<PAGE>
As filed with the Securities and Exchange Commission on August 2, 1999
Registration No. 333-80487
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Rome Bancorp, Inc.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 6035 Application Pending
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
</TABLE>
100 W. Dominick Street, Rome, NY 13440-5810
(315) 336-7300
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
________________
Mr. Charles M. Sprock
President and Chief Executive Officer
The Rome Savings Bank
100 W. Dominick Street
Rome, New York 13440-5810
(315) 336-7300
Copy to:
V. Gerard Comizio, Esq.
Thacher Proffitt & Wood
1700 Pennsylvania Avenue, N.W. Suite 800
Washington, D.C. 20006
(202) 347-8400
(Name and address, and telephone of agent for service)
_______________
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to be Registered registered (1) Price Per Share (2) Offering Price (2) Registration Fee (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $ 0.01 par value 2,545,813 $7.00 $17,820,691 $4,954
===================================================================================================================================
</TABLE>
(1) Includes the maximum number of shares that may be issued in connection with
this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $4,752 of the registration fee has been paid previously.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Rome Bancorp, Inc.
Cross Reference Sheet showing location in the Prospectus of information required
by Items of Form SB-2:
<TABLE>
<CAPTION>
Registration Statement Item and Caption Location or Headings in Prospectus
- --------------------------------------- -----------------------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds How We Intend to Use the Proceeds form the Offering
5. Determination of Offering Price The Reorganization and the Offering - How We
Determined the Offering Range and the $8.00 Price Per
Share
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; The Reorganization and the
Offering
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Mangement
Owners and Management
12. Description of Securities Description of Capital Stock of Rome Bancorp, Inc.
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Summary; Risk Factors; Management's Discussion and
Analysis of Financial Condition and Results of Operations;
Business of The Rome Savings Bank; Business of Rome
Bancorp, Inc.; Business of Rome, MHC; Management;
Consolidated Financial Statements
17. Management's Discussion and Analysis or Management's Discussion and Analysis of Financial
Plan Condition and Results of Operations
18. Description of Property Business of Rome Savings Bank -- Properties
19. Certain Relationships and Related Management -- Certain Transactions with
Transactions Directors/Trustees and Executive Officers
20. Market for Common Equity and Related Front Cover Page; Summary -- Market for the Common
Stockholder Matters Stock; Risk Factors -- The market for common stock will
be limited; Market for the Common Stock
21. Executive Compensation Management
22. Financial Statements Consolidated Financial Statements
23. Changes in and Disagreements With Not Applicable
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE>
PROSPECTUS
[LOGO]
Rome Bancorp, Inc.
Proposed Holding Company for The Rome Savings Bank
Up to 2,441,902 Shares of Common Stock
Rome Bancorp, Inc. is a new corporation that is offering shares of its common
stock. The shares we are offering represent less than half of the outstanding
common stock of Rome Bancorp, Inc. The Rome Savings Bank formed Rome Bancorp,
Inc., to own The Rome Savings Bank as part of a reorganization of our structure.
Rome, MHC, a mutual savings bank holding company will own more than half of the
outstanding common stock of Rome Bancorp, Inc. We have applied to list our
common stock on the Nasdaq National Market System under the symbol "ROME."
--------------------------------------------------------------------
TERMS OF THE OFFERING
Price: $7.00 per share
<TABLE>
<CAPTION>
Minimum Maximum
----------- -----------
<S> <C> <C>
Number of shares............................................. 1,569,464 2,123,393
Underwriting commissions and expenses........................ $825,797 $897,143
Net proceeds to Rome Bancorp, Inc............................ $10,160,451 $13,966,608
Net proceeds per share to Rome Bancorp, Inc.................. $6.47 $6.58
</TABLE>
We may sell up to 2,441,902 shares because of regulatory
considerations or changes in market or economic conditions.
--------------------------------------------------------------------
Please read the Risk Factors beginning on page 13.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the SEC, the Federal Deposit Insurance Corporation, the New York
State Banking Department nor any state securities regulator has approved or
disapproved these securities or determined if this prospectus is accurate or
complete. It is illegal for anyone to tell you otherwise.
We are offering the common stock on a best efforts basis, and subject to
certain other conditions, including our right to reject any order in whole or in
part. The minimum number of shares that you may purchase is 25 shares.
Payments received prior to closing will be held in an account at The Rome
Savings Bank which will bear interest at The Rome Savings Bank's passbook rate.
This offering will close on or about [], 1999. We expect that delivery of stock
certificates representing the common stock will be made on or about [],
1999.
Sandler O'Neill & Partners, L.P.
[ ], 1999
<PAGE>
[MAP OF NEW YORK DIVIDED BY COUNTY WITH CLOSE-UP OF ONEIDA COUNTY
SHOWING NUMBER OF ROME SAVINGS BANK BRANCH OFFICES]
2
<PAGE>
SUMMARY
To more fully understand the offering, you should read this entire document
carefully, including the consolidated financial statements and the notes to the
consolidated financial statements.
Our Reorganization and Stock Offering
The Rome Savings Bank (Rome Savings) is currently a New York-chartered
mutual savings bank. Rome Savings is reorganizing into the mutual holding
company structure. As part of the reorganization, Rome Bancorp, Inc. (Rome
Bancorp) is offering shares of its common stock to the public. After the
reorganization, Rome Bancorp will own Rome Savings.
This chart shows our new structure, which is commonly referred to as a
mutual holding company structure, after the reorganization:
[CHART APPEARS HERE]
Rome, MHC will own a majority of Rome Bancorp's common stock after the
reorganization. The same trustees and officers who manage Rome Savings will
manage Rome, MHC. The board of trustees of Rome, MHC will control the outcome
of most matters put to a vote of stockholders of Rome Bancorp. We cannot assure
you that the votes cast by Rome, MHC will be in your personal best interests as
a stockholder. For more information regarding your lack of voting control over
Rome Bancorp, see "Rome, MHC" and "Restrictions on Acquisition of Rome Bancorp
and Rome Savings Bank."
The Companies
The Rome Savings Bank
We are a New York-chartered mutual savings bank. Our mission is to serve as
a profitable community-oriented provider of traditional banking products and
services to individuals and small business organizations, including products
such as residential and
3
<PAGE>
commercial mortgages, consumer loans, commercial loans, personal loans to
business owners and a variety of deposit products.
Rome Savings operates through 4 full service banking offices - three of
which are located in Rome and one in New Hartford, New York. As of June 30,
1998, we maintained a 7.4% share of all Oneida County, New York deposits,
positioning us as the fifth largest (in total deposits) depository institution
in Oneida County. At June 30, 1998, we maintained a 38.7% market share of all
reported funds on deposit in the City of Rome, giving us the largest market
share of deposits in Rome. At March 31, 1999, we had assets of $224.3 million,
deposits of $191.9 million and equity of $28.9 million.
Rome Bancorp, Inc.
Rome Bancorp will be the stock holding company for Rome Savings after the
reorganization. Rome Bancorp has not engaged in any business to date.
Rome, MHC
Rome, MHC will own at least 51% of the outstanding common stock of Rome
Bancorp after the reorganization. We do not expect that Rome, MHC will engage
in any business activity other than owning a majority of the common stock of
Rome Bancorp and managing dividends it receives from Rome Bancorp. We do not
expect that Rome, MHC will waive dividends declared by Rome Bancorp. Rome, MHC
has not engaged in any business to date.
The following are highlights of Rome Savings operating strategy:
. Community Banking.
-----------------
Rome Savings, as the only bank headquartered in Rome, NY, strives to
remain a leader in meeting the needs of the local community and in
providing high quality service with competitive fees and rates to the
individuals and small businesses which we have served since 1851. In
addition to residential lending, Rome Savings has a long standing
commitment to commercial real estate, commercial and consumer lending. The
major components of our community banking strategy are discussed below.
- Residential Lending.
-------------------
Rome Savings emphasizes the origination of residential mortgage loans.
At March 31, 1999, we had $65.9 million of residential mortgage loans,
representing 48.2% of our total loan portfolio. Following the
reorganization, we will seek to expand originations of mortgage loans
primarily through the marketing of and sale to the secondary market of
30 year fixed-rate mortgage loans. We believe that the expansion of
our residential lending portfolio will enhance our reputation as a
service-oriented institution which meets the needs of its local
community.
- Commercial Lending.
------------------
Unlike many savings banks, Rome Savings has a long standing commitment
to commercial lending in its market area. We originate commercial real
estate and
4
<PAGE>
commercial business loans both within and outside of Oneida County,
New York. As of March 31, 1999, 21.2% of our loan portfolio consisted
of commercial real estate loans and 12.7% consisted of commercial
loans. Following the reorganization, we will continue to expand our
commercial loan portfolio by targeting small- and medium-sized
businesses in the local market area and elsewhere in the greater New
York City metropolitan area. This expansion will allow us to increase
the yield on our loan portfolio and to diversify our assets in order
to continue to meet the needs of the individuals and small businesses
which we serve.
- Consumer Lending.
----------------
Rome Savings also has a tradition of placing significant emphasis on
consumer lending. As of March 31, 1999, 17.7% of our loan portfolio
consisted of consumer loans. We offer a wide variety of consumer loan
products including property improvement loans, new and used automobile
loans, secured and unsecured passbook loans and education loans. We
plan to begin offering home equity lines of credit in the fourth
quarter of 1999.
. Expanded Delivery Systems.
-------------------------
The increased use of alternative delivery channels has simplified and
reduced the costs of financial transactions for consumers, businesses and
financial institutions. In addition to conducting financial transactions
at branch offices, customers are increasingly using ATMs, online banking
and online bill payment and electronic fund transfer services. In response
to these trends, we recently began offering our 24 hour Telebanker product
which provides our customers with around the clock access to their accounts
through the use of a touch tone telephone.
. Capital Strength and Profitability.
----------------------------------
Our policy has always been to maintain the financial strength of Rome
Savings through risk management, a sound financial condition and consistent
earnings. At March 31, 1999, our ratio of equity to assets was 12.9%, our
return on average assets was 0.71% and our return on average equity was
5.45%. We plan to use the proceeds received in the offering to increase
our loan originations and our net income while maintaining our commitment
to capital strength and asset quality.
. Asset Quality.
-------------
Through our commitment to conservative loan underwriting guidelines and
investment in high grade assets, we have recently experienced low levels of
late payments and losses on loans. At March 31, 1999, our ratio of non-
performing assets to total assets was 0.38% and our ratio of allowance for
loan losses to non-performing loans was 330.1%. These ratios are favorable
compared to those of most other savings institutions.
5
<PAGE>
. Interest Rate Strategy.
----------------------
Rome Savings seeks to maintain an acceptable balance between maximizing
yield potential and limiting exposure to changing interest rates. To
reduce the risk that our earnings will be hurt if interest rates change we:
(1) limit our fixed rate one- to four-family mortgage loans that we retain
in our loan portfolio to 20 years or less; (2) as of May 1999, began
originating 30 year fixed rate mortgages to be sold into the secondary
market; (3) emphasize investments with short- and intermediate-term
maturities of less than ten years; and (4) make commercial loans tied to
the prime rate.
Reasons for the Reorganization
Conversion of Rome Savings to a capital stock savings bank and its
acquisition by Rome Bancorp will permit Rome Bancorp to issue common stock,
which is a source of capital not available to mutual savings banks. The
proceeds from the sale of common stock of Rome Bancorp will provide Rome Savings
with new capital, which will support future deposit growth and expanded
operations. The ability of Rome Bancorp to sell additional common stock also
will enable Rome Bancorp and Rome Savings to increase their capital in response
to any future regulatory capital requirement levels. While Rome Savings
currently exceeds all regulatory capital requirements, the sale of common stock
in connection with the reorganization will assist Rome Savings with the orderly
preservation and expansion of its capital base and will provide flexibility to
respond to sudden and unanticipated capital needs.
Rome Savings' mutual form of ownership will be preserved in Rome, MHC.
Rome, MHC, as a mutual savings bank holding company, will own at least 51% of
the common stock of Rome Bancorp as long as Rome, MHC remains in existence. The
reorganization will allow Rome Savings to achieve certain benefits of a stock
company without a loss of control that is possible in a full savings institution
conversion from mutual to stock form.
In addition, since Rome Savings competes with local and regional banks not
only for customers, but also for employees, we believe that the ability of Rome
Bancorp to issue common stock will also afford us the opportunity to attract and
retain management and employees through various stock benefit plans, including
incentive stock option plans, stock award plans and employee stock ownership
plans.
After considering the advantages and disadvantages of the reorganization,
as well as applicable fiduciary duties, the Board of Trustees of Rome Savings
unanimously approved the reorganization as being in the best interests of Rome
Savings, its depositors and the communities it serves.
Terms of the Offering and Marketing Arrangements
We are offering between 1,569,464 and 2,123,393 shares of common stock of
Rome Bancorp to the public. The number of shares we sell in the offering may
increase by up to 15% to 2,441,902 shares as a result of changes in financial
markets. If we increase the number of shares we issue by up to 15%, you will not
have the opportunity to change or cancel your stock order. The offering price
is $7.00 per share. Sandler O'Neill & Partners, L.P. will use its best efforts
to assist us in selling our stock.
6
<PAGE>
Persons Who Can Order Stock in the Offering
We are offering the shares of common stock of Rome Bancorp in what we call
a "subscription offering" in the order of priority listed below:
(1) Depositors with accounts at Rome Savings with total balances of at
least $100 on December 31, 1997;
(2) Our employee stock ownership plan, which will provide retirement
benefits to our employees; and
(3) Depositors with accounts at Rome Savings with total balances of at
least $100 on June 30, 1999;
The shares of common stock not purchased in the subscription offering will
be offered in what we call a "community offering" in the order of priority
listed below:
(1) Employees and depositors with accounts at Rome Savings opened after
June 30, 1999;
(2) Residents of Oneida County, New York; and
(3) Other members of the public to whom we deliver a prospectus.
We may offer shares of common stock not purchased in either the subscription
offering or community offering to the public through a selling group of brokers
on a best efforts basis or in an underwritten public offering.
How We Determined the Offering Range and the $7.00 Price Per Share
The offering range is based on an independent appraisal of Rome Savings by
RP Financial, LC., an appraisal firm experienced in appraisals of savings
institutions. RP Financial has estimated that our market value at May 28, 1999,
was between $23.4 million and $31.6 million. This results in an offering of
between 1,569,464 and 2,123,393 shares of stock at an offering price of $7.00
per share because we are only offering 47% of our stock to the public. RP
Financial's estimate of our market value was based in part upon our financial
condition and results of operations and the effect of the additional capital
raised in this offering. RP Financial will update the independent appraisal
before we complete our reorganization.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
The price-to-book ratio represents the price per share of stock divided by its
book value per share. After completion of the reorganization, each share of
Rome Bancorp common stock, including the shares we issue to Rome, MHC, will have
a book value of $9.12, assuming we sell 2,123,393 shares. This means that the
price you pay for each share in this offering will be 76.75% of the book
value.
The P/E ratio represents the price per share of stock divided by earnings
or net income per share assuming investment of the proceeds. In our case, at
March 31, 1999, our P/E ratio would have been 5.91x, assuming we sell 2,123,393
shares of stock.
7
<PAGE>
Limits on Your Purchase of the Common Stock
Your orders for common stock will be limited in the following ways:
(1) the minimum order is 25 shares;
(2) in the subscription offering, the maximum amount that an individual
with his or her associates may purchase is $150,000;
(3) in the community offering, the maximum amount that an individual with
his or her associates may purchase is $150,000;
(4) the total amount that an individual with his or her associates may
purchase is $150,000; and
(5) if we receive orders for a greater number of shares than we are
offering, then we will allocate the shares that we issue as described
in "The Reorganization and The Offering--Limitations on Common Stock
Purchases;" this may result in your receiving a smaller number of
shares than you ordered.
For additional information on these purchase limitations see "The Reorganization
and The Offering -- Limitations on Common Stock Purchases."
How You May Pay for Your Shares
In the subscription offering and the community offering you may only pay
for your shares by:
(1) personal check, official bank check or money order; or
(2) authorizing us to withdraw money from your deposit accounts maintained
with Rome Savings.
We will not accept wire transfers for payment of shares. We also cannot lend
funds to anyone for the purpose of purchasing shares.
You May Not Sell or Transfer Your Subscription Rights
If you order stock in the subscription offering, you must state that you
are purchasing the stock for yourself and that you have no agreement or
understanding to sell or transfer your rights. We intend to take legal action
against you if you sell or give away your subscription rights. We will not
accept your order if we have reason to believe that you sold or transferred your
subscription rights.
Deadline for Orders of Common Stock
If you wish to purchase shares, you must submit, by mail, overnight courier
or by hand delivering to any of our offices, a properly completed stock order
form and certification, together with payment for the shares by 5:30 p.m.,
Eastern time, on [ ], 1999, unless we extend this deadline.
8
<PAGE>
Termination of the Offering
The subscription offering will terminate at 5:30 p.m., Eastern time, on
[ ], 1999. We expect that the community offering will terminate at the same
time, but we may extend the date without notice to you, until [ ], 1999,
unless regulators approve a later date. If the subscription offering or a
community offering is extended beyond [ ], 1999, we will be required to
resolicit the approval of our depositors before proceeding with the
offering.
Steps We Can Take If We Do Not Receive Orders for the Minimum Number of
Shares
If we do not receive orders for at least 1,569,464 shares of common stock,
we may take several steps in order to sell the minimum number of shares in the
offering range without resoliciting subscriptions from our depositors. More
specifically, we may increase the $150,000 purchase limitations to a maximum of
5% of the shares offered for sale in the offering, exclusive of an increase in
the total number of shares issued due to an increase in the offering range of up
to 15% (or up to 106,169 shares). In addition, we may seek regulatory approval
to extend the offering for up to 90 days beyond the [ ], 1999 expiration
date, provided that any such extension beyond the [ ], 1999 expiration date
will require a resolicitation of the subscriptions of our depositors. See
"Limitations on Common Stock Purchases."
Market for the Common Stock
We expect the common stock to trade on the Nasdaq Stock Market under the
symbol "ROME." Sandler O'Neill intends to make a market in the common stock but
it is under no obligation to do so.
How We Intend to Use the Proceeds We Raise from the Offering
Assuming we sell 2,123,393 shares in the subscription offering, we intend
to distribute the net proceeds from the offering as follows:
. $6.9 million will be contributed to Rome Savings;
. $1.2 million will be loaned to the employee stock ownership plan of
Rome Savings to fund its purchase of common stock; and
. $5.7 million will be retained by Rome Bancorp;
Rome Bancorp may use the net proceeds retained from the offering as a
possible source of funds to pay dividends to stockholders, to repurchase common
stock, to finance the possible acquisition of other financial institutions and
other businesses that are related to banking, to invest in securities or for
other general corporate purposes. Rome Savings may use the proceeds it receives
to fund new loans, to purchase mortgage-backed securities and investment
securities or for general corporate purposes, including the possible
establishment or acquisition of branch offices.
9
<PAGE>
We Intend to Contribute Cash and Stock to a New Charitable Foundation
We intend to establish a charitable foundation, The Rome Savings Bank
Foundation, as part of our reorganization and offering to further our commitment
to the local community. We will fund the foundation with $100,000 in cash and
2.0% of shares of our common stock sold in the offering. At the minimum,
midpoint and maximum of the estimated price range, the contribution to the
foundation would equal 66,786, 78,571 and 90,357 shares, which would have a
market value of $467,502, $549,997 and $632,499, respectively, assuming the
purchase price of $7.00 per share. In comparison, we made $151,585 and
$192,022 in charitable contributions in 1998 and 1997, respectively. We plan for
the foundation to support charitable causes in our primary market area. If we
establish the foundation, then the amount of common stock sold to the public
will be less than if we completed the offering without the foundation. See "Risk
Factors - The establishment of The Rome Savings Bank Foundation will reduce our
earnings" for a further discussion of the financial impact of the foundation.
Our Policy Regarding Dividends
We will consider paying a cash dividend on the common stock in the future.
We have not made any decisions relating to the amount or timing of any
dividends, if we decide to pay dividends. Our ability to pay dividends depends
on a number of factors including:
. the amount of net proceeds we receive in the offering;
. investment opportunities available to Rome Savings or Rome Bancorp;
. Rome Savings' capital requirements;
. our financial results;
. tax considerations; and
. general economic conditions.
We do not guarantee that we will pay dividends, or that we will not reduce
or eliminate dividends in the future.
Our Directors, Officers and Employees Will Have Additional Compensation and
Benefit Programs After the Reorganization
We are adding new benefit plans for our officers and employees at no cost
to them:
. Employee Stock Ownership Plan. This plan will cover most of our
salaried employees. We will lend it money to buy up to 8% of the
shares we sell in the offering. It will buy them either in the
offering or in the open market. The plan will distribute the stock to
employees over a ten-year period as additional compensation for their
services.
. Benefit Restoration Plan. This plan will provide Charles M. Sprock,
Chairman, President & Chief Executive Officer additional benefits if
the tax laws limit his benefits or if he retires before the
distribution of all stock under the employee stock ownership plan.
10
<PAGE>
We are also adding the following termination pay arrangement:
. Employment Agreement. We are entering into an employment agreement
with Mr. Sprock. If we discharge him without cause, or if he resigns
because we do not meet our obligations under this agreement, we must
make a termination payment.
We also plan to add the following stock-based benefit plans for our
directors, officers and employees:
. Stock Option Plan. Under this plan, we may grant our officers,
directors and employees options to purchase up to 10% of our common
stock sold in the offering, including shares issued to the foundation
at a price that is set on the date we grant the option. The price
that we set cannot be less than our stock's current trading price when
we grant the options, so the options will have value only if our stock
price increases. Recipients of options will have up to ten years to
exercise their options.
. Management Recognition Plan. This plan will allow selected officers,
directors and employees to receive up to 4% of our common stock sold
in the offering, including shares issued to the foundation, without
making any cash payment, if they work for us until the end of a
specified service period.
Assuming we sell 2,123,393 shares, we expect to ask our stockholders for
approval to grant options to purchase up to 212,339 of our shares and make stock
grants under a management recognition plan of up to 84,935 shares under the
plans described above. We will not implement a stock option plan or management
recognition plan unless our stockholders approve them. We do not expect to ask
our stockholders to approve these plans until at least six months after we
complete the offering. We expect to obtain the shares we would need for these
plans through stock repurchases. Our ability to engage in stock repurchases may
be restricted by federal and state banking regulators. More specifically, we
must give written notice to the Federal Reserve Bank of New York before
repurchasing our common stock if the dollar amount of the repurchase, together
with the dollar amounts of repurchases paid by us during the preceding twelve
months, is equal to 10% or more of our consolidated net worth, unless we are
well-capitalized before and immediately after the repurchase.
The following table presents the dollar value of the shares that we expect
to grant under the employee stock ownership plan and the contemplated management
recognition plan and of those to be granted under the stock option plan, and the
percentage of Rome Bancorp's outstanding common stock that will be represented
by these shares. We based the value of the shares for the employee stock
ownership plan and management recognition plan on a price of $7.00 per share and
the issuance of 2,123,393 shares of common stock.
11
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Value of common stock sold
Benefit plan shares granted in the offering
- --------------------------------- -------------- -----------------
(In thousands)
<S> <C> <C>
Employee stock ownership plan.... $1,189 8%
Management recognition plan...... 595 4%
Stock option plan................ - 10%
------ --
$1,784 22%
====== ==
</TABLE>
Possible Conversion of Rome, MHC to Stock Form
In the future, Rome, MHC may convert from the mutual to capital stock form,
in a transaction commonly known as a "second-step conversion." If Rome, MHC
were to undertake a second-step conversion, Rome Bancorp's public stockholders
would own approximately the same percentage of the resulting entity as they
owned prior to the second-step conversion. This percentage would be adjusted to
reflect the assets owned by Rome, MHC and any dividends waived by Rome, MHC.
The board of trustees has no current plan to undertake a "second-step conversion
transaction." For a description of this possible second-step conversion, see
"The Reorganization and The Offering -- Possible Conversion of Rome, MHC to
Stock Form."
How You May Obtain Additional Information Regarding the Offering
If you have any questions regarding the offering or the reorganization,
please call the Conversion Center at (315) [ ].
12
<PAGE>
RISK FACTORS
- -------------------------------------------------------------------------------
You should consider carefully the following risk factors before deciding
whether to invest in our common stock.
- -------------------------------------------------------------------------------
Changes in interest rates may hurt our profits.
To be profitable, we have to earn more money in interest and fees than we
pay as interest and other expenses. Of our residential mortgage loans, 72.6%
have interest rates that are fixed for the term of the loan. We primarily
originate loans with terms of up to 15 or 20 years, while our deposit accounts
consist of time deposit accounts with remaining terms to maturity of less than
one year, as well as demand deposits such as NOW and passbook accounts. We have
also recently begun to originate 30 year mortgages for sale to the secondary
market. If interest rates rise, the amount of interest we pay on deposits is
likely to increase more quickly than the amount of interest we receive on our
loans, mortgage-backed securities and investment securities. This could cause
our profits to decrease. Rising interest rates may also reduce the value of our
mortgage-backed securities and investment securities. If interest rates fall,
many borrowers may refinance more quickly, and interest rates on interest
earning assets could fall, and perhaps lower the interest rates on our
liabilities. This could also cause our profits to decrease. For additional
information on our exposure to interest rates, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Management of
Interest Rate Risk."
Low demand for mortgage, commercial and consumer loans may lower our
profitability.
Making loans is our primary business and primary source of profits. In the
past, our loan demand has decreased due to economic conditions in our primary
market area. If customer demand for loans decreases, our profits may decrease
because our alternative investments earn less revenue for us than residential,
commercial and consumer loans. Customer demand for loans could be reduced by a
weaker economy, an increase in unemployment, a decrease in real estate values,
an increase in interest rates or increased competition from other institutions.
After the reorganization our return on average equity will be low compared to
other publicly traded companies. This could hurt the price of our common
stock.
We will not be able to deploy the increased capital from this offering
immediately. Our ability to profitably leverage our new capital will be
significantly affected by industry competition for loans and deposits.
Initially, we intend to invest the net proceeds in short term investments which
generally have lower yields than residential mortgage loans. This will reduce
our return on average equity to a level that will be lower than our historical
ratios. For 1998, our return on average equity was 5.34%. Until we can
leverage our increased capital and grow interest-earning assets, we expect our
return on equity to be below the industry average, which may negatively impact
the value of your stock.
13
<PAGE>
Our stock price may fall below $7.00 following the offering like other recent
mutual holding company offerings.
Publicly traded stocks like ours may experience price fluctuations
following a public offering. These price fluctuations may be unrelated to the
operating performance of a particular company whose shares are traded. In
several cases, common stock issued by recently converted mutual holding
companies has traded below its initial public offering price. The purchase
price of our common stock in the offering is based on the independent appraisal
by RP Financial. After our shares begin trading, our trading price will be
determined by the marketplace, and may be influenced by many factors, including:
. prevailing interest rates;
. investor perceptions of Rome Bancorp; and
. general industry and economic conditions.
Due to the risk factors discussed in this section, as well as other
factors, we cannot assure you that following our reorganization to mutual
holding company form that the trading price of our common stock will be at or
above the $7.00 per share initial offering price.
Our local economy may affect our future growth possibilities.
Our market area is principally Oneida County, New York. In recent years,
the local economy has been recovering from the loss of certain key employers,
such as Griffiss Air Force Base in Rome and Martin Marietta in Utica. While we
expect the Oneida County economy to improve over the next several years, if the
local economy does not improve, it may have an impact on our ability to be
profitable.
Strong competition within our market area may reduce our customer base.
Competition in the banking and financial services industry is intense. We
have competed for customers by offering excellent service and competitive rates
on our loans and deposit products. We compete with commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms. Some of
these competitors have greater resources than we do and may offer services that
we do not provide. For example, although we now offer banking services via
telephone through our new Telebanker product and plan to offer PC banking by the
end of the year, we do not provide insurance products, trust or investment
services, or a wide variety of uninsured products. Customers who seek "one stop
shopping" may be drawn to institutions who provide such services. Our
profitability depends upon our continued ability to successfully compete in our
market area.
14
<PAGE>
The implementation of stock-based benefits will increase our future compensation
expense and reduce our earnings.
We intend to adopt a stock option plan which will provide for the granting
of options to purchase common stock, to adopt a management recognition plan that
will provide for awards of common stock to our eligible officers, employees and
directors and to have an employee stock ownership plan which will purchase
shares in the reorganization. The Management Recognition Plan and the ESOP will
increase our future costs of compensating our directors and employees. The cost
of these plans will vary based on our stock price.
Consumer, commercial business and commercial real estate lending increase
lending risk because of the geographic concentration of such loans and the
higher risk, that the loans will not be repaid.
We originate consumer, commercial real estate and commercial business loans
both inside and outside our primary market area. As of March 31, 1999, 87.3% of
our lending portfolio consisted of loans located in Oneida County. These types
of loans generally expose a lender to greater credit risk than loans secured by
one-to-four family real estate. These loans have higher risks than loans
secured by residential real estate because:
. Consumer Loans. Consumer loans (such as car loans) are
collateralized with assets that may not provide an adequate source
of payment of the loan due to depreciation, damage or loss;
. Commercial Real Estate Loans. Repayment of the loan is dependent
on income being generated in amounts sufficient to cover operating
expenses and debt service;
. Commercial Business Loans. Repayment is generally dependent upon
the successful operation of the borrower's business.
In addition, at March 31, 1999, 12.7% of our lending portfolio consisted of
loans located in the greater New York City metropolitan area. While those loans
were performing in accordance with their terms at March 31, 1999, no assurance
can be made that the New York City economy will continue at current levels or
that such loans will continue to perform in accordance with their terms in the
future.
The year 2000 issue could hurt our operations and our profits and could lower
the value of your stock.
We rely upon computers to conduct our daily business. Failure of any of
our computer systems, those of the parties we do business with or the public
infrastructure, including the electric and telephone companies, to process
transactions after January 1, 2000, may disrupt our ability to do routine
business and to service our customers. For example, we may not be able to
process withdrawals or deposits, prepare account statements or engage in any of
the transactions that constitute our normal operations. This could hurt our
profits. For additional information
15
<PAGE>
regarding the year 2000 issue, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Issues for the Year 2000."
Because Rome, MHC will own a majority of Rome Bancorp's common stock, Rome, MHC
may prevent transactions you would like.
Rome, MHC will own a majority of Rome Bancorp's common stock after the
reorganization. The same trustees and officers who manage Rome Savings will
manage Rome, MHC. The board of trustees of Rome, MHC will control the outcome
of most matters put to a vote of stockholders of Rome Bancorp. We cannot assure
you that the votes cast by Rome, MHC will be in your personal best interests as
a stockholder. For more information regarding your lack of voting control over
Rome Bancorp, see "Rome, MHC" and "Restrictions on Acquisition of Rome Bancorp
and Rome Savings Bank."
The establishment of The Rome Savings Bank Foundation will reduce our earnings.
Rome Bancorp intends to contribute to the foundation shares of its common
stock equal to 2.0% of the shares issued in the reorganization, plus $100,000.
This contribution will be a significant expense to Rome Bancorp and will
negatively affect our operating results and earnings for the year ending
December 31, 1999. The contribution to the foundation will reduce your
ownership in Rome Bancorp since fewer shares will be available for the public to
purchase in the offering.
Forward Looking Statements
This prospectus contains certain "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; and other
economic, competitive, governmental, regulatory, and technological factors
affecting our operations, pricing, products and services.
16
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The selected data presented below under the captions "Selected Financial
Condition Data" and "Selected Operating Data" for, and as of the end of, each of
the years in the five-year period ended December 31, 1998, are derived from the
audited consolidated financial statements of The Rome Savings Bank and
subsidiaries. The consolidated financial statements as of December 31, 1998 and
1997 and for the years then ended are included elsewhere in this Prospectus.
The selected data presented below as of March 31, 1999 and for the three-month
periods ended March 31, 1999 and 1998 are derived from the unaudited
consolidated financial statements of The Rome Savings Bank and subsidiaries
included elsewhere in this Prospectus. Results for the three-month period ended
March 31, 1999 do not necessarily indicate the results that may be expected for
the year ending December 31, 1999.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- ---------- --------- ----------
(In thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets....................... $224,279 $225,273 $214,356 $212,046 $214,823 $204,626
Loans, net......................... 134,954 134,848 130,975 137,285 139,347 138,123
Securities......................... 54,276 56,508 56,628 48,324 45,406 39,810
Total cash and cash equivalents.... 26,129 25,214 17,299 16,692 20,065 16,848
Other Assets....................... 2,895 2,874 2,487 2,668 2,588 2,553
Total deposits..................... 191,926 189,130 184,496 184,579 188,358 180,458
Total equity....................... 28,939 28,662 26,794 24,886 24,133 22,009
Allowance for loan losses.......... 1,898 1,956 1,742 1,708 1,645 1,579
Non-performing loans............... 575 931 1,474 3,252 3,583 2,592
Non-performing assets.............. 842 1,224 3,100 4,702 5,153 4,975
</TABLE>
<TABLE>
<CAPTION>
For the three Months ended
March 31,
-------------------------------------
1999 1998
--------- ---------
(In thousands)
Selected Operating Data:
<S> <C> <C>
Interest income.............................. $3,730 $3,807
Interest expense............................. 1,733 1,781
------ ------
Net interest income.......................... 1,997 2,026
Provision for loan losses.................... 0 75
------ ------
Net interest income after provision
for loan losses........................... 1,997 1,951
Non-interest income:
Service charges and other income............. 254 197
Net gain (loss) on sale of securities........ 0 139
------ ------
Total noninterest income..................... 254 336
Total noninterest expense.................... 1,688 1,481
------ ------
Income before income taxes................... 563 806
Income taxes................................. 174 325
------ ------
Income before cumulative effect of a change
in accounting principles net of tax........ 389 481
Cumulative effect of a change in
accounting principles net of tax........... 0 0
------ ------
Net income................................... $ 389 $ 481
====== ======
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In thousands)
Selected Operating Data:
<S> <C> <C> <C> <C> <C>
Interest income................................ $15,511 $15,542 $15,629 $15,660 $14,959
Interest expense............................... 7,203 7,311 7,487 7,148 6,061
------- ------- ------- ------- -------
Net interest income............................ 8,308 8,231 8,142 8,512 8,898
Provision for loan losses...................... 390 360 1,850 767 300
------- ------- ------- ------- -------
Net interest income after provision
for loan losses............................. 7,918 7,871 6,292 7,745 8,598
Non-interest income:
Service charges and other income............... 768 936 1,179 867 1,835
Net gain (loss) on sale of securities.......... 314 157 410 (107) (12)
------- ------- ------- ------- -------
Total noninterest income....................... 1,082 1,093 1,589 760 1,823
Total noninterest expense...................... 6,622 6,430 6,140 6,599 6,388
------- ------- ------- ------- -------
Income before income taxes..................... 2,378 2,534 1,741 1,906 4,033
Income taxes................................... 853 996 735 689 1,605
------- ------- ------- ------- -------
Income before cumulative effect of a
change in accounting principles net of tax... 1,525 1,538 1,006 1,217 2,428
Cumulative effect of a change in
accounting principles net of tax............. 0 0 0 0 (764)
------- ------- ------- ------- -------
Net income..................................... $ 1,525 $ 1,538 $ 1,006 $ 1,217 $ 1,664
======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
At or for the Three
Months Ended March 31,
-------------------------------
Selected Financial Ratios and Other Data: 1999 1998
------- -------
<S> <C> <C>
Performance Ratios:
Return on average assets........................................ 0.71% 0.91%
Return on average equity........................................ 5.45% 7.01%
Net interest rate spread (1).................................... 3.31% 3.47%
Net interest margin (2)......................................... 4.08% 4.13%
Non-interest expense to average assets.......................... 3.08% 2.80%
Efficiency ratio (3)............................................ 74.99% 66.62%
Average interest-earning assets to average
interest-bearing liabilities................................... 122.53% 118.46%
Capital Ratios:
Average equity to average assets................................ 13.00% 12.95%
Equity to assets................................................ 12.90% 12.59%
Regulatory Capital Ratios:
Leverage capital................................................ 12.77% 12.54%
Total risk-based capital........................................ 22.95% 22.92%
Asset Quality Ratios:
Non-performing loans to total loans............................. 0.42% 1.12%
Non-performing assets to total assets........................... 0.38% 1.40%
Allowance for loan losses to non-performing
loans.......................................................... 330.09% 123.02%
Allowance for loan losses to total loans........................ 1.39% 1.38%
Other Data:
Number of deposit accounts...................................... 33,483 32,767
Branches........................................................ 4 4
</TABLE>
<TABLE>
<CAPTION>
At or For the
Years Ended December 31,
-------------------------------------------------
Selected Financial Ratios and Other Data: 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets................................. 0.70% 0.71% 0.47% 0.58% 0.82%
Return on average equity................................. 5.34% 5.79% 3.99% 5.26% 7.64%
Net interest rate spread (1)............................. 3.47% 3.52% 3.53% 3.89% 4.33%
Net interest margin (2).................................. 4.19% 4.13% 4.10% 4.42% 4.72%
Non-interest expense to average assets................... 3.04% 2.99% 2.85% 3.17% 3.13%
Efficiency ratio (3)..................................... 72.96% 70.14% 65.87% 70.36% 59.52%
Average interest-earning assets to average
interest-bearing liabilities............................ 120.15% 116.83% 115.03% 114.51% 112.37%
Capital Ratios:
Average equity to average assets......................... 13.09% 12.34% 11.70% 11.11% 10.68%
Equity to assets......................................... 12.72% 12.50% 11.74% 11.23% 10.76%
Regulatory Capital Ratios:
Leverage capital......................................... 12.73% 12.33% 11.68% 11.19% 11.21%
Total risk-based capital................................. 22.80% 22.20% 21.20% 21.40% 20.44%
Asset Quality Ratios:
Non-performing loans to total loans...................... 0.68% 1.11% 2.34% 2.54% 1.86%
Non-performing assets to total assets.................... 0.54% 1.45% 2.22% 2.40% 2.43%
Allowance for loan losses to non-performing
loans................................................... 210.32% 118.18% 52.52% 45.91% 60.92%
Allowance for loan losses to total loans................. 1.43% 1.31% 1.23% 1.17% 1.13%
Other Data:
Number of deposit accounts............................... 34,693 34,003 34,218 34,536 34,434
Branches................................................. 4 4 3 3 3
</TABLE>
- ---------------
(1) We determined this number by subtracting the weighted average cost of
average interest-bearing liabilities from the weighted average yield on
average interest-earning assets.
(2) We determined this ratio by dividing net interest income, after giving
effect to the reduction in state and federal income taxes from the
municipal securities, by average interest-earning assets.
(3) We determined this ratio by dividing total non-interest expense by the sum
of net interest income and total non-interest income (adjusted to exclude
net gains on securities transactions).
18
<PAGE>
RECENT DEVELOPMENTS
The summary information presented below under "Selected Financial Condition
Data," "Selected Operating Data" and "Selected Financial Ratios and Other Data"
at or for each of the three and six months ended June 30, 1999 and 1998 are
derived from the unaudited consolidated financial statements of The Rome Savings
Bank and subsidiaries. In our opinion, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
condition and results of operations for the unaudited periods presented have
been included. The results of operations and other data presented for the three
and six months ended June 30, 1999 do not necessarily indicate the results that
may be expected for the year ending December 31, 1999.
<TABLE>
<CAPTION>
At June 30, June 31,
1999 1998
-------------- --------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets......................................... 224,818 225,273
Loans, net........................................... 136,081 134,848
Securities........................................... 56,126 56,508
Total cash and cash equivalents...................... 23,396 25,214
Other Assets......................................... 3,515 2,874
Total deposits....................................... 192,256 189,130
Total equity......................................... 28,990 28,662
Allowance for loan losses............................ 1,893 1,956
Non-performing loans................................. 824 931
Non-performing assets................................ 1,048 1,224
</TABLE>
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30 June 30
------------------------------ ------------------------------
1999 1998 1999 1998
--------------- ------------- --------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Selected Operating Date:
Interest income 3,699 3,846 7,429 7,653
Interest expense 1,727 1,803 3,460 3,584
----- ----- ----- -----
Net interest income 1,972 2,043 3,969 4,069
Provision for loan losses 0 75 0 150
----- ----- ----- -----
Net interest income after provision 1,972 1,968 3,969 3,919
for loan losses
Non-interest income:
Service charges and other income 197 174 451 371
Net gain on sale of securities 265 0 265 139
----- ----- ----- -----
Total noninterest income 462 174 716 510
Total noninterest expense 1,623 1,588 3,311 3,069
Income before income taxes 811 554 1,374 1,360
Income taxes 279 215 453 540
----- ----- ----- -----
Net Income 532 339 921 820
===== ===== ===== =====
</TABLE>
19
<TABLE>
<CAPTION>
At or for the three months At or for the six months
ended June 30, ended June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data:
Performance Ratios:
Return on average assets.................... 0.96% 0.62% 0.83% 0.86%
Return on average equity.................... 7.39% 4.89% 6.42% 6.02%
Net interest rate spread(1)................. 3.25% 3.38% 3.28% 3.42%
Net interest margin(2)...................... 3.99% 4.09% 4.03% 4.11%
Non-interest expense to average assets...... 2.91% 2.92% 2.99% 2.86%
Efficiency Ratio(3)......................... 74.78% 71.66% 74.91% 69.12%
Average interest earning assets
to average interest-bearing liabilities.... 122% 120% 122% 119%
Equity Ratios:
Average equity to average assets............ 12.93% 12.75% 12.96% 12.69%
Equity to total assets at end of period..... 12.89% 12.55% 12.89% 12.55%
regulatory Capital Ratios:
Core capital (Tier 1 capital)............... 12.92% 12.48% 12.92% 12.48%
Total Risk-based capital.................... 22.24% 23.07% 22.03% 23.08%
Asset Quality Ratios:
Nonperforming loans to total loans.......... 0.60% 0.87% 0.60% 0.87%
Nonperforming assets to total assets........ 0.47% 1.24% 0.47% 1.24%
Allowance for loan losses to
total loans................................ 1.37% 1.36% 1.37% 1.36%
Allowance for loan losses to
non-performing loans....................... 230% 156% 230% 156%
Other Data:
Number of:
Deposit accounts............................ 33,496 32,700 33,496 32,700
Full service branches....................... 4 4 4 4
</TABLE>
__________________
(1) We determined this number by subtracting the weighted average cost of
average interest-bearing liabilities from the weighted average yield on
average interest-earning assets.
(2) We determined this ratio by dividing net interest income, after giving
effect to the reduction in state and federal income taxes from the
municipal securities, by average interest-earning assets.
(3) We determined this ratio by dividing total non-interest expense by the sum
of net interest income and total non-interest income (adjusted to exclude
net gains on securities transactions).
19A
Comparison of Financial Condition at June 30, 1999 and December 31, 1998:
Total assets decreased by $445,000, or .2%, to 224.6 million at June 30,
1999, from $225.3 million at December 31, 1998. The decrease reflects an
increase in net loans offset by a corresponding decrease in cash and cash
equivalents and a decrease in securities.
While total assets decreased over the six month period, net loans increased
$1.2 million or .9% to $136.1 million at June 30, 1999 versus $134.8 million at
December 31, 1998. Most of this growth occurred in the consumer loan portfolio
which increased by $716,000 or 3.0% to $24.6 million.
Securities decreased $380,000 to $56.1 million at June 30, 1999 versus
$56.5 million at December 31, 1998. Federal funds sold and other interest
bearing deposits decreased $3.3 million or 17.4% to $15.8 million from $19.1
million at December 31, 1998.
Total deposits increased $3.1 million to $192.3 million versus $189.1
million at December 31, 1999. Savings accounts increased by $3.4 million or
4.4% to $79.3 million. Money market accounts increased by $1.7 million or 31%
reaching $7.1 million at June 30. These increases in deposits were partially
offset by a $1.8 million or 2.2% decrease in time deposits to $82.9 million.
Total equity increased $328,000 or 1.1% to $29.0 million from $28.7 million
at December 31, 1998 as a result of earnings of $921,000 for the six months
ended June 30, 1999, which was partially offset by a $594,000 decrease in the
unrealized gain in our available for sale securities for the six month period.
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
June 30, 1998:
General
Net income for the three months ended June 30, 1999 was $532,000 which was
an increase of $193,000 or 56.9% from $339,000 for the three months ended June
30, 1998.
Interest Income
Total interest income decreased $147,000 or 3.8% to $3.7 million for the
three months ended June 30, 1999 from $3.8 million for the three months ended
June 30, 1998. Total interest income decreased only $72,000 or 1.9% to $3.8
million from $3.9 million for the three months ended June 30, 1998 after giving
effect to the reduction of state and federal income taxes from municipal
securities. The decrease in interest income occurred as the yield on our
earning assets fell to 7.32% for the three months ended June 30, 1999 from 7.67%
for the three months ended June 30, 1998. The decline in yield applied to all
three categories of earning assets (i.e. loans, investments securities, and
federal funds sold and interest bearing deposits). The reduction in interest
income from the decline in yield was partially offset by a $5.9 million or 2.9%
increase in average earning assets to $208.0 million for the three months ended
June 30, 1999 from $202.0 million for the three months ended June 30, 1998.
19B
The decline in yield on the Bank's earning assets reflected the lower
yields prevalent in the national economy for the second quarter of 1999 in
comparison to the second quarter of 1998. This resulted in the downward
repricing of our interest rate-sensitive assets, as well as placing further
pressure on our yield on earning assets created by the refinancing of many of
our existing loans.
Interest Expense
Total interest expense decreased $76,000 or 4.2% to $1.7 million for the
three months ended June 30, 1999 in comparison to the same period last year.
The decrease in interest expense was primarily attributable to a decline in the
cost of interest bearing liabilities from 4.29% for the three months ended June
30, 1998 to 4.07% for the same three months in 1999. Like earning assets, the
decrease in the cost of interest-bearing liabilities reflected the overall lower
interest rate environment that prevailed in the second quarter of 1999 in
comparison to the second quarter of 1998. The decrease in the cost of interest-
bearing liabilities was partially offset by a $1.8 million increase in their
average balance to $170.3 million for the three months ended June 30, 1999 from
$168.5 million for the same period in 1998.
Net Interest Income
Net interest income for the three months ended June 30, 1999 decreased
$71,000 or 3.5% to $2.0 million. Net interest income on a tax equivalent basis
for the three months ended June 30, 1999 was essentially unchanged from the
prior period at $2.1 million. This occurred despite a 13 basis point decline in
our net interest rate spread to 3.25% for the three months ended June 30, 1999
from 3.38% for the three months ended June 30, 1998, because of an increase in
the ratio of interest earning assets to interest bearing liabilities during the
same period. Net interest margin which represents net interest income divided
by average earning assets, declined only 10 basis points from 4.09% for the
three months ended June 30, 1998 to 3.99% for the same period in 1999. These
declines occurred as the cost of our interest bearing liabilities fell more
slowly than that of our interest earning assets during the same period.
Provision for Loan Losses
The Bank did not make any provision for loan losses in the second quarter
of 1999 in comparison to $75,000 for the second quarter of 1998. Management's
decision not to add to its loan loss allowance was based on the relatively low
levels of non performing loans in comparison to recent years, the relatively
high level of the allowance to non-performing loans and total loans at June 30,
1999 and other factors. Management believes the June 30, 1999 allowance for
loan losses to be adequate at 1.37% of total loans.
Noninterest Income
Noninterest income increased $288,000 or 165.5% to $462,000 for the three
months ended June 30, 1999 in comparison to $174,000 for the same period in
1998. The increase is due primarily to $265,000 in net gains on sales of
securities in the second quarter of 1999 versus none for the second quarter of
1998. The gains were from the sale of a portion of our investment in an
institutional mutual fund. Service charges and fees increased $23,000 or 13.2%
to $197,000 from $174,000 in the prior year.
19C
Noninterest Expense
Noninterest expense remained essentially unchanged at $1.6 million for both
the three months ended June 30, 1999 and 1998. Salaries and employee benefits
increased $104,000 or 13% to $899,000 for the second quarter of 1999 versus
$795,000 for the second quarter of 1998. Other non-interest expenses decreased
$69,000 primarily as a result of a $67,000 decrease in expenses of real estate
owned. This decrease was the result of a decline in the amount of the
properties held from $1.6 million as of June 30, 1998 to $224,000 at June 30,
1999.
Income Taxes
Income tax expense increased $64,000 to $279,000 for the three months ended
June 30, 1999 in comparison to the same period last year. This increase
reflected the higher pretax income for the second quarter of 1999 of $811,000
versus $554,000 for the same period of 1998. It also reflected a decline in our
effective tax rate to 34.4% for the second quarter of 1999 versus 38.8% for the
second quarter of 1998. The decline in the effective tax rate reflects our
decision to invest in nontaxable municipal bonds. Our investment in these
securities increased substantially in the second quarter of 1999 versus the
second quarter of 1998 as represented by an average balance of $13.6 million in
the 1999 period versus only $2.7 million in the same period in 1998.
Comparison of Operating Results for the Six Months Ended June 30, 1999 and June
30, 1998:
Net income for the six months ended June 30, 1999 totaled $921,000 which
was an increase of $101,000 or 12.3%, from $820,000 for the six months ended
June 30, 1998.
Interest Income
Total interest income decreased by $224,000 or 2.9% for the six months
ended June 30, 1999 to $7.4 million from $7.7 million for the six months ended
June 30, 1998. Total interest income decreased $63,000 to $7.6 million for the
six months ended June 30, 1999 after giving effect to the reduction of state and
federal income taxes from municipal securities. The yield on earning assets
declined 33 basis points to 7.39% for the six months ended June 30, 1999 from
7.72% for the same period in 1998. This increasing yield on earning assets
reflected the lower interest rates in the national economy when compared to the
prior period.
Interest Expense
Total interest expense decreased $124,000 or 3.5% to $3.5 million for the
six months ended June 30, 1999 compared with $3.6 million for the six months
ended June 30, 1998. The increase in interest expense occurred despite a $1.5
million increase in the average balance of interest-bearing liabilities to
$169.6 million from $168.2 million for the year earlier period because of a 19
basis point decline in their cost to 4.11% for the six months ended June 30,
1999 from 4.30% for the same period in 1998. The decline in the cost of
interest-bearing liabilities reflected the overall lower interest rate
environment that prevailed in 1999 as compared to the same period in 1998.
19D
Net Interest Income
Net interest income for the six months ended June 30, 1999 was $4.0 million
versus $4.1 million for the six months ended June 30, 1998. Net interest income
on a tax equivalent basis for the first six months of 1999 was essentially
unchanged at $4.1 million. Net interest rate spread decreased 14 basis points
from 3.42% for the six months ended June 30, 1999 to 3.28% for the same period
in 1998. Net interest margin fell only 8 basis points to 4.03% from 4.11%
during the same time periods as a result of an increase in the ratio of average
interest earning assets to average interest bearing liabilities from 1.19 times
for the first six months of 1998 to 1.22 times for the first six months of 1999.
Provision for Loan Losses
The Bank did not make any provision for loan losses in the six months ended
June 30, 1999 in comparison to $150,000 for the six months ended June 30, 1998.
Management's decision not to add to it loan loss allowance was based on the
relatively low levels of non-performing loans in comparison to recent years, the
relatively high level of the allowance to non-performing loans and total loans
at June 30, 1999 and other factors.
Noninterest Income
Total noninterest income increased $206,000 or 40.4% to $716,000 for the
six months ended June 30, 1999 from $510,000 for the six months ended June 30,
1998. This increase was primarily attributable to net gain on the sale of
securities of 265,000 for the six months ended June 30, 1999 compared with
$139,000 for the same six months in 1998. These gains reflect realized gains on
the sale of a portion of our investment in an institutional mutual fund.
Service charges and fees increased $80,000 or 21.6% to $451,000 from $371,000
for the same period in 1998. This increase is attributable to surcharges
implemented this year on non-bank customers using our ATM machines.
Noninterest Expense
Total noninterest expense increased $242,000 or 7.9% to $3.3 million for
the six months ended June 30, 1999 from $3.1 million for the six months ended
June 30, 1998. Salaries and employee benefits increased $277,000 or 18%. Of
this $55,000 was related to a vacation accrual for all employees while $93,000
represented increased pension expense. The higher pension costs were
principally related to the final amortization of the transition asset in 1998.
The balance of the increase of $129,000 represented routine salary increases as
well as increased costs for our post employment benefits other than pensions.
Building, occupancy and equipment expenses increased $79,000 or 13.8%
principally as a result of higher depreciation charges related to the Bank's
acquisition of new computer equipment to replace aging equipment, ensure Year
2000 readiness and improve customer service. All other expenses combined
decreased $114,000 primarily as a result of a $114,000 decrease in expenses of
real estate owned as a result of the decline in the amount of properties held
from $1.6 million as of June 30, 1998 to $224,000 at June 30, 1999.
Income Taxes
Income tax expense decreased $87,000 to $453,000 for the six months ended
June 30, 1999 in comparison with $540,000 for the six months ended June 30, 1998
reflecting a decline in our effective tax rate from 39.7% to 33.0%. The decline
in the effective tax rate is primarily the result of management's decision to
invest in nontaxable securities.
19E
<PAGE>
THE ROME SAVINGS BANK
Rome Savings is a New York-chartered mutual savings bank, chartered in
1851. Rome Savings is the only bank headquartered in Rome, New York. Our
deposits are insured by the FDIC. We are examined and regulated by the New York
State Department of Banking and the FDIC. Rome Savings Bank's executive offices
are located at 100 W. Dominick Street, Rome, New York 13440 and its telephone
number is (315) 336-7300.
Rome Savings is a community and customer oriented retail savings bank
offering traditional deposit products, residential real estate mortgage loans
and consumer, commercial and commercial real estate loans. Rome Savings
operates through 4 full service banking offices -three of which are located in
Rome and one in New Hartford, New York. As of June 30, 1998, Rome maintained a
7.4% share of all Oneida County, New York deposits, positioning us as the fifth
largest (in total deposits) depository institution in Oneida County. At June
30, 1998, we maintained a 38.7% market share of all reported funds on deposit in
the City of Rome, making us the largest depository institution in Rome. At March
31, 1999, we had assets of $224.3 million, deposits of $191.9 million and equity
of $28.9 million.
At March 31, 1999, we had total loans of $136.9 million, of which $65.9
million, or 48.2%, were residential mortgage loans. Of the residential
mortgage loans outstanding at that date, 27.4% were adjustable-rate mortgage
loans and 72.6% were fixed-rate loans. We retain substantially all of the loans
that we originate. For further information on our operations and financial
condition, see "Business of Rome Savings Bank."
ROME BANCORP, INC.
Rome Bancorp is a Delaware corporation organized on June 9, 1999. Rome
Bancorp has not engaged in any business to date, and, in the future will serve
as the holding company of Rome Savings following the reorganization. Rome
Bancorp will be registered as a bank holding company with the Federal Reserve
Board. A majority of the outstanding shares of Rome Bancorp's common stock will
be owned by Rome, MHC. Rome Bancorp's executive offices are located at 100 W.
Dominick Street, Rome, New York 13440 and its telephone number is (315) 336-
7300.
ROME, MHC
As part of our reorganization, Rome Savings will organize Rome, MHC as a
New York chartered mutual savings bank holding company which will be registered
as a bank holding company with the Federal Reserve Board. Persons who had
liquidation rights with respect to Rome Savings as of the date of the
reorganization will continue to have liquidation rights solely with respect to
Rome, MHC. Their liquidation rights in Rome, MHC will exist as long as they
maintain a deposit account at Rome Savings. Rome, MHC's executive offices are
located at 100 W. Dominick Street, Rome, New York 13440 and its telephone number
is (315) 336-7300.
Rome, MHC's principal assets will be the shares of common stock of Rome
Bancorp it receives in the reorganization and approximately $100,000 it receives
as its initial capitalization. At the present time, we expect that Rome, MHC
will not engage in any business activity other
20
<PAGE>
than its investment in a majority of the common stock of Rome Bancorp and the
management of any cash dividends received from Rome Bancorp. Federal and state
law and regulations require that as long as Rome, MHC is in existence it must
own a majority of Rome Bancorp's common stock. Federal and state law,
regulations and the plan of reorganization permit Rome, MHC to convert to the
stock form of organization. For additional information regarding a stock
conversion, see "Regulation of Rome Savings Bank and Rome Bancorp -- Possible
Conversion of Rome, MHC to Stock Form."
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
The net proceeds will depend on the total number of shares of common stock
sold in the offering, which in turn will depend on RP Financial's appraisal,
regulatory and market considerations, and the expenses incurred in connection
with the offering. Although we will not be able to determine the actual net
proceeds from the sale of the common stock until we complete the offering, we
estimate the net proceeds to be between $10.1 million and $13.9 million.
Rome Bancorp intends to distribute the net proceeds from the offering as
follows:
<TABLE>
<CAPTION>
Number of Shares Sold
------------------------------------
1,569,464 2,123,393 2,411,902
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Offering proceeds................................... $ 10,986 $ 14,864 $ 17,093
Offering expenses................................... 826 897 938
Cash contribution to foundation..................... 100 100 100
Net offering proceeds............................... 10,060 13,867 16,055
Less:
Proceeds contributed to Rome Savings............. 5,030 6,933 8,027
Proceeds used for loan to employee
stock ownership plan........................... 879 1,189 1,367
---------- ---------- ----------
Proceeds remaining for general corporate purposes $ 4,151 $ 5,745 $ 6,661
========== ========== ==========
</TABLE>
The net proceeds may vary because total expenses relating to the
reorganization may be more or less than our estimates. For example, our
expenses would increase if a syndicated community offering or underwritten
public offering are used to sell shares not purchased in the subscription
offering and community offering. The net proceeds will also vary if the number
of shares to be sold in the offering is adjusted to reflect a change in the
estimated pro forma market value of Rome Bancorp and Rome Savings. Payments for
shares made through withdrawals from existing deposit accounts will not result
in the receipt of new funds for investment by Rome Savings but will result in a
reduction of Rome Savings' deposits and interest expense as funds are
transferred from interest-bearing time deposits or other deposit accounts.
Rome Bancorp may use the proceeds it retains from the offering:
(1) to pay dividends to stockholders;
(2) to repurchase shares of common stock issued in the offering;
21
<PAGE>
(3) to finance the possible acquisition of financial institutions or other
businesses that are related to banking;
(4) to invest in securities; and
(5) for general corporate purposes.
Rome Savings may use the proceeds it receives from the offering:
(1) to fund new loans;
(2) to purchase investment securities;
(3) to finance the possible establishment or acquisition of branch offices;
and
(4) for general corporate purposes.
OUR POLICY REGARDING DIVIDENDS
We will have the authority to declare dividends on our common stock upon
completion of the offering. We intend to consider a policy of paying cash
dividends on our common stock. We have not, however, decided when we will
declare a dividend or the amount of any dividend. Our board of directors will
decide on any future payment of dividends, depending upon our financial
condition, results of operations, tax considerations, industry standards,
economic conditions, regulatory restrictions that affect the payment of
dividends by Rome Savings to Rome Bancorp and any other relevant factors. We
cannot guarantee that we will pay dividends or that, if paid, we will not reduce
or eliminate dividends in the future.
If Rome Bancorp pays dividends to its stockholders, it will be required to
pay dividends to Rome, MHC, unless Rome, MHC elects to waive dividends. We do
not currently anticipate that Rome, MHC will waive dividends paid by Rome
Bancorp. Any decision to waive dividends will be subject to regulatory
approval. See "Regulation of Rome Savings Bank and Rome Bancorp -- Dividend
Waivers by Rome, MHC."
As the principal asset of Rome Bancorp, Rome Savings will provide the
principal source of funds for the payment of dividends by Rome Bancorp. New
York banking law provides that Rome Savings may pay dividends only out of its
net profits. Rome Savings must obtain the approval of the Superintendent of
Banks to pay dividends if the total of all dividends declared in any calendar
year will exceed net profits for that year combined with the retained earnings
of the preceding two years, less any required transfer to surplus or a fund for
the retirement of any preferred stock. Rome Savings may not declare dividends
if the effect would cause its capital to be reduced below the amount required
by the Superintendent of Banks or the FDIC. See "The Reorganization and The
Offering -- Effects of the Reorganization -- Depositors' Rights If We Liquidate;
Liquidation Account."
Rome Bancorp is subject to the requirements of Delaware law which generally
limits dividends to an amount equal to the difference between the amount by
which total assets exceed total liabilities and the amount equal to the
aggregate par value of the outstanding shares of
22
<PAGE>
capital stock. If there is no difference between these amounts, dividends are
limited to net income for the current and/or immediately preceding year.
Any payment of dividends by Rome Savings to Rome Bancorp, which would be
deemed to be drawn out of Rome Savings' bad debt reserves, would require a
payment of taxes at the then-current tax rate by Rome Savings on the amount of
earnings deemed to be removed from bad debt reserves for such distribution.
Rome Savings does not intend to make any distribution to Rome Bancorp that would
create this type of a tax liability. See "Taxation."
MARKET FOR THE COMMON STOCK
As a new company, Rome Bancorp has not previously issued common stock and
there is no established market for it. We expect the common stock to trade
under the symbol "ROME" on the Nasdaq Stock Market after the completion of the
offering. Sandler O'Neill has advised us that it intends to make a market in the
common stock following the reorganization, but is under no obligation to do so.
We will seek to encourage and assist additional market makers to make a market
in our common stock.
The development of an active trading market depends on the existence of
willing buyers and sellers or any market maker. The number of active buyers and
sellers of the common stock at any particular time may be limited. Under such
circumstances, you could have difficulty selling your shares on short notice
and, therefore, you should not view the common stock as a short-term investment.
We cannot assure you that an active and liquid trading market for the common
stock will develop or that, if it develops, it will continue, nor can we assure
you that if you purchase shares you will be able to sell them at or above $7.00
per share.
23
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At March 31, 1999, we exceeded all regulatory capital requirements. The
following table shows our capital computed under generally accepted accounting
principles and our compliance with regulatory capital standards at March 31,
1999, on a historical and pro forma basis. We have assumed that the indicated
number of shares were sold as of March 31, 1999 and that Rome Savings received
50% of the net proceeds from the offering. For purposes of the table below, the
amount expected to be loaned to the ESOP and the cost of the shares expected to
be acquired by the management recognition plan are deducted from pro forma
regulatory capital. For a discussion of the capital requirements applicable to
Rome Savings, see "Regulation of Rome Savings Bank and Rome Bancorp -- Federal
Banking Regulation - Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at March 31, 1999 Based Upon the Sale at $7.00 Per Share
------------------------------------------------------------------------------------------
1,569,464 Shares Sold 1,846,429 Shares Sold
Historical at (Minimum of the (Midpoint of the
March 31, 1999 Range) Range)
-------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2)
----------- ------------ ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital (3)................... $28,939 12.9% $32,598 14.2% $33,317 14.5%
======= ==== ======= ==== ======= ====
Leverage Capital:
Capital Level(4)............... $28,298 12.8 $31,957 14.1 $32,676 14.4
Requirement(5)................. 8,867 4.0 9,049 4.0 9,084 4.0
------- ---- ------- ---- ------- ----
Excess......................... $19,431 8.8 $22,908 10.1 $23,592 10.4
======= ==== ======= ==== ======= ====
Tier I Risk Based Capital:
Capital Level(4)(6)............ $30,257 23.0 $33,949 25.2 $34,674 25.7
Requirement.................... 10,545 8.0 10,758 8.0 10,799 8.0
------- ---- ------- ---- ------- ----
Excess......................... 19,712 15.0 23,191 17.2 23,875 17.7
======= ==== ======= ==== ======= ====
Total Risk-Based Capital:
Capital Level(4)(6)............ $28,298 21.5 $31,957 23.8 $32,676 24.2
Requirement.................... 5,273 4.0 5,379 4.0 5,400 4.0
------- ---- ------- ---- ------- ----
Excess......................... $23,025 17.5% $26,578 19.8% $27,276 20.2%
======= ==== ======= ==== ======= ====
<CAPTION>
Pro Forma at March 31, 1999 Based Upon the Sale at $7.00 Per Share
-------------------------------------------------------------------
2,441,902 Shares Sold
2,123,393 Shares Sold (15% Above
Maximum of the Maximum of the
Range) Range)(1)
--------------------------- ------------------------------
Percent Percent
of of
Amount Assets(2) Amount Assets(2)
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
GAAP Capital (3)............ $34,036 14.8% $34,862 15.1%
======= ==== ======= ====
Leverage Capital:
Capital Level(4)........ $33,395 14.6 $34,221 14.9
Requirement(5).......... 9,119 4.0 9,159 4.0
------- ---- ------- ----
Excess.................. $24,276 10.6 $25,062 10.9
======= ==== ======= ====
Tier I Risk Based Capital
Capital Level(4)(6)..... $35,400 26.1 $36,234 26.6
Requirement............. 10,841 8.0 10,888 8.0
------- ---- ------- ----
Excess.................. 24,559 18.1 25,346 18.6
======= ==== ======= ====
Total Risk-Based Capital:
Capital Level(4)(6)..... $33,395 24.6 $34,221 25.1
Requirement............. 5,420 4.0 5,444 4.0
------- ---- ------- ----
Excess.................. $27,975 20.6% $28,777 21.1
======= ==== ======= ====
</TABLE>
- -----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the estimated price range of up to 15% as
a result of changes in market conditions or general financial and economic
conditions following the commencement of the offering.
(2) Leverage capital levels are shown as a percentage of "adjusted total
assets," and risk-based capital levels are shown as a percentage of "risk-
weighted assets," each as defined in the FDIC Regulations.
(3) Capital under generally accepted accounting principles (GAAP) includes the
net unrealized gain/loss, if any, on available-for-sale securities, which is
not recognized as capital under the FDIC capital ratio rules. See
"Regulation-Banking Regulation-Capital Requirements."
(4) Pro forma capital levels assume receipt by Rome Savings of 50% of the net
proceeds from the shares of common stock sold. These levels assume funding
by Rome Savings of the restricted stock plan equal to 4% of the common stock
issued, including repayment of Rome Bancorp's loan to the employee stock
ownership plan to enable the plan to purchase 8% of the common stock issued.
(5) In order to be classified as "well-capitalized," Rome Savings must, in
addition to other requirements, have a Tier I risk-based capital ratio of at
least 6.00%, a total risk-based capital ratio of at least 10.00% and a Tier
1 leverage ratio of at least 5.00%. See "Regulation of The Rome Savings Bank
and Rome Bancorp-Federal Banking Regulation-Capital Requirements" and "-
Enforcement."
(6) Assumes net proceeds are invested in assets that carry risk-weighting equal
to the actual risk weighting of Rome Savings' assets as of March 31, 1999.
24
<PAGE>
CAPITALIZATION
The following table presents the historical deposits and capitalization of
Rome Savings at March 31, 1999, and the pro forma consolidated capitalization of
Rome Bancorp after giving effect to the reorganization, based upon the sale of
the number of shares shown below and the other assumptions set forth under "Pro
Forma Data." The number of shares shown includes shares to be sold in the
conversion and shares intended to be contributed to be foundation. A change in
the number of shares sold in the offering may materially affect the
capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at March 31, 1999
-----------------------------------------------------------
1,569,464 1,846,429 2,123,393 2,441,902
Shares Shares Shares Shares (15%
Actual at (Minimum Midpoint (Maximum Above Maximum
March 31, 1999 of Range) of Range) of Range) of Range)(1)
---------------- ------------ ------------- ------------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)........................................... $191,926 $ 191,926 $ 191,926 $ 191,926 $191,926
======== ========== ========== ========== ========
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; none to be issued............... - - - - -
Common stock, $.01 par value, 5,000,000
shares authorized; to be issued as reflected(3)(4) - 33 39 45 52
Additional paid-in capital(4)...................... - 10,594 12,575 14,555 16,830
Retained earnings(5)............................... 28,298 28,198 28,198 28,198 28,198
Less:
Expense of Contribution to Foundation.............. - (567) (650) (733) (827)
Tax Benefit of Contribution to Foundation.......... - 219 251 283 319
Plus:
Accumulated other comprehensive income............. 641 641 641 641 641
Less:
Common stock acquired by the employee stock
ownership plan (6)................................ - (879) (1,034) (1,189) (1,367)
Common stock acquired by the management
recognition plan (7).............................. - (439) (517) (595) (684)
-------- ---------- ---------- ---------- --------
Total stockholders' equity............................ $ 28,939 $ 37,800 $ 39,503 $ 41,205 $ 43,162
======== ========== ========== ========== ========
</TABLE>
- ---------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of changes in market or general financial and economic conditions
following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals from deposit accounts would
reduce pro forma deposits by the amount of such withdrawals.
(3) Reflects shares to be issued to Rome, MHC as follows: 1,703,035 shares at
the minimum of the estimated valuation range, 2,003,571 shares at the
midpoint, 2,304,107 at the maximum and 2,649,723 at 15% above the
maximum.
(4) Reflects the issuance of shares sold in the offering at a value of $7.00 per
share. No effect has been given to the issuance of additional shares of
common stock pursuant to Rome Bancorp's proposed stock option plan intended
to be adopted by Rome Bancorp and presented for approval of stockholders at
a meeting of stockholders to be held at least six months following
completion of the offering.
(5) The retained earnings of Rome Savings will be substantially restricted after
the offering. The reduction in historical retained earnings reflects the
retention by Rome, MHC of $100,000 upon completion of the reorganization as
its initial capitalization.
(6) Assumes that 8% of the shares issued in connection with the offering will be
purchased by the employee stock ownership plan and the funds used to acquire
the employee stock ownership plan shares will be borrowed from Rome Bancorp.
The common stock acquired by the employee stock ownership plan is reflected
as a reduction of stockholders' equity.
(7) Assumes that, subsequent to the offering, an amount equal to 4% of the
shares of common stock issued in the offering is purchased by a management
recognition plan through open market purchases. The proposed management
recognition plan is intended to be adopted by Rome Bancorp and presented for
approval of stockholders at a meeting of stockholders to be held at least
six months, following completion of the offering. The common stock purchased
by the management recognition plan is reflected as a reduction of
stockholders' equity.
25
<PAGE>
PRO FORMA DATA
We can not determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $10,060,000 and $13,867,000, or $16,055,000 if the offering
range is increased by 15%, based upon the following assumptions:
. we will sell all shares of common stock in the subscription offering;
. we will pay Sandler O'Neill a fee equal to 2% of the aggregate purchase
price for sales in the subscription offering except for shares sold to
the employee stock ownership plan, employee benefit plans, and officers,
directors and their immediate families; and
. total expenses, including the marketing fees paid to Sandler O'Neill,
will be approximately $826,000 to 938,000.
We calculated the pro forma consolidated net income and stockholders'
equity of Rome Bancorp for the three months ended March 31, 1999 and the year
ended December 31, 1998, as if the common stock had been sold at the beginning
of those periods and the net proceeds had been invested at 4.7% and 4.5% for the
three months ended March 31, 1999 and the year ended December 31, 1998,
respectively. We chose this yield because it represents the yield on the one-
year U.S. treasury bill at March 31, 1999 and at December 31, 1998. In light of
changes in interest rates in recent periods, Rome Bancorp and Rome Savings
believe this rate more accurately reflects pro forma reinvestment rates than the
arithmetic average method which assumes reinvestment of the net proceeds at a
rate equal to the average of yield on interest earning assets and costs of
deposits for these periods. We assumed a tax rate of 38.6% for both periods.
This results in an after-tax yield of 2.9% for the three months ended March 31,
1999 and 2.8% for the year ended December 31, 1998.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of pro forma consolidated net income and
stockholders' equity by the indicated number of shares of common stock. We
adjusted these figures to give effect to the shares purchased by the employee
stock ownership plan. We computed per share amounts for each period as if the
common stock was outstanding at the beginning of the periods, but we did not
adjust per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds. As discussed under "How We Intend to
Use the Proceeds from the Offering," Rome Bancorp intends to retain 50% of the
net proceeds from the offering and intends to make a loan to the employee stock
ownership plan to fund the employee stock ownership plan's purchase of 8% of the
common stock. The loan is assumed to be repaid in substantially equal principal
payments over a period of fifteen years.
The following table gives effect to the management recognition plan, which
we expect to adopt following the reorganization and present, along with the
stock option plan, to stockholders for approval at an annual or special meeting
of stockholders to be held at least six months following the completion of the
reorganization. If the management recognition plan is approved by stockholders,
the restricted stock plan will acquire an amount of common stock equal to 4% of
the shares of common stock sold in the offering, either through open market
purchases or from authorized but unissued shares of common stock, if
permissible. On preparing the table below
26
<PAGE>
we assumed that stockholder approval has been obtained and that the shares
acquired by the management recognition plan are purchased in the open market at
the purchase price. The stock is assumed to be awarded under the program in
awards that vest gradually over five years.
The following table does not give effect to:
(1) the shares to be reserved for issuance under the stock option plan, which
requires stockholder approval at a meeting following the reorganization.
(2) withdrawals from deposit accounts for the purpose of purchasing common
stock in the reorganization;
(3) Rome Bancorp's results of operations after the reorganization; or
(4) the market price of the common stock after the reorganization.
The following pro forma information may not represent the financial effects of
the reorganization at the date on which the reorganization actually occurs and
you should not use the table to indicate future results of operations. Pro
forma stockholders' equity represents the difference between the stated amount
of assets and liabilities of Rome Bancorp computed in accordance with generally
accepted accounting principles. We did not increase or decrease stockholders'
equity to reflect the difference between the carrying value of loans and other
assets and market value. Pro forma stockholders' equity is not intended to
represent the fair market value of the common stock and may be different than
amounts that would be available for distribution to stockholders if we
liquidated.
