2009
ANNUAL REPORT
  
  PRESIDENT’S
LETTER
 
 Dear
Stockholders and Customers:
 
 It is my
privilege to present the Company’s Annual Report for the year 2009 and to report
that Hometown Bancorp, Inc. had a remarkably good year.  Our
performance in this challenging economy and uncertain operating environment
proves that we are what we have always claimed to be - safe, sound and
secure.
 
 The year
2009 was a year of continued growth for Hometown Bancorp, Inc.  I am
pleased to report that total assets grew by $5.9 million to a record high of
$156.3 million – a 3.9% increase over the previous year.  Deposit
account balances also increased by $7.0 million – a 5.6% increase over the
previous year.  We attribute this growth to the competitive interest
rates we paid, our product selection, and the exemplary customer service
provided by our excellent branch staff.
 
 We again
experienced strong lending activity; however the net result was a small decrease
in total portfolio loans at year end.  Our loan portfolio decreased
from $137.9 million at year end 2008 to $136.8 million at year end 2009,
excluding loans originated for sale.  We found that many of the Bank’s
portfolio residential mortgage customers took advantage of the low fixed rate
environment and refinanced their mortgage in products that we sold into the
secondary market.  We had an extraordinary year of single-family
origination of more than $48 million in new loans which represented the most
residential mortgage loans closed in any of the prior five years.
 
 Since
1919 we have provided sound, community-oriented banking services, and we are
continuing to lend to qualified local consumers and businesses. Through
consistent, conservative loan underwriting we have built a strong capital base
that provides a secure foundation for our company, its customers and
stockholders.  Despite our approach of responsible banking, our loan
portfolio has been impacted by the economic realities of the current financial
environment affecting the communities we serve. The allowance for loan losses
was $1.9 million, or 1.38% of total loans outstanding as of year end 2009, as
compared with $1.3 million, or 0.97 % as of year end 2008.  The higher
allowance for loan losses was partially the result of management’s consideration
of decreases in real estate values and increases in our non-accrual loans and
the continued weakness in the Company’s local real estate
market.  Nonperforming loans totaled $5.6 million, or 4.0% of total
loans at December 31, 2009 compared to $5.0 million, or 3.6% of total loans at
December 31, 2008.  Credit quality performance will continue to be a
challenge until the economy stabilizes and begins to recover.
 
 In light
of higher provisions for loan losses, the special FDIC assessment and higher
FDIC insurance premiums in 2009, I am happy to note that while many financial
institutions are struggling, our earnings trended up during the
year.  Hometown Bancorp Inc. reported net income for 2009 of $585,000,
compared to $565,000 for 2008. This accomplishment is especially noteworthy
considering the current economic environment.
 
 As of
year end 2009 our capital exceeds ratios considered to be “Well Capitalized” as
defined by the Office of Thrift Supervision.  We realize that a strong
capital position is the foundation for success and survival in the environment
in which we find ourselves today.  Additionally, our liquidity remains
strong with available cash and borrowing capacity.
 
 Hometown
Bancorp, Inc. paid its first cash dividend in 2009, at a time when many
financial institutions have eliminated their dividend programs. Stockholders
received a cash dividend of
  1
  $0.02 per
share beginning in the second quarter.  The continuation of the
Company’s stockholder dividend program throughout the year illustrates how our
community-oriented banking practices lead to success for our bank and value for
our stockholders. We also completed our stock repurchase program of 7,061 shares
in 2009.
 
 We are
privileged to have outstanding people at all levels of the organization. Our
directors, officers and employees live, work and volunteer their time in the
communities we serve. As both residents and employees, they serve their
communities incredibly well.  We continue to support a wide array of
community groups and non-profit organizations.  The Community
Reinvestment Act (CRA), enacted in 1977, requires banks to help meet the credit
needs of the communities they serve, including low and moderate-income
communities. Walden Federal, which is subject to the regulation, received an
“Outstanding” rating in 2009.
 
 Because
of our strong capital position and our community-oriented banking management
practices, we are well equipped to satisfy the financial needs of both the
consumer and business customer in 2010 and beyond. We continue to have money to
lend to qualified borrowers and continue to provide competitive products and
services to our depositors.  We believe we are well positioned to
perform in this challenging environment.
 
 On behalf
of the Board of Directors and our entire team, I want to thank you for your
trust, confidence and investment in Hometown Bancorp, Inc.
 
 
 Thomas F.
Gibney
 President
and Chief Executive Officer
  2
  Selected
Financial and Other Data
 
 The information at December 31,
2009 and 2008 and for the years ended December 31, 2009 and 2008 is derived
in part from the audited consolidated financial statements that appear in this
Annual Report. The summary financial information presented below is derived, in
part, from our audited consolidated financial statements.  The
following is only a summary and you should read it in conjunction with the
audited consolidated financial statements and notes beginning on page
16.
 
 
 At
      or for the Year Ended
                December 31,(Dollars
      in thousands)
              
              2009
              
              
              2008Financial
      Condition Data:Total
      assets
              
              $
              156,267
              
              
              $
              150,369Investment
      securities
              
              
              1,290
              
              
              
              2,511Loans
      held for sale
              
              
              1,175
              
              
              
              106Loans
      receivable, net
              
              
              136,793
              
              
              
              137,868Deposits
              
              
              131,748
              
              
              
              124,739Borrowings
              
              
              3,000
              
              
              
              4,375Total
      stockholders’ equity
              
              
              19,289
              
              
              
              18,794Operating
      Data:Interest
      income
              
              $
              8,344
              
              
              $
              8,726Interest
      expense
              
              
              1,916
              
              
              
              2,499Net
      interest income
              
              
              6,428
              
              
              
              6,227Provision
      for loan losses
              
              
              656
              
              
              
              579Net
      interest income after provision for loan losses
              
              
              5,772
              
              
              
              5,648Noninterest
      income
              
              
              2,069
              
              
              
              1,745Noninterest
      expenses
              
              
              6,887
              
              
              
              6,492Income
      before taxes
              
              
              954
              
              
              
              901Income
      tax expense
              
              
              369
              
              
              
              336Net
      income
              
              $
              585
              
              
              $
              565
  3
  
 At
      or for the Year Ended
                December
      31,2009
              
              
              2008Performance
      Ratios:Return
      on average assets
              
              
              0.38
              %
              
              
              0.40
              %Return
      on average equity
              
              
              3.06
              
              
              
              2.99Interest
      rate spread (1)
              
              
              4.15
              
              
              
              4.09Net
      interest margin (2)
              
              
              4.50
              
              
              
              4.66Noninterest
      income to average assets
              
              
              1.35
              
              
              
              1.25Noninterest
      expense to average assets
              
              
              4.50
              
              
              
              4.64Efficiency
      ratio (3)
              
              
              81.05
              
              
              
              81.44Average
      interest-earning assets to average interest-bearing
      liabilities
              
              
              125.78
              
              
              
              130.47Equity
      to total assets
              
              
              12.34
              
              
              
              12.50Average
      equity to average assets
              
              
              12.50
              
              
              
              13.49Capital
      Ratios (4):Tangible
      capital
              
              
              10.01
              
              
              
              9.97Core
      capital
              
              
              10.01
              
              
              
              9.97Total
      risk-based capital
              
              
              14.15
              
              
              
              14.40Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
              
              
              1.38
              
              
              
              0.97Allowance
      for loan losses as a percent of nonperforming loans
              
              
              34.48
              
              
              
              27.10Net
      charge-offs to average outstanding loans during the year
              
              
              0.06
              
              
              
              0.01Nonperforming
      loans as a percent of total loans
              
              
              4.01
              
              
              
              3.57Nonperforming
      loans as a percent of total assets
              
              
              3.56
              
              
              
              3.31Nonperforming
      assets and troubled debt restructurings as a percent of total
      assets
              
              
              5.17
              
              
              
              3.50Per
      Share Related Data:Basic
      earnings per share
              
              $
              0.26
              
              
              $
              0.25Dividends
      per share
              
              
              0.06
              
              
              
              n/aBook
      value per share (5)
              
              
              8.29
              
              
              
              8.05Dividend
      payout ratio (6)
              
              
              23.08
              %
              
              
              n/aOther
      Data:Number
      of Offices
              
              
              6
              
              
              
              6
 ____________________________________
 (1)
              Represents
      the difference between the weighted average yield on average
      interest-earning assets and the weighted average cost of average
      interest-bearing liabilities.
 (2)
              Represents
      net interest income as a percent of average interest-earning
      assets.
 (3)
              Represents
      noninterest expense divided by the sum of net interest income and
      noninterest income.
 (4)
              Capital
      ratios are for Walden Federal Savings and Loan
  Association.
 (5)
              Book
      value per share is based on total stockholders’ equity divided by
      2,326,939 and 2,334,000 outstanding common shares at December 31, 2009 and
      2008, respectively.
 (6)
              The
      dividend payout ratio represents dividends per share divided by basic
      earnings per share.
  4
  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 Management’s discussion and analysis of
financial condition and results of operations is intended to assist in
understanding our financial condition and results of operations.  You
should read this discussion in conjunction with the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements included in this
Annual Report.
 
 Overview
 
 Our principal business is to acquire
deposits from individuals and businesses in the communities surrounding our
offices and to use these deposits to fund loans.  We focus on
providing our products and services to two segments of
customers:  individuals and small businesses.
 
 Income.Our primary
source of pre-tax income is net interest income.  Net interest income
is the difference between interest income, which is the income that we earn on
our loans and investments, and interest expense, which is the interest that we
pay on our deposits and borrowings.  Changes in levels of interest
rates affect our net interest income.  Since the latter part of 2007,
short-term interest rates (which influence the rates we earn on adjustable rate
loans and we pay on deposits) have decreased.  Our spread between the
interest we earn on loans and investments and the interest we pay on deposits
has positively affected our net interest income, due to the decline in rates
paid on interest-bearing deposits that exceeded the rate decline in
interest-earning assets.
 
 A secondary source of income is
noninterest income, which is revenue that we receive from providing products and
services.  The majority of our noninterest income generally comes from
service charges and fees on deposit accounts and loans and mortgage-banking
income.
 
 Provision for
Loan Losses.  The allowance for
loan losses is a valuation allowance for probable losses inherent in the loan
portfolio.  We evaluate the need to establish allowances against
losses on loans on a quarterly basis.  When additional allowances are
necessary, a provision for loan losses is charged to earnings.
 
 Expenses.  The
noninterest expenses we incur in operating our business consists of salaries and
employee benefit expenses, occupancy and equipment expenses, data processing
expenses, FDIC insurance premiums and other miscellaneous expenses, such as
office supplies, telephone, postage, advertising and professional
services.
 
 Our largest non-interest expense is
salaries and employee benefits, which consist primarily of salaries and wages
paid to our employees, payroll taxes, and expenses for health insurance,
retirement plans and other employee benefits.  FDIC insurance premiums
have increased substantially in 2009, and we may have to pay higher FDIC
premiums in the future which could increase our non-interest
expense.
 
 Occupancy and equipment expenses, which
are the fixed and variable costs of buildings and equipment, consist primarily
of branch lease expense, depreciation charges, furniture and equipment expenses,
maintenance, real estate taxes and costs of utilities.
  5
  Critical
Accounting Policies
 
 We consider accounting policies
involving significant judgments and assumptions by management that have, or
could have, a material impact on the carrying value of certain assets or on
income to be critical accounting policies.  We have identified the
allowance for loan losses as a critical accounting policy.
 
 The
allowance for loan losses is the amount estimated by management as necessary to
cover losses inherent in the loan portfolio at the balance sheet
date.  The allowance is established through the provision for loan
losses, which is charged to income.  Determining the amount of the
allowance for loan losses necessarily involves a high degree of
judgment.  Among the material estimates required to establish the
allowance are:  loss exposure at default; the amount and timing of
future cash flows on impaired loans; value of collateral; and determination of
loss factors to be applied to the various elements of the
portfolio.  All of these estimates are susceptible to significant
change.  Management reviews the level of the allowance at least
quarterly and establishes the provision for loan losses based upon an evaluation
of the portfolio, past loss experience, current economic conditions and other
factors related to the collectibility of the loan portfolio.  Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluation.  In addition, the Office of Thrift Supervision, as an
integral part of its examination process, periodically reviews our allowance for
loan losses.  We may be required to recognize adjustments to the
allowance based on its judgments about information available to it at the time
of its examination.  A large loss could deplete the allowance and
require increased provisions to replenish the allowance, which would adversely
affect earnings.  See Note 1 of the notes to the consolidated
financial statements in this Annual Report for the Company’s significant
accounting policies.
 
 Operating/Business
Strategy
 
 Our
strategy is to operate a well-capitalized and profitable community bank
dedicated to providing quality customer service backed by knowledge and
experience.  Our strategy historically has been to emphasize one-to
four-family residential lending.  While we have continued to focus on
residential lending, we have broadened the range of our products and services to
enhance profitability consistent with safety and soundness. We now offer a full
range of business products, as well as commercial real estate, builder/developer
loans and construction lending.  We have also introduced additional
products and services, such as “Command Online Business Banking” and
“e-statements.”  Additionally, we have developed a more proactive
sales culture throughout the organization.  While we cannot guarantee
our success, we plan to achieve our goals by executing our strategy
of:
 
 Continuing
to pursue opportunities to expand and diversify our lending
portfolio
 
 Historically,
we have emphasized single family residential lending within our
markets.  While this focus remains important because of our expertise
with this type of lending, we have also originated commercial real estate loans
as a means of increasing both interest income and non-interest
income.  We understand that commercial real estate loans generally
expose a lender to greater credit risk than loans secured by single family
properties because the repayment of these loans depends on the business and
financial condition of the borrower.  As a result, we, like other
banks, generally charge higher rates of interest for these types of loans than
single family residential loans. Our commercial real estate loans have grown to
$25.7 million, or 18.6% of total
  6
  loans at
December 31, 2009 from $22.5 million, or 16.1% of total loans at December 31,
2008. We have focused on maintaining asset quality by following conservative
underwriting criteria with a focus on loans secured by real estate.
 
