, included in its annual report on Form
10-K.





The
unaudited consolidated financial statements at March 31, 2010 and for the three
months ended March 31, 2010 and 2009 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





In June
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”). At March 31, 2010, 56.3% of the Company’s
outstanding common stock, or 1,309,275 shares, were owned by Hometown Bancorp
MHC.





Note
3 – Directors’ Retirement Plan





The Bank
provides 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 three
months ended March 31, 2010 and 2009 is as follows (in thousands):








2010
            
            
            2009Service
      cost
            
            $
            14
            
            
            $
            12Interest
      cost
            
            
            2
            
            
            
            2Amortization
      of past service liability
            
            
            1
            
            
            
            1Net
      periodic pension expense
            
            $
            17
            
            
            $
            15





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.  However, 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 equity on the consolidated balance sheets such items,
along with net income, are components of comprehensive income.


6
 Index


The
components of other comprehensive income (loss) and related tax effects for the
three months ended March 31, 2010 and 2009 are as follows:





Three
      Months Ended March, 312010
            
            
            2009(In
      Thousands)Unrealized
      holding gains (losses) on securities available for sale
            
            $
            2
            
            
            $
            (3
            )Reclassification
      adjustment for Directors’ retirement plan pensiongains
      and past service liability recognized in pension expense
            
            
            1
            
            
            
            1Other
      comprehensive income (loss) before tax
            
            
            3
            
            
            
            (2
            )Income
      tax effect
            
            
            (1
            )
            
            
            2Net
      of Tax Amount
            
            $
            2
            
            
            $
            -





At March
31, 2010 and 2009, the components of accumulated other comprehensive loss are as
follows:





2010
            
            
            2009(In
      Thousands)Unrealized
      gain on securities available for sale (net of tax effect2010
      $1; 2009 $0)
            
            $
            1
            
            
            $
            -Net
      losses and past service liability for the Directors’
      retirementplan
      (net of tax effect 2010 ($2); 2009 ($2))
            
            
            (3
            )
            
            
            (5
            )$
            (2
            )
            
            $
            (5
            )





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





The Bank
has an ESOP which acquired 93,315 shares of the Company’s common stock in the
2007 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 Company committed to release 1,167
shares to the ESOP during the three months ended March 31, 2010 and 2009,
respectively. The Company recognized $7,000 and $5,000 of compensation expense
related to this plan for the three months ended March 31, 2010 and 2009,
respectively. Unallocated ESOP shares are not “outstanding” for purposes of
earnings per share calculations.





Note
6 – Net Income Per Share





Basic net
income per common share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period. The
Company has a simple capital structure as it has not granted any restricted
stock awards or stock options and, during the three months ended March 31, 2010
and 2009, had no potentially dilutive common stock equivalents. Unallocated
shares held by the ESOP are not included in the weighted-average number of
common shares outstanding for purposes of calculating earnings per common share
until they are committed to be released.


7
 Index


Note
7 – Dividends





On
January 22, 2010, the Board of Directors declared a quarterly cash dividend of
$0.02 per share of Hometown Bancorp, Inc. common stock. The dividend reflects an
annual cash dividend rate of $0.08 per share. The dividend was payable to
stockholders of record as of February 5, 2010, and was paid on February 19,
2010. Hometown Bancorp MHC which holds approximately 56.3% of the Company’s
total outstanding shares waived receipt of the dividend on its
shares.





Note
8 – 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
9 - Recent Accounting Pronouncements





ASU
2010-06





The FASB
has issued ASU 2010-06, Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements. This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial reporting.
Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now
require:





·
            A
      reporting entity to disclose separately the amounts of significant
      transfers in and out of Level 1 and Level 2 fair value measurements and
      describe the reasons for the transfers;
and


·
            In
      the reconciliation for fair value measurements using significant
      unobservable inputs, a reporting entity should present separately
      information about purchases, sales, issuances, and
      settlements.





In
addition, ASU 2010-06 clarifies the requirements of the following existing
disclosures:





·
            For
      purposes of reporting fair value measurement for each class of assets and
      liabilities, a reporting entity needs to use judgment in determining the
      appropriate classes of assets and liabilities;
  and


·
            A
      reporting entity should provide disclosures about the valuation techniques
      and inputs used to measure fair value for both recurring and nonrecurring
      fair value measurements.