27
<PAGE>
<TABLE>
<CAPTION>
At or for the Three Months Ended March 31, 1999
-------------------------------------------------------------------------------
2,441,902
1,569,464 1,846,429 2,123,393 Shares Sold at
Shares Sold at Shares Sold at Shares Sold at $7.00 Per Share
$7.00 Per Share $7.00 Per Share $7.00 Per Share (15% Above
(Minimum of (Midpoint of (Maximum of Maximum of
Range) Range) Range) Range) (5)
------------------- ------------------ ------------------ -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross Proceeds...................................... $10,986 $ 12,925 $ 14,864 $ 17,093
Plus: shares issued to the foundation........... 467 550 633 727
------- ---------- ---------- ----------
Pro forma market capitalization..................... $11,453 $ 13,475 $ 15,497 $ 17,820
Gross proceeds...................................... 10,986 12,925 14,864 17,093
Less cash contributions to foundation............ 100 100 100 100
Less expenses.................................... 826 861 897 938
------- ---------- ---------- ----------
Estimated net proceeds.............................. $10,060 $ 11,964 $ 13,867 $ 16,055
Less: Common stock purchased by Employee Stock
Option Plan(1).................................. (879) (1,034) (1,189) (1,367)
Less: Common stock purchased by Management
Recognition Plan(2)............................. (439) (517) (595) (684)
------- ---------- ---------- ----------
Estimated net proceeds, as adjusted......... $ 8,742 $ 10,413 $ 12,083 $ 14,004
======= ========== ========== ==========
Consolidated net income:
Historical income................................ $ 389 $ 389 $ 389 $ 389
Pro forma income on net proceeds................. 62 74 86 100
Pro forma Employee Stock Option Plan
adjustment(1)................................... (9) (11) (12) (14)
Pro forma Management Recognition Plan
adjustment(2)................................... (13) (16) (18) (21)
------- ---------- ---------- ----------
Pro forma net income........................ $ 429 $ 436 $ 445 $ 454
======= ========== ========== ==========
Per share net income:
Historical income................................ $ 0.12 $ 0.10 $ 0.09 $ 0.08
Pro forma income on net proceeds................. 0.02 0.02 0.02 0.02
Pro forma Employee Stock Option Plan on net
proceeds........................................ 0.00 0.00 0.00 0.00
Pro forma Management Recognition
Plan Adjustment................................. 0.00 0.00 0.00 0.00
------- ---------- ---------- ----------
Pro forma net income per share.............. $ 0.14 $ 0.12 $ 0.11 $ 0.10
======= ========== ========== ==========
Stockholders' equity:
Historical(4).................................... $28,839 $ 28,839 $ 28,839 $ 28,839
Estimated net proceeds........................... 10,060 11,964 13,867 16,055
Plus: Shares issued to foundation.......... 467 550 633 727
Less: Contribution to foundation........... (467) (550) (633) (727)
Plus: Tax benefit of the contribution
to the foundation.......................... 219 251 283 319
Less: Common stock acquired by Employee
Stock Option Plan(1)....................... (879) (1,034) (1,189) (1,367)
Less: Common stock acquired by Management
Recognition Plan(2)........................ (439) (517) (595) (684)
------- ---------- ---------- ----------
Pro forma stockholders' equity(2)(3)(4).......... $37,800 $ 39,503 $ 41,205 $ 43,162
======= ========== ========== ==========
Stockholder's equity per share:
Historical....................................... $ 8.64 $ 7.34 $ 6.38 $ 5.55
Estimated net proceeds........................... 3.01 3.05 3.07 3.09
Plus: Shares issued to foundation.......... 0.14 0.14 0.14 0.14
Less: Contribution to foundation........... (0.14) (0.14) (0.14) (0.14)
Plus: Tax benefit of the contribution
to the foundation.......................... 0.07 0.06 0.06 0.06
Less: Common stock acquired by
Employee Stock Option Plan(1).............. (0.26) (0.26) (0.26) (0.26)
Less: Common stock acquired by Management
Recognition Plan(2)........................ (0.13) (0.13) (0.13) (0.13)
------- ---------- ---------- ----------
Pro forma stockholders' equity per share(4)...... $ 11.33 $ 10.06 $ 9.12 $ 8.31
======= ========== ========== ==========
Offering price as a percentage of pro forma net
earnings per share(6).............................. 12.50 14.58 15.91 17.50
======= ========== ========== ==========
Offering price as a percentage of pro forma
stockholders' equity per share(6).................. 61.87% 69.58% 76.75% 84.24%
======= ========== ========== ==========
</TABLE>
28
<PAGE>
(1) It is assumed that 8% of the shares of common stock issued in connection
with our reorganization will be purchased by the employee stock ownership
plan. For purposes of this table, the funds used to acquire such shares
are assumed to have been borrowed by the employee stock ownership plan from
Rome Bancorp. The amount to be borrowed is reflected as a reduction of
stockholders' equity. ESOP expense is based upon generally accepted
accounting principles as described in accounting Statement of Position 93-
6. Generally accepted accounting principles require that as and when
shares pledged as security for an ESOP loan are committed to be released
from the loan (i.e., as the loan os repaid), ESOP expense is recorded based
upon the fair value of the shares at that time. Rome Savings intends to
make annual contributions to the employee stock ownership plan in an amount
at least equal to the principal and interest requirement of the debt. Rome
Saving's total annual payment of the employee stock ownership plan debt is
based upon 15 equal annual installments of principal, with an assumed
interest rate at 7.75%. The pro forma net income assumes: (i) that Rome
Savings's contribution to the employee stock ownership plan is equivalent
to the debt service requirement for the three months ended March 31, 1999,
and was made at the end of the period; (ii) that 2,092 shares at the
minimum of the offering range, 2,462 shares at the midpoint of the offering
range, 2,831 shares at the maximum of the offering range and 3,256 shares
at 15% above the maximum of the offering range, were committed to be
released during the three months ended March 31, 1999 at an average fair
value of $7.00 per share in accordance with SOP 93-6; and (iii) the
employee stock ownership plan shares committed to be released were
considered outstanding for the entire period for purposes of the net income
per share calculations.
(2) Gives effect to the management recognition plan expected to be adopted by
Rome Bancorp following the offering and presented for approval at a meeting
of stockholders. The management recognition plan intends to acquire an
amount of common stock equal to 4% of the shares of common stock issued in
connection with the offering, or 62,779 shares at the minimum of the
offering range, 73,857 shares at the midpoint of the offering range, 84,936
shares of the maximum of the offering range and 97,676 shares at 15% above
the maximum of the offering range, either through open market purchases, if
permissible, or from authorized but unissued shares of common stock or
treasury stock of Rome Bancorp, if any. In calculating the pro forma
effect of the management recognition plan, it is assumed that the shares
were acquired by the management recognition plan at the beginning of the
period presented in open market purchases at the purchase price and that 5%
of the amount contributed was an amortized expense during such period. The
issuance of authorized but unissued shares of Rome Bancorp's common stock
to the management recognition plan instead of open market purchases would
dilute the voting interests of existing stockholders by approximately 1.8%
and pro forma net income per share would be $0.13 at the minimum of the
offering range, $0.11 at the midpoint of the offering range, $0.10 at the
maximum of the offering range and $0.09 at 15% above the maximum of the
offering range. There can be no assurance that the actual purchase price
of the shares granted under the restricted stock plan will be equal to the
purchase price.
(3) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan expected to be adopted by Rome
Bancorp following the offering. Rome Bancorp expects to present the stock
option plan for approval at a meeting of stockholders. Under the stock
option plan, an amount equal to 10% of the common stock issued in
connection with the offering will be reserved for future issuance upon the
exercise of options to be granted under the stock option plan. The
issuance of common stock pursuant to the exercise of options under the
stock option plan will result in the dilution of existing stockholders'
interests. The effect of the implementation of the Stock Option Plan can
not be reasonable estimated because the number of options that may be
awarded cannot be determined; the exercise price of the options will depend
upon the market price on the date the options are awarded; the options will
vest gradually over five years; and the exercise of options is at the
discretion of the director, officer or employee holding the option. See
"Management-Benefit Plans-Stock Option Plan."
(4) The retained earnings of Rome Savings will continue to be substantially
restricted after the offering. Pro Forma retained earnings have been
reduced by $100,000 to reflect the initial capitalization of Rome, MHC.
(5) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of changes in market or general considerations or changes in market
or general financial and economic conditions following the commencement of
the offering.
(6) Assuming 100% of the outstanding common stock of Rome Bancorp is issued to
the public rather than 49%, the offering price as a percentage of pro forma
stockholders' equity per share would be 48.78% at the minimum of the
offering range, 53.48% at the midpoint of the offering range, 57.61% at the
maximum of the offering range and 61.78% at 15% above the maximum of the
offering range and the ratio of offering price to pro forma net income per
share would be 11.67x at the minimum of the offering range, 13.46x at the
midpoint of the offering range, 15.91x at the maximum of the offering range
and 17.50x at 15% above the maximum of the offering range.
29
<PAGE>
<TABLE>
<CAPTION>
28 At or for the Year December 31, 1998
--------------------------------------------------------------------------------
2,441,902
1,564,464 1,846,429 2,123,393 Shares Sold at
Shares Sold at Shares Sold at Shares Sold at $7.00 Per Share
$7.00 Per Share $7.00 Per Share $7.00 Per Share (15% Above
(Minimum of (Midpoint of (Maximum of Maximum of
Range) Range) Range) Range) (5)
------------------ ----------------- ----------------- ---------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross Proceeds..................................... $ 10,986 $ 12,925 $ 14,864 $ 17,093
Plus: shares issued to the foundation........... 467 550 633 727
-------- -------- ---------- ---------
Pro forma market capitalization.................... $ 11,453 $ 13,475 $ 15,497 $ 17,820
Gross proceeds..................................... 10,986 12,925 14,864 17,093
Less cash contributions to foundation........... 100 100 100 100
Less expenses................................... 826 861 897 938
-------- -------- ---------- ---------
Estimated net proceeds............................. $ 10,060 $ 11,964 $ 13,867 $ 16,055
Less: Common stock purchased by Employee Stock
Option Plan(1)................................. (879) (1,034) (1,189) (1,367)
Less: Common stock purchased by Management
Recognition Plan(2)............................ (439) (517) (595) (684)
-------- -------- ---------- ---------
Estimated net proceeds, as adjusted............. 8,742 10,413 12,083 14,004
Consolidated net income:
Historical income............................... $ 1,525 $ 1,525 $ 1,525 $ 1,525
Pro forma income on net proceeds................ 240 286 332 386
Pro forma Employee Stock Option Plan
adjustment(1).................................. (36) (42) (49) (56)
Pro forma Management Recognition Plan
adjustment(2).................................. (54) (63) (73) (84)
-------- -------- ---------- ---------
Pro forma net income............................ $ 1,675 $ 1,706 $ 1,735 $ 1,771
======== ======== ========== =========
Per share net income:
Historical income............................... $ 0.47 $ 0.40 $ 0.35 $ 0.30
Pro forma income on net proceeds................ 0.07 0.08 0.08 0.08
Pro forma Employee Stock Option Plan on net
proceeds....................................... (0.01) (0.01) (0.01) (0.01)
Pro forma Management Recognition Plan Adjustment (0.02) (0.02) (0.02) (0.02)
-------- -------- ---------- ---------
Pro forma net income per share.................. $ 0.51 $ 0.45 $ 0.40 $ 0.35
======== ======== ========== =========
Stockholders' equity:
Historical(4)................................... $ 28,562 $ 28,562 $ 28,562 $ 28,562
Estimated net proceeds.......................... 10,060 11,964 13,867 16,055
Plus: Shares issued to foundation............ 467 550 633 727
Less: Contribution to foundation............. (467) (550) (633) (727)
Plus: Tax benefit of the contribution to the
foundation................................... 219 251 283 319
Less: Common stock acquired by Employee Stock
Option Plan(1)............................... (879) (1,034) (1,189) (1,367)
Less: Common stock acquired by Management
Recognition Plan(2).......................... (439) (517) (595) (684)
-------- -------- ---------- ---------
Pro forma stockholders' equity(2)(3)(4)......... $ 37,523 $ 39,226 $ 40,928 $ 42,885
======== ======== ========== =========
Stockholder's equity per share:
Historical...................................... $ 8.55 $ 7.27 $ 6.32 $ 5.50
Estimated net proceeds.......................... 3.01 3.05 3.07 3.09
Plus: shares issued to foundation............ 0.14 0.14 0.14 0.14
Less: Contribution to foundation............. (0.14) (0.14) (0.14) (0.14)
Plus: Tax benefit of the contribution to the
foundation................................... 0.07 0.06 0.06 0.06
Less: Common stock acquired by Employee Stock
Option Plan(1)............................... (0.26) (0.26) (0.26) (0.26)
Less: Common stock acquired by Management
Recognition Plan(2).......................... (0.13) (0.13) (0.13) (0.13)
-------- -------- ---------- ---------
Pro forma stockholders' equity per share(4)..... $ 11.24 $ 9.99 $ 9.06 $ 8.26
======== ======== ========== =========
Offering price as a percentage of pro forma net
earnings per share(6)............................. 13.73 15.56 17.50 20.00
======== ======== ========== =========
Offering price as a percentage of pro forma
stockholders' equity per share(6)................. 62.28% 70.07% 77.26% 84.75%
======== ======== ========== =========
</TABLE>
30
<PAGE>
(1) It is assumed that 8% of the shares of common stock issued in connection
with our reorganization will be purchased by the employee stock ownership
plan. For purposes of this table, the funds used to acquire such shares
are assumed to have been borrowed by the employee stock ownership plan from
Rome Bancorp. The amount to be borrowed is reflected as a reduction of
stockholders' equity. ESOP expense is based upon generally accepted
accounting principles as described in accounting Statement of Position 93-
6. Generally accepted accounting principles require that as and when
shares pledged as security for an ESOP loan are committed to be released
from the loan (i.e., as the loan is repaid), ESOP expense is recorded based
upon the fair value of the shares at that time. Rome Savings intends to
make annual contributions to the employee stock ownership plan in an amount
at least equal to the principal and interest requirement of the debt. Rome
Saving's total annual payment of the employee stock ownership plan debt is
based upon 15 equal annual installments of principal, with an assumed
interest rate at 7.75%. The pro forma net income assumes: (i) that Rome
Savings's contribution to the employee stock ownership plan is equivalent
to the debt service requirement for the year ended December 31, 1998, and
was made at the end of the period; (ii) that 8,370 shares at the minimum of
the offering range, 9,847 shares at the midpoint of the offering range,
11,324 shares at the maximum of the offering range and 13,023 shares at
15% above the maximum of the offering range, were committed to be released
during the year ended December 31, 1998 at an average fair value of $7.00
per share in accordance with SOP 93-6; and (iii) the employee stock
ownership plan shares committed to be released were considered outstanding
for the entire period for purposes of the net income per share
calculations.
(2) Gives effect to the management recognition plan expected to be adopted by
Rome Bancorp following the offering and presented for approval at a meeting
of stockholders. The management recognition plan intends to acquire an
amount of common stock equal to 4% of the shares of common stock issued in
connection with the offering, or 62,779 shares at the minimum of the
offering range, 73,857 shares at the midpoint of the offering range, 84,936
shares of the maximum of the offering range and 97,676 shares at 15% above
the maximum of the offering range, either through open market purchases, if
permissible, or from authorized but unissued shares of common stock or
treasury stock of Rome Bancorp, if any. In calculating the pro forma
effect of the management recognition plan, it is assumed that the shares
were acquired by the management recognition plan at the beginning of the
period presented in open market purchases at the purchase price and that
20% of the amount contributed was an amortized expense during such period.
The issuance of authorized but unissued shares of Rome Bancorp's common
stock to the management recognition plan instead of open market purchases
would dilute the voting interests of existing stockholders by approximately
1.8% and pro forma net income per share would be $0.51 at the minimum of
the offering range, $0.45 at the midpoint of the offering range, $0.39 at
the maximum of the offering range and $0.35 at 15% above the maximum of the
offering range. There can be no assurance that the actual purchase price
of the shares granted under the restricted stock plan will be equal to the
purchase price.
(3) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan expected to be adopted by Rome
Bancorp following the offering. Rome Bancorp expects to present the stock
option plan for approval at a meeting of stockholders. Under the stock
option plan, an amount equal to 10% of the common stock issued in
connection with the offering will be reserved for future issuance upon the
exercise of options to be granted under the stock option plan. The
issuance of common stock pursuant to the exercise of options under the
stock option plan will result in the dilution of existing stockholders'
interests. The effect of the implementation of the Stock Option Plan can
not be reasonable estimated because the number of options that may be
awarded cannot be determined; the exercise price of the options will depend
upon the market price on the date the options are awarded; the options will
vest gradually over five years; and the exercise of options is at the
discretion of the trustee, officer or employee holding the option. See
"Management-Benefit Plans-Stock Option Plan."
(4) The retained earnings of Rome Savings will continue to be substantially
restricted after the offering. Pro Forma retained earnings have been
reduced by $100,000 to reflect the initial capitalization of Rome, MHC.
(5) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of changes in market or general considerations or changes in market
or general financial and economic conditions following the commencement of
the offering.
(6) Assuming 100% of the outstanding common stock of Rome Bancorp is issued to
the public rather than 49%, the offering price as a percentage of pro forma
stockholders' equity per share would be 49.09% at the minimum of the
offering range, 53.76% at the midpoint of the offering range, 57.95% at the
maximum of the offering range and 62.06% at 15% above the maximum of the
offering range and the ratio of offering price to pro forma net income per
share would be 11.67x at the minimum of the offering range, 13.21x at the
midpoint of the offering range, 14.89x at the maximum of the offering range
and 16.28x at 15% above the maximum of the offering range.
31
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT FOUNDATION
If we do not establish the charitable foundation as part of the
reorganization, RP Financial has estimated that the pro forma aggregate market
value of Rome Bancorp would be approximately $28.5 million at the midpoint of
the estimated price range, which is approximately $1.0 million greater than the
pro forma aggregate market capitalization of Rome Bancorp, including the
foundation, and would result in a $1.0 million increase in the amount of common
stock that we offer for sale in the reorganization. For comparative purposes
only, set forth below are certain estimated pricing ratios and financial
information, assuming that the foundation was not established and assuming the
conversion as completed at March 31, 1999. However, these are just estimates.
At the midpoint, the pro forma price to book value ratio and pro forma price to
earnings ratio without the foundation would be 70.85% and 14.58x, respectively,
compared to 69.58% and 14.58x, respectively, with the foundation. Further,
assuming the midpoint of the estimated offering range; pro forma stockholders'
equity per share and pro forma earnings per share without the foundation would
be $9.88 and $0.12, respectively, and $10.06 and $0.12, respectively, with the
foundation. We cannot assure you that, in the event the foundation was not
formed, the appraisal prepared at that time would have concluded that the pro
forma market value of Rome Bancorp would be the same as was estimated by RP
Financial.
<TABLE>
<CAPTION>
At the Maximum
At the Minimum At the Midpoint At the Maximum As Adjusted
----------------------- ----------------------- ---------------------- ----------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount...... 10,986 11,870 12,925 13,965 14,864 16,060 17,093 18,469
Pro forma market
capitalization................ 11,453 11,870 13,475 13,965 15,545 16,060 17,820 18,469
Total assets................... 233,140 233,783 234,843 235,587 236,539 237,393 238,502 239,468
Total liabilities.............. 195,340 195,340 195,340 195,340 195,340 195,340 195,340 195,340
Pro forma shareholders' equity. 37,794 38,443 39,496 40,247 41,199 42,047 43,155 44,128
Pro forma consolidated net
income........................ 429 433 436 443 445 451 454 461
Pro forma shareholders' equity
per share.................... 11.33 11.11 10.06 9.88 9.12 8.98 8.31 8.20
Pro forma consolidated net
income per share.............. 0.14 0.14 0.12 0.12 0.11 0.11 0.10 0.10
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro forma
shareholders' equity
per share.................. 61.78% 63.01% 69.58% 70.85% 76.75% 77.95% 84.24% 85.37%
Offering price to pro
forma net income per share. 12.50x 12.50x 14.58x 14.58x 15.91x 15.91x 17.50x 17.50x
Pro Forma Market Capitalization
to assets................... 4.91% 5.08% 5.74% 5.93% 6.55% 6.77% 7.47% 7.72%
Pro Forma Financial Ratios:
Return on assets............ 0.74% 0.74% 0.74% 0.75% 0.75% 0.76% 0.76% 0.77%
Return on shareholders'
equity..................... 4.54% 4.51% 4.42% 4.40% 4.32% 4.29% 4.21% 4.18%
Shareholders' equity to
assets..................... 16.35% 16.45% 16.97% 17.09% 17.58% 17.72% 18.27% 18.43%
</TABLE>
32
<PAGE>
THE ROME SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Rome Savings for the
years ended December 31, 1998 and 1997 have been derived from the audited
consolidated financial statements which appear beginning on page F-1 of this
Prospectus. All information contained in this Prospectus for the three months
ended March 31, 1999 and 1998 is unaudited. In the opinion of management, all
adjustments necessary for a fair representation of those interim periods have
been included and are of a normal recurring nature. Results for the three-month
period ending March 31, 1999 do not necessarily indicate the results that may be
expected for the year ending December 31, 1999. These Consolidated Statements
of Income should be read with the Consolidated Financial Statements and Notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Prospectus.
<TABLE>
<CAPTION>
For the Three Months Years ended
Ended March 31, December 31,
-------------------- --------------------
1999 1998 1998 1997
------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans.................................................... $2,822 $2,832 $11,334 $11,532
Securities............................................... 733 808 3,464 3,341
Other short-term investments............................. 175 167 713 669
------ ------ ------- -------
Total interest income................................ 3,730 3,807 15,511 15,542
Interest expense on deposits................................ 1,733 1,781 7,203 7,311
------ ------ ------- -------
Net interest income.................................. 1,997 2,026 8,308 8,231
Provision for loan losses................................... - 75 390 360
------ ------ ------- -------
Net interest income after provision for loan losses.. 1,997 1,951 7,918 7,871
------ ------ ------- -------
Non-interest income:
Service charges.......................................... 130 131 562 517
Net gain on sale of securities........................... - 139 314 157
Other income............................................. 124 66 206 419
------ ------ ------- -------
Total non-interest income............................ 254 336 1,082 1,093
------ ------ ------- -------
Non-interest expenses:
Salaries and employee benefits........................... 920 747 3,263 3,126
Building, occupancy and equipment........................ 349 276 1,187 1,094
Real estate owned, net................................... 7 53 383 385
ATM service fees......................................... 44 41 169 154
Contributions............................................ 11 16 152 192
Other.................................................... 357 348 1,468 1,479
------ ------ ------- -------
Total non-interest expenses.......................... 1,688 1,481 6,622 6,430
------ ------ ------- -------
Income before income tax expense..................... 563 806 2,378 2,534
Income tax expense.......................................... 174 325 853 996
------ ------ ------- -------
Net income........................................... $ 389 $ 481 $ 1,525 $ 1,538
====== ====== ======= =======
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
This discussion and analysis reflects Rome Savings' consolidated financial
statements and other relevant statistical data and is intended to enhance your
understanding of our financial condition and results of operations. You should
read the information in this section in conjunction with Rome Savings'
consolidated financial statements and their notes beginning on page F-1 of this
prospectus, and the other statistical data provided in this prospectus.
- --------------------------------------------------------------------------------
General
Rome Savings' results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets, primarily mortgage loans and investment
securities, and the interest we pay on our interest-bearing liabilities,
primarily time deposits and savings deposits. Our results of operations are also
affected by our provision for loan losses, non-interest income and non-interest
expense. Non-interest expense consists primarily of salaries and employee
benefits, occupancy expenses and other general and administrative expenses.
Non-interest income consists mainly of service fees and charges. Our results of
operations may also be affected significantly by general and local economic and
competitive conditions, particularly those with respect to changes in market
interest rates, government policies and actions of regulatory authorities.
Management Strategy
Our primary management strategy has been to offer savings deposits and
traditional banking products to individuals and small businesses to increase
earnings and manage growth. We seek to differentiate ourselves by emphasizing
commercial, commercial real estate and consumer loans in addition to residential
mortgages and by providing high quality service with competitive fees and rates
to the individuals and small businesses which we have served since 1851. We
also try to limit our exposure to changes in interest rates by monitoring and
managing our interest rate-sensitive assets and liabilities. To accomplish
these strategies, we:
(1) emphasize our traditional strengths -- the providing of residential and
commercial mortgages, consumer loans, commercial loans, personal credit
to business owners and a variety of deposit products;
(2) offer competitive rates and free checking to individuals to attract
new deposits and to maintain our existing deposit base;
(3) offer expanded delivery systems and new products to our customers;
(4) maintain our capital strength, profitability and asset quality;
(5) manage growth primarily through internal expansion; and
(6) meet the needs of our local community through a community-based and
service-oriented approach to banking.
34
<PAGE>
After completion of the reorganization, we expect to continue to grow our
base of interest earning assets by expanding our loan portfolio and by using
borrowings, where appropriate, to supplement deposits as a funding source. We
also intend to grow by adding new branch offices. We may also use proceeds from
the offering to acquire branch offices and make other acquisitions. See "How We
Intend to Use the Proceeds from the Offering."
Management of Interest Rate Risk
As a financial institution, our primary component of market risk is
interest rate volatility. Fluctuations in interest rates will ultimately impact
both our level of income and expense recorded on a large portion of our assets
and liabilities. Fluctuations in interest rates will also affect the market
value of all interest-earning assets, other than those which possess a short
term to maturity.
During 1998, we operated under a "flat yield curve" in a low interest rate
environment. A flat yield curve environment features little difference in
interest rates offered on short-term and long-term investments. In that
environment, we experienced both increased interest rate competition related to
loan originations and above-average prepayment rates related to mortgage loans
and mortgage-backed securities, both of which adversely impact long-term
profitability. The flat yield curve environment and modest declines in market
interest rates experienced during 1998 reduced our interest rate spread compared
to the prior year. Recent troubled economic conditions in several nations
throughout Europe, Asia, and South and Central America have created interest
rate volatility for U.S. Government and agency obligations. We cannot predict
at this time what, if any, effect these conditions will have on the local and
regional economy, and real estate market.
Due to the nature of our operations, we are not subject to foreign currency
exchange or commodity price risk. Instead, our real estate loan portfolio,
concentrated in Oneida County, New York, is subject to risks associated with the
local economy. We do not own any trading assets.
The primary goals of our interest rate management strategy are to:
(1) limit fluctuations in net interest margin as interest rates vary up or
down; and
(2) control variations in the market value of assets, liabilities and net
worth as interest rates vary.
We seek to coordinate asset and liability decisions so that, under changing
interest rate scenarios, earnings will remain within an acceptable range.
To achieve the objectives of managing interest rate risk, our Asset
Liability Management Committee meets monthly to discuss and monitor the market
interest rate environment relative to interest rates that are offered on our
products. This committee consists of the Chairman, Vice President in charge of
branch operations, Vice President of commercial lending, Vice President in
charge of residential lending, the Chief Financial Officer and five other
members of the Board of Trustees in addition to the Chairman. The Asset
Liability Management Committee presents
35
<PAGE>
periodic reports to the Board of Trustees at its regular meetings, as well as to
the Executive Committee.
Historically, our lending activities have emphasized one- to four-family
mortgage loans. Our primary source of funds has been deposits, consisting
primarily of time deposits, which have substantially shorter terms to maturity
than the loan portfolio. We have employed certain strategies to manage the
interest rate risk inherent in the asset/liability mix, including but not
limited to:
(1) limiting terms of fixed rate one- to four-family mortgage loan
originations which are retained in our portfolio to 20 years or less;
(2) beginning in May, 1999, originating and selling 30 year fixed-rate
mortgages in the secondary market;
(3) maintaining the diversity of our existing loan portfolio through the
origination of commercial real estate, commercial and consumer lending
which typically have variable rates and shorter terms than residential
mortgages; and
(4) emphasizing investments with short- and intermediate-term maturities
of less than ten years.
The prevailing low interest rate environment has resulted in increased
demand for longer-term fixed-rate first mortgage loans. The result has been an
increase in the proportion of fixed-rate loans in our portfolio. This trend may
have an adverse impact on our net interest income, particularly in a rising
interest rate environment.
In addition, the actual amount of time before mortgage loans are repaid can
be significantly impacted by changes in mortgage prepayment rates and market
interest rates. Mortgage prepayment rates will vary due to a number of factors,
including the regional economy in the area where the underlying mortgages were
originated, seasonal factors, demographic variables and the assumability of the
underlying mortgages. However, the major factors affecting prepayment rates are
prevailing interest rates, related mortgage refinancing opportunities and
competition. We monitor interest rate sensitivity so that we can make
adjustments to our asset and liability mix on a timely basis.
Net Interest Income at Risk
We use a simulation model to monitor interest rate risk. This model
reports the net interest income at risk under three different interest rate
environments. Specifically, an analysis of changes in net interest income
assuming changes in interest rates, both up and down 300 basis points from
current rates over the 12 month period following the current financial statement
is performed. Net interest income is measured for each of the three twelve
month periods following the balance sheet date.
The changes in interest income and interest expense due to changes in
interest rates reflect the interest sensitivity of the Bank's interest earning
assets and interest bearing liabilities. For example, in a rising interest rate
environment, the interest income from an adjustable rate
36
<PAGE>
mortgage will increase depending on its repricing characteristics while the
interest income from a fixed rate loan would not increase until it was repaid
and loaned out at a higher interest rate.
The table below sets forth as of March 31, 2000, March 31, 2001 and March
31, 2002, the estimated changes in net interest income that would result from a
300 basis point change in interest rates over the applicable twelve-month
period.
<TABLE>
<CAPTION>
For the twelve months ended March 31,
------------------------------------------------------------
2000 2001 2002
------------------- ------------------- -------------------
Changes in
Interest Rate Percent Percent Percent
(basis points) Amount Change Amount Change Amount Change
- ----------------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
300 $ 8,652 (0.36)% $ 8,438 (8.61)% $ 8,631 (3.98)%
0 8,683 - 9,233 - 8,989 -
-300 $ 8,353 (3.80)% $ 9,612 4.10% $ 9,024 0.39%
</TABLE>
Gap Analysis. Another method Rome Savings uses to monitor interest rate
risk is the gap analysis. The matching of the repricing characteristics of
assets and liabilities may be analyzed by examining the extent to which such
assets and liabilities are "interest rate sensitive" and by monitoring a
financial institution's interest rate sensitivity "gap." An asset or liability
is said to be "interest rate sensitive" within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that same time period.
A gap is considered positive when the amount of interest-earnings assets
maturing or repricing within a specific time period exceeds the amount of
interest-bearing liabilities maturing or repricing within that specific time
period. A gap is considered negative when the amount of interest-bearing
liabilities maturing or repricing within a specific time period exceeds the
amount of interest-earning assets maturing or repricing within the same period.
During a period of rising interest rates, a financial institution with a
negative gap position would be expected, absent the effects of other factors, to
experience a greater increase in the costs of its liabilities relative to the
yields of its assets and thus the institution's net interest income would likely
decrease. An institution with a positive gap position would be expected, absent
the effect of other factors, to experience the opposite result. Conversely,
during a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to reduce
net interest income.
At March 31, 1999, based on the assumptions below, our interest-bearing
liabilities maturing or repricing within one year exceeded our interest-earning
assets maturing or repricing within the same period by $15.2 million. This
represented a negative cumulative one-year interest rate sensitivity gap of
7.3%, and a ratio of cumulative interest-earning assets maturing or repricing
within one year to cumulative interest-bearing liabilities maturing or repricing
within one year of 83.1%. Our negative gap position could more adversely
impact our net interest
37
<PAGE>
income in a rising rate environment than if we had a positive gap position. Our
policy sets an objective of maintaining the one year cumulative gap between a
negative 20% of total assets to a positive 20% of total assets.
The following table presents the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1999, which we anticipate
to reprice or mature in each of the future time periods shown. Except as stated
below, we determined the amounts of assets and liabilities shown which reprice
or mature during a particular period in accordance with the earlier of the term
to repricing or the contractual maturity of the asset or liability. The
information presented in the following table is also based on the following
assumptions:
(1) we assumed an annual prepayment rate of 8.0% for mortgage loans
repricing or maturing after one year;
(2) we assumed an annual prepayment rate of 18.0% for mortgage-backed
securities repricing or maturing after one year;
(3) we reported federal agency securities with call options, that we
believed would be called, at the earlier of the next call date or
contractual maturity date;
(4) we reported savings accounts that had no stated maturity using decay
rates of: 3.5% in less than six months, 3.5% in six months to one year,
7.0% in one year to two years, 7.0% in two years to three years, 14.0%
in three years to five years, and 65.0% in over five years. Further, we
assumed approximately 27% of these accounts would reprice in the first
year; and
(5) we reported money market accounts and interest bearing demand accounts
as immediately repriceable.
Deposit decay rates, as reflected in items 4 and 5 above, are based on
regulatory guidance, as modified by our historical experience. Deposit decay
rates, prepayment rates and anticipated call dates can have a significant impact
on the estimated interest sensitivity gap. While we believe that our
assumptions are reasonable, they may not be indicative of actual future deposit
decay activity, mortgage and mortgage-backed securities prepayments, and the
actual timing of federal agency calls.
38
<PAGE>
<TABLE>
<CAPTION>
Amounts Maturing or Repricing as of March 31, 1999
-----------------------------------------------------------------------------------
Less than 6 Months
Three 3-6 to Over 5
Months Months 1 Year 1-3 Years 3-5 Years Years Total
---------- --------- ---------- ----------- ------------ --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other
interest bearing deposits............. $17,738 $ 0 $ 0 $ 0 $ 0 $ 0 $ 17,738
Securities............................. 6,329 6,317 4,122 13,387 1,870 22,251 54,276
Mortgage loans......................... 5,744 5,317 9,173 26,761 17,223 31,051 95,269
Other loans............................ 12,155 4,619 3,341 12,281 4,865 4,322 41,583
Total interest-earning assets.......... 41,966 16,253 16,636 52,429 23,958 57,624 208,866
Interest-bearing liabilities:
Savings accounts....................... 6,470 6,470 12,941 5,271 47,246 0 78,398
Money market accounts.................. 6,353 0 0 0 0 0 6,353
Other interest bearing accounts........ 717 0 0 0 0 1,877 2,594
Time accounts.......................... 17,325 15,882 23,899 21,180 5,866 0 84,152
Total interest-bearing liabilities..... 30,865 22,352 36,840 26,451 53,112 1,877 171,497
Interest sensitivity gap................... 11,101 (6,099) (20,204) 25,978 (29,154) 55,747
Cumulative interest sensitivity gap........ 11,101 5,002 (15,202) 10,776 (18,378) 37,369
Ratio of cumulative gap to total
interest-earning assets................... 5.31% 2.39% (7.28)% 5.16% (8.80)% 17.89%
Ratio of cumulative gap to total assets.... 4.95% 2.23% (6.78)% 4.80% (8.19)% 16.66%
Ratio of interest-earning assets to
interest-bearing liabilities........... 135.97% 72.71% 45.16% 198.21% 45.11 % 3,070.01% 121.79%
</TABLE>
The methods used in the previous table have some shortcomings. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. 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. Certain assets, such as
adjustable-rate loans, have features which limit changes in interest rates on a
short-term basis and over the life of the loan. If interest rates change,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of borrowers to
make payments on their adjustable-rate loans may decrease if interest rates
increase.
Analysis of Net Interest Income
Net interest income represents the difference between the interest income
we earn on our interest-earning assets, such as mortgage loans, mortgage-backed
securities and investment securities, and the expense we pay on interest-bearing
liabilities, such as time deposits. Net interest income depends on our volume
of interest-earning assets and interest-bearing liabilities and the interest
rates we earned or paid on them.
39
<PAGE>
Average Balance Sheet
The following tables present certain information regarding Rome Savings
financial condition and net interest income at and for the three months ended
March 31, 1999 and 1998 and for the years ended December 31, 1998, 1997 and
1996. The tables present the average yield on interest-earning assets and the
average cost of interest-bearing liabilities for the periods indicated. We
derived the yields and costs by dividing income or expenses by the average
balances of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown. We derived average balances from daily
balances over the periods indicated. Interest income includes fees which we
considered adjustments to yields.
<TABLE>
<CAPTION>
At March 31, Three Months Ended March 31,
1999 1999 1998
---------------------- ------------------------------------ ---------------------------------
Weighted Average Average
Average Average Yield/ Average Yield/
Balance Yield Balance Interest Cost Balance Interest Cost
--------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)..................... 134,954 8.25% 135,222 2,822 8.35% 131,643 2,832 8.61%
Securities(2)................ 54,276 6.23% 56,832 819 5.84% 54,904 808 5.97%
Federal funds sold &
other interest bearing
deposits.................... $ 17,738 5.00% $ 14,993 $ 175 4.73% $ 12,281 $ 167 5.51%
-------- -------- ------ ---- -------- ------ ----
Total interest-
earning assets.......... 206,968 207,047 3,816 7.47% 198,828 3,807 7.77%
Noninterest-earning assets...... 17,311 15,561 15,983
-------- -------- --------
Total Assets............. 224,279 222,608 214,811
Liabilities and Equity:
Interest-bearing liabilities:
Savings accounts............. 78,398 3.05% 76,684 587 3.10% 74,791 572 3.10%
Time deposits................ 84,152 5.08% 84,124 1,091 5.26% 85,274 1,154 5.49%
Money market accounts........ 6,353 3.09% 5,578 43 3.13% 5,288 42 3.22%
Other interest bearing
deposits.................... 2,594 2.00% 2,585 12 1.88% 2,491 13 2.12%
-------- -------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities............. 171,497 168,971 1,733 4.16% 167,844 1,781 4.30%
Non-interest bearing deposits... 20,429 19,349 16,035
Other liabilities............... 3,414 5,359 3,104
-------- -------- --------
Total liabilities............ 195,340 193,679 186,983
Equity.......................... 28,939 28,929 27,828
-------- -------- --------
Total liabilities and
equity...................... $224,279 $222,608 $214,811
======== ======== ========
Net interest income............. 2,083 2,026
Net interest rate spread(3)..... 3.31% 3.47%
Net interest margin (4)......... 4.08% 4.13%
Ratio of interest-earning
assets to interest-bearing
liabilities................. 1.23x 1.18x
Tax equivalent adjustment on
securities..................... 86 0
------ ------
Interest income per
consolidated financial
statements..................... $1,997 $2,026
====== ======
</TABLE>
(Notes appear on following page.)
40
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- -------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- -------- --------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets: (Dollars in thousands)
Interest-earning assets:
Loans(1)................... 132,282 11,334 8.57% 133,262 11,532 8.65% 137,891 12,063 8.75%
Securities(2).............. 56,585 3,627 6.41% 53,566 3,341 6.24% 51,242 3,056 5.96%
Federal funds sold &
other interest bearing
deposits.................. $ 13,298 $ 713 5.36% $ 12,248 $ 669 5.46% $ 9,521 $ 510 5.36%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets................ 202,165 15,674 7.75% 199,076 15,542 7.81% 198,654 15,629 7.87%
Noninterest-earning assets.... 15,989 16,224 16,891
-------- -------- --------
Total Assets........... 218,154 215,300 215,545
Liabilities and Equity:
Interest-bearing liabilities:
Savings accounts........... 75,438 2,340 3.10% 75,845 2,354 3.10% 77,695 2,417 3.11%
Time deposits.............. 84,497 4,624 5.47% 86,105 4,709 5.47% 87,725 4,860 5.54%
Money market accounts...... 5,596 180 3.22% 6,160 202 3.28% 4,960 162 3.27%
Other interest bearing..... 2,732 59 2.16% 2,295 46 2.00% 2,324 48 2.07%
deposits.................. -------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities........... 168,263 7,203 4.28% 170,405 7,311 4.29% 172,704 7,487 4.34%
Non-interest bearing deposits. 18,064 15,643 15,016
Other liabilities............. 3,280 2,689 2,599
-------- -------- --------
Total liabilities.......... 189,607 188,737 190,319
Equity........................ 28,547 26,563 25,226
-------- -------- --------
Total liabilities and
equity.................... $218,154 $215,300 $215,545
======== ======== ========
Net interest income........... 8,471 8,231 8,142
Net interest rate spread(3)... 3.47% 3.52% 3.53%
Net interest margin (4)....... 4.19% 4.13% 4.10%
Ratio of interest-earning
assets to interest-bearing
liabilities.................. 1.20x 1.17x 1.15x
Tax equivalent adjustment on
securities................... 163 0 0
------- ------- -------
Net interest income per
consolidated financial
statements................... $ 8,308 $ 8,231 $ 8,142
======= ======= =======
</TABLE>
_____________________
(1) Amounts are net of allowance for loan losses but include non-accrual loans.
Interest is recognized on non-accrued loans only as and when received.
(2) Securities are included at amortized cost, with net unrealized gains or
losses on securities available for sale included as a component of non-
interest-earning assets. Securities include Federal Home Loan Bank of New
York stock. Tax equivalent adjustment for Bank qualified municipals is also
included.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
41
<PAGE>
Rate/Volume Analysis. The following table analyzes the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It shows the amount
of the change in interest income or expense caused by either changes in
outstanding balances (volume) or changes in interest rates. The effect of a
change in volume is measured by applying the average rate during the first
period of the volume change between the two periods. The effect of changes in
rate is measured by applying the change in rate between the two periods to the
average volume during the first period. Changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
Increase/(Decrease) Increase/(Decrease)
Due to Due to
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
-------- -------- ------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans........................... $ 76 $ (86) $ (10) $ (88) $ (110) $ (198)
Securities...................... 29 (18) 11 193 93 286
Federal funds sold & other
interest bearing deposits..... 34 (26) 8 57 (13) 44
----- ------ ----- ------ ------ ------
Total interest-earning assets. 139 (130) 9 162 (30) 132
Interest-bearing liabilities:
Savings accounts................ 15 0 15 (14) - (14)
Time deposits................... (15) (48) (63) (85) - (85)
Money market accounts........... 2 (1) 1 (18) (4) (22)
Other interest bearing deposits. - (1) (1) 9 4 13
----- ------ ----- ------ ------ ------
Total interest-bearing
liabilities................... 2 (50) (48) (108) - (108)
----- ------ ----- ------ ------ ------
Net change in net interest income.. $ 137 $ (80) $ 57 $ 270 $ (30) $ 240
===== ====== ===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 vs. 1996
Increase/(Decrease)
Due to
------------------------------
Volume Rate Net
--------- ------ -------
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Loans........................... $ (396) $ (135) $ (531)
Securities...................... 139 146 285
Federal funds sold & other
interest bearing deposits..... 149 10 159
------ ------ ------
Total interest-earning assets. (108) 21 (87)
Interest-bearing liabilities:
Savings accounts................ (56) (7) (63)
Time deposits................... (90) (61) (151)
Money market accounts........... 39 1 40
Other interest bearing deposits. (1) (1) (2)
------ ------ ------
Total interest-bearing (108) (68) (176)
liabilities................... ------ ------ ------
Net change in net interest income.. $ - $ 89 $ 89
====== ====== ======
</TABLE>
42
<PAGE>
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Rome Savings' total assets decreased $994,000 or .4% to $224.3 million at
March 31, 1999, from $225.3 million at December 31, 1998.
Although total assets decreased over the three month period, total loans,
net of the allowance for loan losses, remained essentially unchanged at $135.0
million at March 31, 1999, versus $134.8 million at December 31, 1998. The
modest increase for the first quarter in net loans reflected normal seasonal
patterns in the Bank's lending area. Almost 70% of our loan portfolio is in
mortgage loans which typically do not see significant origination activity until
the spring season.
Securities decreased $2.2 million or 3.9% to $54.3 million at March 31,
1999 from $56.5 million at December 31, 1998. This decline reflected the
relative lack of attractiveness of fixed income security yields compared to
prior periods when the spread in yield between these securities and the Bank's
interest bearing deposits was greater. Federal funds sold, which are overnight
investments, decreased $1.4 million or 10.4% to $12 million at March 31, 1998.
Levels of federal funds sold may vary significantly as they represent our daily
investment of excess liquidity.
The balance of total deposits increased $2.8 million or 1.5% to $191.9
million at March 31, 1998. This growth occurred primarily in savings accounts
which increased $2.5 million or 3.2% to $78.4 million at March 31, 1999 and
money market accounts which increased $930,000 or 17.1% to $6.4 million. These
increases reflected the relative attractiveness in yield of these non-maturity
accounts to alternative money market investments available to our depositors as
a result of the relatively "flat yield curve" in interest rates existing during
that period.
Total equity increased $277,000 or 1.0% to $28.9 million primarily as a
result of earnings of $389,000 for the quarter offset by a decrease of $112,000
in the unrealized gain in the Bank's available for sale securities for the
quarter.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998.
General
Net income was $389,000 for the first quarter of 1999, a decrease of
$92,000 or 19.1% compared to $481,000 for the first quarter of 1998. The
decrease was primarily attributable to an increase in non-interest expense and a
decrease in non-interest income; these changes were partially offset by a
$151,000 decrease in income tax expense.
Interest Income
Total interest income decreased $77,000 or 2.0% to $3.7 million for the
first quarter of 1999 compared with $3.8 million for the first quarter of 1998.
In the second quarter of 1998 however, Rome Savings began purchasing municipal
securities for their higher after tax yield in
43
<PAGE>
comparison to comparable risk taxable securities. After giving effect to the
reduction in state and federal income taxes from these securities, interest
income increased $9,000 or .2% to $3.8 million for the three months ended March
31, 1999. The increase in tax equivalent interest income occurred as a result of
an $8.2 million increase in earning assets from $198.8 million for the first
three months of 1998 to $207.0 million for the first three months of 1999. This
increase was spread across all of the three major earning assets categories. The
increase in interest income resulting from the increase in average balances was
partially offset by a reduction in yield on the Bank's earning assets from 7.77%
for the first quarter of 1998 to 7.47% for the first quarter of 1999. The lower
interest rate environment along with the relatively flat yield curve that
prevailed during 1998 and the first quarter of 1999 resulted in the downward
repricing of our interest rate-sensitive assets. In addition, the average yield
on our assets was affected by the refinancing of many of our existing loans to
loans with lower interest rates.
Reported interest income from securities decreased $75,000 from $808,000
for the three months ended March 31, 1998 to $733,000 or 10.23% for the three
months ended March 31, 1999. Interest on loans decreased $10,000 or .4% to $2.8
million for the same period. While total net loans outstanding actually
increased from an average of $131.6 million in the first quarter of 1998 to
$135.2 million in the first quarter of 1999, the average yield on the portfolio
declined from 8.6% to 8.4% due primarily to general declines in interest rates.
Finally, interest on federal funds sold and interest bearing deposits increased
$8,000 or 4.8% to $175,000. This increase resulted from a $2.7 million increase
in these temporary investments which was partially offset by a decline in their
yield from 5.5% for the first quarter of 1998 to 4.7% for the first quarter of
1999.
Interest Expense
Interest expense on deposits decreased $48,000 or 2.7% to $1.7 million for
the first three months of 1999 in comparison to the same period in 1998.
Interest expense on time deposits which accounted for 63.0% of interest expense
on deposits, decreased $63,000 or 5.5% to $1.1 million for the first three
months of 1999. The decrease in interest expense on time deposits was partially
offset by a $15,000 or 2.6% increase in interest expense on savings accounts to
$587,000 for the first quarter of 1999.
The overall decrease in interest expense was attributable to a 14 basis
point decrease in the average cost of those liabilities to 4.16% for the first
quarter of 1999 compared with 4.30% for the first quarter of 1998. This
decrease reflects the overall lower interest rate environment that prevailed
during the end of 1998 and the first quarter of 1999. The decrease in the cost
of interest-bearing liabilities was offset by an increase of $1.1 million, or
.7%, in the average balance of total interest-bearing liabilities to $169.0
million for the first three months of 1999 compared with $167.8 million for the
first three months of 1998. The major component of the increase in the average
balance of interest-bearing liabilities was a $1.9 million, or 2.5%, increase to
$76.7 million in the average balance of savings deposits during the first
quarter of 1999 compared with an average balance of $74.8 million during the
first quarter of 1998.
44
<PAGE>
Net Interest Income
Net interest income for the first quarter of 1999 decreased $29,000 or
1.4%, to $2.0 million compared with $2.03 million for the first quarter of 1998.
Net interest rate spread, the difference between the yield on average total
interest-earning assets and the cost of average total interest-bearing
liabilities, decreased 16 basis points to 3.31% for the first three months of
1999 from 3.47% for the prior year. Net interest margin, represented by net
interest income divided by average total interest-earning assets, decreased 5
basis points to 4.08% for the first three months of 1999 compared with 4.13% for
1998. These decreases were primarily due to slight declines in the interest
rates we paid on our interest-bearing deposits, while interest-earning assets
continued to reprice downward more significantly during the same time period.
Provision for Loan Losses
The provision for loan losses results from management's analysis of the
adequacy of the Bank's allowance for loan losses. If management determines that
an increase in the allowance is warranted then the increase in accomplished
through a provision for loan losses which is charged as an expense on the Bank's
income statement. The Bank did not make any provision for loan losses during
the first quarter of 1999 in comparison to $75,000 for the first quarter of
1998. During 1999, the Bank believed that no additional provision for loan
losses was required in light of the level of its allowance at the beginning of
1999, a decline in total non-performing loans during 1998 and 1999 from much
higher levels during the four prior years and other factors. Management believed
the March 31, 1999 allowance for loan losses to be adequate at 1.39% of total
loans.
Future provisions for loan losses will continue to be based upon our
assessment of the overall loan portfolio and the underlying collateral, trends
in non-performing loans, current economic conditions and other relevant factors
in order to maintain the allowance for loan losses at adequate levels to provide
for probable losses. Rome Savings also takes into account the local economy and
real estate values in determining the provision for loan losses.
Non-Interest Income
Non-interest income includes service fees, other income and net gains on
sales of securities. Total non-interest income decreased $82,000 or 24.4%, to
$254,000 for the first three months of 1999 compared with $336,000 for the first
three months of 1998. The decrease is primarily due to the absence in the first
quarter of 1999 of any gains on net securities transactions, whereas we realized
gains of $139,000 on net securities transactions in the prior year's first three
months. In the first quarter of 1998, substantially all of this gain was from
the sale of shares in one "large cap" institutional mutual fund.
45
<PAGE>
Non-Interest Expense
Total non-interest expense increased $207,000 or 14.0%, to $1.7 million
during the first quarter of 1999 compared with $1.5 million for the quarter
ended March 31, 1998. Salaries and employee benefits and net building,
occupancy and equipment expense comprised 75.2% of total non-interest expense
for the first quarter of 1999. Salaries and employee benefits increased
$173,000 or 23.2% to $920,000 for the first quarter of 1999 compared with
$747,000 for the first quarter of 1998. Of this increase, $55,000 represented a
vacation accrual for all employees while pension expense increased $46,000. The
latter was principally related to the final amortization of the transition asset
in 1998. The balance of the increase of $72,000 represented routine salary
increases as well as increased costs for the Bank's post employment benefits
other than pensions. Equipment expense increased $70,000 or 56% to $194,000 in
the first quarter of 1999 as compared to $124,000 in the first quarter of 1998.
The increase was largely attributable to the Bank's installation of new software
and hardware to replace aging equipment, ensure Year 2000 readiness, and to
expand its customer services.
Income Taxes
Income tax expense decreased $151,000 to $174,000 for the first three
months of 1999 compared with $325,000 for the first three months of 1998. This
decrease reflected a lower pretax income for the three months ending March 31,
1999 of $563,000 compared with $806,000 for the same period in 1998. It also
reflected a decline in the Bank's effective tax rate to 30.9% for the first
three months of 1999 from 40.3% for the first three months of 1998. The decline
in the effective tax rate reflects the Bank's decision to invest in nontaxable
municipal bonds.
Comparison of Financial Condition at December 31, 1998 and 1997
Rome Savings' total assets increased $10.9 million, or 5.1%, to $225.3
million at December 31, 1998 from $214.4 million at December 31, 1997.
At December 31, 1998, loans had increased $4.1 million, or 3.1%, to $136.8
million, while securities available for sale remained essentially unchanged at
$55 million. Securities held to maturity decreased $209,000 to $1.5 million at
December 31, 1998. Federal funds sold increased $4.6 million, or 52.3%, to
$13.4 million at December 31, 1998 from $8.8 million at December 31, 1997.
The growth in total assets was funded primarily by an increase of $4.6
million, or 2.5%, in total deposits to $189.1 million at December 31, 1998
compared with $184.5 million at December 31, 1997. Non-interest bearing demand
accounts increased $4.0 million or 24.6% to $20.2 million at December 31, 1998
compared with $16.2 million at December 31, 1997. This growth occurred as a
result of the Bank's marketing efforts to promote its recent conversion to
"free" personal checking accounts. Interest-bearing deposits increased
$643,000, or 0.4%, to $168.9 million at December 31, 1998, compared to $168.3
million at December 31, 1997. Of our interest-bearing deposits, savings and
money market deposits increased $1.5 million, or 1.9%, to $81.4 million at
December 31, 1998 from $79.9 million at December 31, 1997. The
46
<PAGE>
increase in savings and money market deposits at December 31, 1998 was partially
offset by a decrease in time deposits of $1.1 million, or 1.3%, to $84.7 million
compared with $85.8 million at December 31, 1997. Advance payments by borrowers
for property taxes and insurance and interest bearing checking made up the
balance of total deposits accounting for $2.8 million at December 31, 1998 and
$2.6 million at December 31, 1997.
Our total equity increased $1.9 million, or 7.0%, to $28.7 million at
December 31, 1998, from $26.8 million at December 31, 1997, due to the retention
of $1.5 million of net income for 1998, and an increase of $343,000 in other
comprehensive income related to unrealized gains on securities available for
sale.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General
Net income was $1.5 million for 1998, which is unchanged from 1997. A
$192,000 increase in non-interest expense was partially offset by a decrease in
income tax expense of $143,000.
Interest Income
Total interest income remained essentially unchanged at $15.5 million for
both 1998 and 1997. Total interest income increased $132,000 to $15.7 million
for 1998 compared to $15.5 million for 1997 after giving effect to the reduction
of state and federal income taxes from the municipal securities. The average
balance of earning assets increased $3.1 million. The yield on earning assets
decreased from 7.81% for 1997 to 7.75% for 1998 due to a general decline in
interest rates. Interest on loans decreased $198,000 or 1.7% to $11.3 million
in 1998 from $11.5 million in 1997 due to a decrease of $1.0 million in the
average balance of loans combined with a decline in their yield from 8.65% to
8.57%. Stagnant loan demand as a result of employment losses in the mid 1990s
has restrained the growth in the our loan portfolio. Interest on securities
increased $286,000 or 8.6%, to $3.6 million for 1998 from $3.3 million for 1997
while interest on federal funds sold and interest bearing deposits increased
$44,000 or 6.6% to $713,000 for 1998.
The average balance of securities increased $3 million or 5.6% in 1998 as
the Bank sought alternative deployment of excess funding from the increase in
deposits due to the timing of loan production. The yield on the Bank's security
portfolio increased to 6.41% in 1998 from 6.24% the year before because of
higher capital gains dividends from the Bank's investment in an institutional
stock mutual fund.
Interest Expense
Interest expense on deposits decreased $108,000 or 1.5%, to $7.2 million
for 1998 compared with $7.3 million for 1997. Interest expense on time
deposits, which accounted for
47
<PAGE>
64.2% of interest expense on deposits, decreased $85,000 or 1.8%, to $4.6
million for 1998 from $4.7 million for 1997. This decrease resulted from a
decline in the average balance of time deposits of $1.6 million to $84.5
million. Interest expense on other interest bearing deposits decreased $23,000
largely as a result of a decline in the average balance of savings and money
market accounts outstanding. Overall, the average cost of total interest bearing
deposits remained virtually unchanged at 4.28% for 1998 versus 4.29% for 1997.
Net Interest Income
Net interest income for 1998 was $8.3 million as compared with $8.2 million
for 1997. Net interest income on a tax equivalent basis for 1998 was $8.5
million as compared with $8.2 million for 1997. Net interest rate spread, the
difference between the yield on average total interest-earning assets and the
cost of average total interest-bearing liabilities, decreased 5 basis points to
3.47% for 1998 from 3.52% for the prior year. This decrease was primarily due
to slight declines in the interest rates we paid on our interest-bearing
deposits, while interest-earning assets continued to reprice downward more
significantly in 1998. Net interest margin, represented by net interest income
divided by average total interest-earning assets, increased 6 basis points to
4.19% for 1998 compared with 4.13% for 1997. This increase in margin occurred
as a result of the increase in the ratio of interest-earning assets to interest-
bearing liabilities from 1.17 times in 1997 to 1.20 times in 1998 which offset
the effect of the narrowing interest rate spread.
Provision for Loan Losses
During 1998, we provided $390,000 for loan losses, compared to $360,000 for
1997. Net loan charge-offs were $176,000 for 1998 versus $326,000 for 1997.
This resulted in the allowance for loan losses increasing by $214,000 or 12.3%
to $1.96 million at December 31, 1998, from $1.74 million at December 31, 1997.
The allowance for loan losses as a percent of non-performing loans at
December 31, 1998 was 210.1%, compared with 118.2% for 1997. This improvement
resulted form a decline in non-performing loans to $930,000 at December 31, 1998
from $1.5 million at December 31, 1997. In addition to the nonperforming loans,
management has identified, through normal internal credit review procedures,
$3.5 million of "potential problem loans" at December 31, 1998. These problem
loans are defined as loans not included as non-performing loans, but about which
management has developed information regarding possible credit problems, which
may cause the borrowers future difficulties in complying with loan repayments.
The current level of allowance for loan losses reflects risks related to the
weakness in the local economy and the recent decline in real estate values in
Oneida County as reflected by the City of Rome's decision to decrease property
tax assessments in 1998.
Future provisions for loan losses will continue to be based upon our
assessment of the overall loan portfolio and the underlying collateral, trends
in non-performing loans, current
48
<PAGE>
economic conditions and other relevant factors in order to maintain the
allowance for loans losses at adequate levels to provide for probable losses.
Non-Interest Income
Non-interest income included service charges, other income and net gains on
sales of securities. Total non-interest income was essentially unchanged from
1997 to 1998.
Service charges increased $45,000 or 8.7%. Securities gains increased
$157,000 or 100.0% to $314,000. These gains reflect realized gains on the sale
of fixed income and stock mutual fund investments.
Finally, other income decreased $213,000 or 50.8% reflecting a decrease of
$125,000 in income from other real estate owned and a $55,000 decrease
representing a recovery in 1997 of an investment in Nationar, a former
correspondent bank which was closed by the New York Superintendent of Banks in
1995.
Non-Interest Expense
Total non-interest expense increased $192,000 or 3.0%, to $6.6 million
during 1998 compared with $6.4 million for the prior year. Salaries and employee
benefits accounted for 71.4% of the increase rising to $3.3 million in 1998 from
$3.1 million in the prior year. Of this, $80,000 was related to the
implementation of a supplemental executive retirement plan for senior management
while the remainder represented routine salary increases. Building, occupancy,
and equipment expenses increased $93,000 or 8.5% to $1.2 million from $1.1
million in the prior year reflecting higher equipment costs related to the
Bank's installation of new computer equipment to assure its readiness for the
year 2000 and to improve customer service.
Income Taxes
Income taxes decreased $143,000 or 14.4% to $853,000 from $996,000 in the
prior year resulting in effective tax rates of 35.9% in 1998 and 39.3% in 1997,
respectively. The decrease in the effective tax rate reflects our decision to
invest in nontaxable municipal bonds during 1998.
Liquidity and Capital Resources
The term "liquidity" refers to our ability to generate adequate amounts of
cash to fund loan originations, loan purchases, deposit withdrawals and
operating expenses. Our primary sources of funds are deposits, scheduled
amortization and prepayments of loan principal and mortgage-backed securities,
maturities and calls of investment securities and funds provided by our
operations. We also have a written agreement that allows us to borrow up to
$25.0 million in federal funds from a correspondent bank. In addition, we may
enter into reverse repurchase
49
<PAGE>
agreements with approved broker-dealers. Reverse repurchase agreements are
agreements which allow us to borrow money using our securities as collateral. At
March 31, 1999, we had no outstanding borrowings.
Loan repayments and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic conditions and
competition in the marketplace. These factors reduce the predictability of the
timing of these sources of funds.
Our primary investing activities are the origination of one- to four-family
real estate loans, commercial real estate, commercial, consumer installment
loans, and to a lesser extent, the purchase of investment securities. For the
year ending December 31, 1998, we originated loans of approximately $36.0
million and during the year ending December 31, 1997 we originated loans of
approximately $24.8 million. Purchases of investment securities were $20.9
million for 1998 and $20.3 million for 1997.
At March 31, 1999, Rome Savings had loan commitments to borrowers of
approximately $4.1 million, and available letters and lines of credit of
approximately $5.1 million. Total deposits increased $4.6 million during 1998
and $83,000 during 1997. Deposit flows are affected by the level of interest
rates, the interest rates and products offered by competitors and other factors.
Time deposit accounts scheduled to mature within one year were $54.9 million at
December 31, 1998. Based on our deposit retention experience and current
pricing strategy, we anticipate that a significant portion of these time
deposits will remain with Rome Savings. We are committed to maintaining a
strong liquidity position; therefore, we monitor our liquidity position on a
daily basis. We anticipate that we will have sufficient funds to meet our
current funding commitments.
At March 31, 1999, we exceeded each of the applicable regulatory capital
requirements. Our leverage (Tier 1) capital was $28.3 million, or 12.8% of
average assets, at March 31, 1999. In order to be classified as "well-
capitalized" by the FDIC we were required to have leverage (Tier 1) capital of
$11.1 million, or 5.0%. To be classified as a well-capitalized bank by the
FDIC, we must also have a risk-based total capital ratio of 10.0%. At March 31,
1999 we had a risk-based total capital ratio of 23.0%. See "Regulation of Rome
Savings Bank and Rome Bancorp" for a discussion of the regulatory capital
requirements applicable to Rome Savings and see "Regulatory Capital Compliance"
for information regarding the impact of the offering on our capital position.
We do not anticipate any material capital expenditures, nor do we have any
balloon or other payments due on any long-term obligations or any off-balance
sheet items other than the commitments and unused lines of credit noted above.
50
<PAGE>
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 requires the calculation of basic and diluted earnings per
share. It establishes rules for calculating diluted earnings per share based
upon the effect of agreements by publicly traded companies to issue additional
stock. SFAS No. 128 is now effective and will require Rome Bancorp, after the
conversion, to report in addition to basic earnings per share, fully diluted
earnings per share which would show, for example, the effect on earnings per
share of the exercise of outstanding stock options, if any.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes comprehensive
accounting and reporting requirements for derivative instruments and hedging
activities. The statement requires companies to recognize all derivatives as
either assets or liabilities, with the instruments measured at fair value. The
accounting for gains and losses resulting from changes in fair value of the
derivative instrument depends on the intended use of the derivative and the type
of risk being hedged. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000, although earlier adoption is
permitted. The Company does not currently invest in derivative instruments,
therefore the provisions of SFAS No. 133 are not expected to have a significant
effect on the financial statements of the Company. SFAS No. 133 also permits
certain reclassifications of securities among the trading, available-for-sale
and held-to-maturity classifications. The Company has no current intention to
reclassify any securities pursuant to SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities". This statement conforms the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the accounting for such
securities by a non-mortgage banking enterprise. This statement is effective
for the first quarter beginning after December 15, 1998, and did not have any
impact on our financial position or results of operations as we do not currently
securitize mortgage loans.
Year 2000
Background. A significant challenge that is confronting the business
community, including Rome Savings and its competitors, centers on the inability
of many computer systems and software applications to recognize the Year 2000
(referred to as the "Y2K issue"). Many existing computer systems and software
applications originally were programmed to provide only two digits to identify
the calendar year. With the Year 2000 (Y2K) approaching, these systems and
applications may recognize "00" as 1900 rather than the Year 2000. If the Y2K
issue is not resolved, our operations could be adversely affected due to the
date-sensitive nature of much of our financial information.
51
<PAGE>
Risk. Similar to other financial institutions and companies that utilize
computer technology, our operations may be significantly affected by the Y2K
issue because of our reliance on electronic data processing technology and date-
sensitive information. The Y2K issue also impacts other aspects of our non-
technical business processes, including telephone systems and copiers. If the
Y2K issue is not adequately addressed, and systems are not modified to properly
identify the Year 2000, computer systems and software applications may fail or
create erroneous information.
If we are affected by the Y2K issue, information that relies on dates, such
as interest calculations, loan payment schedules and other operating functions,
could be significantly incorrect. We may not be able to process withdrawals or
deposits, prepare account statements, or engage in any of the many transactions
that constitute our normal operations. Our inability to adequately address the
Y2K issue could also have a significant adverse effect on our suppliers and
service providers. Should we experience a Y2K failure that cannot readily be
fixed, it may result in a significant adverse impact on our financial condition
and results of operations.
State of Readiness. In order to address the Year 2000 issue, we have begun
a process to identify the areas that will be affected by the Year 2000 problem.
We formed a basic action plan in September 1997 to evaluate the effects of the
Year 2000 on Rome Savings and to formulate a contingency plan for any critical
systems which are not effectively reprogrammed. As discussed below, we believe
that we have considered all material Year 2000 issues and that we are taking the
proper action to correct them.
Our action plan for the Year 2000, in accordance with regulatory guidance,
outlines our plans to achieve a successful transition to the Year 2000. The
following summarizes the various phases of our Y2K plan:
Awareness Phase - This initial phase of the Y2K project involved
---------------
defining the problem, obtaining executive level support and developing an
overall strategy. This phase was completed in September, 1997.
Assessment Phase - During this phase, we developed an inventory
----------------
listing of all internal computer systems and software applications, as well
as third-party vendors and suppliers upon whom we rely for goods and
services. We decided to fix, upgrade, replace or abandon any systems that
we identified as having Y2K issues. The status of individual items changes
as systems go through subsequent phases. This assessment phase of the
project is substantially complete.
We have reviewed our customer base to determine if they pose any
significant Y2K risks. Our customer base consists primarily of individual
depositors and residential mortgage borrowers. We also have commercial
borrowers in our customer base. We do not anticipate any significant Y2K
risks posed by our potential borrwowers, as many of our loans are
collateralized by the underlying property. These customers are not likely
to pose significant Y2K risks to our operations. However, it is not
possible at this time to
52
<PAGE>
evaluate the indirect costs which could be faced if the employers of our
individual customers encounter unresolved Y2K issues.
Renovation Phase - As previously discussed, our most mission critical
----------------
system is the integrated financial systems software package that includes
our loans, deposits, general ledger and other miscellaneous applications.
This integrated main frame software system was developed by Data
Dimensions, Inc. ("DID"), and is currently maintained and supported by, a
recognized provider. The mainframe computer system was also manufactured
by, and is currently maintained by, a well-known national computer hardware
company.
We continue to monitor the Y2K progress of those third-parties who
provide us with services or products to ensure that they are taking
adequate measures in addressing the Y2K issue. We are seeking written
assurances from these third-parties as to their current Year 2000
compliance or that they are in the process of addressing the Y2K issue.
However, we can not assure you that these third-parties will be prepared
for the Y2K issue. The failure of these third-parties to achieve Y2K
compliance may have an adverse impact on our operations.
Validation/Implementation Phases - The validation phase is considered
--------------------------------
to be the most critical stage of the Y2K readiness process. It is designed
to test the ability of the renovated systems to accurately process date
sensitive data. All Y2K compliant upgraded systems have been installed and
put into production. This phase was substantially completed as of March
31, 1999.
Use of Resources. Managing the Year 2000 project has resulted in
additional direct and indirect costs. Direct costs include charges by third-
party software vendors for product replacements, upgrades and enhancements,
costs involved in testing for Y2K compliance, costs for customer awareness
programs, etc. Indirect costs consist primarily of time devoted to the project
by existing employees for project development and implementation, the testing of
systems, monitoring third-party vendor and service provider progress, and the
development of contingency plans. The costs of the Y2K project have not been
significant to date, and we believe that the total cost of the project will not
be material to our results of operations or financial condition in any one year.
We currently estimate that the total cost of the Y2K project, excluding the
reallocation of internal resources, will be approximately $575,000, of which we
have already incurred $565,000. We cannot guarantee that the Y2K costs would
not result in additional costs to Rome Savings in the future.
Contingency Planning. Regulatory guidance requires that we consider two
types of contingency planning:
(1) remediation contingency planning, which addresses the failure of an
institution to successfully fix, test or implement its Y2K readiness
plan; and
53
<PAGE>
(2) business resumption contingency planning, which addresses the risks
associated with the failure of systems at critical dates, such as
January 1, 2000.
The regulatory guidance provides that if a mission critical application or
system has been remediated, tested and implemented, a remediation contingency
plan is not required. Based on the overall progress of our Y2K project,
specifically the testing and implementation results relative to the integrated
financial systems software package, our Review Team has concluded that a
remediation contingency plan is not required for mission critical applications.
While we expect to complete our Y2K project in a timely manner, we can not
guarantee that the systems of companies with whom we conduct business, will also
be completed in a timely manner. The failure of these entities to adequately
address the Y2K issue could adversely affect our ability to conduct business.
In the event that these entities do not adequately address the Y2K issue, we do
not believe that we will have enforceable actions against them.
To address the risks associated with the failure of mission critical
systems at critical dates, we are currently developing a business resumption
contingency plan. We are developing contingency or alternate plans for our
mission critical systems on a department-by- department basis in anticipation of
potential unplanned system difficulties or third-party failures at January 1,
2000 or dates beyond. However, we understand that certain events beyond our
control, such as extended power outages and loss of telecommunications, may
diminish our ability to provide minimum levels of service. Failure of these
services will affect companies, individuals and the government, and can not be
remedied by anyone other than the responsible party. For some systems,
contingency plans will consist of using or reverting to manual systems until the
problems can be corrected. In accordance with regulatory guidance, we completed
our business resumption contingency plan as of June 30, 1999. We do not
anticipate any adverse material impact on our operations as a result of the Y2K
issue.
Significant Y2K failures in the our systems or in the system's third
parties (or third parties upon whom they depend) could have a material adverse
effect on our financial condition and results of operation. Rome Savings
believes that its reasonably likely worst-case Y2K scenario is (i) a material
increase in the our credit losses due to Y2K problems for the Rome Savings'
borrowers and obligors, and (ii) disruption in financial markets causing
liquidity stress to Rome Savings. The magnitude of these potential credit
losses and disruption cannot be determined at this time.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Rome Savings
have been prepared in accordance with generally accepted accounting principles
(GAAP). GAAP generally requires the measurement of financial position and
operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, our assets and liabilities are primarily monetary
in nature. As a result,
54
<PAGE>
changes in market interest rates have a greater impact on performance than the
effects of inflation.
BUSINESS OF ROME SAVINGS BANK
General
Rome Savings is a community and customer oriented retail savings bank
offering traditional deposit products, residential mortgage loans, commercial
real estate, commercial and consumer loans. In addition, Rome Savings purchases
securities issued by the U.S. Government and government agencies, municipal
securities, mortgage-backed securities, and other investments permitted by
applicable laws and regulations. We retain substantially all of the loans we
originate with the exception of the 30 year fixed-rate mortgages which we began
to originate under a program that was initiated in May, 1999.
Our revenues are derived principally from interest on our loans and
interest and dividends on our investment securities. Our primary sources of
funds are deposits, scheduled amortization and prepayments of loan principal and
mortgage-backed securities, maturities and calls of investment securities and
funds provided by operations. We have not borrowed funds in recent years. See
"Business of Rome Savings Bank" and " -- Source of Funds."
Market Area
We conduct our operations out of our executive office in Rome, New York and
three branches located in Oneida County, New York. As of June 30, 1998, we had
a 7.4% share of all Oneida County deposits and we ranked fifth in the size of
deposits overall in the county. In addition, we had a 38.7% share of all
deposits in Rome, New York, which ranked us first in the size of deposits
overall in Rome.
Our geographic market area for loans and deposits is principally Oneida
County, New York. The local economy is recovering from the loss of certain key
employers such as Griffiss Air Force Base in Rome and Martin Marietta in Utica.
As a result, the local market is not dependent on one key employer. For the six
month period ended September 30, 1998, 79.5% of the total employment of 106,002
in Oneida County was from private employers, while the remaining 20.5%
represented federal, state and local municipality employment. The employment
sectors include:
. services (excluding financial);
. wholesale and retail trade; and
. manufacturing.
55
<PAGE>
Similar to national trends, most of the job growth being realized in Oneida
County has been in service related industries and service jobs now account for
the largest portion of the workforce. Our market area also includes a growing
number of healthcare, engineering, software and technical firms which have
located in Oneida County in order to take advantage of the well-educated work
force consisting of current and former military and defense industry personnel.
Rome, New York is located 15 miles west of Utica and 50 miles east of Syracuse.
On occasion and depending on market conditions, we also originate loans in
the greater New York City metropolitan area and outside of New York State. At
March 31, 1999, 12.7% of our total loan portfolio consisted of loans located in
the New York City area, while 1.2% consisted of loans made outside of New York.
