<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No.: 000-27481
ROME BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 161573070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
100 W. Dominick Street, Rome, New York 13440-5810
(Address of principal executive offices)
(315) 336-7300
(Issuer's Telephone Number)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
Title of Class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ___
---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The revenues for the issuer's fiscal year ended December 31, 1999 were
$16,746,000.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, as of a specified date within the last 60 days.
On March 20, 2000: $8,450,377.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Rome Bancorp had 3,400,776
shares outstanding as of March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement pursuant to Regulation 14A to be delivered
to the Commission for filing and the 2000 Annual Report to Shareholders for the
fiscal year ended December 31, 1999 which has not previously been mailed to the
Commission, are incorporated by reference into Parts II and III of this report.
Transitional Small Business Disclosure Format (check one):
Yes No X
___ ---
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TABLE OF CONTENTS
-----------------
Page
----
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 33
ITEM 3. LEGAL PROCEEDINGS 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 33
PART II
ITEM 5. MARKET FOR ROME BANCORP'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS 34
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 34
ITEM 7. FINANCIAL STATEMENTS 34
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 34
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF ROME BANCORP 34
ITEM 10. EXECUTIVE COMPENSATION 34
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 34
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 35
<PAGE>
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
General
Rome Bancorp, Inc. (Rome Bancorp) is a Delaware corporation organized on
June 9, 1999 as the stock holding company for The Rome Savings Bank (Rome
Saving), a New York-chartered stock savings bank headquartered in Rome, New
York. Rome Bancorp's principal business is to hold the capital stock of Rome
Savings. On October 6, 1999, Rome Savings reorganized into a two-tiered mutual
holding company structure, whereby: (1) Rome Savings formed Rome, MHC, a New
York-chartered mutual savings bank holding company and the majority owner of
Rome Bancorp; (2) Rome Savings converted from a New York-chartered mutual
savings bank to a New York-chartered stock savings bank and issued 100% of its
capital stock to Rome Bancorp; and (3) Rome Bancorp issued shares of its common
stock, par value $0.01 per share (the "Common Stock") to the public at a price
of $7.00 per share (the "Offering"). In the Offering, 1,598,365 shares, or 47%
of the Common Stock, were sold to the public; 1,734,396 shares, or 51% of the
Common Stock, were issued to Rome, MHC; and 68,015 shares, or 2% of the Common
Stock, were contributed to The Rome Savings Bank Foundation.
Rome Savings was originally chartered in 1851 as a New York mutual savings
bank headquartered in Rome, New York. Deposits in Rome Savings are insured by
the FDIC, and Rome Savings is examined and regulated by the New York State
Department of Banking (Department of Banking) and the FDIC. Rome Savings is a
community and customer oriented retail savings bank that offers traditional
deposit products, residential real estate mortgage loans and consumer,
commercial and commercial real estate 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. At December 31, 1999, Rome Savings had
assets of $226.8 million, deposits of $183.5 million and stockholders equity of
$38.4 million.
Business Strategy
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.
Market Area
Operations are conducted out of our executive office in Rome, New York and
three branch offices located in Oneida County, New York, two of which are
located in Rome and one in New Hartford, New York. As of June 30, 1999, we
maintained a 7.13% share of all Oneida County, New York deposits, ranking us
fifth in the size of deposits in Oneida County. We also maintained a 43.7%
market share of all reported funds on deposit in the City of Rome as of the 1999
fiscal year end, making us the largest depository institution 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. The
principal employment sectors are services (excluding financial), wholesale and
retail trade and manufacturing.
1
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Similar to national trends, most of the job growth currently 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 its 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.
Future growth opportunities for Rome Bancorp will be influenced by growth
and stability in the regional and statewide economies, other demographic 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 local market area.
Competition
Rome Bancorp faces 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, Rome Savings does not
provide trust or investment services, or credit cards, and does not yet provide
banking services through home computers. Customers who seek "one stop shopping"
may be drawn to these institutions.
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. The most direct
competition for deposits has historically come from credit unions, commercial
banks, savings banks and savings and loan associations. Rome Bancorp faces
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
General. Rome Savings has a long standing commitment originating commercial
real estate, commercial and consumer loans in addition to a traditional emphasis
on residential lending. As of December 31, 1999, we had total loans of $143.3
million. We retain substantially all of the loans that we originate.
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.