ASU
2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. Early
adoption is permitted. For the portions adopted, this update did not have a
significant impact to the consolidated financial statements. The Company does
not expect that the update that is not effective will have any impact on its
consolidated financial statements. There were no transfers in and out of Level 1
and Level 2 during the quarter ended March 31, 2010.


8
 Index


Note
10 – Securities





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


Amortized
      Cost
            
            
            Gross
      Unrealized Gains
            
            
            Gross
      Unrealized Losses
            
            
            Fair
                Value(In
      Thousands)Available
      for Sale:March 31,
      2010:U.S.
      Government agencies
            
            $
            1,000
            
            
            $
            2
            
            
            $
            -
            
            
            $
            1,002








Held
      to Maturity:March 31,
      2010:U.S.
      Government agencies
            
            $
            750
            
            
            $
            1
            
            
            $
            -
            
            
            $
            751Mortgage-backed
      securities
            
            
            481
            
            
            
            28
            
            
            
            -
            
            
            
            509$
            1,231
            
            
            $
            29
            
            
            $
            -
            
            
            $
            1,260





December 31,
      2009:U.S.
      Government agencies
            
            $
            750
            
            
            $
            2
            
            
            $
            -
            
            
            $
            752Mortgage-backed
      securities
            
            
            540
            
            
            
            31
            
            
            
            -
            
            
            
            571$
            1,290
            
            
            $
            33
            
            
            $
            -
            
            
            $
            1,323





The
amortized cost and fair value of securities as of March 31, 2010, by
contractual maturity, are shown below.  Expected maturities may differ
from contractual maturities because the borrowers may have the right to prepay
obligations with or without any penalties.





Available
      for Sale
            
            
            Held
      to MaturityAmortized
      Cost
            
            
            Fair
                Value
            
            
            Amortized
                Cost
            
            
            Fair
                Value(In
      Thousands)
            
            
            (In
      Thousands)Due
      in one year or less
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Due
      after one year through five years
            
            
            1,000
            
            
            
            1,002
            
            
            
            750
            
            
            
            751Due
      after five years through ten years
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Due
      after ten years
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            481
            
            
            
            509$
            1,000
            
            
            $
            1,002
            
            
            $
            1,231
            
            
            $
            1,260





At
March 31, 2010 and December 31, 2009, the Company had no securities in an
unrealized loss position.





There
were no sales of investments for the three months ended March 31, 2010 and 2009.
At March 31, 2010 and December 31, 2009, securities with a carrying value
of none and $100,000, respectively, were pledged to secure public deposits and
for other purposes required or permitted by law.





Note
11 – Mortgage Servicing Rights





At March
31, 2010 and December 31, 2009, one-to-four family residential mortgage
loans serviced for others amounted to approximately $87.4 million and $86.7
million, respectively.  Advances from borrowers for taxes and
insurance related to loans serviced for others amounted to approximately
$347,000 and $532,000, respectively, at March 31, 2010 and December 31,
2009.  These loans and related advances are not included in the
accompanying consolidated balance sheets. Mortgage servicing rights balances are
include in accrued interest receivable and other assets on the consolidated
balance sheets.


9
 Index


The
following summarizes activity pertaining to mortgage servicing rights for the
three months ended March 31, 2010 and 2009:





Three
      Months Ended March 31, 2010
            
            
            Three
      Months Ended March 31, 2009(In
      Thousands)Balance,
      beginning
            
            $
            397
            
            
            $
            310Capitalized
      during the quarter
            
            
            46
            
            
            
            50Amortization
            
            
            (36
            )
            
            
            (48
            )Balance,
      ending
            
            $
            407
            
            
            $
            312





Note
12 – Fair Value Measurements and Fair Values of Financial
Instruments





ASC 820
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 ASC 820 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.