 Increasing
core deposits through aggressive marketing and the offering of new deposit
products and services
 
 We
continue to emphasize the generation of core deposits as they are our preferred
source of funds for investing and lending.  Core deposits, which
include all deposit account types except certificates of deposit, comprised
40.7% of total deposits at December 31, 2009 as compared to 39.1% for the
previous year end.  As of December 31, 2009, time deposits constituted
59.3% of total deposits as compared to 60.9% as of December 31,
2008.  Due to the competitive pressures in 2009, we, like many other
financial institutions, have found customers moving funds to time deposits due
to generally higher rates.  We will continue to market our core
deposits through in-branch and local mail, print and radio advertising, as well
as programs that link various accounts and services together.  We will
continue to customize existing deposit products and introduce new products to
meet the needs of our customers and the communities we
serve.   We will promote and emphasize the generation of core
deposits targeting commercial customers, in particular using our new “Command
Online Business Banking,” which was released in 2009.
 
 Expanding
our branch network to enable us to continue to build our lending and deposit
franchise
 
 We
continue to review potential branch sites, as well as other physical
plant/locations to meet the overall needs of the organization.  There
can be no assurance as to whether or when we will open such offices or
locations.  The Bank opened its sixth full-service branch office in
Newburgh, Orange County, New York in 2007.  In 2008, we purchased the
building in Newburgh that houses this branch.  We moved our commercial
real estate/business loan division to that building during the second quarter of
2009.
 
 Remaining
a Community Oriented Institution
 
 As a
community-oriented financial institution, we emphasize providing quality
customer service backed by knowledge and experience.  We deliver
personalized service and respond with flexibility to customer
needs.  We have been, and continue to be, committed to meeting the
financial needs of the communities in which we operate as shown by our CRA
rating of “outstanding” by our primary regulator.  Our commitment to
the communities we serve has been broadened due to the expansion of our branch
locations.  We contribute to worthy community and non-profit
causes.  Our officers and employees who give their time, talent and
resources, volunteered hundreds of hours in community and fundraising events,
from walk-a-thons to town clean-up days to community celebrations.
 
 Average
Balance Sheets and Related Yields and Rates
 
 The following table presents
information regarding average balances of assets and liabilities, the total
dollar amounts of interest income and dividends from average interest-earning
assets, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting annualized average yields and
costs.  The yields and costs for the years indicated are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the years presented.  For purposes of this table,
average balances have been calculated using daily average balances, and
nonaccrual loans are included in average balances.
  7
  Loan fees
and costs are deferred and recognized as an adjustment in interest income on
loans.  None of the income reflected in the following table is
tax-exempt income.
 
 Average
Balance Table
 
 Year
      Ended December 31,2009
              
              
              2008(Dollars
      in thousands)
              
              Average
                Balance
              
              
              Interest
                and
                Dividends
              
              
              Yield/
                Cost
              
              
              Average
                Balance
              
              
              Interest
                and
                Dividends
              
              
              Yield/
                CostAssets:Interest-earning
      assets:Loans
      receivable
              
              $
              138,938
              
              
              $
              8,256
              
              
              
              5.94
              %
              
              $
              127,838
              
              
              $
              8,541
              
              
              
              6.68
              %Investment
      securities, taxable
              
              
              2,362
              
              
              
              67
              
              
              
              2.84
              
              
              
              2,667
              
              
              
              111
              
              
              
              4.16Other
      interest-earning assets
              
              
              1,457
              
              
              
              21
              
              
              
              1.44
              
              
              
              3,110
              
              
              
              74
              
              
              
              2.38Total
      interest-earning assets
              
              
              142,757
              
              
              
              8,344
              
              
              
              5.84
              
              
              
              133,615
              
              
              
              8,726
              
              
              
              6.53Noninterest-earning
      assets
              
              
              10,379
              
              
              
              
              
              
              
              
              
              
              
              6,284Total
      assets
              
              $
              153,136
              
              
              
              
              
              
              
              
              
              
              $
              139,899Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
              
              $
              6,660
              
              
              
              15
              
              
              
              0.23
              
              
              $
              6,207
              
              
              
              18
              
              
              
              0.29Money
      market accounts
              
              
              10,900
              
              
              
              104
              
              
              
              0.95
              
              
              
              11,913
              
              
              
              198
              
              
              
              1.66Savings
      accounts
              
              
              15,508
              
              
              
              91
              
              
              
              0.59
              
              
              
              14,251
              
              
              
              80
              
              
              
              0.56Certificates
      of deposit
              
              
              77,618
              
              
              
              1,678
              
              
              
              2.16
              
              
              
              67,603
              
              
              
              2,145
              
              
              
              3.17Borrowings
              
              
              2,810
              
              
              
              28
              
              
              
              1.00
              
              
              
              2,437
              
              
              
              58
              
              
              
              2.38Total
      interest-bearing liabilities
              
              
              113,496
              
              
              
              1,916
              
              
              
              1.69
              
              
              
              102,411
              
              
              
              2,499
              
              
              
              2.44Noninterest-bearing
      demand deposits
              
              
              18,382
              
              
              
              
              
              
              
              
              
              
              
              16,710Other
      noninterest-bearing liabilities
              
              
              2,113
              
              
              
              
              
              
              
              
              
              
              
              1,903Total
      liabilities
              
              
              133,991
              
              
              
              
              
              
              
              
              
              
              
              121,024Stockholders’
      equity
              
              
              19,145
              
              
              
              
              
              
              
              
              
              
              
              18,875Total
      liabilities and stockholders’ equity
              
              $
              153,136
              
              
              
              
              
              
              
              
              
              
              $
              139,899Net
      interest income
              
              
              
              
              
              $
              6,428
              
              
              
              
              
              
              
              
              
              
              $
              6,227Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              4.15
              
              
              
              
              
              
              
              
              
              
              
              4.09Net
      interest margin
              
              
              
              
              
              
              
              
              
              
              4.50
              
              
              
              
              
              
              
              
              
              
              
              4.66Average
      interest-earning assets toaverage
      interest-bearing liabilities
              
              
              125.78
              %
              
              
              
              
              
              
              
              
              
              
              130.47
              %
 
 
 Rate/Volume
Analysis.  The following
table sets forth the effects of changing rates and volumes on our net interest
income.  The rate column shows the effects attributable to changes in
rate (changes in rate multiplied by prior volume).  The volume column
shows the effects attributable to changes in volume (changes in volume
multiplied by prior rate).  The net column represents the sum of the
prior columns.  For purposes of this table, changes attributable to
changes in both rate and volume that cannot be segregated have been allocated
proportionately based on the changes due to rate and the changes due to
volume.
  8
  Net
Interest Income – Changes Due to Rate and Volume
 
 2009
      Compared to 2008(Dollars
      in thousands)
              
              Volume
              
              
              Rate
              
              
              NetInterest
      income:Loans
      receivable
              
              $
              705
              
              
              $
              (990
              )
              
              $
              (285
              )Investment
      securities, taxable
              
              
              (12
              )
              
              
              (32
              )
              
              
              (44
              )Other
      interest earning assets
              
              
              (30
              )
              
              
              (23
              )
              
              
              (53
              )Total
      interest income
              
              
              663
              
              
              
              (1,045
              )
              
              
              (382
              )Interest
      expense:Deposits
              
              
              278
              
              
              
              (831
              )
              
              
              (553
              )Borrowings
              
              
              8
              
              
              
              (38
              )
              
              
              (30
              )Total
      interest expense
              
              
              286
              
              
              
              (869
              )
              
              
              (583
              )Increase
      (decrease) in net interest income
              
              $
              377
              
              
              $
              (176
              )
              
              $
              201
 
 
 Comparison
of Financial Condition at December 31, 2009 and 2008
 
 Total Assets.Total assets grew $5.9 million, or 3.9%, to $156.3 million at December
31, 2009 from $150.4 million at December 31, 2008, due primarily to an increase
in cash and cash equivalents of $4.9 million and an increase of $1.4 million in
other real estate owned. Loans net, decreased $1.1 million, or 0.8%, from $137.9
million at December 31, 2008 to $136.8 million at December 31, 2009. Loans held
for sale increased by $1.1 million, while securities decreased by $1.2 million
to $1.3 million at December 31, 2009.
 
 Loans.At December 31,
2009, total loans, net, were $136.8 million, or 87.5% of total assets at
December 31, 2009 compared to $137.9 million or 91.7% of total assets at
December 31, 2008.  During the year ended December 31, 2009, the loan
portfolio declined primarily as a result of decreases of $6.6 million in
residential mortgages and $1.4 million in construction mortgages, offset by
increases of $3.3 million in commercial mortgage loans, increases of $1.7
million in land loans and an increase of $2.5 million in commercial business
loans. Loans held for sale increased by $1.1 million.
  Securities.
The investment securities portfolio was $1.3 million, or 0.8% of total assets,
at December 31, 2009 compared to $2.5 million or 1.7% of total assets at
December 31, 2008. Our investment portfolio consists primarily of U.S.
Government agency securities and GNMA and FHLMC mortgage-backed securities. The
decrease in securities was primarily due to a $1.0 million call of a U.S.
Government agency security in December 2009 and principal paydowns on the
mortgage-backed securities.
 
 Deposits.  Our primary
source of funds is retail deposit accounts, which are comprised of
non-interest-bearing demand accounts, interest-bearing demand accounts, money
market accounts, savings accounts and certificates of deposit. During the year
ended December 31, 2009, deposits grew $7.0 million or 5.6% to $131.7 million at
December 31, 2009 from $124.7 million at December 31, 2008. The increase in
deposits consisted primarily of growth in non-interest checking which increased
by $2.8 million, savings accounts which increased by $2.3 million, certificates
of deposit which increased by $2.2 million, and, was offset in part by a
decrease in money market accounts of $1.1 million.
 
 Borrowings.  We utilize
borrowings from the Federal Home Loan Bank of New York to supplement our source
of funds for loans and investments.  We are able to utilize
borrowings
  9
  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 $2.8 million in average balances
of borrowings during the year ended December 31, 2009 as compared to $2.4
million in average balances of borrowings during the year ended December 31,
2008. We had borrowings of $3.0 million at December 31, 2009 and $4.4 million in
borrowings at December 31, 2008.
 
 Stockholders’
Equity.Total
stockholders’ equity increased $495,000 from $18.8 million at December 31, 2008
to $19.3 million at December 31, 2009. Equity increased primarily due to net
income of $585,000 for the year ended December 31, 2009, partially offset by
dividends declared of $87,000 and common stock repurchases of $27,000 during
2009.
 
 Results
of Operations for the Years Ended December 31, 2009 and 2008
 
 Overview.  For
the year ended December 31, 2009, we reported a $20,000, or 3.5% increase in net
income to $585,000 compared to $565,000 for the year ended December 31, 2008.
This increase was primarily the result of increased net interest income and
mortgage banking income offset by increased FDIC assessments, salaries and
employee benefit expenses and provisions for loan losses.
 
 Net Interest
Income.  Net interest income increased $201,000, or 3.2% to
$6.4 million for the year ended December 31, 2009 from $6.2 million for the year
ended December 31, 2008. The
increase was primarily as a result of a reduction in interest expense on
deposits and borrowings partially offset by a decrease in interest income on
loans, securities and other interest income. As a result of the low interest
rate environment, the average cost of interest-bearing liabilities decreased by
75 basis points to 1.69% and was partially offset by the decline in the average
yield of interest-earning assets which decreased by 69 basis points to 5.84% for
the year ended December 31, 2009 as compared to the year ended December 31,
2008. The interest rate spread increased by 6 basis points to 4.15% for the year
ended December 31, 2009 from 4.09% for the year ended December 31, 2008. The net
interest margin decreased by 16 basis points to 4.50% for the year ended
December 31, 2009 as compared to the year ended December 31, 2008. If rates on
loans continue to reprice downward faster than rates on our deposits, we could
continue to experience compression of our net interest margin which could have a
negative effect on our profitability.
 
 Interest
income on loans decreased $285,000, or 3.3%, to $8.3 million during the year
ended December 31, 2009 as the average yield on the loan portfolio decreased 74
basis points to 5.94% for the year ended December 31, 2009, partially offset by
an increase in the average balance of the loan portfolio of $11.1 million, or
8.7%, to $138.9 million for the year ended December 31, 2009. The decrease in
the average yield on loans was primarily the result of the decreases in market
interest rates, as the prime rate decreased from 7.25% at January 1, 2008 to
3.25% at December 31, 2009. Loan growth was driven primarily by an increase in
land, commercial mortgage and commercial business loans, offset by a decrease in
residential mortgages.
 
 Interest income on investment
securities decreased $44,000, or 39.6%, to $67,000 for the year ended December
31, 2009 from $111,000 for the year ended December 31, 2008. The decline in
interest income on investment securities was due to a decrease in the average
yield of 132 basis points to 2.84% for 2009 as compared to 4.16% in 2008 and a
decline in the average balance of investment securities to $2.4 million for the
year ended December 31, 2009 from $2.7 million for the year ended December 31,
2008.
  10
  Interest expense on deposits decreased
22.7%, to $1.9 million for the year ended December 31, 2009, compared to $2.4
million for the year ended December 31, 2008. The primary reason for the
decrease was maturing certificates of deposit repricing to lower interest rates
during 2009. Decreases in market interest rates since 2007, combined with the
shift in the deposit mix, decreased the average cost of deposits to 1.71%, for
the year ended December 31, 2009, compared to 2.44% for the year ended December
31, 2008. The decrease in average cost on deposits was offset in part by an
increase in the average balance of interest-bearing deposits during the year
ended December 31, 2009 of $10.7 million, or 10.7% to $110.7 million, compared
with $100.0 million for the prior year. The increase in the average balance of
interest bearing deposits was due primarily to an increase in the average
balance of certificates of deposit of $10.0 million, and savings and
interest-bearing demand deposit accounts of $1.7 million, offset by a decrease
in the average balance of money market accounts of $1.0 million.
 
