Hometown Bancorp, Inc. Announces Fourth Quarter and 2008 Annual Earnings

Business Wire, Feb 20, 2009

WALDEN, N.Y. -- Hometown Bancorp, Inc., (the "Company") (OTCBB: HTWC) the mid-tier holding company for Walden Federal Savings and Loan Association (the "Bank"), announced earnings of $13,000 for the three months ended December 31, 2008 as compared to $217,000 for the same period in 2007. For the year ended December 31, 2008, the Company reported net income of $565,000 compared to $850,000 for 2007. The primary reason for the decline in earnings for both the fourth quarter and the year ended December 31, 2008 was an increase in the Company's provision for loan losses.

The provision for loan losses for the quarter ended December 31, 2008 increased $320,000 as compared to the provision for the fourth quarter in 2007. The provision for loan losses for 2008 increased $394,000 as compared to the provision for 2007. As a result, the allowance for loan losses totaled $1.3 million at December 31, 2008 (or 0.97% of total loans), as compared to $787,000 (or 0.64% of total loans) as of December 31, 2007. The increase in the provision for loan losses during the fourth quarter and year ending December 31, 2008 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 the quarter and year also reflects management's review of $1.2 million of land and construction loan participations secured by a residential subdivision located in the Bank's market area. During the fourth quarter of 2008 management determined to establish a specific loan loss allowance of $389,000 against such loans due to updated appraisal on the project indicating lower collateral values given current market conditions.

Net interest income decreased by $14,000 or 0.9% to $1.5 million for the three months ended December 31, 2008. Net interest income increased 7.3% to $6.2 million for the year ended December 31, 2008, from $5.8 million for the year ended December 31, 2007.

The decrease in net interest income during the fourth quarter resulted primarily from a $2.2 million decrease in the average balance of net interest-earning assets and a 20 basis point decrease in our net interest rate spread in the three month period ended December 31, 2008 as compared with the three month period ended December 31, 2007. The increase in net interest income for the year ended December 31, 2008, resulted primarily from a $3.9 million increase in the average balance of net interest-earning assets, and a 7 basis point increase in our net interest rate spread in the comparable year periods. The net interest margin decreased 55 and 9 basis points for the comparable three month and annual periods ended December 31, 2008 and 2007, respectively.

Non-interest income was $433,000 for the quarter ended December 31, 2008 compared to $443,000 for the quarter ended December 31, 2007. Excluding the effect of non-recurring income from the settlement of a litigation matter of $22,000 in the fourth quarter of 2008, non-interest income decreased by $32,000. Contributing to the decrease in recurring non-interest income for the quarter ended December 31, 2008, were decreases in banking fees and service charges of $11,000 as a result of customer preference for service charge free accounts and the competitive banking environment. Mortgage banking income, net, decreased by $27,000 as a result of the decrease in the volume of mortgages sold and the gains derived from such sales.

Non-interest income was $1.7 million for both the years ended December 31, 2008 and 2007. Excluding the effect of non-recurring income from the settlement of a litigation matter of $186,000 in 2008, non-interest income decreased by $170,000. Contributing to the decrease in non-interest income for the year ended December 31, 2008, were decreases in banking fees and service charges of $43,000 as a result of customer preference for service charge free accounts and the competitive banking environment. Mortgage banking income, net, decreased by $101,000 as a result of the decrease in the volume of mortgages sold and the gains derived from such sales.

Non-interest expense increased by $64,000 and was $1.6 million for the quarters ended December 31, 2008 and December 31, 2007. Expense for the FDIC deposit insurance premium increased $17,000 in the fourth quarter of 2008. Professional fees increased by $51,000 for the quarter ended December 31, 2008, primarily due to expenses relating to being a public company.

Non-interest expense was $6.5 million for the year ended December 31, 2008 compared to $5.9 million for 2007. Non-interest expense includes salary and employee benefits and other operating expenses which increased $198,000 for the year ended December 31, 2008, for the Bank's newest branch which opened in September 2007 in the Town of Newburgh. In addition salary and medical benefits increased by $144,000 for all staff in 2008. Expense for the FDIC deposit insurance premium increased $36,000 in 2008. Professional fees increased by $181,000 for the year ended December 31, 2008, primarily due to expenses relating to being a public company.