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
financial assets measured at fair value on a recurring basis, the fair value
measurement by level within the fair value hierarchy used at March 31, 2010 are
as follows:





Description
            
            
            Carrying
      Value
            
            
            (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
            
            
            $
            1,002
            
            
            $
            -
            
            
            $
            1,002
            
            
            $
            -Forward
      sales contract
            
            
            $
            16
            
            
            $
            -
            
            
            $
            16
            
            
            $
            -


10
 Index


For
financial assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used at December 31, 2009
are as follows:





Description
            
            
            Carrying
      Value
            
            
            (Level
      1)
                Quoted
      Prices in Active Markets for Identical Assets
            
            
            (Level
      2)
                Significant
                Other
                Observable
                Inputs
            
            
            (Level
      3)
                Significant
                Unobservable
                Inputs(In
      Thousands)Forward
      sales contract
            
            
            $
            6
            
            
            $
            -
            
            
            $
            6
            
            
            $
            -





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.





The
Company enters into forward sales contracts to sell certain residential real
estate loans. Such commitments are considered to be derivative financial
instruments and, therefore, are carried at estimated fair value in the other
assets or other liability section of the consolidated balance sheet. The fair
value of these forward sales contracts is primarily measured by obtaining
pricing from certain government-sponsored entities. The pricing is derived from
market observable inputs that can generally be verified and do not typically
involve significant judgment by the Company and therefore, are classified as
Level 2 in the fair value hierarchy.





For
financial assets measured at fair value on a nonrecurring basis, the fair value
measurements by level within the fair value hierarchy used at March 31, 2010 are
as follows:





Description
            
            
            Carry
      Value
            
            
            (Level
      1) Quoted Prices in Active Markets for Identical
    Assets
            
            
            (Level
      2) Significant Other Observable Inputs
            
            
            (Level
      3)
                Significant
                Unobservable
      Inputs(In
      Thousands)Impaired
      loans
            
            
            $
            1,646
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,646





For
financial assets measured at fair value on a nonrecurring basis, the fair value
measurements by level within the fair value hierarchy used at December 31, 2009
are as follows:





Description
            
            
            Carry
      Value
            
            
            (Level
      1) Quoted Prices in Active Markets for Identical
    Assets
            
            
            (Level
      2) Significant Other Observable Inputs
            
            
            (Level
      3)
                Significant
                Unobservable
      Inputs(In
      Thousands)Impaired
      loans
            
            
            $
            1,695
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,695





11
 Index


Fair
value of impaired loans is generally determined based upon independent third
party appraisals of the properties or other indications of value based on recent
comparable sales of similar properties, or discounted cash flows based upon
expected proceeds. These assets are included in Level 3 fair values, based upon
the lowest level of input that is significant to the fair value measurements.
The fair value consists of loan balances less their valuation allowances as
determined under ASC 310-10. At March 31, 2010, impaired loans, which are
measured for impairment using the fair value of the collateral for collateral
dependent loans, had a carrying amount of $1.6 million, net of a valuation
allowance of $708,000. At December 31, 2009, impaired loans, which are measured
for impairment using the fair value of the collateral for collateral dependent
loans, had a carrying amount of $1.7 million, net of a valuation allowance of
$633,000.





The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities.  Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful.  The following methods and
assumptions were used to estimate the fair values of the Company’s financial
instruments at March 31, 2010 and December 31, 2009:





Cash
and Cash Equivalents




The
carrying amounts reported in the consolidated balance sheet for these
instruments approximate the fair value.





Certificates
of Deposit




Thecarrying amounts
reported in the consolidated balance sheet for certificates of deposit
approximate the fair value.





Securities




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,
which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted market prices for the specific
securities but rather by relying on the securities’ relationship to other
benchmark quoted prices.





Loans
Held for Sale




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





Loans
Receivable





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





Impaired
Loans





Impaired
loans are those that are accounted for under ASC 310-10 in which the Company has
measured impairment generally based on the fair value of the loan’s collateral.
Fair value is generally determined based upon independent third party appraisals
of the properties or other indications of value based on recent comparable sales
of similar properties, or discounted cash flows based upon expected proceeds.
These assets are included in Level 3 fair values, based upon the lowest level of
input that is significant to the fair value measurements. The fair value
consists of loan balances less their valuation allowances.