2
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Loan Portfolio. The following table sets forth the composition of our
mortgage and other loan portfolios, by type of loan, in dollar amounts
and in percentages at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------- -------------------- ------------------- ------------------- ----------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
--------- --------- --------- -------- ---------- ------- --------- ------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One to four family...... $ 64,258 44.85% $ 65,752 48.06% $ 66,154 49.85% $ 67,739 48.74% $ 64,020 45.40%
Commercial real estate.. 32,971 23.01 29,499 21.56 28,440 21.43 31,830 22.90 34,487 24.46
Construction & land..... 1,136 0.79 391 0.29 936 0.70 725 0.52 983 0.70
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans.... 98,365 68.65 95,642 69.91 95,530 71.98 100,294 72.16 99,490 70.56
Commercial loans 19,984 13.95 17,271 12.62 15,197 11.45 18,374 13.22 19,682 13.96
Consumer loans:
Automobile.............. 10,376 7.24 9,460 6.92 8,325 6.27 5,958 4.29 5,746 4.08
Education loans......... 4,735 3.30 5,224 3.82 5,226 3.94 6,378 4.59 7,376 5.23
Property improvement
and equipment.......... 1,883 1.31 2,108 1.54 2,264 1.71 2,429 1.74 2,578 1.83
All other............... 7,945 5.55 7,099 5.19 6,175 4.65 5,560 4.00 6,120 4.34
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
24,939 17.40 23,891 17.47 21,990 16.57 20,325 14.62 21,820 15.48
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.............. 143,288 100.00% 136,804 100.00% 132,717 100.00% $138,993 100.00% 140,992 100.00%
====== ====== ====== ====== ======
Less: Allowance for
loan losses 1,776 1,956 1,742 1,708 1,645
-------- -------- -------- --------
Loans, net.............. $141,512 $134,848 $130,975 $137,285 $139,347
======== ======== ======== ======== ========
</TABLE>
3
<PAGE>
Loan Maturity. The following table presents the contractual maturity of
our commercial loans at December 31, 1999. The table does not include the
effect of prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
At December 31, 1999
Commercial Loans
----------------------
(In thousands)
<S> <C>
Amounts due:
Within one year............... $10,096
After one year:
One to three years......... 2,279
Three to five years........ 2,385
Five to ten years.......... 4,187
Ten to twenty years........ 1,037
Over twenty years.......... 0
-------
Total due after one year.. 9,888
-------
Total commercial loans $19,984
</TABLE>
The following tables present, as of December 31, 1999, the dollar amount of
all commercial loans, due after December 31, 2000, and whether these loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 2000
---------------------------
Fixed Adjustable Total
----- ---------- ------
(In thousands)
<S> <C> <C> <C>
Commercial loans.... 7,512 2,376 9,888
</TABLE>
Residential Mortgage Lending. Rome Savings emphasizes the origination of
mortgage loans secured by one- to four-family properties that serve as the
primary residence of the owner. As of December 31, 1999, loans on one- to four-
family residential properties accounted for $64.3 million, or 44.9%, of Rome
Savings' total loan portfolio. Of residential mortgage loans outstanding on
that date, 27.3% were ARM loans and 72.7% were fixed rate loans.
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 December 31, 1999, our commercial real
estate loan portfolio consisted of 171 loans, totaling $33.0 million, or 23.0%,
of total loans. Most 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 industry or borrower. 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.
4
<PAGE>
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. At December 31, 1999, our
commercial loan portfolio consisted of 487 loans, totaling $20.0 million, or
13.95% of total loans.
Consumer Loans. Rome Savings offers a variety of consumer loans. At
December 31, 1999, the consumer loan portfolio totaled $24.9 million or 17.4% 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.
Motor vehicle loans currently comprise the largest portion at 41.6% of the
consumer loan portfolio, which consists primarily of loans for used cars.
5
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<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- ------- ---- -------- ------- ---- -------- ------- ----
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)................. $136,642 $11,349 8.31% $132,282 $11,334 8.57% $133,262 $11,532 5.46%
Securities(2)............ 55,780 3,674 6.59% 56,585 3,627 6.41% 53,566 3,341 6.24%
Federal funds sold &
other interest
bearing deposits........ $ 17,807 $ 894 5.02% $ 13,298 $ 713 5.36% $ 12,248 $ 669 8.65%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total
interest-earning
assets.............. 210,229 15,917 7.57% 202,165 15,674 7.75% 199,076 15,542 7.81%
Noninterest-earning assets.. 15,285 15,989 16,224
-------- -------- --------
Total Assets......... 225,514 218,154 215,300
Liabilities and Equity:
Interest-bearing
liabilities:
Savings accounts......... 78,521 2,437 3.10% 75,438 2,340 3.10% 75,845 2,354 3.10%
Time deposits............ 81,621 4,158 5.47% 84,497 4,624 5.47% 86,105 4,709 5.47%
Money market accounts.... 6,020 189 3.14% 5,596 180 3.22% 6,160 202 3.27%
Other interest bearing
deposits................ 2,607 66 2.53% 2,732 59 2.16% 2,295 46 2.02%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total
interest-bearing
liabilities......... 168,769 6,850 4.06% 168,263 7,203 4.28% 170,405 7,311 4.29%
Non-interest bearing
deposits................... 20,863 18,064 15,643
Other liabilities........... 3,914 3,280 2,689
-------- -------- --------
Total liabilities........ 193,546 189,607 188,737
Equity...................... 31,968 28,547 26,563
-------- -------- --------
Total liabilities and
equity.................. $225,514 $218,154 $215,300
======== ======== ========
Net interest income......... 9,067 8,471 8,231
Net interest rate
spread(3).................. 3.51% 3.47% 3.52%
Net interest margin (4)..... 4.31% 4.19% 4.13%
Ratio of interest-earning
assets to
interest-bearing
liabilities............. 1.25x 1.20x 1.17x
Tax equivalent adjustment
on securities.............. 368 163 -
------- ------- -------
Net interest income per
consolidated
financial statements..... $ 8,699 $ 8,308 $ 8,231
======= ======= =======
</TABLE>
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>
Rate Volume Analysis
----------------------------------------------------------
Year Ended December 31, 1999 Year Ended December 31,
vs. 1998 1998 vs. 1997
Increases (Decreases) Increases (Decreases)
----------------------------- -------------------------
Due to Due to
------------------- ---------------
Volume Rate Net Volume Rate Net
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Assets:
Interest-earning assets:
Loans................................. $374 $(359) $ 15 $(88) $(110) $(198)
Securities............................ (52) 99 47 193 93 286
Federal funds sold & other interest
bearing deposits.................. 242 (61) 181 57 (13) 44
---- ----- ---- ---- ----- -----
Total interest-earning assets..... 564 (321) 243 162 (30) 132
Interest-bearing liabilities:
Savings accounts...................... $(96) $ (1) $(97) $ 14 $ 0 $ 14
Time deposits......................... 157 310 467 85 0 85
Money market accounts................. (15) 5 (10) 18 4 22
Other interest bearing deposits....... 3 (10) (7) (9) (4) (13)
---- ----- ---- ---- ----- -----
Total interest-bearing liabilities.... 49 304 353 108 0 108
---- ----- ---- ---- ----- -----
Net change in net interest income......... $613 $ (17) $596 $270 $ (30) $ 240
==== ===== ==== ==== ===== =====
</TABLE>
Asset Quality
Non-performing Assets. Non-performing assets totaled $670,000 at December
31, 1999 compared with $1.2 million at December 31, 1998. Our $487,000 in loans
delinquent 90 days or more at December 31, 1999 were comprised primarily of
two commercial loans with an average principal balance of approximately
$52,400 and seven residential real estate loans with an average balance
of $39,100. At December 31, 1999, our largest loan delinquent 90 days
or more had a balance of $65,100.