 Interest expense on borrowings
decreased to $28,000 for the year ended December 31, 2009 compared to $58,000
for the prior year. The average cost of borrowings decreased 138 basis points to
1.00%, for the year ended December 31, 2009, compared to 2.38% for the year
ended December 31, 2008. The average balance of borrowings during the year ended
December 31, 2009 increased to $2.8 million, compared with $2.4 million for the
prior year.
  Provision for
Loan Losses. The provision for loan
losses increased $77,000 to $656,000 for the year ended December 31, 2009
compared to $579,000 for the year ended December 31, 2008. The increase in the
provision for loan losses during the year ended December 31, 2009 was partially
the result of management’s consideration of decreases in the real estate values
in our market area and increases in our non-accrual loans. The increase in the
provision for loan losses for 2009 also reflected management’s review of two
relationships totaling $1.7 million of land and construction loan participations
secured by residential subdivisions located in our market
area.  During 2009, management established a specific loan loss
allowance of $212,000 for such loans due to updated appraisals on the projects
indicating lower collateral values given current market conditions. Included in
the 2008 provision for loan losses of $579,000 was a specific loan loss
allowance of $389,000 on one of the residential subdivisions discussed
above.
  Nonperforming
loans totaled $5.6 million, or 4.0% of total loans at December 31, 2009 compared
to $5.0 million, or 3.6% of total loans at December 31, 2008. The $5.6 million
in nonperforming loans at year end were comprised of $2.6 million in one-to
four-family residential loans, (loans totaling $433,000 were paid off in January
2010), $2.0 million of land loans which includes $1.7 million of loans extended
to the two residential subdivisions previously mentioned, two loans to builders
for construction of unsold homes totaling $599,000 and $360,000 of commercial
real estate loans.
 
 We had
net charge-offs of $85,000 for the year ended December 31, 2009 compared to
$19,000 for the year ended December 31, 2008.
 
 The allowance for loan losses was $1.9
million, or 1.38% of total loans outstanding as of December 31, 2009, as
compared with $1.3 million, or 0.97% as of December 31, 2008.
 
 Non-interest
Income.Non-interest income increased $324,000, or 18.6% to
$2.1 million for the year ended December 31, 2009 compared to $1.7 million for
the year ended December 31, 2008. The primary reason for the increase in
non-interest income for the year ended December 31, 2009, was mortgage banking
income, net, which increased by $550,000 to $862,000 for 2009. This was a result
of gains on the sale of mortgage loans due to increased volume of loans sold
and
  11
  unfunded
loans committed to be sold, as refinance activity grew in the current low
mortgage interest rate environment. This gain was partially offset by decreases
in banking fees and service charges of $42,000 during 2009 as a result of
customer preference for service charge free accounts and the competitive banking
environment for core deposits, and a decrease of $186,000 for a settlement of a
litigation matter in the year ended December 31, 2008.
 
 Non-interest
Income Summary
 
 Year
      Ended December 31, (Dollars in thousands)
              
              2009
              
              
              2008
              
              
              $
      Change
              
              
              %
      ChangeBanking
      fees and service charges
              
              $
              1,067
              
              
              $
              1,109
              
              
              $
              (42
              )
              
              
              (3.8
              )%Mortgage
      banking income, net
              
              
              862
              
              
              
              312
              
              
              
              550
              
              
              
              176.3Investment
      brokerage fees
              
              
              71
              
              
              
              66
              
              
              
              5
              
              
              
              7.6Loss
      on other real estate owned
              
              
              (19
              )
              
              
              -
              
              
              
              (19
              )
              
              
              n/aLitigation
      settlement
              
              
              -
              
              
              
              186
              
              
              
              (186
              )
              
              
              (100.0
              )Other
              
              
              88
              
              
              
              72
              
              
              
              16
              
              
              
              22.2Total
              
              $
              2,069
              
              
              $
              1,745
              
              
              $
              324
              
              
              
              18.6
              %
 
 
 Non-interest
Expenses.Non-interest expenses increased $395,000, or 6.1% to
$6.9 million for the year ended December 31, 2009 compared to $6.5 million for
2008. Non-interest expense increased primarily due to the FDIC deposit insurance
premiums increase of $287,000 as a result of an increase in the base assessment
and the FDIC Special Assessment. Also impacting the increase in non-interest
expenses was an increase in salaries and employee benefits expense of $105,000
during 2009. Other real estate owned expense increased by $115,000 because of
the increase in other real estate owned due to increased foreclosure activity in
2009. Data processing expense increased in 2009 by $63,000 due to the volume of
transactions from growth and new services offered. These expenses were offset by
decreases in advertising and marketing expense of $111,000 during 2009 compared
to the prior year due to reduced advertising.
 
 Non-interest
Expenses Summary
 
 Year
      Ended December 31, (Dollars in thousands)
              
              2009
              
              
              2008
              
              
              $
      Change
              
              
              %
      ChangeSalaries
      and employee benefits
              
              $
              3,893
              
              
              $
              3,788
              
              
              $
              105
              
              
              
              2.8
              %Advertising
      and marketing
              
              
              129
              
              
              
              240
              
              
              
              (111
              )
              
              
              (46.3
              )Telephone
      and postage
              
              
              189
              
              
              
              189
              
              
              
              -
              
              
              
              -Occupancy
      and equipment
              
              
              735
              
              
              
              715
              
              
              
              20
              
              
              
              2.8FDIC
      premiums
              
              
              336
              
              
              
              49
              
              
              
              287
              
              
              
              585.7Data
      processing
              
              
              608
              
              
              
              545
              
              
              
              63
              
              
              
              11.6Professional
      fees
              
              
              342
              
              
              
              365
              
              
              
              (23
              )
              
              
              (6.3
              )Printing
      and supplies
              
              
              80
              
              
              
              75
              
              
              
              5
              
              
              
              6.7Other
      real estate owned expense
              
              
              115
              
              
              
              -
              
              
              
              115
              
              
              
              n/aOther
              
              
              460
              
              
              
              526
              
              
              
              (66
              )
              
              
              (12.5
              )Total
              
              $
              6,887
              
              
              $
              6,492
              
              
              $
              395
              
              
              
              6.1
              %
 
 
 Income Tax
Expense.  Income tax expense was $369,000 for the year ended
December 31, 2009 as compared to $336,000 for the year ended December 31, 2008.
Higher levels of pre-tax income have resulted in an increase in income tax
expense. The effective tax rate was 38.7% for the year ended December 31, 2009
and 37.3% for 2008.
 
 Interest Rate
Risk Management.  Our earnings and the market value of our
assets and liabilities are subject to fluctuations caused by changes in the
level of interest rates.  We manage the interest rate sensitivity of
our interest-bearing liabilities and interest-earning assets in an
effort
  12
  to
minimize the adverse effects of changes in the interest rate
environment.  Deposit accounts typically react more quickly to changes
in market interest rates than mortgage loans because of the shorter maturities
of deposits.  As a result, sharp increases in interest rates may
adversely affect our earnings while decreases in interest rates may beneficially
affect our earnings.  To reduce the potential volatility of our
earnings, we have sought to improve the match between asset and liability
maturities and rates, while maintaining an acceptable interest rate
spread.  Our strategy for managing interest rate risk
emphasizes:  originating loans with adjustable interest rates; selling
residential real estate fixed-rate loans with terms greater than 10 years; and
promoting core deposit products and short-term time deposits.
 
 We have an Asset/Liability Management
Committee to coordinate all aspects involving asset/liability
management.  The committee establishes and monitors the volume,
maturities, pricing and mix of assets and funding sources with the objective of
managing assets and funding sources to provide results that are consistent with
liquidity, growth, risk limits and profitability goals.
 
 We use an interest rate sensitivity
analysis prepared by the Office of Thrift Supervision (OTS) to review our level
of interest rate risk.  This analysis measures interest rate risk by
computing changes in net portfolio value of our cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates.  Net portfolio value represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items.  This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained 100 to 300 basis
point increase or 50 to 100 basis point decrease in market interest rates with
no effect given to any steps that we might take to counter the effect of that
interest rate movement.  We measure interest rate risk by modeling the
changes in net portfolio value over a variety of interest rate
scenarios.  The following table, which is based on information that we
provide to the OTS, presents the change in our net portfolio value at December
31, 2009 that would occur in the event of an immediate change in interest rates
based on OTS assumptions, with no effect given to any steps that we might take
to counteract that change.
 
 NPV
Analysis
 
 Net
      Portfolio Value
                (Dollars
      in thousands)
              
              
              Net
      Portfolio Value as % of
                Portfolio
      Value of AssetsBasis
      Point (“bp”)
                Change
      in Rates
              
              
              $
      Amount
              
              
              $
      Change
              
              
              %
      Change
              
              
              NPV
      Ratio
              
              
              Change300
              
              
              $
              19,632
              
              
              $
              (3,377
              )
              
              
              (14.7
              )%
              
              
              12.27
              %
              
              
              (171
              )
      bp200
              
              
              
              21,377
              
              
              
              (1,632
              )
              
              
              (7.1
              )
              
              
              13.18
              
              
              
              (79
              )
      bp100
              
              
              
              22,561
              
              
              
              (448
              )
              
              
              (1.9
              )
              
              
              13.78
              
              
              
              (20
              )
      bp0
              
              
              
              23,009
              
              
              
              —
              
              
              
              —
              
              
              
              13.98
              
              
              
              —(50
              )
              
              
              23,138
              
              
              
              130
              
              
              
              0.6
              
              
              
              14.03
              
              
              
              5
              bp(100
              )
              
              
              23,243
              
              
              
              234
              
              
              
              1.0
              
              
              
              14.07
              
              
              
              10
              bp
 
 
 The OTS uses certain assumptions in
assessing the interest rate risk of savings associations.  These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under differing interest rate
scenarios, among others.  As with any method of measuring interest
rate risk, certain shortcomings are inherent in the method of analysis presented
in the foregoing table.  For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees
  13
  to
changes in market interest rates.  Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates.  Additionally, certain assets, such as adjustable-rate
mortgage loans, have features that restrict changes in interest rates on a
short-term basis and over the life of the asset.  Further, in the
event of a change in interest rates, expected rates of prepayments on loans and
early withdrawals from certificates could deviate significantly from those
assumed in calculating the table.
 
 Liquidity
Management.  Liquidity is the
ability to meet current and future financial obligations of a short-term nature.
Our primary sources of funds consist of deposit inflows, loan repayments,
maturities of and payments on investment securities and borrowings from the
Federal Home Loan Bank of New York.  While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
 
 We regularly adjust our investments in
liquid assets based upon our assessment of (1) expected loan demand,
(2) expected deposit flows, (3) yields available on interest-earning
deposits and securities and (4) the objectives of our asset/liability management
policy.
 
 Our most liquid assets are cash and
cash equivalents.  The levels of these assets depend on our operating,
financing, lending and investing activities during any given
period.  At December 31, 2009, cash and cash equivalents totaled $8.1
million.  In addition, at December 31, 2009, we had line of credit
arrangements to borrow up to $25.0 million from the Federal Home Loan Bank of
New York and an unused $2.0 million federal funds line from Atlantic Central
Bankers Bank. On December 31, 2009, we had approximately $3.0 million in
advances outstanding from the Federal Home Loan Bank (FHLB).
 
 A significant use of our liquidity is
the funding of loan originations.  At December 31, 2009, we had $13.9
million in loan commitments outstanding, which primarily consisted of $2.6
million in unadvanced portions of construction loans, $1.9 million in
commitments to fund one- to four-family residential real estate loans,
$2.0 million in unused home equity lines of credit, $5.7 million in
unused commercial lines of credit and $735,000 in commitments to fund commercial
loans.  Historically, many of the commitments expire without being
fully drawn; therefore, the total amount of commitments does not necessarily
represent future cash requirements. At December 31, 2009, we had a $1.0 million
commitment to purchase a U.S. Government agency bond to settle in January 2010.
Another significant use of our liquidity is the funding of deposit
withdrawals.  Certificates of deposit due within one year of December
31, 2009 totaled $72.4 million, or 92.6% of certificates of
deposit.  The large percentage of certificates of deposit that mature
within one year reflects customers’ hesitancy to invest their funds for long
periods in the recent low interest rate environment.  If these
maturing deposits do not remain with us, we will be required to seek other
sources of funds, including other certificates of deposit and
borrowings.  Depending on market conditions, we may be required to pay
higher than market rates on such deposits or other borrowings.  We
believe, however, based on past experience that a significant portion of our
certificates of deposit will remain with us.  We have the ability to
attract and retain deposits by adjusting the interest rates
offered.
 
 Capital
Management.  We are subject to various regulatory capital
requirements administered by the OTS, including a risk-based capital
measure.  The risk-based capital guidelines include both a definition
of capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk
categories.  At December 31, 2009, we exceeded all of our regulatory
capital requirements.
  14
  Our stock offering increased our equity
by $9.1 million in June 2007, thereby improving our liquidity.  Over
time, the initial level of liquidity has been reduced as net proceeds from the
stock offering were used for general corporate purposes, including the funding
of lending activities.  Our consolidated financial condition and
results of operations have been enhanced by the capital from the offering,
resulting in increased net interest-earning assets and net interest
income.  However, the large increase in equity resulting from the
capital raised in the offering, has had an adverse impact on our return on
equity.
 