Our future growth opportunities will be influenced by growth and stability
in the regional and statewide economies, other demographic population trends and
the competitive environment. We believe that we have developed lending products
and marketing strategies to address the credit-related needs of the residents in
our market area.
Competition
We face intense competition both in making loans and attracting deposits.
New York has a high concentration of financial institutions, many of which are
branches of large money center and regional banks which have resulted from the
consolidation of the banking industry in New York and surrounding states. Some
of these competitors have greater resources than we do and may offer services
that we do not provide. For example, we do not provide trust or investment
services, or credit cards, and do not yet provide banking services through home
computers. Customers who seek "one stop shopping" may be drawn to these
institutions.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies,
insurance companies and brokerage and investment banking firms. Our most direct
competition for deposits has historically come from credit unions, commercial
banks, savings banks and savings and loan associations. We face additional
competition for deposits from short-term money market funds, corporate and
government securities funds, and from brokerage firms, mutual funds, and
insurance companies.
Lending Activities
Loan Portfolio Composition. Rome Savings has a long standing commitment to
originating for portfolio commercial real estate, commercial, and consumer loans
in addition to the traditional emphasis on residential lending.
At March 31, 1999, we had total loans of $136.9 million, of which $65.9
million, or 48.2%, were one- to four-family residential mortgages. Of
residential mortgage loans outstanding at that date, 27.4% were adjustable-rate
mortgage or ARM loans and 72.6% were fixed-rate loans. The remainder of our
loans at March 31, 1999, amounting to $70.9 million, or
56
<PAGE>
51.8% of total loans, consisted of commercial real estate, commercial loans and
consumer loans. We originate commercial real estate and commercial business
loans both within and outside of Oneida County, New York. As of March 31, 1999,
21.2% of our loan portfolio was in commercial real estate loans and 12.7% was in
commercial loans. In addition, as of March 31, 1999, 17.7% of our loan portfolio
was in consumer loans. We also originate guaranteed student loans.
Our loans are subject to federal and state law and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
57
<PAGE>
The following table sets forth the composition of the Bank's mortgage and
other loan portfolios in dollar amounts and in percentages at the dates
indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------- ---------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One to four family..................... $ 65,912 48.16% $ 65,752 48.06% $ 66,154 49.85%
Commercial real estate................. 29,033 21.21% 29,499 21.56% 28,440 21.43%
Construction & land.................... 324 0.24% 391 0.29% 936 0.70%
-------- ------ -------- ------ -------- ------
Total mortgage loans................ 95,269 69.61% 95,642 69.91% 95,530 71.98%
Commercial loans.......................... 17,328 12.66% 17,271 12.62% 15,197 11.45%
Consumer loans:
Automobile............................. 9,669 7.06% 9,460 6.92% 8,325 6.27%
Education loans........................ 5,610 4.10% 5,224 3.82% 5,226 3.94%
Property improvement and
equipment............................. 1,876 1.37% 2,108 1.54% 2,264 1.71%
All other.............................. 7,100 5.20% 7,099 5.19% 6,175 4.65%
-------- ------ -------- ------ -------- ------
24,255 17.73% 23,891 17.47% 21,990 16.57%
-------- -------- --------
Total loans............................... 136,852 100.00% 136,804 100.00% 132,717 100.00%
====== ====== ======
Less: Allowance for loan losses.......... 1,898 1,956 1,742
-------- -------- --------
Loans, net................................ $134,954 $134,848 $130,975
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- --------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Mortgage loans:
One to four family.................... $ 67,739 48.74% $ 64,020 45.40% $ 63,239 45.27%
Commercial real estate................ 31,830 22.90% 34,487 24.46% 34,200 24.48%
Construction & land................... 725 0.52% 983 0.70% 1,383 0.99%
-------- ------ -------- ------ -------- ------
Total mortgage loans............... 100,294 72.16% 99,490 70.56% 98,822 70.74%
Commercial loans......................... 18,374 13.22% 19,682 13.96% 20,178 14.44%
Consumer loans:
Automobile............................ 5,958 4.29% 5,746 4.08% 5,230 3.74%
Education loans....................... 6,378 4.59% 7,376 5.23% 5,767 4.13%
Property improvement and
equipment............................ 2,429 1.74% 2,578 1.83% 2,835 2.03%
All other............................. 5,560 4.00% 6,120 4.34% 6,870 4.92%
-------- ------ -------- ------ -------- ------
20,325 14.62% 21,820 15.48% 20,702 14.82%
-------- -------- --------
Total loans.............................. $138,993 100.00% 140,992 100.00% 139,702 100.00%
====== ====== ======
Less: Allowance for loan losses......... 1,708 1,645 1,579
-------- -------- --------
Loans, net............................... $137,285 $139,347 $138,123
======== ======== ========
</TABLE>
58
<PAGE>
Loan Maturity. The following table presents the contractual maturity of
our loans at March 31, 1999 and December 31, 1998. The table does not include
the effect of prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
At March 31, 1999
-------------------------------------------------------
Commercial and
Mortgage Loans Consumer Loans Total
---------------- ------------------ -----------
<S> <C> <C> <C>
(In thousands)
Amounts due:
Within one year........................ $ 557 $13,402 $ 13,959
After one year:
One to three years................. 2,955 8,715 11,670
Three to five years................ 3,863 10,883 14,746
Five to ten years.................. 22,940 7,618 30,558
Ten to twenty years................ 50,586 965 51,551
Over twenty years.................. 14,368 - 14,368
------- ------- --------
Total due after one year........ 94,712 28,181 122,893
------- ------- --------
Total loans..................... $95,269 $41,583 136,852
Allowance for loan losses.............. (1,898)
--------
Net loans....................... $134,954
========
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1999
---------------------------------------------------------
Commercial and
Mortgage Loans Consumer Loans Total
---------------- ------------------ -----------
<S> <C> <C> <C>
(In thousands)
Amounts due:
Within one year....................... $ 939 $13,299 $ 14,238
After one year:
One to three years................ 3,100 8,780 11,880
Three to five years............... 3,132 10,417 13,549
Five to ten years................. 22,567 7,846 30,413
Ten to twenty years............... 50,701 820 51,521
Over twenty years................. 15,203 - 15,203
------- ------- --------
Total due after one year....... 94,703 27,863 122,566
------- ------- --------
Total loans.................... $95,642 $41,162 136,804
Allowance for loan losses............. (1,956)
--------
Net loans...................... $134,848
========
</TABLE>
59
<PAGE>
The following tables present, as of March 31, 1999 and December 31, 1998,
the dollar amount of all loans, due after March 31, 2000 and December 31, 1999,
and whether these loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After March 31, 2000
---------------------------------
Fixed Adjustable Total
-------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Mortgage loans..................... $66,187 $28,525 $ 94,712
Commercial and consumer loans...... 26,637 1,544 28,181
------- ------- --------
Total loans due after one-year..... $92,824 $30,069 $122,893
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Due After December 31, 1999
---------------------------------
Fixed Adjustable Total
-------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Mortgage loans..................... $65,496 $29,207 $ 94,703
Commercial and consumer loans...... 26,236 1,627 27,863
------- ------- --------
Total loans due after one-year..... $91,732 $30,834 $122,566
======= ======= ========
</TABLE>
60
<PAGE>
The following table presents our loan originations, purchases, sales and
principal payments for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Year Ended December 31,
------------------------------------- ----------------------------------
1999 1998 1998 1997 1996
---------- ----------- ----------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total loans:
Balance outstanding at beginning of period........ $136,804 $132,717 $132,717 $138,993 $140,992
Originations:
Mortgage loans.................................... 2,442 2,789 13,890 7,237 15,188
Commercial and consumer loans..................... 4,841 4,459 21,178 17,524 17,551
-------- -------- -------- -------- --------
Total originations......................... 7,283 7,248 35,068 24,761 32,739
Less:
Principal repayments:
Mortgage loans.................................... (2,621) (2,438) (13,190) (10,802) (12,932)
Commercial and consumer loans..................... (4,112) (3,526) (15,492) (15,850) (15,556)
-------- -------- -------- -------- --------
Total principal payments................... (6,733) (5,964) (28,682) (26,652) (28,488)
Transfers to foreclosed real estate.................. (34) (52) (397) (910) (1,076)
Loan sales - guaranteed student loans................ (251) - (1,491) (2,816) (3,293)
Loans charged off.................................... (217) (14) (411) (659) (1,881)
-------- -------- -------- -------- --------
Balance outstanding at end of period.............. $136,852 $133,935 $136,804 $132,717 $138,993
======== ======== ======== ======== ========
</TABLE>
Residential Mortgage Lending. We emphasize the origination of mortgage
loans secured by one- to four-family properties that serve as the primary
residence of the owner. As of March 31, 1999, loans on one- to four-family
residential properties accounted for $65.9 million, or 48.2%, of our total loan
portfolio. Of residential mortgage loans outstanding on that date, 27.4% were
ARM loans and 72.6% were fixed rate loans. Following the reorganization, we
will seek to expand our residential lending activities with the proceeds
received in the offering primarily through the marketing and sale to the
secondary market of 30 year fixed-rate mortgage loans. We believe that the
expansion of our residential lending will enhance our reputation as a service-
oriented institution which meets the needs of our local community.
Most of our loan originations are from existing or past customers, members
of our local communities or referrals from local real estate agents, attorneys
and builders. We believe that our branch offices are a significant source of
new loan generation.
Our mortgage loan originations are generally for terms from 10 to 20 years,
amortized on a monthly basis with interest and principal due each month.
Residential real estate loans may remain outstanding for significantly shorter
periods than their contractual terms as borrowers may refinance or prepay loans
at their option without penalty. Conventional residential
61
<PAGE>
mortgage loans granted by the Bank customarily contain "due-on-sale" clauses
which permit the Bank to accelerate the indebtedness of the loan upon transfer
of ownership of the mortgage property.
As of May 1, 1999, we began offering conventional mortgage loans for terms
of up to 30 years using standard Fannie Mae documents. Our current intention is
to sell qualifying fixed rate 30 year loans in the secondary market and to
continue retaining fixed rate loans with maturities of 20 years or less. We
lend up to a maximum loan-to-value ratio on mortgage loans secured by owner-
occupied properties of 80% of the lesser of the appraised value or purchase
price of the property, with the condition that private mortgage insurance is
required on loans with a loan-to-value ratio in excess of 80%. We lend up to a
maximum loan-to-value ratio of 90%. To a lesser extent we originate non-
conforming loans which are tailored for the local community, but which may not
satisfy the various requirements imposed by Fannie Mae. On occasion, the Bank
makes loans for the construction of a primary residence.
We also offer adjustable-rate mortgage loans with a maximum term of 30
years. Adjustable-rate loans offered by Rome Savings include loans which provide
for an interest rate which is based on the interest paid on U.S. Treasury
securities of corresponding terms plus a margin of up to 2.75%. We currently
offer adjustable-rate loans with initial rates below those which would prevail
under the foregoing computations, based upon our determination of market factors
and competitive rates for adjustable-rate loans in our market area. For
adjustable-rate loans, borrowers are qualified at the initial rate.
Our adjustable-rate mortgages include limits on increase or decrease in the
interest rate of the loan. The interest rate may increase or decrease by a
maximum 2.0% per adjustment with a ceiling rate over the life of the loan. The
retention of adjustable-rate mortgage loans in our loan portfolio helps reduce
exposure to changes in interest rates. However, there are unquantifiable credit
risks resulting from potential increased costs to the borrower as a result of
the pricing of adjustable-rate mortgage loans. During periods of rising
interest rates, the risk of default on adjustable-rate mortgage loans may
increase due to the upward adjustment of interest cost to the borrower.
During the year ended December 31, 1998, we originated $1.7 million in
adjustable-rate mortgage loans and $7.6 million in fixed-rate loans.
Approximately 34.6% of all residential loan originations during fiscal 1998 were
refinancings of loans already in our portfolio. At March 31, 1999, Rome
Savings' loan portfolio included $18.1 million in adjustable-rate one- to four-
family residential mortgage loans or 13.2% of our total loan portfolio, and
$47.9 million in fixed-rate one- to four-family residential mortgage loans, or
35.0% of our total loan portfolio.
Commercial Real Estate Loans. We originate commercial real estate loans to
finance the purchase of real property, which generally consists of developed
real estate. In underwriting commercial real estate loans, consideration is
given to the property's historic cash flow, current and projected occupancy,
location and physical condition. At March 31, 1999, our commercial real estate
loan portfolio consisted of 168 loans, totaling $29.0 million, or 21.2% of total
loans. Our largest loan is a commercial real estate loan with an outstanding
balance of $1.2 million at
62
<PAGE>
March 31, 1999 secured by a commercial property located in Westbury, New York.
The balance of the commercial real estate portfolio consists of loans which are
collateralized by properties in our normal lending area. To a lesser extent,
commercial real estate loans are secured by out of market properties. Our
commercial real estate loan portfolio is diverse, and does not have any
significant loan concentration by type of property or borrower. Our loan policy
specifies the threshold for industry concentration at 6% of assets. The largest
concentration of loans are those in the health care industry which compose
approximately 3% of the loan portfolio. We lend up to a maximum loan-to-value
ratio of 75% on commercial properties and require a minimum debt coverage ratio
of 1.25.
Commercial real estate lending involves additional risks compared with one-
to four-family residential lending. Because payments on loans secured by
commercial real estate properties are often dependent on the successful
operation or management of the properties, and/or the collateral value of the
commercial real estate securing the loan, repayment of such loans may be
subject, to a greater extent, to adverse conditions in the real estate market or
the economy. Also, commercial real estate loans typically involve large loan
balances to single borrowers or groups of related borrowers. Our loan policies
limit the amount of loans to a single borrower or group of borrowers to reduce
this risk.
Because of increased risks associated with commercial real estate loans,
commercial real estate loans generally have a higher rate and shorter term than
residential mortgage loans. Commercial real estate loans are generally offered
at variable rates tied to prime rate. The term of such loans generally does not
exceed 20 years.
Commercial Loans. In addition to commercial real estate loans, we also
engage in small business commercial lending, including business installment
loans, lines of credit and other commercial loans. We have worked to develop a
niche of making commercial loans to small and medium sized businesses in a wide
variety of industries located in and outside of our market area. At March 31,
1999, our commercial loan portfolio consisted of 472 loans, totaling $17.3
million, or 12.7% of total loans.
Unless otherwise structured as a mortgage on commercial real estate, such
loans generally are limited to terms of five years or less. Substantially all
such commercial loans have variable interest rates tied to the prime rate.
Whenever possible, we collateralize these loans with a lien on commercial real
estate, or alternatively, with a lien on business assets and equipment and the
personal guarantees from principals of the borrower. Interest rates on
commercial loans generally have higher yields than residential mortgages.
We offer commercial services administered by the Rome Savings commercial
loan department which are designed to give business owners borrowing
opportunities for modernization, inventory, equipment, construction,
consolidation, real estate, working capital, vehicle purchases and the
refinancing of existing corporate debt.
Commercial loans are generally considered to involve a higher degree of
risk than residential mortgage loans because the collateral may be in the form
of intangible assets and/or inventory subject to market obsolescence. Commercial
loans may also involve relatively large
63
<PAGE>
loan balances to single borrowers or groups of related borrowers, with the
repayment of such loans typically dependent on the successful operation and
income stream of the borrower. Such risks can be significantly affected by
economic conditions. In addition, commercial business lending generally requires
substantially greater oversight efforts compared to residential real estate
lending. We utilize the services of an outside consultant to conduct on-site
reviews of the commercial loan portfolio to ensure adherence to underwriting
standards and policy requirements.
Consumer Loans. The Bank offers a variety of consumer loans to meet
customer demand and the needs of the community and to increase the yield on its
loan portfolio. Consumer loans are generally offered at a higher rate and
shorter term than residential loans. Examples of our consumer loans include:
. property improvement loans;
. new and used automobile loans;
. recreational vehicles, boats and conversion vans;
. motorcycles, ATVs, snowmobiles and equipment loans;
. secured passbook loans, unsecured loans;
. property improvement loans;
. education loans; and
. mobile or manufactured home loans.
At March 31, 1999, the consumer loan portfolio totaled $24.3 million or 17.7% of
total loans. Consumer loans generally are offered for terms of up to five or 10
years, depending on the collateral, at fixed interest rates. We expect consumer
lending to be an area of gradual lending growth, with installment loans
continuing to account for the major portion of our consumer lending volume.
Auto loans currently comprise the largest portion of the consumer loan portfolio
at 39.9%, which consists primarily of loans for used cars.
We make loans secured by deposit accounts up to 90.0% of the amount of the
depositor's savings account balance. We also make other consumer loans, which
may or may not be secured. The terms of such loans vary depending on the
collateral.
We make loans for automobiles, both new and used, directly to the
borrowers. The term of automobile loans is generally limited to five years.
The financial terms of the loans are determined by the age and condition of the
collateral. We obtain a title lien on the vehicle and collision insurance
policies are required on all these loans. We pay a referral fee of no more than
$200 to automobile dealers who refer customers to us. There is no difference
in interest rates and terms for customers who are referred and those who are
not.
Consumer loans are generally originated at higher interest rates than
residential mortgage loans but also tend to have a higher credit risk than
residential loans due to the loan being unsecured or secured by rapidly
depreciable assets. Despite these risks, our level of consumer loan
delinquencies generally has been low. No assurance can be given, however, that
our delinquency rate on consumer loans will continue to remain low in the
future, or that we will not incur future losses on these activities.
64
<PAGE>
Loan Approval Procedures and Authority. As established by the Board of Trustees,
our lending policies provide that the maximum mortgage amount is $300,000, with
minimum mortgage amounts generally limited to $20,000. Once we receive a
completed application, each mortgage application is presented to the Residential
Mortgage Committee (which consists of bank officers) for approval. Loans over
$60,000 must also be presented to the Executive Committee or the Lending
Committee, which consists solely of Bank officers, for a second approval. All
commercial mortgages over $75,000 must be approved by the Lending Committee,
Executive Committee, or the Board of Trustees.
The following describes our current lending procedures. Upon receipt of a
completed loan application from a prospective borrower, we order a credit report
and we verify certain other information. If necessary, we obtain additional
financial or credit related information. We require an appraisal for all
mortgage loans including loans made to refinance existing mortgage loans.
Appraisals are performed by licensed or certified third-party appraisal firms
which have been approved by our Board of Trustees. We require title insurance
on all secondary market mortgage loans and certain other loans. We require
borrowers to obtain hazard insurance, and if applicable, we may require
borrowers to obtain flood insurance prior to closing. Available to borrowers is
the option to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which we make
disbursements for items such as real estate taxes, flood insurance, and private
mortgage insurance premiums, if required.
Asset Quality
One of our key operating objectives has been and continues to be to
maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, borrower workout arrangements and aggressive
marketing of foreclosed properties, we have been proactive in addressing problem
and non-performing assets. These strategies, as well as our high proportion of
one- to four-family mortgage loans, our maintenance of sound credit standards
for new loan originations and our loan administration procedures, have resulted
in historically low delinquency ratios and, in recent years, a reduction in non-
performing assets. These factors have helped strengthen our financial
condition.
Delinquent Loans and Foreclosed Assets. When a borrower fails to make required
payments on a loan, we take a number of steps to induce the borrower to cure the
delinquency and restore the loan to a current status. In the case of mortgage
loans, our mortgage servicing department is responsible for collection
procedures from the 15th day up to the 120th day of delinquency. A reminder
letter requesting prompt payment is sent on the 25th day. A late charge notice
is sent at 30 days. At 30 days we also attempt to establish telephone contact
with the borrower. If no contact is established, progressively stronger
collection letters are sent on the 45th and 55th days of delinquency. Late
charge notices are sent on the 30th and 60th days of the delinquency. Between
the 60th and 90th day of delinquency, if telephone contact has not been
established or if there has been mail returned, the collector or his assistant
makes a physical inspection of the property. When contact is made with the
borrower at any time prior to foreclosure, we attempt to obtain full payment of
the amount delinquent or work out a repayment schedule with the
65
<PAGE>
borrower in order to avoid foreclosure. It has been our experience that most
loan delinquencies are cured within 105 days and no legal action is taken.
We send the "right to cure" foreclosure notice when a loan is approximately
75 days delinquent. This contains a "right to cure" clause that gives our
customer the terms which must be met within 30 days of the date the letter is
sent in order to avoid foreclosure action. After this letter expires, we send
the loan to committee for approval to foreclose. We commence foreclosure if the
loan is not brought current by the 120th day of delinquency unless specific
limited circumstances warrant an exception. We hold property foreclosed upon as
other real estate owned. We carry foreclosed real estate at its fair market
value less estimated selling costs. If a foreclosure action is commenced and the
loan is brought current, paid in full or refinanced before the foreclosure sale,
we either sell the real property securing the loan at the foreclosure sale or
sell the property as soon thereafter as practical. The collection procedures
for Federal Housing Association (FHA) and Veterans' Administration (VA) one- to
four family mortgage loans follow the collection guidelines outlined by those
agencies.
The collection procedures for consumer, commercial, and other loans,
excluding student loans, include our sending periodic late notices and letters
to a borrower once a loan is past due. We attempt to make direct contact with a
borrower once a loan is 15 days past due. We follow the same collection
procedure as mortgages in our attempts to reach individuals by telephone and
sending them letters and notices. Supervisory personnel in our lending area and
in our collection area review loans 30 days or more delinquent on a regular
basis. If collection activity is unsuccessful after 120 days, we may charge off
a loan and/or refer the matter to our legal counsel for further collection
effort. Loans deemed uncollectable by our Collection Department are proposed
for charge-off. All loan charge-offs regardless of amount are to be approved by
the senior loan officer or the president of the bank. Those charge-offs in
excess of $2,500 must be approved by a second senior officer and reported to the
Executive Committee or the Lending Committee at its next scheduled meeting. The
collection procedures for guaranteed student loans follow those specified by
federal and state guidelines.
Our policies require that management continuously monitor the status of the
loan portfolio and report to the Board of Trustees on a monthly basis. These
reports include information on delinquent loans and foreclosed real estate and
our actions and plans to cure the delinquent status of the loans and to dispose
of the real estate.
66
<PAGE>
The following table sets forth the Bank's delinquent loans at the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------------------------
1999 1998
-------------------------------------------- ---------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------------------------------- --------------------- ---------------------
Principal Principal Principal Principal
No. of Balance No. of Balance No. of Balance No. of Balance
loans of Loans loans of Loans loans of Loans loans of Loans
------ --------- ------ ---------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Mortgage loans....... 2 $ 49 4 $ 131 3 $ 134 7 $ 455
Commercial loans..... 3 273 6 402 3 14 7 439
Consumer loans....... 13 42 9 42 12 54 13 36
--- ----- --- ---- --- ----- --- ------
Total................ 18 364 19 575 18 202 27 930
=== ===== === ==== === ===== === ======
Delinquent loans to
total loans......... 0.27% 0.42% 0.15% 0.68%
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------- --------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------------------------------- --------------------- --------------------
Principal Principal Principal Principal
No. of Balance No. of Balance No. of Balance No. of Balance
loans of Loans loans of Loans loans of Loans loans of Loans
------ --------- ------ ---------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Mortgage loans....... 6 $ 358 12 $ 933 5 $ 157 19 $ 2,263
Commercial loans..... 5 86 8 397 4 112 25 839
Consumer loans....... 35 95 38 144 47 157 27 150
--- ----- --- ----- --- ----- --- ------
Total................ 46 539 58 1,474 56 426 71 $3,252
=== ===== === ===== === ===== === ======
Delinquent loans to
total loans......... 0.41% 1.11% 0.31% 2.34%
</TABLE>
67
<PAGE>
Non-performing assets totaled $842,000 at March 31, 1999 compared with $1.2
million at December 31, 1998 and $3.1 million at December 31, 1997. Our
$575,000 in loans delinquent 90 days or more at March 31, 1999 were comprised
primarily of five commercial loans with an average principal balance of
approximately $78,000. At March 31, 1999, our largest loan delinquent 90 days
or more had a balance of $150,000.
The following table presents information regarding non-accrual mortgage and
consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated. If all non-accrual loans had
been performing in accordance with their original terms and had been outstanding
from the earlier of the beginning of the period or origination, we would have
recorded interest income on these loans of approximately $13,956 for the three
months ended March 31, 1999 and $88,098 for 1998, as compared to $4,771 and
$61,969, respectively, for these periods which was included in interest
income.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------ -------------------------
1999 1998 1997 1996 1995 1994
------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Nonaccruing loans:
Mortgage loans..................... $ 0 $ 355 $ 591 $ 959 $ 648 $1,335
Commercial loans................... 402 439 397 839 849 726
Consumer loans..................... 3 5 55 89 113 60
----- ------ ------ ------ ------ ------
Total.......................... 405 799 1,043 1,887 1,610 2,121
Accruing loans delinquent
90 days or more.................... 170 131 431 1,365 1,973 471
Total non-performing loans............ 575 930 1,474 3,252 3,583 2,592
Foreclosed real estate, net........... 267 294 1,626 1,450 1,570 2,383
Total non-performing assets........... 842 1,224 3,100 4,702 5,153 4,975
Non-performing loans to total loans... 0.42% 0.68% 1.11% 2.34% 2.54% 1.86%
Non-performing assets to total assets. 0.38% 0.54% 1.45% 2.22% 2.40% 2.43%
</TABLE>
With the exception of first mortgage loans insured or guaranteed by the FHA
or VA or for which the borrower has obtained private mortgage insurance, we stop
accruing income on loans when interest or principal payments are 90 days in
arrears or earlier when the timely collectibility of such interest or principal
is doubtful. We designate loans on which we stop accruing income as non-accrual
loans and we reverse outstanding interest that we previously credited. We may
recognize income in the period that we collect it, when the ultimate
collectibility of principal is no longer in doubt. We return a non-accrual loan
to accrual status when factors indicating doubtful collection no longer exist.
We define the population of impaired loans to be all non-accrual commercial
real estate and commercial loans greater than $250,000. Impaired loans are
individually assessed to determine whether a loan's carrying value is not in
excess of the fair value of the collateral or the present value of the loan's
cash flows. Smaller balance homogeneous loans that are collectively evaluated
for impairment, such as residential mortgage loans and consumer loans, are
68
<PAGE>
specifically excluded from the impaired loan portfolio. We had no loans
classified as impaired at March 31, 1999, and at December 31, 1998 and 1997. In
addition, at March 31, 1999 and December 31, 1998 and 1997, we had no loans
classified at troubled debt restructuring, as defined in SFAS No. 15.
Foreclosed real estate consists of property we acquired through foreclosure
or deed in lieu of foreclosure. Foreclosed real estate properties are initially
recorded at the lower of the recorded investment in the loan or fair value.
Thereafter, we carry foreclosed real estate at fair value less estimated selling
costs.
Allowance for Loan Losses. The following table sets forth activity in the
Bank's allowance for loan losses and other ratios at or for the dates indicated.
<TABLE>
<CAPTION>
At or For the Three
Months Ended
March 31, At or For the Years Ended December 31,
------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance at beginning of period........ $ 1,956 $ 1,742 $ 1,742 $ 1,708 $1,645 $1,579 $1,715
Provision for loan losses............. 0 75 390 360 1,850 767 300
Charge-offs:
Mortgage loans..................... 159 0 191 290 379 550 185
Commercial loans................... 48 6 111 247 1,364(1) 40 208
Consumer loans..................... 10 8 109 122 138 124 58
------- ------- ------- ------- ------ ------ ------
217 14 411 659 1,881 714 451
Recoveries............................ 159 46 235 333 94 13 15
Net charge-offs (recoveries).......... 58 (32) 176 326 1,787 701 436
Balance at end of period.............. 1,898 1,849 1,956 1,742 1,708 1,645 1,579
Ratio of net charge-offs to
average loans outstanding
during the period.................. 0.04% (0.02)% 0.13% 0.24% 1.28% 0.50% 0.29%
Allowance for loan losses as
a percent of loans................. 1.39% 1.38% 1.43% 1.31% 1.23% 1.17% 1.13%
Allowance for loan losses as
a percent of non-performing
loans.............................. 330.09% 123.02% 210.32% 118.18% 52.52% 45.91% 60.92%
</TABLE>
___________________
(1) Includes a $1.0 million loss from the fraud-related bankruptcy of a
commercial loan customer.
69
<PAGE>
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We
charge losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, known and inherent risks in the
loan portfolio, the estimated value of the underlying collateral and current
economic and market trends. There may be other factors that may warrant our
consideration in maintaining an allowance at a level sufficient to provide for
probable losses. Although we believe that we have established and maintained
the allowance for loan losses at adequate levels, future additions may be
necessary if economic and other conditions in the future differ substantially
from the current operating environment.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. These agencies, including the FDIC, may require us to
increase the allowance for loan losses or the valuation allowance for foreclosed
real estate based on their judgments of information available to them at the
time of their examination, thereby adversely affecting our results of
operations.
For the year ended December 31, 1998, we increased our allowance for loan
losses through a $390,000 provision for loan losses based on our evaluation of
the items discussed above. We did not provide for a provision for loan losses
for the three months ended March 31, 1999. Because of the recent decline in
non-performing assets, the Bank's ratio of allowance for loan losses as a
percentage of non-performing loans increased to 330.1% at March 31, 1999.
Despite this increase, the Bank believes that its allowance for loan losses
accurately reflects the level of risk in its loan portfolio. In addition to the
non-performing loans, management has identified, through normal internal credit
review procedures, $4.3 million in "potential problem loans" at March 31, 1999.
These problem loans are defined as loans not included as non-performing loans,
but about which management has developed information regarding possible credit
problems, which may cause the borrowers future difficulties in complying with
loan repayments. These problem loans are spread among nine lending
relationships, and are primarily commercial real estate and consumer loans.
Payments are current on $3.3 million, or 76.79% of these loans. The Bank will
continue to be aggressive in identifying, monitoring and resolving potential
problem loans. The current high level of the ratio of allowance for loans losses
to non-performing assets reflects the risks associated with the weakness of the
local economy and the continuing decline in real estate values in Oneida County
as reflected by the City of Rome's decision to decrease the tax assessment on
real property in 1998. In addition, the Bank believes that its historically low
level of non-performing assets reflects in part the high level of charge-offs
from 1994 to 1997 and does not necessarily reflect the level of risk in the
portfolio. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Three Months
Ended March 31, 1999 and 1998 and the Years Ended December 31, 1998 and 1997 --
Provision for Loan Losses."
70
<PAGE>
The following table presents our allocation of the allowance for loan
losses by loan category and the percentage of loans in each category to total
loans at the periods indicated.
<TABLE>
<CAPTION>
At March 31, 1999 At December 31, 1998
------------------------------------ -----------------------------------------------
Percentage of Loans in Percentage of Loans in
Allowance to Each Allowance to Each
Total Category to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount
------ ------------- ----------- ------ ------------- ------------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One to four family........... $ 341 17.96% 48.16% $ 331 16.92% 48.06% $ 405
Commercial real estate....... 680 35.83% 21.21% 792 40.49% 21.56% 684
Construction & land.......... 7 0.37% 0.24% 10 0.51% 0.29% 7
------ ------ ------ ------ ------ ------ ------
Total mortgage loans..... 1,028 54.16% 69.61% 1,133 57.92% 69.91% 1,096
Commercial loans................ 650 34.25% 12.66% 594 30.37% 12.62% 440
Consumer loans.................. 220 11.59% 17.73% 229 11.71% 17.47% 206
Total allowance for
loans losses........... 1,898 100.00% 100.00% 1,956 100.00% 100.00% 1,742
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997
---------------------------------
Percentage of Loans in
Allowance to Each
Total Category to
Allowance Total Loans
-------------- ------------
<S> <C> <C>
Mortgage loans:
One to four family........... 23.25% 49.85%
Commercial real estate....... 39.27% 21.43%
Construction & land.......... 0.40% 0.70%
------ ------
Total mortgage loans..... 62.92% 71.98%
Commercial loans................ 25.26% 11.45%
Consumer loans.................. 11.82% 16.57%
Total allowance for
loans losses........... 100.00% 100.00%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------------------------- ------------------------------------------
Percentage of
Allowance Loans in Percentage of Loans in
to Each Allowance to Each
Total Category to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
-------- ------------ ------------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans: (Dollars in thousands)
One to four family.............. $ 424 24.82% 48.74% $ 269 16.35% 45.40%
Commercial real estate.......... 654 38.29% 22.90% 734 44.62% 24.46%
Construction & land............. 8 0.47% 0.52% 11 0.67% 0.70%
------ ------ ------ ------ ------ ------
Total mortgage loans........ 1,086 63.58% 72.16% 1,014 61.64% 70.56%
Commercial loans................... 466 27.28% 13.22% 491 29.85% 13.96%
Consumer loans..................... 156 9.14% 14.62% 140 8.51% 15.48%
Total allowance for......... 1,708 100.00% 100.00% 1,645 100.00% 100.00%
loans losses
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
-----------------------------------------
Percentage of Loans in
Allowance to Each
Total Category to
Amount Allowance Total Loans
--------- -------------- --------------
<S> <C> <C> <C>
Mortgage loans:
One to four family................... 265 16.78% 45.27%
Commercial real estate............... 761 48.19% 24.48%
Construction & land.................. 14 0.89% 0.99%
----- ------ ------
Total mortgage loans............. 1,040 65.86% 70.74%
Commercial loans........................ 402 25.46% 14.44%
Consumer loans.......................... 137 8.68% 14.82%
Total allowance for.............. 1,579 100.00% 100.00%
loans losses
</TABLE>
71
<PAGE>
Investment Activities
The Board of Trustees reviews and approves our investment policy on an
annual basis. The Board of Trustees has delegated primary responsibility for
ensuring that the guidelines in the investment policy are followed by the
Treasurer/Chief Financial Officer. The Treasurer reports to the Asset Liability
Management Committee and to the Executive Committee between its monthly meeting
dates.
Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity within established guidelines.
In establishing our investment strategies, we consider our interest rate
sensitivity, the types of securities to be held, liquidity and other factors.
New York chartered savings banks have authority to invest in various types of
assets, including U.S. Government obligations, securities of various federal
agencies, obligations of States and Municipalities, mortgage-backed securities,
certain time deposits of insured banks and savings institutions, certain
bankers' acceptances, repurchase agreements, loans of federal funds, and,
subject to certain limits, corporate debt and equity securities, commercial
paper and mutual funds.
The specific goals of our investment policy include maintaining Rome
Savings' primary liquidity consisting of investments in federal funds, interest
bearing deposits, and fixed income investments maturing within one year less
non-deposit borrowings, in a range of 8% to 20% of total assets. At March 31,
1999 and December 31, 1998, our primary liquidity ratio was 13.95% and 14.7%,
respectively. For information regarding the carrying values, yields and
maturities of our investment securities, see "-- Carrying Values, Yields and
Maturities."
We classify securities as held to maturity or available for sale at the
date of purchase. Held to maturity securities are reported at cost, adjusted for
amortization of premium and accretion of discount. Available for sale
securities are reported at fair market value. We classify U.S. Government
securities and U.S. Government Agency securities, as available for sale. These
securities predominately have maturities of less than five years although the
Bank also invests in adjustable rate U.S. Government agency securities with
maturities up to 15 years. Our mortgage-backed securities, all of which are
directly or indirectly insured or guaranteed by Freddie Mac, GNMA or Fannie Mae,
consist of both 30 year securities and seven year balloon securities. The
latter are so named because they mature (i.e. balloon) prior to completing their
normal 30 year amortization. The 30 year mortgage backed securities are
classified as held to maturity while the seven year balloon securities are
classified as available for sale.
We also invest in state and municipal obligations with a maturity of ten
years or less rated at least AA by Moody's, Standard & Poors, or Fitch. We
invest in these securities because of their favorable after tax yields in
comparison to U.S. Government and U.S. Government Agency securities of
comparable maturity. These securities are classified as available for sale.
Finally, the Bank has investments in FHLB stock and other equity securities
which are classified as "available for sale." Equity securities represent an
investment in one institutional mutual fund which is exclusively available to
financial institutions.
72
<PAGE>
The following table presents our investment securities activities for the
periods indicated.
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, For the Year Ended December 31,
--------------------- --------------------------------
1999 1998 1998 1997 1996
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Carrying value at beginning of period
Available-For-Sale $55,036 $54,947 $ 54,947 $46,798 $ 43,787
Carrying value at beginning of period Held-
To-Maturity 1,472 1,681 1,681 1,525 1,619
------- ------- -------- ------- --------
Total value beginning of period............. 56,508 56,628 56,628 48,323 45,406
Purchases:
Available for sale.......................... 4,057 3 21,086 19,803 28,096
Held to Maturity............................ - - 107 448 129
Calls:
Available for sale.......................... (1,000) (1,000) (5,000) 0 0
Maturities:
Available for sale.......................... (5,000) (3,000) (16,000) (9,000) (15,840)
Sales:
Available for sale.......................... 0 (304) (607) (3,302) (8,884)
Principal repayments:
Available for sale.......................... (45) 0 0 0 0
Held to maturity............................ (52) (41) (314) (291) (222)
Premium & discount amortization; net:
Available for sale.......................... (6) 32 38 29 62
Held to maturity............................ 0 0 (2) (1) (0)
Change in unrealized gains..................... (186) 147 572 619 (424)
Net (decrease) increase in investment.......... (2,232) (4,163) (120) 8,305 2,917
securities
Carrying value at end of period AFS............ 52,856 50,825 55,036 54,947 46,798
Carrying value at end of period HTM............ 1,420 1,640 1,472 1,681 1,525
Total portfolio at end of period............... 54,276 52,465 56,508 56,628 48,323
</TABLE>
73
<PAGE>
The following table presents the composition of our money market
investments, investment securities and mortgage-backed securities portfolios in
dollar amount and in percentage of each investment type at the dates indicated.
It also presents the coupon type for the mortgage-backed securities portfolio.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------ ------------------------------
1999 1998
------------------------------ ------------------------------
Amortized Percent of Fair Amortized Percent of Fair
Cost Total (1) Value Cost Total (1) Value
--------- ---------- ----- --------- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity:
Mortgage-backed securities
GNMA......................... $ 669 1.26% $ 722 $ 718 1.30% $ 773
FHLMC........................ 30 0.06% 33 32 0.05% 36
U.S. Government Securities... 502 0.94% 510 502 0.91% 513
Other bonds.................. 219 0.41% 219 220 0.40% 220
------- ------ ------- ------- ------ -------
Total held to
maturity............. 1,420 2.67% 1,484 1,472 2.66% 1,542
------- ------ ------- ------- ------ -------
Available for sale:
U.S. Government securities... 19,022 35.75% 19,145 22,031 39.87% 22,242
U.S. Government agencies..... 10,286 19.33% 10,415 10,041 18.17% 10,138
State and Municipal
Obligations................ 13,092 24.61% 13,247 12,392 22.43% 12,660
Mortgage-backed securities
FNMA..................... 2,008 3.77% 1,998 2,013 3.65% 2,000
FHLMC.................... 2,970 5.58% 2,957 3,011 5.45% 2,996
------- ------ ------- ------- ------ -------
Total available for sale
debt securities................ 47,378 89.04% 47,762 49,488 89.57% 50,036
Equity securities............ 3,646 6.86% 4,331 3,546 6.42% 4,253
FHLB stock................... 763 1.43% 763 747 1.35% 747
------- ------ ------- ------- ------ -------
Total available for
sale.................... 51,787 97.33% 52,856 53,781 97.34% 55,036
------- ------ ------- ------- ------ -------
Total investment
securities.............. $53,207 100.00% $54,340 $55,253 100.00% $56,578
======= ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1997 1996
-------------------------------- ----------------------------------
Amortized Percent of Fair Amortized Percent of Fair
Cost Total (1) Value Cost Total (1) Value
-------------------------------- -----------------------------------
(Dollars in thousands)
Held to Maturity:
Mortgage-backed securities
<S> <C> <C> <C> <C> <C> <C>
GNMA......................... $ 919 1.64% $ 994 $ 1,094 2.27% $ 1,175
FHLMC........................ 40 0.07% 47 53 0.11% 61
U.S. Government Securities... 504 0.90% 514 201 0.42% 206
Other bonds.................. 218 0.39% 218 177 0.36% 180
------- ------ ------- ------- ------ -------
Total held to
maturity............. 1,681 3.00% 1,773 1,525 3.16% 1,622
------- ------ ------- ------- ------ -------
Available for sale:
U.S. Government securities... 35,015 62.59% 35,190 32,960 68.30% 32,961
U.S. Government agencies..... 16,132 28.84% 16,170 12,008 24.88% 11,962
State and Municipal
Obligations................. 0 0.00% 0 0 0.00% 0
Mortgage-backed securities
FNMA..................... 0 0.00% 0 0 0.00% 0
FHLMC.................... 0 0.00% 0 0 0.00% 0
------- ------ ------- ------- ------ -------
Total available for sale
debt securities................ 51,147 91.43% 51,360 44,968 93.18% 44,923
Equity securities............ 2,370 4.24% 2,840 1,032 2.14% 1,141
FHLB stock................... 747 1.33% 747 734 1.52% 734
------- ------ ------- ------- ------ -------
Total available for
sale.................... 54,264 97.00% 54,947 46,734 96.84% 46,798
------- ------ ------- ------- ------ -------
Total investment
securities.............. $55,945 100.00% $56,720 $48,259 100.00% $48,420
======= ====== ======= ======= ====== =======
</TABLE>
- -------------------------
(1) Based on amortized cost.
74
<PAGE>
Carrying Values, Yields and Maturities. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
the Bank's debt securities at March 31, 1999.
<TABLE>
<CAPTION>
More Than One Year More Than Five Years
One Year or Less to Five Years to Ten Years
------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
------------ ----------- ----------- ---------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale
securities:
U.S. Government Securities............ $13,084 6.13% $ 6,061 5.91% $ 0 0.00%
U.S. Government Agencies.............. 0 0.00% 7,176 6.67% 1,248 5.19%
State and Municipal
Obligations.......................... 0 0.00% 326 6.26% 12,822 6.31%
Mortgage-backed securities............ 0 0.00% 0 0.00% 4,955 5.79%
------- ---- ------- ---- ------- ----
13,084 6.13% 13,563 6.32% 19,025 6.10%
Held to maturity securities:
U.S. Government Securities............ 502 6.64% 0 0.00% 0 0.00%
Mortgage-backed securities............ 0 0.00% 44 6.71% 258 8.69%
Other................................. 0 0.00% 0 0.00% 0 0.00%
------- ---- ------- ---- ------- ----
502 6.64% 44 6.71% 258 8.69%
------- ---- ------- ---- ------- ----
Total Debt Securities................. $13,586 6.15% $13,607 6.32% $19,283 6.14%
======= ==== ======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
More Than Ten Years Total
-------------------------- ----------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Available for sale
securities:
U.S. Government Securities............ $ 0 0.00% $19,145 6.06%
U.S. Government Agencies.............. 1,991 6.07% 10,415 6.38%
State and Municipal
Obligations.......................... 99 6.44% 13,247 6.31%
Mortgage-backed securities............ 0 0.00% 4,955 5.79%
------ ----- ------- ----
2,090 6.09% 47,762 6.17%
Held to maturity securities:
U.S. Government Securities............ 0 0.00% 502 6.64%
Mortgage-backed securities............ 397 10.73% 699 9.72%
Other................................. 219 7.52% 219 7.52%
------ ----- ------- ----
616 9.59% 1,420 8.29%
------ ----- ------- ----
Total Debt Securities................. $2,706 6.88% $49,182 6.23%
====== ===== ======= ====
</TABLE>
75
<PAGE>
Carrying Values, Yields and Maturities. The following table sets forth
the scheduled maturities, book value, market value and weighted average yields
for the Bank's debt securities at December 31, 1998.
<TABLE>
<CAPTION>
More Than One Year More Than Five Years
One Year or Less to Five Years to Ten Years
------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
------------ ----------- ----------- ---------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale
securities:
U.S. Government Securities........... $18,126 6.00% $ 4,116 6.26% $ 0 0.00%
U.S. Government Agencies............. 0 0.00% 8,204 6.54% 0 0.00%
State and Municipal
Obligations......................... 0 0.00% 0 0.00% 12,660 6.26%
Mortgage-backed securities........... 0 0.00% 0 0.00% 4,996 5.80%
------- ---- ------- ---- ------- ----
18,126 6.00% 12,320 6.45% 17,656 6.13%
Held to maturity securities:
U.S. Government Securities........... 0 0.00% 502 6.64% 0 0.00%
Mortgage-backed securities........... 0 0.00% 50 6.74% 150 8.37%
Other................................ 0 0.00% 0 0.00% 0 0.00%
------- ---- ------- ---- ------- ----
0 0.00% 552 6.65% 150 8.37%
------- ---- ------- ---- ------- ----
Total Debt Securities................ $18,126 6.00% $12,872 6.46% $17,806 6.14%
======= ==== ======= ==== ======= ====
<CAPTION>
More Than Ten Years Total
-------------------------- ----------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Available for sale
securities:
U.S. Government Securities........... $ 0 0.00% $22,242 6.05%
U.S. Government Agencies............. 1,934 6.15% 10,138 6.47%
State and Municipal
Obligations......................... 0 0.00% 12,660 6.26%
Mortgage-backed securities........... 0 0.00% 4,996 5.80%
------ ----- ------- ----
1,934 6.15% 50,036 6.16%
Held to maturity securities:
U.S. Government Securities........... 0 0.00% 502 6.64%
Mortgage-backed securities........... 550 10.55% 750 9.86%
Other................................ 220 7.52% 220 7.52%
------ ----- ------- ----
770 9.68% 1,472 8.41%
------ ----- ------- ----
Total Debt Securities................ $2,704 7.16% $51,508 6.22%
====== ===== ======= ====
</TABLE>
76
<PAGE>
Sources of Funds
General. Deposits, scheduled amortization and prepayments of loan
principal, maturities and calls of investments securities and funds provided by
operations are our primary sources of funds for use in lending, investing and
for other general purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Deposits. We offer a variety of deposit accounts having a range of
interest rates and terms. We currently offer regular savings deposits
(consisting of passbook and statement savings accounts), interest-bearing demand
accounts, non-interest-bearing demand accounts, money market accounts and time
deposits.
Deposit flows are influenced significantly by general and local economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. Our deposits are primarily obtained from areas surrounding our
offices and we rely primarily on paying competitive rates, service and long-
standing relationships with customers to attract and retain these deposits. We
do not use brokers to obtain deposits.
When we determine our deposit rates, we consider local competition, U.S.
Treasury securities offerings and the rates charged on other sources of funds.
Core deposits (defined as savings deposits, money market accounts and demand
accounts) represented 54.8% of total deposits on March 31, 1999 and 53.7% on
December 31, 1998. At March 31, 1999 and December 31, 1998, time deposits with
remaining terms to maturity of less than one year amounted to $57.1 million and
$54.9 million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Analysis of Net Interest
Income" for information relating to the average balances and costs of our
deposit accounts for the three months ended March 31, 1999 and 1998 and years
ended December 31, 1998, 1997 and 1996.
The following table presents our deposit activity for the periods
indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Year Ended December 31,
----------------------- -------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total deposits at beginning of period......... $189,130 $184,496 $184,496 $184,579 $188,358
Net deposits (withdrawals).................... 1,063 674 (2,569) (7,394) (11,266)
Interest credited on deposit accounts......... 1,733 1,781 7,203 7,311 7,487
Total deposits at end of period............... 191,926 186,951 189,130 184,496 184,579
Total increase (decrease) in
deposit accounts........................... $ 2,796 $ 2,455 $ 4,634 $ (83) $ (3,779)
Percentage increase (decrease)................ 1.48% 1.33% 2.51% (0.04)% (2.01)%
</TABLE>
77
<PAGE>
At March 31, 1999, we had $10.8 million in time deposits with balances of
$100,000 and over maturing as follows:
<TABLE>
<CAPTION>
Maturity Period Amount
---------------------------------------- -----------
(In thousands)
<S> <C>
Three months or less.................... $ 1,703
Over three months through six months.... 2,401
Over six months through 12 months....... 2,700
Over 12 months.......................... 4,004
-------
Total................................... $10,808
=======
</TABLE>
The following table presents the distribution of our deposit accounts at
the dates indicated by dollar amount and percent of portfolio, and the weighted
average nominal interest rate on each category of deposits.
<TABLE>
<CAPTION>
At March 31, December 31,
--------------------------------- ---------------------------------
1999 1998
--------------------------------- ---------------------------------
Weighted Weighted
Percent average Percent average
of total nominal of total nominal
Amount deposits rate Amount deposits rate
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings................................. $ 78,398 40.85% 3.05% $ 75,935 40.15% 3.05%
Money market............................ 6,353 3.31% 3.10% 5,423 2.87% 3.10%
Other interest bearing.................. 2,594 1.35% 2.45% 2,802 1.48% 2.95%
Noninterest bearing..................... 20,429 10.64% n/a 20,231 10.70% n/a
-------- ------ -------- ------
Total............................ 107,774 56.15% 104,391 55.20%
-------- ------ -------- ------
Time Deposits:
Original maturities of:
Three months or less................. 946 0.49% 3.76% 957 0.50% 3.76%
Over three months to
twelve months...................... 39,783 20.73% 4.48% 39,646 20.96% 4.76%
Twelve months to twenty- 13,761 7.17% 5.17% 13,995 7.40% 5.28%
four months........................
Twenty-four months to
thirty-six months.................. 8,739 4.56% 5.34% 8,996 4.76% 5.38%
Thirty-six months to forty-
eight months....................... 2,992 1.56% 5.60% 3,176 1.68% 5.90%
Forty-eight months to
sixty months....................... 17,931 9.34% 6.18% 17,969 9.50% 6.18%
--------- ------ ----- -------- ------ -----
Total time deposits.................. 84,152 43.85% 5.08% 84,739 44.80% 5.24%
--------- ------ -------- ------
Total deposits.......................... $191,926 100.00% $189,130 100.00%
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- ------------------------------------
Weighted Weighted
Percent average Percent average
of total nominal of total nominal
Amount deposits rate Amount deposits rate
----------- ---------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Savings................................. $ 75,047 40.68% 3.05% $ 76,258 41.31% 3.05%
Money market............................ 4,804 2.60% 3.20% 4,389 2.38% 3.20%
Other interest bearing.................. 2,574 1.40% 3.05% 2,319 1.26% 3.05%
Noninterest bearing..................... 16,240 8.80% n/a 15,090 8.18% n/a
-------- ------ -------- ------
Total............................ 98,665 53.48% 98,056 53.13%
-------- ------ -------- ------
Time Deposits:
Original maturities of:
Three months or less.................... 944 0.51% 4.10% 638 0.34% 3.90%
Over three months to
twelve months....................... 41,408 22.44% 5.03% 41,771 22.63% 4.92%
Twelve months to twenty-
four months......................... 12,566 6.81% 5.24% 14,186 7.68% 5.53%
Twenty-four months to
thirty-six months................... 10,358 5.62% 5.66% 10,883 5.90% 5.62%
Thirty-six months to forty-
eight months........................ 2,992 1.62% 5.97% 3,043 1.65% 5.69%
Forty-eight months to
sixty months........................ 17,563 9.52% 6.11% 16,002 8.67% 6.09%
-------- ------ ---- -------- ------ ----
Total time deposits.................. 85,831 46.52% 5.38% 86,523 46.87% 5.34%
-------- ------ -------- ------
Total deposits.......................... $184,496 100.00% $184,579 100.00%
======== ====== ======== ======
</TABLE>
78
<PAGE>
The following table presents, by rate category, the amount of our time
deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------- --------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
Time deposit accounts: (In thousands)
<S> <C> <C> <C> <C>
4.00% or less............. $ 946 $ 957 $ 0 $ 638
4.01%-4.50%............... 28,353 11,082 1,013 1,404
4.51%-5.00%............... 7,899 14,922 16,954 41,213
5.01%-5.50%............... 21,130 31,540 44,777 20,302
5.51%-6.00%............... 18,088 18,036 13,159 8,600
over 6.00%................ 7,736 8,202 9,928 14,366
------- ------- ------- -------
Total................. $84,152 $84,739 $85,831 $86,523
======= ======= ======= =======
</TABLE>
The following table presents, by rate category, the remaining period to
maturity of time deposit accounts outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
Within One to
three Three to Six months two Two to Over three
months six months to one year years three years years Total
-------- ------------ ------------ --------- ------------- ------------ -------
Time deposit accounts: (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% or less....... $ 946 $ 0 $ 0 $ 0 $ 0 $ 0 $ 946
4.01%-4.50%......... 6,315 7,118 11,768 2,447 447 258 28,353
s4.51%-5.00%........ 777 1,662 2,318 1,005 883 1,254 7,899
5.01%-5.50%......... 8,841 5,973 3,038 1,645 1,414 219 21,130
5.51%-6.00%......... 0 988 3,472 7,420 2,119 4,089 18,088
over 6.00%.......... 416 142 3,303 3,829 0 46 7,736
------- ------- ------- ------- ------ ------ -------
Total.......... $17,295 $15,883 $23,899 $16,346 $4,863 $5,866 $84,152
======= ======= ======= ======= ====== ====== =======
</TABLE>
Borrowings. We do not currently borrow funds to finance our lending and
investing activities. We intend, however, to borrow funds in the future. We
may borrow funds pursuant to reverse repurchase agreements, whereby we sell an
asset with an agreement to repurchase it at some future date. We are a member
of the Federal Home Loan Bank of New York and have available a line of credit of
$21,205,000.
Subsidiary Activities
Rome Savings has three subsidiaries, 100 On the Mall Corporation,
Clocktower Insurance Agency Incorporated and Clocktower Financial Corporation.
100 On the Mall acts as a manager, and developer of real estate. Its only
activity is ownership of Rome Savings' main office building and premises.
Clocktower Insurance owns real estate for future expansion, which is currently
being leased to a Dunkin Donuts franchise adjacent to one of our branch offices.
Clocktower Financial is an inactive mortgage banking subsidiary.
79
<PAGE>
Properties
We conduct our business through our executive office, operations center and
three banking offices which had an aggregate net book value of $3.0 million as
of March 31, 1999.
<TABLE>
<CAPTION>
Leased or Net Book ue
Location Owned March 31,99
- -------------------------------- ------------- ------------------
(In thousands)
<S> <C> <C>
Principal Office:
100 West Dominick St.
Rome, NY..................... Owned $ 952
Branch Offices:
1629 Black River Boulevard
Rome, NY..................... Owned $ 358
1300 Erie Boulevard
Rome, NY..................... Owned $ 1,101
82 Seneca Turnpike
New Hartford, NY............. Owned $ 126
Accounting Center:
139 West Dominick Street
Rome, NY..................... Owned $ 422
</TABLE>
Legal Proceedings
We are not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. We believe that
these routine legal proceedings, in the aggregate, are immaterial to our
financial condition and results of operations.
Personnel
As of March 31, 1999, we had 85 full-time employees and 21 part-time
employees. The employees are not represented by a collective bargaining unit
and we consider our relationship with our employees to be good.
BUSINESS OF ROME BANCORP, INC.
Rome Bancorp has not engaged in any business to date. Upon completion of
the reorganization, Rome Bancorp will own Rome Savings. Rome Bancorp will
retain up to 50% of the net proceeds from the offering. We will invest our
initial capital as discussed in "How We Intend to Use the Proceeds from the
Offering."
In the future, Rome Bancorp may pursue other business activities, including
the acquisition of other financial institutions or other entities, borrowing
funds for investment in Rome Savings and diversification of Rome Bancorp's
operations. Rome Bancorp has no current plans for such activities. Our cash
flow will depend upon earnings from the investment of the portion of net
proceeds we retain and any dividends Rome Bancorp receives from Rome Savings.
Initially, Rome Bancorp will neither own nor lease any property, but will
instead use the premises, equipment and furniture of Rome Savings. At the
present time, we intend to employ
80
<PAGE>
only persons who are officers of Rome Savings, to serve as officers of Rome
Bancorp. However, we will use the support staff of Rome Savings from time to
time. Rome Bancorp will not separately compensate these employees, Rome Bancorp
will hire additional employees, as appropriate, to the extent it expands its
business in the future. See "How We Intend to Use the Proceeds from the
Offering."
REGULATION OF ROME SAVINGS BANK AND
ROME BANCORP
General
Rome Savings Bank is a New York chartered savings bank, and its deposit
accounts are insured up to applicable limits by the Federal Deposit Insurance
Corporation (FDIC) under the Bank Insurance Fund (BIF). Rome Savings is subject
to extensive regulation, examination and supervision by the New York State
Banking Department (Banking Department) as its chartering agency, and by the
FDIC as the deposit insurer. Rome Savings must file reports with the Banking
Department and the FDIC concerning its activities and financial condition, and
it must obtain regulatory approval prior to entering into certain transactions,
such as mergers with, or acquisitions of, other depository institutions and
opening or acquiring branch offices. The Banking Department and the FDIC
conduct periodic examinations to assess Rome Savings Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings bank can engage and is
intended primarily for the protection of the deposit insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes.
Rome, MHC and Rome Bancorp, as bank holding companies controlling Rome
Savings, will be subject to the Bank Holding Company Act of 1956, as amended
(BHCA), and the rules and regulations of the Federal Reserve Board (FRB) under
the BHCA and to the provisions of the New York State Banking Law and the
regulations of the Banking Department under the Banking Law applicable to bank
holding companies. Rome, MHC and Rome Bancorp will be required to file reports
with, and otherwise comply with the rules and regulations of the FRB and the
Banking Department. Rome Bancorp will be required to file certain reports with,
and otherwise comply with, the rules and regulations of the SEC under the
federal securities laws.
Any change in such laws and regulations, whether by the Banking Department,
the FDIC, the FRB or through legislation, could have a material adverse impact
on Rome, MHC, Rome Bancorp and Rome Savings and their operations and
stockholders.
- --------------------------------------------------------------------------------
Certain of the laws and regulations applicable to Rome, MHC, Rome Bancorp and
Rome Savings are summarized below or elsewhere in this prospectus. These
summaries do not purport to be complete and are qualified in their entirety by
reference to such laws and regulations.
- --------------------------------------------------------------------------------
81
<PAGE>
New York Banking Regulation
Activity Powers. The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of the New York Banking
Law and its related regulations. Under these laws and regulations, savings
banks, including Rome Savings Bank, generally may, invest in:
(1) real estate mortgages;
(2) consumer and commercial loans;
(3) specific types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and
agencies;
(4) certain types of corporate equity securities; and
(5) certain other assets.
A savings bank may also exercise trust powers upon approval of the New York
Banking Board. The exercise of these lending, investment and activity powers are
limited by federal law and the related regulations. See "-- Federal Banking
Regulation -- Activity Restrictions on State-Chartered Banks" below.
Loans-to-One-Borrower Limitations. With certain specified exceptions, a
New York chartered savings bank may not make loans or extend credit to a single
borrower and to entities related to the borrower in an aggregate amount that
would exceed 15% of the bank's net worth, plus an additional 10% of the bank's
net worth if secured by the requisite collateral. Rome Savings currently
complies with applicable loans-to-one-borrower limitations. At March 31, 1999,
Rome Savings' limit on loans to one borrower was $7.2 million. As a result of
the offering, Rome Savings' limit on loans to one borrower will increase to $9.9
million (at the midpoint of the offering range.)
Dividends. Under the New York Banking Law, a stock savings bank may
declare and pay a dividend on its capital stock only to the extent that the
payment of the dividend would not impair the capital stock of the savings bank.
In addition, Rome Savings cannot declare and pay dividends without regulatory
approval in any calendar year in excess of its "net profits" of the current year
combined with its "retained net profits" of the two preceding years, less any
required transfer to surplus or a fund for the retirement of preferred stock.
Federal law may also limit the amount of dividends that may be paid by Rome
Savings. See "-- Federal Banking Regulation -- Prompt Corrective Action" below.
This restriction will apply to Rome Savings after the reorganization.
Community Reinvestment Act. Rome Savings is also subject to provisions of
the Banking Law that, like the provisions of the federal Community Reinvestment
Act ("federal CRA"), impose continuing and affirmative obligations upon a
banking institution organized in the State of New York to serve the credit needs
of its local community ("New York CRA"). See "Federal Banking Regulation -
Community Reinvestment Act" below. Pursuant to the New York CRA, a bank must
file with the Banking Department copies of all federal CRA reports, and the
82
<PAGE>
Banking Department is required to consider a bank's New York CRA rating when
reviewing an application by the bank to engage in certain transactions,
including mergers, asset purchases and the establishment of branch offices or
automated teller machines, and provides that such assessment may serve as a
basis for the denial of any such application. The New York CRA requires the
Banking Department to make a written assessment of a bank's compliance with the
New York CRA and to make such assessment available to the public. The Banking
Department adopted, effective December 3, 1997, performance-focused regulations
that were intended to parallel the current CRA regulations of the federal
banking agencies and to promote consistency in New York CRA evaluations by
considering more objective criteria. The regulations require a biennial
assessment of a bank's compliance with the New York CRA, utilizing a four-tiered
rating system, and require the Banking Department to make available to the
public such rating and a written summary of the assessment results. The Bank's
latest New York CRA rating from the Banking Department, was a rating of
"Satisfactory."
Enforcement. Under the Banking Law, the Banking Department may issue an
order to a New York-chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Banking Department
that any director, trustee or officer of any banking organization has violated
any law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the Banking
Department to discontinue such practices, the Banking Department may remove such
director, trustee or officer from office after notice and an opportunity to be
heard. The Bank does not know of any past or current practice, condition or
violation that might lead to any proceeding by the Banking Department against
the Bank or any of its trustees or officers.
Federal Banking Regulation
Capital Requirements. FDIC regulations require BIF-insured banks, such as
Rome Savings, to maintain minimum levels of capital. The FDIC regulations
define two classes of capital known as Tiers.
Tier 1 capital is comprised of the sum of common stockholders' equity
(excluding the net unrealized appreciation or depreciation, net of tax, from
available-for-sale securities), non-cumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights), and any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include cumulative perpetual
preferred stock, certain perpetual preferred stock for which the dividend rate
may be reset periodically, mandatory convertible securities, subordinated debt,
intermediate preferred stock, 45% of the unrealized gain on marketable equity
securities, and allowance for possible loan losses. Allowance for possible loan
losses includible in Tier 2 capital is limited to a maximum of 1.25% of risk-
weighted assets. Overall, the amount of Tier 2 capital that may be included in
total capital can not exceed 100% of Tier 1 capital.
83
<PAGE>
The FDIC regulations establish a minimum leverage capital requirement for
banks in the strongest financial and managerial condition, with a rating of 1
(the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, of not less than a ratio of 3.0% of Tier 1
capital to total assets. For all other banks, the minimum leverage capital
requirement is 4 percent, unless a higher leverage capital ratio is warranted by
the particular circumstances or risk profile of the depository institution.
The FDIC regulations also require that savings banks meet a risk-based
capital standard. The risk-based capital standard requires the maintenance of a
ratio of total capital (which is defined as the sum of Tier 1 capital and Tier 2
capital) to risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
The following table shows Rome Savings' leverage ratio, its Tier 1 risk-
based capital ratio, and its total risk-based capital ratio, at March 31, 1999:
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------------------------
Minimum Capital
Bank Actual Adequacy
------------------ --------------------
Amount Ratio Amount Ratio
-------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Leverage (Tier 1) capital......... $28,298 12.8% $ 8,867 (greater than less than) 4%
Risk-based capital:
Tier 1......................... 28,298 21.5% 5,272 (greater than less than) 4%
Total.......................... $30,257 23.0% $10,545 (greater than less than) 8%
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------
For Classification as
Well-Capitalized
---------------------
Amount Ratio
-------- -------
<S> <C> <C>
Leverage (Tier 1) capital......... $11,084 (greater than less than) 5%
Risk-based capital:
Tier 1......................... 7,909 (greater than less than) 6%
Total.......................... $13,181 (greater than less than) 10%
</TABLE>
As the table shows, Rome Savings exceeded the minimum capital requirements
at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act, as amended (FDIA), which was added by the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), generally limits the
activities and investments of state-chartered FDIC insured banks and their
subsidiaries to those permissible for federally
84
<PAGE>
chartered national banks and their subsidiaries, unless such activities and
investments are specifically exempted by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if
(1) the bank held such types of investments during the 14-month period
from September 30, 1990 through November 26, 1991;
(2) the state in which the bank is chartered permitted such investments as
of September 30, 1991; and
(3) the bank notifies the FDIC and obtains approval from the FDIC to make
or retain such investments. Upon receiving such FDIC approval, an
institution's investment in such equity securities will be subject to
an aggregate limit up to the amount of its Tier 1 capital.
Rome Savings received approval from the FDIC to retain and acquire such equity
investments subject to a maximum permissible investment equal to the lesser of
100% of Rome Savings' Tier 1 capital or the maximum permissible amount specified
by the Banking Act. Section 24 also provides an exception for majority owned
subsidiaries of a bank, but Section 24 limits the activities of such
subsidiaries to those permissible for a national bank, permissible under Section
24 of the FDIA and the FDIC regulations issued pursuant thereto, or as approved
by the FDIC.
Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 of the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
Enforcement. The FDIC has extensive enforcement authority over insured
savings banks, including Rome Savings. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease
and desist orders and to remove directors and officers. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including:
(1) insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others);
(2) substantial dissipation of assets or earnings through violations of
law or unsafe or unsound practices;
85
<PAGE>
(3) existence of an unsafe or unsound condition to transact business;
(4) likelihood that the bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business;
and
(5) insufficient capital, or the incurring or likely incurring of losses
that will deplete substantially all of the institution's capital with
no reasonable prospect of replenishment of capital without federal
assistance.
Deposit Insurance. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular institution
poses to its deposit insurance fund. Under the risk-based deposit insurance
assessment system, the FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending six months before the assessment period. The three capital
categories are (1) well capitalized, (2) adequately capitalized and (3)
undercapitalized using capital ratios that are substantially similar to the
prompt corrective action capital ratios discussed below. See "-- Federal
Banking Regulation -- Prompt Corrective Action" below. The FDIC also assigns an
institution to supervisory subgroup based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information that
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor).
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the risk-based assessment
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. An institution's rate of deposit insurance assessments will depend
upon the capital and supervisory subcategory to which the bank is assigned by
the FDIC. Assessment rates for deposit insurance currently range from 0 basis
points to 27 basis points. The capital and supervisory subgroup to which an
institution is assigned by the FDIC is confidential and may not be disclosed.
Any increase in insurance assessments could have an adverse effect on the
earnings of insured institutions, including Rome Savings.
Under the Deposit Insurance Funds Act of 1996 ("Funds Act"), the assessment
base for the payments on the bonds ("FICO bonds") issued in the late 1980's by
the Financing Corporation to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation was expanded to include, beginning January 1, 1997,
the deposits of BIF-insured institutions, such as Rome Savings. Until December
31, 1999, or such earlier date on which the last savings association ceases to
exist, the rate of assessment for BIF-assessable deposits will be one-fifth of
the rate imposed on deposits insured by the Savings Association Insurance Fund
(SAIF). The annual rate of assessments for the payments on the FICO bonds for
the quarterly period beginning on October 1, 1998 was 0.01164% for BIF-
assessable deposits and 0.0582% for SAIF-assessable deposits and was 0.0122% for
BIF-assessable deposits and 0.0610% for SAIF-assessable deposits for the
quarterly period beginning on January 1, 1999.
Under the FDIA, the FDIC may terminate the insurance of an institution's
deposits upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or
86
<PAGE>
condition imposed by the FDIC. The management of Rome Savings does not know of
any practice, condition or violation that might lead to termination of deposit
insurance.
Transactions with Affiliates of Rome Savings. Transactions between an
insured bank, such as Rome Savings, and any of its affiliates is governed by
Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any
company or entity that controls, is controlled by or is under common control
with the bank. Currently, a subsidiary of a bank that is not also a depository
institution is not treated as an affiliate of the bank for purposes of Sections
23A and 23B, but the FRB has proposed treating any subsidiary of a bank that is
engaged in activities not permissible for bank holding companies under the Bank
Holding Company Act of 1956, as amended (BHCA), as an affiliate for purposes of
Sections 23A and 23B. Sections 23A and 23B (1) limit the extent to which the
bank or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such bank's capital stock and surplus,
and limit on all such transactions with all affiliates to an amount equal to 20%
of such capital stock and surplus and (2) require that all such transactions be
on terms that are consistent with safe and sound banking practices. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of guarantees and other similar types of transactions. Further, most loans by a
bank to any of its affiliates must be secured by collateral in amounts ranging
from 100 to 130 percent of the loan amounts. In addition, any covered
transaction by a bank with an affiliate and any purchase of assets or services
by a bank from an affiliate must be on terms that are substantially the same, or
at least as favorable, to the bank as those that would be provided to a non-
affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the
prohibitions of 12 U.S.C. (S) 1972 on certain tying arrangements. A depository
institution is prohibited, subject to certain exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution.
Uniform Real Estate Lending Standards. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies that have been
adopted by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
87
<PAGE>
(1) for loans secured by raw land, the supervisory loan-to-value limit is
65% of the value of the collateral;
(2) for land development loans (i.e., loans for the purpose of improving
unimproved property prior to the erection of structures), the
supervisory limit is 75%;
(3) for loans for the construction of commercial, multi-family or other
non-residential property, the supervisory limit is 80%;
(4) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and
(5) for loans secured by other improved property (e.g., farmland,
completed commercial property and other income-producing property
including non-owner occupied, one- to four-family property), the limit
is 85%.
Although no supervisory loan-to-value limit has been established for owner-
occupied, one to four-family and home equity loans, the Interagency Guidelines
state that for any such loan with a loan-to-value ratio that equals or exceeds
90% at origination, an institution should require appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral.
Community Reinvestment Act. Under the Community Reinvestment Act (CRA),
any insured depository institution, including Rome Savings, has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the FDIC, in
connection with its examination of a savings bank, to assess the depository
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution, including applications for additional branches and acquisitions.
Among other things, current CRA regulations establish an evaluation system
that rates an institution based on its actual performance in meeting community
needs. In particular, the evaluation system focuses on three tests:
(1) a lending test, to evaluate the institution's record of making loans
in its service areas;
(2) an investment test, to evaluate the institution's record of investing
in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and
(3) a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices.
88
<PAGE>
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. Rome received a
"satisfactory" rating on its last CRA exam in January 1998.
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a bank that is given
notice by the FDIC that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the FDIC. If, after being so notified,
a bank fails to submit an acceptable compliance plan or fails in any material
respect to implement an accepted compliance plan, the FDIC may issue an order
directing corrective and other actions of the types to which a significantly
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. If a bank fails to comply with such an order, the FDIC
may seek to enforce such an order in judicial proceedings and to impose civil
monetary penalties.
Prompt Corrective Action. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized
institutions. The regulations establish five categories, consisting of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The FDIC's regulations
defines the five capital categories as follows: Generally, an institution will
be treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier 1 capital to risk-weighted assets is
at least 6%, its ratio of Tier 1 capital to total assets is at least 5%, and it
is not subject to any order or directive by the FDIC to meet a specific capital
level. An institution will be treated as "adequately capitalized" if its ratio
of total capital to risk-weighted assets is at least 8%, its ratio of Tier 1
capital to risk-weighted assets is at least 4%, and its ratio of Tier 1 capital
to total assets is at least 4% (3% if the bank receives the highest rating under
the Uniform Financial Institutions Rating System) and it is not a well-
capitalized institution. An institution that has total risk-based capital of
less than 8%, Tier 1 risk-based-capital of less than 4% or a leverage ratio that
is less than 4% (or less than 3% if the institution is rated a composite "1"
under the Uniform Financial Institutions Rating System) would be considered to
be "undercapitalized." An institution that has total risk-based capital of less
than 6%, Tier 1 capital of less than 3% or a leverage ratio that is less than 3%
would be considered to be "significantly undercapitalized," and an institution
that has a tangible capital to assets ratio equal to or less than 2% would be
deemed to be "critically undercapitalized."
89
<PAGE>
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of:
(1) an amount equal to the five percent of the bank's total assets at the
time it became "undercapitalized," and
(2) the amount that is necessary (or would have been necessary) to bring
the bank into compliance with all capital standards applicable with
respect to such bank as of the time it fails to comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." Banks that are significantly or critically
undercapitalized are subject to a wider range of regulatory requirements and
restrictions.
The FDIC has a broad range of grounds under which it may appoint a receiver
or conservator for an insured depository bank. If one or more grounds exist for
appointing a conservator or receiver for a bank, the FDIC may require the bank
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. Under FDICIA, the FDIC
is required to appoint a receiver or a conservator for a critically
undercapitalized bank within 90 days after the bank becomes critically
undercapitalized or to take such other action that would better achieve the
purposes of the prompt corrective action provisions. Such alternative action
can be renewed for successive 90-day periods. However, if the bank continues to
be critically undercapitalized on average during the quarter that begins 270
days after it first became critically undercapitalized, a receiver must be
appointed, unless the FDIC makes certain findings that the bank is viable.