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.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1999 1998 1997 1996 1995
----- ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans:
Mortgage loans............. $ 224 $ 355 $ 591 $ 959 $ 648
Commercial loans........... 112 439 397 839 849
Consumer loans............. 22 5 55 89 113
----- ------ ------ ------ ------
Total...................... $ 358 $ 799 $1,043 $1,887 $1,610
Accruing loans delinquent
90 days or more............ 129 131 431 1,365 1,973
Total non-performing loans.... 487 931 1,474 3,252 3,583
Foreclosed real estate, net... 183 293 1,626 1,450 1,570
Total non-performing assets... 670 1,224 3,100 4,702 5,153
Non-performing loans to total
loans........................ 0.34% 0.68% 1.11% 2.34% 2.54%
Non-performing assets to total
assets....................... 0.30% 0.54% 1.45% 2.22% 2.40%
</TABLE>
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
specifically excluded from the impaired loan portfolio. We had no loans
classified as impaired at December 31, 1999, 1998 and 1997. In addition, at
December 31, 1999, 1998 and 1997, we had no loans classified at troubled debt
restructuring, as defined in SFAS No. 15.
6
<PAGE>
Allowance for Loan Losses. The following table sets forth activity in Rome
Savings' allowance for loan losses and other ratios at or for the dates
indicated.
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ----------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period..... $ 1,956 $ 1,742 $ 1,708 $ 1,645 $1,579
Provision for loan losses.......... 175 390 360 1,850 767
Charge-offs:
Mortgage loans.................. 184 191 290 379 550
Commercial loans................ 338 111 247 1,364/(1)/ 40
Consumer loans.................. 88 109 122 138 124
------- ------- ------- ----------- ------
610 411 659 1,881 714
Recoveries......................... 255 235 333 94 13
Net charge-offs (recoveries)....... 355 176 326 1,787 701
Balance at end of period........... 1,776 1,956 1,742 1,708 1,645
Ratio of net charge-offs to
average loans outstanding
during the period............... 0.26% 0.13% 0.24% 1.28% 0.50%
Allowance for loan losses as
a percent of loans.............. 1.24% 1.43% 1.31% 1.23% 1.17%
Allowance for loan losses as
a percent of non-performing
loans........................... 364.68% 210.32% 118.18% 52.52% 45.91%
</TABLE>
___________________
(1) Includes a $1.0 million loss from the fraud-related bankruptcy of a
commercial loan customer.
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
7
<PAGE>
information available to them at the time of their examination, thereby
adversely affecting our results of operations.
For the year ended December 31, 1999, we increased our allowance for loan
losses through a $175,000 provision for loan losses based on our evaluation of
the items discussed above. Because of the recent decline in non-performing
assets, Rome Savings's ratio of allowance for loan losses as a percentage of
non-performing loans increased to 364.68% at December 31, 1999. Despite this
increase, Rome Savings 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, $[ ] million in "potential problem loans" at December 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. Rome Savings will continue to be aggressive in
identifying, monitoring and resolving potential problem loans. The current high
level of the ratio of allowance for loan 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, Rome Savings 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 Years Ended December 31,
1999 and 1998 -- Provision for Loan Losses."