 We declared our first cash dividend
of $0.02 per share this year on April 20, 2009, and during each subsequent
quarter. Future dividend payments will depend on our profitability, approval by
our Board of Directors and prevailing OTS regulations.
 
 In 2009, we repurchased 7,061 shares
to complete our stock repurchase program that was announced in July
2008.
 
 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 consolidated financial
statements.  These transactions involve, to varying degrees, elements
of credit, interest rate and liquidity risk. Such transactions are used
primarily to manage customers’ requests for funding and take the form of loan
commitments and lines of credit.
 
 For the year ended December 31, 2009,
we did not engage in any off-balance sheet transactions reasonably likely to
have a material effect on our consolidated financial condition, results of
operations or cash flows.
 
 Impact
of Recent Accounting Pronouncements
 
 For a discussion of the impact of
recent accounting pronouncements, see note 1 of the notes to the
consolidated financial statements included in this annual report.
 
 Effect
of Inflation and Changing Prices
 
 The consolidated financial statements
and related financial data presented in this annual report have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation.  The
primary impact of inflation on our operations is reflected in increased
operating costs.  Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in
nature.  As a result, interest rates generally have a more significant
impact on a financial institution’s performance than do general levels of
inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.
  15
  Index
to Consolidated Financial Statements and Schedules
 
  PageReport
      of Independent Registered Public Accounting Firm
              
              17Consolidated
      Financial StatementsConsolidated
      Balance Sheets
              
              18Consolidated
      Statements of Income
              
              19Consolidated
      Statements of Stockholders' Equity
              
              20Consolidated
      Statements of Cash Flows
              
              21Notes
      to Consolidated Financial Statements
              
              22
 
  Schedules
  All
schedules are omitted because the required information is not applicable or is
included in the consolidated financial statements and related
notes.
  16
  Report of Independent Registered Public
Accounting Firm
  To the
Board of Directors and Stockholders
 Hometown
Bancorp, Inc.
 Walden,
New York
 
  We have
audited the accompanying consolidated balance sheets of Hometown Bancorp, Inc.
and subsidiary (the Company) as of December 31, 2009 and 2008, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for the years then ended.  These consolidated financial statements are
the responsibility of the Company’s management.  Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hometown Bancorp, Inc. and
subsidiary as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
   
 
 Syracuse,
New York
 March 31,
2010
  17
 Hometown
      Bancorp, Inc.Consolidated Balance
      Sheets
 December
      31,2009
              
              
              2008(Dollars
      in Thousands,
                Except
      Share Data)AssetsCash
      and due from banks
              
              $
              6,458
              
              
              $
              2,915Interest
      earning demand deposits with banks
              
              
              1,654
              
              
              
              288Cash
      and Cash Equivalents
              
              
              8,112
              
              
              
              3,203Securities
      available for sale
              
              
              -
              
              
              
              1,002Securities
      held to maturity (fair value 2009 $1,323; 2008 $1,530)
              
              
              1,290
              
              
              
              1,509Loans
      held for sale
              
              
              1,175
              
              
              
              106Loans
      receivable, net of allowance for loan losses (2009 $1,918; 2008
      $1,347)
              
              
              136,793
              
              
              
              137,868Premises
      and equipment, net
              
              
              4,103
              
              
              
              4,087Restricted
      investments in bank stocks, at cost
              
              
              491
              
              
              
              395Other
      real estate owned
              
              
              1,435
              
              
              
              -Accrued
      interest receivable and other assets
              
              
              2,868
              
              
              
              2,199Total Assets
              
              $
              156,267
              
              
              $
              150,369Liabilities
      and Stockholders’ EquityLiabilitiesDeposits:Non-interest
      bearing
              
              $
              19,770
              
              
              $
              16,947Interest
      bearing
              
              
              111,978
              
              
              
              107,792Total
      Deposits
              
              
              131,748
              
              
              
              124,739Federal
      Home Loan Bank advances
              
              
              3,000
              
              
              
              4,375Advances
      from borrowers for taxes and insurance
              
              
              736
              
              
              
              708Accrued
      interest payable
              
              
              33
              
              
              
              143Other
      liabilities
              
              
              1,461
              
              
              
              1,610Total
      Liabilities
              
              
              136,978
              
              
              
              131,575Commitments
      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
              
              
              10,088
              
              
              
              10,112Retained
      earnings
              
              
              10,285
              
              
              
              9,787Unearned
      ESOP shares, at cost
              
              
              (793
              )
              
              
              (840
              )Treasury
      stock, at cost, 53,561 shares and 46,500 shares at December 31, 2009 and
      2008
              
              
              (311
              )
              
              
              (284
              )Accumulated
      other comprehensive loss
              
              
              (4
              )
              
              
              (5
              )Total
      Stockholders’ Equity
              
              
              19,289
              
              
              
              18,794Total
      Liabilities and Stockholders’ Equity
              
              $
              156,267
              
              
              $
              150,369
  See
notes to consolidated financial statements.
 18
 Hometown
      Bancorp, Inc.Consolidated
      Statements of Income
 Years
      Ended December 31,2009
              
              
              2008(In
      Thousands Except Per Share Data)Interest
      IncomeLoans
      receivable, including fees
              
              $
              8,256
              
              
              $
              8,541Securities,
      taxable
              
              
              67
              
              
              
              111Other
              
              
              21
              
              
              
              74Total
      Interest Income
              
              
              8,344
              
              
              
              8,726Interest
      ExpenseDeposits
              
              
              1,888
              
              
              
              2,441Federal
      Home Loan Bank advances
              
              
              28
              
              
              
              58Total
      Interest Expense
              
              
              1,916
              
              
              
              2,499Net
      Interest Income
              
              
              6,428
              
              
              
              6,227Provision
      for Loan Losses
              
              
              656
              
              
              
              579Net
      Interest Income after Provision for Loan Losses
              
              
              5,772
              
              
              
              5,648Non-interest
      IncomeBanking
      fees and service charges
              
              
              1,067
              
              
              
              1,109Mortgage
      banking income, net
              
              
              862
              
              
              
              312Investment
      brokerage fees
              
              
              71
              
              
              
              66Realized
      loss on sale of other real estate owned
              
              
              (19
              )
              
              
              -Litigation
      settlement
              
              
              -
              
              
              
              186Other
              
              
              88
              
              
              
              72Total
      Non-interest Income
              
              
              2,069
              
              
              
              1,745Non-interest
      ExpensesSalaries
      and employee benefits
              
              
              3,893
              
              
              
              3,788Occupancy
      and equipment
              
              
              735
              
              
              
              715Professional
      fees
              
              
              342
              
              
              
              365Advertising
      and marketing
              
              
              129
              
              
              
              240Data
      processing
              
              
              608
              
              
              
              545Telephone
      and postage
              
              
              189
              
              
              
              189FDIC
      premiums
              
              
              336
              
              
              
              49Other
      real estate owned expense
              
              
              115
              
              
              
              -Other
              
              
              540
              
              
              
              601Total
      Non-interest Expenses
              
              
              6,887
              
              
              
              6,492Income
      before Income Taxes
              
              
              954
              
              
              
              901Income
      Tax Expense
              
              
              369
              
              
              
              336Net
      Income
              
              $
              585
              
              
              $
              565Net
      Income per common share - basic
              
              $
              0.26
              
              
              $
              0.25Weighted
      average number of common shares outstanding – basic
              
              
              2,246
              
              
              
              2,286
  See
notes to consolidated financial statements.
 19
 Hometown
      Bancorp, Inc.Consolidated
      Statements of Stockholders’ Equity
                    Years
      Ended December 31, 2009 and 2008
                    (In
      Thousands Except Share
  Data)
 Common
                Stock
              
              
              Paid-In
                Capital
              
              
              Retained
                Earnings
              
              
              Unearned
                ESOP
                Shares
              
              
              Treasury
      Stock
              
              
              Accumulated
                Other
                Comprehensive
                Loss
              
              
              TotalBalance
      - December 31, 2007
              
              $
              24
              
              
              $
              10,129
              
              
              $
              9,222
              
              
              $
              (886
              )
              
              $
              -
              
              
              $
              (9
              )
              
              $
              18,480Comprehensive
      income:Net
      income
              
              
              -
              
              
              
              -
              
              
              
              565
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              565Other
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4
              
              
              
              4Total
      Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              569Treasury
      stock purchased (46,500 shares)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (284
              )
              
              
              -
              
              
              
              (284
              )ESOP
      shares committed to be released (4,666 shares)
              
              
              -
              
              
              
              (17
              )
              
              
              -
              
              
              
              46
              
              
              
              -
              
              
              
              -
              
              
              
              29Balance
      - December 31, 2008
              
              
              24
              
              
              
              10,112
              
              
              
              9,787
              
              
              
              (840
              )
              
              
              (284
              )
              
              
              (5
              )
              
              
              18,794Comprehensive
      income:Net
      income
              
              
              -
              
              
              
              -
              
              
              
              585
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              585Other
      comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              1Total
      Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              586Treasury
      stock purchased (7,061 shares)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (27
              )
              
              
              -
              
              
              
              (27
              )Cash
      dividends declared ($0.06 per share)
              
              
              -
              
              
              
              -
              
              
              
              (87
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (87
              )ESOP
      shares committed to be released (4,666 shares)
              
              
              -
              
              
              
              (24
              )
              
              
              -
              
              
              
              47
              
              
              
              -
              
              
              
              -
              
              
              
              23Balance
      - December 31, 2009
              
              $
              24
              
              
              $
              10,088
              
              
              $
              10,285
              
              
              $
              (793
              )
              
              $
              (311
              )
              
              $
              (4
              )
              
              $
              19,289
  See
notes to consolidated financial statements.
 20
 Hometown
      Bancorp, Inc.Consolidated
      Statements of Cash
  Flows
 Years
      Ended December 31,2009
              
              
              2008(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              585
              
              
              $
              565Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              261
              
              
              
              241Provision
      for loan losses
              
              
              656
              
              
              
              579Deferred
      income tax benefit
              
              
              112
              
              
              
              311Amortization
      of mortgage servicing rights
              
              
              168
              
              
              
              144Net
      accretion of securities premiums and discounts
              
              
              (5
              )
              
              
              -Net
      gain on sale of loans
              
              
              (540
              )
              
              
              (135
              )Loans
      originated for sale
              
              
              (40,257
              )
              
              
              (11,191
              )Proceeds
      from sale of loans
              
              
              39,728
              
              
              
              11,748Realized
      loss on sale of other real estate owned
              
              
              19
              
              
              
              -ESOP
      expense
              
              
              23
              
              
              
              29Increase
      in accrued interest receivable and other assets
              
              
              (947
              )
              
              
              (892
              )Decrease
      in accrued interest payable and other liabilities
              
              
              (259
              )
              
              
              (167
              )Net
      Cash (Used) Provided by Operating Activities
              
              
              (456
              )
              
              
              1,232Cash
      Flows from Investing ActivitiesActivity
      in available for sale securities:Purchases
              
              
              -
              
              
              
              (1,000
              )Maturities,
      calls and principal repayments
              
              
              1,000
              
              
              
              1,000Activity
      in held to maturity securities:Purchases
              
              
              (750
              )
              
              
              (750
              )Maturities,
      calls and principal repayments
              
              
              975
              
              
              
              1,015Net
      increase in loans receivable
              
              
              (1,085
              )
              
              
              (17,465
              )Proceeds
      from sale of other real estate owned
              
              
              50
              
              
              
              -Net
      increase in restricted investment in bank stocks
              
              
              (96
              )
              
              
              (253
              )Purchases
      of bank premises and equipment
              
              
              (277
              )
              
              
              (1,531
              )Net
      Cash Used by Investing Activities
              
              
              (183
              )
              
              
              (18,984
              )Cash
      Flows from Financing ActivitiesNet
      increase in deposits
              
              
              7,009
              
              
              
              12,678Net
      (decrease) increase in short-term Federal Home Loan Bank
      advances
              
              
              (1,375
              )
              
              
              4,375Increase
      in advances from borrowers for taxes and insurance
              
              
              28
              
              
              
              173Dividends
      paid
              
              
              (87
              )
              
              
              -Treasury
      stock purchased
              
              
              (27
              )
              
              
              (284
              )Net
      Cash Provided by Financing Activities
              
              
              5,548
              
              
              
              16,942Net
      Increase (Decrease) in Cash and Cash Equivalents
              
              
              4,909
              
              
              
              (810
              )Cash
      and Cash Equivalents - Beginning
              
              
              3,203
              
              
              
              4,013Cash
      and Cash Equivalents - Ending
              
              $
              8,112
              
              
              $
              3,203Supplementary
      Cash Flows InformationInterest
      paid
              
              $
              2,026
              
              
              $
              2,618Income
      taxes paid
              
              $
              664
              
              
              $
              570Supplemental
      Schedule of Noncash Investing ActivitiesLoans
      transferred to other real estate owned
              
              $
              1,504
              
              
              $
              -
  See
notes to consolidated financial statements.
 21
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies
  Organization
and Nature of Operations
  In May
2006, Walden Federal Savings and Loan Association (the “Association”)
reorganized into the two-tier mutual holding company structure.  As
part of the reorganization, the Association formed Hometown Bancorp, Inc. (the
“Company”), a federally chartered mid-tier stock holding company, and Hometown
Bancorp, MHC (the “Mutual Holding Company”), a federally chartered mutual
holding company.  The Association became a federally chartered stock
savings association, and a wholly-owned subsidiary of the
Company.  The Company became the wholly-owned subsidiary of the Mutual
Holding Company, whose activity is not included in the accompanying consolidated
financial statements.  The same directors and officers, who manage the
Association, also manage the Company and the Mutual Holding
Company.
  The
Association, the Mutual Holding Company and the Company are subject to
regulation and supervision by the Office of Thrift Supervision
(OTS).
  On June
28, 2007, the Company completed its minority stock offering of 45% of the
aggregate total voting stock of the Company.  In connection with the
minority offering, 2,380,500 shares of common stock were issued, of which
1,071,225 shares were sold to the Association’s eligible account holders and the
employee stock ownership plan (the “ESOP”) for $10 per share, resulting in net
proceeds of approximately $9.1 million after offering expenses and
ESOP.  Currently, 56.3% of the Company’s outstanding common stock, or
1,309,275 shares, are owned by Hometown Bancorp MHC.
 