Loans to a Bank's Insiders
Federal Regulation. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an insider) and any of certain
entities affiliated to any such person (an insider's related interest) are
subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the FRB's Regulation O thereunder. Under these
restrictions, the aggregate amount of the loans to any insider and the insider's
related interests may not exceed the loans-to-one-borrower limit applicable to
national banks, which is comparable to the loans-to-one-borrower limit
applicable to Rome Savings' loans. See "New Jersey Banking Regulation -- Loans-
to-One Borrower Limitations." All loans by a bank to all insiders and insiders'
related interests in the aggregate may not exceed the bank's unimpaired capital
and unimpaired surplus. With certain exceptions, loans to an executive officer,
other than loans for the education of the officer's children and certain loans
secured by the officer's
90
<PAGE>
residence, may not exceed the lesser of (1) $100,000 or (2) the greater of
$25,000 or 2.5% of the bank's capital and unimpaired surplus. Regulation O also
requires that any proposed loan to an insider or a related interest of that
insider be approved in advance by a majority of the board of directors of the
bank, with any interested director not participating in the voting, if such
loan, when aggregated with any existing loans to that insider and the insider's
related interests, would exceed either (1) $500,000 or (2) the greater of
$25,000 or 5% of the bank's unimpaired capital and surplus. Generally, such
loans must be made on substantially the same terms as, and follow credit
underwriting procedures that are not less stringent than, those that are
prevailing at the time for comparable transactions with other persons.
An exception is made for extensions of credit made pursuant to a benefit or
compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
New York Regulation. Provisions of the New York Banking Law impose
conditions and limitations on the liabilities to a savings bank of its directors
and executive officers and of corporations and partnerships controlled by such
persons that are comparable in many respects to the conditions and limitations
imposed on the loans and extensions of credit to insiders and their related
interests under Regulation O, as discussed above. However, New York law does
not affect loans to shareholders owning more than 10% or more of the savings
bank's stock. Under applicable New York law, savings banks that comply with the
requirements of Regulation O are deemed to be in compliance with the
requirements of the New York law.
Federal Home Loan Bank System
Rome Savings is a member of the Federal Home Loan Bank of New York, which
is one of the 12 regional Federal Home Loan Banks in the FLHB system. Each of
the federal home loan banks are subject to supervision and regulation by the
Federal Housing Finance Board, and each acts as a central credit facility
primarily for its member institutions. As a member, Rome Savings is required to
hold shares of capital stock in the FLHBNY in an amount at least equal to the
greater of 1% of the aggregate unpaid principal of its home mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
1/20 of its advances (borrowings) form the FLHBNY. Rome Savings was in
compliance with this requirement with an investment in FLHBNY stock at March 31,
1999 of $763,200.
Each FHLB serves as a reserve or central bank for its member institutions
within its assigned region. Each is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB system. It offers advances to
members in accordance with policies and procedures established by the FHFB and
the board of directors of the FLHB. Long term advances may only be made for the
purpose of providing funds for residential housing finance.
91
<PAGE>
Federal Reserve System
Under FRB regulations, Rome Savings is required to maintain non-interest-
earning reserves against its transaction accounts (primarily NOW and regular
checking accounts). The current FRB regulations generally require that reserves
of 3% must be maintained against aggregate transaction accounts of $46.5 million
or less (subject to adjustment by the FRB) and an initial reserve of $1.4
million plus 10% (subject to adjustment by the FRB between 8% and 14%) against
that portion of total transaction accounts in excess of $46.5 million. The
first $4.9 million of otherwise reservable balances (subject to adjustments by
the FRB) are exempted from the reserve requirements. Rome Savings is in
compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the FRB, the effect
of this reserve requirement is to reduce Rome Savings' interest-earning assets.
Holding Company Regulation
Federal Regulation. After the reorganization, Rome, MHC and Rome Bancorp
will be governed as bank holding companies. Bank holding companies are subject
to examination, regulation and periodic reporting under the BHCA, as
administered by the FRB. The FRB has adopted capital adequacy guidelines for
bank holding companies on a consolidated basis substantially similar to those of
the FDIC for Rome Savings. As of March 31, 1999, the total capital and Tier 1
capital ratios for Rome, MHC and Rome Bancorp would, on a pro forma basis,
exceed these minimum capital requirements. See "Regulatory Capital Compliance"
above.
As bank holding companies, Rome, MHC and Rome Bancorp will be required to
obtain the prior approval of the FRB to acquire all, or substantially all, of
the assets of any bank or bank holding company. Prior FRB approval will be
required for Rome, MHC or Rome Bancorp to acquire direct or indirect ownership
or control of any voting securities of any bank or bank holding company if,
after giving effect to such acquisition, it would, directly or indirectly, own
or control more than 5% of any class of voting shares of such bank or bank
holding company.
A bank holding company is required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of the company's consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the FRB, that has received a composite "1" or "2" rating at its
most recent bank holding company inspection by the FRB, and that is not the
subject of any unresolved supervisory issues.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in, non-
banking activities. One of the principal exceptions to this prohibition is for
activities found by the FRB to be so closely
92
<PAGE>
related to banking or managing or controlling banks as to be a proper incident
thereto. Some of the principal activities that the FRB has determined by
regulation to be so closely related to banking as to be a proper incident
thereto are:
(1) making or servicing loans;
(2) performing certain data processing services;
(3) providing discount brokerage services;
(4) acting as fiduciary, investment or financial advisor;
(5) leasing personal or real property;
(6) making investments in corporations or projects designed primarily to
promote community welfare; and
(7) acquiring a savings and loan association.
Regulations of the FRB provide that a bank holding company must serve as a
source of strength to any of its subsidiary banks and must not conduct its
activities in an unsafe or unsound manner. Under the prompt corrective action
provisions of FDICIA, a bank holding company parent of an undercapitalized
subsidiary bank would be directed to guarantee, within limitations, the capital
restoration plan that is required of such an undercapitalized bank. See "--
Federal Banking Regulation -- Prompt Corrective Action" above. If the
undercapitalized bank fails to file an acceptable capital restoration plan or
fails to implement an accepted plan, the Federal Reserve Board may prohibit the
bank holding company parent of the undercapitalized bank from paying any
dividend or making any other form of capital distribution without the prior
approval of the FRB.
Under the Federal Deposit Insurance Act, depository institutions are liable
to the FDIC for losses suffered or anticipated by the FDIC in connection with
the default of a commonly controlled depository institution or any assistance
provided by the FDIC to such an institution in danger of default. This law
would have potential applicability if Rome, MHC or Rome Bancorp ever acquired as
a separate subsidiary another depository institution in addition to Rome
Savings.
New York Regulation. Under the New York Banking Law, certain companies
owning or controlling banks are regulated as a bank holding company. For the
purposes of the Banking Law, the term "bank holding company," is defined
generally to include any "company" that, directly or indirectly, either (a)
controls the election of a majority of the directors or (b) owns, controls or
holds with power to vote more than 10% of the voting stock of a bank holding
company or, if the company is a banking institution, another banking
institution, or 10% or more of the voting stock of each of two or more banking
institutions. The term "company" is defined to include corporations,
partnerships and other types of business entities, chartered or doing business
in New York, and the term "banking institution" is defined to include commercial
banks, stock savings banks and stock savings and loan associations. A company
controlling, directly or indirectly, only one banking institution in New York
will not be deemed to be a bank holding
93
<PAGE>
company for the purposes of the Banking Law. Under the Banking Law, the prior
approval of the Banking Department is required before:
. any action is taken that causes any company to become a bank holding
company;
. any action is taken that causes any banking institution to become or to
be merged or consolidated with a subsidiary of a bank holding company;
. any bank holding company acquires direct or indirect ownership or
control of more than 5% of the voting stock of a banking institution;
. any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or
. any action is taken that causes any bank holding company to merge or
consolidate with another bank holding company.
Additionally, certain restrictions apply to New York bank holding companies
regarding the acquisition of banking institutions that have been chartered for
five years or less and are located in smaller communities. Directors, officers
and employees of a New York bank holding company are subject to limitations
regarding their affiliation with securities underwriting or distribution firms
and with other bank holding companies, and directors and executive officers are
subject to limitations regarding loans obtained from certain of the holding
company's banking subsidiaries. Although the Company will not be a bank holding
company for purposes of the New York Banking Law upon the effective date of the
conversion, any future acquisition of ownership, control, or the power to vote
10% or more of the voting stock of another banking institution or bank holding
company would cause it to become such.
Mutual Holding Company Regulation. Under the New York Banking Law, Rome,
MHC may exercise all powers and privileges of a New York chartered mutual
savings bank, except the power to take deposits. As a bank holding company,
Rome, MHC will also be subject to the limitations on activities imposed on a
bank holding company under the BHCA.
Acquisition of Rome Bancorp
Under applicable law, as summarized below, no person may acquire control of
Rome Bancorp or Rome Savings without first obtaining approval of such
acquisition of control by the FRB and the Banking Department.
Federal Restrictions. Under the federal Change in Bank Control Act (CBCA),
any person (including a company), or group acting in concert, seeking to acquire
10% or more of the outstanding shares of Rome Bancorp's common stock will be
required to submit prior notice to the FRB, unless the FRB has found that the
acquisition of such shares will not result in a change in control of Rome
Bancorp. Under the CBCA, the FRB has 60 days within which to act on such
notices, taking into consideration certain factors, including the financial and
managerial resources of the acquiror, the convenience and needs of the
communities served by Rome Bancorp and Rome Savings, and the anti-trust effects
of the acquisition. Under the BHCA, any company would be required to obtain
prior approval from the FRB before it may obtain "control" of Rome
94
<PAGE>
Bancorp within the meaning of the BHCA. Control generally is defined under the
BHCA to mean the ownership or power to vote 25% more of any class of voting
securities of Rome Bancorp or the ability to control in any manner the election
of a majority of Rome Bancorp's directors.
New York Change in Bank Control Restrictions. Under the New York Banking
Law, the prior approval of the Banking Board is required before any action is
taken that causes any company to acquire direct or indirect control of a banking
institution that is organized in the State of New York. For this purpose, the
term "company" is defined to include corporations, partnerships and other types
of business entities, chartered or doing business in New York, and an individual
or combination of individuals acting in concert and residing or doing business
in New York. The term "control" is defined generally to mean the power to
direct or cause the direction of the management and policies of the banking
institution and is presumed to exist if the company owns, controls or holds with
power to vote 10% or more of the voting stock of the banking institution.
Dividend Waivers by Rome, MHC
It has been the policy of many mutual holding companies to waive the
receipt of dividends declared by its savings institution subsidiary. In
connection with its approval of the reorganization, however, it is expected that
the Federal Reserve Board will impose certain conditions on the waiver by Rome,
MHC of dividends paid on the common stock by Rome Bancorp. In particular, the
Federal Reserve Board is expected to require that Rome, MHC obtain the prior
approval of the Federal Reserve Board before Rome, MHC may waive any dividends
from Rome Bancorp. As of the date hereof, we are not aware that the Federal
Reserve Board has given its approval to any waiver of dividends by any mutual
holding company that has requested such approval.
We also expect that the terms of the Federal Reserve Board approval of the
reorganization will require that the amount of any dividends waived by Rome, MHC
will not be available for payment to its public stockholders of Rome Bancorp
(i.e., stockholders except for Rome, MHC) and that such amount will be excluded
from Rome Bancorp's capital for purposes of calculating dividends payable to the
public stockholders. Moreover, Rome Savings is required to maintain the
cumulative amount of dividends waived by Rome, MHC in a restricted capital
account that would be added to the liquidation account established in the
reorganization. This amount would not be available for distribution to public
stockholders. See "The Reorganization and The Offering -- Effects of the
Reorganization -- Depositors' Rights If We Liquidate; Liquidation Account." The
restricted capital account and liquidation account amounts would not be
reflected in Rome Savings' consolidated financial statements, but would be
considered as a notational or memorandum account of Rome Savings. These
accounts would be maintained in accordance with the laws, rules, regulations and
policies of the Banking Department and the plan of reorganization. The plan of
reorganization also provides that if Rome, MHC converts to stock form in the
future, (commonly referred to as a second step conversion), any waived dividends
would reduce the percentage of the converted company's shares of common stock
issued to public stockholders in connection with any such transaction. For
additional information regarding the possible second step conversion of Rome,
MHC, see "The Reorganization and The Offering -- Possible Conversion of Rome,
MHC to Stock Form."
95
<PAGE>
Rome, MHC does not expect to initially waive dividends declared by Rome
Bancorp. If Rome, MHC decides that it is in its best interest to waive a
particular dividend to be paid by Rome Bancorp and the Federal Reserve Board
approves such waiver, then Rome Bancorp would pay such dividend only to its
public stockholders. The amount of the dividend waived by Rome, MHC would be
treated in the manner described above. Rome, MHC's decision as to whether or
not to waive a particular dividend will depend on a number of factors, including
Rome, MHC's capital needs, the investment alternatives available to Rome, MHC as
compared to those available to Rome Bancorp, and the possibility of regulatory
approvals. We can not guarantee:
. that after the reorganization, Rome, MHC will waive dividends paid by
Rome Bancorp;
. that if the application is made to waive a dividend, that the Federal
Reserve Board will approve such dividend waiver request; or
. what conditions may be imposed by the Federal Reserve Board on any
dividend waiver.
TAXATION
Federal
General. The following discussion is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Rome Savings, Rome, MHC or Rome Bancorp. For federal income tax purposes, Rome
Savings reports its income on the basis of a taxable year ending December 31,
using the accrual method of accounting, and is generally subject to federal
income taxation in the same manner as other corporations. Following the
reorganization, Rome Savings and Rome Bancorp will constitute an affiliated
group of corporations and, therefore, will be eligible to report their income on
a consolidated basis. Because MHC will own less than 80% of the common stock, it
will not be a member of such affiliated group and will report its income on a
separate return. Rome Savings is not currently under audit by the Internal
Revenue Service and has not been audited by the IRS during the past five years.
Bad Debt Reserves. The Bank, as a "small bank" (one with assets having an
adjusted tax basis of $500 million or less) is permitted to maintain a tax
reserve for bad debts based on the six-year average experience method. Pursuant
to the Small Business Job Protection Act of 1996, the Bank is now recapturing
(taking into income) over a multi-year period a portion of the balance of its
tax bad debt reserve as of December 31, 1995. The tax liability associated with
the recapture has been adequately provided for in the Bank's consolidated
financial statements.
Distributions. To the extent that Rome Savings makes "non-dividend
distributions" to stockholders, such distributions will be considered to result
in distributions from Rome Savings' unrecaptured tax bad debt reserve "base year
reserve," i.e., its reserve as of December 31, 1987, to the extent thereof and
then from its supplemental reserve for losses on loans, and an amount based on
the amount distributed will be included in Rome Savings' taxable income. Non-
dividend distributions include distributions in excess of Rome Savings' current
and accumulated
96
<PAGE>
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividends paid out of Rome Savings'
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not constitute non-dividend distributions and, therefore,
will not be included in Rome Savings' income.
The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of Rome Savings' base year reserve and
supplemental reserve for losses on loans or an amount that, when reduced by the
tax attributable to the income, is equal to the amount of the distribution.
Thus, in certain situations, approximately one and one-half times the non-
dividend distribution would be includable in gross income for federal income tax
purposes, assuming a 35% federal corporate income tax rate. Rome Savings does
not intend to pay dividends that would result in the recapture of any portion of
its bad debt reserves.
Corporate Alternative Minimum Tax. The alternative minimum tax (AMT) rules
have been devised to ensure that at least a minimum amount of income tax is paid
by high-income corporate taxpayers who take advantage of substantial tax savings
due to the use of certain tax deductions and exemptions. In essence, the AMT
functions as a recapture mechanism, reclaiming some of the tax deductions and
credits utilized by these taxpayers when calculating their regular federal
income tax liability. In general, a corporation's alternative minimum taxable
income (AMTI) is equal to its regular taxable income, increased by its
preference items for the year and adjusted by computing certain items under
special rules that negate the acceleration of certain tax benefits which are
available under the regular tax rules. The AMT rate is 20% . Such preference
items include adjustments for tax exempt interest, excess bad debt deductions,
accelerated depreciation deductions and net operating loss carryforwards.
Elimination of Dividends; Dividends Received Deduction. Rome Bancorp may
exclude from its income 100% of dividends received from Rome Savings as a member
of the same affiliated group of corporations. Because, following the
reorganization, Rome, MHC will not be a member of such affiliated group, it will
not qualify for such 100% dividends exclusion, but will be entitled to deduct
80% of the dividends it receives from Rome Bancorp so long as it owns more than
20% of the common stock.
State
New York State Taxation. Rome Savings is subject to the New York State
Franchise Tax on Banking Corporations in an annual amount equal to the greater
of (1) 9% of the Bank's "entire net income" allocable to New York State during
the taxable year, or (2) the applicable alternative minimum tax. The
alternative minimum tax is generally the greatest of (a) 0.01% of the value of
the taxable assets allocable to New York State with certain modifications, (b)
3% of the Bank's "alternative entire net income" allocable to New York State or
(c) $250. Entire net income is similar to federal taxable income, subject to
certain modifications, and alternative entire net income is equal to entire net
income without certain adjustments. For purposes of computing its entire net
income, Rome Savings is permitted a deduction for an addition to the reserve
for losses on qualifying real property loans. Rome Savings is currently using a
six-year average experience method, similar to the federal method to compute
their New York State bad debt deduction.
97
<PAGE>
New York State passed legislation in August 1996 that incorporated into New
York State tax law provisions for the continued use of bad debt reserves in a
manner substantially similar to the provisions that applied under federal law
prior to the enactment of the 1996 Act discussed above. This legislation
enabled the Bank to avoid the recapture of the New York State tax bad debt
reserves that otherwise would have occurred as a result of the changes in
federal law and to continue to utilize the reserve method for computing its bad
debt deduction. However, the New York bad debt reserve is subject to recapture
for "non-dividend distributions" in a manner similar to the recapture of federal
bad debt reserves for such distributions. See "-- Federal Taxation --
Distributions." Also, the New York bad debt reserve is subject to recapture in
the event that the Bank fails to satisfy certain definitional tests relating to
its assets and the nature of its business.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, Rome Bancorp is exempted from Delaware Corporate income tax but is
required to file annual returns and pay annual fees and a franchise tax to the
State of Delaware.
MANAGEMENT
Shared Management Structure
Rome Bancorp has the same directors and executive officers as the current
trustees and executive officers of Rome Savings. We expect that Rome Bancorp
and Rome Savings will continue to have common directors and common executive
officers until there is a business reason to establish separate management
structures.
To date, Rome Savings has compensated its trustees and executive officers
for their services. Rome Bancorp does not pay any additional compensation. We
expect to continue this practice after the reorganization until we have a
business reason to establish separate compensation programs. Until then, we
expect Rome Bancorp to reimburse Rome Savings for a part of the compensation
paid to each director and executive officer that is proportionate to the amount
of time which he or she devotes to performing services for Rome Bancorp.
Directors
Composition of Our Boards. Rome Bancorp has eight directors. Each belongs
to one of three classes with staggered 3-year terms of office. Two directors
are in Class One and have terms expiring in 2000. Three are in Class Two and
have terms expiring in 2001. Three are in Class Three and have terms expiring
in 2002. At each of the Rome Bancorp annual stockholder meetings, the
stockholders elect directors to fill the seats of those directors whose terms
are expiring in that year and any vacant seats. Rome Bancorp, as the sole
stockholder of Rome Savings, elects the Rome Savings directors.
Rome Savings currently has eight trustees. Each trustee is elected by the
board of trustees to serve until age 72. Upon the consummation of the
reorganization, the directors of Rome Savings will be divided into three classes
with staggered 3-year terms of office, similar to Rome Bancorp's Board of
Directors.
98
<PAGE>
Who Our Directors Are. The following table states our directors' names,
their ages as of their birthdays in 1998, their positions, the years they began
serving as directors (including time spent on the Board of Trustees of Rome
Savings in mutual form before the reorganization) and the years their current
terms as directors will expire:
<TABLE>
<CAPTION>
Bank Bancorp Bancorp
Trustee Director Term
Name Age Positions Since Since Expires
- ----------------------- ----- -------------------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Bruce R. Engelbert 61 Director of the Bank and Bancorp 1982 1999 2001
David C. Grow 55 Director of the Bank and Bancorp 1993 1999 2001
Kirk B. Hinman 47 Director of the Bank and Bancorp 1994 1999 2002
T. Richard Leidig 67 Director of the Bank and Bancorp 1976 1999 2001
Richard H. McMahon 68 Director of the Bank and Bancorp 1969 1999 2000
Charles M. Sprock 59 Chairman, President and Chief 1980 1999 2002
Executive Officer of the Bank and
Bancorp
Michael J. Valentine 56 Director of the Bank and Bancorp 1993 1999 2002
Marion C. Scoville 68 Director of the Bank and Bancorp 1994 1999 2000
</TABLE>
Our Directors' Backgrounds. The business experience of our directors is as
follows:
Charles M. Sprock has been Chairman of the Board, President and Chief
Executive Officer of the Bank since 1980. He currently serves as director for
the Institutional Investors Mutual Fund in New York City and also the Canterbury
Printing Company of Rome, Inc. in Rome, New York.
Bruce R. Engelbert has served as a director since 1982. From 1982 to 1995,
he was the President and 50% shareholder of Engelbert's Jewelers, Inc., a
retail jewelry business with one store in Rome, New York and another in New
Hartford, New York.
David C. Grow has been a director since 1993. He has been a partner at the
law firm of McMahon, Grow & Getty since 1975 which acts as counsel to Rome
Savings and conducts a general legal practice emphasizing real estate, estates
and banking.
Kirk B. Hinman became a director in 1994. He has also served as president
of the Rome Strip Steel Company, Inc. since 1989. His other directorships
include the Canterbury Printing Company of Rome, Inc., Enviromaster
International, Bartell Machinery Systems Corp. and Blue Cross Blue Shield of
Utica-Watertown, Inc.
T. Richard Leidig joined as a director in 1976. He is currently self-
employed as a business consultant. He served as Vice President of
Administration of Rome Cable Corp. until retiring from that position in 1986.
Richard H. McMahon became a director in 1969. He has been a partner at the
law firm of McMahon, Grow & Getty since 1964 which serves as counsel for Rome
Savings and engages in a general legal practice emphasizing real estate, estates
and banking.
Michael J. Valentine has served as a director since 1993. He has been the
President of Mele Manufacturing Company, Inc. in Utica, New York since 1985.
This company
99
<PAGE>
manufactures and imports products in the jewel case, stationery, custom
packaging and sports flooring businesses.
Marion C. Scoville has served as a director since 1994. She is currently
the Corporate Secretary and the Executive Assistant to the President. Ms.
Scoville has been with Rome Savings since 1956.
Meetings of the Board of Trustees and Its Committees
Our board of trustees meets on a monthly basis and may hold additional
special meetings. During 1998, the Rome Savings Board of Trustees held 12
regular meetings and 2 special meetings.
The Board of Trustees of Rome Savings and the Board of Directors of Rome
Bancorp maintain Executive, Examining and Management Committees with identical
compositions. The Board of Trustees of Rome Savings also maintains an Asset
Liability Management Committee.
Executive Committee The Executive Committee exercises the powers of the Board
of Trustees in between Board meetings. It approves loans
within the Rome Savings authority and reviews the loan
portfolio.
Messrs. Engelbert, Hinman, McMahon, Sprock and Valentine
currently serve as members of the Committee. Mr. Sprock
is the Chairman. The Committee met 24 times during 1998.
Examining Committee The Examining Committee oversees the audit process.
Meetings are called by our internal auditors.
Messrs. Engelbert, Hinman, Leidig and Valentine currently
serve as members of the Committee. Mr. Leidig is the
Chairman. The Committee met 1 time during 1998.
Management Committee The Management Committee assesses the structure of the
management team and the overall performance of Rome
Savings. It oversees executive compensation by approving
salary increases and reviews general personnel matters
such as staff performance evaluations.
Messrs. Hinman, McMahon, Sprock and Valentine serve on
the Committee. Mr. McMahon acts as Chairman. The
Committee met 6 times during 1998.
Asset Liability The Rome Savings Asset Liability Management Committee
Management Committee ("ALCO") meets with the Treasurer to oversee Rome
Savings' investments and asset liability structure.
100
<PAGE>
Messrs. Engelbert, Hinman, Leidig, McMahon, Sprock and
Valentine currently serve on the Committee. The Committee
met 12 times in 1998.
Director Compensation
Meeting Fees. Rome Savings pays a fee to each of its non-employee trustees
for attendance at each board meeting and each meeting of a committee of which
they are members. The following table sets forth the fees per meeting in effect
for 1999:
<TABLE>
<S> <C>
Board of Trustees Meeting $800
Executive Committee 275
All Other Committees 225
</TABLE>
Rome Savings paid fees totaling $129,565 to its non-employee trustees for the
year ended December 31, 1998.
Annual Retainer. Effective as of the completion of the reorganization, non-
employee directors of Rome Savings will be paid an annual retainer equal to
$8,000.
Executive Officers
Executive Officers Who are Not Directors or Trustees. In addition to Mr. Sprock
and Ms. Scoville, Rome Bancorp and Rome Savings have the following executive
officers:
Anthony B. Bauer, age 62, currently serves as Senior Vice President, a position
he has held for the last year. He began as Vice President in 1985. As the
Senior Vice President in charge of Operations, he supervises the checking, loan
servicing, and data processing departments.
David C. Nolan, age 45, has been the Treasurer and Chief Financial Officer
since 1993. His experience at the bank includes positions as the Chief
Accounting Officer, Manager of the Asset Liabilities Management Committee
("ALCO"), and Manager of fixed income portfolios.
James F. Sullivan, age 51, is currently the Vice President and Senior Loan
Officer of the bank, an office which he has held since 1997. He is responsible
in this capacity for the bank's loan portfolio. Beginning in 1992, he was first
the Assistant Vice President, and then the Vice President, in charge of
commercial lending for the bank.
D. Bruce Fraser, age 48, is the Vice President in charge of Branch
Administration and Security. Mr. Fraser oversees the operations of the branches
and security for Rome Savings.
Jeannette Remp Sawyer, age 68, is the Vice President in charge of Residential
Mortgage Lending.
101
<PAGE>
Executive Officer Compensation
Summary Compensation Table. The following table provides information about
the compensation paid for 1998 to our Chief Executive Officer. No other
officer's total annual salary and bonus for 1998 was at least $100,000.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
Name and Other Annual All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) (1) Compensation (2)
- ---------------------------------- ------- ------------ ---------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
Charles M. Sprock 1998 $199,732 -- $5,500 $9,140
Chairman, President and
Chief Executive Officer
</TABLE>
_____________________________
(1) $4,000 for club memberships and $1,500 for the use of an automobile.
(2) Includes the following components: (1) $5,000 employer contribution by
Rome Savings to a 401(k) plan for the benefit of Mr. Sprock; and (2) $4,140
as the premium cost for life insurance coverage under the group term
insurance plan, which has no cash surrender value.
Report of Independent Compensation Expert
Pursuant to the New York Banking Department's regulations governing the
reorganization, the Rome Savings must obtain the opinion of an independent
compensation consultant as to whether or not the total compensation for its
executive officers and directors of Rome Savings, viewed as a whole and on an
individual basis, is reasonable and proper in comparison to the compensation
provided to executive officers and directors of similar publicly-traded
financial institutions. Rome Savings has obtained an opinion from William M.
Mercer, Incorporated, which provides that, based upon published professional
survey data of similarly situated publicly-traded financial institutions
operating in the relevant markets, with respect to the total cash compensation
for executive officers and total remuneration for directors of Rome Savings,
such compensation, viewed as a whole and on an individual basis, is reasonable
and proper in comparison to the compensation provided to similarly situated
publicly-traded financial institutions,and that, with respect to the amount of
shares of Common Stock to be reserved under the ESOP, and expected to be
reserved to be reserved under the management recognition plan and the stock
option plan, as a whole, such amounts reserved for granting are reasonable in
comparison to similar publicly-traded financial institutions.
Employment Agreements
Rome Bancorp intends to enter into an employment agreement with Mr. Charles
M. Sprock to secure his services as Chairman, President and Chief Executive
Officer. The employment agreement will take effect on the effective date of the
reorganization. It has a rolling three-year term which a decision of the
executive or decision of Rome Bancorp may convert to a fixed three-year term.
This agreement provides for a minimum annual salary of $250,000, and
participation on generally applicable terms and conditions in other compensation
and fringe benefit plans. It also guarantees customary corporate
indemnification and errors and omissions insurance coverage throughout the
employment term and for six years after termination. The agreement provides for
the reimbursement of Mr. Sprock's ordinary and necessary business expenses, such
as travel and entertainment expenses, but does not guarantee any specific
executive perquisites, such as club memberships or automobile expenses.
Rome Bancorp may terminate Mr. Sprock's employment, and he may resign, at
any time with or without cause. However, in the event of termination by Rome
Bancorp during the term without cause, we will owe Mr. Sprock severance benefits
generally equal to the value of the cash compensation and fringe benefits that
the executive would have received if he had continued working for an additional
three years. In particular, Mr. Sprock would be entitled to: a lump sum payment
equal to the present value of the amount he would have earned in salary had he
continued working an additional three years; and a lump sum payment equal to the
present value of the additional contributions or benefits that he would have
earned under the Rome Savings pension plan, 401(k) plan and ESOP had he
continued work an additional three years. The employment agreement also provides
for the cash out of any stock options, appreciation rights or restricted stock
as if Mr. Sprock were fully vested at the time of his termination and the
continuation of coverage under the life, health, disability insurance plans of
Rome Savings or Rome Bancorp for an additional three years. The same severance
benefits would be payable if he resigns during the term following: a loss of
title, office or membership on the board of directors; material reduction in
duties, functions or responsibilities; involuntary relocation of Mr. Sprock's
principal place of employment to a location over 50 miles in distance from Rome
Savings' principal office in Rome, New York; or other material breach of
contract by Rome Bancorp which is not cured within 30 days. Mr. Sprock may
resign for any reason following a change in control and collect severance
benefits as if he had been discharged without cause. The employment agreement
also provides certain uninsured death and disability benefits.
Under the employment Mr. Sprock has agreed that in the event his employment
terminated, either voluntarily or involuntarily, under circumstances in which he
is not entitled to severance benefits, he will not compete with Rome Savings or
take a position with any of its competitors within Oneida County for a period of
one year.
If Rome Bancorp experiences a change in ownership, a change in effective
ownership or control or a change in the ownership of a substantial portion of
their assets as contemplated by section 280G of the Internal Revenue Code, a
portion of any severance payments under the employment agreement might
constitute an "excess parachute payment" under current federal tax laws. Any
excess parachute payment would be subject to a 20% federal excise tax payable by
the executive. Neither Rome Savings nor Rome Bancorp could claim a federal
income tax deduction
102
<PAGE>
for an excess parachute payment. The employment agreement requires Rome Bancorp
to indemnify Mr. Sprock against the financial effects of such an excise tax.
Benefit Plans
Pension Plans. Rome Savings maintains a tax-qualified pension plan that
covers substantially all employees who are age 21 and have at least one year of
service. Rome Savings also maintains a nonqualified Supplemental Executive
Retirement Plan that provides a supplemental retirement benefit to Mr. Sprock
equal in value to the additional benefits he would have been provided under the
tax-qualified pension plan but for the limits on benefits under tax-qualified
pension plans imposed by the Internal Revenue Code. The following table shows
the estimated aggregate benefits payable under the tax-qualified pension plan
and the Supplemental Executive Retirement Plan upon retirement at age 65 with
various years of service and average compensation combinations.
<TABLE>
<CAPTION>
Years of Benefit Service
Average -----------------------------------------------------
Compensation(1) 10 15 20 25 30
- ------------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 75,000 $15,000 $22,500 $ 30,000 $ 37,500 $ 45,000
$ 100,000 20,000 30,000 40,000 50,000 60,000
$ 125,000 25,000 37,500 50,000 62,500 75,000
$ 150,000 30,000 45,000 60,000 75,000 90,000
$ 160,000 32,000 48,000 64,000 80,000 96,000
$ 200,000 40,000 60,000 80,000 100,000 120,000
$ 250,000 50,000 75,000 100,000 125,000 150,000
</TABLE>
- ----------------------
(1) Average compensation is average base salary, as reported in the "Salary"
column of the Summary Compensation Table, for the highest three consecutive
years of employment within the final 10 years of employment. Tax laws
impose a limit ($160,000 for individuals retiring in 1998) on the average
compensation that may be counted in computing benefits under the tax-
qualified pension plan. For Mr. Sprock, benefits based on average
compensation in excess of this limit are payable by the Supplemental
Executive Retirement Plan.
The benefits shown in the preceding table are annual benefits payable in
the form of a single life annuity and are not subject to any deduction for
Social Security benefits or other offset amounts. As of December 31, 1998, Mr.
Sprock's average compensation was $192,101, and the number of years of service
credited to him under the plans was 30 years, the maximum that may be credited
under the plans. As of December 31, 1998, Mr. Sprock's total annual benefit
under the tax-qualified pension plan and the Supplemental Executive Retirement
Plan was $119,832, payable in the form of a life annuity commencing at age 65.
401(k) Plan. Rome Savings maintains a tax-qualified 401(k) defined
contribution plan for employees who have attained age 21 and have at least one
year of service. Eligible employees may make pre-tax contributions to the plan
through salary reduction elections from 1% to 15% of annual compensation,
subject to limitations of the Internal Revenue Code (for 1998, the annual limit
was $10,000). Rome Savings makes a matching contribution to the plan equal to
50% of the first six percent of annual compensation contributed to the plan on a
pre-tax basis by the eligible employee.
103
<PAGE>
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all salaried employees who have at least one year of
service and have attained age 21 and will take effect at the completion of the
reorganization.
Rome Bancorp intends to lend this plan enough money to purchase 8% of the
shares issued to investors other than Rome Bancorp, MHC. The plan will purchase
these shares from Rome Bancorp to the extent that shares are available after
filling the subscriptions of eligible account holders. Otherwise, the plan will
purchase these shares on the open market after completion of the reorganization
to the extent that shares are available for purchase on reasonable terms. If
this plan cannot purchase the shares that it wants directly from Rome Bancorp in
the offering, there is no assurance that it will purchase shares after the
reorganization, or that such purchases will occur during any particular time
period or at any particular price.
Although contributions to this plan will be discretionary, Rome Savings
Bank intends to contribute enough money each year to make the required principal
and interest payments on the loan from Rome Bancorp. It is expected that this
loan will be for a term of 10 to 20 years and will call for level annual
payments of principal and interest. The plan will initially pledge the shares it
purchases as collateral for the loan and hold them in a suspense account.
The plan will not distribute the pledged shares right away. Instead, it
will release a portion of the pledged shares annually. The plan will allocate
the shares released each year among the accounts of participants in proportion
to their salary for the year. For example, if a participant's salary for a year
represents 1% of the total salaries of all participants for the year, the plan
would allocate to that participant 1% of the shares released for the year.
Participants direct the voting of shares allocated to their accounts. Shares in
the suspense account will usually be voted in a way that mirrors the votes which
participants cast for shares in their individual accounts.
This plan may purchase additional shares in the future, and may do so using
borrowed funds, cash dividends, periodic employer contributions or other cash
flow.
Benefit Restoration Plan. Effective as of the reorganization, Rome Bancorp
intends to adopt a Benefit Restoration Plan for Mr. Sprock. This plan will
provide Mr. Sprock with the benefits that would otherwise be due to him as a
participant in the 401(k) plan and the employee stock ownership plan if such
benefits were not limited by certain provisions of the Internal Revenue Code.
In addition, in the event Mr. Sprock retires prior to the end of the ESOP loan
term, the plan will provide Mr. Sprock a benefit equal to the value of the
shares of Rome Bancorp that would have been allocated to his account under the
ESOP had he remained employed through the end of the ESOP loan term.
Rome Bancorp intends to establish an irrevocable "grantor trust" to hold
assets for the payment of benefits under this plan. The assets of the trust are
considered to be part of the general assets of Rome Bancorp and will be subject
to the claims of its general creditors. Earnings on the trust's assets will be
taxable to Rome Bancorp.
104
<PAGE>
Effect of the Reorganization on Existing Compensation Plans; Effect of a
Second Step Conversion Transaction on Existing and Future Benefit Plans and
Compensation Agreements. Our employment agreements, Employee Stock Ownership
Plan, and Benefit Restoration Plan provide additional and accelerated benefits
if we experience a change of control. Neither, the reorganization nor a second
step conversion will trigger additional benefits or accelerate benefits under
any of the plans or agreements.
Future Stock Benefit Plans
Stock Option Plan. We intend to implement a stock option plan for our
directors and officers after the reorganization. Applicable regulations
prohibit us from implementing this plan until 6 months after the reorganization.
If we implement this plan within one year after the reorganization, applicable
regulations require that we first obtain the approval of the holders of a
majority of the outstanding shares of Rome Bancorp that are not owned by Rome,
MHC. We have not decided whether we will implement this plan before or after
the one-year anniversary of the reorganization.
We expect to adopt a stock option plan that will authorize the Management
Committee to grant options to purchase up to 10% of the shares issued to
investors other than Rome, MHC over a period of 10 years. The Management
Committee will decide which directors and officers will receive options and what
the terms of those options will be. However, no stock option will permit its
recipient to purchase shares at a price that is less than the fair market value
of a share on the date the option is granted, and no option will have a term
that is longer than 10 years. If we implement a stock option plan before the
first anniversary of the reorganization, applicable regulations will require
that we observe the following restrictions:
. We must limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
. We must also limit the number of shares that are optioned to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are optioned to any executive officer to 25% of
the shares that are authorized for the plan.
. We must not permit the options to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
. We must not permit accelerated vesting for any reason other than
death or disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a stock option plan within one
year after the reorganization, we expect to amend the plan later to remove these
restrictions and to provide for accelerated vesting in cases of retirement and
change of control.
105
<PAGE>
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce Rome, MHC's ownership position to less than a majority of Rome Bancorp's
outstanding shares, we expect to obtain most or all of the shares for this plan
through stock repurchases.
We expect the stock option plan will permit the Management Committee to
grant either incentive stock options that qualify for special federal income tax
treatment or non-qualified stock options that do not qualify for special
treatment. Incentive stock options may be granted only to employees and will
not create federal income tax consequences when they are granted. If they are
exercised during employment or within three months after termination of
employment, the exercise will not create federal income tax consequences either.
When the shares acquired on exercise of an incentive stock option are resold,
the seller must pay federal income taxes on the amount by which the sales price
exceeds the purchase price. This amount will be taxed at capital gains rates if
the sale occurs at least two years after the option was granted and at least one
year after the option was exercised. Otherwise, it is taxed as ordinary income.
Non-qualified stock options may be granted to either employees or non-
employees such as directors, consultants and other service providers. Incentive
stock options that are exercised more than three months after termination of
employment are treated as non-qualified stock options. Non-qualified stock
options will not create federal income tax consequences when they are granted.
When they are exercised, federal income taxes must be paid on the amount by
which the fair market value of the shares acquired by exercising the option
exceeds the exercise price. When the shares acquired on exercise of a non-
qualified stock option are resold, the seller must pay federal income taxes on
the amount by which the sales price exceeds the purchase price plus the amount
included in ordinary income when the option was exercised. This amount will be
taxed at capital gains rates, which will vary depending upon the time that has
elapsed since the exercise of the option.
When a non-qualified stock option is exercised, Rome Bancorp and Rome
Savings may be allowed a federal income tax deduction for the same amount that
the option holder includes in his or her ordinary income. This amount may be
the same as the related compensation expense or it may be different. When an
incentive stock option is exercised, there is no tax deduction unless the shares
acquired are resold sooner than two years after the option was granted or one
year after the option was exercised.
Management Recognition Plan. We intend to implement a management
recognition plan for our directors and officers after the reorganization.
Applicable regulations prohibit us from implementing this plan until 6 months
after the reorganization. If we implement this plan within one year after the
reorganization, the regulations require that we first obtain the approval of the
holders of a majority of the outstanding shares of Rome Bancorp that are not
held by Rome, MHC. We have not decided whether we will implement this plan
before or after the one-year anniversary of the reorganization.
We expect to adopt a management recognition plan that will authorize the
Management Committee to make restricted stock awards of up to 4% of the shares
issued to investors other than Rome, MHC. The Management Committee will decide
which directors and officers will receive restricted stock and what the terms of
those awards will be. If we implement a
106
<PAGE>
management recognition plan before the first anniversary of the reorganization,
applicable regulations will require that we observe the following restrictions:
. We must limit the total number of shares that are awarded to outside
directors to 30% of the shares authorized for the plan.
. We must also limit the number of shares that are awarded to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are awarded to any executive officer to 25% of
the shares that are authorized for the plan.
. We must not permit the awards to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
. We must not permit accelerated vesting for any reason other than
death or disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a management recognition plan
within one year after the reorganization, we expect to amend the plan later to
remove these restrictions and to provide for accelerated vesting in cases of
retirement and change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce the Rome, MHC ownership position to less than a majority of Rome
Bancorp's outstanding shares, we expect to obtain most or all of the shares for
this plan through stock repurchases. Our ability to engage in stock repurchases
may be restricted by federal and state banking regulators. More specifically,
unless we are well-capitalized before and immediately after a stock repurchase,
we must give written notice to the Federal Reserve Bank of New York before
repurchasing our common stock if the dollar amount of the repurchase, together
with the dollar amounts of repurchases paid by us during the preceding 12
months, is equal to 10% or more of our consolidated net worth.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. They may feature restrictions that require the achievement of specified
corporate or individual performance goals for the award to be vested. Or, they
may feature a combination of employment and performance restrictions. Awards
are not vested unless the specified employment restrictions and performance
goals are met. However, pending vesting, the award recipient may have voting
and dividend rights. When an award becomes vested, the recipient must include
the current fair market value of the vested shares in his income for federal
income tax purposes. Rome Bancorp and Rome Savings may be allowed a federal
income tax deduction in the same amount. Depending on the nature of the
restrictions attached to the restricted stock award, Rome Bancorp and Rome
Savings may have to recognize a compensation expense for accounting purposes
ratably over the vesting period or in a single charge when the performance
conditions are satisfied.
107
<PAGE>
Certain Transactions with Managers and Executive Officers
We make residential mortgage loans to employees. These loans bear interest
at the same rate as loans offered to non-employee borrowers minus one-quarter
percent interest. The mortgage loans otherwise have the same underwriting terms
that apply to non-employee borrowers.
We retain the law firm of McMahon, Grow & Getty. David C. Grow and Richard
H. McMahon, both directors of Rome Bancorp, Rome Savings and Rome, MHC, are
partners of McMahon, Grow & Getty. For 1998, we paid $78,686 in legal fees to
this law firm.
All future affiliated transactions will be made or entered into on terms
that are no less favorable to the Company than those that can be obtained from
an unaffiliated third party. A majority of the independent, disinterested
members of the Company's board of directors must approve future affiliated
transactions and forgiveness of loans.
Proposed Purchases of Common Stock by Management
The following table presents, for each of our trustees and executive
officers, the amount of stock they wish to purchase in the offering. We have
assumed that a sufficient number of shares will be available to satisfy their
subscriptions. The amounts include shares that may be purchased through
individual retirement accounts and by associates of the managers and executive
officers. None of our trustees or executive officers expects to purchase more
than 1.0% of our common stock. Collectively our trustees and executive officers
expect to purchase a total of 188,214 shares, or 8.86% of shares we sell in the
offering (assuming the sale of 2,123,393 shares of common stock). These shares
do not include shares expected to be issued under any stock benefit plans of the
Company.
<TABLE>
<CAPTION>
Number
Name Amount of shares
- ----------------------------------------- ------------- -------------
<S> <C> <C>
Directors:
Bruce R. Engelbert....................... $ 150,000 21,428
David C. Grow............................ $ 100,000 14,285
Kirk B. Hinman........................... $ 150,000 21,428
T. Richard Leidig........................ $ 150,000 21,428
Richard H. McMahon....................... $ 150,000 21,428
Marion C. Scoville....................... $ 30,000 4,285
Charles M. Sprock........................ $ 150,000 21,428
Michael J. Valentine..................... $ 150,000 21,428
Executive Officers who are not Directors:
Anthony B. Bauer......................... $ 10,000 1,428
D. Bruce Fraser.......................... $ 2,500 357
David C. Nolan........................... $ 150,000 21,428
James F. Sullivan........................ $ 25,000 3,571
Jeannette Remp Sawyer.................... $ 100,000 14,285
---------- -------
Total to be purchased by directors and
executive officers...................... $1,317,500 188,214
========== =======
</TABLE>
108
<PAGE>
THE REORGANIZATION AND THE OFFERING
- --------------------------------------------------------------------------------
The Board of Trustees of Rome Savings has adopted and the Superintendent of the
New York State Department of Banking has approved the amended plan of
reorganization, subject to approval by Rome Savings' depositors entitled to vote
on the plan and the satisfaction of certain other conditions.
Approval by the Superintendent does not constitute a recommendation or
endorsement of the reorganization by the Superintendent.
- --------------------------------------------------------------------------------
General
On May 26, 1999, Rome Savings' Board of Trustees unanimously adopted the
amended plan of reorganization pursuant to which Rome Savings will convert and
reorganize into a mutual holding company structure. This reorganization
includes the formation of an intermediate stock holding company, Rome Bancorp,
and the offering by Rome Bancorp of a minority of its shares to depositors of
Rome Savings and certain other persons. Under the terms of the plan of
reorganization, Rome Bancorp will own all of the common stock of Rome Savings
and Rome, MHC will own at least 51% of the common stock of Rome Bancorp. The
reorganization will be effected as described under "--Tax Aspects" or in any
other manner that is permitted by the Superintendent and the FDIC and is
consistent with the intent of the plan of reorganization. See "Description of
Our Structure after the Reorganization " in the Summary section of this
prospectus for a chart which reflects our structure after the
reorganization.
Rome Bancorp and Rome, MHC have requested approval from the Federal Reserve
Bank of New York to become bank holding companies and to acquire Rome Savings.
The plan of reorganization was approved by the Superintendent, and Rome Savings
has received a notice of intent not to object to the plan of reorganization from
the FDIC, subject to, among other things, approval of the plan of reorganization
by the depositors of Rome Savings.
Rome Savings has called a special meeting of depositors for this purpose
which will be held on [ ], 1999. Depositors with deposit accounts
totaling at least $100 at Rome Savings on June 30, 1999 will be entitled to vote
at the special meeting. The plan of reorganization must be approved by (1) a
majority of the amount of votes entitled to be cast by voting depositors at the
special meeting; and (2) the affirmative vote of at least 75% in amount of
deposit liabilities of voting depositors represented in person or by proxy at
the Special Meeting. We will complete the reorganization only upon completion
of the sale of the shares of common stock offered in this prospectus and
approval of the plan of reorganization by the voting depositors.
The aggregate price of the shares of common stock to be issued in the
reorganization will be within the offering range. The offering range has been
established by the Board of Trustees to be between $11.0 million and $14.9
million and is based upon an independent appraisal of the estimated pro forma
market value of the common stock of Rome Bancorp. The appraisal was prepared by
RP Financial, a consulting firm experienced in the valuation and appraisal of
savings institutions. All shares of common stock to be sold in the offering
will be sold at the same price of $7.00 per share. The independent appraisal
will be affirmed or, if necessary, updated at the completion of the offering.
See "How We Determined the Offering Range and the $7.00 Price Per Share" for
additional information as to the determination of the estimated pro forma market
value of the common stock.
109
<PAGE>
- --------------------------------------------------------------------------------
The following is a brief summary of pertinent aspects of the reorganization. The
summary is qualified in its entirety by reference to the provisions of the
amended plan of reorganization. A copy of the plan is available from Rome
Savings upon request and is available for inspection at the offices of Rome
Savings and at the office of the Superintendent. The plan is also filed as an
exhibit to the Registration Statement of which this prospectus is a part, copies
of which may be obtained from the SEC. See "Where You Can Find Additional
Information."
- --------------------------------------------------------------------------------
Reasons for the Reorganization
Conversion of Rome Savings to a capital stock savings bank and its
acquisition by Rome Bancorp will permit Rome Bancorp to issue common stock,
which is a source of capital not available to mutual savings banks.
Rome Savings' mutual form of ownership will be preserved in Rome, MHC.
Rome, MHC, as a mutual savings bank holding company, will own at least 51% of
the common stock of Rome Bancorp as long as Rome, MHC remains in existence. The
reorganization will allow Rome Savings to achieve certain benefits of a stock
company without a loss of control that is possible in a full savings institution
conversion from mutual to stock form. In a standard conversion, a newly
converted savings institution or its newly formed holding company sells 100% of
its common stock in a single stock offering.
The proceeds from the sale of common stock of Rome Bancorp will provide
Rome Savings with new capital, which will support future deposit growth and
expanded operations. The ability of Rome Bancorp to sell additional common stock
also will enable Rome Bancorp and Rome Savings to increase their capital in
response to any future regulatory capital requirement levels. While Rome Savings
currently exceeds all regulatory capital requirements, the sale of common stock
in connection with the reorganization will assist Rome Savings with the orderly
preservation and expansion of its capital base and will provide flexibility to
respond to sudden and unanticipated capital needs.
In addition, since Rome Savings competes with local and regional banks not
only for customers, but also for employees, we believe that the ability of Rome
Bancorp to issue common stock will also afford us the opportunity to attract and
retain management and employees through various stock benefit plans, including
incentive stock option plans, stock award plans and employee stock ownership
plans.
After completion of the reorganization, the unissued common and preferred
stock authorized by Rome Bancorp's Certificate of Incorporation will permit Rome
Bancorp to raise additional equity capital through further sales of securities
and to issue securities in connection with possible acquisitions, subject to
market conditions and any required regulatory approval of an offering. Rome
Bancorp currently has no plans with respect to additional offerings of
securities. Following the reorganization, Rome Bancorp intends to use stock-
related incentive programs to attract and retain executive and other personnel
for itself and its subsidiaries. See "Management."
110
<PAGE>
The mutual holding company form of organization will provide additional
flexibility to diversify Rome Savings' business activities through newly-formed
subsidiaries, or through acquisitions of or mergers with both mutual and stock
savings institutions, as well as other companies. Although there are no current
arrangements, understandings or agreements, written or oral, regarding any such
opportunities, Rome Bancorp will be in a position after the reorganization to
take advantage of any such favorable opportunities that may arise. See "How We
Intend to Use the Proceeds from the Offering" for a description of our intended
use of proceeds.
While there are benefits associated with the mutual holding company form of
organization, this form of organization involves additional costs associated
with its maintenance and regulation, including additional administrative
expenses, taxes and regulatory filings or examination fees.
After considering the advantages and disadvantages of the reorganization,
as well as applicable fiduciary duties, the Board of Trustees of Rome Savings
unanimously approved the reorganization as being in the best interests of Rome
Savings, its depositors and the communities it serves.
Effects of the Reorganization
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the equity of
the savings institution based upon the balance in the depositor's account. This
ownership interest may only be realized in the event of a liquidation of the
savings institution. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from such deposit account. Any
depositor who opens a deposit account obtains a pro rata ownership interest in
the equity of the institution without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes their account receives the
balance in the account but receives nothing for such depositor's ownership
interest in the equity of the institution, which is lost to the extent that the
balance in the account is reduced. Consequently, depositors of a mutual savings
bank have no way to realize the value of their ownership interest, except in the
unlikely event that the mutual savings bank is liquidated. In such event, the
depositors of record at that time would share pro rata in any residual surplus
and reserves after other claims, including claims of depositors to the amounts
of their deposits, are paid.
When a mutual savings bank converts to stock form, permanent non-
withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of depositors is
thereafter represented exclusively by their liquidation rights. Such capital
stock is separate and apart from deposit accounts and cannot be and is not
insured by the FDIC or any other governmental agency. Certificates are issued
to evidence ownership of the capital stock. The stock certificates are
transferable, and, therefore, the stock may be sold or traded with no effect on
any deposit account the seller may hold in the institution.
Continuity. During the reorganization process, and after completion of the
reorganization, the routine business of Rome Savings of accepting deposits and
making loans will continue
111
<PAGE>
without interruption. Rome Savings will continue to be subject to regulation by
the Superintendent and the FDIC. After the reorganization, Rome Savings will
continue to provide services for depositors and borrowers under current policies
by its management and staff.
The Board of Trustees serving Rome Savings immediately before the
reorganization will serve as directors of Rome Savings and Rome Bancorp after
the reorganization. The trustees of Rome, MHC will consist of all of the
individuals currently serving on the Board of Trustees of Rome Savings and at
least one person not a trustee of Rome Savings to represent the interest of the
minority shareholders. We anticipate that all officers of Rome Savings serving
immediately before the reorganization will retain their positions after the
reorganization. See "Management."
Deposit Accounts and Loans. Under the plan of reorganization, each
depositor in Rome Savings at the time of the reorganization will automatically
continue as a depositor after the reorganization. Each deposit account will
remain the same with respect to deposit balance, interest rate and other terms,
except to the extent affected by withdrawals made to purchase common stock in
the offering. See "-- Procedure for Purchasing Shares in Subscription and
Community Offerings." Each deposit account will be insured by the FDIC to the
same extent as before the reorganization (i.e., up to $100,000 per depositor).
Depositors will continue to hold their existing certificates of deposit,
passbooks and other evidences of their accounts.
Furthermore, no loan outstanding from Rome Savings will be affected by the
reorganization, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the reorganization.
Voting Rights of Depositors. Voting rights and control of Rome Savings, as
a mutual savings bank, are vested in the Board of Trustees. After the
reorganization, direction of Rome Savings will be under the control of the Board
of Directors of Rome Savings. Rome Bancorp, as the holder of all of the
outstanding common stock of Rome Savings, will have exclusive voting rights with
respect to any matters concerning Rome Savings requiring stockholder approval,
including the election of directors of Rome Savings.
After the reorganization, the holders of the common stock of Rome Bancorp
will have exclusive voting rights with respect to any matters concerning Rome
Bancorp. These voting rights will be exclusive except to the extent Rome
Bancorp in the future issues preferred stock with voting rights. Each holder of
common stock will be entitled to vote on any matters to be considered by Rome
Bancorp's stockholders, including the election of directors of Rome Bancorp,
subject to the restrictions and limitations set forth in Rome Bancorp's
Certificate of Incorporation. These restrictions and limitations are discussed
below.
By virtue of its ownership of a majority of the outstanding shares of
common stock, Rome, MHC will be able to elect all members of the Board of
Directors of Rome Bancorp and generally will be able to control the outcome of
most matters presented to the stockholders of Rome Bancorp for resolution by
vote. However, current regulations and regulatory policies require that
adoption of a stock option plan, restricted stock plan or second step conversion
of Rome, MHC be approved by a majority vote of the shares held by the public
stockholders (i.e., all stockholders except Rome, MHC).
112
<PAGE>
Rome, MHC will be controlled by its Board of Trustees, which will initially
consist of the current trustees of Rome Savings and at least one person not a
trustee of Rome Savings to represent the interests of the minority stockholders.
Under the mutual form of ownership, existing trustees elect new trustees, which
can perpetuate existing management and control of Rome, MHC, and thereby Rome
Bancorp and Rome Savings.
Depositors' Rights if We Liquidate; Liquidation Account. In the unlikely
event of a complete liquidation of Rome Savings in its current mutual form, each
depositor would receive a pro rata share of any assets of Rome Savings remaining
after payment of claims of all creditors (including the claims of all depositors
to the withdrawable value of their accounts). Each depositor's pro rata share of
such liquidating distribution would be in the same proportion as the value of
such depositor's deposit account was to the total value of all deposit accounts
in Rome Savings at the time of liquidation.
Upon a complete liquidation of Rome Savings after the reorganization, each
depositor would have a claim as a creditor of the same general priority as the
claims of all other general creditors of Rome Savings. However, except as
described below, a depositor's claim would be solely for the amount of the
balance in such depositor's deposit account plus accrued interest. Such
depositor would not have an interest in the value or assets of Rome Savings
above that amount. Instead, the holder of Rome Savings' common stock (i.e.,
Rome Bancorp) would be entitled to any assets remaining upon a liquidation of
Rome Savings.
The plan of reorganization provides for the establishment, upon the
completion of the reorganization, of a special "liquidation account" for the
benefit of eligible account holders and supplemental eligible account holders in
an amount equal to the net worth of Rome Savings as of the date of its latest
balance sheet contained in this prospectus. Upon a complete liquidation of Rome
Savings after the reorganization, each eligible account holder and supplemental
eligible account holder, who continues to maintain such account holder's deposit
account at Rome Savings, would be entitled to an interest in the liquidation
account prior to any payment to the holders of Rome Savings' capital stock.
Each eligible account holder and supplemental eligible account holders will have
a pro rata interest in the total liquidation account for the account holder's
deposit accounts based on the proportion that the aggregate balance of such
person's qualifying deposit accounts on December 31, 1997 (the eligibility
record date) and June 30, 1999 (the supplemental eligibility record date), as
applicable, bore to the aggregate balance of all qualifying deposit accounts of
all eligible account holders and supplemental eligible account holders. For
this purpose, qualifying deposit accounts include all savings, time, demand,
negotiable orders of withdraw (NOW), money market and passbook accounts
maintained at Rome Savings (excluding any escrow accounts).
If, however, on any annual closing date (i.e., the anniversary of the
eligibility record date or supplemental eligibility record date, as applicable)
of Rome Savings, commencing on or after the effective date of the
reorganization, the amount in any deposit account is less than the amount in
such deposit account on December 31, 1997 (with respect to an eligible account
holder), or June 30, 1999 (with respect to a supplemental eligible account
holder) or any other annual closing date, then the interest in the liquidation
account relating to the deposit account would be reduced from time to time by
the proportion of any such reduction, and such interest will cease to exist if
such deposit account is closed. For purposes of the liquidation account, time
deposit
113
<PAGE>
accounts will be deemed to be closed upon maturity regardless of renewal. In
addition, no interest in the liquidation account would ever be increased despite
any subsequent increase in the related deposit account.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders are satisfied would be
distributed to Rome Bancorp as the sole stockholder of Rome Savings.
Upon a complete liquidation of Rome Bancorp, each holder of shares of the
common stock of Rome Bancorp, including Rome, MHC, would be entitled to receive
a pro rata share of Rome Bancorp's assets, following payment of all debts,
liabilities and claims of greater priority of or against Rome Bancorp including
the rights of depositors in the liquidation account of Rome Savings, if any.
If liquidation of Rome, MHC occurs following completion of the
reorganization, all depositors of Rome Savings at that time will be entitled,
pro rata to the value of their deposit accounts, to a distribution of any assets
of Rome, MHC remaining after payment of all debts and claims of creditors.
Tax Aspects. The reorganization may be effected in any manner approved by
the Superintendent that is consistent with the purposes of the plan of
reorganization and applicable law, regulations and policies. However, Rome
Savings intends to consummate the reorganization using a series of transactions
as described below. This structure enables Rome Savings to retain all of its
historical tax attributes and produces significant savings to Rome Savings
because it simplifies regulatory approvals and conditions associated with the
completion of the reorganization.
The merger structure will be accomplished as follows:
(1) Rome Savings will organize Rome, MHC initially as an interim New York
stock savings bank as its wholly owned subsidiary;
(2) Rome, MHC will organize a capital stock corporation under Delaware law
(i.e., Rome Bancorp) as its wholly owned subsidiary that will
subsequently hold 100% of Rome Savings' common stock;
(3) Rome, MHC will also organize an interim New York stock savings bank as
its wholly owned subsidiary ("Interim") and the following transactions
will occur simultaneously;
(4) Rome Savings will exchange its charter for a New York stock savings
bank charter (the "Conversion");
(5) Rome, MHC (while in its stock form) will cancel its outstanding stock
and exchange its charter for a New York mutual savings bank holding
company charter;
114
<PAGE>
(6) Interim will merge with and into Rome Savings with Rome Savings being
the surviving institution; and
(7) the initially issued stock of Rome Savings (which will be
constructively received by former Rome Savings depositors when Rome
Savings becomes a stock savings bank pursuant to step (4)) will be
issued to Rome, MHC in exchange for liquidation interests in Rome, MHC
which will be held by Rome Savings' depositors (the "Exchange").
Rome, MHC will then contribute 100% of the stock of Rome Savings to Rome
Bancorp, which will be a wholly owned subsidiary of Rome, MHC. Rome Bancorp
will subsequently offer for sale 47% of its common stock pursuant to the plan of
reorganization. As a result of these transactions, (a) Rome Savings will be a
wholly owned subsidiary of Rome Bancorp; (b) Rome Bancorp will be a majority
owned subsidiary of Rome, MHC; and (c) the depositors of Rome Savings will hold
membership interests in Rome, MHC.
Under this structure: (i) the Conversion is intended to be a tax-free
reorganization under Code section 368(a)(1)(F); and (ii) the Exchange is
intended to be a tax-free exchange under Code section 351.
Under the plan of reorganization, consummation of the reorganization is
conditioned upon, among other things, the prior receipt by Rome Savings of
either a private letter ruling from the IRS and from the New York taxing
authorities or an opinion of Rome Savings' counsel as to the federal income tax
consequences and from KPMG LLP as to the New York income tax consequences of the
reorganization to Rome Savings' (in both its mutual and stock form), Rome
Bancorp and depositors. In Revenue Procedure 99-3, 1999-1 I.R.B. 103, the IRS
announced that it will not rule on whether a transaction qualifies as a tax-free
reorganization under Code section 368(a)(1)(F) or as a tax-free exchange of
stock for stock in the formation of a holding company under Code section 351,
but that it will rule on significant sub-issues that must be resolved to
determine whether the transaction qualifies under either of these Code
sections.
Based in part upon certain factual representations of Rome Savings or its
officers, Thacher Proffitt & Wood has issued its opinion regarding certain
federal income tax consequences of the reorganization.
In the following discussion, "Mutual Bank" refers to Rome Savings before
the reorganization and "Stock Bank" refers to Rome Savings after the
reorganization.
With regard to the reorganization, Thacher Proffitt & Wood has issued an
opinion that:
(1) the Conversion will constitute a "reorganization" under Code section
368(a)(1)(F), and Rome Savings (in either its status as Mutual Bank or
Stock Bank) will recognize no gain or loss as a result of the
Conversion;
115
<PAGE>
(2) the basis of each asset of Mutual Bank received by Stock Bank in the
Conversion will be the same as Mutual Bank's basis for such asset
immediately prior to the Conversion;
(3) the holding period of each asset of Mutual Bank received by Stock Bank
in the reorganization will include the period during which such asset
was held by Mutual Bank prior to the Conversion;
(4) For purposes of Code section 381(b), Stock Bank will be treated as if
there had been no reorganization and, accordingly, the taxable year of
the Mutual Bank will not end on the effective date and the tax
attributes of Mutual Bank (subject to application of Code sections
381, 382, and 384), including Mutual Bank's tax bad debt reserves and
earnings and profits, will be taken into account by Stock Bank as if
there had been no conversion.
(5) Mutual Bank's depositors will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank common stock solely in
exchange for their membership interest in Mutual Bank;
(6) no gain or loss will be recognized by the depositors of Rome Savings
(formerly Mutual Bank) upon the transfer to Rome, MHC of shares of
Stock Bank common stock they constructively received in the Conversion
in exchange for membership interests in Rome, MHC; and
(7) no gain or loss will be recognized by depositors of Mutual Bank upon
the issuance to them of deposits in Stock Bank in the same dollar
amount as their deposits in the Mutual Bank.
Unlike private rulings of the IRS, an opinion of counsel is not binding on
the IRS and the IRS could disagree with conclusions reached in the opinion. If
there is a disagreement, we can not guarantee that the IRS would not prevail in
a judicial or administrative proceeding.
KPMG LLP has opined, subject to the limitations and qualifications in its
opinion, that, for purposes of the New York corporate income tax, the
reorganization will not become a taxable transaction to Rome Savings (in either
its status as Mutual Bank or Stock Bank), Rome, MHC, Rome Bancorp, the
stockholders of Rome Bancorp or the depositors of Rome Savings.
Accounting Consequences. The reorganization will be accounted for in a
manner similar to a pooling-of-interests under generally accepted accounting
principles. Accordingly, the carrying value of our assets, liabilities, and
capital will be unaffected by the reorganization and will be reflected in the
Rome Bancorp's and Rome Savings' consolidated financial statements based on
their historical amounts.
Why we are establishing The Rome Savings Bank Foundation
General. In order to further our commitment to the local community, the
plan of reorganization provides for the establishment of a charitable foundation
in connection with the
116
<PAGE>
reorganization. The plan provides that Rome Savings and Rome Bancorp will
incorporate the foundation under Delaware law as a non-stock corporation, and
will fund the foundation with Rome Bancorp common stock. We believe that the
funding of the foundation with common stock is a means to establish a common
bond between Rome Savings and its community, enabling the community to share in
the potential growth and success of Rome Bancorp. The funding of the foundation
with stock also provides the foundation with a potentially larger endowment than
if Rome Bancorp contributed cash to the foundation since, as a shareholder, the
foundation will share in the potential growth and success of Rome Bancorp. As
such, the contribution of stock to the foundation has the potential to provide a
self-sustaining funding mechanism which reduces the amount of cash that Rome
Bancorp, if it were not making the stock donation, would have to contribute to
the foundation in future years in order to maintain a level amount of charitable
grants and donations. By further enhancing Rome Savings's visibility and
reputation in its local community, we believe that the foundation will enhance
the long-term value of our community banking franchise. We will dedicate the
foundation to charitable purposes within our local community, including
community development activities.
Purpose of the Foundation. The purpose of the foundation is to provide
funding to support charitable causes and community development activities. In
recent years, Rome Savings has emphasized community lending and community
development activities within our local community. We received a satisfactory
CRA rating in our last CRA examination. We are forming the foundation to
complement our existing community activities, not to replace them. We intend to
continue to emphasize community lending and community development activities
following the reorganization. These activities, however, are not our sole
corporate purpose. We will dedicate the foundation completely to community
activities and the promotion of charitable causes, and may be able to support
such activities in ways that are not presently available to us. The Board of
Trustees believes the establishment of the foundation is consistent with Rome
Savings' commitment to community service. The Board also believes that the
funding of the foundation with common stock is a means of enabling Rome Savings'
community to share in the potential growth and success of Rome Bancorp after
completion of the reorganization. The foundation will accomplish that goal
by:
. providing for continued ties between the foundation and Rome Savings
and forming a partnership with the community;
. enabling Rome Savings and Rome Bancorp to develop a unified
charitable donation strategy;
. centralizing the responsibility for administration and allocation of
corporate charitable funds.
We do not expect the contribution to the foundation to take the place of Rome
Savings' traditional community lending and charitable activities.
Structure of the Foundation. We will incorporate the foundation under
Delaware law as a non-stock corporation. The foundation's Certificate of
Incorporation provides that it is organized only for charitable purposes,
including community development, as stated in Section 501(c)(3) of the Code. The
foundation's Certificate of Incorporation also provides that no part of the net
earnings of the foundation will inure to the benefit of, or be distributable to
its directors, officers or members. A majority of the Board of Directors of the
foundation will consist of
117
<PAGE>
individuals who are officers or trustees of Rome Savings, and the remaining
members of the Board will consist of civic and community leaders within our
local community. A Nominating Committee of the Board, comprised of a minimum of
three members of the Board, will nominate individuals eligible for election to
the Board of Directors. The members of the foundation, who are comprised of its
Board members, will elect the directors at the annual meeting of the foundation
from those nominated by the Nominating Committee. Only persons serving as
directors of the foundation qualify as members of the foundation, with voting
authority. Directors will be divided into three classes with each class
appointed for three-year staggered terms.
The authority for the affairs of the foundation will be vested in the Board
of Directors of the foundation. The directors of the foundation will be
responsible for establishing the policies of the foundation with respect to
grants or donations by the foundation, consistent with the foundation's
purposes. Although no formal policy governing foundation grants exists at this
time, the foundation's Board of Directors will adopt a policy upon establishment
of the foundation. As directors of a non-profit corporation, directors of the
foundation will at all times:
. be bound by their fiduciary duty to advance the foundation's
charitable goals;
. to protect the assets of the foundation; and
. to act in a manner consistent with the charitable purpose for which
the foundation is established.
The directors of the foundation will also be responsible for directing the
activities of the foundation, including the management of the Rome Bancorp
common stock held by the foundation. However, as a condition to receiving the
approval of the Banking Department and the non-objection of the FDIC to Rome
Savings reorganization, the foundation will commit in writing to the FDIC that
all shares of common stock will be voted in the same ratio as all other shares
of the common stock on all proposals considered by shareholders of Rome Bancorp;
provided, however, that, consistent with the condition, the Banking Department
and the FDIC shall waive this voting restriction under certain circumstances if
compliance with the voting restriction would:
(a) cause a violation of the law of the State of Delaware;
(b) cause the foundation to lose its tax-exempt status, or cause the IRS
to deny the foundation's request for a determination that it is an
exempt organization or otherwise have a material and adverse tax
consequence on the foundation; or
(c) cause the foundation to be subject to an excise tax under Section 4941
of the Code.
In order for the Banking Department and the FDIC to waive such voting
restriction, Rome Bancorp's or the foundation's legal counsel must render an
opinion satisfactory to Banking Department and the FDIC that compliance with the
voting restriction would have an effect described in clauses (a), (b) or (c)
above. Under those circumstances, the Banking Department and the FDIC shall
grant a waiver of the voting requirement upon submission of such legal
opinion(s) by the Rome Bancorp or the foundation that are satisfactory to the
Banking Department and the FDIC. In the event that the Banking Department and
the FDIC were to waive such voting requirement, the directors would direct the
voting of the common stock held by the
118
<PAGE>
foundation. There can be no assurances that a legal opinion addressing these
issues will be rendered, or if rendered, that the Banking Department and the
FDIC will grant an unconditional waiver of the voting restriction. If a waiver
is granted, conditions involving the composition of the board of directors may
be imposed. In no event will the voting restriction survive the sale of shares
of the common stock held by the foundation.
The foundation's place of business will be located at Rome Savings'
administrative offices. Initially, we expect the foundation to have no
employees but to utilize our staff. The Board of Directors of the foundation
will appoint officers to manage the operations of the foundation. Rome Savings
has provided the FDIC with a commitment that, to the extent applicable, it will
comply with the affiliate restrictions set forth in Sections 23A and 23B of the
Federal Reserve Act with respect to any transactions between Rome Savings and
the foundation.
Rome Bancorp intends to capitalize the foundation with common stock in an
amount equal to 2.0% of the total amount of common stock to be issued in
connection with the reorganization. At the minimum, midpoint and maximum of the
estimated price range, the contribution to the foundation would equal 66,786,
78,571 and 90,357 shares, which would have a market value of $467,502, $549,997
and $632,499, respectively, assuming the purchase price of $7.00 per share. Rome
Bancorp and Rome Savings are (or have) determined to fund the foundation with
common stock to form a bond with the community in a manner that allows the
community to share in the potential growth and success of Rome Bancorp and Rome
Savings.
The foundation will receive working capital from any dividends that may be
paid on Rome Bancorp's common stock in the future, and subject to applicable
federal and state laws, loans collateralized by the common stock or from the
proceeds of the sale of any of the common stock in the open market from time to
time as may be permitted to provide the foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of common stock by Rome Bancorp is that the amount of common
stock that may be sold by the foundation in any one year shall not exceed 5% of
the average market value of the assets held by the foundation, except where the
Board of Directors of the foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the foundation's assets and as such would jeopardize
the foundation's capacity to carry out its charitable purposes. Upon completion
of the reorganization and the contribution of shares to the foundation
immediately following the reorganization, Rome Bancorp would have 3,339,285,
3,928,571 and 4,517,857 shares issued and outstanding at the minimum, midpoint
and maximum of the Estimated Price Range. For additional discussion of the
dilutive effect, see "Pro Forma Data."
Tax Considerations. Thacher Proffitt & Wood has advised Rome Bancorp and
Rome Savings that an organization created for the above purposes would qualify
as an organization exempt from taxation under Section 501(c)(3) of the Code, and
would likely be classified as a private foundation. The foundation will submit
an application to the IRS to be recognized as an exempt organization. If the
foundation files an application within 15 months from the date of its
organization, and if the IRS approves the application, the effective date of the
foundation's status as a Section 501(c)(3) organization will be retroactive to
the date of its organization. Thacher
119
<PAGE>
Proffitt & Wood, however, has not rendered any advice on the condition to the
contribution to be agreed to by the foundation which requires that all shares of
Rome Bancorp common stock held by the foundation must be voted in the same ratio
as all other outstanding shares of common stock on all proposals considered by
shareholders of Rome Bancorp. Consistent with this condition, in the event that
Rome Bancorp or the foundation receives an opinion of its legal counsel that
compliance with this voting restriction would have the effect of causing the
foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the foundation, or subject the foundation to an
excise tax for "self-dealing" under Section 4941 of the Code, the FDIC will
waive such voting restriction upon submission by Rome Bancorp or the foundation
of a legal opinion(s) to that effect satisfactory to the FDIC. See "--
Regulatory Conditions Imposed on the foundation."
Under the Code, Rome Bancorp is generally entitled to a deduction for
charitable contributions in an amount not exceeding 10% of its taxable income
(computed without regard to the contributions) for the year of the contribution,
and any contributions in excess of the deductible amount may generally be
carried forward and deducted in Rome Bancorp's five succeeding taxable years,
subject, in each such year, to the 10% of taxable income limitation. Rome
Bancorp and Rome Savings believe that the reorganization presents a unique
opportunity to establish and fund a charitable foundation given the substantial
amount of additional capital being raised in the reorganization. In making such
a determination, Rome Savings and Rome Bancorp considered the dilutive impact of
the contribution of common stock to the foundation on the common stock available
to be offered for sale in the reorganization. Based on such considerations,
Rome Bancorp and Rome Savings believe that the contribution to the foundation in
excess of the 10% annual limitation is justified given Rome Savings' capital
position and its earnings, the substantial additional capital being raised in
the reorganization and the potential benefits of the foundation to the
community. In this regard, assuming the sale of the common stock at the maximum
of the Estimated Price Range, Rome Bancorp would have pro forma consolidated
capital of $41.2 million or 17.4% of pro forma consolidated assets and Rome
Savings pro forma leverage and risk-based capital ratios would be 14.7% and
26.1%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No foundation." Thus,
the amount of the contribution will not adversely impact the financial condition
of Rome Savings and Rome Bancorp, and Rome Bancorp and Rome Savings
therefore believe that the amount of the charitable contribution is reasonable
and will not raise safety and soundness concerns.