12
 Index


Restricted
Investments in Bank Stock





The
carrying amount of Federal Home Loan Bank and Atlantic Central Bankers Bank
stock approximates fair value.








Accrued
Interest Receivable and Payable





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





Mortgage
Servicing Rights





The
Company accounts for mortgage servicing rights (“MSR’s”) at amortized cost. The
Company performs a valuation of fair value to determine if there is any
impairment. Fair value for MSR’s is determined using a static discounted cash
flow valuation approach. This approach consists of projecting servicing cash
flows under static interest-rate scenarios and discounting these cash flows
using risk-adjusted rates. The model assumptions used in the valuation of MSR’s
include mortgage prepayment speeds and discount rates. The fair value of MSR’s
is primarily affected by changes in prepayments that result from shifts in
mortgage interest rates.





Deposits





Fair
values for demand deposits, savings accounts and certain money market deposits
are, by definition, equal to the amount payable on demand at the reporting
date.  Fair values of fixed-maturity certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered in the market on similar instruments with similar
maturities.





Federal
Home Loan Bank Advances





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





Off-Balance
Sheet Financial Instruments





Fair
values of commitments to extend credit and letters of credit are estimated using
the fees currently charged to enter into similar agreements, taking into account
market interest rates, the remaining terms, and present credit worthiness of the
counterparties.  At March 31, 2010 and December 31, 2009, the
fair value of these instruments was not material.


13
 Index


The
estimated fair values of the Company’s financial instruments at March 31, 2010
and December 31, 2009 were as follows:





March 31,
              
              
              December 31,2010
              
              
              2009Carrying
      Amount
              
              
              Fair
                  Value
              
              
              Carrying
      Amount
              
              
              Fair
                  Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
              
              $
              6,888
              
              
              $
              6,888
              
              
              $
              8,112
              
              
              $
              8,112Certificates
      of deposit
              
              
              25
              
              
              
              25
              
              
              
              -
              
              
              
              -Securities
      available for sale
              
              
              1,002
              
              
              
              1,002
              
              
              
              -
              
              
              
              -Securities
      held to maturity
              
              
              1,231
              
              
              
              1,260
              
              
              
              1,290
              
              
              
              1,323Loans
      held for sale
              
              
              -
              
              
              
              -
              
              
              
              1,175
              
              
              
              1,175Loans
      receivable, net
              
              
              136,756
              
              
              
              141,861
              
              
              
              136,793
              
              
              
              141,703Restricted
      investments in bank stock
              
              
              523
              
              
              
              523
              
              
              
              491
              
              
              
              491Accrued
      interest receivable
              
              
              595
              
              
              
              595
              
              
              
              613
              
              
              
              613Mortgage
      servicing rights
              
              
              407
              
              
              
              711
              
              
              
              397
              
              
              
              646Financial
      liabilities:Non-interest
      bearing demand accounts
              
              
              19,030
              
              
              
              19,030
              
              
              
              19,770
              
              
              
              19,770NOW
      accounts
              
              
              7,856
              
              
              
              7,856
              
              
              
              7,395
              
              
              
              7,395Money
      market accounts
              
              
              11,114
              
              
              
              11,114
              
              
              
              10,526
              
              
              
              10,526Savings
      accounts
              
              
              17,294
              
              
              
              17,294
              
              
              
              15,868
              
              
              
              15,868Certificates
      of deposit
              
              
              75,863
              
              
              
              76,372
              
              
              
              78,189
              
              
              
              78,790Federal
      Home Loan Bank advances
              
              
              3,000
              
              
              
              3,000
              
              
              
              3,000
              
              
              
              3,000Accrued
      interest payable
              
              
              32
              
              
              
              32
              
              
              
              33
              
              
              
              33Off-balance
      sheet financial instruments:Commitments
      to extend credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Letters
      of credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -





Note
13 – Subsequent Events





On April
26, 2010, the Board of Directors declared a quarterly cash dividend of $0.02 per
share of Hometown Bancorp, Inc. common stock. The dividend will be payable to
stockholders of record as of May 7, 2010, and will be paid on or about May 21,
2010. Hometown Bancorp MHC, which holds approximately 56.3% of the Company’s
total outstanding stock, will waive receipt of the dividend on its
shares.