8
<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 December 31, 1999 At December 31, 1998 At December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage Loans in Percentage Loans in Percentage Loans in
of Each of Each of Each
Allowance Category Allowance Category Allowance Category
to to to to to to
Total Total Total Total Total Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage loans: (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One to four family..... $ 337 18.98% 44.85% $ 331 16.92% 48.06% $ 405 23.25% 49.85%
Commercial real estate. 709 39.92 23.01 792 40.49 21.56 684 39.27 21.43
Construction & land.... 28 1.58 0.79 10 0.51 0.29 7 0.40 0.70
------ ------ ------ ------ ------ ------ ------ ------ ------
Total mortgage loans.. 1,074 60.48 68.65 1,133 57.92 69.91 1,096 62.92 71.98
Commercial loans.......... 473 26.63 13.95 594 30.37 12.62 440 25.26 11.45
Consumer loans............ 229 12.89 17.40 229 11.71 17.47 206 11.82 16.57
Total allowance for
loans losses......... 1,776 100.00 100.00 1,956 100.00 100.00 1,742 100.00 100.00
<CAPTION>
At December 31, 1996 At December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage of Loans in Percentage of Loans in
Allowance Each Allowance Each
to Category to to Category to
Total Total Total Total
Amount Allowance Loans Amount Allowance Loans
- ---------------------------------------------------------------------------------------------------------------------------------
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
loans losses......... 1,708 100.00 100.00 1,645 100.00 100.00
</TABLE>
9
<PAGE>
Secutities
General. The Board of Directors reviews and approves our investment policy
on an annual basis. The Board of Directors 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 following table presents the composition of our 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 December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- -------------------------------- --------------------------------
Amortized Percent of Fair Amortized Percent of Fair Amortized Percent of Fair
Cost Total (1) Value Cost Total (1) Value Cost Total (1) Value
--------- ----------- ------- ---------- ----------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
Mortgage-backed securities
GNMA......................... $ 535 0.89% $ 564 $ 718 1.30% $ 773 $ 919 1.64% $ 994
FHLMC........................ 24 0.04 26 32 0.05 36 40 0.07 47
U.S. Government Securities... 500 0.83 501 502 0.91 513 504 0.90 514
Other bonds.................. 294 0.49 294 220 0.40 220 218 0.39 218
------- ------ ------- ------- ------ ------- ------- ------ ------
Total held to maturity....... 1,353 2.25 1,385 1,472 2.66 1,542 1,681 3.00 1,773
------- ------ ------- ------- ------ ------- ------- ------ ------
Available for sale:
U.S. Government securities .. 6,023 10.00 6,010 22,031 39.87 22,242 35,015 62.59 35,190
U.S. Government agencies..... 21,958 36.46 21,835 10,041 18.17 10,138 16,132 28.84 16,170
State and Municipal
Obligations................. 15,009 24.92 14,638 12,392 22.43 12,660 0 0.00 0
Mortgage-backed securities
FNMA......................... 6,785 11.27 6,716 2,013 3.65 2,000 0 0.00 0
FHLMC........................ 3,839 6.37 3,698 3,011 5.45 2,996 0 0.00 0
Corporate bonds.............. 488 0.81 483 0 0.00 0 0 0.00 0
------- ------ ------- ------- ------ ------- ------- ------ ------
Total available for sale debt
securities..................... 54,102 89.83 53,380 49,488 89.57 50,036 51,147 91.43 51,360
Equity securities............ 4,007 6.65 4,296 3,546 6.42 4,253 2,370 4.24 2,840
FHLB stock................... 763 1.27 763 747 1.35 747 747 1.33 747
------- ------ ------- ------- ------ ------- ------- ------ ------
Total available for sale 58,872 97.75 58,439 53,781 97.34 55,036 54,264 97.00 54,947
------- ------ ------- ------- ------ ------- ------- ------ ------
Total investment securities $60,225 100.00% 59,824 $55,253 100.00% $56,578 $55,945 100.00% $56,720
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
- -----------------------
(1) Based on amortized cost.
10
<PAGE>
Carrying Values, Yields and Maturities. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
Rome Savings' debt securities at December 31, 1999.
<TABLE>
<CAPTION>
More Than One Year More Than Five Years
One Year or Less to Five Years to Ten Years More Than Ten Years Total
----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- -------- --------- -------- -------- ------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
securities:
U.S. Government Securities.. $4,035 6.39% $ 1,975 5.18% $ 0 0.00% $ 0 0.00% $ 6,010 5.99%
U.S. Government Agencies.... 0 0.00 14,510 5.94 4,395 6.20 2,930 7.76 21,835 6.24
State and Municipal
Obligations(1)............. 0 0.00 2,871 6.51 10,298 6.76 1,469 8.16 14,638 6.85
Mortgage-backed securities.. 0 0.00 0 0.00 10,414 6.81 0 0.00 10,414 6.81
Corporate bonds............. 0 0.00 483 7.25 0 0.00 0 0.00 483 7.25
Held to maturity
securities:
U.S. Government Securities.. 500 6.65 0 0.00 0 0.00 0 0.00 500 6.64
Mortgage-backed securities.. 0 0.00 29 6.84 358 9.27 172 10.99 559 9.68
Other....................... 0 0.00 0 0.00 0 0.00 294 7.38 294 7.38
Total Debt Securities....... $4,535 6.42% $19,868 5.98% $25,465 6.72% $4,865 7.97% $54,733 6.54%
====== ==== ======= ==== ======= ==== ====== ===== ======= ====
</TABLE>
- -------------
(1) Yields are presented on a tax-equivalent basis.
11
<PAGE>
Deposit Activity and Other 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 56.4% and 53.7% of total deposits on December 31, 1999 and
1998, respectively. At December 31, 1999 and 1998, time deposits with remaining
terms to maturity of less than one year amounted to $57.0 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 years ended December 31, 1999, 1998 and 1997.