Rome Bancorp and Rome Savings have received the opinion of Thacher Proffitt
& Wood that Rome Bancorp's contribution of its own stock to the foundation would
not constitute an act of self-dealing, and that Rome Savings will be entitled to
a deduction in the amount of the fair market value of the stock at the time of
the contribution, subject to the 10% of taxable income limitation. As discussed
above, Rome Savings will generally be able to carry forward and deduct any
portion of the contribution in excess of such 10% limitation for five years
following the year of the contribution. If Rome Savings and the foundation had
been established in the fiscal year ended December 31, 1998, Rome Savings would
have been entitled to a charitable contribution deduction in its taxable year
ended December 31, 199[] of approximately $[] and would have been able to carry
forward and deduct approximately $[] million over its next succeeding five
taxable years (based on the Bank's pre-tax income for 199[] and a contribution
in 199[] of
120
<PAGE>
Common Stock equal to $[]). Assuming the close of the offerings at the midpoint
of the estimated price range, we estimate that the entire amount of the
contribution should be deductible over a six-year period. We do not expect to
make any further contributions to the foundation within the first five years
following the initial contribution. After that time, we may consider future
contributions to the foundation. Any decisions would be based on an assessment
of, among other factors, the financial condition of Rome Bancorp and Rome
Savings at that time, the interests of shareholders and depositors of Rome
Bancorp and Rome Savings, and the financial condition and operations of the
foundation.
Although we have received the opinion of Thacher Proffitt & Wood that Rome
Bancorp is entitled to a deduction for the charitable contribution, there can be
no assurances that the IRS will recognize the foundation as an organization
exempt from taxation under section 501(c)(3) of the Code or that the deduction
will be permitted. If the IRS successfully maintains that the foundation is not
so exempt or that the deduction is not permitted, our tax benefit related to the
contribution to the foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors -- Establishment of Charitable Foundation."
In general, the income of a private foundation is exempt from federal and
New York taxation. However, investment income, such as interest, dividends and
capital gains, will be subject to a federal excise tax of 2.0%. The foundation
will be required to make an annual filing with the IRS within four and one-half
months after the close of the foundation's taxable year to maintain its tax-
exempt status. The foundation will also be required to publish a notice that the
annual information return will be available for public inspection for a period
of 180 days after the date of public notice. The information return for a
private foundation must include, among other things, an itemized list of all
grants made or approved, showing the amount of each grant, the recipient, any
relationship between a grant recipient and the foundation's managers, and a
concise statement of the purpose of each grant. The foundation will also be
required to file an annual report with the Charities Bureau of the Office of the
Attorney General of the State of New York.
Regulatory Conditions Imposed on the Foundation. Establishment of the
foundation is subject to the following conditions to be agreed to by the
foundation in writing as a condition to receiving the approval of the Banking
Department and the FDIC's non-objection of reorganization of Rome Savings:
. the foundation will be subject to examination by the Banking
Department and the FDIC;
. the foundation must comply with supervisory directives imposed by the
Banking Department and the FDIC;
. the foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest
policy; and
. any shares of common stock held by the foundation must be voted in
the same ratio as all other outstanding shares of common stock on all
proposals considered by shareholders; provided, however, that,
consistent with the condition, the Banking Department and the FDIC
shall waive this voting restriction under certain circumstances, as
discussed in "Structure of the Foundation" above.
121
<PAGE>
How We Determined the Offering Range and the $7.00 Price Per Share
The plan of reorganization requires that the purchase price of the common
stock must be based on the appraised pro forma market value of the common stock,
as determined on the basis of an independent valuation. Rome Savings and Rome
Bancorp have retained RP Financial to make the independent valuation. RP
Financial's fees for its services in making such appraisal are estimated to be
$25,000. Rome Savings and Rome Bancorp will indemnify RP Financial and its
employees and affiliates against losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where RP Financial's liability results from its negligence or
bad faith.
An appraisal has been made by RP Financial in reliance upon the information
contained in this prospectus, including the financial statements. RP Financial
also considered the following factors, among others:
. the present and projected operating results and financial condition
of Rome Bancorp and Rome Savings, and the economic and demographic
conditions in Rome Savings' existing market area;
. historical, financial and other information relating to Rome Savings;
. a comparative evaluation of the operating and financial statistics of
Rome Savings with those of other publicly traded mutual holding
companies;
. the aggregate size of the offering of the common stock;
. the impact of the reorganization on Rome Savings' equity and earnings
potential;
. the proposed dividend policy of Rome Bancorp and Rome Savings; and
. the trading market for securities of comparable institutions and
general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised Rome Bancorp and
Rome Savings that, in its opinion, dated May 28, 1999, the estimated pro forma
market value of the common stock on a fully converted basis ranged from a
minimum of $23.4 million to a maximum of $31.6 million with a midpoint of $27.5
million (the "estimated valuation range").
The Board of Trustees of Rome Savings held a meeting to review and discuss
the original appraisal report prepared by RP Financial. Representatives of RP
Financial participated in the meeting to explain the contents of the appraisal
report. The Board of Trustees reviewed the methods that RP Financial used to
determine the pro forma market value of the common stock and the appropriateness
of the assumptions that RP Financial used in determining this value. The board
of trustees determined that 47% of the shares to be issued by Rome Bancorp will
be offered to public stockholders. In addition the board of trustees determined
that the common stock will be sold at $7.00 per share.
The Board of Trustees established an offering range of $11.0 million to
$14.9 million, with a midpoint of $12.9 million. Rome Bancorp expects to issue
between 1,569,464 and
122
<PAGE>
2,123,393 shares of common stock for the offering. The offering range takes into
account that Rome Savings must be a majority-owned subsidiary of Rome Bancorp or
Rome, MHC as long as Rome, MHC is in existence. The estimated valuation range
and the offering range may be amended with the approval of the Superintendent
and FDIC (if required), due to subsequent developments in the financial
condition of Rome Bancorp or Rome Savings or market conditions generally.
- --------------------------------------------------------------------------------
The valuation prepared by RP Financial is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
such shares. RP Financial did not independently verify the financial statements
and other information provided by Rome Savings, nor did RP Financial value
independently the assets or liabilities of Rome Savings. The valuation considers
Rome Savings as a going concern and should not be considered as an indication of
the liquidation value of Rome Savings. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing such shares in the reorganization will thereafter be able to
sell such shares at prices at or above the purchase price.
- --------------------------------------------------------------------------------
The maximum of the estimated valuation range may be increased up to 15% and
the number of shares of common stock to be issued in the reorganization may be
increased to 2,441,902 shares due to regulatory considerations, changes in the
market and general financial and economic conditions without the resolicitation
of subscribers. See "-- Limitations on Common Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the estimated valuation range to fill unfilled orders in
the subscription and community offerings.
We may not sell any shares of common stock unless RP Financial confirms to
Rome Savings, Rome Bancorp, the Superintendent and the FDIC that, to the best of
its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, would cause RP Financial to conclude that the
aggregate value of the common stock is incompatible with its estimate of the pro
forma market value of the common stock at the conclusion of the offering.
If RP Financial concludes that the pro forma market value of the common
stock is either more than 15% above the maximum of the estimated valuation range
or less than the minimum of the estimated valuation range, Rome Savings and Rome
Bancorp, after consulting with the Superintendent and the FDIC, may:
(1) terminate the plan and return all funds promptly with interest at Rome
Savings' passbook rate of interest on payments made by check, bank
check or money order;
(2) establish a new estimated valuation range and either;
(a) hold new subscription and community offerings; or
(b) provide subscribers the opportunity to change or cancel their
orders (a "resolicitation");
123
<PAGE>
(3) take such other actions as permitted by the Superintendent and the FDIC
in order to complete the reorganization.
If a resolicitation is commenced, unless an affirmative response is received
from a subscriber within a designated period of time, all funds will be promptly
returned to the subscriber as described above.
To fund the foundation, the number of shares issued in the offering will
increase by the number of shares equal to 4.3% of the common stock sold in the
offering.
If all shares of common stock are not sold through the subscription and
community offerings, then Rome Savings and Rome Bancorp expect to offer the
remaining shares in a syndicated community offering, which would commence during
or just after the subscription offering. See "-- Syndicated Community Offering."
Copies of the appraisal report of RP Financial, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of Rome Savings and the other locations specified under "Where You Can
Find Additional Information."
Subscription Offering and Subscription Rights
In accordance with the plan of reorganization, rights to subscribe for the
purchase of common stock have been granted under the plan of reorganization to
the following persons in the following order of priority:
(1) depositors with deposits in Rome Savings with balances aggregating
$100 or more ("qualifying deposits") as of December 31, 1997
("eligible account holders"); for this purpose, deposit accounts
include all savings, time, demand, negotiable orders of withdrawal
(NOW), money market and passbook accounts maintained at Rome Savings
(excluding any escrow accounts);
(2) tax-qualified employee benefit plans of Rome Bancorp, Rome Savings or
Rome, MHC, including the employee stock ownership plan;
(3) depositors with qualifying deposits in Rome Savings on June 30, 1999,
other than (i) those depositors who would otherwise qualify as
eligible account holders or (ii) managers or executive officers of
Rome Savings or their associates ("supplemental eligible account
holders").
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the subscription offering and to the maximum and minimum purchase limitations
set forth in the plan of reorganization and as described below under "--
Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each eligible account holder will
receive, as first priority and without payment therefor, non-transferable rights
to subscribe for shares of common
124
<PAGE>
stock in the subscription offering. Subscriptions by eligible account holders
are subject to maximum and minimum purchase limitations. See "-- Limitations on
Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing eligible account
holder to purchase a number of shares sufficient to make such eligible account
holder's total allocation equal to the lesser of 100 shares or the number of
shares subscribed for. Thereafter, unallocated shares will be allocated among
the remaining subscribing eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective aggregate
qualifying deposits bear to the total amount of qualifying deposits of all
remaining eligible account holders whose subscriptions remain unfilled. However,
no fractional shares shall be issued.
To ensure a proper allocation of stock, each eligible account holder must
list on the stock order form all deposit accounts in which such eligible account
holder had an ownership interest at December 31, 1997. Failure to list an
account could result in fewer shares being allocated than if all accounts had
been disclosed. The subscription rights of eligible account holders who are also
trustees or executive officers of Rome Savings or their associates will be
subordinated to the subscription rights of other eligible account holders to the
extent attributable to increased deposits in the one-year period preceding
December 31, 1997.
Priority 2: The Tax-Qualified Employee Benefit Plans. To the extent that
there are sufficient shares remaining after satisfaction of the subscriptions by
eligible account holders, the tax-qualified employee benefit plans, including
the employee stock ownership plan, will receive, as a second priority and
without payment therefor, non-transferable subscription rights to purchase up to
10% of the common stock to be issued in the offering. As a tax-qualified
employee benefit plan, the employee stock ownership plan intends to purchase 8%
of the shares to be issued in the offering, or 125,557 shares, based on the
issuance of 1,569,464 shares at the minimum of the offering range or 169,871
shares based on the issuance of 2,123,393 at the maximum of the offering range.
Subscriptions by the employee stock ownership plan will not be aggregated with
shares of common stock purchased directly by or which are otherwise attributable
to any other participants in the subscription and community offerings, including
subscriptions of any of Rome Savings' managers, officers, employees or
associates thereof. To the extent shares are not available in the offering to
fill all or part of the purchase order of the employee stock ownership plan,
this plan intends to purchase shares in private transactions or on the open
market after completion of the offering.
Priority 3: Supplemental Eligible Account Holders. Each supplemental
eligible account holder will receive, as a third priority and without payment
therefor, non-transferable rights to subscribe for shares of common stock in the
subscription offering. Subscriptions by supplemental eligible account holders
are subject to maximum and minimum purchase limitations. See "--Limitations on
Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions
of all supplemental eligible account holders, after purchases by eligible
account holders and the tax-qualified employee benefit plans, available shares
first will be allocated among subscribing supplemental eligible account holders
so as to permit each supplemental eligible account holder to purchase a number
of shares sufficient to make such supplemental eligible account holder's total
allocation
125
<PAGE>
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated among the remaining subscribing
supplemental eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective aggregate qualifying deposits
bear to the total amount of qualifying deposits of all remaining supplemental
eligible account holders whose subscriptions remain unfilled. However, no
fractional shares shall be issued.
To ensure a proper allocation of stock, each supplemental eligible account
holder must list on the stock order form all deposit accounts in which such
supplemental eligible account holder had an ownership interest at June 30, 1999.
Failure to list an account could result in fewer shares being allocated than if
all accounts had been disclosed.
Expiration Date for the Subscription Offering. The subscription offering
will expire at 5:30 p.m., Eastern time, on [ ], 1999, unless we extend
this period for an initial period of up to 45 days. We may further extend this
period for additional 60 day periods with the approval of the Superintendent
and, if necessary, the FDIC. Subscription rights which have not been exercised
prior to the expiration date, as extended, will become void.
If all shares have not been subscribed for or sold by the expiration date,
as extended, all funds delivered to Rome Savings will be returned with interest
promptly to the subscribers and all withdrawal authorizations will be canceled.
If an extension beyond the 45-day period following the expiration date is
granted, Rome Savings will notify subscribers of the extension of time and of
any rights of subscribers to change or cancel their orders. Each extension may
not exceed 60 days, and all extensions, in the aggregate, may not last beyond
[_].
Persons in Non-qualified States or Foreign Countries. Rome Bancorp and Rome
Savings will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the plan or reorganization reside. However, Rome Savings and Rome
Bancorp are not required to offer stock in the subscription offering to any
person who resides in a foreign country.
Community Offering
To the extent that shares remain available for purchase after satisfaction
of all subscriptions received in the subscription offering, Rome Savings may
offer shares pursuant to the plan of reorganization in the community offering to
the following persons in the following order of priority:
(1) employees and depositors of Rome Savings after June 30, 1999 (we refer
to this group as "other depositors");
(2) "residents" of Oneida County, New York, which definition includes
natural persons who occupy a dwelling within Oneida County, New York
and establish an ongoing physical presence within the County, together
with an indication that such presence is not merely transitory in
nature (the determination of resident status will be made by Rome
Savings, in its sole discretion);
126
<PAGE>
(3) other persons to whom we deliver a prospectus.
Orders received in the community offering are subject to maximum and
minimum purchase limitations. See "-- Limitations on Common Stock Purchases."
The community offering, if any, shall commence concurrently with or subsequent
to the commencement of the subscription offering and shall terminate no later
than 45 days after the expiration of the subscription offering unless extended
by Rome Savings and Rome Bancorp, with the approval of the Superintendent and
the FDIC, if necessary.
- --------------------------------------------------------------------------------
The opportunity to subscribe for shares of common stock in the community
offering category is subject to the right of Rome Savings and Rome Bancorp, in
their discretion, to accept or reject any such orders in whole or in part either
at the time of receipt of an order or as soon as practicable following the
expiration date. If Rome Bancorp rejects a subscription in part, the subscriber
will not have the right to cancel the remainder of his or her subscription.
- --------------------------------------------------------------------------------
Marketing and Underwriting Arrangements
Sandler O'Neill & Partners, L.P. Rome Savings, Rome Bancorp and Rome, MHC
have engaged Sandler O'Neill as a consultant and financial advisor in connection
with the offering of the common stock and Sandler O'Neill has agreed to assist
Rome Bancorp with the solicitation of subscriptions and purchase orders for
shares of common stock in the offering.
Sandler O'Neill will receive a fee for services provided in connection with
the offering equal to 2% of the aggregate purchase price of common stock sold in
the offering. No fees will be paid to Sandler O'Neill with respect to any
shares of common stock purchased by any director, officer or employee of Rome
Savings or Rome Bancorp or members of their immediate families or any employee
benefit plan of the Bank, established for the benefit of the Bank's directors,
officers and employees. If there is a syndicated community offering, we will
pay Sandler O'Neill a fee equal to 1.5% of the aggregate purchase price of
common stock sold in the syndicated community offering. However, the aggregate
fees payable to Sandler O'Neill and any selected dealers in connection with any
syndicated community offering will not exceed 2.0% of the aggregate purchase
price of the common stock sold in the syndicated community offering. Sandler
O'Neill will also be reimbursed for its reasonable out-of-pocket expenses,
including legal fees of up to $100,000.
In the event Sandler O'Neill is terminated under certain circumstances or
the reorganization is terminated by Rome Savings, no fees shall be payable by
Rome Savings. However, Sandler O'Neill will be entitled to reimbursement for its
reasonable out-of-pocket expenses (including legal fees). Rome Bancorp, Rome,
MHC and Rome Savings have agreed to indemnify and hold Sandler O'Neill and its
affiliates harmless from and against any and all losses, claims, damages, and
liabilities, joint or several, to which Sandler O'Neill may become subject under
applicable federal or state law related to or arising out of the services to be
provided by Sandler O'Neill pursuant to its engagement by Rome Savings and Rome
Bancorp as financial advisor in connection with the reorganization, including
certain liabilities under the Securities Act. Total fees to Sandler O'Neill are
estimated to be $182,147 and $253,493 at the
127
<PAGE>
minimum and the maximum of the offering range, respectively. See "Pro Forma
Data" for the assumptions used to arrive at these estimates.
Directors and Employees. Directors, trustees and executive officers of
Rome Bancorp and Rome Savings may participate in the solicitation of offers to
purchase common stock. Other employees of Rome Savings may participate in the
offering in ministerial capacities or provide clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
Rome Bancorp will rely on Rule 3a4-1 under the Exchange Act, and sales of common
stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, trustees, directors and employees to participate in the sale of common
stock. No officer, trustee, director or employee of Rome Bancorp or Rome Savings
will be compensated in connection with his or her participation by the payment
of commissions or other remuneration based either directly or indirectly on
transactions in common stock.
Procedure for Purchasing Shares in Subscription and Community Offerings
Use of Order Forms. To purchase shares in the subscription offering and
the community offering, an executed order form with the required payment for
each share subscribed for, or with appropriate authorization for withdrawal from
a subscriber's deposit account at Rome Savings (which may be given by completing
the appropriate blanks in the stock order form), must be received by Rome
Savings by 5:30 p.m., Eastern time, on the expiration date. You can submit your
order form by mail or overnight courier. You may also drop off your order forms
at any of our branch offices. Stock order forms which are not received by such
time or are executed defectively or are received without full payment (or
correct withdrawal instructions) are not required to be accepted. In addition,
we are not obligated to accept orders submitted on photocopied or facsimiled
order forms. We have the power to waive or permit the correction of incomplete
or improperly executed forms, but do not represent that we will do so. Once
received, an executed order form may not be modified, amended or rescinded
without our consent unless subscribers are resolicited or the reorganization has
not been completed within 45 days after the end of the subscription offering,
unless such 45 day period has been extended.
In order to ensure that eligible account holders, supplemental eligible
account holders and other depositors are properly identified as to their stock
purchase eligibility and priority, depositors must list on the stock order form
all deposit accounts as of the applicable eligibility record date giving all
names in each account and the account numbers.
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration date for the offering, in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the stock order form will confirm receipt or delivery in accordance with Rule
15c2-8. Order forms will only be distributed when preceded or accompanied by a
prospectus.
Payment for Shares. Payment for subscriptions may be made by check, bank
check or money order or by authorization of withdrawal from deposit accounts
maintained with Rome
128
<PAGE>
Savings except for IRA accounts. No cash or wire transfers will be accepted.
Interest will be paid on payments made by check, bank check or money order at
Rome Savings' passbook rate of interest from the date payment is received until
the completion or termination of the reorganization. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn will continue to accrue interest at the contractual rates until
completion or termination of the reorganization, but a hold immediately will be
placed on such funds, thereby making them unavailable to the depositor.
If a subscriber validly authorizes Rome Savings to withdraw the amount of
the purchase price from a deposit account at Rome Savings, the withdrawal will
be made as of the completion of the reorganization. Rome Savings will waive any
applicable penalties for early withdrawal from time deposit accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will be converted into a
statement savings account and will earn interest at the passbook rate. If the
certificate account matures and is renewed prior to the termination or
completion of the offering, then the hold will remain in place. If the
certificate account matures but is not renewed prior to the completion of the
offering, then the funds placed on hold will be converted into a statement
savings account and will earn interest at the passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes. Rather, the employee stock
ownership plan may pay for such shares of common stock subscribed for at the
purchase price upon completion of the offering; provided, that there is in force
from the time of its subscription until such time, a loan commitment acceptable
to Rome Bancorp from an unrelated financial institution or Rome Bancorp to lend
to the employee stock ownership plan the aggregate purchase price of the shares
for which it subscribed. Rome Bancorp intends to provide such a loan to the
employee stock ownership plan.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of common stock in the subscription and
community offerings, provided that such IRAs are not maintained at Rome Savings.
Persons with IRAs maintained at Rome Savings must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
common stock in the subscription and community offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, trustees and ten
percent stockholders who use self-directed IRA funds to purchase shares of
common stock in the subscription and community offerings make such purchases for
the exclusive benefit of the IRAs. Assistance on how to transfer IRAs maintained
at Rome Savings can be obtained from the conversion center. Depositors
interested in using funds in an IRA to purchase common stock should contact the
conversion center as soon as possible.
Certificates representing shares of common stock purchased will be mailed
to purchasers to the addresses specified in properly completed order forms, as
soon as practicable following completion of the sale of all shares of common
stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
129
<PAGE>
Restrictions on Transfer of Subscription Rights and Shares of Common Stock
Prior to the completion of the reorganization, regulations prohibit any
person with subscription rights from transferring or entering into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the plan of reorganization or the shares of
common stock to be issued upon their exercise. Such rights may be exercised only
by the person to whom they are granted and only for such person's account. Each
person exercising such subscription rights will be required to certify that such
person is purchasing shares solely for such person's own account and that such
person has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or an intent to make an offer to purchase such
subscription rights or shares of common stock prior to the completion of the
reorganization.
- --------------------------------------------------------------------------------
Rome Savings and Rome Bancorp will pursue any and all legal and equitable
remedies (including forfeiture) in the event they become aware of the transfer
of subscription rights and will not honor orders known by them to involve the
transfer of such rights.
- --------------------------------------------------------------------------------
Syndicated Community Offering
The amended plan of reorganization provides that all shares of common stock
not purchased in the subscription offering or the community offering may be
offered for sale to the general public in a syndicated community offering on a
best efforts basis through a selling group of broker-dealers to be arranged by
Sandler O'Neill acting as agent of Rome Bancorp. Sandler O'Neill has not
selected any particular broker-dealers to participate in a syndicated community
offering. As an alternative to a syndicated community offering, Rome Bancorp
and Rome Savings may instead elect to offer for sale such remaining shares to or
through underwriters in a public offering, as described under "-- Public
Offering Alternative." Rome Bancorp and Rome Savings have reserved the right to
reject orders in whole or in part in their sole discretion in the syndicated
community offering. If Rome Bancorp or Rome Savings rejects an order in part,
the subscriber will not have the right to cancel the remainder of the
subscription. Neither Sandler O'Neill nor any registered broker-dealer shall
have any obligation to take or purchase any shares of the common stock in the
syndicated community offering. However, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in any syndicated community offering.
The syndicated community offering may commence concurrently with the
community offering or after the community offering is terminated. The
syndicated community offering will terminate no more than 45 days following the
expiration date, unless extended by Rome Bancorp with the approval of the
Superintendent and FDIC. Such extensions may not be beyond [ ]. See "--
How We Determined the Offering Range and the $7.00 Price Per Share" above for a
discussion of rights of subscribers, if any, in the event an extension is
granted.
130
<PAGE>
Public Offering Alternative
As an alternative to a syndicated community offering, we may offer for sale
shares of common stock not sold in the subscription offering or the community
offering to or through underwriters ("public offering"). Certain provisions
restricting the purchase and transfer of common stock shall not be applicable to
sales to underwriters for purposes of a public offering. Any underwriter shall
agree to purchase such shares from Rome Bancorp with a view to reoffering them
to the general public, subject to certain terms and conditions described in the
plan of reorganization. If the public offering is utilized, then Rome Bancorp
will amend the registration statement, which contains this prospectus, to
reflect the specific terms of such public offering alternative, including,
without limitation, the terms of any underwriting agreements, commission
structure and plan of distribution.
Limitations on Common Stock Purchases
The plan of reorganization includes the following limitations on the number
of shares of common stock which may be purchased during the reorganization:
(1) The aggregate amount of outstanding common stock of Rome Bancorp owned
or controlled by persons other than Rome, MHC, at the close of the
offering will be no more than 49% of Rome Bancorp's total outstanding
common stock;
(2) No subscription for fewer than 25 shares will be accepted;
(3) Except for the tax-qualified employee benefit plans, the maximum
amount of shares of common stock subscribed for or purchased in all
categories of the reorganization by any person, together with
associates of, and groups of persons acting in concert with, such
persons, shall not exceed $150,000;
(4) Each eligible account holder may subscribe for and purchase common
stock in the subscription offering in an amount up to $150,000,
subject to increase as described below;
(5) The tax-qualified employee benefit plans are permitted to purchase up
to 10% of the shares of common stock issued in the offering and, as a
tax-qualified employee benefit plan, the employee stock ownership plan
intends to purchase 8% of the shares of common stock issued in the
offering;
(6) Each supplemental eligible account holder may subscribe for and
purchase common stock in the subscription offering in an amount up to
$150,000, subject to increase as described below;
(7) Persons purchasing shares of common stock in the community offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase common stock in the community offering
in an amount up to $150,000 subject to increase as described below;
131
<PAGE>
(8) Each person purchasing shares of common stock in the syndicated
community offering, or the public offering alternative (exclusive of
underwriters), may purchase common stock in the syndicated community
offering in an amount up to $150,000, subject to increase as described
below; and
(9) The trustees and officers of Rome Savings and their associates in the
aggregate, excluding purchases by the tax-qualified employee benefit
plans, may purchase up to 25% of shares we sell in the offering.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the depositors
of Rome Savings, both the $150,000 individual amount permitted to be subscribed
for and the $150,000 overall maximum purchase limitation may be increased up to
a maximum of 5% of the shares offered for sale in the offering, exclusive of an
increase in the total number of shares issued due to an increase in the offering
range of up to 15% (i.e., up to 106,169 shares), at the sole discretion of Rome
Bancorp and Rome Savings. It is currently anticipated that the individual and
overall maximum purchase limitations may be increased if, after a community
offering, Rome Bancorp has not received subscriptions for an aggregate amount
equal to at least the minimum of the offering range. If the maximum purchase
limitations are increased, subscribers for the maximum amount will be, and
certain other large subscribers in the sole discretion of Rome Bancorp and Rome
Savings may be, given the opportunity to increase their subscriptions up to the
then applicable limit. Requests to purchase additional shares of common stock
under this provision will be determined by the Board of Directors of Rome
Bancorp and the Board of Trustees of Rome Savings and, if approved, allocated on
a pro rata basis giving priority in accordance with the priorities set forth in
the amended plan of reorganization and described herein.
If we sell 2,441,902 shares, the additional shares will be allocated in
accordance with the priorities and procedures described in "--Subscription
Offering and Subscription Rights" and "--Community Offering."
The term "associate" of a person is defined to mean:
(1) any corporation or organization (other than Rome Bancorp, Rome, MHC,
Rome Savings or a majority-owned subsidiary of Rome Savings) of which
such person is an officer or a general or limited partner or is
directly or indirectly, either alone or with one or more members of
his or her immediate family, the beneficial owner of 10% or more of
any class of equity securities;
(2) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity, except that the term "associate" does
not include any employee stock benefit plan maintained by Rome Bancorp
or Rome Savings in which a person has a substan tial beneficial
interest or serves as a trustee or in a similar fiduciary capacity,
and except that, for purposes of aggregating total shares that may be
acquired or held by officers and directors and their associates; and
132
<PAGE>
(3) any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director, trustee or
officer of Rome Bancorp, Rome, MHC or Rome Savings.
We have the sole discretion to determine whether prospective purchasers are
"associates" or "acting in concert."
Trustees, directors and officers are not treated as associates of each other
solely by virtue of holding such positions.
Certain Restrictions on Purchase or Transfer of Shares After the Reorganization
All shares of common stock purchased in connection with the reorganization
by a trustee or an executive officer of Rome Savings, Rome, MHC or Rome Bancorp,
or their associates, will be subject to a restriction that the shares not be
sold for a period of one year following the reorganization, except in the event
of the death of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of common
stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of Rome Bancorp and Rome Savings will also
be subject to the federal insider trading rules and any other applicable
requirements of the federal securities laws.
Purchases of outstanding shares of common stock of Rome Bancorp by
directors, executive officers of Rome Bancorp, Rome, MHC or Rome Savings (and
any person who was an executive officer or trustee of Rome Savings or an
executive officer or director of Rome, MHC or Rome Bancorp at any time after the
date on which the Board of Trustees of Rome Savings adopted the plan of
reorganization), and their associates during the three-year period following
reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the Superintendent. This
restriction does not apply, however, to the purchase of stock pursuant to the
stock option plan or the restricted stock plan to be established after the
reorganization.
Interpretation, Amendment and Termination
All interpretations of the plan of reorganization by the Board of Rome
Savings will be final, subject to the authority of the Superintendent and FDIC.
The plan of reorganization provides that, if deemed necessary or desirable by
the Board of Trustees of Rome Savings, the plan of reorganization may be
substantively amended prior to the solicitation of proxies from depositors by a
vote of the Board of Trustees. Amendment of the plan or reorganization
thereafter requires the approval of the Superintendent and the FDIC. The plan
of reorganization will terminate if the sale of all shares of stock being
offered pursuant to the plan of reorganization is not completed prior to 24
months after the date of the approval of the plan of reorganization by the
Superintendent unless a longer time period is permitted by governing laws and
regulations.
133
<PAGE>
The plan of reorganization may be terminated by a vote of the Board of Trustees
of Rome Savings at any time prior to the special meeting of depositors, and
thereafter by such a vote with the approval of the Superintendent and the FDIC.
Possible Conversion of Rome, MHC to Stock Form
Federal and state regulations and the plan of reorganization permit Rome,
MHC to convert from mutual stock form. Such a transaction is commonly known as
a "second-step conversion". There can be no assurance when, if ever, a second-
step conversion will occur, and the Board of Trustees has no current intention
or plan to undertake a second-step conversion. In a second-step conversion,
Rome, MHC would merge with and into Rome Savings or Rome Bancorp, with Rome
Savings or Rome Bancorp as the resulting entity. Certain depositors of Rome
Savings would receive the right to subscribe for additional shares of the
resulting entity. The additional shares of common stock of the holding company
issued in the second step conversion would be sold at their aggregate pro forma
market value.
In a second-step conversion, each share of common stock outstanding
immediately prior to the completion of the second-step conversion held by
persons other than Rome, MHC would be automatically converted into and become
the right to receive a number of shares of common stock of Rome Bancorp
determined pursuant to an exchange ratio. This exchange ratio would ensure that
after the second-step conversion, subject to the adjustments described below (if
required by the applicable banking regulators) and any adjustment to reflect the
receipt of cash in lieu of fractional shares, the percentage of the to-be-
outstanding shares of the resulting entity issued to stockholders other than
Rome, MHC in exchange for their common stock would be equal to the percentage of
the outstanding shares of common stock held by public stockholders immediately
prior to the second-step conversion.
As set forth in the plan of reorganization, the percentage of the to-be-
outstanding shares of the resulting entity issued in exchange for public shares
would be adjusted to reflect (i) the aggregate amount of dividends waived by
Rome, MHC, if any, and (ii) the market value of the assets of Rome, MHC, other
than common stock of Rome Bancorp. Pursuant to this adjustment, the percentage
of the to-be outstanding shares of the resulting entity issued to public
stockholders in exchange for their minority shares (the "Adjusted Minority
Ownership Percentage") is equal to the percentage of the outstanding shares of
common stock held by public stockholders multiplied by the dividend waiver
fraction. The dividend waiver fraction is equal to the product of (a) a
fraction, of which the numerator is equal to Rome Bancorp's stockholders' equity
at the time of the second-step conversion less the aggregate amount of dividends
waived by Rome, MHC, and the denominator is equal to Rome Bancorp's
stockholders' equity at the time of the second-step conversion, and (b) a
fraction, of which the numerator is equal to the appraised pro forma market
value of the resulting entity in the second-step conversion minus the value of
Rome, MHC's assets other than common stock and the denominator is equal to the
appraised pro forma market value of the resulting entity in the second-step
conversion.
134
<PAGE>
RESTRICTIONS ON ACQUISITION OF ROME BANCORP
AND ROME SAVINGS
General
The plan of reorganization provides for the conversion of Rome Savings from
the mutual to the stock form of organization and the concurrent formation of a
stock holding company and a mutual holding company. See "The Reorganization
and The Offering -- General." Certain provisions in Rome Bancorp's certificate
of incorporation and Bylaws and in its benefit plans and agreements entered into
in connection with the reorganization, together with provisions of the Delaware
General Corporation Law (DGCL) and certain governing regulatory restrictions,
may have anti-takeover effects.
Mutual Holding Company Structure
The mutual holding company structure will restrict the ability of our
stockholders to effect a change of control of management because, as long as
Rome, MHC remains in existence as a mutual savings bank holding company, it will
control a majority of our voting stock. Moreover, the trustees of Rome, MHC will
be the directors of Rome Bancorp and the directors of Rome Savings. Rome, MHC
will be able to elect all of the members of the Board of Directors of Rome
Bancorp, and as a general matter, will be able to control the outcome of all
matters presented to the stockholders of Rome Bancorp for vote. Therefore, a
change in control of Rome Bancorp or Rome Savings cannot occur unless Rome, MHC,
first converts to the stock form of organization or is dissolved. See "The
Reorganization and The Offering -- Possible Conversion of Rome, MHC to Stock
Form."
Rome Bancorp's Certificate of Incorporation and Bylaws
Rome Bancorp's Certificate of Incorporation and Bylaws contain a number of
provisions, relating to corporate governance and certain rights of stockholders,
that might discourage future takeover attempts. As a result, stockholders who
might desire to participate in such transactions may not have an opportunity to
do so. In addition, such provisions will also render the removal of the Board
of Directors or management of Rome Bancorp more difficult.
- -------------------------------------------------------------------------------
The following description is necessarily general and qualified by reference to
the Certificate of Incorporation and Bylaws. See "Where You Can Find Additional
Information" as to how to obtain a copy of these documents.
- -------------------------------------------------------------------------------
Limitation on Voting Rights. The Certificate of Incorporation of Rome
Bancorp provides that any person, other than Rome, MHC, who beneficially owns
more than 10% of the outstanding Common Stock shall be allowed only one one-
hundredth (1/100) of a vote with respect of each share held in excess of such
10%. Beneficial ownership of shares includes shares beneficially owned by such
person or any of his affiliates, shares which such person or his affiliates have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power, but shall not
135
<PAGE>
include shares beneficially owned by the ESOP or shares that are subject to a
revocable proxy and that are not otherwise beneficially owned or deemed by Rome
Bancorp to be beneficially owned by such person and his affiliates. This
restriction on voting may only be amended by approval of the Board of Directors
and the affirmative vote of the holders of a majority of the outstanding shares
of capital stock who are eligible to vote on such matters.
Three Classes of Directors on the Board; Power of Directors to Fill
Vacancies. The board of directors of Rome Bancorp is required by the Certificate
of Incorporation and bylaws to be divided into three classes which are as equal
in size as is possible. One of the three classes of directors is required to be
elected annually by stockholders of Rome Bancorp for three-year terms. A
classified board promotes continuity and stability of management of Rome Bancorp
but makes it more difficult for stockholders to change a majority of the
directors because it generally takes at least two annual elections of directors
for this to occur. In addition, any vacancy occurring on the Board, including a
vacancy created by an increase in the number of directors or resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled for the remainder of the unexpired term exclusively by
the directors then in office.
Removal of Directors. The Certificate of Incorporation of Rome Bancorp
provides that a director may be removed from the Board of Directors prior to the
expiration of his or her term only for cause, upon the affirmative vote of at
least 80% of the outstanding shares of voting stock. In the absence of these
provisions, the vote of the holders of a majority of the shares of Rome Bancorp
could remove the entire Board, with cause, and replace it with persons of such
holders' choice.
Votes of Stockholders. Rome Bancorp's Certificate of Incorporation provides
that there will not be cumulative voting of stockholders for the election of
Rome Bancorp's directors. No cumulative voting means that Rome, MHC, as the
holder of a majority of the shares voted at a meeting of stockholders, may elect
all directors of Rome Bancorp to be elected at that meeting. This could prevent
public stockholder representation on Rome Bancorp's Board of Directors. In
addition, the Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of Rome Bancorp may be
taken only at an annual or special meeting and prohibits stockholder action by
written consent in lieu of a meeting.
Authorized but Unissued Shares of Capital Stock. Following the offering,
Rome Bancorp will have authorized but unissued shares of preferred stock and
common stock. See "Description of Capital Stock of Rome Bancorp." Although
these shares could be used by the Board of Directors of Rome Bancorp to make it
more difficult or to discourage an attempt to obtain control of Rome Bancorp
through a merger, tender offer, proxy contest or otherwise, such uses will be
unlikely since Rome, MHC owns a majority of the common stock of Rome Bancorp.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of Rome Bancorp's outstanding shares of voting stock,
together with the affirmative vote of at least 50% of the outstanding shares of
voting stock not beneficially owned by an "Interested Stockholder" to approve
certain "Business Combinations" and related transactions. Under Delaware law,
absent this provision, Business Combinations, including mergers, consolidations
and sales of all or substantially all of the assets of a corporation must,
subject to certain
136
<PAGE>
exceptions, be approved by the vote of the holders of only a majority of the
outstanding shares of Common Stock and any other affected class of stock.
The vote of at least 80% of the stockholders is required in connection with
any transaction involving an Interested Stockholder except (1) in cases where
the proposed transaction has been approved in advance by a majority of those
members of Rome Bancorp's Board of Directors who are unaffiliated with the
Interested Stockholder and were directors prior to the time when the Interested
Stockholder became an Interested Stockholder or (2) if the proposed transaction
meets certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares in which case, if a
stockholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient.
The term "Interested Stockholder" is defined to include any individual,
corporation, partnership or other entity (other than Rome, MHC, Rome Bancorp or
its subsidiary or any employee benefit plan maintained by Rome Bancorp or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of Rome Bancorp.
A "Business Combination" means:
(1) any merger or consolidation of Rome Bancorp or any of its subsidiaries
with or into any Interested Stockholder or its affiliate;
(2) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or its affiliate of
5% or more of the assets of Rome Bancorp or combined assets of Rome
Bancorp and its subsidiary;
(3) the issuance or transfer to any Interested Stockholder or its
affiliate by Rome Bancorp (or any subsidiary) of any securities of
Rome Bancorp other than on a pro rata basis to all stockholders;
(4) the adoption of any plan for the liquidation or dissolution of Rome
Bancorp proposed by or on behalf of any Interested Stockholder or its
affiliate;
(5) any reclassification of securities, recapitalization, merger or
consolidation of Rome Bancorp which has the effect of increasing the
proportionate share of Common Stock or any class of equity or
convertible securities of Rome Bancorp owned directly or indirectly by
an Interested Stockholder or its affiliate; and
(6) the acquisition by Rome Bancorp or its subsidiary of any securities of
an Interested Stockholder or its affiliates or associates.
Evaluation of Offers. The Certificate of Incorporation of Rome Bancorp
further provides that the Board of Directors of Rome Bancorp shall when
evaluating any offer to Rome Bancorp from another party to
. make a tender or exchange offer for any outstanding equity security
of Rome Bancorp;
137
<PAGE>
. merge or consolidate Rome Bancorp with another corporation or entity;
or
. purchase or otherwise acquire all or substantially all of the
properties and assets of Rome Bancorp,
in connection with the exercise of its judgment in determining what is in the
best interest of Rome Bancorp and the stockholders of Rome Bancorp, give due
consideration to the extent permitted by law to all relevant factors, including,
without limitation, the financial and managerial resources and future prospects
of the other party, the possible effects on the business of Rome Bancorp and its
subsidiaries and on the employees, customers, suppliers and creditors of Rome
Bancorp and its subsidiaries, and the effects on the communities in which Rome
Bancorp's and its subsidiaries' facilities are located.
By having these standards in the Certificate of Incorporation of Rome
Bancorp, the Board of Directors may be in a stronger position to oppose such a
transaction if the Board concludes that the transaction would not be in the best
interests of Rome Bancorp, even if the price offered is significantly greater
than the then market price of any equity security of Rome Bancorp.
Amendment of Certificate of Incorporation and Bylaws. The Certificate of
Incorporation provides that certain provisions of the Certificate of
Incorporation may not be altered, amended, repealed or rescinded without the
affirmative vote of either (1) not less than a majority of the authorized number
of directors and, if one or more Interested Stockholders exist, by not less than
a majority of the Disinterested Directors (as defined in the Certificate of
Incorporation) or (2) the holders of not less than [two-thirds] of the total
votes eligible to be cast by the holders of all outstanding shares of the
capital stock of Rome Bancorp entitled to vote thereon and, if the alteration,
amendment, repeal, or rescission is proposed by or on behalf of an Interested
Stockholder or a director who is an Affiliate or Associate of an Interested
Stockholder, by the affirmative vote of the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Stockholder or
an Affiliate or Associate thereof. Amendment of the provision relating to
business combinations must also be approved by either (i) a majority of the
Disinterested Directors, or (ii) the affirmative vote of not less than eighty
percent (80%) of the total number of votes eligible to be cast by the holders of
all outstanding shares of the voting stock, voting together as a single class,
together with the affirmative vote of not less than fifty percent (50%) of the
total number of votes eligible to be cast by the holders of all outstanding
shares of the voting stock not beneficially owned by any Interested Stockholder
or Affiliate or Associate thereof, voting together as a single class.
Furthermore, Rome Bancorp's Certificate of Incorporation provides that
provisions of the Bylaws that contain supermajority voting requirements may not
be altered, amended, repealed or rescinded without a vote of the Board or
holders of capital stock entitled to vote thereon that is not less than the
super majority specified in such provision. Absent these provisions, the DGCL
provides that a corporation's certificate of incorporation and by laws may be
amended by the holders of a majority of the corporation's outstanding capital
stock. The Certificate of Incorporation also provides that the Board of
Directors is authorized to make, alter, amend, rescind or repeal any of Rome
Bancorp's Bylaws in accordance with the terms thereof, regardless
138
<PAGE>
of whether the Bylaw was initially adopted by the stockholders. However, this
authorization neither divests the stockholders of their right, nor limits their
power to adopt, amend, rescind or repeal any Bylaw under the DGCL. These
provisions could have the effect of discouraging a tender offer or other
takeover attempt where the ability to make fundamental changes through Bylaw
amendments is an important element of the takeover strategy of the acquiror.
Stockholder Nominations and Proposals. The Bylaws of Rome Bancorp also
require a stockholder who intends to nominate a candidate for election to the
Board of Directors, or to raise new business at an annual stockholder meeting to
give approximately 90 days notice in advance of the anniversary of the prior
year's annual stockholders' meeting to the Secretary of Rome Bancorp. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to Rome Bancorp concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder who wishes to nominate any person for election as a
director must provide Rome Bancorp with certain information concerning the
nominee and the proposing stockholder.
Anti-Takeover Effects of Rome Bancorp's Certificate of Incorporation, Bylaws and
Benefit Plans Adopted in the Reorganization
The provisions described above are intended to reduce Rome Bancorp's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, the change of control agreements, the
management recognition plan and the stock option plan to be established may also
discourage takeover attempts by increasing the costs to be incurred by Rome
Savings and Rome Bancorp in the event of a takeover. See "Management --
Employment Agreements," and "-- Benefits -- Stock Option Plan."
Rome Bancorp's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and benefit plans to be established are in
the best interests of Rome Bancorp and its stockholders. An unsolicited non-
negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of Rome Bancorp and its stockholders to
encourage potential acquirors to negotiate directly with management and that
these provisions will encourage such negotiations and discourage non-negotiated
takeover attempts. It is also the Board of Directors' view that these provisions
should not discourage persons from proposing a merger or other transaction at a
price that reflects the true value of Rome Bancorp and that otherwise is in the
best interests of all stockholders.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the DGCL, is intended to discourage
certain takeover practices by impeding the ability of a hostile acquiror to
engage in certain transactions with the target company.
139
<PAGE>
In general, Section 203 provides that a "Person" who owns 15% or more of
the outstanding voting stock of a Delaware corporation may not consummate a
merger or other business combination transaction with such corporation at any
time during the three-year period following the date such "Person" acquired 15%
of the outstanding voting stock. The term "business combination" is defined
broadly to cover a wide range of corporate transactions including mergers, sales
of assets, issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203:
(1) any business combination if, prior to the date a person acquired 15%
of the voting stock, the Board of Directors approved either the
business combination or the transaction which resulted in the
stockholder acquiring 15%;
(2) any business combination involving a person who acquired at least 85%
of the outstanding voting stock in the same transaction in which 15%
was acquired (with the number of shares outstanding calculated without
regard to those shares owned by the corporation's directors who are
also officers and by certain employee stock plans);
(3) any business combination that is approved by the Board of Directors
and by a two-thirds vote of the outstanding voting stock not owned by
the interest party; and
(4) certain business combinations that are proposed after the corporation
had received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the board of
directors.
A corporation may exempt itself from the requirement of the statute by adopting
an amendment to its Certificate of Incorporation or Bylaws electing not to be
governed by Section 203 of the Delaware General Corporation Law. At the present
time, the Board of Directors does not intend to propose any such amendment.
Regulatory Restrictions
Federal Change in Bank Control Act. Federal law provides that no person,
acting directly or indirectly or through or in concert with one or more other
persons, may acquire control of a bank unless the FDIC has been given 60 days
prior written notice. For this purpose, the term "control" means the acquisition
of the ownership, control or holding of the power to vote 25% or more of any
class of a bank holding company's voting stock, and the term "company" includes
an individual, corporation, partnership, and various other entities, acting
individually or in concert. In addition, an acquiring person is presumed to
acquire control if the person acquires the ownership, control or holding of the
power to vote of 10% or more of any class of the holding company's voting stock
if (a) Rome Bancorp's shares are registered pursuant to Section 12 of the
Exchange Act or (b) no other person will own, control or hold the power to vote
a greater percentage of that class of voting securities. The Federal Reserve
Board is authorized by the change in bank control act and its own regulations to
disapprove a proposed transaction on
140
<PAGE>
certain specified grounds. Accordingly, the prior approval of the Federal
Reserve Bank would be required before any person could acquire 10% or more of
the Common Stock of Rome Bancorp.
Federal Bank Holding Company Act. Federal law provides that no company may
acquire control of a bank holding company without the prior approval of the
Federal Reserve. Any company that acquires control becomes a "bank holding
company" subject to registration, examination and regulation by the Federal
Reserve. Pursuant to federal regulations, the term "company" is defined to
include banks, corporations, partnerships, associations, and certain trusts and
other entities, and the term "control" is deemed to exist if a company has
voting control of at least 25% of any class of a bank's voting stock, and may be
found to exist if a company controls in any manner the election of a majority of
the directors of the bank or has the power to exercise a controlling influence
over the management or policies of the bank. In addition, a bank holding
company must obtain Federal Reserve Board approval prior to acquiring voting
control of more than 5% of any class of voting stock of a bank or another bank
holding company. The foregoing restrictions do not apply to the acquisition of
stock by one or more tax-qualified employee stock benefit plans, provided that
the plan or plans do not have beneficial ownership in the aggregate of more than
25 percent of any class of our equity security.
An acquisition of control of a bank that requires the prior approval of the
Federal Reserve Board under the Bank Holding Company Act is not subject to the
notice requirements of the Change in Bank Control Act. Accordingly, the prior
approval of the Federal Reserve Board under the Bank Holding Company Act would
be required (a) before any bank holding company could acquire 5% or more of the
Common Stock of Rome Bancorp and (b) before any other company could acquire 25%
or more of the Common Stock of Rome Bancorp.
The Federal Reserve may prohibit an acquisition of control if:
(1) it would result in a monopoly or substantially lessen competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or of
the public to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK ROME BANCORP
General
Rome Bancorp is authorized to issue five million (5,000,000) shares of
common stock having a par value of $.01 per share and one million (1,000,000)
shares of preferred stock having a par value of $.01 per share. Rome Bancorp
currently expects to sell 2,123,393 shares of common stock (or 2,441,902 in the
event of an increase of 15% in the estimated valuation range) to purchasers of
common stock in the offering. In addition, Rome Bancorp expects to issue
2,304,107 shares of the common stock to Rome, MHC (or 2,649,723 in the event of
an increase of 15% in the estimated valuation range). Rome Bancorp will not
issue any shares of preferred
141
<PAGE>
stock in the offering. Except as discussed above in "Restrictions on Acquisition
of Rome Bancorp and Rome Savings," each share of Rome Bancorp's common stock
will have the same relative rights as, and will be identical in all respects
with, every other share of common stock. Upon payment of the purchase price for
the common stock in accordance with the plan of reorganization, all such stock
will be duly authorized, fully paid and non-assessable.
The shares of common stock:
. are not deposit accounts and are subject to investment risk;
. are not insured or guaranteed by the FDIC, or any other government
agency; and
. are not guaranteed by Rome Bancorp, Rome, MHC or Rome Savings.
Common Stock
Dividends. Rome Bancorp can pay dividends out of statutory surplus or from
net profits if, as and when declared by its Board of Directors. The payment of
dividends by Rome Bancorp is subject to limitations which are imposed by law.
See "Our Policy Regarding Dividends" and "Regulation of Rome Savings Bank and
Rome Bancorp." Rome, MHC currently does not intend to waive any dividends paid
by Rome Bancorp. The owners of common stock of Rome Bancorp, including Rome,
MHC, will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors out of funds legally available therefor. If
Rome Bancorp issues preferred stock, the holders of the preferred stock may have
a priority over the holders of the common stock with respect to dividends.
Voting Rights. Upon the effective date of the reorganization, the holders
of common stock of Rome Bancorp will possess exclusive voting rights in Rome
Bancorp. They will elect Rome Bancorp's Board of Directors and act on such other
matters as are required to be presented to them under Delaware law or Rome
Bancorp's Certificate of Incorporation or as are otherwise presented to them by
the Board of Directors. Each holder of common stock will be entitled to one
vote per share and will not have any right to cumulate votes in the election of
directors. Under certain circumstances, shares in excess of 10% of Rome
Bancorp's common stock, exclusive of the shares held by Rome, MHC, may be
considered "Excess Shares" and may therefore not be entitled to vote. See
"Restrictions on Acquisition of Rome Bancorp and Rome Savings." If Rome Bancorp
issues preferred stock, holders of the preferred stock may also possess voting
rights. Certain matters, including the removal of directors, the approval of
business combinations and amending the Certificate of Incorporation or Bylaws,
may require an 80% or two-thirds stockholder vote. See "Restrictions on
Acquisition of Rome Bancorp and Rome Savings."
Liquidation. In the event of any liquidation, dissolution or winding up of
Rome Savings, Rome Bancorp, as owner of Rome Savings' capital stock, would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of Rome Savings (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to eligible account holders and the supplemental eligible account
holders (see "The Reorganization and The Offering -- Effects of the
Reorganization -- Liquidation Rights"),
142
<PAGE>
all assets of Rome Savings available for distribution. In the event of
liquidation, dissolution or winding up of Rome Bancorp, the holders of its
common stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of Rome Bancorp
available for distribution. If preferred stock is issued, the holders thereof
may have a priority over the holders of the common stock in the event of the
liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of Rome Bancorp
will not be entitled to preemptive rights with respect to any shares which may
be issued. The common stock is not subject to redemption.
Preferred Stock
Rome Bancorp will not issue any shares of its authorized preferred stock in
the reorganization. We may issue preferred stock with such preferences and
designations as the Board of Directors may from time to time determine. The
board of directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and certain
matters relating to the reorganization and federal taxation will be passed upon
for us by Thacher Proffitt & Wood, Washington, DC. Certain matters relating to
state taxation will be passed upon for us by KPMG LLP. Certain legal matters
will be passed upon for us by Sandler O'Neill & Partners, L.P. by Silver,
Freedman & Taff, L.L.P. Washington, DC.
EXPERTS
The consolidated financial statements of The Rome Savings Bank and
subsidiaries as of December 31, 1998 and 1997, and for the years then ended,
have been included herein and in the registration statement filed with the SEC
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
RP Financial has consented to the publication in this document of a summary
of its letter to Rome Savings setting forth its opinion as to the estimated pro
forma market value of Rome Savings in the converted form and its opinion setting
forth the value of subscription rights and to the use of its name and statements
with respect to it appearing in this document.
143
<PAGE>
REGISTRATION REQUIREMENTS
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the
information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. We may not deregister the common stock under the Exchange Act for a period
of at least three years following the reorganization.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and
must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form [SB-2] under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. You may examine this information without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain copies of this material from the SEC at prescribed
rates. You may obtain information on the operations of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
address ("web site") that contains reports, proxy and information statements and
other information regarding registrants, including Rome Bancorp, that file
electronically with the SEC. The address for this web site is
"http://www.sec.gov."
The statements contained in this document as to the contents of any
contract or other document filed as an exhibit to the Form SB-2 are, of
necessity, brief descriptions and are not necessarily complete; each such
statement is qualified by reference to such contract or document.
A copy of Rome Bancorp's Certificate of Incorporation and Bylaws, as well
as those of Rome Savings and Rome, MHC, are available without charge from Rome
Savings. Copies of the plan of reorganization are also available from Rome
Savings without charge.
Rome Savings has filed notice of mutual holding company reorganization with
the New York State Department of. In addition, Rome Savings has filed copies of
that application with the FDIC. Rome Bancorp has filed an application with the
Federal Reserve Board of New York to become a bank holding company. This
prospectus omits certain information contained in those applications.
144
<PAGE>
THE ROME SAVINGS BANK
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................... F-2
Consolidated Statements of Financial Condition at
December 31, 1998 and 1997 and at March 31, 1999 (unaudited)..... F-3
Consolidated Statements of Income for the
years ended December 31, 1998 and 1997 and
for the three months ended March 31, 1999 and 1998 (unaudited)... F-4
Consolidated Statements of Equity and Comprehensive Income
for the years ended December 3111998 and 1997
and for the three months ended March 31, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1998 and 1997 and for the
three months ended March 31, 1999 and 1998 (unaudited)........... F-6
Notes to Consolidated Financial Statements............................. F-7
- -------------------------------------------------------------------------------
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the consolidated financial statements or
related notes.
Financial statements of Rome, MHC and Rome Bancorp, Inc. have not been provided
because they have conducted no operations. Rome, MHC has not yet been organized
and Rome Bancorp, Inc. has no assets and no liabilities.
- --------------------------------------------------------------------------------
F-1
<PAGE>
Independent Auditors' Report
The Board of Trustees
The Rome Savings Bank:
We have audited the accompanying consolidated statements of condition of The
Rome Savings Bank and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, equity and comprehensive income, and
cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Bank'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 The Rome Savings
Bank and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years then ended, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
February 5, 1999
Syracuse, New York
F-2
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Condition
March 31, 1999 and December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
------------------------
Assets 1999 1998 1997
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 8,391 6,136 7,925
Federal funds sold and other
interest bearing deposits 17,738 19,078 9,374
Securities available for sale, at fair
value 52,856 55,036 54,947
Securities held to maturity (fair
value of $1,484 (unaudited),
$1,542 and $1,773 at March
31, 1999 and December 31,
1998 and 1997, respectively) 1,420 1,472 1,681
Loans 136,852 136,804 132,717
Less: Allowance for loan
losses 1,898 1,956 1,742
---------- ---------- ----------
Net loans 134,954 134,848 130,975
Premises and equipment, net 3,929 3,957 3,740
Accrued interest receivable 1,829 1,578 1,601
Other real estate owned 267 294 1,626
Other assets 2,895 2,874 2,487
---------- ---------- ----------
Total assets $ 224,279 225,273 214,356
========== ========== ==========
Liabilities
Liabilities:
Deposits:
Non-interest bearing 20,429 20,231 16,240
Savings 78,398 75,935 75,047
Money market 6,353 5,423 4,804
Time 84,152 84,739 85,831
Other interest bearing 2,594 2,802 2,574
---------- ---------- ----------
Total deposits 191,926 189,130 184,496
Due to broker -- 4,026 --
Other liabilities 3,414 3,455 3,066
---------- ---------- ----------
Total liabilities 195,340 196,611 187,562
---------- ---------- ----------
Equity:
Surplus fund 5,687 5,687 5,687
Retained earnings 22,611 22,222 20,697
Accumulated other
comprehensive income 641 753 410
---------- ---------- ----------
Total equity 28,939 28,662 26,794
---------- ---------- ----------
Total liabilities and
equity $ 224,279 225,273 214,356
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 and
years ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Three months Years ended
ended March 31, December 31,
--------------------- ---------------------
1999 1998 1998 1997
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 2,822 2,832 11,334 11,532
Securities 733 808 3,464 3,341
Other short-term investments 175 167 713 669
--------- --------- --------- ---------
Total interest income 3,730 3,807 15,511 15,542
Interest expense on deposits 1,733 1,781 7,203 7,311
--------- --------- --------- ---------
Net interest income 1,997 2,026 8,308 8,231
Provision for loan losses -- 75 390 360
--------- --------- --------- ---------
Net interest income
after provision for
loan losses 1,997 1,951 7,918 7,871
--------- --------- --------- ---------
Non-interest income:
Service charges 130 131 562 517
Net gain on sale of securities -- 139 314 157
Other income 124 66 206 419
--------- --------- --------- ---------
Total non-interest
income 254 336 1,082 1,093
--------- --------- --------- ---------
Non-interest expenses:
Salaries and employee
benefits 920 747 3,263 3,126
Building, occupancy and
equipment 349 276 1,187 1,094
Real estate owned, net 7 53 383 385
ATM service fees 44 41 169 154
Contributions 11 16 152 192
Other 357 348 1,468 1,479
--------- --------- --------- ---------
Total non-interest
expenses 1,688 1,481 6,622 6,430
--------- --------- --------- ---------
Income before income
tax expense 563 806 2,378 2,534
Income tax expense 174 325 853 996
--------- --------- --------- ---------
Net income $ 389 481 1,525 1,538
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Equity and Comprehensive Income
Three months ended March 31, 1999 and
years ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Accumulated Other
Surplus Retained Comprehensive
Fund Earnings Income Total
----------- ---------- ----------------- -------
<S> <C> <C> <C> <C>
Balances at
December 31, 1996 $ 5,533 19,313 40 24,886
Comprehensive income:
Net income -- 1,538 -- 1,538
Change in net unrealized
gain on available for sale
securities, net of taxes -- -- 370 370
----------- ---------- ---------------- -------
Total comprehensive
income -- -- -- 1,908
----------- ---------- ---------------- -------
Statutory allocation of net
income to surplus 154 (154) -- --
----------- ---------- ---------------- -------
Balances at December 31, 1997 5,687 20,697 410 26,794
Comprehensive income:
Net income -- 1,525 -- 1,525
Change in net unrealized
gain on available for sale
securities, net of taxes -- -- 343 343
----------- ---------- ---------------- -------
Total comprehensive
income -- -- -- 1,868
----------- ---------- ---------------- -------
Balances at
December 31, 1998 5,687 22,222 753 28,662
Comprehensive income:
Net income (unaudited) -- 389 -- 389
Change in net unrealized
gain on available for sale
securities, net of taxes
(unaudited) -- -- (112) (112)
----------- ---------- ---------------- -------
Total comprehensive
income (unaudited) -- -- -- 277
----------- ---------- ---------------- -------
Balances at March 31, 1999
(unaudited) $ 5,687 22,611 641 28,939
=========== ========== ================ =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 and
years ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Three months Years ended
ended March 31, December 31,
------------------- -------------------
1999 1998 1998 1997
---------- ------- --------- --------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 389 481 1,525 1,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 129 92 418 394
(Increase) decrease in accrued
interest receivable (251) (244) 23 95
Provision for loan losses -- 75 390 360
Net gains on sales of securities -- (139) (314) (157)
Proceeds from sale of education loans 251 -- 1,491 2,816
Net (gains) losses on sale of
real estate owned (5) 1 21 119
Write down of real estate owned -- -- 199 --
Amortization and accretion of
premiums and discounts 6 (32) (36) (27)
(Decrease) increase in other liabilities (41) (24) 389 485
Deferred income tax 13 (39) (194) (36)
Decrease (increase) in other assets 40 (201) (422) (31)
---------- ------- --------- --------
Net cash provided
by operating activities 531 (30) 3,490 5,556
---------- ------- --------- --------
Cash flows from investing activities:
Net (increase) decrease in loans (391) (1,238) (6,151) 2,224
Proceeds from sales of securities
available for sale -- 443 921 3,459
Proceeds from maturities
and principal reductions of
securities available for sale 6,045 4,000 21,000 9,000
Purchases of securities available for sale (8,083) (3) (17,060) (19,803)
Purchases of securities held to maturity -- -- (107) (448)
Proceeds from maturities and
principal reductions of
securities held to maturity 52 41 314 291
Proceeds from sale of real estate owned 66 138 1,509 614
Additions to premises and equipment (101) (30) (635) (203)
---------- ------- --------- --------
Net cash (used in) provided
by investing activities (2,412) 3,351 (209) (4,866)
---------- ------- --------- --------
Cash flows from financing activities:
Decrease in time deposits (587) (668) (1,092) (692)
Increase (decrease) in other deposits 3,383 3,123 5,726 609
---------- ------- --------- --------
Net cash provided by
(used in) financing
activities 2,796 2,455 4,634 (83)
---------- ------- --------- --------
Net increase (decrease) in cash and cash
equivalents 915 5,776 7,915 607
Cash and cash equivalents at beginning of year 25,214 17,299 17,299 16,692
---------- ------- --------- --------
Cash and cash equivalents at end of year $ 26,129 23,075 25,214 17,299
========== ======= ========= ========
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Change in securities purchased not settled $ (4,026) -- 4,026 --
Additions to real estate owned 34 52 397 910
Cash paid during the period for:
Interest 1,733 1,781 7,203 7,311
Income taxes 374 401 1,023 603
========== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(1) Adoption of Plan of Conversion
On January 22, 1999, the Board of Trustees of The Rome Savings Bank (the
Bank) adopted the Amended and Restated Plan of Reorganization (the Plan),
pursuant to which the Bank will reorganize into the mutual holding company
form of organization as a wholly-owned subsidiary of Rome Bancorp, Inc., a
mid-tier stock holding company that will be a majority-owned subsidiary of
Rome MHC (the MHC). Following receipt of all required regulatory approvals,
the approval of the depositors of the Bank entitled to vote on the Plan,
and the satisfaction of all other conditions precedent to the
Reorganization, the Bank will consummate the Reorganization. Pursuant to
the Plan, the Reorganization will be effected in a manner that is
consistent with applicable New York and federal law and regulations.
Contemporaneously with the Reorganization, Rome Bancorp, Inc. will sell a
Minority Interest in shares of Common Stock in a public stock offering
(Offering). Subsequent to the Reorganization and Offering, the minority
interest will represent 49% or less of the Rome Bancorp, Inc.'s outstanding
shares, with the MHC owning at least 51%.
The Reorganization will be accounted for as a change in corporate form with
no resulting change in the historical basis of the Bank's assets,
liabilities and equity. At the time of the reorganization, the Bank will
establish a liquidation account in an amount equal to its capital as of the
date of the latest statement of financial condition appearing in the final
prospectus. The liquidation account will be maintained for the benefit of
both eligible and supplemental eligible account holders who continue to
maintain their accounts at the Bank after the reorganization. The
liquidation account will be reduced annually to the extent that eligible
account holders have reduced their qualifying deposits as of each
anniversary date. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for account then held.
In connection with the reorganization, the Bank proposes to create a
charitable foundation to be funded by the holding company by contributing a
number of authorized but unissued shares of common stock or grants of cash
to the charitable foundation, immediately following the reorganization.
Such contribution, once made, will not be recoverable by the Bank or the
holding company. The holding company will recognize expense equal to the
fair value of the stock in the quarter in which the contribution occurs,
which is expected to be the third or fourth quarter of 1999. Such expense
will reduce earnings and could have a material impact on the Bank's
earnings for such quarter and for 1999.
The cost of reorganization will be deferred and reduce the proceeds from
the sale of the minority interest. If the reorganization is not completed,
all costs will be charged to expense.
F-7 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(2) Business
The Bank is organized under the laws of New York. The Bank provides
financial services primarily to individuals and small- to medium-sized
businesses, operating four branches in Oneida County of New York State. The
Bank is subject to regulation by the New York State Banking Department and
the Federal Deposit Insurance Corporation (FDIC) as a mutual savings bank.
(3) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. Certain prior year
amounts have been reclassified to conform to the current year
classifications. A description of the significant accounting policies
is presented below. In preparing the consolidated financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and disclosures of contingent assets and
liabilities and the reported amounts of revenues and expenses for the
period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of The Rome
Savings Bank and its wholly-owned subsidiaries. All intercompany
accounts and transactions are eliminated in consolidation.
(b) Securities
The Bank classifies its debt securities as either available-for-sale
or held-to-maturity as the Bank does not hold any securities
considered to be trading. Held-to-maturity securities are those debt
securities the Bank has the ability and intent to hold until maturity.
All other debt securities are classified as available for sale.
Available-for-sale securities are recorded at fair value. Held-to-
maturity securities are recorded at amortized cost. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as accumulated
other comprehensive income, a component of net worth, until realized.
A decline in the fair value of an available-for-sale or held-to-
maturity security below cost that is deemed to be other than temporary
is charged to earnings resulting in the establishment of a new cost
basis for the security.
F-8 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the interest method.
Dividend and interest income are recognized when earned. Purchases and
sales are recorded on a trade date basis with settlement occurring
shortly thereafter. Realized gains and losses on securities sold are
derived using the specific identification method for determining the
cost of securities sold.
(c) Loans
Loans are reported at the principal amount outstanding. Origination
fees and certain direct origination costs related to lending
activities are recognized in the period that the loan is closed. The
difference between origination fees and the related direct origination
costs are not material. The Bank has the ability and intent to hold
its loans to maturity except for education loans which are sold to a
third party upon reaching repayment status.
Interest on loans is accrued and included in income at contractual
rates applied to principal outstanding. The accrual of interest on
loans (including impaired loans) is generally discontinued, and
previously accrued interest is reversed when loan payments are 90 days
or more past due or when, by the judgment of management,
collectibility becomes uncertain. Subsequent recognition of income
occurs only to the extent that repayment is received. Loans are
generally returned to an accrual status when both principal and
interest are current and the loan is determined to be performing in
accordance with the applicable loan terms. When the future
collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis.
(d) Allowance for Loan Losses
The allowance for loan losses is increased by the provision for loan
losses charged to operations and is decreased by the charge-off of
loans, net of recoveries. Loans are charged off when management
determines that ultimate success of the loan's collectibility is
remote.
Management's evaluation of the adequacy of the allowance considers the
Bank's historical loan loss experience, review of specific loans,
current economic conditions and such other factors considered
appropriate to estimate losses. Management uses presently available
information to estimate probable losses on loans; however, future
additions to the allowance may be necessary based on changes in
estimates, assumptions or economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and may
require the Bank to recognize additions to the allowance based on
their judgment of information available to them at the time of their
examination.
F-9 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The allowance for loan losses is periodically evaluated by management
in order to maintain the allowance at a level sufficient to absorb
potential loan losses based upon known and inherent risks in the loan
portfolio.
The Bank estimates losses on impaired loans based on the present value
of expected future cash flows (discounted at the loan's effective
interest rate) or the fair value of the underlying collateral if the
loan is collateral dependent. An impairment loss exists if the
recorded investment in a loan exceeds the value of the loan as
measured by the aforementioned methods. Impairment losses are included
as a component of the allowance for loan losses. A loan is considered
impaired when it is probable that the Bank will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. Generally, all commercial mortgage loans and commercial
loans greater than $250,000 in a nonaccrual status (90 days or more
delinquent) are considered impaired. Commercial mortgage loans and
commercial loans less than $250,000 and all residential mortgage
loans, consumer loans and education loans are evaluated collectively
by portfolio since they are homogenous and generally carry smaller
individual balances. The Bank recognizes interest income on impaired
loans using the cash basis of income recognition.
(e) Real Estate Owned
Real estate acquired through foreclosure or deed in lieu of
foreclosure is recorded at the lower of the unpaid loan balance on the
property at the date of transfer, or fair value less estimated costs
to sell. Write-downs from cost to fair value which are required at the
time of foreclosure are charged to the allowance for loan losses.
Adjustments to the carrying value of such properties that result from
subsequent declines in value are charged to operations in the period
in which the declines occur.
(f) Premises and Equipment
Land is carried at cost and buildings and improvements and furniture
and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight-line method
over the estimated useful lives of the assets (7 to 40 years for
buildings and 3 to 10 years for furniture and equipment). Amortization
of leasehold improvements is computed on the straight-line method over
the shorter of the lease term or the estimated useful life of the
improvements.
F-10 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(g) Employee Benefit Plans
On January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits. SFAS No. 132 revises employers'
disclosures about pension and postretirement benefit plans, but does
not change the accounting for these plans.
The Bank maintains a non-contributory defined benefit pension plan
that covers substantially all employees. The benefits under the
pension plan are based on the employee's years of service and
compensation. The projected unit credit method is utilized for
measuring net periodic pension costs over the employees' service
lives. The Bank's funding policy is to contribute annually at least
the minimum required to meet the funding standards set forth under
provisions of the Employee Retirement Income Security Act of 1974.
The Bank also has a defined contribution 401(k) Savings Plan for all
full time salaried employees. Employees are permitted to contribute up
to 15% of base pay to the Savings Plan, subject to certain
limitations. The Bank matches 50% of each employee's contributions up
to a limit of 3% of the employee's base pay.
The Bank provides health care and life insurance benefits to retired
employees. The estimated costs of providing benefits are accrued over
the years the employees render services necessary to earn those
benefits.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
(i) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold
which represents short-term highly liquid investments.
F-11 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(j) Financial Instruments With Off-Balance Sheet Risk
The Bank does not engage in the use of derivative financial
instruments. The Bank's off-balance sheet financial instruments are
limited to commitments to extend credit.
(k) Comprehensive Income
On January 1, 1998, the Bank adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. At
the Bank, comprehensive income represents net income and the net
change in unrealized gains or losses on securities available for sale,
net of taxes, and is presented in the consolidated statements of
equity and comprehensive income. Prior year consolidated financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
(l) Segment Reporting
During 1998, the Bank adopted SFAS No. 131, Disclosures about Segments
of Enterprise and Related Information. SFAS No. 131 requires public
companies to report certain financial and other information about key
revenue-producing segments for which such information is available and
utilized by the chief operating decision maker. Specific information
to be reported for individual segments include profit and loss,
certain revenue and expense items, and total assets. As a community-
oriented financial institution, substantially all of the Bank's
operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses
performance based on an ongoing review of these community banking
operations, which constitute the Bank's only operating segment for
financial reporting purposes. Therefore, the adoption of SFAS No. 131
did not result in any changes in the Bank's reporting.
F-12 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(4) Securities
Securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------------------------
(unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government securities $ 19,022 123 -- 19,145
U.S. Government agencies 10,286 129 -- 10,415
State and Municipal
obligations 13,092 163 8 13,247
Mortgage-backed securities 4,978 -- 23 4,955
--------- ----- --- ------
Total debt securities 47,378 415 31 47,762
FHLB stock 763 -- -- 763
Equity securities 3,646 688 3 4,331
--------- ----- --- ------
$ 51,787 1,103 34 52,856
========= ===== === ======
Held-to-maturity:
U.S. Government securities 502 8 -- 510
Mortgage-backed securities 699 56 -- 755
Other bonds 219 -- -- 219
--------- ----- --- ------
$ 1,420 64 -- 1,484
========= ===== === ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
(unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government securities $ 22,031 211 -- 22,242
U.S. Government agencies 10,041 97 -- 10,138
State and Municipal
obligations 12,392 269 1 12,660
Mortgage-backed securities 5,024 -- 28 4,996
--------- ----- --- ------
Total debt securities 49,488 577 29 50,036
FHLB stock 747 -- -- 747
Equity securities 3,546 708 1 4,253
--------- ----- --- ------
$ 53,781 1,285 30 55,036
========= ===== === ======
Held-to-maturity:
U.S. Government securities 502 11 -- 513
Mortgage-backed securities 750 59 -- 809
Other bonds 220 -- -- 220
--------- ----- --- ------
$ 1,472 70 -- 1,542
========= ===== === ======
</TABLE>
F-13 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government securities $ 35,015 189 14 35,190
U.S. Government agencies 16,132 67 29 16,170
------- --- --- ------
Total debt securities 51,147 256 43 51,360
FHLB stock 747 -- -- 747
Equity securities 2,370 471 1 2,840
------- --- --- ------
$54,264 727 44 54,947
======= === === ======
Held-to-maturity:
U.S. Government securities 504 10 -- 514
Mortgage-backed securities 959 82 -- 1,041
Other bonds 218 -- -- 218
------- --- --- ------
$ 1,681 92 -- 1,773
======= === === ======
</TABLE>
The following table presents the amortized cost and fair value of debt
securities based on the scheduled maturity date (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
----------------------
(unaudited)
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Available-for-sale:
Due within one year $ 13,025 13,084
Due after one year through five years 13,473 13,563
Due after five years through ten years 18,891 19,025
Due after ten years 1,989 2,090
-------- ------
$ 47,378 47,762
======== ======
Held-to-maturity:
Due within one year 502 510
Due after one year through five years 44 44
Due after five years through ten years 258 275
Due after ten years 616 655
-------- ------
$ 1,420 1,484
======== ======
</TABLE>
F-14 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1998
----------------------
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Available-for-sale:
Due within one year $ 18,004 18,126
Due after one year through five years 12,183 12,320
Due after five years through ten years 17,416 17,656
Due after ten years 1,885 1,934
-------- ------
$ 49,488 50,036
======== ======
Held-to-maturity:
Due after one year through five years 552 564
Due after five years through ten years 150 157
Due after ten years 770 821
-------- ------
$ 1,472 1,542
======== ======
</TABLE>
Gross gains of $139,000 were realized on sales of securities during the
three months ended March 31, 1998 (unaudited). There were no gross gains
realized on sales of securities during the three months ended March 31,
1999. There were no gross losses realized on sales of securities during the
three months ended March 31, 1999 and 1998 (unaudited). Gross gains of
$314,000 and $157,000 were realized on sales of securities in 1998 and
1997, respectively. There were no gross losses realized on sales of
securities in 1998 and 1997. There were no sales of held to maturity
securities during the three month period ended March 31, 1999, or in 1998
or 1997.