The
Company has evaluated subsequent events through the date that the consolidated
financial statements were issued.








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





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.


14
 Index


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,
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, a specific 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


15
 Index


loan
basis for commercial, commercial real estate, construction and land 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 or are
non-performing.








General





Walden
Federal operates from six offices in Orange County, New York. 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 term)
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.





Balance
Sheet Analysis





Overview.Total assets
decreased $1.1 million, or 0.7%, to $155.2 million at March 31, 2010. The
decrease was due primarily to a decrease in cash and cash equivalents of $1.2
million and a decrease in loans held for sale of $1.2 million, offset by an
increase of $1.0 million in securities available for sale. Loans net, decreased
$37,000, to $136.8 million at March 31, 2010.





Total
stockholders’ equity increased $219,000 during the three months ended March 31,
2010 to $19.5 million due primarily to net income of $231,000, partially offset
by dividends declared of approximately $21,000.





Comparison
of Financial Condition at March 31, 2010 and December 31,
2009





Loans.  At
March 31, 2010, total loans, net, were $136.8 million, or 88.1% of total assets
as compared with $136.8 million, or 87.5% of total assets at December 31,
2009.  In the three months ended March 31, 2010, the loan portfolio
declined $37,000. The primary reasons for the decline in loans during the first
quarter of 2010 were decreases of $2.3 million in construction mortgages,
decreases of $1.0 million in commercial business loans and decreases of $632,000
in commercial real estate loans, offset by increases of $3.8 million in
residential mortgages.





Nonperforming
Assets.  The following table provides information with respect
to our non-performing assets at the dates indicated.  There were no
accruing loans past due 90 days or more as of March 31, 2010 or December 31,
2009.


16
 Index





(Dollars
      in thousands)
            
            March
      31, 2010
            
            
            December
      31, 2009Nonaccrual
      loans:One-
      to four-family residential real estate
            
            $
            2,850
            
            
            $
            2,600Construction
            
            
            599
            
            
            
            599Multi-family
      and commercial real estate
            
            
            —
            
            
            
            360Land
            
            
            2,030
            
            
            
            2,004Commercial
            
            
            —
            
            
            
            —Consumer
            
            
            —
            
            
            
            —Total
            
            
            5,479
            
            
            
            5,563Other
      real estate owned
            
            
            1,795
            
            
            
            1,435Other
      nonperforming assets
            
            
            —
            
            
            
            —Total
      nonperforming assets
            
            
            7,274
            
            
            
            6,998Troubled
      debt restructurings
            
            
            1,076
            
            
            
            1,076Troubled
      debt restructurings andtotal
      nonperforming assets
            
            $
            8,350
            
            
            $
            8,074Total
      nonperforming loans to total loans
            
            
            3.95
            %
            
            
            4.01
            %Total
      nonperforming loans to total assets
            
            
            3.53
            
            
            
            3.56Total
      nonperforming assets and troubleddebt
      restructurings to total assets
            
            
            5.38
            
            
            
            5.17





The $5.5
million in nonperforming loans at quarter end were comprised of $2.9 million in
one-to four-family residential real estate loans, $2.0 million of land loans
(which included $1.7 million of loans extended to two residential subdivisions)
and two loans to builders for construction of unsold homes totaling
$599,000.





Securities.The
investment securities portfolio was $2.2 million, or 1.4% of total assets, at
March 31, 2010 compared to $1.3 million or 0.8% of total assets, at December 31,
2009.  Our investment portfolio consists primarily of U.S. Government
agency securities and GNMA and FHLMC mortgage-backed securities. The increase in
investment securities was the result of a purchase of a $1.0 million U.S.
Government agency bond during the quarter ended March 31, 2010, which was
partially offset by a decrease of $60,000 due to principal repayments on the
mortgage-backed securities.





Other real estate
owned.Other real estate owned totaled $1.8 million at March 31, 2010
compared to $1.4 million at December 31, 2009. During the quarter ended March
31, 2010, we foreclosed on a commercial building with a carrying value of
$360,000. Other real estate owned consisted of two residential properties, one
residential building lot and three commercial buildings at March 31,
2010.