At December 31, 1999, we had $10,163 million in time deposits with balances
of $100,000 maturing as follows:
<TABLE>
<CAPTION>
Maturity Period Amount
(In thousands)
- ------------------------------------- ---------------
<S> <C>
Three months or less.................. 3,316
Over three months through six months.. 5,138
Over six months through 12 months..... 1,211
Over 12 months........................ 498
------
Total................................. 10,163
</TABLE>
12
<PAGE>
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 December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Percent average Percent average Percent of average
of total nominal of total nominal total nominal
Amount deposits rate Amount deposits rate Amount deposits rate
------- --------- --------- -------- --------- --------- -------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings.................... $ 77,867 42.42% 3.05% $ 75,935 40.15% 3.05% $ 75,047 40.68% 3.05%
Money market............... 5,817 3.17 3.10 5,423 2.87 3.10 4,804 2.60 3.20
Other interest bearing..... 2,913 1.59 2.95 2,802 1.48 2.95 2,574 1.40 3.05
Non interest bearing....... 19,760 10.77 0.00 20,231 10.70 0.00 16,240 8.80 0.00
-------- ------ ---- -------- ------ ---- -------- ------ -----
Total................... 106,357 57.95 3.05 104,391 55.20 3.05 98,665 53.48 3.06
-------- ------ ---- -------- ------ ---- -------- ------ -----
Time Deposits:
Original maturities of:
Three months or less...... 672 0.37 3.75 957 0.50% 3.76% 944 0.51% 4.10%
Over three months to
twelve months.......... 36,927 20.12 4.21 39,646 20.96 4.76 41,408 22.44 5.03
Twelve months to twenty-
four months............ 12,284 6.69 4.75 13,995 7.40 5.28 12,566 6.81 5.24
Twenty-four months to
thirty-six months...... 7,854 4.29 5.20 8,996 4.76 5.38 10,358 5.62 5.66
Thirty-six months to forty-
eight months........... 2,354 1.28 5.20 3,176 1.68 5.90 2,992 1.62 5.97
Forty-eight months to
sixty months........... 17,074 9.30 6.18 17,969 9.50 6.18 17,563 9.52 6.11
-------- ------ ---- -------- ------ ---- -------- ------ -----
Total time deposits..... 77,165 42.05 5.39 84,739 44.80 5.24 85,831 46.52 5.38
-------- ------ ---- -------- ------ ---- -------- ------ -----
Total deposits............. $183,522 100.00% 4.15% $189,130 100.00% 4.15% $184,496 100.00% 4.24%
======== ====== ==== ======== ====== ==== ======== ====== =====
</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
$22,549,000.
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 Corporation is currently inactive.
13
<PAGE>
Employees
At December 31, 1999, Rome Savings had 82 full-time and 15 part-time
employees. Rome Savings's employees are not represented by a collective
bargaining agreement, and Rome Savings considers its relationship with its
employees to be good.
FEDERAL AND STATE 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. Rome Savings and Rome
Bancorp constitute an affiliated group of corporations and, therefore, are
eligible to report their income on a consolidated basis. Because Rome, MHC
owns less than 80% of the common stock of Rome Bancorp, it is not 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. Rome Savings, 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, Rome Savings 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 Rome Savings'
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 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 includible 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
14
<PAGE>
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 Rome, MHC is not 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.
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.
REGULATION AND SUPERVISION
General
Rome Savings 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.
15
<PAGE>
The Banking Department and the FDIC conduct periodic examinations to assess Rome
Savings' 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, are 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 are required to file reports with, and
otherwise comply with the rules and regulations of the FRB and the Banking
Department. Rome Bancorp is also 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.
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-Leach-
Bliley Financial Services Modernization Act of 1999 (the GLBA), federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers. Generally, the GLBA:
(1) repeals the historical restrictions and eliminates many federal and
state law barriers to affiliations among banks, securities firms,
insurance companies and other financial service providers;
(2) provides a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding companies;
(3) broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies and their financial
subsidiaries;
(4) provides an enhanced framework for protecting the privacy of consumer
information;
(5) adopts a number of provisions related to the capitalization,
membership, corporate governance and other measures designed to
modernize the Federal Home Loan Bank system;
(6) modifies the laws governing the implementation of the Community
Reinvestment Act; and
(7) addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial
institutions.
Bank holding companies will be permitted to engage in a wider variety of
financial activities than permitted under prior law, particularly with respect
to insurance and securities activities. In addition, in a change from prior
law, bank holding companies will be in a position to be owned, controlled or
acquired by any company engaged in financially-related activities.
16
<PAGE>
The Company believes that the GLBA will not have a material adverse effect
on our operations in the near-term. However, to the extent that it permits
banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This could result in a
growing number of larger financial institutions that offer a wider variety of
financial services than we currently offer and that can aggressively compete in
the markets the Bank currently serves.
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, 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 December 31,
1999, Rome Savings' limit on loans to one borrower was $9.6 million.
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.
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
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
17
<PAGE>
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. Rome Savings does not know of any past or current practice, condition or
violation that might lead to any proceeding by the Banking Department against
Rome Savings or any of its directors 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.
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 4.0%, 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.
18
<PAGE>
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 Bancorp leverage ratio, its Tier 1 risk-
based capital ratio, and its total risk-based capital ratio, at December 31,
1999:
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------------------------------
Minimum Capital
Actual Adequacy
----------------- -----------------------------------
Amount Ratio(1) Amount Ratio(1)
----------------- -----------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Leverage (Tier 1) capital..... $38,367 16.7% $ 6,882 greater than or equal to 3%
Risk-based capital:
Tier 1..................... 38,637 28.7% $ 5,354 greater than or equal to 4%
Total...................... 40,171 30.0% $10,708 greater than or equal to 8%
</TABLE>
___________________
(1) For purposes of calculating the Tier 1 leverage capital ratio, assets
include adjusted total average assets. In calculating Tier 1 risk-based
capital and total risk-based capital ratio, assets include total risk-
weighted assets.