(5) Loans
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
------------------
1999 1998 1997
----------- -------- -------
(unaudited)
<S> <C> <C> <C>
Mortgage loans:
Residential $ 65,912 65,752 66,154
Commercial 29,033 29,499 28,440
Construction and land 324 391 936
-------- ------- -------
95,269 95,642 95,530
-------- ------- -------
Other loans:
Commercial 17,328 17,271 15,197
Automobile loans 9,669 9,460 8,325
Property improvement
and equipment 1,876 2,108 2,264
Education 5,610 5,224 5,226
Other consumer 7,100 7,099 6,175
-------- ------- -------
41,583 41,162 37,187
-------- ------- -------
$136,852 136,804 132,717
======== ======= =======
</TABLE>
F-15
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
Changes in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
------------------ ------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of
period $ 1,956 1,742 1,742 1,708
Provision charged to
operations -- 75 390 360
Recoveries 159 46 235 333
Loans charged off (217) (14) (411) (659)
------- ----- ----- -----
Balance at end of period $ 1,898 1,849 1,956 1,742
======= ===== ===== =====
</TABLE>
At March 31, 1999 (unaudited), December 31, 1998 and 1997, there were no
impaired loans. The Bank recognized no interest on impaired loans during
the three months ended March 31, 1999 and 1998 (unaudited) and the years
ended December 31, 1998 and 1997.
The principal balances of loans not accruing interest amounted to $405,000
(unaudited), $799,000 and $1,043,000 at March 31, 1999, December 31, 1998
and 1997, respectively. The differences between the amount of interest
income that would have been recorded if nonaccrual loans had been paid in
accordance with their original terms and the amount of interest income that
was recorded during the three-month periods ended March 31, 1999 and 1998
(unaudited) and during the years ended December 31, 1998 and 1997 was
immaterial.
Loans serviced for others totaled $4,331,000 (unaudited) at March 31, 1999
and $4,627,000 and $6,824,000 at December 31, 1998 and 1997, respectively.
A substantial portion of the Bank's loans are mortgage and consumer loans
in Oneida County. Accordingly, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio is susceptible to changes in market
conditions in this area. A majority of the Bank's loan portfolio is secured
by real estate.
The Bank's concentrations of credit risk are disclosed in the schedule of
loan classifications. Other than general economic risks, management is not
aware of any material concentrations of credit risk to any industry or
individual borrower.
F-16
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(6) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
--------------
1999 1998 1997
--------- ---- ----
(unaudited)
<S> <C> <C> <C>
Land $ 836 836 827
Buildings and improvements 4,392 4,384 4,348
Furniture and equipment 4,783 4,690 4,100
------- ----- -----
10,011 9,910 9,275
Less accumulated
depreciation and
amortization 6,082 5,953 5,535
------- ----- -----
$ 3,929 3,957 3,740
======= ===== =====
</TABLE>
Depreciation and amortization expense included in building, occupancy and
equipment expense amounted to $129,000 and $92,000 during the three months
ended March 31, 1999 and 1998 (unaudited), respectively, and $418,000 and
$394,000 during the years ended December 31, 1998 and 1997, respectively.
(7) Deposits
Contractual maturities of time deposits are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(unaudited)
<S> <C> <C>
Within one year $ 57,077 54,850
One through two years 16,346 18,001
Two through three years 4,863 6,290
Three through four years 3,178 2,907
Four through five years 2,688 2,691
-------- ------
Total time deposits $ 84,152 84,739
======== ======
</TABLE>
F-17 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
At March 31, 1999 and December 31, 1998 and 1997, time deposits with
balances of $100,000 or more totaled approximately $10,808,000 (unaudited),
$10,244,000 and $9,339,000, respectively.
(8) Borrowings
At March 31, 1999 (unaudited) and December 31, 1998, the Bank had available
an unused line of credit of $21,205,000 with the Federal Home Loan Bank of
New York which is subject to review and renewal. There were no outstanding
borrowings for the periods ended at March 31, 1999 (unaudited) and December
31, 1998 and 1997
(9) Income Taxes
Total income taxes were allocated as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
------------------ -------------
1999 1998 1998 1997
------- ----- ----- -----
<S> <C> <C> <C> <C>
Income from operations $ 174 325 853 996
Changes in net worth, for
unrealized gains (losses)
on securities
available-for-sale (74) 59 229 249
----- ---- ----- -----
$ 100 384 1,082 1,245
===== ==== ===== =====
</TABLE>
F-18 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The components of income tax expense (benefit) attributable to income from
operations consist of (in thousands):
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
------------------ -------------
1999 1998 1998 1997
------ ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C>
Current:
Federal $ 123 297 825 869
State 38 67 222 163
----- ---- ----- -----
161 364 1,047 1,032
----- ---- ----- -----
Deferred:
Federal 10 (34) (147) (31)
State 3 (5) (47) (5)
----- ---- ----- -----
13 (39) (194) (36)
----- ---- ----- -----
$ 174 325 853 996
===== ==== ===== =====
</TABLE>
Actual tax expense differs from "expected" tax expense, computed by
applying the U.S. Federal statutory tax rate of 34% to income before income
taxes as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
------------------ -------------
1999 1998 1998 1997
------ ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C>
Computed "expected" tax
expense $ 191 274 809 862
Increases (decreases) in
income taxes
resulting from:
State taxes, net of
Federal tax benefit 27 41 116 104
Tax exempt interest (46) -- (87) --
Other, net 2 10 15 30
----- ---- ---- ----
$ 174 325 853 996
===== ==== ==== ====
30.9% 40.3% 35.9% 39.3%
===== ==== ==== ====
</TABLE>
F-19 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
-------------
1999 1998 1997
-------- ---- -----
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Losses on real estate
owned $ 96 104 129
Allowance for loan losses 526 549 398
Accrued postretirement
benefits 712 698 662
Deferred compensation 150 147 90
Other 40 39 38
------ ----- -----
Total gross deferred
tax assets 1,524 1,537 1,317
------ ----- -----
Deferred tax liabilities:
Accumulated depreciation
on premises and
equipment 101 98 98
Prepaid pension cost 222 224 159
Unrealized gains on
available-for-sale
securities 428 502 273
Other 55 56 95
------ ----- -----
Total gross deferred
tax liabilities 806 880 625
------ ----- -----
Net deferred tax
assets $ 718 657 692
====== ===== =====
</TABLE>
F-20 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income within
the carryback period. A valuation allowance is provided when it is more
likely than not that some portion of the deferred tax assets will not be
realized. In assessing the need for a valuation allowance, management
considers the scheduled reversal of the deferred tax liabilities, the level
of historical taxable income and projected future taxable income over the
periods in which the temporary differences comprising the deferred tax
assets will be deductible. Management believes that no valuation allowance
is necessary.
Included in retained earnings at December 31, 1998 is approximately
$3,351,000 representing aggregate provisions for loan losses taken under
the Internal Revenue Code. Use of these reserves for purposes other than to
absorb losses on loans, or if the institution fails to qualify as a bank
for Federal income tax purposes, would result in taxable income to the
Bank. It is not anticipated that this amount will be used in any manner
that will create taxable income.
F-21 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(10) Employee Benefits
The following table sets forth the changes in the plans' accumulated
benefit obligations, fair value of assets and funded status and amounts
recognized in the consolidated statements of condition at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
Pension Benefits Post-Retirement Benefits
--------------------------- ------------------------
1998 1997 1998 1997
(in thousands) ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $ 5,542 5,095 1,521 1,420
Service cost 148 130 36 30
Interest cost 396 377 127 103
Amendments -- -- 31 --
Actuarial loss (gain) 454 76 369 28
Benefits paid (476) (136) (68) (60)
Participant contributions -- -- 18 --
----------- ------ ------ ------
Benefit obligation
at end of year 6,064 5,542 2,034 1,521
----------- ------ ------ ------
Change in plan assets:
Fair value of plan assets
at beginning of year 7,165 5,994 -- --
Actual return on plan
assets (12) 1,307 -- --
Employer contributions -- -- 50 60
Participant contributions -- -- 18 --
Benefits paid (476) (136) (68) (60)
----------- ------ ------ ------
Fair value of plan
assets at end of year 6,677 7,165 -- --
----------- ------ ------ ------
Funded status 613 1,623 (2,034) (1,521)
Unrecognized net
actuarial loss (gain) 9 (1,060) 258 (111)
Net transition asset (15) (113) -- --
Unrecognized prior
service cost (47) (54) 28 --
----------- ------ ------ ------
Prepaid (accrued)
benefit cost $ 560 396 (1,748) (1,632)
=========== ====== ====== ======
Assumptions as of
December 31:
Discount rate 6.5% 7.25% 6.5% 7.25%
Expected return
on plan assets 8.0% 8.0% -- --
Rate of compensation
increase 4.5% 5.0% -- --
</TABLE>
F-22 (Continued)
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The components of net periodic benefit cost includes the following:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------- -----------------------------------
(in thousands) 1998 1997 1998 1997
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Service cost $ 148 130 36 30
Interest cost 396 377 127 103
Expected return on assets (568) (474) -- --
Amortization (140) (106) 2 (1)
---------------- ----------------- ---------------- -----------------
Net periodic benefit
cost (benefit) $ (164) (73) 165 132
================ ================= ================ =================
</TABLE>
There is no assumed increase in the per capita cost of current health care
benefits since the employer contributions are fixed with the retiree paying
for any cost increases.
For the three months ended March 31, 1999, net pension costs were $6,000
(unaudited) and for the three months ended March 31, 1998, the net pension
benefit was $40,000 (unaudited). Other postretirement benefit expense for
the three months ended March 31, 1999 and 1998 was $45,000 (unaudited) and
$33,000 (unaudited), respectively.
Contributions to the defined contribution 401(k) Savings Plan were
approximately $13,000 and $15,000 during the three months ended March 31,
1999 and 1998 (unaudited), respectively, and $56,000 and $53,000 during the
years ended December 31, 1998 and 1997, respectively.
(Continued)
F-23
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(11) Comprehensive Income
The following summarizes the components of other comprehensive income:
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
--------------------------------- ----------------------------------
1999 1998 1998 1997
--------------- --------------- ---------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net unrealized holding gains
on available-for-sale
securities $ (186) 286 886 776
Reclassification adjustment for
net realized gain on sale of
available-for-sale
securities -- (139) (314) (157)
--------------- --------------- ---------------- ---------------
Other comprehensive income,
before tax (186) 147 572 619
Deferred tax expense (benefit) 74 (59) (229) (249)
--------------- --------------- ---------------- ---------------
Other comprehensive
income, net of tax $ (112) 88 343 370
=============== =============== ================ ===============
</TABLE>
(12) Commitments and Contingencies
The Bank 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 consist of commitments to extend
credit and involve, to varying degrees, elements of credit, market and
interest rate risk in excess of the amounts recognized in the consolidated
balance sheet. Credit risk represents the accounting loss that would be
recognized at the reporting date if obligated counterparties failed
completely to perform as contracted. Market risk represents risk that
future changes in market prices make financial instruments less valuable.
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.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's evaluation of the customer's
financial position. Collateral held varies, but may include real estate,
accounts receivable, inventory, property, plant and equipment and income-
producing commercial properties. Substantially all commitments to extent
credit, if exercised, will represent loans secured by real estate.
(Continued)
F-24
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
At March 31, 1999 and December 31, 1998 and 1997 the Bank was committed to
originate mortgage and other loans of approximately $3,920,000 (unaudited),
$3,576,000 and $1,425,000 respectively. Commitments under unused lines of
credit and letters of credit were approximately $5,272,000 (unaudited),
$5,718,000 and $5,573,000 at March 31, 1999, and at December 31, 1998 and
1997, respectively.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments is represented
by the contractual or notional amount of these instruments. The Bank uses
the same credit policies in making commitments as it does for on-balance
sheet instruments. The Bank controls its credit risk through credit
approvals, limits, and monitoring procedures.
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved in
such proceedings is not material to the financial condition or results of
operations of the Bank.
(13) Regulatory Matters
The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC)
and the State of New York Banking Department and is subject to the capital
adequacy requirements of the FDIC.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Capital amounts
are also subject to qualitative judgments by the FDIC about components,
risk weightings, and other factors. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the FDIC that, if undertaken, could have a direct
material effect on the Bank's financial statement.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
established capital levels for which insured institutions are categorized
as well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.
As of December 31, 1997, the most recent notification from the FDIC
categorized the bank as well capitalized under the regulatory framework for
prompt corrective actions. To be categorized as well as capitalized, the
Bank must meet the minimum ratios as set forth in the table. There have
been no conditions or events since that notification that management
believes have changed the Bank's category. Management believes, as of March
31, 1999 and December 31, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
(Continued)
F-25
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The following is a summary of the Bank's actual capital amounts and ratios
compared to the FDIC minimum capital adequacy requirements and the FDIC
requirements for classification as a well capitalized institution under
prompt corrective action provisions (dollars in thousands):
<TABLE>
<CAPTION>
To be classified as
well-capitalized under
Minimum capital prompt corrective
Actual adequacy requirements action provisions
----------------------------- ------------------------------ -----------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total capital (to risk
weighted assets) greater than greater than
(unaudited): $ 30,257 23.0% 10,545 or equal to 8% 13,181 or equal to 10%
Tier 1 Capital (to risk
weighted assets) greater than greater than
(unaudited): $ 28,298 21.5% 5,272 or equal to 4% 7,909 or equal to 6%
Tier 1 Capital (to
average assets) greater than greater than
(unaudited): $ 28,298 12.8% 8,867 or equal to 4% 11,084 or equal to 5%
As of December 31, 1998:
Total capital (to risk greater than greater than
weighted assets): $ 29,869 22.8% 10,480 or equal to 8% 13,100 or equal to 10%
Tier 1 Capital (to risk greater than greater than
weighted assets): $ 27,909 21.3% 5,240 or equal to 4% 7,860 or equal to 6%
Tier 1 Capital (to greater than greater than
average assets): $ 27,909 12.7% 8,768 or equal to 4% 10,961 or equal to 5%
As of December 31, 1997:
Total capital (to risk greater than greater than
weighted assets): $ 27,962 22.2% 10,094 or equal to 8% 12,617 or equal to 10%
Tier 1 Capital (to risk greater than greater than
weighted assets): $ 26,383 20.9% 5,047 or equal to 4% 7,570 or equal to 6%
Tier 1 Capital (to greater than greater than
average assets): $ 26,383 12.3% 8,559 or equal to 4% 10,699 or equal to 5%
</TABLE>
* means greater than or equal to
(Continued)
F-26
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
(14) Fair Value of Financial Instruments
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments:
Cash and cash equivalents: The fair values are considered to
approximate the carrying values, as reported in the statement of
condition.
Securities: Fair values of securities are based on exchange quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
instruments.
Loans: For variable rate loans that reprice frequently and loans due
on demand with no significant change in credit risk, fair values are
considered to approximate carrying values. The fair values for certain
mortgage loans (e.g., one-to-four family residential) and other
consumer loans are based on quoted market prices of similar loans sold
on the secondary market, adjusted for differences in loan
characteristics. The fair values for other loans (e.g., commercial
real estate and rental property mortgage loans) are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
rating. The carrying amount of accrued interest approximates its fair
value.
Deposits: The fair values of demand deposits (interest and non-
interest checking) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposits, savings and club
accounts, and money market accounts are estimated using a discounted
cash flow calculation that applies interest rates currently being
offered on these products to a schedule of aggregated expected monthly
maturities on time deposits.
Off-balance-sheet instruments: Fair values for the Bank's
off-balance-sheet instruments (lines of credit and commitments to fund
loans) are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The fair value of these
financial instruments is immaterial and has therefore been excluded
from the table below.
(Continued)
F-27
<PAGE>
THE ROME SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended March 31, 1999 and 1998 (unaudited) and
years ended December 31, 1998 and 1997
The estimated carrying values and fair values of the Bank's financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
March 31, 1999 1998 1997
----------------------------------- ----------------------------------- ----------------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
---------------- ---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Financial assets:
Cash and cash
equivalents $ 26,129 26,129 25,214 25,214 17,299 17,299
Securities 54,276 54,340 56,508 56,578 56,628 56,720
Loans, net 134,954 137,604 134,848 137,594 130,975 134,534
Financial
liabilities:
Deposits 191,926 192,650 189,130 189,706 184,496 184,624
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
F-28
<PAGE>
================================================================================
You should rely only on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Rome Savings Bank or Rome Bancorp, Inc. may
change after the date of this prospectus. Delivery of this document and the
sales of shares made hereunder does not mean otherwise.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary................................................................................... 3
Risk Factors.............................................................................. 13
Selected Financial and Other Data......................................................... 17
Rome Savings Bank......................................................................... 20
Rome Bancorp, Inc......................................................................... 20
Rome, MHC20
How We Intend to Use the Proceeds from the Offering....................................... 21
Our Policy Regarding Dividends............................................................ 22
Market for the Common Stock............................................................... 23
Regulatory Capital Compliance............................................................. 24
Capitalization............................................................................ 25
Pro Forma Data............................................................................ 26
Rome Savings Bank Statements of Income.................................................... 33
Management's Discussion and Analysis of Financial Condition and Results of Operations..... 34
Business of Rome Savings Bank............................................................. 55
Business of Rome Bancorp, Inc............................................................. 80
Regulation of Rome Savings Bank and Rome Bancorp.......................................... 81
Taxation.................................................................................. 96
Management................................................................................ 98
The Reorganization and the Offering.......................................................109
Restrictions on Acquisition of Rome Bancorp and Rome Savings..............................135
Description of Capital Stock Rome Bancorp.................................................141
Legal and Tax Opinions....................................................................143
Experts...................................................................................143
Registration Requirements.................................................................144
Where You Can Find Additional Information.................................................144
Index to Financial Statements.............................................................F-1
</TABLE>
Until the later of [ ], 1999 or 25 days after commencement of the
offering, all dealers effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
Up to 2,441,902 Shares of
Common Stock
ROME BANCORP, INC.
Proposed Holding Company
for The Rome Savings Bank
_____________
PROSPECTUS
_____________
Sandler O'Neill & Partners, l.p.
[ ], 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL"), empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Similar indemnity is authorized for such persons against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
of a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Article IX of the Certificate of Incorporation of Rome Bancorp, Inc. (the
"Company") provides that a director shall not be personally liable to the
Company or its stockholders for damages for breach of his fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is expressly prohibited by the DGCL. Article X, Section 1 of the
Company's Certificate of Incorporation requires the Company, among other things,
to indemnify to the fullest extent permitted by the DGCL, any person who is or
was or has agreed to become a director or officer of the company, who was or is
made a party to, or is threatened to be made a party to, or has become a witness
in, any threatened, pending or completed action, suit or proceeding, including
actions or suits by or in the right of the Company, by reason of such agreement
or service or the fact that such person is, was or has agreed to serve as a
director, officer, employee or agent of another corporation or organization at
the request of the Company.
Article X, Section 11 also empowers the Company to purchase and maintain
insurance to protect itself and its directors, officers, employees and agents
and those who were or have agreed to become directors, officers, employees or
agents, against any liability, regardless of whether or not the Company would
have the power to indemnify those persons against such liability under the law
or the provisions set forth in the Certificate of Incorporation; provided that
such insurance is available on acceptable terms as
II-1
<PAGE>
determined by a vote of the Board of Directors. The Company is also authorized
by its Certificate of Incorporation to enter into individual indemnification
contracts with directors, officers, employees and agents which may provide
indemnification rights and procedures different from those set forth in the
Certificate of Incorporation. The Company expects to purchase directors' and
officers' liability insurance consistent with the provisions of the Certificate
of Incorporation as soon as practicable.
Article VII of the Bank's Bylaws provide that it shall indemnify any person
against whom an action is brought or threatened because that person is or was a
director or officer of the Bank or the Company for: (a) any amount for which
that person becomes liable under a judgment in such action; and (b) reasonable
costs and expenses, including reasonable attorneys' fees, actually paid or
incurred by that person in defending or settling such action, or in enforcing
his or her rights under the indemnification section of the bylaws if he or she
attains a favorable judgment in such enforcement action.
Article VI of the Bylaws of Rome, MHC (the "Mutual Company") provide that
the Mutual Company shall indemnify its officers and trustees to the fullest
extent permitted by law.
The Company is party to an Employment Agreement with Mr. Charles M. Sprock.
This Employment Agreement provide for the Company to indemnify the Senior
Executive to the fullest extent permitted under Delaware law, during the
Employment Period and for a period of six years thereafter against personal
liability for acts in connection with service to the Company.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
New York State Banking Department Application Fee.................. $ 10,000
SEC Registration Fee (1)........................................... 4,950
National Association of Securities Dealers filing fee.............. 5,000
Nasdaq Listing Fee................................................. 7,750
Printing, postage and mailing...................................... 80,000
Legal fees and expenses............................................ 350,000
Placement Agent's fees and commissions............................. 170,000
Placement Agent's expenses (including counsel fees)................ 50,000
Accounting fees and expenses....................................... 100,000
Appraiser's fees and expenses (including preparing business plan).. 35,000
Conversion agent fees and expenses................................. 5,000
Certificate printing............................................... 1,500
Blue Sky fees and expenses (including fees of counsel)............. 5,000
Miscellaneous...................................................... 800
--------
TOTAL.............................................................. $825,000
========
</TABLE>
- -------------------------------
(1) Actual expenses based upon the registration and sale of 2,545,813 shares
each at $7.00 per share. All other expenses are estimated.
II-2
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
None.
Item 27. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits. (Filed herewith unless otherwise noted.)
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1.1 Engagement letter, dated January 27, 1999, between The Rome
Savings Bank and Sandler, O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Reorganization from Mutual Savings Bank to
Mutual Holding Company and Stock Issuance Plan of The Rome
Savings Bank
3.1 Certificate of Incorporation of Rome Bancorp, Inc.*
3.2 Bylaws of Rome Bancorp, Inc.*
3.3 Restated Organization Certificate of The Rome Savings Bank*
3.4 Bylaws of The Rome Savings Bank*
3.5 Organization Certificate of Rome, MHC*
3.6 Bylaws of Rome, MHC*
4.1 Certificate of Incorporation of Rome Bancorp, Inc. (See
Exhibit 3.1)*
4.2 Bylaws of Rome Bancorp, Inc. (See Exhibit 3.2)*
4.3 Form of Stock Certificate of Rome Bancorp, Inc.*
5.1 Form of Opinion of Thacher Proffitt & Wood re: legality of
securities to be registered
8.1 Form of Opinion of Thacher Proffitt & Wood re: federal tax
matters
8.2 Form of Opinion of KPMG LLP re: state and local tax matters
8.3 Letter from RP Financial regarding Subscription Rights*
10.1 Form of Employee Stock Ownership Plan of Rome Bancorp, Inc.
10.2 Form of Executive Employment Agreement, by and between
Charles M. Sprock and Rome Bancorp, Inc.*
10.3 Form of Benefit Restoration Plan of Rome Bancorp, Inc.*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1
and 8.1 to this Registration Statement)
23.2 Consent of KPMG LLP
23.3 Consent of RP Financial
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
24.1 Powers of Attorney (Included in Signature Page of this
Registration Statement)*
27.1 Financial Data Schedule (only filed in electronic format)
99.1 Appraisal Report of RP Financial [only filed in paper format]
99.2 Draft Marketing Materials in connection with the Offering
</TABLE>
* Previously filed.
(b) Financial Statement Schedules.
Financial statements of The Rome Savings Bank as of and for the year ended
December 31, 1998 and 1997 and as of and for the three months ended March 31,
1999 and 1998 (included in pp. F-1 -- F-28 of the Prospectus).
Item 28. Undertakings.
The undersigned Registrant hereby undertakes to provide to the agent at the
closing specified in the Agency Agreement, certificates in such denominations
and registered in such names as required by the agent to permit prompt delivery
to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act:
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fida offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) The undersigned Registrant may elect to request accelaration of the
effective date of the registration statement under Rule 461 under the Securities
Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the undersigned Registrant pursuant to the foregoing provisions, or
otherwise, the undersigned Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the undersigned Registrant of expenses incurred or
paid by a director, officer or controlling person of the undersigned Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rome, State of New York, on July 29, 1999.
Rome Bancorp, Inc.
By: /s/ Charles M. Sprock
-------------------------------------
Charles M. Sprock
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* Chairman, President and Chief July 29, 1999
- ------------------------------- Executive Officer
Charles M. Sprock (principal executive officer)
* Chief Financial Officer July 29, 1999
- ------------------------------- (principal accounting officer)
David C. Nolan
* Director July 29, 1999
- -------------------------------
Bruce R. Engelbert
* Director July 29, 1999
- -------------------------------
David C. Grow
* Director July 29, 1999
- -------------------------------
Kirk B. Hinman
* Director July 29, 1999
- -------------------------------
T. Richard Leidig
* Director July 29, 1999
- -------------------------------
Richard H. McMahon
* Director July 29, 1999
- -------------------------------
Marion Scoville
* Director July 29, 1999
- -------------------------------
Michael J. Valentine
</TABLE>
* Charles M. Sprock as attroney-in-fact by power of attorney files on June
11, 1999.
II-5
<PAGE>
2,123,393 Shares
(subject to increase up to 2,441,902 shares
in the event of an oversubscription)
ROME BANCORP, INC.
(a Delaware corporation)
Common Stock
(par value $.01 per share)
AGENCY AGREEMENT
[____________________], 1999
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Rome Bancorp, Inc., a Delaware corporation (the "Company"), The Rome
Savings Bank, a New York savings bank (the "Bank") and Rome, MHC ("MHC"), hereby
confirm their agreement with Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"
or the "Agent") with respect to the offer and sale by the Company of 2,123,393
shares (subject to increase up to 2,441,902 shares in the event of an
oversubscription) of the Company's common stock, par value $.01 per share (the
"Common Stock"). The shares of Common Stock to be sold by the Company are
hereinafter called the "Securities." In addition, as described herein, the
Company expects to contribute $100,000 in cash and shares of Common Stock in an
amount equal to 2.0% of the shares of Common Stock issued in the Offerings (as
hereinafter defined) to the Rome Savings Foundation (the "Foundation"), such
shares hereinafter being referred to as the "Foundation Shares."
The Securities are being offered for sale and the Foundation Shares
are being contributed in accordance with the plan of reorganization (the "Plan")
adopted by the Board of Trustees of the Bank pursuant to which the Bank intends
to reorganize into a mutual holding company structure and issue all of its stock
to the Company. In addition, pursuant to the Plan, the Company will offer and
sell up to 2,123,393 shares of its common stock, par value $.01 per share, in a
subscription offering to the Bank's tax qualified employee benefit plans,
including the Employee Stock Ownership Plan (the "ESOP") (collectively, the
"Employee Plans"), to certain of the Bank's depositors and to the Bank's
trustees, officers and employees ("the Subscription Offering"). To the extent
Securities are not subscribed for in the Subscription Offering, such Securities
may be offered
<PAGE>
-2-
to certain members of the general public, with preference given to certain of
the Bank's depositors and to natural persons residing in Oneida County, New
York, in a direct community offering (the "Community Offering" and together with
the Subscription Offering, as each may be extended or reopened from time to
time, the "Subscription and Community Offering") to be commenced concurrently
with or subsequent to the Subscription Offering. It is currently anticipated by
the Bank and the Company that any Securities not subscribed for in the
Subscription and Community Offering will be offered, subject to Section 2
hereof, in a syndicated community offering (the "Syndicated Community
Offering"). The Subscription Offering and the Syndicated Community Offering are
hereinafter referred to collectively as the "Offerings," and the reorganization
of the Bank from mutual to stock form, the acquisition of the capital stock of
the Bank by the Company and the Offerings are hereinafter referred to
collectively as the "Reorganization." It is acknowledged that the price of the
securities may be decreased and the number of Securities to be sold in the
Reorganization may be increased or decreased as described in the Prospectus (as
hereinafter defined). If the number of Securities is increased or decreased in
accordance with the Plan, the term "Securities" shall mean such greater or
lesser number, where applicable. In the event that a holding company form of
organization is not utilized, all pertinent terms of this Agreement will apply
to the reorganization of the Bank from the mutual to stock form of organization
and the sale of the Bank's common stock.
In connection with the Reorganization and pursuant to the terms of the Plan
as described in the Prospectus, the Company has established the Foundation.
Immediately following the consummation of the Reorganization, and in compliance
with certain conditions as may be imposed by regulatory authorities, the Company
will contribute $100,000 in cash and newly issued shares of Common Stock in an
amount equal to 2.0% of the Securities sold in the Offering, or between 27,466
and 37,159 shares of Common Stock (subject to increase in certain circumstances
to 42,733 shares).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (No. 333-[____]), including
a related prospectus, for the registration of the Securities and the Foundation
Shares under the Securities Act of 1933, as amended (the "Securities Act"), has
filed such amendments thereto, if any, and such amended prospectuses as may have
been required to the date hereof by the Commission in order to declare such
registration statement effective, and will file such additional amendments
thereto and such amended prospectuses and prospectus supplements as may
hereafter be required. Such registration statement (as amended to date, if
applicable, and as from time to time amended or supplemented hereafter) and the
prospectuses constituting a part thereof (including in each case all documents
incorporated or deemed to be incorporated by reference therein and the
information, if any, deemed to be a part thereof pursuant to the rules and
regulations of the Commission under the Securities Act, as from time to time
amended or supplemented pursuant to the Securities Act or otherwise (the
"Securities Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the Subscription and
Community Offering or the Syndicated Community Offering which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the Securities Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Agent for such use.
<PAGE>
-3-
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription and Community Offering. Such prospectus contains information
with respect to the Bank, the Company and the Common Stock.
SECTION 1. Representations and Warranties.
(a) The Company, the MHC and the Bank jointly and severally
represent and warrant to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by
the Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company, the MHC and the Bank, threatened by the Commission. At the time
the Registration Statement became effective and at the Closing Time
referred to in Section 2 hereof, the Registration Statement complied and
will comply in all material respects with the requirements of the
Securities Act and the Securities Act Regulations and did not and will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, at the date hereof does not and at
the Closing Time referred to in Section 2 hereof will not, include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information with
respect to the Agent furnished to the Company in writing by the Agent
expressly for use in the Registration Statement or Prospectus (the "Agent
Information," which the Company, the MHC and the Bank acknowledge appears
only in the sections captioned "Market for the Common Stock" and the first
two paragraphs of the section "The Reorganization and the Offering -
Marketing and Underwriting Arrangements" of the Prospectus).
(ii) The Company has filed with the Federal Reserve Board ("FRB")
the Company's application for approval of its acquisition of the Bank (the
"Holding Company Application") on Form Y-3 promulgated under the Bank
Holding Company Act of 1956, as amended ("BHCA") and the regulations
promulgated thereunder. The Company has received written notice from the
FRB of its approval of the acquisition of the Bank, such approval remains
in full force and effect and no order has been issued by the FRB suspending
or revoking such approval and no proceedings therefor have been initiated
or, to the knowledge of the Company, the MHC or the Bank, threatened by the
FRB. At the date of such approval and at the Closing Time referred to in
Section 2, the Holding Company Application complied and will comply in all
material respects with the applicable provisions of BHCA and the
regulations promulgated thereunder.
(iii) In accordance with the rules and regulations of the New
York State Banking Department (the "Department") and the rules and
regulations of the Federal Deposit Insurance Corporation ("FDIC") (the "MHC
Regulations"), the Bank has filed with the Department and the FDIC, a
Notice of Intent to Convert to Stock Form (the "Notice") and
<PAGE>
-4-
an Application for Approval of a Mutual Savings Bank Holding Company
Reorganization (the "MHC Application"), including the Prospectus and the
Conversion Valuation Appraisal Report prepared by RP Financial, LC (the
"Appraisal") and has filed such amendments thereto as may have been
required by the Department and the FDIC. The Notice and the MHC Application
are collectively referred to as the "Reorganization Applications."
(iv) At the time of their use, the Proxy Statement and any other
proxy solicitation materials will comply in all material respects with the
applicable provisions of the MHC Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company, the MHC and the
Bank will promptly file the Prospectus and any supplemental sales
literature with the Commission, the Department and the FDIC. The
Prospectus and all supplemental sales literature, as of the date the
Registration Statement became effective and at the Closing Time referred to
in Section 2, complied and will comply in all material respects with the
applicable requirements of the Department and the FDIC and, at or prior to
the time of their first use, will have received all required authorizations
of the Department and the FDIC for use in final form.
(v) Neither the Commission, the Department nor the FDIC has, by
order or otherwise, prevented or suspended the use of the Prospectus or any
supplemental sales literature authorized by the Company, the MHC or the
Bank for use in connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company,
the MHC and the Bank will have completed the conditions precedent to the
Reorganization and the establishment of the Foundation in accordance with
the Plan, the applicable MHC Regulations and all other applicable laws,
regulations, decisions and orders, including all material terms,
conditions, requirements and provisions precedent to the Reorganization
imposed upon the Company, the MHC or the Bank by the FRB, the Department,
the FDIC, or any other regulatory authority, other than those which the
regulatory authority permits to be completed after the Reorganization.
(vii) RP Financial, L.C. ("RP Financial"), which prepared the
valuation of the Bank as part of the Reorganization, has advised the
Company, the MHC and the Bank in writing that it satisfies all requirements
for an appraiser set forth in the Regulations of the Department and the MHC
Regulations and any interpretations or guidelines issued by the Department
and the FDIC with respect thereto. [______________], which prepared the
opinion filed as Exhibit [___] of the MHC Application as required by the
MHC Regulations, satisfies all requirements for an "independent executive
compensation expert" within the meaning of the MHC Regulations.
(viii) The accountants who certified the consolidated financial
statements and supporting schedules of the Bank included in the
Registration Statement have advised the Company, the MHC and the Bank in
writing that they are independent public accountants within the meaning of
the Code of Ethics of the American Institute of Certified Public
Accountants (the "AICPA"), and such accountants are, with respect to the
Company, the
<PAGE>
-5-
MHC, the Bank and each subsidiary of the Bank, independent certified public
accountants as required by the Securities Act and the Securities Act
Regulations.
(ix) The only subsidiaries of the Bank are 100 On the Mall
Corporation, Clocktower Insurance Agency Incorporated and Clocktower
Financial Corporation.
(x) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the financial position of the Company, the MHC, the Bank and its
consolidated subsidiaries at the dates indicated and the results of
operations, equity and cash flows for the periods specified, and comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act Regulations and the MHC Regulations;
except as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis; and the supporting
schedules and tables included in the Registration Statement present fairly
the information required to be stated therein.
(xi) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein (A) there has been no material adverse change in the
financial condition, results of operations or business affairs of the
Company, the MHC, the Bank and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
(B) except for transactions specifically referred to or contemplated in the
Prospectus, there have been no transactions entered into by the Company,
the MHC, the Bank or any of its subsidiaries other than those in the
ordinary course of business, which are material with respect to the
Company, the MHC, the Bank and its subsidiaries considered as one
enterprise.
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Delaware and in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the
MHC, the Bank and its subsidiaries considered as one enterprise. The MHC
has been duly organized and is validly existing as a New York chartered
mutual holding company in good standing under the laws of the state of New
York with the power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and to enter
into and perform its obligations under this Agreement; and the MHC is duly
qualified as a foreign entity to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse
effect on the financial condition, results of operations or business
affairs of the Company, the MHC, the Bank and its subsidiaries considered
as one enterprise.
<PAGE>
-6-
(xiii) Upon consummation of the Reorganization and the
contribution of the Foundation Shares as described in the Prospectus, the
authorized, issued and outstanding capital stock of the Company will be as
set forth in the Prospectus under "Capitalization" (except for subsequent
issuances, if any, pursuant to reservations, agreements or employee benefit
plans referred to in the Prospectus); no shares of Common Stock have been
or will be issued and outstanding prior to the Closing Time referred to in
Section 2; at the time of Reorganization, the Securities will have been
duly authorized for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and stated on the cover page of the Prospectus, will be
duly and validly issued and fully paid and non-assessable; the terms and
provisions of the Common Stock and the capital stock of the Company conform
to all statements relating thereto contained in the Prospectus; the
certificates representing the shares of Common Stock conform to the
requirements of applicable law and regulations; and the issuance of the
Securities is not subject to preemptive or other similar rights.
(xiv) The Bank, as of the date hereof, is a New York chartered
savings bank in mutual form and upon consummation of the Reorganization
will be a New York chartered savings bank in stock form, in both instances
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus; the
Company, the MHC, the Bank and its subsidiaries have obtained all licenses,
permits and other governmental authorizations currently required for the
conduct of their respective businesses or required for the conduct of their
respective businesses as contemplated by the Holding Company Application,
the Notice and the MHC Application, except where the failure to obtain
such licenses, permits or other governmental authorizations would not have
a material adverse effect on the financial condition, results of operations
or business affairs of the Company, the MHC, the Bank and its subsidiaries
considered as one enterprise; all such licenses, permits and other
governmental authorizations are in full force and effect and the Company,
the MHC, the Bank and its subsidiaries are in all material respects in
compliance therewith; none of the Company, the MHC, the Bank nor any of the
Bank's subsidiaries has received notice of any proceeding or action
relating to the revocation or modification of any such license, permit or
other governmental authorization which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company, the MHC, the Bank and its subsidiaries
considered as one enterprise; and the Bank is in good standing under the
laws of New York and is qualified to transact business as a foreign
corporation in any jurisdiction in which the failure to so qualify would
have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the MHC, the Bank and its
subsidiaries considered as one enterprise.
(xv) The deposit accounts of the Bank are insured by the FDIC up
to the applicable limits and upon consummation of the Reorganization, the
liquidation account for the benefit of eligible account holders and
supplemental eligible account holders will be duly established in
accordance with the requirements of the Department and MHC Regulations. The
Bank is a "qualified thrift lender" within the meaning of 12 U.S.C. Section
1467a(m).
(xvi) Upon consummation of the Reorganization, the authorized
capital stock of the Bank will be 5,000,000 shares of common stock, par
value $.01 per share (the
<PAGE>
-7-
"Bank Common Stock") and100,000 shares of preferred stock, par value $.01
per share (the "Bank Preferred Stock"), and the issued and outstanding
capital stock of the Bank will be [1,000] shares of Bank Common Stock and
no shares of the Bank Preferred Stock, and no shares of Bank Common Stock
or Bank Preferred Stock have been or will be issued prior to the Closing
time referred to in Section 2; and as of Closing Time referred to in
Section 2, all of the issued and outstanding capital stock of the Bank will
be duly authorized, validly issued and fully paid and nonassessable and
have been issued in compliance with all federal and state securities laws.
The shares of Bank Common Stock to be issued to the Company will have been
duly authorized for issuance and, when issued and delivered by the Bank
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and as described in the Prospectus, will be duly and
validly issued and fully paid and nonassessable, and all such Bank Common
Stock will be owned beneficially and of record by the Company free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
legal or equitable claim; the terms and provisions of the Bank Common Stock
and the Bank Preferred Stock conform to all statements relating thereto
contained in the Prospectus, and the certificates representing the shares
of the Bank Common Stock will conform with the requirements of applicable
laws and regulations; and the issuance of the Bank Common Stock is not
subject to preemptive or similar rights.
(xvii) The Foundation has been duly authorized, incorporated and is
validly existing as a non stock corporation in good standing under the laws
of the State of Delaware with corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus; the Foundation will not be a bank holding company withing the
meaning of 12 C.F.R. Section 574.2(q) as a result of the issuance of shares
of Common Stock to it in accordance with the terms of the Plan and in the
amounts as described in the Prospectus; no approvals are required to
establish the Foundation and to contribute the shares of Common Stock
thereto as described in the Prospectus other than those imposed by the
Department and the FDIC; except as specifically disclosed in the Prospectus
and the Proxy Statement, there are no agreements and/or understandings,
written or oral, between the Company, the MHC and/or the Bank and the
Foundation with respect to the control, directly or indirectly, over the
voting and the acquisition or disposition of the Foundation Shares; at the
time of the Reorganization, the Foundation Shares will have been duly
authorized for issuance and, when issued and contributed by the Company
pursuant to the Plan, will be duly and validly issued and fully paid and
non-assessable; and the issuance of the Foundation Shares is not subject to
preemptive or similar rights.
(xviii) Each direct and indirect subsidiary of the Bank has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement and Prospectus, and
is duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure to so qualify would not have a material adverse effect on
the financial condition, results of operations or business affairs of the
Company, the MHC, the Bank and its subsidiaries considered as one
enterprise; the activities of each such subsidiary are permitted to
subsidiaries of a New York state chartered savings bank by the rules,
regulations, resolutions and practices of the Department;
<PAGE>
-8-
all of the issued and outstanding capital stock of each such subsidiary has
been duly authorized and validly issued, is fully paid and nonassessable
and is owned by the Bank, directly, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or legal or equitable claim.
(xix) The Company, the MHC and the Bank have taken all corporate
action necessary for them to execute, deliver and perform this Agreement,
and this Agreement has been duly executed and delivered by, and is the
valid and binding agreement of, the Company, the MHC, and the Bank,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other laws affecting the enforceability of the
rights of creditors generally and judicial limitations on the right of
specific performance and except as the enforceability of indemnification
and contribution provisions may be limited by applicable securities laws.
(xx) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Time, except as otherwise may be indicated or contemplated therein,
none of the Company, the MHC, the Bank or any subsidiary of the Bank will
have (A) issued any securities or incurred any liability or obligation,
direct or contingent, or borrowed money, except borrowings in the ordinary
course of business from the same or similar sources and in similar amounts
as indicated in the Prospectus, or (B) entered into any transaction or
series of transactions which is material in light of the business of the
Company, the MHC, the Bank and its subsidiaries, taken as a whole,
excluding the origination, purchase and sale of loans or the purchase or
sale of investment securities or mortgaged-backed securities in the
ordinary course of business.
(xxi) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and delivery
of this Agreement or the issuance of the Securities and the Foundation
Shares that has not been obtained and a copy of which has been delivered to
the Agent, except as may be required under the securities laws of various
jurisdictions.
(xxii) None of the Company, the MHC, the Bank nor any of the
Bank's subsidiaries is in violation of its certificate of incorporation,
organization certificate, articles of incorporation or charter, as the case
may be, or bylaws (and the Bank will not be in violation of its charter or
bylaws in stock form upon consummation of the Reorganization); and none of
the Company, the MHC, the Bank nor any of the Bank's subsidiaries is in
default (nor has any event occurred which, with notice or lapse of time or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company, the MHC, the Bank or any of its subsidiaries is a party
or by which it or any of them may be bound, or to which any of the property
or assets of the Company, the MHC, the Bank or any of its subsidiaries is
subject, except for such defaults that would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
results of operations or business of the Company, the MHC, the Bank and its
subsidiaries considered as one enterprise; and there are no contracts or
documents of the Company, the MHC, the Bank or any of the Bank's
subsidiaries which are required to be
<PAGE>
-9-
filed as exhibits to the Registration Statement or the MHC Application
which have not been so filed.
(xxiii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate action and do not and will
not conflict with or constitute a breach of, or default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company, the MHC, the Bank or any of its
subsidiaries pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, the MHC,
the Bank or any of its subsidiaries is a party or by which it or any of
them may be bound, or to which any of the property or assets of the
Company, the MHC, the Bank or any of its subsidiaries is subject, except
for such defaults that would not, individually or in the aggregate, have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company, the MHC, the Bank and its subsidiaries
considered as one enterprise; nor will such action result in any violation
of the provisions of the certificate of incorporation, organization
certificate, articles of incorporation or charter or by-laws of the
Company, the MHC, the Bank or any of its subsidiaries, or any applicable
law, administrative regulation or administrative or court decree.
(xxiv) No labor dispute with the employees of the Company, the
MHC, the Bank or any of its subsidiaries exists or, to the knowledge of the
Company, the MHC or the Bank, is imminent or threatened; and the Company,
the MHC and the Bank are not aware of any existing or threatened labor
disturbance by the employees of any of its principal suppliers or
contractors which might be expected to result in any material adverse
change in the financial condition, results of operations or business
affairs of the Company, the MHC, the Bank and its subsidiaries considered
as one enterprise.
(xxv) Each of the Company, the MHC, the Bank and its
subsidiaries have good and marketable title to all properties and assets
for which ownership is material to the business of the Company, the MHC,
the Bank or its subsidiaries and to those properties and assets described
in the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material in relation to the business of the Company,
the MHC, the Bank or its subsidiaries considered as one enterprise; and all
of the leases and subleases material to the business of the Company, the
MHC, the Bank or its subsidiaries under which the Company, the MHC, the
Bank or its subsidiaries hold properties, including those described in the
Prospectus, are valid and binding agreements of the Company, the MHC, the
Bank and its subsidiaries, enforceable in accordance with their terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general applicability
relating to or affecting creditors' rights or by general principles of
equity).
(xxvi) None of the Company, the MHC, the Bank nor its
subsidiaries are in violation of any directive from the Department, FRB or
FDIC to make any material change in the method of conducting their
respective businesses; the Bank and its subsidiaries have conducted and are
conducting their business so as to comply in all material respects with all
applicable statutes, regulations and administrative and court decrees
(including, without
<PAGE>
-10-
limitation, all regulations, decisions, directives and orders of the
Department, FRB and FDIC).
(xxvii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company, the MHC or the Bank, threatened, against
or affecting the Company, the MHC, the Bank or any of its subsidiaries
which is required to be disclosed in the Registration Statement (other than
as disclosed therein), or which might result in any material adverse change
in the financial condition, results of operations or business affairs of
the Company, the MHC, the Bank and its subsidiaries considered as one
enterprise, or which might materially and adversely affect the properties
or assets thereof or which might materially and adversely affect the
consummation of the Reorganization; all pending legal or governmental
proceedings to which the Company, the MHC, the Bank or any subsidiary is a
party or of which any of their respective property or assets is the subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, are considered in the
aggregate not material; and there are no contracts or documents of the
Company, the MHC, the Bank or any of its subsidiaries which are required to
be filed as exhibits to the Registration Statement or the MHC Application
which have not been so filed.
(xxviii) The Bank has obtained an opinion of its counsel, Thacher
Proffitt & Wood, with respect to the legality of the Securities to be
issued and federal income tax consequences of the Reorganization, copies of
which are filed as exhibits to the Registration Statement. The Federal
income tax consequences of the Foundation and certain matters relating to
state taxation will be passed upon by KPMG LLP. Material aspects of the
aforesaid opinions are accurately summarized in the Prospectus; the facts
and representations upon which such opinions are based are truthful,
accurate and complete in all material respects; and neither the Bank, the
MHC nor the Company has taken or will take any action inconsistent
therewith.
(xxix) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxx) All of the loans represented as assets on the most
recent consolidated financial statements or consolidated selected financial
information of the Bank included in the Prospectus meet or are exempt from
all requirements of federal, state or local law pertaining to lending,
including without limitation truth in lending (including the requirements
of Regulations Z and 12 C.F.R. Part 226 and Section 563.99), real estate
settlement procedures, consumer credit protection, equal credit opportunity
and all disclosure laws applicable to such loans, except for violations
which, if asserted, would not result in a material adverse effect on the
financial condition, results of operations or business of the Company, the
MHC, the Bank and its subsidiaries considered as one enterprise.
(xxxi) To the knowledge of the Company, the MHC and the Bank,
with the exception of the intended loan to the Bank's ESOP by the Company
to enable the ESOP to purchase shares of Common Stock in an amount of up to
8% of the Common Stock issued in the Reorganization, none of the Company,
the Bank or employees of the Bank has made any payment of funds of the
Company, the MHC or the Bank as a loan for the purchase of
<PAGE>
-11-
the Common Stock or made any other payment of funds prohibited by law, and
no funds have been set aside to be used for any payment prohibited by law.
(xxxii) The Company, the MHC, the Bank and its subsidiaries are
in compliance in all material respects with the applicable financial record
keeping and reporting requirements of the Currency and Foreign Transaction
Reporting Act of 1970, as amended, and the rules and regulations
thereunder.
(xxxiii) None of the Company, the MHC, the Bank nor its
subsidiaries nor any properties owned or operated by the Company, the Bank
or its subsidiaries is in violation of or liable under any Environmental
Law (as defined below), except for such violations or liabilities that,
individually or in the aggregate, would not have a material adverse effect
on the financial condition, results of operations or business affairs of
the Company, the MHC, the Bank and its subsidiaries considered as one
enterprise. There are no actions, suits or proceedings, or demands,
claims, notices or investigations (including, without limitation, notices,
demand letters or requests for information from any environmental agency)
instituted or pending, or to the knowledge of the Company, the MHC or the
Bank threatened, relating to the liability of any property owned or
operated by the Company, the MHC, the Bank or any of its subsidiaries under
any Environmental Law. For purposes of this subsection, the term
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any regulatory authority relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water,
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(xxxiv) The Company, the MHC, the Bank and its subsidiaries
have filed all federal income and state and local franchise tax returns
required to be filed and have made timely payments of all taxes shown as
due and payable in respect of such returns, and no deficiency has been
asserted with respect thereto by any taxing authority.
(xxxv) The Company has received approval, subject to
regulatory approval to consummate the Offerings and issuance, to have the
Securities and Foundation Shares quoted on the Nasdaq Stock Market
("Nasdaq") effective as of the Closing Time referred to in Section 2
hereof.
(xxxvi) The Company has filed a registration statement for the
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and has requested that such registration statement
be effective concurrent with the effectiveness of the Registration Statement.
<PAGE>
-12-
(b) Any certificate signed by any officer of the Company, the
MHC or the Bank and delivered to either of the Agent or counsel for the Agent
shall be deemed a representation and warranty by the Company, the MHC or the
Bank to each Agent as to the matters covered thereby.
SECTION 2. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF
THE SECURITIES; CLOSING.
On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby appoints Sandler O'Neill as its Agent to consult with and advise the
Company, and to assist the Company with the solicitation of subscriptions and
purchase orders for Securities, in connection with the Company's sale of Common
Stock in the Subscription and Community Offering and the Syndicated Community
Offering. On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, Sandler O'Neill
accepts such appointment and agrees to use its best efforts to assist the
Company with the solicitation of subscriptions and purchase orders for
Securities in accordance with this Agreement; provided, however, that the Agent
shall not be obligated to take any action which is inconsistent with any
applicable laws, regulations, decisions or orders. The services to be rendered
by Sandler O'Neill pursuant to this appointment include the following: (i)
consulting as to the securities marketing implications of any aspect of the Plan
of Reorganization or related corporate documents; (ii) reviewing with the Board
of Directors of the Company and the Board of Trustees of the Bank the
independent appraiser's appraisal of the common stock, particularly with regard
to aspects of the appraisal involving the methodology employed; (iii) reviewing
all offering documents, including the Prospectus, stock order forms and related
offering materials (it being understood that preparation and filing of such
documents is the sole responsibility of the Company, the MHC and the Bank and
their counsel); (iv) assisting in the design and implementation of a marketing
strategy for the Offerings; (v) assisting the Company, the MHC and the Bank in
obtaining all requisite regulatory approvals; (vi) assisting Bank management in
scheduling and preparing for meetings with potential investors and broker-
dealers; and (vii) providing such other general advice and assistance as may be
requested to promote the successful completion of the Offerings.
The appointment of the Agent hereunder shall terminate upon the
earlier to occur of (a) forty-five (45) days after the last day of the
Subscription and Community Offering, unless the Company and the Agent agree in
writing to extend such period and the FDIC and the Department agree to extend
the period of time in which the Securities may be sold, or (b) the receipt and
acceptance of subscriptions and purchase orders for all of the Securities, or
(c) the completion of the Syndicated Community Offering.
If any of the Securities remain available after the expiration of
the Subscription and Community Offering, at the request of the Company, the MHC
and the Bank, Sandler O'Neill will seek to form a syndicate of registered
brokers or dealers ("Selected Dealers") to assist in the solicitation of
purchase orders of such Securities on a best efforts basis, subject to the terms
and conditions set forth in a selected dealers' agreement (the "Selected
Dealers' Agreement"), substantially in the form set forth in Exhibit A to this
Agreement. Sandler O'Neill will endeavor to limit the aggregate fees to be paid
by the Company, the MHC and the Bank under any such Selected Dealers' Agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a
<PAGE>
-13-
similar market environment; provided, however, that the aggregate fees payable
to Sander O'Neill and Selected Dealers shall not exceed 6% of the aggregate
Purchase Price of the Securities sold by such Selected Dealers. Sandler O'Neill
will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objective of the Company and the
requirements of the Plan, which may result in limiting the allocation of stock
to certain Selected Dealers. It is understood that in no event shall Sandler
O'Neill be obligated to act as a Selected Dealer or to take or purchase any
Securities.
In the event the Company is unable to sell at least the total
minimum of the Securities, as set forth on the cover page of the Prospectus,
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the
Securities the full amount which it may have received from them, together with
interest as provided in the Prospectus, and no party to this Agreement shall
have any obligation to the others hereunder, except for the obligations of the
Company, the MHC and the Bank as set forth in Sections 4, 6(a) and 7 hereof and
the obligations of the Agent as provided in Sections 6(b) and 7 hereof.
Appropriate arrangements for placing the funds received from subscriptions for
Securities or other offers to purchase Securities in special interest-bearing
accounts with the Bank until all Securities are sold and paid for were made
prior to the commencement of the Subscription Offering, with provision for
refund to the purchasers as set forth above, or for delivery to the Company if
all Securities are sold.
If at least the total minimum of Securities, as set forth on the
cover page of the Prospectus, are sold, the Company agrees to issue or have
issued the Securities sold and to release for delivery certificates for such
Securities at the Closing Time, against payment therefor by release of funds
from the special interest-bearing accounts referred to above. The closing shall
be held at the legal office of Thacher Proffitt & Wood, at 10:00 a.m., local
time, or at such other place and time as shall be agreed upon by the parties
hereto, on a business day to be agreed upon by the parties hereto. The Company
shall notify the Agent by telephone, confirmed in writing, when funds shall have
been received for all the Securities. Certificates for Securities shall be
delivered directly to the purchasers thereof in accordance with their
directions. Notwithstanding the foregoing, certificates for Securities purchased
through Selected Dealers shall be made available to the Agent for inspection at
least 48 hours prior to the Closing Time at such office as the Agent shall
designate. The hour and date upon which the Company shall release for delivery
all of the Securities, in accordance with the terms hereof, is herein called the
"Closing Time."
The Company will pay any stock issue and transfer taxes which may
be payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section
4 hereof, the Agent will receive the following compensation for its services
hereunder:
(a) Two percent (2%) of the aggregate Actual Purchase Price of
the Securities sold in the Subscription and Community Offering, excluding
in each case shares purchased by (i) any employee benefit plan of the
Company or the Bank established for the benefit of their respective
directors, officers and employees and (ii) any director, officer or
employee of the Company or the Bank or members of their immediate families
(which term shall mean parents, grandparents, spouse, siblings, children
and grandchildren); and
<PAGE>
-14-
(b) with respect to any Securities sold by an NASD member firm
(other than Sandler O'Neill) under the Selected Dealers' Agreement in the
Syndicated Community Offering, (i) the sales commission payable to Selected
Dealers under any Selected Dealers' Agreement, (ii) any sponsoring dealer's
fees, and (iii) a management fee to Sandler O'Neill of one and one-half
percent (1.5%). Any fees payable to Sandler O'Neill for Securities sold by
Sandler O'Neill under any such agreement shall be limited to an aggregate
of two percent (2%) of the Actual Purchase Price of such Securities.
If this Agreement is terminated by the Agent in accordance with
the provisions of Section 9(a) hereof or the Reorganization is terminated by the
Company or the Bank, no fee shall be payable by the Company or the Bank to
Sandler O'Neill; however, the Company or the Bank shall reimburse the Agent for
all of its reasonable out-of-pocket expenses incurred prior to termination,
including the reasonable fees and disbursements of counsel for the Agent in
accordance with the provisions of Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in cash
at Closing Time, or upon the termination of this Agreement, as the case may be.
In recognition of the long lead times involved in the reorganization process,
the Bank agrees to make advance payments to the Agent in the aggregate amount of
$50,000, $25,000 of which has been previously paid and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
SECTION 3. COVENANTS OF THE COMPANY, THE MHC AND THE BANK. The
Company, the MHC and the Bank covenant with the Agent as follows:
(a) The Company, the MHC and the Bank will prepare and file such
amendments or supplements to the Registration Statement, the Prospectus,
the MHC Application, the Notice and the Proxy Statement as may hereafter be
required by the Securities Act Regulations or the MHC Regulations or as may
hereafter be requested by the Agent. Following completion of the
Subscription and Community Offering, in the event of a Syndicated Community
Offering, the Company, the MHC and the Bank will (i) promptly prepare and
file with the Commission a post-effective amendment to the Registration
Statement relating to the results of the Subscription and Community
Offering, any additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no such post-
effective amendment is required, will file with, or mail for filing to, the
Commission a prospectus or prospectus supplement containing information
relating to the results of the Subscription and Community Offering and
pricing information pursuant to Rule 424 of the Securities Act Regulations,
in either case in a form acceptable to the Agent. The Company, the MHC and
the Bank will notify the Agent immediately, and confirm the notice in
writing, (i) of the effectiveness of any post-effective amendment of the
Registration Statement, the filing of any supplement to the Prospectus and
the filing of any amendment to the MHC Application, (ii) of the receipt of
any comments from the Department, the FDIC, FRB or the Commission with
respect to the transactions contemplated by this Agreement or the Plan,
(iii) of any request by the Commission, the FDIC, the Department or the FRB
for any amendment to the Registration Statement or the MHC Application or
any amendment or supplement to the Prospectus or for additional
information, (iv) of the issuance by the FDIC or the Department of any
order suspending the
<PAGE>
-15-
Offerings or the use of the Prospectus or the initiation of any proceedings
for that purpose, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, and (vi) of the receipt of
any notice with respect to the suspension of any qualification of the
Securities for offering or sale in any jurisdiction. The Company, the MHC
and the Bank will make every reasonable effort to prevent the issuance of
any stop order and, if any stop order is issued, to obtain the lifting
thereof at the earliest possible moment.
(b) The Company, the MHC and the Bank will give the Agent notice
of its intention to file or prepare any amendment to the MHC Application or
Registration Statement (including any post-effective amendment) or any
amendment or supplement to the Prospectus (including any revised prospectus
which the Company proposes for use in connection with the Syndicated
Community Offering of the Securities which differs from the prospectus on
file at the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) of the Securities Act Regulations), will furnish
the Agent with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be,
and will not file any such amendment or supplement or use any such
prospectus to which the Agent or counsel for the Agent may object.
(c) The Company, the MHC and the Bank will deliver to the Agent
as many signed copies and as many conformed copies of the MHC Application
and the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference
therein) as the Agent may reasonably request, and from time to time such
number of copies of the Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be
delivered, the Company, the MHC and the Bank will comply, at their own
expense, with all requirements imposed upon them by the FRB, FDIC and the
Department, by the applicable MHC Regulations, as from time to time in
force, and by the Securities Act, the Securities Act Regulations, the
Exchange Act, and the rules and regulations of the Commission promulgated
thereunder, including, without limitation, Regulation M under the Exchange
Act, so far as necessary to permit the continuance of sales or dealing in
shares of Common Stock during such period in accordance with the provisions
hereof and the Prospectus.
(e) If any event or circumstance shall occur as a result of
which it is necessary, in the opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, the Company, the MHC and the Bank will forthwith amend or
supplement the Prospectus (in form and substance satisfactory to counsel
for the Agent) so that, as so amended or supplemented, the Prospectus will
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a
purchaser, not misleading, and the Company, the MHC and the Bank will
furnish to the Agent a reasonable number of copies of such amendment or
supplement. For the purpose of this subsection, the
<PAGE>
-16-
Company, the MHC and the Bank will each furnish such information with
respect to itself as the Agent may from time to time reasonably request.
(f) The Company, the MHC and the Bank will take all necessary
action, in cooperation with the Agent, to qualify the Securities for
offering and sale under the applicable securities laws of such states of
the United States and other jurisdictions as the MHC Regulations may
require and as the Agent and the Company have agreed; provided, however,
that the Company, the MHC and the Bank shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. In each
jurisdiction in which the Securities have been so qualified, the Company,
the MHC and the Bank will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of
the Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected
Dealers to act as agent of the Company in distributing the Prospectus to
persons entitled to receive subscription rights and other persons to be
offered Securities having record addresses in the states or jurisdictions
set forth in a survey of the securities or "blue sky" laws of the various
jurisdictions in which the Offerings will be made (the "Blue Sky Survey").
(h) The Company will make generally available to its security
holders as soon as practicable, but not later than 60 days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
twelve month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule
158) of the Registration Statement.
(i) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to its stockholders as
soon as practicable after the end of each such fiscal year an annual report
(including consolidated statements of financial condition and consolidated
statements of income, stockholders' equity and cash flows, certified by
independent public accountants) and, as soon as practicable after the end
of each of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company, the
MHC, the Bank and its subsidiaries for such quarter in reasonable detail.
In addition, such annual report and quarterly consolidated summary
financial information shall be made public through the issuance of
appropriate press releases at the same time or prior to the time of the
furnishing thereof to stockholders of the Company.
(j) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to the Agent (i) as
soon as publicly available, a copy of each report or other document of the
Company furnished generally to stockholders of the Company or furnished to
or filed with the Commission under the Exchange Act or any national
securities exchange or system on which any class of securities of the
Company is listed, and (ii) from
<PAGE>
-17-
time to time, such other information concerning the Company as the Agent
may reasonably request.
(k) The Company, the MHC and the Bank will conduct the
Reorganization including the formation and operation of the Foundation in
all material respects in accordance with the Plan, the MHC Regulations and
all other applicable regulations, decisions and orders, including all
applicable terms, requirements and conditions precedent to the
Reorganization imposed upon the Company, the MHC or the Bank by the FRB,
FDIC or the Department.
(l) The Company, the MHC and the Bank will use the net proceeds
received by it from the sale of the Securities in the manner specified in
the Prospectus under "Use of Proceeds."
(m) The Company will file with the Commission a report on the
use of proceeds as required pursuant to Rule 463 of the Securities Act
Regulations.
(n) For a period not less than three years, the Company will not
deregister the Securities. The Company will use its best efforts to effect
the listing of the Securities and Foundation Shares on Nasdaq.
(o) The Company, the MHC and the Bank will take such actions and
furnish such information as are reasonably requested by the Agent in order
for the Agent to ensure compliance with the National Association of
Securities Dealers, Inc.'s "Interpretation Relating to Free-Riding and
Withholding."
(p) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without the
prior written consent of the Agent, sell or issue, contract to sell or
otherwise dispose of, any shares of Common Stock other than the Securities
and Foundation Shares for a period of 180 days following the Closing Time.
(q) During the period beginning on the date hereof and ending on
the later of the third anniversary of the Closing Time or the date on which
the Agent receives full payment in satisfaction of any claim for
indemnification or contribution to which it may be entitled pursuant to
Sections 6 or 7, respectively, neither the Company, the MHC nor the Bank
shall, without the prior written consent of the Agent, which consent shall
not be unreasonably withheld, take or permit to be taken any action that
could result in the Bank Common Stock becoming subject to any security
interest, mortgage, pledge, lien or encumbrance; provided, however, that
this covenant shall be null and void if the Board of Governors of the
Federal Reserve System, by regulation, policy statement or interpretive
release, or by written order or written advice addressed to the Bank or the
Agent specifically addressing the provisions of Section 6(a) hereof,
permits indemnification of the Agent by the Bank as contemplated by such
provisions.
(r) The Company, the MHC and the Bank will comply with the
conditions imposed by or agreed to with the FRB in connection with its
approval of the Holding
<PAGE>
-18-
Company Application and with the FDIC and the Department in connection with
their approval or non-objection of, or non-objection to, the MHC
Application including those conditions relating to the establishment and
the operation of the Foundation; the Company, the MHC and the Bank shall
use their best efforts to ensure that the Foundation submits within the
time frames required by applicable law a request to the Internal Revenue
Service to be recognized as a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code");
the Company, the MHC and the Bank will take no action which will result in
the possible loss of the Foundation's tax exempt status; and neither the
Company, the MHC nor the Bank will contribute any additional assets to the
Foundation until such time that such additional contributions will be
deductible for federal and state income tax purposes.
(s) During the period ending on the first anniversary of the
Closing Time, the Bank will comply with all applicable law and regulation
necessary for the Bank to continue to be a "qualified thrift lender" within
the meaning of 12 U.S.C. Section 1467a(m).
(t) The Company shall not deliver the Securities until the
Company, the MHC and the Bank have satisfied each condition set forth in
Section 5 hereof, unless such condition is waived by the Agent. (u) The
Company, the MHC or the Bank will furnish to Sandler O'Neill as early as
practicable prior to the Closing Date, but no later than two (2) full
business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements of the Bank and the subsidiaries
which have been read by KPMG LLP, as stated in their letters to be
furnished pursuant to subsections (e) and (f) of Section 5 hereof.
(u) The Company, the MHC or the Bank will furnish to Sandler
O'Neill as early as practicable prior to the Closing Date, but no later
than two (2) full business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements of the Bank
and the subsidiaries which have been read by KPMG LLP, as stated in their
letters to be furnished pursuant to subsections (e) and (f) of Section 5
hereof.
SECTION 4. PAYMENT OF EXPENSES. The Company, the MHC and the Bank
jointly and severally agree to pay all expenses incident to the performance of
their obligations under this Agreement, including but not limited to (i) the
cost of obtaining all securities and bank regulatory approvals, (ii) the
printing and filing of the Registration Statement as originally filed and each
amendment thereto, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the purchasers in the Offerings, (iv) the
fees and disbursements of the Company's, the MHC's and the Bank's counsel,
accountants, appraiser and other advisors, (v) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(f) hereof, including filing fees and the fees and disbursements of counsel in
connection therewith and in connection with the preparation of the Blue Sky
Survey, (vi) the printing and delivery to the Agent of copies of the
Registration Statement as originally filed and of each amendment thereto and the
printing and delivery of the Prospectus and any amendments or supplements
thereto to the purchasers in the Offerings and the Agent, (vii) the printing and
delivery to the Agent of copies of a Blue Sky Survey, and (viii) the fees and
expenses incurred in connection with the listing of the Securities on Nasdaq.
In the event the Agent incurs any such fees and expenses on behalf of the Bank,
the MHC or the Company, the Bank will reimburse the Agent for such fees and
expenses whether or not the Reorganization is consummated; provided, however,
that the Agent shall not incur any substantial expenses on behalf of the Bank,
the MHC or the Company pursuant to this Section without the prior approval of
the Bank.
<PAGE>
-19-
The Company, the MHC and the Bank jointly and severally agree to pay
certain expenses incident to the performance of the Agent's obligations under
this Agreement, regardless of whether the Reorganization is consummated,
including (i) the filing fees paid or incurred by the Agent in connection with
all filings with the National Association of Securities Dealers, Inc., and (ii)
all reasonable out of pocket expenses incurred by the Agent relating to the
Offerings, including, without limitation, advertising, promotional, syndication
and travel expenses and fees and expenses of the Agent's counsel, up to a
maximum of $100,000. All fees and expenses to which the Agent is entitled to
reimbursement under this paragraph of this Section 4 shall be due and payable
upon receipt by the Company, the MHC or the Bank of a written accounting
therefor setting forth in reasonable detail the expenses incurred by the Agent.
SECTION 5. CONDITIONS OF AGENT'S OBLIGATIONS. The Company, the MHC,
the Bank and the Agent agree that the issuance and the sale of Securities and
all obligations of the Agent hereunder are subject to the accuracy of the
representations and warranties of the Company, the MHC and the Bank herein
contained as of the date hereof and the Closing Time, to the accuracy of the
statements of officers, trustees and directors of the Company, the MHC and the
Bank made pursuant to the provisions hereof, to the performance by the Company,
the MHC and the Bank of their obligations hereunder, and to the following
further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Securities Act or proceedings
therefor initiated or threatened by the Commission, no order suspending the
Offerings or authorization for final use of the Prospectus shall have been
issued or proceedings therefor initiated or threatened by the Department or
the FDIC and no order suspending the sale of the Securities in any
jurisdiction shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Thacher
Proffitt & Wood, counsel for the Company, the MHC and the Bank, in
form and substance satisfactory to counsel for the Agent, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The Company has full corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Registration Statement and Prospectus and to
enter into and perform its obligations under this Agreement.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in the
State of Delaware and in each other jurisdiction in which such
qualification is required whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure to so qualify would not have a material adverse effect
upon the financial condition, results of operations or business
affairs of the
<PAGE>
-20-
Company, the MHC, the Bank and its subsidiaries considered as one
enterprise.
(iv) Upon consummation of the Reorganization, and the
issuance of the Foundation Shares to the Foundation immediately
upon completion thereof, in compliance with all conditions
imposed upon the contribution thereof by the FDIC under the terms
of the intent not to object in an amount described in the
Prospectus, the authorized, issued and outstanding capital stock
of the Company will be within the range set forth in the
Prospectus under "Capitalization" and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing
Time.
(v) The Securities and the Foundation Shares have been
duly and validly authorized for issuance and sale and, when
issued and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in the Plan,
or contributed by the Company pursuant to the Plan in the case of
the Foundation Shares, will be duly and validly issued and fully
paid and non-assessable.
(vi) The issuance of the Securities and the Foundation
Shares are not subject to preemptive or other similar rights
arising by operation of law or, to the best of their knowledge
and information, otherwise.
(vii) The Bank has been at all times since [______] and
prior to the Closing Time duly organized, and is validly existing
and in good standing under the laws of the State of New York as a
New York chartered savings bank in mutual form, and, at Closing
Time, has become duly organized, validly existing and in good
standing under the laws of the State of New York as a New York
chartered savings bank in stock form, in both instances with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus; and the Bank is duly
qualified as a foreign corporation in each jurisdiction in which
the failure to so qualify would have a material adverse effect
upon the financial condition, results of operations or business
affairs of the Bank.
(viii) The Bank is a member of the Federal Home Loan Bank
of New York and the deposit accounts of the Bank are insured by
the FDIC up to the applicable limits.
(ix) The MHC has been organized and is validly existing
as a new York state chartered mutual holding company, duly
authorized to conduct its business and own its properties as
described in the Registration Statement and Prospectus.
(x) Each direct and indirect subsidiary of the Bank has
been duly incorporated and is validly existing as a corporation
in good standing under
<PAGE>
-21-
the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a
material adverse effect upon the financial condition, results of
operations or business of the Company, the MHC, the Bank and its
subsidiaries taken as a whole; and the activities of each such
subsidiary are permitted to subsidiaries of a bank holding
company and of a New York chartered savings bank by the rules,
regulations, resolutions and practices of the Department; all of
the issued and outstanding capital stock of each such subsidiary
has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Bank, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(xi) The Foundation has been duly incorporated and is
validly existing as a non-stock corporation in good standing
under the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus; the Foundation is
not a savings and loan holding company within the meaning of 12
C.F.R. Section 574.2(q) as a result of the issuance of shares of
Common Stock to it in accordance with the terms of the Plan and
in the amounts as described in the Prospectus; no approvals are
required to establish the Foundation and to contribute the shares
of Common Stock thereto as described in the Prospectus other than
those set forth in any written notice or order of approval or
non-objection of the Reorganization, the MHC Application or the
Holding Company Application, copies of which were provided to the
Agent prior to the Closing Time.