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 three months ended March 31, 2010, deposits decreased $591,000, or 0.4% to
$131.2 million at March 31, 2010. The decrease in deposits consisted primarily
of declines in certificates of deposit which decreased by $2.3 million and
non-interest checking which decreased by $740,000. This decrease was offset in
part by an increase in savings accounts of $1.4 million and an increase in money
market and interest checking accounts of approximately $1.0
million.





Borrowings.We
utilize borrowings from the Federal Home Loan Bank of New York to supplement our
supply of funds for loans and investments.  We are able to utilize
borrowings when necessary or advantageous as an alternative to deposits when a
pricing advantage exists, as a temporary source of funds to meet liquidity needs
or to manage our asset and liability position. We had borrowings at March 31,
2010 and December 31, 2009 of $3.0 million, respectively.





Stockholders’
Equity.Total stockholders’ equity increased $219,000 from
$19.3 million at December 31, 2009 to $19.5 million at March 31, 2010. Equity
increased primarily due to net income of $231,000 for the three months ended
March 31, 2010, partially offset by dividends declared of approximately $21,000
during the first quarter of 2010.


17
 Index


Results
of Operations for the Three Months Ended March 31, 2010 and 2009





Financial
Highlights.Net income increased $38,000, or 19.7%, to $231,000 for the
three months ended March 31, 2010 compared to $193,000 for the same period in
the prior year. The increase in the first quarter net income was primarily due
to higher net interest income and a decrease in the provision for loan losses
partially offset by a decrease in non-interest income and a slight increase in
non-interest expense for the quarter ended March 31, 2010.





Net Interest
Income.Net interest income increased by $117,000, or 7.5%, to
$1.7 million for the three months ended March 31, 2010 compared to $1.6 million
for the prior year period, primarily as a result of a reduction in interest
expense partially offset by a decrease in interest income on loans, securities
and other interest income.





Interest
income on loans decreased $141,000, or 6.6%, to $2.0 million during the three
months ended March 31, 2010 as the average yield on the loan portfolio decreased
32 basis points to 5.78% for the three months ended March 31, 2010, and the
average balance of the loan portfolio decreased $1.9 million, or 1.4%, to $137.2
million. The decrease in the average balance of the loan portfolio was due
primarily to a decrease in construction mortgages and commercial business loans,
offset by an increase in one- to four-family residential real estate loans. The
decrease in the average yield on loans was mostly the result of the decreases in
market interest rates over the last year on new originations.





Interest
income on investment securities decreased $8,000 for the three months ended
March 31, 2010 to $13,000 compared to the prior year period, as the average
balance of the securities portfolio decreased during the three months ended
March 31, 2010 to $2.1 million compared to $2.5 million in the prior year
period. The average yield on investment securities decreased 86 basis points to
2.53% for the three months ended March 31, 2010.





Interest
expense on deposits decreased from $563,000 for the three months ended March 31,
2009, to $314,000 for the three months ended March 31, 2010, a decrease of
$249,000, or 44.2%. The primary reason for the decrease was maturing
certificates of deposit repricing to lower interest rates. Decreases in market
interest rates since 2007, combined with the shift in the deposit mix, decreased
the average cost of deposits to 1.12%, for the three months ended March 31,
2010, compared to 2.09% for the three months ended March 31, 2009. The decrease
in yields on deposits was offset by an increase in the average balance of
interest-bearing deposits during the three months ended March 31, 2010 of $4.7
million, or 4.4% to $112.3 million, compared with $107.5 million in the prior
year period, due primarily to an increase in average balances of savings and
interest-bearing demand deposit accounts of $3.4 million and certificates of
deposit of $2.2 million, offset by a decrease in money market accounts of
$801,000.





Interest
expense on borrowings decreased to $6,000 for the three months ended March 31,
2010 compared to $18,000 for the prior year period. The average balance of
borrowings during the three months ended March 31, 2010 decreased to $3.0
million, compared with $6.0 million in the prior year period. The average cost
of borrowings decreased 41 basis points to 0.80%, for the three months ended
March 31, 2010, compared to 1.21% for the three months ended March 31,
2009.