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 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
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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;
(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.,
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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 January 1, 1999 was 0.0122% for BIF-assessable
deposits and 0.0610% for SAIF-assessable deposits.
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 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
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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:
(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
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(3) a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices.
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 Savings
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."
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
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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 York 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 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.
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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
(FHLBNY), 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 December 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.
Federal Home Loan Bank System Modernization Act of 1999. Title 6 of the
GLBA, entitled the Federal Home Loan Bank System Modernization Act of 1999 (FHLB
Modernization Act), has amended the FHLB Act by allowing for voluntary
membership and modernizing the capital structure and governance of the FHLB
system. The new capital structure established under the FHLB Modernization Act
sets forth new leverage and risk-based capital requirements based on permanence
of capital. It also requires some minimum investment in FHLB stock of all
member entities. Capital will include retained earnings and two forms of stock:
Class A stock redeemable within six months, written notice and Class B stock
redeemable within five years, written notice. The FHLB Modernization Act
provides a transition period to the new capital regime, which will not be
effective until the FHLB enacts implementing regulations. The FHLB
Modernization Act also reduces the period of time in which a member exiting the
FHLB system must stay out of the system.
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
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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. Rome, MHC and Rome Bancorp are 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
December 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.
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 FRB 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.
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, which does not qualify as a financial
holding company under the GLBA (see discussion of financial holding companies
below), 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 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;
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(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.
Bank holding companies that do qualify as a financial holding company under
the GLBA may engage in activities that are financial in nature or incidental
thereto. Bank holding companies may qualify to become a financial holding
company if each of its depository institution subsidiaries is "well
capitalized," "well managed," has at least a "satisfactory" CRA rating at its
most recent examination and the bank holding company has filed a certification
with the FRB that it elects to become a financial holding company.
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 a depository institution in addition to Rome Savings.
Financial Holding Company Election Under the GLBA. Effective March 12,
2000, the GLBA allows bank holding companies to elect to become financial
holding companies (FHC's), which may engage in a variety of new activities
subject to the requirement that their depository institution affiliates be well
managed and well capitalized and have satisfactory CRA ratings. These new
activities in which FHC's may engage include:
(1) Lending, exchanging, transferring, investing for others, or
safeguarding money or securities;
(2) Underwriting and selling insurance;
(3) Providing financial, investment or advisory services;
(4) Selling pools of assets;
(5) Underwriting, dealing in or making a market in securities; and
(6) Merchant banking.
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 company for the purposes
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of the Banking Law. Under the Banking Law, the prior approval of the Banking
Department is required before:
(1) any action is taken that causes any company to become a bank holding
company;
(2) 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;
(3) any bank holding company acquires direct or indirect ownership or
control of more than 5% of the voting stock of a banking institution;
(4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or
(5) 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.
Dividend Waivers by Rome, MHC
Certain mutual holding companies have waived the receipt of dividends
declared by their savings institution subsidiaries. Any such dividend waiver by
Rome, MHC will be subject to the following restrictions:
Federal Restrictions. In connection with its approval of the
reorganization, the FRB imposed certain conditions on the waiver by Rome, MHC of
dividends paid on Rome Bancorp's common stock. In particular, the FRB is
expected to require that Rome, MHC obtain the prior approval of the FRB before
Rome, MHC may waive any dividends from Rome Bancorp. As of the date hereof, Rome
Savings is not aware that the FRB has given its approval to any waiver of
dividends by any mutual holding company that has requested such approval.
The term set the reorganization also required 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
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the reorganization. This amount would not be available for distribution to
public stockholders. The restricted capital account and liquidation account
amounts would not be reflected in Rome Savings' 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.
Rome, MHC does not expect initially to 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 FRB 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 its capital
needs, the investment alternatives available to it as compared to those
available to Rome Bancorp, and the possibility of regulatory approvals. Rome
Savings cannot guarantee:
(1) that Rome, MHC will waive dividends paid by Rome Bancorp;
(2) that if the application is made to waive a dividend, that the FRB will
approve such dividend waiver request; or
(3) what conditions might be imposed by the FRB on any dividend waiver.
29
<PAGE>
Federal Securities Laws
Rome Bancorp's Common Stock is registered with the SEC under Section 12(b)
of the Securities Exchange Act of 1934 (the "Exchange Act"). Rome Bancorp is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
ITEM 2. DESCRIPTION OF PROPERTY
We conduct our business through our executive office, operations center and
three banking offices. At December 31, 1999, the net book value of the computer
equipment and other furniture, fixtures and equipment of Rome Savings and Rome
Bancorp at their offices totaled $818,000 million. For more information, see
Note 5 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Original
Leased or Date Net Book Value
Location Owned Acquired December 31, 1999
- ------------------------------ ----------- ---------- ----------------------
(In thousands)
<S> <C> <C> <C>
Executive Office:
100 West Dominick St.
Rome, NY................... Owned 1956 $ 944
Branch Offices:
1629 Black River Boulevard
Rome, NY................... Owned 1963 361
1300 Erie Boulevard
Rome, NY................... Owned 1997 1,090
82 Seneca Turnpike
New Hartford, NY........... Owned 1983 112
Accounting Center:
139 West Dominick Street
Rome, NY................... Owned 1995 414
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Form 10-KSB, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
30
<PAGE>
PART II
ITEM 5. MARKET FOR ROME BANCORP'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The following information included in the Rome Bancorp, Inc. 1999 Annual
Report to Shareholders (the "Annual Report") is incorporated herein by
reference: "Market for Rome Bancorp's Common Stock."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information included in the Rome Bancorp, Inc. 1999 Annual
Report to Shareholders (the "Annual Report") is incorporated herein by
reference: "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Highlights," on pages 6 through 13 of the
Annual Report.