 The
Association maintains its executive offices and main branch in Walden, New York,
with branches in Montgomery, Monroe, Newburgh and Otisville, New
York.  The Association is a community-oriented savings institution
whose business primarily consists of accepting deposits from customers within
its market area and investing those funds principally in mortgage loans secured
by one-to-four-family residences, multi-family and commercial properties, land
loans, commercial loans, consumer loans and mortgage-backed
securities.
  The
Association has two wholly-owned subsidiaries, Ever-Green Financial Services,
Inc., which holds a 50% interest in Evergreen Title Agency, LP and Valley
Services, Inc., which leases certain premises used by the Association and holds
foreclosed real estate.
  Principles
of Consolidation
  The
consolidated financial statements include the accounts of the Company, the
Association and the Association’s wholly-owned subsidiaries, Ever-Green
Financial Services, Inc. and Valley Services, Inc.  All intercompany
transactions and balances have been eliminated in consolidation.
  Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period.  Actual results could differ from those
estimates.  Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses.
  22
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Concentrations
of Credit Risk
  Most of
the Company’s activities are with customers located within Orange County, New
York and to a lesser extent the adjacent counties of Ulster and
Sullivan.  Note 2 discusses the types of securities that the
Association invests in.  Note 3 discusses the types of lending that
the Association engages in.   Although the Association has a
diversified loan portfolio, its debtors’ ability to honor their contracts is
influenced by the region’s economy.  The Association does not have any
significant concentrations in any one industry or customer.
  Presentation
of Cash Flows
  For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and interest-bearing deposits with an original
maturity of three months or less.
  Securities
  Management
determines the appropriate classification of debt securities at the time of
purchase.
  Securities
classified as available for sale are those securities that the Association
intends to hold for an indefinite period of time but not necessarily to
maturity.  Any decision to sell a security classified as available for
sale would be based on various factors, including significant movement in
interest rates, changes in maturity mix of the Association’s assets and
liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair
value.  Unrealized gains and losses are reported in other
comprehensive income (loss), net of the related deferred tax
effect.  Realized gains or losses, determined on the basis of the cost
of the specific securities sold, are included in earnings.  Premiums
and discounts are recognized in interest income using the effective interest
method over the terms of the securities.
  Securities
classified as held to maturity are those debt securities the Association has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic
conditions.  These securities are carried at cost adjusted for the
amortization of premium and accretion of discount, recognized in interest income
using the effective interest method over the terms of the
securities.
  Declines
in the fair value of held to maturity and available for sale securities below
their cost that are deemed to be other-than-temporary are reflected in earnings
as realized losses. Prior to the adoption of the recent accounting guidance on
April 1, 2009, in estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Association to retain its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
  Effective
April 1, 2010, the Association adopted new accounting guidance related to
recognition and presentation of other-than-temporary impairment. The recent
guidance replaced the “intent and ability” indication in current guidance by
specifying that (a) if a company does not have the intent to sell a debt
security prior to recovery and (b) it is more likely than not that it will not
have to sell the debt security prior to recovery, the security would not be
considered other-than-temporarily impaired unless there is a credit loss. When
an entity does not intend to sell the security, and it is more likely than not,
the entity will not have to sell the security before recovery of its cost basis,
it will recognize the credit component of an other-than-temporary impairment of
a debt security in earnings and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the amount of an
other-than-temporary impairment recorded in other comprehensive income for the
noncredit portion of a previous other-than-temporary impairment
should
  23
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Securities
(Continued)
  be
amortized prospectively over the remaining life of the security on the basis of
the timing of future estimated cash flows of the security. There were no
other-than-temporary impairments recorded in the years ended December 31, 2009
or 2008.
  Federal
law requires a member institution of the FHLB system to hold restricted stock of
its district FHLB according to a predetermined formula.  The
restricted stock is carried at cost. Management reviews impairment based on the
ultimate recoverability of the cost basis in the FHLB stock.
  During
2009, the Association purchased $60,000 of restricted stock from its
correspondent bank Atlantic Central Bankers Bank (ACBB). The purchase was
required in order to obtain an unsecured federal funds line. The restricted
stock is carried at cost. Management reviews impairment based on the ultimate
recoverability of the cost basis in the ACBB stock.
  Loans
Receivable
  Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at their outstanding
unpaid principal balances, net of an allowance for loan losses and any deferred
fees and costs.  Interest income is accrued on the unpaid principal
balance.  Loan origination fees and costs are deferred and recognized
as an adjustment of interest income on the related loans.  The
Association is amortizing these amounts over the expected life of the
loan.
  The
accrual of interest is generally discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing.  A loan may remain on accrual status if
it is in the process of collection and is either guaranteed or well
secured.  When a loan is placed on nonaccrual status, unpaid interest
is reversed against interest income.  Interest received on nonaccrual
loans generally is either applied against principal or reported as interest
income, according to management’s judgment as to the collectibility of
principal.  Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
  The
Association has issued letters of credit on behalf of customers primarily to
secure construction or land development projects that involve public
improvements.  The letters of credit are fully secured by a note and a
mortgage placed on the related property.  The note contains provisions
that waive any interest payments provided there are no drawdowns on the letter
of credit.  Funds equal to the full amount of the letters of credit
are advanced and placed in a non-interest bearing deposit account in order to
enhance the Association’s collateral position under New York State Lien
Law.  These loans and deposits are reported gross in the consolidated
balance sheets as the Association does not intend to offset them. Interest is
not imputed on these loans and deposits as it is a customary lending and deposit
activity of the Association.
  Allowance
for Loan Losses
  The
allowance for loan losses is established through provisions for loan losses
charged against income.  Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
  24
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Allowance
for Loan Losses (Continued)
  The
allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated.  Management’s
periodic evaluation of the adequacy of the allowance is based on the
Association’s past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower’s ability to repay,
the estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant
factors.  This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant revision as more
information becomes available.
  The
allowance consists of specific and general components.  The specific
component relates to loans that are classified as either doubtful, substandard,
or special mention.  For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than
the carrying amount of that loan.  The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors.
  A loan is
considered impaired when, based on current information and events, it is
probable that the Association will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status and the probability of collecting scheduled principal and
interest payments when due.  Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as
impaired.  Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record, and
the amount of the shortfall in relation to the principal and interest
owed.  Impairment is measured on a loan by loan basis for commercial,
commercial real estate, 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 observable market price, or the fair value of the collateral if the
loan is collateral dependent.
  Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly, the Association does not separately identify
individual consumer and residential loans for impairment disclosures, unless
such loans are the subject of a restructuring agreement.
  Loans
Held for Sale and Loan Servicing
  Loans
held for sale represent residential mortgage loans originated for sale on a
whole-loan basis.  These loans are carried at the lower of cost or
estimated fair value, as determined on an aggregate basis.  Net
unrealized losses are recognized in a valuation allowance by charges to
operations.  Premiums and discounts and origination fees and costs on
loans held for sale are deferred and recognized as a component of the gain or
loss on sale.  Commitments to originate loans that will be held for
sale and forward commitments to sell such loans are derivative instruments which
are required to be recognized as assets or liabilities at fair
value.  Fair value is determined based solely on the effect of changes
in secondary market interest rates and yield requirements from the commitment
date to the date of the financial statements.  The fair values of
these commitments have had an immaterial effect on the Company’s consolidated
balance sheets and income statement.
  The
Association sells residential mortgage loans to third parties.  The
Association, as transferor, must surrender control over the transferred assets
(i.e., the loans sold) in order to record a sale.  The criteria
specify that (i) the transferred assets have been isolated from the transferor
(put presumptively beyond the reach of
  25
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Loans
Held for Sale and Loan Servicing (Continued)
  the
transferor and its creditors, even in bankruptcy or other receivership); (ii)
each transferee has the right to pledge or exchange the assets it received; and
(iii) the transferor does not maintain effective control over the transferred
assets through an agreement to repurchase the assets or an ability to
unilaterally cause the holder to return specific assets.
  Gains and
losses on sales of loans are recognized when the sales proceeds are received
(including consideration of assets obtained and liabilities incurred in the
transfer, if any, such as servicing rights and recourse
obligations).  Recourse liabilities on loan sales through
December 31, 2009 are not material to the Company’s consolidated balance
sheets and income statement.  Loan servicing income is reported in
mortgage banking income, net.
  Originated
mortgage servicing rights are recorded at their fair value when loans are sold
and are amortized in proportion to and over the period of estimated net
servicing income or loss.  The carrying value of originated mortgage
servicing rights is periodically evaluated for impairment.
  Premises
and Equipment
  Premises
and equipment are recorded at cost.  Depreciation is computed using
the straight-line method over the expected useful lives of the related assets,
which is generally 15 to 40 years for buildings and building improvements and 3
to 10 years for furniture, equipment, computers and
software.  Leasehold improvements are amortized over the related terms
of the leases or their useful life if shorter.
  Foreclosed
Real Estate
  Real
estate acquired in settlement of loans is recorded at the fair value of the
property at the date of acquisition.  Write-downs from cost to fair
value less estimated selling costs which are required at the time of foreclosure
or repossession are charged to the allowance for loan
losses.  Subsequent write-downs to fair value, net of estimated
selling costs, are charged to foreclosed real estate expenses.
  Transfers
of Financial Assets
  Transfers
of financial assets are accounted for as sales, when control over the assets has
been surrendered.  Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Association, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Association does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
  Advertising
Costs
  The
Company follows the policy of charging the costs of advertising to expense as
incurred.
  Income
Taxes
  Deferred
taxes are provided on the liability method whereby deferred tax assets are
recognized for deductible temporary differences and deferred tax liabilities are
recognized for taxable temporary differences.  Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax basis.  Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of the deferred tax assets will not be
realized.  Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.  The Company and its subsidiary file a consolidated federal
income tax return.
  26
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
 
 Net
Income Per Common 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 years ended December 31, 2009 and
2008, had no potentially dilutive common stock equivalents. Unallocated common
shares held by the ESOP are not included in the weighted-average number of
common shares outstanding for purposes of calculating earnings per common share
until they are committed to be released.
 
 Off-Balance
Sheet Financial Instruments
  In the
ordinary course of business, the Association has entered into off-balance sheet
financial instruments consisting of commitments to extend credit and letters of
credit.  Such financial instruments are recorded in the consolidated
balance sheet when they are funded.
  Segment
Reporting
  The
Company does not presently have discrete financial information available that
properly allocates expenses between its community banking and investment
brokerage segments.  As a result, segment information is not presently
available.  Revenues from the investment brokerage segment are not
material to the consolidated results of operations.
  Comprehensive
Income
  Accounting
principles generally accepted in the United States of America require that
recognized revenue, expenses, gains, and losses be included in net
income.  Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale securities and unrecognized
pension losses and past service liability are reported as a separate component
of the equity section of the consolidated balance sheet, such items, along with
net income, are components of comprehensive income.
  27
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Comprehensive
Income (Continued)
  The
components of other comprehensive income (loss) and related tax effects for the
years ended December 31, 2009 and 2008 are as follows:
  2009
              
              
              2008(In
      Thousands)Change
      in unrealized holding losses on securities available for
    sale:Change
      in unrealized holding losses arising during the year
              
              $
              (2
              )
              
              $
              (1
              )Directors’
      retirement plan:Prior
      service cost
              
              
              -
              
              
              
              -Pension
      gains (losses)
              
              
              (2
              )
              
              
              3Reclassification
      adjustment for pension gains and prior service cost recognized in pension
      expense
              
              
              5
              
              
              
              5Net
      Change in Director’s retirement plan liability
              
              
              3
              
              
              
              8Other
      comprehensive income before tax
              
              
              1
              
              
              
              7Income
      tax effect
              
              
              -
              
              
              
              (3
              )Net
      of Tax Amount
              
              $
              1
              
              
              $
              4
 
 At
December 31, 2009 and 2008, the components of accumulated other comprehensive
loss are as follows:
 
 2009
              
              
              2008(In
      Thousands)Unrealized
      gains on securities available for sale (net of tax effect 2009 ($0); 2008
      ($1))
              
              $
              -
              
              
              $
              1Net
      losses and past service liability for Directors’ retirement plan (net of
      tax effect 2009 $2; 2008 $4)
              
              
              (4
              )
              
              
              (6
              )$
              (4
              )
              
              $
              (5
              )
  28
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
  Recent
Accounting Pronouncements
  
 Accounting
Standards Update (ASU) 2009-16
 
 In
October 2009, the Financial Accounting Standards Board (FASB) issued ASU
2009-16, Transfers and
Servicing (Topic 860) - Accounting for Transfers of Financial
Assets.This Update amends the Codification for the issuance
of FASB Statement No. 166, Accounting for Transfers of
Financial Assets-an amendment of FASB Statement No. 140.
 