For the
three months ended March 31, 2010, our net interest margin increased 41 basis
points to 4.77% from 4.36% for the prior year period. The interest rate spread
increased by 64 basis points to 4.57% for the three months ended March 31, 2010
from 3.93% for the prior year period.  The increase both in our
interest rate spread and in our net interest margin for the quarter was
primarily due to low short-term interest rates which resulted in the downward
repricing of many of the Company’s interest-bearing 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 March 31, 2010 and 2009.


18
 Index





Three Months Ended March
31,2010
              
              
              2009(Dollars
      in thousands)
              
              Average
                Balance
              
              
              Interest
                and
                Dividends
              
              
              Yield/
                Cost
              
              
              Average
                Balance
              
              
              Interest
                and
                Dividends
              
              
              Yield/
                CostAssets:Interest-earning
      assets:Loans
              
              $
              137,190
              
              
              $
              1,981
              
              
              
              5.78
              %
              
              $
              139,090
              
              
              $
              2,122
              
              
              
              6.10
              %Investment
      securities
              
              
              2,059
              
              
              
              13
              
              
              
              2.53
              
              
              
              2,477
              
              
              
              21
              
              
              
              3.39Other
      interest-earning assets
              
              
              1,728
              
              
              
              8
              
              
              
              1.85
              
              
              
              1,904
              
              
              
              3
              
              
              
              0.63Total
      interest-earning assets
              
              
              140,977
              
              
              
              2,002
              
              
              
              5.68
              
              
              
              143,471
              
              
              
              2,146
              
              
              
              5.98Non-interest-earning
      assets
              
              
              15,754
              
              
              
              
              
              
              
              
              
              
              
              6,880Total
      assets
              
              $
              156,731
              
              
              
              
              
              
              
              
              
              
              $
              150,351Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
              
              $
              7,570
              
              
              
              4
              
              
              
              0.21
              
              
              $
              6,587
              
              
              
              4
              
              
              
              0.24Money
      market accounts
              
              
              10,749
              
              
              
              21
              
              
              
              0.78
              
              
              
              11,550
              
              
              
              32
              
              
              
              1.11Savings
      accounts
              
              
              16,672
              
              
              
              25
              
              
              
              0.60
              
              
              
              14,290
              
              
              
              20
              
              
              
              0.56Certificates
      of deposit
              
              
              77,302
              
              
              
              264
              
              
              
              1.37
              
              
              
              75,122
              
              
              
              507
              
              
              
              2.70Borrowings
              
              
              3,000
              
              
              
              6
              
              
              
              0.80
              
              
              
              5,951
              
              
              
              18
              
              
              
              1.21Total
      interest-bearing liabilities
              
              
              115,293
              
              
              
              320
              
              
              
              1.11
              
              
              
              113,500
              
              
              
              581
              
              
              
              2.05Non-interest-bearing
      demand deposits
              
              
              20,069
              
              
              
              
              
              
              
              
              
              
              
              16,006Other
      non-interest-bearing liabilities
              
              
              1,834
              
              
              
              
              
              
              
              
              
              
              
              1,975Total
      liabilities
              
              
              137,196
              
              
              
              
              
              
              
              
              
              
              
              131,481Stockholders’
      equity
              
              
              19,535
              
              
              
              
              
              
              
              
              
              
              
              18,870Total
      liabilities and stockholders’ equity
              
              $
              156,731
              
              
              
              
              
              
              
              
              
              
              $
              150,351Net
      interest income
              
              
              
              
              
              $
              1,682
              
              
              
              
              
              
              
              
              
              
              $
              1,565Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              4.57
              
              
              
              
              
              
              
              
              
              
              
              3.93Net
      interest margin
              
              
              
              
              
              
              
              
              
              
              4.77
              
              
              
              
              
              
              
              
              
              
              
              4.36Average
      interest-earning assets toaverage
      interest-bearing liabilities
              
              
              122.28
              %
              
              
              
              
              
              
              
              
              
              
              126.41
              %





Provision for
Loan Losses.  The provision for loan losses for the quarter
ended March 31, 2010 was $50,000, a decrease of $110,000 as compared to the
quarter ended March 31, 2009. The decrease was as a result of a reduction in
construction and commercial loans during the first quarter of 2010, which have a
higher risk component in our allowance calculation compared to the increase in
nonperforming loans and weakening economic conditions in the first quarter of
2009. There were net recoveries of approximately $2,000 during the first quarter
of 2010 compared to net charge-offs of $37,000 during the prior year
period.