(xii) Upon consummation of the Reorganization, all of the
issued and outstanding capital stock of the Bank when issued and
delivered pursuant to the Plan against payment of consideration
calculated as set forth in the Plan and set forth in the
Prospectus, will be duly authorized and validly issued and fully
paid and nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(xiii) The FRB has approved the Holding Company
Application, the Department has approved the MHC Application, the
FDIC has issued its non-objection to the Plan and no action is
pending, or to the best of such counsel's knowledge, threatened
respecting the Holding Company Application or the MHC Application
or the acquisition by the Company of all of the Bank's issued and
outstanding capital stock; the Holding Company Application and
the MHC Application comply with the applicable requirements of
the FRB, FDIC and Department, respectively, includes all
documents required to be filed as exhibits thereto, and is, to
the best of such counsel's knowledge and information, truthful,
accurate and complete; and the Company is duly
<PAGE>
-22-
authorized to become a bank holding company and is duly
authorized to own all of the issued and outstanding capital stock
of the Bank to be issued pursuant to the Plan.
(xiv) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including
the establishment of the Foundation and the contribution thereto
of the Foundation Shares, (A) have been duly and validly
authorized by all necessary action on the part of each of the
Company, the MHC and the Bank, and this Agreement constitutes the
legal, valid and binding agreement of each of the Company, the
MHC and the Bank, enforceable in accordance with its terms,
except as rights to indemnity and contribution hereunder may be
limited under applicable law (it being understood that such
counsel may avail itself of customary exceptions concerning the
effect of bankruptcy, insolvency or similar laws and the
availability of equitable remedies); (B) will not result in any
violation of the provisions of the charter or by-laws of the
Company, the MHC, the Bank or any of its subsidiaries; and, (C)
will not conflict with or constitute a breach of, or default
under, and no event has occurred which, with notice or lapse of
time or both, would constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance, that,
individually or in the aggregate, would have a material adverse
effect on the financial condition, results of operations or
business affairs of the Company, the MHC, the Bank and its
subsidiaries considered as one enterprise, or pursuant to any
contract, indenture, loan agreement, note, lease or other
instrument to which the Company, the MHC the Bank or its
subsidiaries is a party or by which any of them may be bound, or
to which any of the property or assets fo the Company, the MHC,
the Bank or its subsidiaries is subject.
(xv) The Prospectus has been duly authorized by the
Department for final use pursuant to the MHC Regulations and no
action is pending, or to the best of such counsel's knowledge, is
threatened, by the Department to revoke such authorization.
(xvi) The Registration Statement is effective under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement has been issued under the Securities
Act or, to the best of such counsel's knowledge, proceedings
therefor initiated or threatened by the Commission.
(xvii) No further approval, authorization, consent or other
order of any public board or body is required in connection with
the execution and delivery of this Agreement, the issuance of the
Securities and the consummation of the Reorganization, except as
may be required under the securities or Blue Sky laws of various
jurisdictions as to which no opinion need be rendered.
<PAGE>
-23-
(xviii) At the time the Registration Statement became
effective, the Registration Statement (other than the financial
statements and statistical data included therein, as to which no
opinion need be rendered) complied as to form in all material
respects with the requirements of the Securities Act and the
Securities Act Regulations and the MHC Regulations.
(xix) The Common Stock conforms to the description thereof
contained in the Prospectus, and the form of certificate used to
evidence the Common Stock is in due and proper form and complies
with all applicable statutory requirements.
(xx) There are no legal or governmental proceedings
pending or threatened against or affecting the Company, the MHC,
the Bank or its subsidiaries which are required, individually or
in the aggregate, to be disclosed in the Registration Statement
and Prospectus, other than those disclosed therein, and all
pending legal or governmental proceedings to which the Company,
the MHC, the Bank or any of its subsidiaries is a party or to
which any of their property is subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material.
(xxi) The information in the Prospectus under "Risk
Factors- The establishment of the Rome Savings Foundation will
reduce our earnings," "Rome, MHC's voting control over Rome
Bancorp may prevent transactions you would like," "Business of
Rome Savings Bank - Legal Proceedings," "Taxation - Federal,"
"State," "Regulation of Rome Savings Bank and Rome Bancorp," "Our
Policy Regarding Dividends," "The Reorganization and the
Offering - why we are Establishing The Rome Savings Foundation,"
"-Tax Considerations," "-Regulatory Conditions Imposed on the
Foundation," "Restrictions on Acquisition of Rome Bancorp" and
"Description of Capital Stock of Rome Bancorp" to the extent that
it constitutes matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been reviewed
by them and is complete and accurate in all material respects.
(xxii) To the best of such counsel's knowledge, there are
no contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred
to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or
filed as exhibits thereto, the descriptions thereof or references
thereto are correct, and no default exists, and no event has
occurred which, with notice or lapse of time or both, would
constitute a default, in the due performance or observance of any
material obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease
or other instrument so described, referred to or filed.
<PAGE>
-24-
(xxiii) The Plan and the establishment and funding of the
Foundation have been duly authorized by the Board of Directors of
the Company and the MHC and the Board of Trustees of the Bank,
the Department's approval of the Plan and the FDIC's non-
objection to the Plan remain in full force and effect; the Bank's
charter has been amended and restated, effective upon
consummation of the Reorganization and the filing of such charter
with the Department, to authorize the issuance of permanent
capital stock; to the best of such counsel's knowledge, the
Company, the MHC and the Bank have conducted the Reorganization
and the establishment and funding of the Foundation in all
material respects in accordance with applicable requirements of
the MHC Regulations, the Plan and all other applicable
regulations, decisions and orders thereunder, including all
material applicable terms, conditions, requirements and
conditions precedent to the Reorganization imposed upon the
Company or the Bank by the FDIC or the Department and, no order
has been issued by the FDIC or the Department to suspend the
Reorganization or the Offerings and no action for such purpose
has been instituted or, threatened by the FDIC or the Department;
and, to the best of such counsel's knowledge, no person has
sought to obtain review of the final action of the Department in
approving the MHC Application (which includes the Plan which
provides for the establishment of the Foundation) or the Holding
Company Application.
(xxiv) To the best of such counsel's knowledge, the
Company, the MHC and the Bank and its subsidiaries have obtained
all licenses, permits and other governmental authorizations
currently required for the conduct of their respective businesses
as described in the Registration Statement and Prospectus, and
all such licenses, permits and other governmental authorizations
are in full force and effect, and the Company, the MHC and the
Bank and its subsidiaries are in all material respects complying
therewith.
(xxv) None of the Company, the MHC, the Bank nor any of
its subsidiaries is in violation of its certificate of
incorporation, organization certificate, articles of
incorporation or charter, as the case may be, or bylaws (and the
Bank will not be in violation of its charter in stock form upon
consummation of the Reorganization) or, to the best of such
counsel's knowledge, in default (nor has any event occurred
which, with notice or lapse of time or both, would constitute a
default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company, the MHC, the Bank or any of its
subsidiaries is a party or by which the Company, the MHC, the
Bank or any of its subsidiaries or any of the property may be
bound.
(xxvi) The Company is not required to be registered as an
investment company under the Investment Company Act of 1940.
<PAGE>
-25-
(2) The favorable opinion, dated as of Closing Time, of Silver,
Freedman & Staff, L.L.P., counsel for the Agent, with respect to the
matters set forth in Section 5(b)(1)(i), (iv), (v), (vi) (solely as to
preemptive rights arising by operation of law), (xii), (xiv), (xvi)
and (xvii) and such other matters as the Agent may reasonably require.
(3) In addition to giving their opinions required by subsections
(b)(l) and (b)(2), respectively, of this Section, Thacher, Proffitt &
Wood and Silver, Freedman & Staff, L.L.P. shall each additionally
state that nothing has come to their attention that would lead them to
believe that the Registration Statement (except for financial
statements and schedules and other financial or statistical data
included therein, as to which counsel need make no statement), at the
time it became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus (except for financial statements and schedules and other
financial or statistical data included therein, as to which counsel
need make no statement), at the time the Registration Statement became
effective or at Closing Time, included an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In giving their opinions, Thacher, Proffitt & Wood and Silver,
Freedman & Staff, L.L.P. may rely as to matters of fact on
certificates of officers and directors of the Company, the MHC and the
Bank and certificates of public officials, and as to certain matters
of Delaware law upon the opinion of [___________________], which
opinions shall be in form and substance satisfactory to counsel for
the Agent, and Silver, Freedman & Staff, L.L.P. may also rely on the
opinion of Thacher Proffitt & Wood.
(c) At Closing Time referred to in Section 2, the Company, the MHC
and the Bank shall have completed in all material respects the conditions
precedent to the Reorganization in accordance with the Plan, the applicable
MHC Regulations and all other applicable laws, regulations, decisions and
orders, including all terms, conditions, requirements and provisions
precedent to the Reorganization imposed upon the Company or the Bank by the
FDIC, the Department, or any other regulatory authority other than those
which the Department or the FDIC permits to be completed after the
Reorganization.
(d) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in
the financial condition, results of operations or business affairs of the
Company, the MHC, the Bank and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Agent shall have received a certificate of the President and Chief
Executive Officer of the Company, the MHC and of the Bank, and the chief
financial or chief accounting officer of the Company, the MHC and of the
Bank, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) there shall have been no material
transaction entered into by the
<PAGE>
-26-
Company, the MHC or the Bank from the latest date as of which the financial
condition of the Company, the MHC or the Bank as set forth in the
Registration Statement and the Prospectus other than transactions referred
to or contemplated therein and transactions in the ordinary course of
business, (iii) neither the Company, the MHC nor the Bank shall have
received from the FDIC or Department any direction (oral or written) to
make any material change in the method of conducting its business with
which it has not complied (which direction, if any, shall have been
disclosed to the Agent) or which materially and adversely would affect the
business, financial condition or results of operations of the Company, the
MHC, the Bank or its subsidiaries, (iv) the representations and warranties
in Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, (v) the Company, the
MHC and the Bank have complied with all agreements and satisfied all
conditions on their part to be performed or satisfied at or prior to
Closing Time, (vi) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been initiated or threatened by the Commission and (vii) no order
suspending the Syndicated Community Offering or the authorization for final
use of the Prospectus has been issued and no proceedings for that purpose
have been initiated or threatened by the FRB, the Department or the FDIC
and no person has sought to obtain regulatory or judicial review of the
action of the FDIC or the Department in approving the Plan in accordance
with the MHC Regulations nor has any person sought to obtain regulatory or
judicial review of the action of the FRB in approving the Holding Company
Application.
(e) At the time of the execution of this Agreement, the Agent shall
have received from KPMG LLP a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they are independent
public accountants with respect to the Company, the MHC, the Bank and its
subsidiaries within the meaning of the Code of Ethics of the American
Institute of Certified Public Accountants, the Securities Act and the
Securities Act Regulations and the MHC Regulations; (ii) it is their
opinion that the consolidated financial statements and supporting schedules
included in the Registration Statement and covered by their opinions
therein comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Securities Act
Regulations; (iii) based upon limited procedures as agreed upon by the
Agent and KPMG LLP set forth in detail in such letter, nothing has come to
their attention which causes them to believe that (A) the unaudited
financial statements and supporting schedules of the Bank and its
subsidiaries included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements
of the Securities Act, the Securities Act Regulations and the MHC
Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement
and the Prospectus, (B) the unaudited amounts of net interest income and
net income set forth under "Selected Financial and Other Data" in the
Registration Statement and Prospectus do not agree with the amounts set
forth in unaudited consolidated financial statements as of and for the
dates and periods presented under such captions or such amounts were not
determined on a basis substantially consistent with that used in
determining the corresponding amounts in the audited financial statements
included in the Registration Statement, (C) at a specified date not more
than five days prior to the date of this Agreement, there has been any
increase in the consolidated long term or short term debt of the Bank and
its subsidiaries or any decrease in consolidated total
<PAGE>
-27-
assets, the allowance for loan losses, total deposits or net worth of the
Bank and its subsidiaries in each case as compared with the amounts shown
in the December 31, 1998 balance sheet included in the Registration
Statement or, (D) during the period from March 31, 1999 to a specified date
not more than five days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period in the preceding year,
in total interest income, net interest income, net interest income after
provision for loan losses, income before income tax expense or net income
of the Bank and its subsidiaries except in all instances for increases or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur; and (iv) in addition to the examination referred to
in their opinions and the limited procedures referred to in clause (iii)
above, they have carried out certain specified procedures, not constituting
an audit, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus
and which are specified by the Agent, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Company, the MHC, the Bank
and its subsidiaries identified in such letter.
(f) At Closing Time, the Agent shall have received from KPMG LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not
more than five days prior to Closing Time.
(g) At Closing Time, the Securities shall have been approved for
listing on Nasdaq upon notice of issuance.
(h) At Closing Time, the Agent shall have received a letter from RP
Financial, dated as of the Closing Time, confirming its appraisal.
(i) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities and the
Foundation Shares as herein contemplated and related proceedings, or in
order to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale
of the Securities and Foundation Shares as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the Agent.
(j) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which, in the judgment of the Agent,
are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for
the sale of the Securities, and (ii) trading generally on either the
American Stock Exchange or the New York Stock Exchange or the Nasdaq Stock
Market shall not have been suspended, and minimum or maximum prices for
trading shall not have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of
the Commission or any other governmental authority, and a banking
moratorium shall not have been declared by either Federal or New York
authorities.
<PAGE>
-28-
SECTION 6. Indemnification.
(a) The Company, the MHC and the Bank, jointly and severally, agree
to indemnify and hold harmless the Agent, each person, if any, who controls the
Agent, within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and its respective partners, directors, officers, employees
and agents as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, related to or arising out of the
Reorganization (including establishment of the Foundation and the
contribution of the Foundation Shares thereto by the Company) or any action
taken by the Agent where acting as agent of the Company or the Bank or
otherwise as described in Section 2 hereof;
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, based upon or arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Proxy Statement or Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(iii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever described in clauses (i) or (ii) above, if such settlement is
effected with the written consent of the Company, the MHC or the Bank,
which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof, the fees and
disbursements of counsel chosen by the Agent), reasonably incurred in
investigating, preparing for or defending against any litigation, or any
investigation, proceeding or inquiry by any governmental agency or body,
commenced or threatened, or any claim pending or threatened whatsoever
described in clauses (i) or (ii) above, to the extent that any such expense
is not paid under (i), (ii) or (iii) above;
provided, however, that the indemnification provided for in this paragraph (a)
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading which was made in reliance upon and in conformity with
written information relating to the Agent Information. Notwithstanding the
foregoing, the indemnification provided for in this paragraph (a)
<PAGE>
-29-
shall not apply to the Bank to the extent that such indemnification by the Bank
would constitute a covered transaction under Section 23A of the Federal Reserve
Act.
(b) The Agent agrees to indemnify and hold harmless the Company, the
MHC, the Bank, their directors and trustees, each of their officers who signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, of a material fact made in the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with the
Agent Information.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to no more than one
local counsel in each separate jurisdiction in which any action or proceeding is
commenced) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(d) The Company, the MHC and the Bank also agree that the Agent shall
not have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Bank, the MHC, the Company, its security holders or the
Bank's, the MHC's or the Company's creditors relating to or arising out of the
engagement of the Agent pursuant to, or the performance by the Agent of the
services contemplated by, this Agreement, except to the extent that any loss,
claim, damage or liability is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from the Agent's bad faith, willful
misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that any Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or any of its partners, directors, officers, employees or
agents is requested or required to appear as a witness or otherwise gives
testimony in any action, proceeding, investigation or inquiry brought by or on
behalf of or against the Company, the MHC, the Bank, the Agent or any of its
respective affiliates or any participant in the transactions contemplated hereby
in which the Agent or such person or agent is not named as a defendant, the
Company, the MHC and the Bank jointly and severally agree to reimburse the Agent
for all reasonable and necessary out-of-pocket expenses incurred by it in
connection with preparing or appearing as a witness or otherwise giving
testimony and to compensate the Agent in an amount to be mutually agreed upon.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the MHC,
the Bank and the Agent shall contribute to the aggregate
<PAGE>
-30-
losses, liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Company, the MHC or the Bank and the
Agent, as incurred, in such proportions (i) that the Agent is responsible for
that portion represented by the percentage that the maximum aggregate marketing
fees appearing in "Pro Forma data" of the Prospectus bears to the maximum
aggregate gross proceeds and the Company, the MHC and the Bank are jointly and
severally responsible for the balance or (ii) if, but only if, the allocation
provided for in clause (i) is for any reason held unenforceable, in such
proportion as is appropriate to reflect not only the relative benefits to the
Company, the MHC and the Bank on the one hand and the Agent on the other, as
reflected in clause (i), but also the relative fault of the Company, the MHC and
the Bank on the one hand and the Agent on the other, as well as any other
relevant equitable considerations; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section, each
person, if any, who controls the Agent within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Agent, and each director of the Company and the MHC, each
trustee of the Bank, each officer of the Company and the MHC who signed the
Registration Statement, and each person, if any, who controls the Company, the
MHC or the Bank within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Company, the MHC and the Bank. Notwithstanding anything to the contrary set
forth herein, to the extent permitted by applicable law, in no event shall the
Agent be required to contribute an aggregate amount in excess of the aggregate
marketing fees to which the Agent is entitled and actually paid pursuant to this
Agreement.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company, the MHC or
the Bank submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Agent or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities.
SECTION 9. Termination of Agreement.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations or business affairs of the Company, the MHC or
the Bank, or the Company, the MHC, the Bank and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which, in the judgment of the
Agent, are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for the
sale of the Securities, (iii) if trading generally on the Nasdaq Stock Market,
the American Stock Exchange or the New York Stock Exchange has been suspended,
or minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by either of said Exchanges or by
order of the Commission or any other governmental authority, or if a banking
moratorium has been declared by either Federal or New York authorities, (iv) if
any condition specified in Section 5 shall not have been fulfilled
<PAGE>
-31-
when and as required to be fulfilled; (v) if there shall have been such material
adverse change in the condition or prospects of the Company, the MHC or the Bank
or the prospective market for the Company's securities as in the Agent's good
faith opinion would make it inadvisable to proceed with the offering, sale or
delivery of the Securities; (vi) if, in the Agent's good faith opinion, the
price for the Securities established by RP Financial is not reasonable or
equitable under then prevailing market conditions, or (vii) if the
Reorganization is not consummated on or prior to December 31, 1999.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to the Agent at Two World Trade Center, 104th Floor, New York,
New York 10048, attention of Catherine A. Lawton; notices to the Company, the
MHC and the Bank shall be directed to either of them at 100 West Dominick
Street, Rome, New York 13440-5810, attention of Charles M. Sprock.
SECTION 11. Parties. This Agreement shall inure to the benefit of and
be binding upon the Agent, the Company, the MHC and the Bank and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Agent, the Company, the MHC and the Bank and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein or therein contained. This Agreement and all conditions and
provisions hereof and thereof are intended to be for the sole and exclusive
benefit of the Agent, the Company, the MHC and the Bank and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation.
SECTION 12. Entire Agreement; Amendment. This Agreement represents the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made, except for the engagement letter dated January 27, 1999, by and
between the Agent and the Bank, relating to the Agent's providing conversion
agent services to the Bank in connection with the Reorganization. No waiver,
amendment or other modification of this Agreement shall be effective unless in
writing and signed by the parties hereto.
SECTION 13. Governing Law and Time. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Unless otherwise noted, specified times of
day refer to Eastern time.
SECTION 14. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
<PAGE>
-32-
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 15. Headings. Sections headings are not to be considered part
of this Agreement, are for convenience and reference only, and are not to be
deemed to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
<PAGE>
-33-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company, the MHC and the Bank in accordance with its
terms.
Very truly yours,
ROME BANCORP, INC.
By: _______________________________
Charles M. Sprock
Chairman, President and Chief
Executive Officer
ROME, MHC
By: _______________________________
Charles M. Sprock
Chairman, President and Chief
Executive Officer
ROME SAVINGS BANK
By: _______________________________
Charles M. Sprock
Chairman, President and Chief
Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: _______________________________
Catherine A. Lawton
Vice President
<PAGE>
EXHIBIT A
Selected Dealers Agreement
<PAGE>
================================================================================
Exhibit 2.1
Amended Plan of Reorganization
of
The Rome Savings Bank
As adopted by the Board of Trustees
on May 26, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE I
DEFINITIONS
-----------
ARTICLE II
PROCEDURE FOR APPROVAL OF THE REORGANIZATION
--------------------------------------------
<S> <C>
Section 2.01 Application and Notice........................................ -8-
Section 2.02 Approval of Plan by Voting Depositors; the Special Meeting.... -8-
Section 2.03 Company Approvals............................................. -9-
ARTICLE III
SALE OF COMMON STOCK
--------------------
Section 3.01 In General.................................................... -9-
Section 3.02 Reorganization into Mutual Holding Company.................... -10-
Section 3.03 Pricing and Number of Shares of Common Stock;
Independent Appraiser........................................ -13-
Section 3.04 Subscription Rights........................................... -15-
Section 3.05 Community Offering............................................ -18-
Section 3.06 Subscription and Community Offering Procedures;
Order Forms.................................................. -19-
Section 3.07 Payment for Common Stock...................................... -20-
Section 3.08 Syndicated Community Offering................................. -22-
Section 3.09 Public Offering Alternative................................... -22-
Section 3.10 Restrictions on Purchase and Transfer of Common Stock......... -23-
Section 3.11 Time Limits for Sale of Shares; Effect of Inability to Sell... -24-
Section 3.12 Establishment and Funding of Foundation....................... -25-
Section 3.13 Enforcement of Terms and Conditions........................... -25-
ARTICLE IV
CERTAIN RESTRICTIONS
--------------------
Section 4.01 Sale of Shares Purchased by Trustees, Directors or Officers... -26-
Section 4.02 Subsequent Purchases of Shares by Trustees, Directors
and Officers................................................. -26-
Section 4.03 Acquisition of Control........................................ -27-
</TABLE>
-i-
<PAGE>
<TABLE>
ARTICLE V
EFFECT OF REORGANIZATION; CERTAIN COVENANTS AND AGREEMENTS
----------------------------------------------------------
<S> <C>
Section 5.01 Restated Organization Certificate and Adoption of
New By-Laws.............................................. -28-
Section 5.02 Effect of Reorganization.................................. -28-
Section 5.03 Liquidation Account....................................... -28-
Section 5.04 Voting Rights............................................. -29-
Section 5.05 Issuance of Stock......................................... -30-
Section 5.06 Directors of Converted Bank............................... -30-
Section 5.07 Employment Agreements..................................... -30-
Section 5.08 Market for the Common Stock............................... -31-
Section 5.09 Stock Repurchases and Stock Benefit Plans................. -31-
ARTICLE VI
TAX RULING REQUIREMENT; AMENDMENT AND TERMINATION; MISCELLANEOUS
----------------------------------------------------------------
Section 6.01 Conditions to Reorganization.............................. -31-
Section 6.02 Amendment or Termination of the Plan...................... -31-
Section 6.03 Completion Date........................................... -32-
Section 6.04 Expenses of the Reorganization............................ -32-
Section 6.05 Interpretation............................................ -32-
Section 6.06 Severability.............................................. -32-
Section 6.07 Miscellaneous............................................. -32-
</TABLE>
-ii-
<PAGE>
Plan of Reorganization
of
The Rome Savings Bank
Introductory Statement
This Plan of Reorganization (the "Plan") provides for the
reorganization of The Rome Savings Bank from a New York mutual savings bank to a
New York mutual holding company. Wherever appropriate for purposes of this Plan
of Reorganization, capitalized terms shall have the meanings assigned to them
under Article I hereof. The Bank is currently a mutual savings bank duly
organized and validly existing under the laws of the State of New York. As part
of the Reorganization and the Plan, the Bank will convert to a New York
chartered stock savings bank (the "Stock Bank") and will establish Rome Bancorp,
Inc. (the "Company") as a Delaware corporation and Rome, MHC (the "MHC") as a
New York mutual holding company. The principal office of the Bank is located at
100 West Dominick Street, in the City of Rome, County of Oneida, State of New
York.
The purpose of the Reorganization is to increase the Bank's equity
capital base and facilitate future access to capital markets. The
Reorganization will provide the Bank with a more flexible operating structure,
which will enable the Bank to compete more effectively with other financial
institutions. The larger equity capital base resulting from the Reorganization
will enhance the Bank's ability to pursue lending and investment opportunities
as well as opportunities for growth and expansion. The Bank's Board of Trustees
also believes that the decline in the number of mutual institutions, as well as
the decline in the assets and deposits of mutual institutions, will place mutual
institutions at a disadvantage to stock institutions. The Board of Trustees of
the Bank currently contemplates that all of the stock of the Stock Bank shall be
held by Rome Bancorp, Inc., a business corporation to be organized under the
laws of the State of Delaware, and that the Company will issue and sell its
capital stock pursuant to this Plan and that the Company will be a majority
owned subsidiary of the MHC at all times so long as the MHC remains in
existence. The use of the two-tier mutual holding company structure will
provide greater organizational flexibility to the Bank.
In furtherance of the Bank's commitment to its communities, the Plan
provides for the establishment of a charitable Foundation as part of the
Reorganization. The Foundation is intended to complement the Bank's existing
community reinvestment activities to allow the Bank's local communities to share
in the growth and profitability of the Company and the Bank over the long term.
To this end, the Company intends to donate to the charitable Foundation a number
of shares of its authorized but unissued Common Stock up to 3% of the Common
Stock issued in the Reorganization.
This Plan has been unanimously approved by the Board of Trustees of
the Bank, based upon its determination that the Reorganization is in the best
interests of the Bank, its depositors and the communities served by the Bank.
This Plan sets forth the terms and conditions of the Reorganization, and the
procedures for effecting the same. This Plan must be approved by the
Superintendent or his or her designees, must not be objected to by the FDIC and
certain waivers,
<PAGE>
if required, may be granted by the Banking Board. This Plan must also be
approved by the affirmative vote of at least seventy-five percent (75%) in
amount of deposit liabilities of Voting Depositors represented in person or by
proxy and eligible to vote at the Special Meeting, and by the affirmative vote
of at least a majority of the amount of votes eligible to be cast by Voting
Depositors at the Special Meeting.
Upon the Reorganization, each Person having a Deposit Account at the
Bank prior to the Reorganization will continue to have a Deposit Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for liquidation rights) as in effect prior to the
Reorganization. After the Reorganization, the Bank will succeed to all the
rights, interests, duties and obligations as existed before the Reorganization,
including, but not limited to, all rights and interests of the Bank in and to
its assets and properties, whether real, personal or mixed. The Bank will
continue to be a member of the Federal Home Loan Bank System. All of the Bank's
insured Deposit Accounts will continue to be insured by the Bank Insurance Fund
of the FDIC to the extent provided by applicable law.
ARTICLE I
Definitions
-----------
As used in this Plan of Reorganization, the following terms shall have
the following meanings:
"Account Holder" shall mean any Person holding a Deposit Account in
the Bank.
"Acting in Concert" shall mean (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement or understanding; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
Person or company which acts in concert with another Person ("other party")
shall also be deemed to be acting in concert with any Person who is also acting
in concert with that other party, except that any Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with its trustee or a
Person who serves in a similar capacity solely for the purpose of determining
whether stock held by the trustee and stock held by the plan will be aggregated,
and participants or beneficiaries of any such Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert solely as a result of
their common interests as participants or beneficiaries.
"Actual Purchase Price" shall mean the price per share at which the
Common Stock is ultimately sold in accordance with the terms hereof.
"Affiliate" shall mean a Person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified.
"Associate," when used to indicate a relationship with any Person,
shall mean (a) any corporation or organization (other than the Company, the Bank
or a majority-owned subsidiary of the Bank) of which such Person is an officer
or partner or is, directly or indirectly, either alone or
-2-
<PAGE>
with one or more members of his or her immediate family, the beneficial owner of
10% or more of any class of equity securities; (b) any trust or other estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity, except that for the
purposes of Sections 3.04(a) and 3.10, the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan or any Non-Tax-Qualified Employee
Stock Benefit Plan in which a Person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and except that, for
purposes of aggregating total shares that may be acquired or held by Officers
and Trustees and their Associates, the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan; and (c) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a Director or Officer of the Company, the Bank or any of the
Bank's subsidiaries.
"Bank" shall mean The Rome Savings Bank in its mutual form or in its
stock form, as the context of the reference requires.
"Banking Board" shall mean the Banking Board of the State of New York.
"Banking Law" shall mean the Banking Law of the State of New York.
"Benefit Plan" shall mean any Tax-Qualified Employee Stock Benefit
Plan or any Non-Tax-Qualified Employee Stock Benefit Plan.
"Common Stock" shall mean all of the shares of common stock, par value
$.01 per share, offered and issued pursuant to this Plan by the Company. The
Common Stock will not be insured by the FDIC.
"Community Offering" shall mean the offering for sale to certain
members of the general public directly by the Bank or the Company, if utilized,
of any shares of the Common Stock not subscribed for in the Subscription
Offering in accordance with Section 3.05.
"Company" shall mean Rome Bancorp, Inc., a corporation to be organized
under the laws of the State of Delaware.
"Control" (including the terms "controlling," "controlled by" and
"under common control with") shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities of such Person, the
ownership of voting securities of any company that possesses such power, or
otherwise.
"Conversion" shall mean (a) the restatement of the Bank's organization
certificate to authorize the issuance of capital stock in accordance with the
Banking Law and the Conversion Regulations and to otherwise conform to the
requirements applicable to a New York stock savings bank and (b) the issuance of
the common stock of the Bank in accordance with this Plan.
"Conversion Regulations" shall mean Part 86 of the General Regulations
of the Banking Board of the State of New York ("Part 86"), Article VI-C of the
Consolidated Laws of the State of New York ("Article VI-C") and the regulations
of the FDIC applicable to mutual to stock
-3-
<PAGE>
Conversions, 12 C.F.R. (S) 303.15, to the extent such regulations preempt or
supplement Part 86 and/or Article VI-C.
"Deposit Account" shall mean all deposits of the Bank as such term is
used in Section 9019 of the Banking Law of New York, and includes without
limitation, savings, time, demand, negotiable orders of withdrawal (NOW), money
market and passbook accounts maintained by the Bank.
"Depositor" shall mean any Person owning a Deposit Account.
"Director" shall mean a member of the Board of Trustees of the Bank
after the Reorganization or a member of the Board of Directors of the Company or
the Board of Trustees of the MHC.
"Effective Date" shall mean the effective date of the Reorganization
on which all of the Common Stock is issued and sold and on which the
Superintendent endorses his or her approval on the Bank's Restated Organization
Certificate and causes such Certificate to be filed in the Office of the
Superintendent and upon which all necessary approvals are obtained to consummate
the Reorganization.
"Eligibility Record Date" shall mean December 31, 1997, the date
established by the Board of Trustees of the Bank as the date for determining
Eligible Account Holders.
"Eligible Account Holder" shall mean any Depositor of the Bank who
owned a Qualifying Deposit on the Eligibility Record Date.
"Estimated Price Range" shall mean the range of the minimum and
maximum aggregate values determined by the Board of Trustees of the Bank within
which the aggregate offering price of Common Stock sold in the Reorganization
will fall. The Estimated Price Range will be within the estimated aggregate pro
forma market value of the Common Stock, as determined by the Independent
Appraiser in accordance with Section 3.04.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall mean the Board of Governors of the Federal Reserve System.
"Foundation" shall mean a non-stock Delaware corporation that is a
tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code
formed by the Bank and the Company to which shares of Common Stock shall be
transferred upon the Reorganization.
"Holders of Subscription Rights" shall mean the Tax-Qualified Employee
Stock Benefit Plans, Eligible Account Holders, and Supplemental Eligible Account
Holders who have Subscription Rights pursuant to Section 3.04.
"Independent Appraiser" shall mean the independent Person retained by
the Bank to prepare an appraisal of the estimated pro forma market value of the
Common Stock. Such Person
-4-
<PAGE>
shall be experienced and expert in the area of corporate appraisal and
acceptable to the Superintendent.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Maximum Subscription Price" shall mean the price per share to be
remitted by subscribers for shares of Common Stock in the Subscription Offering
and the Community Offering.
"MHC" shall mean Rome, MHC, the New York mutual holding company
resulting from the Reorganization.
"Minority Stockholder" shall mean any owner of the Company's Common
Stock, other than the MHC.
"Minority Stock Offerings" shall mean one or more offerings of less
than 50% in the aggregate of the outstanding Common Stock of the Company to
persons other than the MHC.
"Non-Tax-Qualified Employee Stock Benefit Plan" shall mean any stock
option, bonus stock or restricted stock plan or other employee benefit plan that
is not a "Tax-Qualified Employee Stock Benefit Plan" and that is maintained by
the Company or the Bank for the benefit of officers, employees or directors of
the Company, the Bank or any Affiliate of either of them and that, by its terms,
is authorized or required to purchase Common Stock.
"Officer" shall mean an executive officer of the Company, the MHC or
the Bank, which includes the chairman of the board, chief executive officer,
president, any vice president in charge of a principal business function or
functions or who otherwise has a policy-making function, secretary, treasurer or
principal financial officer, comptroller or principal accounting officer, and
any person performing functions similar to those performed by the foregoing
persons with respect to any incorporated or unincorporated organization.
"Order Form" shall mean the form provided by the Company or the Bank
that subscribers must use to order Common Stock in the Subscription Offering and
Community Offering.
"Overallotment Option" shall mean the option, which may be granted to
the Underwriters in any Syndicated Community Offering or Public Offering, to
purchase, on the same terms as other shares are purchased in such Syndicated
Community Offering or Public Offering, up to an additional fifteen percent of
the shares of the Common Stock offered in the Subscription Offering.
"Oversubscription Provision" shall mean the increase in the number of
shares of Common Stock that may be offered to subscribers in the Subscription
Offering and the Community Offering pursuant to Section 3.03(b) hereof.
"Person" shall mean any corporation, partnership, trust,
unincorporated association, any other entity or any natural person.
-5-
<PAGE>
"Plan" or "Plan of Reorganization" shall mean this Plan of
Reorganization, including any amendments thereto.
"Prospectus" shall mean the Prospectus to be used in offering the
Common Stock in the Subscription Offering and the Community Offering.
"Proxy Statement" shall mean the document to be used to solicit
proxies from Voting Depositors to vote at the Special Meeting.
"Public Offering" shall mean the offering of certain shares of Common
Stock in accordance with Section 3.09 hereof.
"Public Offering Price" shall mean the price at which the shares of
Common Stock are offered in the Public Offering.
"Qualifying Deposit" shall mean one or more Deposit Accounts with the
Bank totaling, in the aggregate, at least one hundred dollars ($100.00).
"Reorganization" shall mean the reorganization of the Bank into the
MHC and the organization of the Company as a subsidiary of the MHC and the Stock
Bank as a subsidiary of the Company pursuant to this Plan.
"SEC" shall mean the Securities and Exchange Commission.
"Special Meeting" shall mean the Special Meeting of Depositors to be
called for the purpose of submitting the Plan to the Voting Depositors for their
approval.
"Stock Offering" shall mean the offering of the Common Stock of the
Company to persons other than the MHC, on a priority basis as set forth in, and
subject to the limitations of, the Plan.
"Subaccount Balance" shall mean, with respect to each Eligible Account
Holder and Supplemental Eligible Account Holder, the portion of the liquidation
account that such Eligible Account Holder and Supplemental Eligible Account
Holder would be entitled to receive pursuant to the Conversion Regulations in
the event of a complete liquidation of the Bank subsequent to the
Reorganization. The initial Subaccount Balance of each Eligible Account Holder
and Supplemental Eligible Account Holder shall be determined in accordance with
Section 86.4(f)(4) of the Conversion Regulations.
"Subscription Offering" shall mean the offering of the Common Stock to
Eligible Account Holders, Supplemental Eligible Account Holders and Tax
Qualified Employee Benefit Plans in accordance with Section 3.04 hereof.
"Subscription Rights" shall mean the rights described in Section 3.04
hereof.
"Superintendent" shall mean the Superintendent of Banks of the State
of New York.
-6-
<PAGE>
"Supplemental Eligibility Record Date" shall mean the supplemental
record date for determining Supplemental Eligible Account Holders, which is the
last day of the calendar quarter preceding the Superintendent's approval of the
Plan of Reorganization.
"Supplemental Eligible Account Holder" shall mean any Depositor of the
Bank (other than an Eligible Account Holder) who owned a Qualifying Deposit on
the Supplemental Eligibility Record Date.
"Syndicated Community Offering" shall mean the offering of Common
Stock following the Subscription and Community Offerings through a syndicate of
broker-dealers, if any.
"Syndicated Community Offering Price" shall mean the per share price
submitted with orders for shares of Common Stock in the Syndicated Community
Offering, if any.
"Tax-Qualified Employee Stock Benefit Plan" shall mean any defined
benefit plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit-sharing plan or other plan, that is maintained by
the Company or the Bank for the benefit of the officers or employees of the
Company, the Bank, or any Affiliate of either of them; that, by its terms, is
authorized or required to purchase Common Stock, and that, with its related
trust, meets the requirements to be "qualified" under Section 401 of the
Internal Revenue Code. The Bank may make scheduled discretionary contributions
to a Tax-Qualified Employee Stock Benefit Plan, provided that, among other
things, such contributions do not cause the Bank to fail to meet its regulatory
capital requirements.
"Trustee" shall mean a member of the Board of Trustees of the Bank
prior to the Reorganization.
"Underwriters" shall mean any investment banking firm or firms
purchasing or distributing the Common Stock to be offered in a Public Offering,
if any.
"Underwriting Agreement" shall mean the agreement between the Company
and the Underwriters pursuant to which the Underwriters agree to purchase or
distribute certain shares of the Common Stock for offering in a Public Offering,
if any.
"Voting Depositor" shall mean any Depositor of the Bank who owns a
Qualifying Deposit on the Voting Record Date.
"Voting Record Date" shall mean the date fixed by the Board of
Trustees of the Bank as the date for determining Depositors of the Bank entitled
to notice of and to vote at the Special Meeting.
-7-
<PAGE>
ARTICLE II
Procedure for Approval of the Reorganization
--------------------------------------------
Section 2.01 Application and Notice.
----------------------
This Plan, having been duly adopted by the Board of Trustees of the
Bank, will be submitted, together with an Application for Reorganization in the
forms required by the Conversion Regulations, to the Superintendent for
approval, to the Banking Board to request certain waivers, if required, and to
the FDIC for non-objection. Following approval of this Plan by the Board of
Trustees of the Bank, the Bank will cause notice of the adoption of the Plan,
and of its intention to convert to stock form and to reorganize into two-tier
mutual holding company form, to be conspicuously posted at its home office and
each of its branch offices. The Bank will also issue a press release containing
all of the material terms of the proposed Reorganization and will place an
advertisement containing such material terms in a newspaper having general
circulation in the communities in which the principal office and branches of the
Bank are located.
Section 2.02 Approval of Plan by Voting Depositors; the Special Meeting.
----------------------------------------------------------
(a) Following (i) approval of the Bank's Application for Conversion by
the Superintendent, (ii) the non-objection of the FDIC and (iii) the receipt of
all necessary waivers of the Superintentdent of Banks and the Banking Board, the
Bank shall submit the Plan to the Bank's Voting Depositors for approval at the
Special Meeting. The Bank shall mail to each Voting Depositor, at his or her
last known address appearing on the records of the Bank, a copy of the Plan and
the proposed Restated Organization Certificate of the Bank and proposed By-Laws
of the Bank, the proposed Certificate of Incorporation of the Company and
proposed By-Laws of the Company, a Notice of Special Meeting, Proxy Card and
Subscription Order Form and a long-form Proxy Statement (which contains a
detailed description of the Reorganization and contains offering material
relating to the Subscription Offering) in the forms required by the Conversion
Regulations, describing the Plan and certain other matters relating to the Bank
and its Reorganization. Separate and readily distinguishable postage-paid
envelopes shall be provided for the return of Proxy Cards and Subscription Order
Forms.
(b) At the Special Meeting, each Voting Depositor shall be entitled to
cast one vote in person or by proxy for every one hundred dollars ($100.00) such
Voting Depositor had on deposit with the Bank as of the Voting Record Date;
provided, however, that no Voting Depositor shall be eligible to cast more than
one thousand (1,000) votes. The Board of Trustees shall appoint an independent
custodian and tabulator to receive and hold proxies to be voted at the Special
Meeting and count the votes cast in favor of and in opposition to the Plan.
(c) The Superintendent shall be notified of the results of the Special
Meeting by a certificate signed by the President and Secretary of the Bank
within five days after the conclusion of the Special Meeting. The Plan must be
approved by the affirmative vote of at least seventy-five percent (75%) in
amount of deposit liabilities of the Voting Depositors represented in person or
by proxy at the Special Meeting and by the affirmative vote of at least a
majority of the amount of votes entitled to be cast by Voting Depositors at the
Special Meeting. If the Plan is so approved, the Bank will take all other
necessary steps to effect the Reorganization subject to the terms and conditions
-8-
<PAGE>
of the Plan. If the Plan is not so approved, upon conclusion of the Special
Meeting and any adjournment or postponement thereof, the Plan shall not be
implemented without further vote and all funds submitted in the Subscription
Offering and Community Offering will be returned to subscribers, with interest
as provided herein, and all withdrawal authorizations will be canceled.
Section 2.03 Company Approvals.
-----------------
The Board of Trustees of the Bank intends to take all necessary steps
to form the Company and the MHC. The Bank will be a wholly owned subsidiary of
the Company (unless the Company is not utilized in the Reorganization) and the
Company will be a majority owned subsidiary of the MHC. If the Company is
utilized, upon the Reorganization, the Bank will issue its capital stock to the
Company, and the Company will issue and sell the Common Stock in accordance with
this Plan. The Company will make timely applications for any requisite
regulatory approvals, including an Application with the Superintendent, a
Holding Company Application with the FRB, and a Registration Statement on Form
S-1 to be filed with the SEC.
ARTICLE III
Sale of Common Stock
--------------------
Section 3.01 In General.
----------
(a) As soon as practicable after adoption of the Plan by the Board of
Trustees of the Bank and the Board of Directors of the Company, the Company
shall register the Common Stock under the Securities Act of 1933, as amended,
and any applicable state laws. After registration of the Common Stock and
receipt of all required regulatory approvals, the Company will be authorized to
undertake one or more Minority Stock Offerings of less than 50% in the aggregate
of the total outstanding Common Stock to the Holders of Subscription Rights in
the respective priorities set forth in Section 3.04; provided, however, that no
offer for sale of the Common Stock shall be made prior to the mailing to Voting
Depositors of the Proxy Statement for the Special Meeting. Shares of Common
Stock not subscribed for in the Subscription Offering will be offered for sale
in a Community Offering. Any Common Stock remaining unsold upon completion of
the Subscription Offering and Community Offering shall be offered for sale in a
Syndicated Community Offering or a Public Offering or in some other manner as
determined by the Board of Trustees of the Bank and the Board of Directors of
the Company with the approval of the Superintendent. Any such Syndicated
Community or Public Offering shall be conducted in a manner that is intended to
achieve a the widest possible distribution of the Common Stock.
(b) The Community Offering may be commenced concurrently with the
Subscription Offering; provided, however, that any orders received in the
Community Offering shall be subject to availability of shares upon conclusion of
the Subscription Offering. The offer and sale of Common Stock prior to the
Special Meeting shall, however, be conditioned upon approval of the Plan by the
Voting Depositors. The sale of all Common Stock subscribed for in the
Subscription and Community Offerings will be consummated simultaneously on the
date the sale of Common Stock in any Syndicated Community Offering or Public
Offering is consummated and only if all Common Stock is sold.
-9-
<PAGE>
(c) The sales price per share of the Common Stock shall be a uniform
price determined in accordance with Section 86.5(c) of the Conversion
Regulations and Section 3.03 hereof, except that the price to be paid by or
through the Underwriters in connection with a Syndicated Community Offering or
Public Offering may be less a negotiated Underwriters' commission or discount.
The Bank may also elect to offer to pay fees on a per share basis to qualifying
brokers, as determined by the Bank in its sole discretion, who assist Persons in
determining to purchase shares in the Subscription and Community Offerings.
(d) The Board of Trustees of the Bank may determine for any reason at
any time prior to the issuance of the Common Stock not to utilize a two-tier
mutual holding company form of organization in the Reorganization. If the Board
of Trustees of the Bank determines not to complete the Reorganization utilizing
two-tier mutual holding company form of organization, the capital stock of the
Bank will be issued and sold in accordance with the Plan. In such case, the
Company's registration statement on Form S-l will be withdrawn from the SEC, the
Bank will take all steps necessary to complete the Reorganization to a mutual
holding company form of organization, including filing any necessary documents
with the FDIC, and will issue and sell the Common Stock in accordance with this
Plan and the MHC will own a majority of the Common Stock of the Bank. In such
event, any subscriptions or orders received for Common Stock of the Company
shall be deemed to be subscriptions or orders for Common Stock of the Bank on
the same terms and conditions that such provisions apply to the Common Stock of
the Company. In that event all references to the Company in this Plan shall be
deemed to refer to the Bank or shall have no effect, as the context requires,
and the Bank shall take such steps as permitted or required by the
Superintendent or the SEC.
Section 3.02 Reorganization into Mutual Holding Company.
------------------------------------------
As part of the Reorganization, the Bank will convert to a New York
chartered stock savings bank, and will establish the Company as a Delaware
corporation and the MHC as a New York mutual holding company. The Reorganization
will be effected as follows, or in any manner approved by the Superintendent
that is consistent with the purposes of this Plan and applicable laws and
regulations.
As part of the Reorganization: (i) the Bank will organize an interim
stock savings bank as a wholly-owned subsidiary ("Interim One"); (ii) Interim
One will organize an interim stock savings bank as a wholly-owned subsidiary
("Interim Two"); (iii) Interim One will organize the Company as a wholly-owned
subsidiary; (iv) the Bank will exchange its organization certificate for a stock
savings bank organization certificate to become the Stock Bank and Interim One
will exchange its organization certificate for a mutual holding company
organization certificate to become the MHC; (v) Interim Two will merge with and
into the Stock Bank with the Stock Bank as the resulting institution; (vi) all
of the initially issued stock of the Stock Bank will be transferred to the MHC
in exchange for membership interests in the MHC; and (vii) the MHC will
contribute the capital stock of the Stock Bank to the Company and the Stock Bank
will become a wholly-owned subsidiary of the Company. Contemporaneously with the
Reorganization, the Company will offer for sale in the Stock Offering shares of
Common Stock representing up to 49% the pro forma market value of the Company
and the Bank. Steps (iv) through (vii) of the Reorganization and the Stock
Offering will occur simultaneously.
-10-
<PAGE>
Upon the consummation of the Reorganization, the legal existence of the
Bank will not terminate, but the Stock Bank will be a continuation of the Bank,
and all property of the Bank, including its right, title, and interest in all
property of whatsoever kind and nature, interest and asset of every conceivable
value or benefit then existing or pertaining to the Bank, or which would inure
to the Bank immediately by operation of law and without the necessity of any
conveyance or transfer and without any further act or deed, will vest in the
Stock Bank. The Stock Bank will have, hold, and enjoy the same in its right and
fully and to the same extent as the same was possessed, held, and enjoyed by the
Bank. The Stock Bank will continue to have, succeed to, and be responsible for
all the rights, liabilities and obligations of the Bank and will maintain its
headquarters and operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the assets
and liabilities (including the savings accounts, demand accounts, tax and loan
accounts, United States Treasury general accounts, or United States Treasury
Time Deposit Accounts, as defined in the Conversion Regulations) of the Bank
shall become the assets and liabilities of the Stock Bank, which will thereupon
become an operating savings bank subsidiary of the Company and of the MHC. The
Bank will apply to the Superintendent to have the Company receive or retain (as
the case may be) up to 50% of the net proceeds of the Stock Offering, or such
other amount as may be determined by the Board of Directors. The Stock Bank may
distribute additional capital to the Company following the Reorganization,
subject to the New York banking regulations governing capital distributions.
A. Effect on Deposit Accounts and Borrowings
Each deposit account in the Bank on the Effective Date will remain a
deposit account in the Stock Bank in the same amount and upon the same terms and
conditions, and will continue to be federally insured up to the legal maximum by
the FDIC in the same manner as deposit account existed in the Bank immediately
prior to the Reorganization. Upon consummation of the Reorganization, all loans
and other borrowings from the Bank shall retain the same status with the Stock
Bank after the Reorganization as they had with the Bank immediately prior to the
Reorganization.
B. The Bank
Upon completion of the Reorganization, the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under federal law.
The Reorganization will not result in any reduction of the amount of retained
earnings and general loss reserves will be accounted for by the MHC, the Company
and the Stock Bank on a consolidated basis in accordance with generally accepted
accounting principles.
The initial members of the Board of Directors of the Stock Bank will be the
members of the existing Board of Directors of the Bank. The Stock Bank will be
wholly-owned by the Company. The Company will be wholly-owned by its
stockholders who will consist of the MHC and, initially, the persons who
purchase Common Stock in the Stock Offering and the foundation. Upon the
Effective Date of the Reorganization, the voting and membership rights of
Depositors will be transferred to the MHC, subject to the conditions specified
below.
-11-
<PAGE>
C. The Company
The Company will be authorized to exercise any and all powers, rights and
privileges, and will be subject to all limitations applicable to bank holding
companies and mutual holding companies under New York and federal law and
regulations. The initial members of the Board of Directors of the Company will
be appointed by the Bank. Thereafter, the voting stockholders of the Company
will elect approximately one-third of the Company's directors annually.
The Company will have the power to issue shares of Common Stock to persons
other than the MHC. However, so long as the MHC is in existence, the MHC will
be required to own at least 51% of the Voting Stock of the Company. The Company
may issue any amount of Non-Voting Stock to persons other than the MHC. The
Company will be authorized to undertake one or more Minority Stock Offerings of
up to 49% in the aggregate of the total outstanding Common Stock of the Company,
and the Company intends to offer for sale up to 49% of its Common Stock in the
Stock Offering.
D. The Mutual Company
As a mutual corporation, the MHC will have no stockholders. The rights and
powers of the MHC will be defined by the MHC's Organization Certificate and
Bylaws and by the statutory and regulatory provisions applicable to savings and
loan holding companies and mutual holding companies.
The initial members of the Board of Trustees of the MHC will be the
existing Board of Directors of the Bank and any additional persons as may be
appointed by the Bank, including at least one "unaffiliated director" who is not
(a) an officer or employee of the Stock Bank (or any affiliate thereof) or (b)
an officer, trustee or employee of the MHC, to represent the interests of the
minority stockholders. Thereafter, approximately one-third of the directors of
the MHC will be elected annually by the members of the MHC who will consist of
the former Depositors of the Bank and all persons who become depositors of the
Bank after the Reorganization.
E. Use of Proceeds
Upon the issuance of the Common Stock, the Company will contribute to
the Bank at least 50% of the net Stock Offering proceeds. The MHC will retain
$100,000 of the net proceeds of the sale of the Common Stock. A greater
percentage may be retained in the discretion of the Boards of Trustees of the
Bank and the Board of Directors of the Company. The Bank believes that the
Stock Offering proceeds will provide economic strength to the Company and the
Bank for the future in a highly competitive and regulated environment. The
Reorganization will also facilitate any expansion through acquisitions of
financial service organizations, any diversification into other related
businesses and any engagement in other business and investment purposes,
including the possible payment of dividends and possible future repurchases of
the Common Stock as permitted by the Conversion Regulations.
-12-
<PAGE>
Section 3.03 Pricing and Number of Shares of Common Stock; Independent
---------------------------------------------------------
Appraiser.
- ---------
(a) All shares sold in the Reorganization shall be sold at a uniform
price per share, the Actual Purchase Price, which shall be no more than $40.00
per share and no less than $5.00 per share. The aggregate price at which the
Common Stock shall be sold shall be consistent with the estimated pro forma
market value of such Common Stock on the Effective Date of the Reorganization,
based upon an independent valuation as provided for in this Section 3.03. The
Bank shall cause the Independent Appraiser to prepare a pro forma valuation of
the aggregate market value of the Common Stock, which shall be submitted to the
Superintendent and the FDIC as part of the Bank's Application for Conversion,
such valuation to be stated in terms of an Estimated Price Range, the maximum of
which shall be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall be no more than 15% below such
average. From time to time, as appropriate or as required by the Conversion
Regulations or the Superintendent, the Bank shall cause the Independent
Appraiser to review developments subsequent to its valuation to determine
whether the Estimated Price Range should be revised. Such valuation shall be
prepared in accordance with the Conversion Regulations.
(b) Based on the valuation of the Independent Appraiser pursuant to
Section 3.03(a) hereof, the Board of Trustees of the Bank and the Board of
Directors of the Company shall fix the Maximum Subscription Price and the number
of shares to be offered. The total number of shares of Common Stock offered
shall be subject to increase or decrease at any time prior to any Syndicated
Community Offering or Public Offering or other method of sale to reflect changes
in market and financial conditions. In the event that the aggregate purchase
price of the Common Stock is below the minimum of the Estimated Price Range, or
materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required; provided, that up to a 15% increase above the
maximum of the Estimated Price Range will not be deemed material so as to
require a resolicitation. Up to a 15% increase in the number of shares to be
issued which is supported by an appropriate change in the estimated pro forma
market value of the Common Stock will not be deemed to be material so as to
require a resolicitation of subscriptions. In the event that the aggregate
purchase price of the Common Stock is below the minimum of the Estimated Price
Range or in excess of 15% above the maximum of the Estimated Price Range, and a
resolicitation is required, such resolicitation shall be effected in such manner
and within such time as the Company or the Bank shall establish, with the
approval of the Superintendent or the FDIC, if required. The total number of
shares of Common Stock offered will be subject to increase in connection with
the exercise of any Overallotment Option or the Oversubscription Provision,
provided that any additional number of shares of Common Stock issued for these
purposes shall not exceed 15% of the total number of shares of the Common Stock
offered in the Subscription Offering. The total number of shares of Common
Stock that may be issued to persons other than the MHC must be no greater than
49% of the issued and outstanding shares of Common Stock of the Company.
(c) If the number of shares of Common Stock to be sold in the
Reorganization, excluding any number of shares to be issued in connection with
any Overallotment Option or the Oversubscription Provision, is increased after
commencement of the Subscription Offering, any Person who subscribed for the
maximum number of shares of Common Stock shall be permitted to purchase an
additional number of shares such that such Person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such Person as adjusted to take into account the increase in the number of
shares to be sold, subject to the rights and preferences
-13-
<PAGE>
of any Person who has priority Subscription Rights. If either the individual
purchase limitation or the number of shares of Common Stock, excluding any
number of shares to be issued in connection with any Overallotment Option or the
Oversubscription Provision, is decreased after commencement of the Subscription
Offering, the order of any Person who subscribed for the maximum number of
shares of Common Stock shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person. The Company shall not otherwise
be required to offer subscribers the right to modify or rescind their
subscriptions as a result of any increase or decrease in the number of shares of
Common Stock offered, unless otherwise required by this Plan or by the
Superintendent.
(d) In the event shares of Common Stock are sold in excess of the
maximum of the Estimated Price Range (the "Adjusted Maximum"), such shares will
be allocated in the following order of priority: (i) in the event that there is
an oversubscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders in accordance with Section 3.04(a);
(ii) to fill the Tax-Qualified Employee Stock Benefit Plans' subscriptions in
accordance with Section 3.04(b); (iii) in the event there is an oversubscription
at the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders in accordance with
Section 3.04(c); and (iv) to fill unfulfilled Subscriptions in the Community
Offering in accordance with Section 3.05.
(e) If all of the shares of Common Stock are subscribed for in the
Subscription Offering and the Community Offering, or are sold in some other
manner other than a Syndicated Community Offering or Public Offering, the Board
of Trustees of the Bank and the Board of Directors of the Company, in
consultation with the Independent Appraiser, shall determine the Actual Purchase
Price, subject to approval by the Superintendent. If all shares of the Common
Stock are not subscribed for and there is a Syndicated Community Offering or
Public Offering, the Board of Trustees of the Bank and the Board of Directors of
the Company, in consultation with the Underwriters and the Independent
Appraiser, shall determine the Syndicated Offering Price or the Public Offering
Price, as the case may be, subject to the approval of the Superintendent. If
there is a Syndicated Community Offering or a Public Offering, the Syndicated
Offering Price or the Public Offering Price, as the case may be, will determine
the Actual Purchase Price. Except for the purchase price of shares sold upon
the exercise of any Overallotment Option or the Oversubscription Provision, the
aggregate purchase price of the Common Stock shall be within the Estimated Price
Range, unless subscribers are offered the right to modify or rescind their
subscriptions.
(f) The Company shall not consummate any sale unless the Independent
Appraiser shall have confirmed to the Company, the Bank and the Superintendent
that nothing of a material nature has occurred that would cause the Independent
Appraiser to conclude that the aggregate purchase price of the shares of Common
Stock sold in the Reorganization, exclusive of the aggregate purchase price of
shares sold upon the exercise of the Overallotment Option or the
Oversubscription Provision, is incompatible with its estimate of the pro forma
market value of the Bank at the time of such sale. If the Independent Appraiser
is unable to so confirm, the Stock Offering may be canceled or the Bank and the
Company may extend the Reorganization, establish a new Estimated Price Range,
Actual Purchase Price, extend, reopen or hold a new Subscription Offering and
Community Offering, Syndicated Community Offering or Public Offering, or take
such other action as the Board of Trustees of the Bank and the Board of
Directors of the Company shall determine and the Superintendent shall approve.
-14-
<PAGE>
(g) The Common Stock to be issued pursuant to this Plan shall upon
issuance be fully paid and nonassessable.
Section 3.04 Subscription Rights.
-------------------
(a) Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Common Stock equal to an amount up to the greatest of (i) the amount permitted
to be subscribed for in the Community Offering, which amount is currently equal
to $150,000 of the Common Stock issued in the Stock Offering, as specified in
Section 3.05(d), and may be increased to 5.0% of the Common Stock issued in the
Stock Offering or decreased to one-tenth of one percent of the shares of Common
Stock issued in the Stock Offering. Such subscription is subject to the maximum
purchase limitation specified in Section 3.10(a) and the minimum purchase
limitation in Section 3.10(d) and exclusive of an increase in the total number
of shares issued due to an increase in the Estimated Price Range of up to 15%.
If Eligible Account Holders subscribe for a number of shares of Common Stock
that exceeds the total number of shares of Common Stock being issued in the
Stock Offering, the Common Stock shall be allocated among subscribing Eligible
Account Holders as follows:
(i) first, to the extent possible, each Eligible Account Holder
shall be entitled to subscribe for the entire amount of his or her order,
up to 100 shares;
(ii) second, each Eligible Account Holder subscribing for in
excess of 100 shares shall be entitled, with respect to such excess, to
subscribe for the same percentage of the total remaining shares to be
issued in the Stock Offering as the value of his or her Qualifying Deposits
represents to the aggregate value of the Qualifying Deposits of all
remaining Eligible Account Holders whose subscriptions remain unsatisfied;
provided, however, that no fractional shares shall be issued; and
(iii) third, any shares then remaining shall be reallocated (one
or more times if necessary) among those Eligible Account Holders whose
subscriptions are not filled pursuant to subparagraphs (i) or (ii) above,
on the basis otherwise set forth in (ii) above until all available shares
have been allocated or all subscriptions satisfied.
Subscription Rights to purchase Common Stock received by Trustees and Officers
of the Bank, and their Associates, as Eligible Account Holders that are based on
their increased Deposit Accounts in the Bank in the one-year period preceding
the Eligibility Record Date shall be subordinated to the Subscription Rights of
all other Eligible Account Holders granted pursuant to the Conversion
Regulations and this Plan.
(b) The Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, as a second priority after the filling of subscriptions of
Eligible Account Holders, non-transferable Subscription Rights to purchase up to
a maximum of ten percent (10.0%) of the Common Stock issued in the Stock
Offering. If, after the filling of subscriptions of Eligible Account Holders, a
sufficient number of shares is not available to fill the subscriptions by such
plan, the subscription by such plan shall be filled to the maximum extent
possible. A Tax-Qualified Employee Stock Benefit Plan shall not be deemed to be
an Associate or Affiliate of, or a Person
-15-
<PAGE>
Acting in Concert with, any Director or Officer of the Company or the Bank.
Notwithstanding any provision contained herein to the contrary, the Bank may
make scheduled discretionary contributions to a Tax-Qualified Employee Stock
Benefit Plan; provided, among other things, that such contributions do not cause
the Bank to fail to meet its regulatory capital requirements.
(c) Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable Subscription Rights to subscribe
for shares of Common Stock equal to an amount up to the greatest of (i) the
amount permitted to be subscribed for in the Community Offering, which amount is
currently $150,000 of the Common Stock offered in the Stock Offering, as
specified in Section 3.05(d), and may be increased to 5.0% of the Common Stock
offered in the Stock Offering or decreased to one-tenth of one percent of the
total offering of shares of Common Stock. Such subscription is subject to the
maximum purchase limitation specified in Section 3.10(a) and the minimum
purchase limitation in Section 3.10(d) and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%. If Supplemental Eligible Account Holders subscribe for a number of shares
of Common Stock that exceeds the total number of shares of Common Stock being
issued in the Stock Offering and available after purchases by Eligible Account
Holders and Tax-Qualified Employee Stock Benefit Plans, the Common Stock shall
be allocated among subscribing Supplemental Eligible Account Holders as follows:
(i) first, to the extent possible, each Supplemental Eligible
Account Holder shall be entitled to subscribe for the entire amount of his
or her order, up to 100 shares;
(ii) second, each Supplemental Eligible Account Holder
subscribing for in excess of 100 shares shall be entitled, with respect to
such excess, to subscribe for the same percentage of the total remaining
shares to be issued in the Stock Offering as the value of his or her
Qualifying Deposits represents to the aggregate value of the Qualifying
Deposits of all remaining Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied; provided, however, that no fractional
shares shall be issued; and
(iii) third, any shares then remaining shall be reallocated (one
or more times if necessary) among those Supplemental Eligible Account
Holders whose subscriptions are not filled pursuant to subparagraphs (i) or
(ii) above, on the basis otherwise set forth in (ii) above until all
available shares have been allocated or all subscriptions satisfied.
(d) Subscription Rights are non-transferable and may not be exercised
by or on behalf of any Person other than the Holder of Subscription Rights.
Prior to the Effective Date, no Person shall offer to transfer, enter into any
agreement or understanding to transfer, or transfer the legal or beneficial
ownership of any shares of Common Stock, except pursuant to or as contemplated
by this Plan.
(e) The Bank shall make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Common Stock pursuant to the Plan reside. No Person
will be offered or sold any Common Stock in the Subscription Offering if such
Person resides in a foreign jurisdiction. No payment will be made in lieu of
the granting of Subscription Rights to any such Person.
-16-
<PAGE>
Section 3.05 Community Offering.
------------------
Shares of Common Stock not subscribed for in the Subscription Offering
shall be offered in a Community Offering, commencing concurrently with or
subsequent to the commencement of the Subscription Offering, subject to the
following terms and conditions:
(a) The Community Offering shall made to the those persons that the
Bank determines to be members of its community, including without limitation,
customers, employees, Officers, and Trustees of the Bank and their immediate
families, trusts or custodial arrangements forming part of an Individual
Retirement Account established pursuant to Section 408 of the Internal Revenue
Code, or part of a qualified retirement plan established pursuant to Section
401(a) of the Internal Revenue Code and maintained for the benefit of any such
natural person, and certain institutional investors. Shares of Common Stock
offered in the Community Offering will be offered in the order of priority
listed below:
(i) First, to depositors with accounts at the Bank with total
balances of at least $100 at the commencement of the Community Offering;
(ii) Second, to residents of Oneida County, New York; and
(iii) Third, to other members of the public.
(b) The Community Offering shall be completed no later than 45 days
following the termination of the Subscription Offering, unless extended with the
approval of the Superintendent.
(c) The Community Offering shall be by means of a direct marketing
program. The Bank or the Company may, if the Board of Trustees of the Bank and
the Board of Directors of the Company deem it advisable, engage the services of
a registered broker-dealer, consultant or investment banking firm, experienced
and expert in the sale of savings institution securities, to assist the Company
in the direct marketing program. The Company and the Bank shall make
distribution of the Common Stock to be sold in the Community Offering in such a
manner as to promote a reasonably wide distribution of Common Stock.
(d) Any Person subscribing for Common Stock pursuant to the
provisions of this Section 3.05 shall be required to purchase a minimum of 25
shares to the extent such shares are available for purchase. The maximum amount
that any Person, together with any Associate or group of Persons Acting in
Concert, may subscribe for in the Community Offering shall be $150,000 of the
Common Stock offered in the Reorganization; provided, however, that the amount
permitted to be purchased in the Community Offering may be increased to 5.0% of
the Common Stock issued in the Stock Offering or decreased to less than $150,000
without the further approval of depositors or resolicitation of subscribers. If
there are not sufficient shares available to fill all subscription requests, the
total number of shares available in the Community Offering shall be allocated to
each subscriber whose order is accepted, the shares available to such subscriber
will be allocated in the manner which permits each such person, to the extent
possible, to purchase the number of shares necessary to make his total
allocation of Common Stock equal to the lesser of 100 shares or the
-17-
<PAGE>
number of shares subscribed for by such persons, thereafter, unallocated shares
will be allocated among such persons whose subscriptions remain unsatisfied on a
100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated.
(e) The Bank shall make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Common Stock pursuant to the Plan reside. No Person
will be offered or sold any shares of Common Stock in the Community Offering if
such Person resides in a foreign jurisdiction.
(f) Notwithstanding the foregoing, the Company reserves the absolute
right to accept or reject any or all orders in the Community Offering in whole
or in part for any reason not in contravention of any applicable law or
regulation.
Section 3.06 Subscription and Community Offering Procedures; Order Forms
-----------------------------------------------------------
(a) After the registration statement for the Common Stock has been
declared effective and all other required regulatory approvals have been
obtained, the Company shall distribute or make available the Prospectus,
together with Order Forms for the purchase of Common Stock, to the Holders of
Subscription Rights for the purpose of enabling them to exercise their
respective Subscription Rights. Such notice may be included with the Proxy
Statement for the Special Meeting and may also be included in a notice of the
pendency of the Reorganization and the Special Meeting sent to all Voting
Depositors. Each Order Form must be preceded or accompanied by the Prospectus
describing the Company, the Bank, the Common Stock, the Subscription Offering
and the Community Offering. Each Order Form shall contain such information as
may be required by the Conversion Regulations.
(b) The Holders of Subscription Rights shall have a period of time
within which to complete and deliver an Order Form to the Company. The exact
date and time by which completed Order Forms must be received by the Company
shall be set forth on the Order Form; provided, that if the Holders of
Subscription Rights are required to return a postage-paid request card to
receive a Prospectus and Order Form, the Subscription Offering shall not
terminate until the expiration of five days after the Special Meeting unless a
shorter period of time is approved by the New York State Banking Department.
Failure of any Holder of Subscription Rights to deliver a properly executed
Order Form to the Company, together with full payment (or authorization for full
payment by withdrawal from a Deposit Account with the Bank) for the shares of
Common Stock subscribed for, within the time limits prescribed shall be deemed a
waiver and release by such Person of any Subscription Rights.
(c) The Company shall also distribute or make available the
Prospectus, together with Order Forms for the purchase of Common Stock, to
certain other Persons described in Section 3.05. A subscriber in the Community
Offering shall have a period of time within which to complete and deliver an
Order Form to the Company, which period of time shall end at the same time that
the Subscription Offering terminates, unless extended pursuant to Section
3.05(b). The exact date and time by which completed Order Forms must be
received by the Company shall be set forth on the Order Form.
-18-
<PAGE>
(d) The Company may, subject to the provisions of this Plan and any
required approval of the Superintendent, extend the period during which an Order
Form must be completed and delivered to the Company. Any such extension shall
be for a period that the Board of Trustees of the Bank and the Board of
Directors of the Company determine is appropriate.
(e) The Company reserves the right to accept or reject orders on
photocopied or facsimilied order forms. The Company may, but will not be
required to, waive any irregularity on any Order Form, or require the submission
of corrected Order Forms or the remittance of full payment for subscribed shares
of Common Stock by such date as set forth in the Prospectus. The interpretation
by the Company of the terms and conditions of the Order Forms will be final and
binding on all subscribers
Section 3.07 Payment for Common Stock.
------------------------
(a) Payment for shares of Common Stock subscribed for in the
Subscription Offering and in any Community, Syndicated Community or Public
Offerings shall be equal to the Maximum Subscription Price multiplied by the
number of shares that are being subscribed for. Such payment must, except as
noted below, be made at the time the Order Form is delivered to the Company and
may be made:
(i) in cash, if delivered in person, or by check, bank draft,
or money order, or
(ii) if the subscriber has a Deposit Account in the Bank, the
subscriber may authorize the Bank to withdraw from such Deposit Account an
amount equal to the aggregate Maximum Subscription Price of the shares for
which the Person subscribed.
If the subscriber is a Benefit Plan of the Bank, the subscribing Benefit Plan
may pay for the shares of Common Stock at the Actual Purchase Price on or prior
to the Effective Date. If the subscribing Benefit Plan is an employee stock
ownership plan, it may pay on or prior to the Effective Date only if it has
received a loan commitment from the Company or a source of funding acceptable to
the Company, committing to advance to the Benefit Plan on or before the
Effective Date the aggregated Maximum Subscription Price of the shares for which
the Benefit Plan subscribed. Notwithstanding the foregoing, the Bank and the
Company shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering
and to thereafter submit payment for the Common Stock for which they are
subscribing in the Community Offering at any time prior to 48 hours before the
completion of the Reorganization, unless such 48-hour period is waived by the
Bank and the Company, in their sole discretion.
(b) If the Actual Purchase Price is less than the Maximum
Subscription Price, the difference will be promptly refunded to all subscribers
(or withdrawal authorizations from time or Deposit Accounts shall be reduced).
(c) If a subscriber authorizes a withdrawal of the amount of the
Maximum Subscription Price multiplied by the number of shares that are being
subscribed for from a time or Deposit Account with the Bank as payment for the
shares subscribed for, the Bank will have the right upon receipt of the Order
Form by the Company to make such withdrawal immediately or to
-19-
<PAGE>
place a hold on such account equal to such aggregate Maximum Subscription Price.
The Bank will allow withdrawal from certificates of deposit for such payment
without the assessment of penalties; however, if the withdrawal results in the
certificate failing to meet any applicable minimum balance requirement, the
certificate evidencing the account may be canceled and the remaining balance
transferred to a statement savings account that will earn interest at the
regular passbook rate. Where any applicable required minimum balance is
maintained in such certificate account, the rate of return on the balance of the
certificate account will remain the same as prior to such early withdrawal. If
the Bank withdraws funds from a subscriber's time account, or places a hold on
such account, in accordance with this Section 3.07, and the time account matures
prior to the date the Reorganization is completed or terminated, the funds so
withdrawn or placed under a hold shall be transferred upon maturity of the time
account to a statement savings account that will earn interest at the regular
passbook rate.
(d) The Bank will pay interest, at not less than the passbook rate,
for all amounts paid in cash, by check, bank draft or money order to purchase
shares of the Common Stock in the Subscription Offering or Community Offering
from the date payment is received until the date the Reorganization is completed
or terminated. If any withdrawal from a time or Deposit Account made pursuant
to paragraph (c) above is made at any time prior to the date the Reorganization
is completed or terminated, the Bank shall pay interest to the subscriber on the
amount withdrawn as if such amount had remained in the account from which it was
withdrawn until the date the Reorganization is completed or terminated.
(e) The Bank will not knowingly loan funds or otherwise extend credit
to any Person for the purpose of purchasing shares of the Common Stock.
(f) Wire transfers as payment for Common Stock will not be permitted
or accepted as proper payment.
Section 3.08 Syndicated Community Offering.
-----------------------------
(a) Shares of Common Stock not sold in the Subscription Offering or
the Community Offering shall be offered for sale in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the Bank, in a manner that is intended to achieve the a reasonably wide
distribution of the Common Stock subject to the right of the Bank to accept or
reject in whole or in part all subscriptions in the Syndicated Community
Offering.
(b) In the Syndicated Community Offering, any Person together with
any Associate or group of Persons Acting in Concert may purchase up to $150,000
of the Common Stock offered in the Reorganization subject to the maximum
purchase limitation specified in Section 3.10(a) and the minimum purchase
limitation specified in Section 3.10(d) and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price Range of
up to 15%. However, the shares purchased in the Community Offering by any Person
together with an Associate or group of Persons Acting in Concert pursuant to
Section 3.06 shall be counted toward meeting the maximum purchase limitation
found in this Section 3.08.
-20-
<PAGE>
(c) Provided that the Subscription Offering has commenced, the Bank
may commence the Syndicated Community Offering at any time after the mailing to
the depositors of the Proxy Statement to be used in connection with the special
meeting of depositors, provided that the completion of the offer and sale of the
Common Stock shall be conditioned upon the approval of this Plan by Voting
Depositors. If the Syndicated Community Offering is not sooner commenced
pursuant to the provisions of the preceding sentence, the Syndicated Community
Offering will be commenced as soon as practicable following the date upon which
the Subscription and Community Offerings terminate.
Section 3.09 Public Offering Alternative.
---------------------------
(a) Shares of Common Stock not sold in the Subscription Offering or
the Community Offering may, as an alternative to a Syndicated Community Offering
pursuant to Section 3.08, be offered for sale by the Company to or through
Underwriters. The provisions of Section 3.10 shall not be applicable to sales
to Underwriters for purposes of such a Public Offering. Any such Underwriter
shall agree to (a) purchase such shares from the Company with a view to
reoffering them to the general public; (b) use their best efforts to sell, for
the account of the Company, such shares to the general public; or (c) a
combination of (a) and (b), subject to the following terms and conditions:
(b) Any Underwriting Agreement shall provide that the Underwriters
shall agree to purchase all shares of the Common Stock not sold in the
Subscription Offering or the Community Offering, if any such shares are
purchased.