 The
amendments in this Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial
assets.  Comparability and consistency in accounting for transferred
financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting.
 
 This
Update is effective at the start of a reporting entity’s first fiscal year
beginning after November 15, 2009.  Early application is not
permitted. The Company does not expect that this new update will have any impact
on its consolidated financial statements.
 
 ASU
2009-17
 
 In
October 2009, the FASB issued ASU 2009-17, Consolidations (Topic 810) -
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities.  This Update amends the Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R).
 
 The
amendments in this Update replace the quantitative-based risks and rewards
calculation for determining which reporting entity, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which reporting entity has the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity. An approach that is expected to be
primarily qualitative will be more effective for identifying which reporting
entity has a controlling financial interest in a variable interest
entity.  The amendments in this Update also require additional
disclosures about a reporting entity’s involvement in variable interest
entities, which will enhance the information provided to users of financial
statements.
 
 This
Update is effective at the start of a reporting entity’s first fiscal year
beginning after November 15, 2009.  Early application is not
permitted. The Company does not expect that this new update will have any impact
on its consolidated financial statements.
 
 Subsequent
Events
 
 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 was payable to stockholders of record
as of February 5,
  29
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
1 - Significant Accounting Policies (Continued)
 
 Subsequent
Events (Continued)
 
 2010, and
was paid on February 19, 2010. Hometown Bancorp MHC which holds approximately
56.3% of the Company’s total outstanding shares 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.
 
 Note
2 - Securities
  The
amortized cost of securities and their approximate fair values are summarized as
follows:
  Amortized
      Cost
              
              
              Gross
      Unrealized Gains
              
              
              Gross
      Unrealized Losses
              
              
              Fair
                  Value(In
      Thousands)Available
      for Sale:December 31,
      2009:U.S.
      Government agencies
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -December 31,
      2008:U.S.
      Government agencies
              
              $
              1,000
              
              
              $
              2
              
              
              $
              -
              
              
              $
              1,002Held
      to Maturity:December 31,
      2009:U.S.
      Government agencies
              
              $
              750
              
              
              $
              2
              
              
              $
              -
              
              
              $
              752Mortgage-backed
      securities
              
              
              540
              
              
              
              31
              
              
              
              -
              
              
              
              571$
              1,290
              
              
              $
              33
              
              
              $
              -
              
              
              $
              1,323December 31,
      2008:U.S.
      Government agencies
              
              $
              750
              
              
              $
              6
              
              
              $
              -
              
              
              $
              756Mortgage-backed
      securities
              
              
              759
              
              
              
              18
              
              
              
              3
              
              
              
              774$
              1,509
              
              
              $
              24
              
              
              $
              3
              
              
              $
              1,530
  30
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
2 - Securities (Continued)
  The
amortized cost and fair value of securities as of December 31, 2009, 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
              
              
              -
              
              
              
              -
              
              
              
              750
              
              
              
              752Due
      after five years through ten years
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Due
      after ten years
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Mortgage-backed
      securities
              
              
              -
              
              
              
              -
              
              
              
              540
              
              
              
              571$
              -
              
              
              $
              -
              
              
              $
              1,290
              
              
              $
              1,323
 
 There
were no sales of investments in 2009 and 2008.
  The
following table shows the Association’s investments’ gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at
December 31, 2008:
  Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalFair
                  Value
              
              
              Unrealized
      Losses
              
              
              Fair
                  Value
              
              
              Unrealized
      Losses
              
              
              Fair
                  Value
              
              
              Unrealized
      Losses(In
      Thousands)December
      31, 2008:Held
      to Maturity:Mortgage-backed
      securities
              
              $
              -
              
              
              $
              -
              
              
              $
              88
              
              
              $
              3
              
              
              $
              88
              
              
              $
              3$
              -
              
              
              $
              -
              
              
              $
              88
              
              
              $
              3
              
              
              $
              88
              
              
              $
              3
 
  At
December 31, 2009, the Association had no securities in an unrealized loss
position.
  At
December 31, 2009 and 2008, securities with a carrying value of $100,000
and $250,000 were pledged to secure public deposits and for other purposes
required or permitted by law.
  31
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
3 - Loans Receivable and Allowance for Loan Losses
  The
composition of loans receivable at December 31, 2009 and 2008 is as
follows:
  2009
              
              
              2008(In
      Thousands)First
      mortgage loans:Residential
              
              $
              59,590
              
              
              $
              65,565Construction
              
              
              7,750
              
              
              
              9,162Multi-family
              
              
              2,421
              
              
              
              2,515Commercial
              
              
              25,735
              
              
              
              22,456Land
              
              
              15,345
              
              
              
              13,632Total
      First Mortgage Loans
              
              
              110,841
              
              
              
              113,330Other
      loans:Commercial
              
              
              15,235
              
              
              
              12,763Consumer
              
              
              517
              
              
              
              466Home
      equity loans and credit lines
              
              
              11,950
              
              
              
              12,434Loans
      on savings accounts
              
              
              131
              
              
              
              159Total
      Loans
              
              
              138,674
              
              
              
              139,152Deferred
      loan origination costs, net
              
              
              37
              
              
              
              63Allowance
      for loan losses
              
              
              (1,918
              )
              
              
              (1,347
              )Net
      Loans
              
              $
              136,793
              
              
              $
              137,868
 
 The
Association grants loans to customers primarily within Orange County, New York,
and to a lesser extent, portions of the adjacent counties of Ulster and
Sullivan.  A large portion of the loan portfolio is secured by real
estate.  Although the Association has a diversified loan portfolio,
its debtors’ ability to honor their contracts is influenced by the region’s
economy.
  The
following table presents changes in the allowance for loan losses for the years
ended December 31, 2009 and 2008:
  2009
              
              
              2008(In
      Thousands)Balance,
      beginning
              
              $
              1,347
              
              
              $
              787Provision
      for loan losses
              
              
              656
              
              
              
              579Loans
      charged off
              
              
              (99
              )
              
              
              (23
              )Loan
      recoveries
              
              
              14
              
              
              
              4Balance,
      ending
              
              $
              1,918
              
              
              $
              1,347
 
 The
Association had nonaccrual loans amounting to approximately $5.6 million and
$5.0 million at December 31, 2009 and 2008, respectively.
  32
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
3 - Loans Receivable and Allowance for Loan Losses (Continued)
  Interest
not recognized on nonaccrual loans was $381,000 and $208,000 for the years ended
December 31, 2009 and 2008.  There were no loans past due 90 days or
more and still accruing interest at December 31, 2009 and
2008.
  The
following is a summary of information pertaining to impaired loans at
December 31:
  2009
              
              
              2008Impaired
      loans without a valuation allowance
              
              $
              1,885
              
              
              $
              2,415Impaired
      loans with a valuation allowance
              
              
              2,328
              
              
              
              1,499Total
      Impaired Loans
              
              $
              4,213
              
              
              $
              3,914Valuation
      allowance related to impaired loans
              
              $
              633
              
              
              $
              432
 
  During
2009, interest income of $21,000 was recognized on impaired loans and no
interest income was recognized on impaired loans in 2008. The average balance of
impaired loans with an allowance was $1.5 million in 2009, compared to $639,000
in 2008. The Association generally does not separately identify individual
residential and consumer loans for impairment.
  At
December 31, 2009 and 2008, one-to-four family residential mortgage loans
serviced for others amounted to approximately $86.7 million and $81.2 million,
respectively.  Advances from borrowers for taxes and insurance related
to loans serviced for others amounted to approximately $532,000 and $466,000,
respectively, at December 31, 2009 and 2008.  These loans and
related advances are not included in the accompanying consolidated balance
sheets.
  The
following summarizes activity pertaining to mortgage servicing rights for the
years ended December 31, 2009 and 2008:
  2009
              
              
              2008(In
      Thousands)Balance,
      beginning
              
              $
              310
              
              
              $
              386Capitalized
      during the year
              
              
              255
              
              
              
              68Amortization
              
              
              (168
              )
              
              
              (144
              )Balance,
      ending
              
              $
              397
              
              
              $
              310
  33
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
4 - Premises and Equipment
  The
components of premises and equipment at December 31, 2009 and 2008 are as
follows:
  2009
              
              
              2008(In
      Thousands)Land
              
              $
              901
              
              
              $
              901Buildings
      and leasehold improvements
              
              
              3,708
              
              
              
              3,566Furniture
      and equipment
              
              
              1,134
              
              
              
              999Automobiles
              
              
              61
              
              
              
              615,804
              
              
              
              5,527Accumulated
      depreciation
              
              
              1,701
              
              
              
              1,440$
              4,103
              
              
              $
              4,087
 
 Note
5 - Deposits
  Deposits
at December 31, 2009 and 2008 consist of the following major
classifications:
  2009
              
              
              2008(In
      Thousands)Non-interest
      bearing demand
              
              $
              19,770
              
              
              $
              16,947NOW
              
              
              7,395
              
              
              
              6,644Money
      market
              
              
              10,526
              
              
              
              11,579Savings
              
              
              15,868
              
              
              
              13,561Certificates
      of deposit
              
              
              78,189
              
              
              
              76,008$
              131,748
              
              
              $
              124,739
 
 A summary
of certificates of deposit by maturity at December 31, 2009 is as follows
(in thousands):
  Year
      ending December 31:2010
              
              $
              72,3942011
              
              
              4,7762012
              
              
              7822013
              
              
              1862014
              
              
              51$
              78,189
 
 The
aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $34.1 million and $29.5 million at December 31, 2009 and 2008,
respectively.  At December 31, 2009 and 2008, $10.0 million of
certificates of deposit consisted of one municipal deposit from the New York
State Office of the Comptroller which is secured by a municipal letter of credit
issued by the Federal Home Loan Bank (see Note 6).
  34
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
5 – Deposits (Continued)
  A summary
of interest expense on deposits for the years ended December 31, 2009 and
2008 is as follows:
  2009
              
              
              2008(In
      Thousands)NOW
      and money market demand
              
              $
              119
              
              
              $
              216Savings
              
              
              91
              
              
              
              80Certificates
      of deposit
              
              
              1,678
              
              
              
              2,145$
              1,888
              
              
              $
              2,441
 
 Note
6 – Federal Home Loan Bank and Other Borrowings
  As a
member of the FHLB, the Association may borrow in the form of term and overnight
borrowing up to the amount of eligible residential mortgage loans and securities
that have been pledged as collateral under a blanket security agreement. As of
December 31, 2009, the Association had pledged residential mortgage loans
totaling $38.0 million. Based on total outstanding borrowings of $3.0 million
and the secured $10.0 million municipal letter of credit, the association had
unused borrowing capacity with FHLB of $25.0 million at December 31,
2009.
  At
December 31, 2009, the Association’s $3.0 million advances outstanding consisted
of three short-term advances, which are due between April and September 2010.
The interest rates on the advances range from 0.65% to 0.98%. The Association
had two short-term advances totaling $2.5 million outstanding at December 31,
2008, which matured in April 2009, with an interest rate range from 1.58% to
2.55%.
  The
Association has various line of credit facilities with the Federal Home Loan
Bank, which mature on July 31, 2010, and provide for borrowings of up to
$30.3 million or up to the unused borrowing capacity, of which none was
outstanding overnight as of December 31, 2009 and $1.9 million was
outstanding at a rate of 0.44% at December 31, 2008.
  The
Association also has an unused $2.0 million federal funds line from its
correspondent bank, Atlantic Central Bankers Bank.
  Note
7 - Legal Contingencies
  Various
legal claims arise from time to time in the normal course of business, which in
the opinion of management will have no material effect on the Company’s
consolidated financial statements.
  Note
8 - Restrictions on Dividends, Loans and Advances
  Federal
and state banking regulations place certain restrictions on dividends paid and
loans or advances made by the Association to the Company.  The total
amount of dividends which may be paid at any date is generally limited to
retained net income of the Association for the current and preceding two
years.  Loans or advances are limited to 10% of the Association’s
capital and surplus on a secured basis.
  At
December 31, 2009, the Association’s retained earnings available for the
payment of dividends was approximately $2.1 million.  Funds available
for loans or advances by the Association to the Company amounted to
approximately $1.6 million.
  35
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
8 - Restrictions on Dividends, Loans and Advances (Continued)
  In
addition, dividends paid by the Association to the Company would be prohibited
if the effect thereof would cause the Association’s capital to be reduced below
minimum capital requirements. The Company’s ability to pay dividends is
generally dependent on the Association’s ability to pay dividends to the
Company.
  Note
9 - Lease Commitments and Total Rental Expense
  The
Association leases four branch locations under long-term operating
leases.  Future minimum lease payments by year and in the aggregate,
under noncancellable operating leases with initial or remaining terms of one
year or more, consisted of the following at December 31, 2009 (in
thousands):
  Years
      ending December 31:2010
              
              $
              922011
              
              
              422012
              
              
              142013
              
              
              142014
              
              
              12$
              174
 
 The
leases contain options to extend for periods from two to ten
years.  The cost of such rentals is not included above.  The
total rental expense for all leases for the years ended December 31, 2009
and 2008 was approximately $95,000 and $134,000, respectively.
  Note
10 - Income Taxes
  The
income tax provision (benefit) consists of the following for the years ended
December 31, 2009 and 2008:
  2009
              
              
              2008(In
      Thousands)Federal:Current
              
              $
              425
              
              
              $
              558Deferred
              
              
              (135
              )
              
              
              (287
              )290
              
              
              
              271StateCurrent
              
              
              56
              
              
              
              86Deferred
              
              
              23
              
              
              
              (21
              )79
              
              
              