ITEM 7. FINANCIAL STATEMENTS
The following information included in the Annual Report is incorporated
herein by reference: "Consolidated Financial Statements and Notes to
Consolidated Financial Statements."
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF ROME BANCORP
The following information included in Rome Bancorp's 2000 Proxy Statement
for the 2000 Annual Meeting of Shareholders ("Proxy Statement") is incorporated
herein by reference: "Proposal 1, Election of Directors" and the following
subsections of the section entitled "Information About Board of Directors and
Management": "Board of Directors," "Committees of the Board," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 10. EXECUTIVE COMPENSATION
The information set forth in the following subsections of the section
entitled "Information About Board of Directors and Management" of the Proxy
Statement is incorporated herein by reference: "Directors' Compensation,"
"Executive Compensation" (including the Summary Compensation Table), "Benefit
Plans" and "Transactions with Certain Related Persons."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included in the Proxy Statement is incorporated
herein by reference: "Stock Ownership of Management" and "Security Ownership of
Certain Beneficial Owners and Management."
31
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information included in the Proxy Statement is incorporated
herein by reference: "Transactions with Certain Related Persons."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements included in the 1999 Annual Report
are incorporated herein by reference:
Consolidated Balance Sheets -- At December 31, 1999 and 1998;
Consolidated Statements of Income -- Years Ended December 31, 1999 and
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income -- Years Ended December 31, 1999 and 1998;
Consolidated Statements of Cash Flows -- Years Ended December 31, 1999
and 1998; and
Notes to Consolidated Financial Statements -- Years Ended December 31,
1999 and 1998
(b) Exhibits. The following exhibits are either filed as part of this
report or are incorporated herein by reference:
2.1 Amended Plan of Reorganization of The Rome Savings Bank.(1)
3.1 Certificate of Incorporation of Rome Bancorp, Inc.(1)
3.2 Bylaws of Rome Bancorp, Inc.(1)
4.3 Form of Stock Certificate of Rome Bancorp, Inc.(1)
10.1 Form of Employee Stock Ownership Plan of Rome Bancorp, Inc.(1)
10.2 Form of Executive Employment Agreement, by and between Charles M.
Sprock and Rome Bancorp, Inc.(1)
10.3 Form of Benefit Restoration Plan of Rome Bancorp, Inc.(1)
13.1 Annual Report to Shareholders for the Year Ended December 31,
1999.
21.1 Subsidiaries of the Registrant.(1)
27.1 Financial Data Schedule. (Filed in electronic format only)
______________________
(1) Incorporated herein by reference in the Registration Statement on
Form SB-2 (Registration No. 333-80487), filed with the Securities
and Exchange Commission on June 11, 1999, as amended.
(c) Reports on Form 8-K.
None.
This Form 10-KSB contains certain forward looking statements consisting of
estimates with respect to the financial condition, results of operations and
business of Rome Savings and Rome Bancorp that are subject to various factors
which could cause actual results to differ materially from these estimates.
These factors include: changes in general, economic and market conditions, or
the development of an adverse interest rate environment that adversely affects
the interest rate spread or other income anticipated from Rome Savings' or Rome
Bancorp's operations and investments.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Rome Bancorp, Inc.
By: /s/ Charles M. Sprock
-------------------------------------------
President, Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ------------------------- ----------------------------- --------------
<S> <C> <C>
/s/Charles M. Sprock Chairman of the Board, March 22, 2000
- ------------------------- President and Chief
Charles M. Sprock Executive Officer
(Principal Executive
Officer)
/s/ David C. Nolan Treasurer and Chief March 22, 2000
- ------------------------- Financial Officer (Principal
David C. Nolan Financial Officer)
/s/ Bruce R. Engelbert Director March 22, 2000
- -------------------------
Bruce R. Engelbert
/s/ David C. Grow Director March 22, 2000
- -------------------------
David C. Grow
/s/ Kirk B. Hinman Director March 22, 2000
- -------------------------
Kirk B. Hinman
/s/ T. Richard Leidig Director March 22, 2000
- -------------------------
T. Richard Leidig
/s/ Richard H. McMahon Director March 22, 2000
- -------------------------
Richard H. McMahon
/s/ Michael J. Valentine Director March 22, 2000
- -------------------------
Michael J. Valentine
/s/ Marion C. Scoville Director March 22, 2000
- -------------------------
Marion C. Scoville
</TABLE>
33
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- ----------------------------------------------------------------------------
EXHIBIT 13.1
TABLE OF CONTENTS
Chairman's Message _______________________________________________________ 3
Financial Highlights _______________________________________________________ 4
Management Discussion & Analysis ___________________________________________ 6
Market for the Company's Common Stock ______________________________________14
Independent Auditors' Report _______________________________________________15
Consolidated Financial Statements _________________________________________16
Corporate Information _____________________________________________________41
------------------------------------------------------------------------------
Forward-Looking Statement:
Statements included in this review and in future filings by Rome Bancorp,
Inc. with the Securities and Exchange Commission, in Rome Bancorp, Inc. press
releases, and in oral statements made with the approval of an authorized
executive officer, which are not historical or current facts, are "forward-
looking statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Rome
Bancorp, Inc. wishes to caution readers not to place undue reliance on such
forward-looking statements, which speak only as of the date made. The
following important factors, among others, in some cases have affected and in
the future could affect Rome Bancorp, Inc. actual results, and could cause
Rome Bancorp, Inc. actual financial performance to differ materially from that
expressed in any forward-looking statement: (1) credit risk, (2) interest rate
risk, (3) competition, (4) changes in the regulatory environment, and (5)
changes in general business and economic trends. The foregoing list should not
be construed as exhaustive, and Rome Bancorp, Inc. disclaims any obligation to
subsequently revise any forward-looking statements to reflect events of
circumstances after the date of such statements, or to reflect the occurrence
of anticipated or unanticipated events.