Non-Interest
Income.  Non-interest income was $412,000 for the quarter ended
March 31, 2010 compared to $551,000 for the quarter ended March 31, 2009. The
primary reason for the decrease in non-interest income for the quarter ended
March 31, 2010, was mortgage banking income, net, which decreased by $125,000.
This was a result of decreased volume of loans sold and unfunded loans committed
to be sold during the first quarter of 2010. Rental income decreased by $9,000
as a result of an unoccupied rental space in our Newburgh office during the
first quarter of 2010 compared to the first quarter of 2009. These decreases
were partially offset by increases in banking fees and service charges of $5,000
in our core deposit accounts.





Non-Interest
Expenses.  Non-interest expense increased by $27,000 and was
$1.7 million for the quarter ended March 31, 2010, compared to $1.6 million for
the quarter ended March 31, 2009. Non-interest expense increased primarily due
to increases in other real estate owned expenses of $44,000, FDIC deposit
insurance premium increases of $32,000 and data processing expense of $15,000.
These increases were partially offset by decreases in salaries and employee
benefits and occupancy and equipment expenses of $18,000 and other expenses of
$30,000.


19
 Index


Income Tax
Expense.Income
tax expense was $145,000 for the three months ended March 31, 2010 as compared
to $122,000 for the three months ended March 31, 2009. Higher levels of pre-tax
income resulted in an increase in income tax expense. The effective tax rate was
38.6% for the three months ended March 31, 2010 and 38.7% for the three months
ended March 31, 2009.








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 March 31, 2010, cash and cash equivalents
totaled $6.9 million.  In addition, at March 31, 2010, we had
arrangements to borrow up to $24.8 million from the Federal Home Loan Bank of
New York.  On March 31, 2010, we had short-term advances outstanding
of $3.0 million with the Federal Home Loan Bank. As of March 31, 2010, we have
an unused $2.0 million federal funds line from Atlantic Central Bankers
Bank.





A
significant use of our liquidity is the funding of loan
originations.  At March 31, 2010, we had $12.6 million in loan
commitments outstanding, which primarily consisted of $1.9 million in unadvanced
portions of construction loans, $1.0 million in commitments to fund one- to
four-family residential real estate loans, $1.4 million in commercial real
estate loans, $2.1 million in unused home equity lines of credit and
$5.2 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 March 31, 2011 totaled $69.4 million, or 91.5% 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 March 31,
2010.  We believe, however, based on past experience that a
significant portion of our certificates of deposit will remain with
us.  We have the ability to attract and retain deposits by adjusting
the interest rates offered.





Capital
Management.We are subject to various regulatory capital
requirements administered by the Office of Thrift Supervision, including a
risk-based capital measure.  The risk-based capital guidelines include
both a definition of capital and a framework for calculating risk-weighted
assets by assigning balance sheet assets and off-balance sheet items to broad
risk categories.  At March 31, 2010, the Bank exceeded all of our
regulatory capital requirements and is considered “well capitalized” under
regulatory guidelines.





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.


20
 Index


For the
three months ended March 31, 2010, 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 4T.  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.


21
 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 consolidated 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





None





Item 3.  Defaults upon Senior Securities





Not
Applicable.





Item 4.  Removed and Reserved





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).


22
 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:
      May 17, 2010
            By:
            /s/ Thomas F. GibneyThomas
      F. GibneyPresident
      and Chief Executive Officer(principal
      executive officer)Dated:
      May 17, 2010
            By:
            /s/ Stephen W. DederickStephen
      W. DederickVice
      President andChief
      Financial Officer(principal
      financial and accounting officer)