              65Income
      Tax Expense
              
              $
              369
              
              
              $
              336
  36
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
10 - Income Taxes (Continued)
  A
reconciliation of the statutory federal income tax at a rate of 34% to the
income tax expense included in the consolidated statements of income for the
years ended December 31, 2009 and 2008 is as follows:
  2009
              
              
              
              
              
              2008Amount
              
              
              %
      of Pretax Income
              
              
              Amount
              
              
              %
      of
                  Pretax
      Income(Dollars
      in Thousands)Federal
      income tax at statutory rate
              
              $
              324
              
              
              
              34.0
              %
              
              $
              306
              
              
              
              34.0
              %State
      income taxes, net of federal tax benefit
              
              
              47
              
              
              
              5.0
              
              
              
              43
              
              
              
              4.7Other
              
              
              (2
              )
              
              
              (0.3
              )
              
              
              (13
              )
              
              
              (1.4
              )$
              369
              
              
              
              38.7
              %
              
              $
              336
              
              
              
              37.3
              %
 
 Items
that gave rise to significant portions of deferred taxes are as
follows:
  December
      31,2009
              
              
              2008(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
              
              $
              651
              
              
              $
              451Directors’
      Retirement Plan
              
              
              66
              
              
              
              46Nonaccrual
      interest
              
              
              152
              
              
              
              80869
              
              
              
              577Deferred
      tax liabilities:Premises
      and equipment
              
              
              243
              
              
              
              78Mortgage
      servicing rights
              
              
              157
              
              
              
              140Unrealized
      gains on securities available for sale
              
              
              -
              
              
              
              1Other
              
              
              15
              
              
              
              16415
              
              
              
              235Net
      Deferred Tax Asset
              
              $
              454
              
              
              $
              342
 
 Management
determines the need for a deferred tax asset valuation allowance based upon an
evaluation of the realizability of tax benefits from the reversal of temporary
differences creating the deferred tax assets. Based on historical and
anticipated future pre-tax earnings, management believes it is more likely than
not that the company will realize its deferred tax assets, and thus no deferred
tax asset valuation allowance was considered necessary at December 31, 2009 or
2008.
  37
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
10 - Income Taxes (Continued)
  As a
thrift institution, the Association is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves.  These reserves consist
primarily of a defined base-year amount for Federal and New York income tax
purposes.  Deferred tax liabilities are recognized with respect to any
portion of the base-year amount which is expected to become taxable (or
“recaptured”) in the foreseeable future.
  Under
current tax laws, Federal base-year reserves would be subject to recapture if
the Association pays a cash dividend in excess of earnings and profits or
liquidates.  In order for the Association to permissibly maintain a
New York State tax bad debt reserve for thrifts, certain thrift definitional
tests must be satisfied on an ongoing basis.  These definitional tests
include maintaining at least 60% of assets in thrift qualifying assets, as
defined for tax purposes, and maintaining a thrift charter.  The
Association expects that it will take no action in the foreseeable future which
would require the establishment of a tax liability associated with these bad
debt reserves. Deferred tax liabilities have not been recognized with respect to
the Federal base-year reserve of approximately $500,000 at December 31,
2009, and the New York State base-year reserve of approximately $5.2 million at
December 31, 2009, since the Association does not expect that these amounts
will become taxable in the foreseeable future.  The unrecognized
deferred tax liability with respect to the Federal and New York State base-year
reserves was approximately $170,000 and $296,000 (net of federal benefit),
respectively, at December 31, 2009.
  The
Company adopted the provisions of FASB ASC 740-10 for accounting for uncertainty
in income taxes effective January 1, 2007. ASC 740-10 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The adoption of ASC
740-10 did not have any impact on the Company’s consolidated results of
operations and financial position. The Company recognized no adjustment for
unrecognized income tax benefits for the years ended December 31, 2009 and 2008.
The Company’s policy is to recognize interest and penalties on unrecognized tax
benefits in income tax expense in the consolidated statements of income. The
Company’s Federal and New York tax returns, constituting the returns of the
major taxing jurisdictions, are subject to examination by the taxing authorities
for 2008, 2007 and 2006 as prescribed by applicable statute. No waivers have
been executed that would extend the period subject to examination beyond the
period prescribed by statute. As of December 31, 2009 and 2008 the Company has
no uncertain tax positions.
  Note
11 - Employee Benefit Plans
  401(k)
  The
Association has a 401(k) savings plan, which is offered to all eligible
employees, defined as those who are at least 21 years of age that have worked
for the Association for one year and work a minimum of 1,000 hours per Plan
year.  The Plan permits tax deferred employee contributions of up to
15% of compensation and provides for employer discretionary matching and
additional contributions determined annually by the Board of
Directors.  Employer contributions are subject to the employee
completing 1,000 hours of service during the Plan year and being employed on the
last day of the Plan year.  Employer contributions vest to the
employee at the rate of 20% after completion of two years of service and 20% per
year, thereafter, becoming 100% vested upon the completion of six years of
service.
  In 2009
and 2008, the Board of Directors approved matching contributions of 100% of
employee contributions up to 2% of the employee’s
compensation.  Matching contributions amounted to $43,000 and $42,000
in 2009 and
  38
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
11 - Employee Benefit Plans (Continued)
  401(k)
(Continued)
  2008,
respectively.  In 2009 and 2008, the Board of Directors approved
additional contributions of 2% and 5%, respectively, of employees’
compensation.  Additional contributions were $48,000 and $118,000,
respectively, for 2009 and 2008.
  Employee
Stock Ownership Plan (“ESOP”)
 
 In June
2007, the Association established an ESOP which acquired 93,315 shares of the
Company’s common stock in the stock offering with funds provided by a loan from
the Company. The stock acquired by the ESOP but not yet released to participants
is shown as a reduction of stockholders’ equity in the accompanying consolidated
balance sheets. The ESOP loan will be repaid principally from the Association’s
contributions to the ESOP in annual payments through 2027 at a fixed interest
rate of 8.25%. Shares are released to participants on a straight-line basis over
the loan term and allocated based on participant compensation. The Association
recognizes compensation benefit expense as shares are committed for release at
their current market price. The difference between the market price and the cost
of shares committed to be released is recorded as an adjustment to additional
paid-in capital. Dividends on allocated shares are recorded as a reduction of
retained earnings and dividends on unallocated shares are recorded as a
reduction of debt. The Company recognized $23,000 and $29,000 of compensation
expense related to this plan for the years ended December 31, 2009 and 2008. At
December 31, 2009, there were 79,317 shares not yet released having an aggregate
market value of approximately $428,000. Participant eligibility requirements and
vesting provisions for the ESOP are the same as the 401(k) savings plan outlined
above.
 
 Directors’
Retirement Plan
 
 Effective
March 2007, the Association adopted an unfunded directors’ retirement plan for
the benefit of non-employee directors.  Under the plan, directors who
have attained the normal retirement age of 65 receive a retirement benefit based
on their length of service upon termination. Benefits vest at the rate of 20%
per year over a five year period commencing on the date of adoption for existing
directors or the initial date of service for directors who join the Board of
Directors after the adoption date.  The plan’s funded status as of the
December 31, 2009 measurement date, activity in the plan and the amounts
recognized in the accompanying consolidated financial statements
follows:
 
 Year
      Ended
              
              
              Year
      EndedDecember
      31, 2009
              
              
              December
      31, 2008(In
      Thousands)Change
      in projected benefit obligation:Projected
      benefit obligation at beginning of year
              
              $
              110
              
              
              $
              65Service
      cost
              
              
              48
              
              
              
              44Interest
      cost
              
              
              6
              
              
              
              4(Gains)
      losses
              
              
              3
              
              
              
              (3
              )Projected
      benefit obligation at end of year (funded status)
              
              $
              167
              
              
              $
              110
 
 The
discount rate used to determine the benefit obligation at December 31, 2009 and
2008 was 5.50% and 6.00%, respectively.
  39
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
11 - Employee Benefit Plans (Continued)
  Directors’
Retirement Plan (Continued)
 
 Amounts
recognized in accumulated other comprehensive loss were:
 
 December
      31,
              
              December
      31,2009
              
              
              2008(In
      Thousands)Unrecognized
      net gain
              
              $
              5
              
              
              $
              7Prior
      service cost
              
              
              (12
              )
              
              
              (17
              )Pre-tax
      adjustment
              
              
              (7
              )
              
              
              (10
              )Income
      tax effect
              
              
              3
              
              
              
              4$
              (4
              )
              
              $
              (6
              )
 
 The
estimated cost that will be amortized from accumulated other comprehensive loss
into net periodic pension expense for the year ending December 31, 2010 is $-0-
of net gain and $5,000 of prior service cost.
 
 Using an
actuarial measurement date of December 31, 2009 and 2008, the components of net
periodic pension expense follow (in thousands):
 
 2009
              
              
              2008Service
      cost
              
              $
              48
              
              
              $
              44Interest
      cost
              
              
              6
              
              
              
              4Amortization
      of past service liability
              
              
              5
              
              
              
              5Net
      periodic pension expense
              
              $
              59
              
              
              $
              53
 
 Discount
rate of 6.00% was used to determine net periodic pension expense for the year
ended December 31, 2009 and 2008, respectively.
 
 The
Company does not expect to contribute to the plan in 2010.
 
 The
following table shows the expected benefit payments to be paid to participants
for the years indicated (in thousands):
 
 Years ending December 31,2012
              
              
              $
              382013
              
              
              
              382014
              
              
              
              372015
      - 2019
              
              
              
              187
 
 Hometown
Bancorp, Inc. 2008 Equity Incentive Plan
 
 In 2008,
the stockholders approved the 2008 Equity Incentive Plan (“Equity Plan”) the
purpose of which is to promote the long-term financialsuccess of Hometown
Bancorp, Inc.and Walden Federal
Savings and Loan Association, by providing a means to attract, retain and reward
individuals who can and do contribute to such success and to further align their
interestswith
those of our stockholders.  The Compensation Committee determines
which executives will receive stock awards as well as type, size and
restrictions on the awards.  Under
  40
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
11 - Employee Benefit Plans (Continued)
  Hometown
Bancorp, Inc. 2008 Equity Incentive Plan (Continued)
 
 the
Equity Plan, the Compensation Committee may make grants of incentive stock
options, nonqualified stock options, stock appreciation rights or restricted
stock of up to 163,301 shares.  Grants have not yet been made under
the Equity Plan.
 
 Note
12 - Transactions with Officers and Directors
  The
Association has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its executive officers,
directors, their immediate families, and affiliated companies (commonly referred
to as related parties), on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with persons not related to the Association.  These
persons were indebted to the Association for loans totaling approximately $1.3
million and $717,000 at December 31, 2009 and 2008,
respectively.  During 2009, approximately $747,000 of new loans and
approximately $126,000 of repayments were made.
  Deposits
from related parties held by the Association at both December 31, 2009 and
2008 amounted to $1.2 million.
  A
director of the Company is associated with a law firm which provides legal
services to the Association and its subsidiaries.  During 2009 and
2008, the law firm was paid approximately $395,000 and $265,000, respectively,
for legal services of which $52,000 and $75,000, respectively, is included in
professional fees in the accompanying consolidated statements of
income.  The balance was paid by customers of the Association in
connection with loan transactions.
  Note
13 - Off-Balance Sheet Risk
  The
Association is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its
customers.  These financial instruments include commitments to extend
credit and standby letters of credit.  Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheets.
  The
Association’s exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments.  The
Association uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
  A summary
of the Association’s financial instruments with off-balance sheet risk at
December 31, 2009 and 2008 is as follows:
  2009
              
              
              2008(In
      Thousands)Commitments
      to grant loans
              
              $
              5,222
              
              
              $
              8,658Unfunded
      commitments under lines of credit
              
              
              8,122
              
              
              
              10,966Letters
      of credit
              
              
              579
              
              
              
              742Security
      purchase commitments
              
              
              1,000
              
              
              
              -$
              14,923
              
              
              $
              20,366
  41
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
13 - Off-Balance Sheet Risk (Continued)
  Fixed
rate commitments to grant loans amounted to approximately $2.2 million at
December 31, 2009, and had interest rates that ranged from 5.00% to
18.00%.
 