(c) The price paid to the Company by or through the Underwriters for
the Common Stock shall be the aggregate Public Offering Price for the shares of
Common Stock so offered, less discounts and commissions as negotiated between
the Bank, the Company and the Underwriters and approved by the Superintendent
and the National Association of Securities Dealers, Inc.
(d) The Underwriting Agreement shall be subject to the following
conditions and such other conditions as may be acceptable to the Bank, the
Company and the Superintendent:
(i) purchases in the Public Offering shall be subject to the
limitations of Section 3.10; and
(ii) the Company and its Underwriters shall use reasonable
efforts to assure that the stock to be offered and sold in the Public
Offering shall be offered and sold in a manner that, to the extent
practicable, will achieve a reasonably wide distribution of such stock.
(e) If for any reason a Syndicated Community Offering or a Public
Offering of shares of Common Stock not sold in the Subscription and Community
Offerings cannot be effected, or if any insignificant residue of shares of
Common Stock is not sold in the Subscription and Community Offerings or in the
Syndicated Community or Public Offering, other arrangements will be made for the
disposition of unsubscribed shares by the Bank, if possible. Such other
purchase arrangements will be subject to the approval of the Superintendent.
-21-
<PAGE>
Section 3.10 Restrictions on Purchase and Transfer of Common Stock
-----------------------------------------------------
The following limitations shall apply to all purchases of Common
Stock:
(a) The aggregate amount of outstanding Common Stock of the Company
owned or controlled by persons other than the MHC at the close of the Stock
Offering shall be less than 50% of the Company's total outstanding Common Stock.
(b) No Person, acting alone, acting together with any other Person,
or Acting in Concert with any group of Persons, shall be entitled to purchase
more than $150,000 of the Common Stock issued in the Stock Offering, provided,
however, that in the event the maximum purchase limitations set forth in this
Section 3.10(a) are increased pursuant to Section 3.10(e) below to more than
$150,000 of the shares of Common Stock offered, orders for Common Stock in the
Community Offering and in the Syndicated Community Offering (or the Public
Offering), if any, shall, as determined by the Bank and the Holding Company,
first be filled to a maximum of $150,000 of the total number of shares of Common
Stock offered and thereafter remaining shares shall be allocated on an equal
number of shares per order basis until all orders have been filled. For purposes
of applying this purchase limitation, the purchases of any Tax-Qualified
Employee Stock Benefit Plan shall not be subject to such purchase limitation,
and the purchases of any Benefit Plan shall not be aggregated with those of any
other Benefit Plan or other Person; provided, however, that any one or more Tax-
Qualified Employee Stock Benefit Plans may subscribe for up to and including 10%
of the Common Stock issued.
(c) The Officers and Trustees of the Bank and Officers and Directors
of the Company and their Associates, collectively, shall be entitled to purchase
up to and including 25% of the Common Stock issued in the Stock Offering. In
applying this limitation, Common Stock purchased by any one or more Tax-
Qualified Employee Stock Benefit Plan shall not be counted.
(d) Shares of Common Stock subscribed for in the Subscription
Offering, the Community Offering and any Syndicated Community Offering or Public
Offering or otherwise purchased shall be aggregated for purposes of determining
if the limitations of Section 3.10(a) and (b) have been violated.
(e) Any Person exercising Subscription Rights to purchase Common
Stock shall be required to purchase a minimum of 25 shares to the extent such
shares are available for purchase. However, in the event the minimum number of
shares of Common Stock that must be purchased times the price per share exceeds
five hundred dollars ($500.00), then the minimum purchase requirement shall be
reduced to such number of shares that, when multiplied by the price per share,
the aggregate price for any such minimum purchase of shares of Common Stock
shall not exceed five hundred dollars ($500.00).
(f) Depending upon market or financial conditions, the Board of
Trustees of the Bank and the Board of Directors of the Company, without further
approval of the subscribers, may decrease or increase the purchase limitations
in this Plan, provided that the maximum purchase limitations may not be
increased to a percentage in excess of 5.0%. If the Bank and the Company
increase such maximum purchase limitations, the Bank and the Company are only
required to
-22-
<PAGE>
resolicit Persons who subscribed for the maximum purchase amount and may, in the
sole discretion of the Bank and the Company, resolicit certain other large
subscribers.
(g) Each Person purchasing Common Stock in the Reorganization shall
be deemed to confirm that such purchase does not conflict with the purchase
limitations set forth in this Plan.
(h) As used in this Section 3.10, the Officers, Directors and
Trustees of the Bank and the Company shall not be deemed to be Associates or a
group affiliated with each other or otherwise Acting in Concert solely as a
result of their being Officers, Trustees or Directors of the Bank or the
Company.
(i) The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose representations the
Board of Directors believes to be false or who it otherwise believes, either
alone or acting in concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of this Plan.
Prior to the consummation of the Stock Offering, no person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan. Each person purchasing Common Stock shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
Section 3.11 Time Limits for Sale of Shares; Effect of Inability to Sell.
-----------------------------------------------------------
All shares of Common Stock not subscribed for at the completion of the
Subscription Offering shall be sold within 45 days after completion of the
Subscription Offering, or such longer period as the Superintendent may approve.
If all shares are not sold as provided for herein, the Bank and the Company will
consult with the Superintendent to determine an alternative method of sale. In
such event and if required by the Superintendent or the SEC, a resolicitation of
those Persons who have subscribed for shares will be made. If such an
alternative method is not agreed upon, the Reorganization will not be effected,
the Bank will remain in mutual form, all funds submitted to the Bank and the
Company as payment for shares of the Common Stock will be returned to
subscribers, with interest as provided herein, and all withdrawal authorizations
will be canceled.
Section 3.12 Establishment and Funding of Foundation.
---------------------------------------
(a) As part of the Reorganization, the Company and the Bank intend to
establish the Foundation and to donate to the Foundation from authorized but
unissued shares up to 3.0% of the number of shares of Common Stock sold in the
Stock Offering. The Foundation is being formed in connection with the
Reorganization in order to complement the Bank's existing community reinvestment
activities and to share with the Bank's local communities a part of the Bank's
financial success as a locally headquartered, community-minded, financial
services institution. The funding of the Foundation with Common Stock of the
Company accomplishes this goal as it enables the community to share in the
growth and profitability of the Company and the Bank over the long-term.
-23-
<PAGE>
(b) The Foundation will be dedicated to the promotion of charitable
purposes including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic-minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and to maintain its
qualification under Section 501(c)(3) of the Internal Revenue Code, the
Foundation may sell, on an annual basis, a limited portion of the Common Stock
contributed to it by the Company.
(c) A majority of the board of directors of the Foundation will be
comprised of individuals who are Officers or Directors of the Bank and the
remaining board members will be comprised of civic and community leaders from
within the Bank's local community. The board of directors of the Foundation
will be responsible for establishing the policies of the Foundation with respect
to grants or donations, consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Reorganization is
subject to the approval of the Superintendent and, if applicable, the FDIC, as
more fully described in the Prospectus.
Section 3.13 Enforcement of Terms and Conditions.
-----------------------------------
The Bank and the Company shall have the right to take all such action
as they may, in their sole discretion, deem necessary, appropriate, or advisable
in order to monitor and enforce the terms, conditions, limitations and
restrictions contained in this Article III and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Forms, including,
but not limited to, the right to require any subscriber or purchaser to provide
evidence, in a form satisfactory to the Bank, of such Person's eligibility to
subscribe for or purchase shares of the Common Stock under the terms of this
Plan and the absolute right (subject only to any necessary regulatory approvals
or concurrence) to reject, limit, or revoke acceptance of any subscription or
order and to delay, terminate, or refuse to consummate any sale of Common Stock
that they believe might violate, or is designed to, or is any part of a plan to
evade or circumvent such terms, conditions, limitations, restrictions, and
representations. Any such action shall be final, conclusive, and binding on all
Persons, and the Bank and the Company and their respective Board of Trustees and
Board of Directors shall be free from any liability to any Person on account of
any such action.
ARTICLE IV
Certain Restrictions
--------------------
Section 4.01 Sale of Shares Purchased by Trustees, Directors or Officers.
-----------------------------------------------------------
All shares of the Common Stock purchased or acquired (either directly
or indirectly) by the Trustees or Officers of the Bank or of the Company on
original issue in the Reorganization either directly from the Company (by
subscription or otherwise) or from the Underwriters (or otherwise beneficially
owned by such Trustees or Officers immediately after such original issuance)
shall be subject to the restriction that the shares shall not be sold for a
period of one year following the date of purchase. Such restriction shall not
apply to the shares of any such Trustee or Officer in the event of the death of
such Person or any exchange of such shares in connection with a merger or
acquisition of the Company or the Bank. In addition, such restriction shall not
apply to shares
-24-
<PAGE>
held by any Tax-Qualified Employee Stock Benefit Plan. In connection with the
shares of the Common Stock that are subject to this restriction on resale:
(a) Each certificate for such shares shall bear a legend giving
appropriate notice of such restriction;
(b) Appropriate instructions shall be issued to the transfer agent
for the Common Stock with respect to applicable restrictions on transfer of
any such restricted stock; and
(c) Any shares issued as a stock dividend, stock split or otherwise
with respect to any such restricted stock shall be subject to the same
restrictions as applicable to such originally restricted stock until the
restrictions respecting such originally restricted stock are terminated,
and any certificate for such shares shall bear a legend advising of such
restrictions.
Section 4.02 Subsequent Purchases of Shares by Trustees, Directors and
---------------------------------------------------------
Officers.
- --------
For a period of three years following the Effective Date, no Officer
or Trustee of the Bank or no Officer or Director of the Company (or any person
who was an Officer or Trustee of the Bank or an Officer of Director of the
Company at any time after the date on which the Board of Trustees of the Bank
adopted this Plan), or Associate of any of them, shall, without the prior
written approval of the Superintendent, purchase or acquire direct or indirect
beneficial ownership of any shares of the capital stock of the Company, except
through a broker or dealer registered with the SEC. This restriction shall not
apply to any purchase or acquisition effected pursuant to any Benefit Plan or
the exercise of any options to purchase Common Stock granted pursuant to a stock
option plan.
Section 4.03 Acquisition of Control.
----------------------
(a) In accordance with the Conversion Regulations, for a period of
not less than three years (or such longer period as may be subsequently
authorized under the Conversion Regulations) following the Effective Date, no
Person or group of Persons Acting in Concert, other than the MHC, shall,
directly or indirectly, offer to acquire or acquire the beneficial ownership of
more than ten percent (10%) of any class of any equity security of the Company
or the Bank without the prior consent of the Superintendent.
(b) The Restated Organization Certificate of the Bank will contain a
provision stipulating that, for a period of three years following the Effective
Date, no Person or group of Persons Acting in Concert, except the Company (if a
two-tier mutual holding company form of organization is utilized or the MHC of a
single-tier mutual holding company form of organization is utilized), shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than ten percent (10%) of any class of an equity security of the Bank,
without the prior written approval of the Superintendent. In addition, such
Restated Organization Certificate may also provide that, for a period of three
years following the Reorganization, shares beneficially owned in violation of
the above-described Restated Organization Certificate provision shall not be
entitled to vote and shall not be voted by any Person or counted as voting stock
in connection with any matter submitted to shareholders for a vote. In
addition, the Restated Organization Certificate will contain provisions
-25-
<PAGE>
providing that special meetings of the shareholders relating to changes in
control or amendment of the Restated Organization Certificate may only be called
by the Board of Directors and that shareholders shall not be permitted to
cumulate their votes for the election of directors.
(c) The Certificate of Incorporation of the Company will contain a
provision to the effect that any record owner of any outstanding shares of the
Company's common stock other than the MHC who beneficially owns in excess of 10%
of such outstanding shares shall be entitled to cast only one one-hundredth
(1/100) of one vote per share with respect to any shares held in excess of 10%.
In addition, the Certificate of Incorporation and By-Laws of the Company contain
provisions for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
(d) For the purposes of this Section 4.03:
(i) The term "Person" includes an individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate, or any other group formed for the purpose of acquiring, holding
or disposing of securities of an insured institution, and the term
"Person" does not include the Company or any majority-owned subsidiary
thereof, the MHC, or any majority-owned subsidiary thereof, or any Tax-
Qualified Employee Stock Benefit Plan or any trust or custodial arrangement
established in connection with any such plan; provided, that the plan or
plans do not have beneficial ownership in the aggregate of more than
twenty-five percent (25%) of any class of equity security of the Bank or
the Company;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of Reorganization as well as a "security"
as defined in 15 U.S.C. (S) 8c(a)(10).
ARTICLE V
Effect of Reorganization; Certain Covenants and Agreements
----------------------------------------------------------
Section 5.01 Restated Organization Certificate and Adoption of New By-
--------------------------------------------------------
Laws.
- ----
The Bank shall take all appropriate steps to restate its Organization
Certificate to read in the form of an Organization Certificate for a New York
stock savings bank as specified in the Banking Law and the regulations of the
New York Banking Board and approved by the Board of Trustees of the Bank. By
their approval of the Plan, the Voting Depositors of the Bank will thereby
-26-
<PAGE>
approve and adopt such Restated Organization Certificate. The Bank shall also
take all appropriate steps to adopt By-Laws sufficient and appropriate for a New
York stock savings bank.
Section 5.02 Effect of Reorganization.
------------------------
On the Effective Date of the Reorganization, the Bank shall cease to
be a mutual institution and shall simultaneously become a stock institution.
All of the property, rights, powers, franchises, debts, liabilities, obligations
and duties of the mutual institution shall continue as such in the stock
institution and all deposits in the mutual institution shall remain as deposits
of equal character and value in the stock institution. The corporate existence
of the Bank shall not terminate, and the converted Bank shall be a continuation
of the mutual institution that existed immediately before the filing of the
Restated Organization Certificate.
Section 5.03 Liquidation Account.
-------------------
(a) A liquidation account shall be established and maintained for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain an account in the Bank in the event of a complete
liquidation of the Bank following the Reorganization. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to each
account held, have a related inchoate interest in a portion of the liquidation
account balance ("Subaccount Balance"). The initial liquidation account balance
shall be equal to the net worth of the Bank (determined in accordance with
generally accepted accounting principles) as set forth in its most recent
statement of financial condition contained in the Proxy Statement.
(b) In the event of a complete liquidation of the Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then-current adjusted Subaccount
Balance for each account of such holder after the Reorganization, before any
liquidation distribution may be made with respect to capital stock.
(c) The initial Subaccount Balance for an account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the aggregate opening balance in the liquidation account by a
fraction of which the numerator is the amount of deposits or shares in the
account of such Eligible Account Holder or a Supplemental Eligible Account
Holder on the Eligibility Record Date or Supplemental Eligibility Record Date,
as applicable, and the denominator is the total amount of deposits or shares
owned by all Eligible Account Holders and Supplemental Eligible Account Holders
of the Bank on such applicable date. Such initial Subaccount Balance shall be
subject to adjustments as follows: If the deposit balance in any account of an
Eligible Account Holder or Supplemental Eligible Account Holder at the end of
any period for which the Bank has prepared audited financial statements
subsequent to the Eligibility Record Date is less than the lesser of: (i) the
deposit balance in such account at the end of any period for which the Bank has
prepared audited financial statements subsequent to the Eligibility Record Date;
or (ii) the amount of the deposits as of the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, the Subaccount Balance for
such account shall be adjusted by increasing or reducing such Subaccount Balance
in an amount proportionate to the reduction in such deposit balance. In the
event that the Corporation converts from the mutual to the stock form of
organization, the net worth of the Bank shall no longer be designated a
liquidation
-27-
<PAGE>
account and, instead, the Bank and any other savings bank subsidiary of the
Corporation shall at that time establish a liquidation account which shall in
the aggregate equal the Corporation's liquidation account as of its last
periodic report of condition immediately preceding such conversion from mutual
to stock form.
(d) Subsequent to the completion of the Reorganization, the Bank
shall not declare or pay a cash dividend on any of its capital stock if the
effect thereof would cause the net worth of the Bank to be reduced below the
amount required to maintain the liquidation account. For purposes of Section
86.4(g)(5) of the Conversion Regulations, a time account shall be deemed to be
closed upon its maturity date regardless of any renewal thereof. The Bank shall
not be required to set aside funds for the purpose of establishing the
liquidation account and, except as provided in this Section 5.03, the existence
of such account shall not operate to restrict the use or application of any of
the net worth accounts of the Bank subsequent to the Reorganization.
Section 5.04 Voting Rights.
-------------
Except as may be provided in the Restated Organization Certificate of
the Bank pursuant to any amendment thereto subsequent to the Effective Date of
the Reorganization, the holders of the capital stock of the Bank shall have
exclusive voting rights in the Bank upon the Effective Date of the
Reorganization. Except as may be provided in the Certificate of Incorporation
of the Company pursuant to any amendment thereto subsequent to the Effective
Date of the Reorganization, the holders of the Common Stock of the Company shall
have exclusive voting rights in the Company upon the Effective Date of the
Reorganization.
Section 5.05 Issuance of Stock.
-----------------
(a) Subsequent to the Effective Date of the Reorganization, the Board
of Directors of the Bank, subject to the provisions of the Restated Organization
Certificate and the By-Laws of the Bank, shall have the authority to issue any
of the authorized, unissued and unreserved shares of common and preferred stock
and to fix the relative rights, preferences and limitations of such preferred
stock. Except as may be required by the Banking Law or otherwise, the Board of
Directors of the Bank shall have sole discretion in the decision to issue such
shares and no shareholder approval will be required for the issuance of such
shares.
(b) Subsequent to the Effective Date of the Reorganization, the Board
of Directors of the Company, subject to the provisions of the Certificate of
Incorporation and the By-Laws of the Company, shall have the authority to issue
any of the authorized, unissued and unreserved shares of common and preferred
stock and to fix the relative designations, powers, preferences, rights,
qualifications, limitations and restrictions of such preferred stock. Except as
may be required by the Delaware General Corporation Law or otherwise, the Board
of Directors of the Company shall have sole discretion in the decision to issue
such shares and no shareholder approval will be required for the issuance of
such shares.
Section 5.06 Directors of Converted Bank.
---------------------------
Following the Reorganization, the business and affairs of the Bank
shall be managed by a Board of Directors, the members of which shall be the same
individuals who constituted the
-28-
<PAGE>
Board of Trustees of the Bank immediately prior to the Reorganization. Upon the
Effective Date of the Reorganization, the Board of Directors of the Bank shall
be divided into three classes with respect to term of office, each class to
contain, as near as may be possible, one-third of the entire Board of Directors
of the Bank. Each person serving as a Trustee of the Bank on the Effective Date
of the Reorganization shall be appointed by the Board of Directors to one of the
three classes and shall serve as a director until the expiration of his term and
until his successor is elected and qualified. One class of directors shall have
a term of office expiring at the first annual meeting of shareholders, the
second class shall have a term of office expiring at the second annual meeting
of shareholders and the third class shall have a term of office expiring at the
third annual meeting of shareholders. Directors elected at each annual meeting
of shareholders (other than directors elected to fill vacancies) shall be
elected to serve for a term of three years and until their successors are
elected and qualified.
Section 5.07 Employment Agreements.
---------------------
The Bank and the Company may enter into employment agreements with
such officers and employees and upon such terms and conditions as the Board of
Trustees of the Bank and the Board of Directors of the Company shall determine.
Section 5.08 Market for the Common Stock.
---------------------------
Upon the Effective Date of the Reorganization, or as soon thereafter
as practicable, the Common Stock shall be registered pursuant to the Securities
Exchange Act of 1934, as amended, and shall not be deregistered for a period of
three years following such registration. Additionally, the Company shall use
its best efforts to list the Common Stock on a national or regional securities
exchange or on the National Association of Securities Dealers Automated
Quotation System and to encourage and assist a market maker to establish and
maintain a market for the Common Stock.
Section 5.09 Stock Repurchases and Stock Benefit Plans.
-----------------------------------------
The Company, or the Bank if the Company is not utilized, will restrict
repurchases of Common Stock and the implementation of stock option and
management and employee stock benefit plans as required by the Conversion
Regulations, unless such requirements are waived by the appropriate regulatory
agency or agencies.
ARTICLE VI
Tax Ruling Requirement; Amendment and Termination;
--------------------------------------------------
Miscellaneous
-------------
Section 6.01 Conditions to Reorganization.
----------------------------
The Reorganization of the Bank pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the Bank of rulings of the United States
Internal Revenue Service and the State of New York taxing authorities, or
opinions of counsel, substantially
-29-
<PAGE>
to the effect that the Reorganization will not result in any adverse
federal or state tax consequences to Eligible Account Holders, Supplemental
Eligible Account Holders or Other Depositors or to the Bank and the Company
before or after the Reorganization;
(b) The sale of all of the Common Stock offered in the
Reorganization;
(c) The completion of the Reorganization within the time period
specified in Section 6.03; and
(d) The non-objection of the FDIC to the Reorganization, the approval
of the Reorganization by the Superintendent, the approval of the FRB of the
Company's acquisition of the Common Stock of the Bank and the Company's
Registration Statement on Form S-1 is declared effective by the SEC.
Section 6.02 Amendment or Termination of the Plan.
------------------------------------
This Plan will not, at the Effective Date of the Reorganization,
contain any provision that has been determined by the Superintendent, in
writing, to be inequitable or detrimental to the Bank or its depositors, or
contrary to the public interest. If deemed necessary or desirable by the Board
of Trustees of the Bank, this Plan may be substantively amended, as a result of
comments from regulatory authorities or otherwise, at any time prior to
solicitation of proxies from Voting Depositors to vote on the Plan and at any
time thereafter with the concurrence of the Superintendent. This Plan may be
terminated by the Board of Trustees of the Bank at any time prior to the Special
Meeting and at any time thereafter with the concurrence of the Superintendent.
By adoption of the Plan, the Voting Depositors of the Bank authorize the Board
of Trustees of the Bank to amend or terminate the Plan under the circumstances
set forth in this Section.
Section 6.03 Completion Date.
---------------
The Reorganization shall be completed within 24 months from the date
of approval of this Plan by the Superintendent.
Section 6.04 Expenses of the Reorganization.
------------------------------
The expenses incurred in the Reorganization shall be reasonable.
Section 6.04 Interpretation.
--------------
Subject to applicable law as set forth in Section 6.07, all
interpretations of this Plan and all applications of the provisions of this Plan
to particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Superintendent and the FDIC.
Section 6.05 Severability.
------------
If any term, provision, covenant or restriction contained in this Plan
is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable,
-30-
<PAGE>
the remainder of the terms, provisions, covenants and restrictions contained in
this Plan shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
Section 6.07 Miscellaneous.
-------------
This Plan is to be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any conflicts of laws
principles. None of the cover page, the table of contents or the article or
section headings are to be considered a part of this Plan, but are included
solely for convenience of reference and shall in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof. Any reference to
a Section number or Article shall refer to a section or article of this Plan,
unless otherwise stated. Except for such rights as are set forth herein for
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Depositors, this Plan shall create no rights in any Person. The terms defined
in this Plan have the meanings assigned to them in this Plan and include the
plural as well as the singular, and words of any gender shall include each other
gender where appropriate.
-31-
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF THACHER PROFFITT & WOOD]
July 30, 1999
Rome Bancorp, Inc.
c/o The Rome Savings Bank
100 W. Dominick Street
Rome, New York 13440
Re: Rome Bancorp, Inc.
------------------
Ladies and Gentlemen:
We have acted as special counsel to Rome Bancorp, a Delaware corporation
(the "Company"), in connection with the proposed registration under the
Securities Act of 1933, as amended, by the Company of an aggregate of 2,545,813
shares of Common Stock, $0.01 par value per share, of the Company (the
"Shares"), and the related preparation and filing by the Company with the
Securities and Exchange Commission of a Registration Statement on Form SB-2 (the
"Registration Statement") pursuant to the amended Plan of Reorganization (the
"Plan"). In rendering the opinion set forth below, we do not express any
opinion concerning law other than the federal law of the United States.
We have examined originals or copies, certified or otherwise identified, of
such documents, corporate records and other instruments, and have examined such
matters of law, as we have deemed necessary or advisable for purposes of
rendering the opinion set forth below. As to matters of fact, we have examined
and relied upon the factual representations of the Company contained in the
Registration Statement and, where we have deemed appropriate, representations or
certificates of officers of the Company or public officials. We have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of natural persons and the conformity to the
originals of all documents submitted to us as copies. In making our examination
of any documents, we have assumed that all parties, other than the Company, had
the corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we have also assumed the due authorization
by all requisite action, the due execution and delivery of such documents, and
the validity and binding effect and enforceability thereof.
<PAGE>
Rome Bancorp, Inc.
July 30, 1999 Page 2.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and exchanged as contemplated in the
Registration Statement and the Plan, will be validly issued and outstanding,
fully paid and non-assessable.
In rendering the opinion set forth above, we have not passed upon and do
not purport to pass upon the application of securities or "blue-sky" laws of any
jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of the Company and investors
who purchase shares of common stock of the Company pursuant to the Registration
Statement, and may not be relied upon by any other person or entity, nor quoted
in whole or in part, or otherwise referred to in any document without our
express written consent.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to our name in the Prospectus contained in the
Registration Statement under the heading "Legal and Tax Opinions."
Very truly yours,
Thacher Proffitt & Wood
/s/ V. Gerard Comizio
By:_______________________
V. Gerard Comizio
<PAGE>
Exhibit 8.1
July 27, 1999
Rome Bancorp, Inc.
100 W. Dominick Street
Rome, New York 13440
Dear Sirs:
You have requested our opinion regarding certain federal income tax
consequences of the proposed transactions (collectively, the "Reorganization"),
more fully described below, pursuant to which (i) Rome Savings Bank will convert
from a New York chartered mutual savings bank (the "Bank") into a New York
chartered stock savings bank ("Stock Bank") and become the wholly-owned
subsidiary of Rome Bancorp, Inc., a newly formed Delaware chartered capital
stock corporation (the "Company") and (ii) the Company will become a majority-
owned subsidiary of Rome, MHC, a New York mutual holding company that will be
chartered as of the closing date of the transaction (the "MHC"). These
transactions and the related sale of Company common stock, also discussed below,
will be effected pursuant to the Plan of Reorganization adopted by the Board of
Trustees of the Bank on January 22, 1999 (the "Plan"). The Reorganization and
its component and related transactions are described in the Plan and in the
Prospectus filed with the Securities and Exchange Commission in connection with
the Reorganization (the "Prospectus"). We are rendering this opinion pursuant
to Section 6.01 of the Plan. All capitalized terms used but not defined in this
letter shall have the meanings assigned to them in the Plan or Prospectus. For
purposes of this letter, the term "membership interests", with respect to either
the Bank or the MHC, shall mean the liquidation rights in, respectively, the
Bank or the MHC.
The Reorganization will be effected, pursuant to the Plan, as follows:
1. The Bank will organize the MHC, which will initially be organized in
stock form and initially exist as the Bank's wholly-owned subsidiary.
<PAGE>
The Rome Bancorp, Inc.
July 27, 1999 Page 2.
2. The MHC will organize two wholly-owned subsidiaries, one of which will
be the Company, and the other of which will be an interim stock
savings bank ("Interim").
3. The following events will occur simultaneously pursuant to the Plan:
(i) the Bank will exchange its charter for a New York stock savings
bank charter and thereby become Stock Bank (the "Conversion"); (ii)
the MHC will cancel its stock and exchange its charter for a New York
mutual holding company charter and thereby become a mutual holding
company; (iii) Interim will merge with and into Stock Bank with Stock
Bank surviving, and the former holders of membership interests in the
Bank (former "Bank Members") will exchange the stock of Stock Bank
constructively received in the Conversion for membership interests in
the MHC (the "Exchange"). As a mutual entity, the MHC will not have
any authorized capital stock. As a result of the merger and charter
exchanges, Stock Bank will become a wholly-owned subsidiary of the
MHC, and the Bank Members will hold membership interests in the MHC
comparable to the membership interests they previously held in the
Bank.
4. The MHC will then contribute all of the stock of Stock Bank to the
Company.
As a result of these transactions, Stock Bank will be a wholly-owned
subsidiary of the Company and the Company will be a wholly-owned subsidiary of
the MHC. In substance, upon the Conversion and pursuant to the other
transactions described above, the Bank Members will constructively receive the
stock of Stock Bank and will then exchange such stock for membership interests
in the MHC.
Simultaneously with the Conversion and the Exchange, the Company will offer
to sell additional shares of its common stock pursuant to the Plan, with
priority subscription rights granted in descending order of priority to Eligible
Account Holders, certain employee stock benefit plans of the Bank, Supplemental
Eligible Account Holders, Other Depositors and to certain members of the general
public.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan and the Prospectus and of such corporate records of
the parties to the Reorganization as we have deemed appropriate. We have also
relied, without independent verification, upon the factual representations of
the Bank contained in its letter to us dated of even date herewith. We have
assumed that such representations are true and that the parties to the
Reorganization will act in accordance with the Plan. In addition, we have made
such investigations of law as we have deemed appropriate to form a basis for the
opinions expressed below.
Based on and subject to the foregoing, it is our opinion that for federal
income tax purposes, under current law -
(a) as regards the Conversion:
(1) the Conversion will constitute a reorganization under section
368(a)(1)(F) of the Code, and the Bank (in either its status as the Bank or
Stock Bank) will recognize no gain or loss as a result of the Reorganization;
(2) the basis of each asset of the Bank held by Stock Bank immediately
after the Conversion will be the same as the Bank's basis for such asset
immediately prior to the Conversion;
<PAGE>
The Rome Bancorp, Inc.
July 27, 1999 Page 3.
(3) the holding period of each asset of the Bank held by Stock Bank
immediately after the Conversion will include the period during which such asset
was held by the Bank prior to the Conversion;
(4) for purposes of Code section 381(b), Stock Bank will be treated as if
there had been no reorganization and, accordingly, the taxable year of the Bank
will not end on the effective date of the Reorganization and the tax attributes
of the Bank (subject to application of Code sections 381, 382, and 384),
including the Bank's tax bad debt reserves and earnings and profits, will be
taken into account by Stock Bank as if the Reorganization had not occurred;
(5) no Bank Member will recognize gain or loss upon the constructive
receipt of shares of Stock Bank stock solely in exchange for such Bank Member's
membership interests in the Bank;
(6) a Bank Member's basis in the shares of Stock Bank stock constructively
received in the Conversion will be the same as the basis of the Bank membership
interests constructively surrendered in exchange therefor;
(7) a Bank Member's holding period for the shares of Stock Bank stock
constructively received in the Conversion will include the holding period of the
membership interests constructively surrendered in exchange therefor, provided
such membership interests were held as capital assets on the date of the
Exchange; and
(8) no Bank Member will recognize gain or loss upon the issuance to such
Bank Member of deposits in Stock Bank in the same dollar amount as such Bank
Member's deposits in the Bank.
(b) as regards the Exchange:
(9) the Exchange will qualify as an exchange of property for stock under
Code section 351;
(10) no shareholder of Stock Bank (i.e., a former Bank Member) will
recognize gain or loss upon the transfer to the MHC of Stock Bank stock
constructively received in the Conversion in exchange for membership interests
in the MHC;
(11) the basis of the membership interests in the MHC received by each
shareholder of Stock Bank in exchange for such shareholder's shares of Stock
Bank stock will be equal to the basis of such shares of Stock Bank stock;
(12) the holding period of the membership interests in the MHC received by
each shareholder of Stock Bank will, as of the date of the Exchange, be equal to
the holding period of the shares of Stock Bank stock transferred in exchange
therefor, provided such shares of Stock Bank stock were held as a capital asset
on the date of the Exchange;
(13) the MHC will recognize no gain or loss upon its receipt from the
shareholders of Stock Bank of shares of Stock Bank stock in exchange for
membership interests in the MHC;
(14) the MHC's basis for each share of Stock Bank stock received from a
shareholder of Stock Bank in exchange for membership interests in the MHC will
be equal to the basis of such share of stock in the hands of such Stock Bank
shareholder; and
<PAGE>
The Rome Bancorp, Inc.
July 27, 1999 Page 4.
(15) the MHC's holding period for each share of Stock Bank stock received
from a shareholder of Stock Bank in exchange for membership interests in the MHC
will, as the date of the Exchange, be the same as the holding period of such
shares in the hands of such Stock Bank shareholder.
(c) as regards the offering under the Plan:
(16) no gain or loss will be recognized by the Company upon the sale of
shares of the Company common stock under the Plan;
(17) no gain or loss will be recognized by Bank Members upon the
distribution to them of nontransferable subscription rights to purchase shares
of the Company common stock under the Plan, provided that the amount to be paid
for such shares is equal to the fair market value of such shares;
(18) the basis to the shareholders of shares of the Company common stock
purchased under the Plan pursuant to such subscription rights will be the amount
paid therefor and the holding period for such shares will begin on the date on
which such subscription rights are exercised.
In rendering our opinion in (17), above, and our opinion regarding the tax
basis of shares of the Company common stock in (18), above, we have relied,
without independent verification, on the opinion of RP Financial that the
nontransferable subscription rights have no value.
This opinion is given solely for the benefit of the parties to the Plan,
the shareholders of Stock Bank and Eligible Account Holders, Supplemental
Eligible Account Holders and other investors who purchase shares pursuant to the
Plan, and may not be relied upon by any other party or entity or referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Form SB-2 to be filed with the Securities and
Exchange Commission and to the references to us in the Prospectus under "The
Reorganization and the Offering - Effects of the Reorganization - Tax Aspects."
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ Albert J. Cardinali
<PAGE>
July 30, 1999
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
100 On the Mall
Rome, New York 13442-0311
RE: Rome Savings Bank
Mutual Holding Company Formation and Stock Issuance
State & Local Tax Considerations
Dear Members of the Board:
We have been requested by Rome Savings Bank, a New York State chartered mutual
savings bank ("Bank"), Rome, MHC, a New York chartered mutual holding company
("MHC") and Rome Bancorp, Inc. a Delaware corporation ("Company") to express our
opinion concerning certain New York State income tax consequences relating to
the proposed Amended and Restated Plan of Reorganization adopted by the board of
trustees of the Bank on January 22, 1999 ("Plan of Reorganization") and amended
on May 26, 1999. Under the Plan of Reorganization, (i) Bank will convert from a
New York chartered mutual savings bank into a New York chartered stock savings
bank ("Stock Bank") and will become a wholly-owned subsidiary of Company and
(ii) the Company will become the majority owned subsidiary of MHC as of the
closing date of the transaction.
Our opinion is limited to the New York State income tax consequences of the
transaction. Any other state tax considerations that may result from the
transaction are outside the scope of this opinion.
In connection therewith, we are relying on the facts and conclusions reached in
the attached Federal tax opinion ("Federal Opinion") rendered by the Bank's
special counsel, Thacher, Proffitt and Wood on July 27, 1999.
<PAGE>
Page 2
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
Background
----------
As outlined in the attached Federal Opinion, it is intended that at the
conclusion of the Plan of Reorganization the Bank will be a wholly owned
subsidiary of the Company of which at least 51% will be owned by the MHC and up
to 49% will be offered in a Subscription Offering and, if applicable, in a
Community Offering (as defined in the Plan of Reorganization).
The Bank currently files a consolidated federal income tax return and a combined
New York State banking corporation franchise tax return with its wholly owned
subsidiaries on a calendar year basis (i.e., January 1st through December 31st).
Discussion
----------
Banking Corporation Franchise Tax
- ---------------------------------
Treatment of Reorganization
For purposes of Article 32 of the New York State Tax Law ("NYTL"), Section
1453(a) provides that entire net income means total income from all sources
which shall be the same as the entire taxable income (but not alternative
minimum taxable income) which the taxpayer is required to report to the United
States Treasury Department, subject to the modifications and adjustments
hereinafter provided. NYTL Sections 1453(b) through (k) and NYS Tax Regulations
Sections 18-2.3, 18-2.4, and 18-2.5 thereunder, provide for the modifications or
adjustments required by NYTL Section 1453(a). There is no modification or
adjustment applicable to a transaction where, for Federal income tax purposes,
the transaction constitutes a tax free exchange within the meaning of IRC
<PAGE>
Page 3
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
Sections 351 and 368(a)(1)(F). The Reorganization should be tax-free for
federal income tax purposes under IRC Sections 351 and 368(a)(1)(F). Therefore,
for purposes of NYTL Section 1453, the Reorganization transaction should be
treated the same as it is for Federal income tax purposes (i.e. tax-free for
purposes of Article 32 of NYTL).
No Combination After Reorganization
Pursuant to NYS Tax Regulations Sections 21-2.2 and 21-2.3, a bank holding
company which is exercising its corporate franchise or doing business in New
York State in a corporate or organized capacity, is or may be required to file a
return on a combined basis with the following corporations (all of which are NYS
taxpayers, i.e., are subject to NYTL Article 32):
Corporations required to file a combined return:
. any banking corporation or bank holding company which owns or controls,
directly or indirectly, 80 percent or more if its voting stock, and
. any banking corporation or bank holding company in which it owns or controls,
directly, or indirectly, 80 percent or more of its voting stock.
Corporations permitted or required to file a combined return (at the discretion
of the Tax commissioner):
<PAGE>
Page 4
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
. any banking corporation or bank holding company which owns or controls,
directly or indirectly, 65 percent or more if its voting stock, and
. any banking corporation or bank holding company in which it owns or controls,
directly or indirectly, 65 percent or more of the voting stock.
The Plan of Reorganization provides that the public offering of the Company is
intended to sell up to 49 percent of the outstanding shares of the Company to
purchasers other than MHC. Should, in fact, the public offering exceed 35
percent, the above criteria would not be satisfied and MHC should be ineligible
to file a combined NYS banking corporation franchise tax return with the
Company. The Company and Stock Bank should meet the 80% control requirement and
should have New York State nexus. Therefore, the Company and the Stock Bank
should be required to file a combined New York State return. MHC should also
have New York state news and should be required to file a separate New York
state banking corporation franchise tax return.
Personal Income Tax
- -------------------
The beneficial ownership interest of the Bank is held by its depositors by
reason of their right to their respective deposit accounts and interest on those
accounts. After the Plan of Reorganization, each holder of a deposit account in
the Bank immediately preceding the reorganization will continue as an account
holder in the Stock Bank after the reorganization. The reorganization will not
affect the deposit balance, interest rate, and other terms of such accounts.
Therefore the deposit account holders will not recognize gain or loss for
federal income tax purposes with respect to the deposit accounts as a result of
the Plan of Reorganization.
<PAGE>
Page 5
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
Section 611(a) of Article 22 of the Tax Law provides: "[t]he New York taxable
income of a resident individual is his New York adjusted gross income less his
New York deductions and New York exemptions, as determined under this part."
Section 612(a) of the Tax Law provides: "[t]he New York adjusted gross income
of a resident individual means his Federal adjusted gross income as defined in
the laws of the United States Internal Revenue Code for the taxable year, with
certain modifications as specified in section 612." Section 612 of the Tax Law
does not contain any modification that affects the shareholders or stockholders
of the banks or corporations that are each a party to a transaction, that for
Federal income tax purposes constitutes a tax-free transaction pursuant to
Section 351(a) or 368(a) of the Internal Revenue Code.
The transactions contemplated by the Plan of Reorganization constitute tax-free
transactions pursuant to Section 351(a) and 368(a) therefore the depositors as
parties to the Plan of Reorganization should not recognize any Federal taxable
income with respect to their deposit accounts. Accordingly, the depositors will
not recognize any New York State taxable income for purposes of the NYS Personal
Income Tax with respect to their deposit accounts as a result of the
transactions contemplated by the Plan of Reorganization.
Opinion
-------
Scope of the Opinion
You have submitted for our consideration certain facts relating to the MHC
formation and stock issuance as set-forth above and the Plan of Reorganization.
Our opinions are based upon the facts set forth in this letter and the Federal
Opinion and assumes that the
<PAGE>
Page 6
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
Federal Opinion concerning certain Federal income tax matters relating to the
Plan of Reorganization will represent the probable outcome. If any fact or
representation contained herein is not entirely complete or accurate, it is
imperative that you inform us immediately in writing because the incompleteness
or inaccuracy could cause us to change our opinion.
This opinion is rendered only with respect to the holdings set forth herein and
KPMG expresses no opinion with respect to any other legal, Federal, state or
local tax aspect of these transactions. No inference should be drawn regarding
any matter not specifically opined upon.
In rendering our opinion, we are relying upon the attached Federal Opinion, the
relevant provisions of the Internal Revenue Code, NYTL, as well as all
regulations promulgated thereunder and judicial and administrative
interpretations thereof, all of which are subject to change or modification by
subsequent legislative, regulatory, administrative or judicial decisions
prospectively and/or retroactively. Any such changes could also have an effect
on the validity of our opinion. We assume no duty to inform you of any changes
in our opinion in the event of such change.
This opinion is not binding upon any tax authority or any court and no assurance
can be given that a position contrary to that expressed herein will not be
asserted by a tax authority and ultimately sustained by a court. However, KPMG
believes that there is sufficient authority to support the opinion expressed
herein.
Furthermore, the conclusions contained herein regarding NYS taxes could change
if the Federal law on which such conclusions are premised were to change since a
taxpayer's "entire net income" for purposes of the NYS banking corporation tax
law is, with
<PAGE>
Page 7
Board of Trustees
Rome Savings Bank
c/o David Nolan
Treasurer/Chief Financial Officer
July 30, 1999
modifications not relevant here, the same as Federal taxable income; and the
base for taxation under the NYS Personal Income Tax is, with modifications not
relevant here, the same as Federal adjusted gross income.
Subject to the above, we opine as follows:
1. For purposes of the NYS Franchise Tax on Banking Corporations, the
Plan of Reorganization should constitute a tax free transaction for
such purposes.
2. For purposes of the NYS Personal Income Tax, no taxable income
should be realized by eligible account holders and new stockholders
of Stock Bank.
3. For purposes of the NYS Personal Income Tax, the basis of the
deposit accounts in the Stock Bank to be received by the deposit
account holders should be the same as the basis of their deposit
accounts in the Bank surrendered in exchange therefor.
Very truly yours,
/s/ KPMG LLP
KPMG LLP
<PAGE>
Exhibit 23.2
Independent Auditors' Consent
The Board of Trustees
The Rome Savings Bank:
We consent to the inclusion in the Registration Statement on Form SB-2 of Rome
Bancorp, Inc. of our audit report dated February 5, 1999, on the consolidated
statements of condition of The Rome Savings Bank and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income, equity and
comprehensive income and cash flows for each of the years in the two year period
ended December 31, 1998. We further consent to the use of our opinion included
herein regarding certain state income tax consequences of the proposed
reorganization and offering.
We also consent to the references to our firm under the headings "Effects of the
Reorganization - Tax Aspects," "Legal and Tax Opinions" and "Experts" in the
prospectus.
/s/ KPMG LLP
July 29, 1999
Syracuse, New York
<PAGE>
Exhibit 23.4
[Consent of RP Financial, L.C.]
RP Financial, L.C.
Board of Directors
July 30, 1999
July 30, 1999
Board of Trustees
The Rome Savings Bank
100 W. Dominick Street
Rome, New York 13440
Gentlemen:
We hereby consent to the use of our firm's name in the Form SB-2 Registration
Statement and any amendments thereto for Rome Bancorp, Inc. We also hereby
consent to the inclusion of, summary of and references to our Appraisal and our
statement concerning subscription rights in such filings including the
prospectus of Rome Bancorp, Inc.
Sincerely,
RP FINANCIAL, L.C.
/s/ Gregory E. Dunn
Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
this schedule contains financial information extracted from the consolidated
balance sheets and the statements of income of Rome Bancorp, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,391
<INT-BEARING-DEPOSITS> 5,738
<FED-FUNDS-SOLD> 12,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,856
<INVESTMENTS-CARRYING> 1,420
<INVESTMENTS-MARKET> 1,484
<LOANS> 136,852
<ALLOWANCE> 1,898
<TOTAL-ASSETS> 224,279
<DEPOSITS> 191,926
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,414
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 28,939
<TOTAL-LIABILITIES-AND-EQUITY> 224,279
<INTEREST-LOAN> 2,822
<INTEREST-INVEST> 733
<INTEREST-OTHER> 175
<INTEREST-TOTAL> 3,730
<INTEREST-DEPOSIT> 1,733
<INTEREST-EXPENSE> 1,733
<INTEREST-INCOME-NET> 1,997
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,688
<INCOME-PRETAX> 563
<INCOME-PRE-EXTRAORDINARY> 563
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.08
<LOANS-NON> 405
<LOANS-PAST> 170
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,956
<CHARGE-OFFS> 217
<RECOVERIES> 159
<ALLOWANCE-CLOSE> 1,898
<ALLOWANCE-DOMESTIC> 1,898
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
[DRAFT 7/20/99]
THE ROME SAVINGS BANK
PROPOSED LETTERS/QUESTION & ANSWER BROCHURE
INDEX
-----
1. Dear Depositor Letter *
2. Dear Depositor Letter for Non Eligible States
3. Dear Friend Letter - Eligible Account Holders who are no longer Depositors *
4. Dear Potential Investor Letter *
5. Dear Customer Letter - Used as a Cover Letter for States Requiring "Agent"
Mailing *
6. Proxy Request
7. Proxy and Stock Question and Answer Brochure *
8. Mailing Insert/Lobby Poster
9. Invitation Letter - Informational Meetings
10. Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order
Received
11. Dear Charter Shareholder - Confirmation Letter
12. Dear Interested Investor - No Shares Available Letter
13. Welcome Shareholder Letter - For Initial Certificate Mailing
14. Dear Interested Subscriber Letter - Subscription Rejection
15. Letter for Sandler O'Neill Mailing to Clients *
* Accompanied by a Prospectus
Note: Items 1 through 8 are produced by the Financial Printer and Items
9 through 15 are produced by the Conversion Center.
<PAGE>
[ROME BANCORP, INC.]
Dear Depositor:
The Board of Trustees of The Rome Savings Bank (the "Bank") has voted
unanimously in favor of a plan to reorganize from a New York chartered mutual
savings bank to a New York chartered mutual holding company. As part of this
Reorganization, the Bank will convert to a stock savings bank and will become a
wholly-owned subsidiary of Rome Bancorp, Inc., a Delaware stock corporation,
which in turn will be a majority-owned subsidiary of Rome, MHC, a New York
mutual holding company. We are reorganizing so that Rome will be structured in
the stock form of ownership used by a growing number of savings institutions and
to provide the Bank with the ability to raise additional capital now and in the
future.
In addition, as part of the reorganization and in furtherance of the Bank's
long-standing commitment to its local community, the Bank intends to establish a
charitable foundation to be known as The Rome Savings Bank Charitable
Foundation. The foundation will be dedicated to the promotion of charitable
purposes within the communities in which the Bank operates. We request that you
review the proposal to establish the charitable foundation which is set forth in
the proxy statement and prospectus.
To accomplish the reorganization and the establishment of the charitable
foundation, your participation is extremely important. On behalf of the Board, I
ask that you help us meet our goal by reading the enclosed proxy statement and
prospectus and then casting your vote in favor of the Plan of Reorganization and
for the establishment of the foundation, and mailing your signed proxy card
immediately in the WHITE postage-paid envelope provided marked "PROXY RETURN".
Should you choose to attend the Special Meeting of Depositors and wish to vote
in person, you may do so by revoking any previously executed proxy. If you have
an IRA or other Qualified Plan account for which the Bank acts as trustee and we
do not receive a proxy from you, the Bank intends, as trustee for such account,
to vote for the Plan of Reorganization and the establishment of the charitable
foundation on your behalf.
If the Plan of Reorganization is approved let me assure you that:
. Deposit accounts will continue to be federally insured to the fullest
extent permitted by law.
. Existing deposit accounts and loans will not undergo any change as a result
of the Reorganization.
. Voting for approval will not obligate you to buy any shares of common
stock.
As a qualifying account holder, you may also take advantage of your
nontransferable rights to subscribe for shares of Rome Bancorp, Inc. common
stock on a priority basis, before the stock is offered to the general public.
The enclosed Proxy Statement and Prospectus describe the stock offering and the
operations of The Rome Savings Bank. If you wish, please complete the stock
order and certification form and mail it to The Rome Savings Bank in the
enclosed YELLOW postage-paid envelope marked "STOCK ORDER RETURN", or return it
to any branch office of The Rome Savings Bank. Your order must be physically
received no later than 5:30 p.m., Eastern time on ________, September __, 1999.
Please read the Prospectus carefully before making an investment decision.
If you wish to use funds in your IRA or Qualified Plan maintained at Rome to
subscribe for common stock, please be aware that federal law requires that such
funds first be transferred to a self-directed retirement account with a trustee
other than Rome Savings. The transfer of such funds to a new trustee takes time,
so please make arrangements as soon as possible.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXX, Monday through Friday, between the hours of
10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be closed
for the Labor Day holiday.
Sincerely,
Charles M. Sprock
Chairman of the Board,
President and
Chief Executive Officer
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#1
<PAGE>
[ROME BANCORP, INC.]
Dear Depositor:
The Board of Trustees of The Rome Savings Bank has voted unanimously in favor of
a plan to reorganize from a New York chartered mutual savings bank to a New York
chartered mutual holding company. As part of this reorganization, the Bank will
convert to a stock savings bank and will become a wholly-owned subsidiary of
Rome Bancorp, Inc., a Delaware stock corporation, which in turn will be a
majority-owned subsidiary of Rome, MHC, a New York mutual holding company. We
are reorganizing so that The Rome Savings Bank will be structured in the stock
form of ownership used by a growing number of savings institutions and to
provide the Bank with the ability to raise additional capital now and in the
future.
In addition, as part of the reorganization and in furtherance of the Bank's
long-standing commitment to its local community, the Bank intends to establish a
charitable foundation to be known as The Rome Savings Bank Charitable
Foundation. The charitable foundation will be dedicated to the promotion of
charitable purposes within the communities in which the Bank operates. We
request that you review the proposal to establish the charitable foundation
which is set forth in the proxy statement and prospectus.
To accomplish the reorganization and the establishment of the charitable
foundation, your participation is extremely important. On behalf of the Board, I
ask that you help us meet our goal by reading the enclosed proxy statement and
then casting your vote in favor of the Plan of Reorganization and for the
establishment of the charitable foundation, and mailing your signed proxy card
immediately in the postage-paid envelope provided. Should you choose to attend
the Special Meeting of Depositors and wish to vote in person, you may do so by
revoking any previously executed proxy.
If the Plan of Reorganization is approved let me assure you that:
. Deposit accounts will continue to be federally insured to the fullest
extent permitted by law.
. Existing deposit accounts and loans will not undergo any change as a result
of the Reorganization.
We regret that we are unable to offer you common stock in the Subscription
Offering, because the laws of your state or jurisdiction require us to register
either (1) the to-be-issued common stock of Rome Bancorp, Inc., or (2) an agent
of the Bank to solicit the sale of such stock, and the number of eligible
subscribers in your state or jurisdiction does not justify the expense of such
registration.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (___) ________, Monday through Friday, between the hours of
10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be closed
for the Labor Day holiday.
Sincerely,
Charles M. Sprock
Chairman of the Board
President and
Chief Executive Officer
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#2
<PAGE>
[ROME BANCORP, INC.]
Dear Friend of The Rome Savings Bank:
The Rome Savings Bank is in the process of reorganizing from a New York
chartered mutual savings bank, to a New York chartered mutual holding company.
As part of this Reorganization, the Bank will convert to a stock savings bank
and will become a wholly-owned subsidiary of Rome Bancorp, Inc., a Delaware
corporation, which in turn will be a majority-owned subsidiary of Rome MHC, a
New York mutual holding company. We are reorganizing so that Rome Savings will
be structured in the stock form of ownership used by a growing number of savings
institutions and to provide the Bank with the ability to raise additional
capital now and in the future. In addition, as part of the Reorganization and
in furtherance of the Bank's long-standing commitment to its local community,
the Bank intends to establish a charitable foundation to be known as The Rome
Savings Bank Charitable Foundation. The charitable foundation will be dedicated
to the promotion of charitable purposes within the communities in which the Bank
operates.
As a former account holder, you may take advantage of your nontransferable
rights to subscribe for shares of Rome Bancorp, Inc.'s common stock without
commission or fee on a priority basis, before the stock is offered to the
general public. The enclosed Prospectus describes the stock offering and the
operations of The Rome Savings Bank. If you wish to purchase stock, please
complete the stock order and certification form and mail it to The Rome Savings
Bank, in the enclosed YELLOW postage-paid envelope marked "STOCK ORDER RETURN",
or return it to any branch office of The Rome Savings Bank. Your order must be
physically received no later than 5:30 p.m., Eastern time on _________,
September __, 1999. Please read the prospectus carefully before making an
investment decision.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the hours of
10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be closed
for the Labor Day holiday.
Sincerely,
Charles M. Sprock
Chairman of the Board,
President and
Chief Executive Officer
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#3
<PAGE>
[ROME BANCORP, INC.]
Dear Potential Investor:
We are pleased to provide you with the enclosed material regarding the
reorganization of The Rome Savings Bank, from a New York chartered mutual
savings bank, to a New York chartered mutual holding company. As part of this
Reorganization, the Bank will convert to a stock savings bank and will become a
wholly-owned subsidiary of Rome Bancorp, Inc., a Delaware stock corporation,
which in turn will become a majority-owned subsidiary of Rome, MHC, a New York
mutual holding company.
This information packet includes the following:
PROSPECTUS: This document provides detailed information about the Bank's
operations, the proposed stock offering by Rome Bancorp, Inc., a holding
company formed by the Bank to become its parent company upon completion of
the reorganization and the establishment of a charitable foundation as part
of the reorganization. Please read it carefully prior to making an investment
decision.
QUESTION AND ANSWER BROCHURE: This answers commonly asked questions about the
stock offering and establishment of the charitable foundation.
STOCK ORDER AND CERTIFICATION FORMS: Use these forms to subscribe for stock
and return them together with your payment in the YELLOW postage-paid
envelope marked "STOCK ORDER RETURN". Your order must be physically received
no later than 5:30 p.m., Eastern time on _________, September ___, 1999.
We are pleased to offer you this opportunity to become one of our charter
stockholders. If you have any questions after reading the enclosed material,
please call our Conversion Center at (XXX) XXX-XXXX, Monday through Friday,
between the hours of 10:00 a.m. and 4:00 p.m. Please note that the Conversion
Center will be closed for the Labor Day holiday.
Sincerely,
Charles M. Sprock
Chairman of the Board,
President and
Chief Executive Officer
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#4
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
Dear Customer of The Rome Savings Bank:
At the request of The Rome Savings Bank, we have enclosed material regarding the
offering of common stock in connection with the reorganization of The Rome
Savings Bank from a New York-chartered mutual savings bank, to a New York-
chartered mutual holding company, and the establishment of a charitable
foundation. As part of this reorganization, the Bank will convert to a stock
savings bank and will become a wholly-owned subsidiary of Rome Bancorp, Inc., a
Delaware stock corporation, which in turn will become a majority-owned
subsidiary of Rome, MHC, a New York mutual holding company. These materials
include a prospectus and a stock order and certification form which offer you
the opportunity to subscribe for shares of common stock of Rome Bancorp, Inc.
We recommend that you study this material carefully. If you decide to subscribe
for shares, your properly completed and signed stock order and certification
form along with full payment for the shares (or appropriate instructions
authorizing withdrawal from a deposit account at the Bank) must be physically
received no later than 5:30 p.m., Eastern time on _________, September ___, 1999
in the accompanying YELLOW postage-paid envelope marked "STOCK ORDER RETURN". If
you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the hours of
10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be closed
for the Labor Day holiday.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your jurisdiction. We should not be
understood as recommending or soliciting in any way any action by you with
regard to the enclosed materials.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Enclosure
#5
<PAGE>
PROXY REQUEST
________________________________________________________________________________
THE ROME SAVINGS BANK
------------------
WE NEED YOUR VOTE!
------------------
DEAR CUSTOMER OF THE ROME SAVINGS BANK:
YOUR VOTE ON OUR PLAN OF REORGANIZATION AND THE ESTABLISHMENT OF THE
CHARITABLE FOUNDATION HAS NOT YET BEEN RECEIVED. YOUR VOTE IS VERY IMPORTANT
--------------
TO US. PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY.
REMEMBER: VOTING FOR THE PLAN OF REORGANIZATION AND THE ESTABLISHMENT OF
THE CHARITABLE FOUNDATION DOES NOT OBLIGATE YOU TO BUY STOCK. YOUR BOARD
OF TRUSTEES HAS UNANIMOUSLY APPROVED THE PLAN OF REORGANIZATION,
INCLUDING THE ESTABLISHMENT OF THE CHARITABLE FOUNDATION, AND URGES YOU
TO VOTE IN FAVOR OF THE PROPOSAL. YOUR DEPOSIT ACCOUNTS OR LOANS WITH THE
BANK WILL NOT BE AFFECTED IN ANY WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO
BE FEDERALLY INSURED.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR CONVERSION CENTER AT (XXX) XXX-XXXX.
IF YOU HAVE MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
PLEASE VOTE TODAY BY RETURNING ALL PROXY FORMS RECEIVED.
---
SINCERELY,
THE ROME SAVINGS BANK
________________________________________________________________________________
#6
<PAGE>
QUESTIONS AND
ANSWERS
About the Reorganization
The Board of Trustees of The Rome Savings Bank has unanimously adopted a Plan of
Reorganization whereby the Bank will convert from a New York-chartered mutual
savings bank, to a New York-chartered mutual holding company. As part of this
reorganization, the Bank will convert to a stock savings bank and will become a
wholly-owned subsidiary of Rome Bancorp, Inc., a Delaware stock corporation,
which in turn will be a majority-owned subsidiary of Rome, MHC, a New York
mutual holding company. Pursuant to the terms of the Plan of Reorganization,
Rome Bancorp, Inc. will be offering its common stock for sale.
Rome Savings is reorganizing so that it will be structured in the stock form of
ownership used by a growing number of savings institutions and to provide the
Bank with the ability to raise additional capital now and in the future. In
addition, as part of the reorganization, the Bank intends to establish a
charitable foundation which will be dedicated to charitable purposes within the
communities in which the Bank operates.
It is necessary for the Bank to receive an affirmative vote of at least 75% of
the aggregate dollar amount of the book value of deposits represented at the
special meeting of depositors either in person or by proxy and entitled to vote
and a majority of the outstanding votes in favor of the Plan of Reorganization
and the charitable foundation, so YOUR VOTE IS VERY IMPORTANT. Please return
your proxy in the enclosed WHITE postage-paid envelope. YOUR BOARD OF TRUSTEES
URGES YOU TO VOTE "FOR" THE PLAN OF REORGANIZATION AND RETURN YOUR PROXY TODAY.
Effect on Deposits and Loans
Q. Will the reorganization affect any of my deposit accounts or loans?
A. No. The reorganization will have no effect on the balance or terms of any
deposit account or loan. Your deposits will continue to be federally
insured to the fullest extent permissible.
7-1
<PAGE>
About Voting
Q. Who is eligible to vote on the reorganization and the Foundation?
A. Depositors of the Bank as of June 30, 1999 (the "Voting Record Date") who
continue to be depositors of the Bank as of the date of the Special Meeting
are eligible to vote.
Q. How do I vote?
A. You may vote by mailing your signed proxy card in the WHITE postage-paid
envelope provided. Should you choose to attend the Special Meeting of
Depositors and decide to change your vote, you may do so by revoking any
previously executed proxy.
Q. Am I required to vote?
A. No. Depositors are not required to vote. However, because the
reorganization will produce a fundamental change in the Bank's corporate
structure, the Board of Trustees encourages all depositors to vote.
Q. Why did I receive several proxies?
A. If you have more than one account you may have received more than one proxy
depending upon the ownership structure of your accounts. Please vote and
sign all proxy cards that you received.
Q. Does my vote for reorganization and the charitable foundation mean that I
must buy common stock in Rome Bancorp, Inc.?
A. No. Voting for the Plan of Reorganization does not obligate you to buy
shares of common stock of Rome Bancorp, Inc.
Q. I have a joint savings account. Must both parties sign the proxy card?
A. Only one signature is required, but both parties should sign if possible.
Q. Who must sign trust or custodian accounts?
A. The trustee or custodian must sign such accounts, not the beneficiary.
Q. I am the executor (administrator) for a deceased depositor. Can I sign the
proxy card?
A. Yes. Please indicate on the card the capacity in which you are signing the
card.
7-2
<PAGE>
About The Foundation
Q. What is The Rome Savings Bank Charitable Foundation and why is it being
established?
A. In furtherance of our commitment to our local community, the Bank's Plan of
Reorganization provides for the establishment of a charitable foundation to
be known as The Rome Savings Bank Charitable Foundation. The charitable
foundation will be dedicated to the promotion of charitable purposes within
the communities in which the Bank operates.
Q. How will the charitable foundation be funded?
A. The Company will fund the charitable foundation with shares of its common
stock. Immediately following the reorganization, a number of shares of
authorized but unissued common stock equal to 2% of the common stock issued
in the reorganization, or 58,437, 68,750 and 79,062 shares at the minimum,
midpoint and maximum, respectively, of the Estimated Price Range, will be
contributed to the charitable foundation.
Q. What is the impact of the charitable foundation on the stockholders' equity
and earnings?
A. The funding of the charitable foundation will impact Rome Bancorp, Inc.'s
stockholders' equity and will have an adverse effect on Rome Bancorp,
Inc.'s earnings in the period in which the charitable foundation is funded
which is expected to be in the quarter ended December 31, 1999. The
establishment of the charitable foundation, however, was considered in the
independent appraisal of the aggregate pro forma market value of Rome
Bancorp, Inc.'s common stock.
In addition, there are certain tax effects, regulatory considerations and
other matters with respect to the charitable foundation. A prospective
stockholder should carefully review "Risk Factors -- The establishment of
The Rome Savings Bank Charitable Foundation will reduce our earnings," "Pro
Forma Data" and "The Reorganization and The Offering -- Why we are
establishing The Rome Savings Bank Charitable Foundation.
7-3
<PAGE>
About The Stock
Investment in common stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
prospectus.
Q. What are the priorities of purchasing the common stock?
A. The common stock of Rome Bancorp, Inc. will be offered in the following
order of priority to the Bank's:
. Eligible Account Holders, (depositors with accounts totaling $100 or
more as of December 31, 1997).
. Employee Plans, including the ESOP.
. Supplemental Eligible Account Holders (depositors with accounts
totaling $100 or more as of June 30, 1999).
Upon completion of the Subscription Offering, common stock that is not sold
in the Subscription Offering will be offered to certain members of the
general public in a Community Offering and then to the general public in a
Syndicated Community Offering.
Q. Will any account I hold with the Bank be converted into stock?
A. No. All accounts remain as they were prior to the reorganization. As an
Eligible Account Holder or Supplemental Eligible Account Holder, you
receive priority over the general public in exercising your right to
subscribe for shares of common stock.
Q. Will I receive a discount on the price of the stock?
A. No. Regulations require that the offering price of the stock be the same
for everyone: customers, trustees, officers and employees of the Bank, and
the general public.
7-4
<PAGE>
Q. How many shares of stock are being offered, and at what price?
A. Rome Bancorp, Inc. is offering for sale up to 1,857,969 shares of common
stock at a subscription price of $8 per share through the prospectus. Under
certain circumstances, Rome Bancorp, Inc. may issue up to 2,136,664 shares
(not including any shares contributed to the charitable foundation).
Q. How much stock can I purchase?
A. The minimum purchase is 25 shares; the maximum purchase by any person in
the Subscription Offering is $150,000 (18,750 shares); in the Community
Offering and Syndicated Community Offering, if either is held, the maximum
purchase by any person, including purchases by Associates of such person or
entity, is $150,000 (18,750 shares); and the maximum purchase by any
person, including purchases by Associates of such person or entity in the
Subscription and Community Offerings is $150,000 (18,750 shares).
Q. How do I order stock?
A. You may subscribe for shares of common stock by completing and returning
the stock order form and certification form, together with your payment
either in person to any branch of The Rome Savings Bank or by mail in the
YELLOW postage-paid envelope marked "STOCK ORDER RETURN" that has been
provided. Stock Order Forms may not be delivered to a walk-up or drive-
through window located at any of the Bank's branch offices.
Q. How can I pay for my shares of stock?
A. You can pay for the common stock by check, cash, money order or withdrawal
from your deposit account at The Rome Savings Bank. If you choose to pay by
cash, you must deliver the stock order form and payment in person to any
branch office of The Rome Savings Bank and it will be converted to a bank
check or a money order. PLEASE DO NOT SEND CASH IN THE MAIL.
Q. When is the deadline to subscribe for stock?
A. An executed order form and certification form with the required full
payment must be physically received by 5:30 p.m., Eastern time, on _______,
September, __, 1999.
7-5
<PAGE>
Q. Can I subscribe for shares using funds in my Rome Savings IRS/Qualified
Plan?
A. Federal regulations do not permit the purchase of common stock with your
existing IRA or Qualified Plan at The Rome Savings Bank. To use such funds
to subscribe for common stock, you need to establish a "self-directed"
trust account with an outside trustee. Please call our Conversion Center if
you require additional information. TRANSFER OF SUCH FUNDS TAKES TIME, SO
PLEASE MAKE ARRANGEMENTS AS SOON AS POSSIBLE.
Q. Can I subscribe for shares and add someone else who is not on my account to
my stock registration?
A. No. Federal regulations prohibit the transfer of subscription rights.
Adding the names of other persons who are not owners of your qualifying
account(s) will result in your order becoming null and void.
Q. Will payments for stock earn interest until the reorganization closes?
A. Yes. Any payments made by cash, check or money order will earn interest at
the Bank's passbook rate from the date of receipt to the completion or
termination of the reorganization. Withdrawals from a deposit account or a
certificate of deposit at the Bank to buy common stock may be made without
penalty. Depositors who elect to pay for their common stock by withdrawal
will receive interest at the contract rate on the account until the
completion or termination of the reorganization.
Q. Will dividends be paid on the stock?
A. No dividends are expected to be paid initially. Following the
reorganization, however, the Board of Directors of Rome Bancorp, Inc. may
consider a policy of paying cash dividends on the stock.
Q. Will my stock be covered by deposit insurance?
A. No. The common stock cannot be insured or guaranteed by the Bank Insurance
Fund or the Savings Association Insurance Fund of the FDIC or any other
government agency nor is it insured or guaranteed by The Rome Savings Bank
or Rome Bancorp, Inc.
7-6
<PAGE>
Q. Where will the stock be listed?
A. Upon completion of the reorganization, Rome Bancorp, Inc. expects the stock
to be listed on the Nasdaq Stock Market under the symbol "ROME".
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. After receipt, your order may not be modified or withdrawn.
Additional Information
Q. What if I have additional questions or require more information?
A. The Bank's proxy statement and prospectus describe the reorganization and
the charitable foundation in detail. Please read the proxy statement and
prospectus carefully before voting. If you have any questions after reading
the enclosed material you may call our Conversion Center at (XXX) XXX-XXXX
Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m. Please
note that the Conversion Center will be closed for the Labor Day holiday.
Additional materials may only be obtained from the Conversion Center. To
ensure that each purchaser receives a prospectus at least 48 hours prior to
the Expiration Date of _______, September __, 1999 at 5:30 p.m., Eastern
time, in accordance with Rule 15c2-8 of the Securities Exchange Act of
1934, as amended, no prospectus will be mailed any later than five days
prior to such date or hand delivered any later than 48 hours prior to such
date.
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency nor is the common
stock insured or guaranteed by The Rome Savings Bank or Rome Bancorp, Inc.
This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
7-7
<PAGE>
==============================================================
L O G O
==============================================================
THE ROME SAVINGS BANK
Please Support Us
Vote Your
Proxy Card Today
===============================================================================
IF YOU HAVE MORE THAN ONE ACCOUNT, YOU MAY HAVE RECEIVED MORE THAN ONE PROXY
DEPENDING UPON THE OWNERSHIP STRUCTURE OF YOUR ACCOUNTS. PLEASE VOTE, SIGN AND
RETURN ALL PROXY CARDS THAT YOU RECEIVED.
===============================================================================
#8
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Mr. John Smith
00-00 00 Drive
City, State 00000
Dear Mr. Smith:
The Board of Trustees of The Rome Savings Bank has voted unanimously in favor of
a plan to reorganize from a New York chartered mutual savings bank, to a New
York chartered mutual holding company. As part of this Reorganization, the Bank
will convert to a stock savings bank and will become a wholly-owned subsidiary
of Rome Bancorp, Inc., a Delaware stock corporation, which in turn will be a
majority-owned subsidiary of Rome, MHC, a New York mutual holding company. We
are reorganizing so that Rome Savings will be structured in the stock form of
ownership used by a growing number of savings institutions and to provide the
Bank with the ability to raise additional capital now and in the future.
You are cordially invited to join members of our senior management team at an
informational meeting to be held on ___________ at 7:30 P.M. to learn more about
the reorganization and the stock offering.
A member of our staff will be calling to confirm your interest in attending the
meeting.
If you would like additional information regarding the meeting or our
Reorganization, please call our Conversion Center at (XXX) XXX-XXXX. The
Conversion Center is open Monday through Friday, between the hours of 10:00 a.m.
and 4:00 p.m. Please note that the Conversion Center will be closed for the
Labor Day holiday.
Sincerely,
SIGNATURE
TITLE
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
(Printed by Conversion Center)
#9
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Dear Subscriber:
We hereby acknowledge receipt of your order for shares of common stock in Rome
Bancorp, Inc.
At this time, we cannot confirm the number of shares of Rome Bancorp, Inc.
common stock that will be issued to you. Such allocation will be made in
accordance with the Plan of Reorganization following completion of the stock
offering.
If you have any questions, please call our Conversion Center at (XXX) XXX-XXXX.
Sincerely,
ROME BANCORP, INC.
Conversion Center
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Conversion Center)
#10
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Dear Charter Shareholder:
We appreciate your interest in the stock offering of Rome Bancorp, Inc. Due to
the excellent response from our Eligible Account Holders, we are unable to fill
all orders in full. Consequently, in accordance with the provisions of the Plan
of Reorganization, you were allocated ______ shares at a price of $8.00 per
share. If your subscription was paid for by check, a refund of any balance due
you with interest will be mailed to you promptly.
The purchase date and closing of the transaction occurred on Month __, 1999.
The common stock will be listed on the Nasdaq Stock Market under the symbol
"ROME" on _____, Month __, 1999. Your stock certificate will be mailed to you
shortly.
We thank you for your interest in Rome Bancorp, Inc., and welcome you as a
charter shareholder.
Sincerely,
ROME BANCORP, INC.
Conversion Center
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Conversion Center)
#11
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Dear Interested Investor:
We recently completed our Subscription and Community Offerings. Unfortunately,
due to the excellent response from our Eligible Account Holders, stock was not
available for our Supplemental Eligible Account Holders or community friends.
If your subscription was paid for by check, a refund of any balance due you with
interest will be mailed to you promptly.
We appreciate your interest in Rome Bancorp, Inc. and hope you become an owner
of our stock in the future. The stock will be listed on the Nasdaq Stock Market
under the symbol "ROME".
Sincerely,
ROME BANCORP, INC.
Conversion Center
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Conversion Center)
#12
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Welcome Shareholder:
We are pleased to enclose the stock certificate that represents your share of
ownership in Rome Bancorp, Inc., the holding company of The Rome Savings Bank
and a majority-owned subsidiary of Rome, MHC.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should
contact the Transfer Agent immediately at the following address:
TRANSFER AGENT
Address
Telephone Number
Also, please remember that your certificate is a negotiable security which
should be stored in a secure place, such as a safe deposit box or on deposit
with your stockbroker.
On behalf of the Board of Trustees of Rome Bancorp, Inc., and Rome, MHC and the
employees of The Rome Savings Bank, I would like to thank you for supporting our
offering.
Sincerely,
Charles M. Sprock
Chairman of the Board,
President and
Chief Executive Officer
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Conversion Center)
#13
<PAGE>
[ROME BANCORP, INC.]
____________________, 1999
Dear Interested Subscriber:
We regret to inform you that The Rome Savings Bank and Rome Bancorp, Inc., the
stock holding company for The Rome Savings Bank, have decided not to accept your
order for shares of Rome Bancorp, Inc. common stock in our Community Offering.
This action is in accordance with our Plan of Reorganization which gives the
Bank and the Stock Holding Company, the absolute right to reject the
subscription of any Community Member, in whole or in part, in the Community
Offering.
Enclosed, therefore, is a check representing your subscription and interest
earned thereon.
Sincerely,
ROME BANCORP, INC.
Conversion Center
(Printed by Conversion Center)
#14
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
____________________, 1999
To Our Friends:
We are enclosing the offering material for Rome Bancorp, Inc., a majority-owned
subsidiary of Rome, MHC and the proposed stock holding company for The Rome
Savings Bank, which is now in the process of converting to stock form.
Sandler O'Neill & Partners, L.P. is managing the Rome Savings Subscription
Offering, which will conclude at 5:30 p.m., Eastern time on ________, September
__, 1999. Sandler O'Neill is also providing conversion agent and proxy
solicitation services for the Bank. In the event that all the stock is not
subscribed for in the Subscription and Community Offering, Sandler O'Neill will
form and manage a syndicate of broker/dealers to sell the remaining stock.
Members of the general public, other than residents of ______, are eligible to
participate. If you have any questions about this transaction, please do not
hesitate to call or write.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of common stock offered in the reorganization and offering are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Sandler O'Neill)
#15