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.  Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee.  The
Association evaluates each customer’s credit worthiness on a case-by-case
basis.  The amount of collateral obtained, if deemed necessary by the
Association upon extension of credit, is based on management’s credit
evaluation.  Collateral held varies, but includes principally
residential or commercial real estate.
  Standby
letters of credit are conditional commitments issued by the Association to
guarantee the performance of a customer to a third party and generally expire
within one year.  Those guarantees are primarily issued to
municipalities to ensure the completion of public improvements in residential
subdivisions by contractors that are customers of the
Association.  The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.  The Association holds savings accounts as collateral
supporting these commitments for which collateral is deemed
necessary.  At December 31, 2009 and 2008, such collateral
amounted to $330,000 and $373,000, respectively.  The current amount
of the liability as of December 31, 2009 and 2008 for guarantees under
standby letters of credit issued is not material.
  At
December 31, 2009, we had a $1.0 million commitment to purchase a U.S.
Government agency bond to settle in January 2010.
  Note
14 - Regulatory Capital Requirements
  The
Association is required to maintain a cash reserve balance in vault cash or with
the Federal Reserve Bank.  The total of this reserve balance was
approximately $543,000 and $431,000 at December 31, 2009 and 2008,
respectively.
  The
Association is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet the minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements.  Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Association must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices.  The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk-weightings and other factors.
  Quantitative
measures established by regulation to ensure capital adequacy require the
Association to maintain minimum amounts and ratios (set forth in the table
below) of tangible, core, and risk-based capital as defined in the
regulations.  Management believes, as of December 31, 2009, that
the Association met all capital adequacy requirements to which it is
subject.
  As of
December 31, 2009, the most recent notification from the regulators
categorized the Association as “well capitalized” under the regulatory framework
for prompt corrective action.  To be categorized as well capitalized,
the Association must maintain minimum core, Tier 1 risk-based and total
risk-based ratios as set forth in the table below.  There are no
conditions or events since that notification that management believes have
changed the Association’s category.
  42
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
14 - Regulatory Capital Requirements (Continued)
  The
Association’s actual capital amounts and ratios are presented
below.
  Actual
              
              
              For
      Capital
                  Adequacy
                Purposes
              
              
              To
      be Well
                  Capitalized
      Under
                  Prompt
      Corrective
                Action
      ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio(Dollars
      in Thousands)As
      of December 31, 2009:Tangible
              
              $
              15,650
              
              
              
              10.01
              %
              
              $
              >2,344
              
              
              
              >1.5
              %
              
              
              N/A
              
              
              
              N/ACore
      (leverage)
              
              
              15,650
              
              
              
              10.01
              
              
              
              >6,251
              
              
              
              >4.0
              
              
              $
              >7,813
              
              
              
              >5.0
              %Tier
      1 risk-based
              
              
              15,650
              
              
              
              13.12
              
              
              
              >4,770
              
              
              
              >4.0
              
              
              
              >7,155
              
              
              
              > 6.0Total
      risk-based
              
              
              16,875
              
              
              
              14.15
              
              
              
              >9,540
              
              
              
              >8.0
              
              
              
              >11,924
              
              
              
              >10.0As
      of December 31, 2008:Tangible
              
              $
              14,988
              
              
              
              9.97
              %
              
              $
              >2,256
              
              
              
              >1.5
              %
              
              
              N/A
              
              
              
              N/ACore
      (leverage)
              
              
              14,988
              
              
              
              9.97
              
              
              
              >6,015
              
              
              
              >4.0
              
              
              $
              >7,519
              
              
              
              > 5.0
              %Tier
      1 risk-based
              
              
              14,988
              
              
              
              13.21
              
              
              
              >4,539
              
              
              
              >4.0
              
              
              
              >6,809
              
              
              
              > 6.0Total
      risk-based
              
              
              16,335
              
              
              
              14.40
              
              
              
              >9,078
              
              
              
              >8.0
              
              
              
              >11,348
              
              
              
              >10.0
 
 
 The
following table presents a reconciliation of the Company’s consolidated equity
as determined using accounting principles generally accepted in the United
States of America (“GAAP”) and the Association’s regulatory capital amounts as
of December 31:
 
 2009
              
              
              2008(In
      Thousands)Consolidated
      GAAP equity
              
              $
              19,289
              
              
              $
              18,794Hometown
      Bancorp, Inc.’s equity in excess of its investment in the
      Association
              
              
              (3,643
              )
              
              
              (3,811
              )Association
      GAAP equity
              
              
              15,646
              
              
              
              14,983Accumulated
      other comprehensive loss, net of income taxes
              
              
              4
              
              
              
              5Tangible
      capital, core capital and Tier I risk-based capital
              
              
              15,650
              
              
              
              14,988Other
      assets required to be deducted
              
              
              (60
              )
              
              
              -Allowance
      for loan losses
              
              
              1,285
              
              
              
              1,347Total
      risk-based capital
              
              $
              16,875
              
              
              $
              16,335
  43
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
15 - Fair Value Measurements and Fair Values of Financial
Instruments
  Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
December 31, 2009 and 2008 and have not been re-evaluated or updated for
purposes of these financial statements subsequent to those respective
dates.  As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year-end.
  In
September 2006, the FASB issued Statement No. 157 (ASC 820), Fair Value Measurements
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements.  The Company adopted
SFAS 157 effective for its fiscal year beginning January 1,
2008.
  SFAS 157
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 the fair value
hierarchy under SFAS 157 are as follows:
  Level
1:
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities.
 
 Level
2:
              Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liability.
 
 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’s 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
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
              
              
              $
              -
  44
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
15 - Fair Value of Financial Instruments (Continued)
  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, 2008
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
              
              
              $
              -
 
 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 sheets. 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.
 
 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.
 
  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
 
 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, 2008
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
              
              $
              1,067
              
              
              $
              -
              
              
              $
              -
              
              
              $
              1,067
  45
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
15 - Fair Value of Financial Instruments (Continued)
  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 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. For year ended December 31, 2009, $201,000 was added to
the provision for loan losses for impaired loans. At December 31, 2008, impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $1.1 million, net of a
valuation allowance of $432,000.
  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 December 31, 2009 and 2008:
  Cash
and Cash Equivalents
  The
carrying amounts reported in the consolidated balance sheet for these
instruments 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.  Impaired
loans, which
  46
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
15 - Fair Value of Financial Instruments (Continued)
  Impaired
Loans (Continued)
  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 at December 31, 2009.
  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 December 31, 2009 and 2008, the fair value of
these instruments was not material.
  47
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 
 
 Note
15 - Fair Value of Financial Instruments
(Continued)
  The
estimated fair values of the Company’s financial instruments at
December 31, 2009 and 2008 were as follows:
  December 31,2009
              
              
              2008Carrying
      Amount
              
              
              Fair
                  Value
              
              
              Carrying
      Amount
              
              
              Fair
                  Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
              
              $
              8,112
              
              
              $
              8,112
              
              
              $
              3,203
              
              
              $
              3,203Securities
      available for sale
              
              
              -
              
              
              
              -
              
              
              
              1,002
              
              
              
              1,002Securities
      held to maturity
              
              
              1,290
              
              
              
              1,323
              
              
              
              1,509
              
              
              
              1,530Loans
      held for sale
              
              
              1,175
              
              
              
              1,175
              
              
              
              106
              
              
              
              106Loans
      receivable, net
              
              
              136,793
              
              
              
              141,703
              
              
              
              137,868
              
              
              
              141,879Restricted
      investments in bank stock
              
              
              491
              
              
              
              491
              
              
              
              395
              
              
              
              395Accrued
      interest receivable
              
              
              613
              
              
              
              613
              
              
              
              661
              
              
              
              661Mortgage
      servicing rights
              
              
              397
              
              
              
              646
              
              
              
              310
              
              
              
              716Financial
      liabilities:Non-interest
      bearing demand accounts
              
              
              19,770
              
              
              
              19,770
              
              
              
              16,947
              
              
              
              16,947NOW
      accounts
              
              
              7,395
              
              
              
              7,395
              
              
              
              6,644
              
              
              
              6,644Money
      market accounts
              
              
              10,526
              
              
              
              10,526
              
              
              
              11,579
              
              
              
              11,579Savings
      accounts
              
              
              15,868
              
              
              
              15,868
              
              
              
              13,561
              
              
              
              13,561Certificates
      of deposit
              
              
              78,189
              
              
              
              78,790
              
              
              
              76,008
              
              
              
              76,754Federal
      Home Loan Bank advances
              
              
              3,000
              
              
              
              3,000
              
              
              
              4,375
              
              
              
              4,375Accrued
      interest payable
              
              
              33
              
              
              
              33
              
              
              
              143
              
              
              
              143Off-balance
      sheet financial instruments:Commitments
      to extend credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Letters
      of credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
  48
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
16 - Hometown Bancorp, Inc. (Parent Company Only) Financial
Information
  Parent
Company (Hometown Bancorp, Inc.) only condensed financial information is as
follows:
  Balance
Sheets
  December
      31, 2009
              
              
              December
      31,
                  2008(In
      Thousands)AssetsCash
              
              $
              2,728
              
              
              $
              2,913Loan
      receivable from ESOP
              
              
              836
              
              
              
              858Investment
      in subsidiary
              
              
              15,646
              
              
              
              14,983Other
      assets
              
              
              79
              
              
              
              40Total
      Assets
              
              $
              19,289
              
              
              $
              18,794Other
      liabilities
              
              $
              -
              
              
              $
              -Stockholders’
      Equity
              
              
              19,289
              
              
              
              18,794Total
      Liabilities and Stockholders’ Equity
              
              $
              19,289
              
              
              $
              18,794
 
 Statements
of Income
  
 Year
      Ended December 31, 2009
              
              
              Year
      Ended December 31, 2008(In
      Thousands)Interest
      income on ESOP loan
              
              $
              71
              
              
              $
              73Operating
      expenses
              
              
              161
              
              
              
              180Loss
      before income taxes and equity in undistributed earnings of
      subsidiary
              
              
              (90
              )
              
              
              (107
              )Income
      tax benefit
              
              
              36
              
              
              
              42Loss
      before equity in undistributed earnings of subsidiary
              
              
              (54
              )
              
              
              (65
              )Equity
      in undistributed earnings of subsidiary
              
              
              639
              
              
              
              630Net
      Income
              
              $
              585
              
              
              $
              565
  49
 Hometown
      Bancorp, Inc.Notes
      to Consolidated Financial
      Statements
 Note
16 - Hometown Bancorp, Inc. (Parent Company Only) Financial Information
(Continued)
  Statements
of Cash Flows
 
 Year
      Ended December 31, 2009
              
              
              Year
      Ended December 31, 2008(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              585
              
              
              $
              565Adjustments
      to reconcile net income to net cash used in operating
      activities:Equity
      in undistributed earnings of subsidiary
              
              
              (639
              )
              
              
              (630
              )Increase
      in other assets
              
              
              (39
              )
              
              
              (40
              )Increase
      (decrease) in other liabilities
              
              
              -
              
              
              
              (3
              )Net
      Cash used in Operating Activities
              
              
              (93
              )
              
              
              (108
              )Cash
      flows from Investing ActivitiesRepayments
      received on ESOP loan
              
              
              22
              
              
              
              21Net
      Cash provided by Investing Activities
              
              
              22
              
              
              
              21Cash
      Flows from Financing ActivitiesTreasury
      stock purchases
              
              
              (27
              )
              
              
              (284
              )Dividends
      paid
              
              
              (87
              )
              
              
              -Net
      Cash used in Financing Activities
              
              
              (114
              )
              
              
              (284
              )Net
      decrease in Cash
              
              
              (185
              )
              
              
              (371
              )Cash
      - Beginning of Period
              
              
              2,913
              
              
              
              3,284Cash
      - End of Period
              
              $
              2,728
              
              
              $
              2,913
  50
 
  Hometown
      Bancorp, Inc.STOCKHOLDER
      INFORMATION
                  
                  Corporate
      Office
                  Hometown
      Bancorp, Inc.
                  12
      Main Street
                  Walden,
      NY 12586
                  (845)
      778-2171
                  
                  Annual Meeting of
      Stockholders
                  The
      annual meeting of Hometown Bancorp, Inc. will be held May 12, 2010 at
      4:00pm at the Company’s office, 12 Main Street, Walden, NY
      12586.
                  
                  Annual Report on Form
      10-K
                  For
      the 2009 fiscal year, Hometown Bancorp, Inc. has filed an Annual Report on
      Form 10-K with the Securities and Exchange Commission. The Form 10-K is
      available at www.sec.gov as part of the SEC EDGAR database. Stockholders may also obtain a
      copy free of charge by writing to Hometown Bancorp, Inc., 12 Main Street,
      Walden, NY 12586, Attention: Corporate Secretary.
                  
                  Stock Transfer Agent
      & Registrar
                  Stockholders
      wishing to change name, address or ownership of stock, or to report lost
      certificates or to consolidate accounts should contact the Company’s stock
      registrar and transfer agent directly at:
                  
                  Registrar
      & Transfer Company
                  10
      Commerce Drive
                  Cranford,
      NJ 07016-3572
                  (800)
      368-5948
                  
                  Regulatory
      Counsel
                  Luse
      Gorman Pomerenk & Schick, P.C.
                  5335
      Wisconsin Avenue, N.W. Suite 780
                  Washington,
      DC 20015
                  
                  Independent
      Auditor
                  ParenteBeard
      LLC
                  115
      Solar Street, Suite 100
                  Syracuse,
      NY 13204
                  
                  Market Information for
      Common Stock
                  The
      common stock of Hometown Bancorp, Inc. trades on the Over-the-Counter
      market under the
                
                symbol
      “HTWC.OB.” At December 31, 2009, there were approximately 298 stockholders
      of record, not including the number of persons or entities holding stock
      in nominee or street names through various brokers and banks.
                  
                  
                  
                  
                  
                  
                  
                  DIRECTORS AND
      OFFICERS
                  Hometown
      Bancorp, Inc.
                  
                  Board of
      Directors
                  Graham S. Jamison:Chairman of the Board, Retired dairy farmer and Supervisor for the
      Town of Crawford, NY
                  
                  Thomas F. Gibney:President & Chief Executive Officer, Hometown Bancorp,
      Inc.
                  
                  Joseph B. Horan:President and funeral Director of Gridley Horan, Inc.
                  
                  Steven E. Howell:CPA
      and partner with Vanacore, DeBenedictus, DiGovanni & Weddell, LLP,
      CPAs.
                  
                  Gerald N. Jacobowitz:Senior partner in the law firm of Jacobowitz and Gubits,
      LLP
                  
                  Stephen E. Sabine:Retired Division Manager from New York State Electric & Gas
      Corp.
                  
                  Kenneth R. Schliphack:Retired from B&C Fuel Oil Co. Inc.
                  
                  Curtis J. Schoeberl, Sr.:Assessor for the Town of Shawangunk, NY
                  
                  Officers
                  Thomas F. Gibney:President & Chief Executive Officer, Hometown Bancorp,
      Inc.
                  
                  Judith B. Weyant:Senior
      Vice President and Chief Operating Officer and Corporate
      Secretary
                  
                  L. Bruce Lott:Senior
      Vice President and Chief Lending Officer
                  
                  Stephen W. Dederick:Vice President and Chief Financial
  Officer