------------------------------------------------------------------------------
1
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- -------------------------------------------------------------------------------
2
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- -------------------------------------------------------------------------------
Chairman's Message
Dear Shareholder:
In 1851, the first seeds were
sown for what would be a
successful financial institution
in Central New York - Rome
Savings Bank. Our goals were
simple then as they are now - to
stimulate community development,
to provide quality, personalized
banking service to our
customers, and to provide an
environment of stability and
growth.
1999 was a year of milestones
for us all. We completed our
reorganization from a New York
mutual savings bank to a New
York mutual holding company,
resulting in our newly formed
stockholding company, Rome
Bancorp, Inc. The Bank itself is
now a wholly owned subsidiary of
Rome Bancorp, which is a
majority owned subsidiary of
Rome MHC. In connection with our
reorganization, Rome Bancorp
sold over 1.4 million shares of
common stock to you, our
shareholders - most of whom are
our devoted customers - as well
as 133,000 shares of common stock to the Employee Stock Ownership Plan of Rome
Bancorp, and issued 1.7 million shares to Rome MHC. Rome Bancorp also donated
$100,000 in cash and 68,000 shares to establish The Rome Savings Bank
Foundation, which is designed to serve the charitable needs of Oneida County.
In 1999, we have further cultivated our fertile soil by making a significant
investment in technology that positions the Bank in the 21st century. We are
proud of our achievements in both testing and readiness, as well as the many
demanding hours devoted to this project. This technology gives us our
competitive edge, allowing us to introduce new products and services, such as
our new telephone banking service, TeleBanker, offering greater choice and
benefits to our customers.
With the continued support of the community and you, our shareholders, our
assets to the Bank are now $226.8 million, with over $183.5 million in deposits.
Using these assets, we have strengthened our lending area - including business,
consumer, student, and mortgage loans - to total over $143.3 million. We are
currently four-offices strong, including a network of 10 Automated Teller
Machines (ATMs).
We are proud to maintain our strong roots in Central New York, while continuing
to grow to meet the financial needs of our customers. Our service has become the
standard by which other banks are measured. As we celebrate the new millennium,
we also celebrate the changes that make us stronger, while holding onto the
traditions that make us unique. We stand proud, unified, and still completely
independent, as we have since 1851. And from our staff, officers, and Board of
Directors, a sincere "THANK YOU" for your continued faith and support.
Sincerely,
Charles M. Sprock
Chairman of The Board
President
CEO
[LOGO]
3
<PAGE>
<TABLE>
<CAPTION>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL AND OTHER DATA
At December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $226,827 $225,273 214,356 $212,046 $214,823
Loans, net 141,512 134,848 130,975 137,285 139,347
Securities 59,792 56,508 56,628 48,324 45,406
Total cash and cash equivalents 16,061 25,214 17,299 16,692 20,065
Other assets 4,210 3,168 4,113 4,118 4,158
Total deposits 183,522 189,130 184,496 184,579 188,358
Total equity 38,367 28,662 26,794 24,886 24,133
Allowance for loan losses 1,776 1,956 1,742 1,708 1,645
Non-performing loans 487 931 1,474 3,252 3,583
Non-performing assets 670 1,224 3,100 4,702 5,153
For the Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $15,549 15,511 15,542 15,629 15,660
Interest expense 6,850 7,203 7,311 7,487 7,148
------ ------ ------ ------ -----
Net interest income 8,699 8,308 8,231 8,142 8,512
Provision for loan losses 175 390 360 1,850 767
------ ------ ------ ------ -----
Net interest income
after provision for loan losses 8,524 7,918 7,871 6,292 7,745
Non-interest income:
Service charges and other income 1,086 768 936 1,179 867
Net gain (loss) on sale of securities 111 314 157 410 (107)
------ ------ ------ ------ -----
Total noninterest income 1,197 1,082 1,093 1,589 760
Total noninterest expense 7,662 6,622 6,430 6,140 6,599
------
Income before income taxes 2,059 2,378 2,534 1,741 1,906
Income taxes 613 853 996 735 689
------ ------ ------ ------ -----
Net income $1,446 $1,525 $1,538 $1,006 $1,217
====== ====== ====== ====== =====
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or for the
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data
Performance Ratios:
Return on average assets 0.64% 0.70% 0.71% 0.47% 0.58%
Return on average equity 4.52% 5.34% 5.79% 3.99% 5.26%
Net interest rate spread 3.51% 3.47% 3.52% 3.53% 3.89%
Net interest margin 4.31% 4.19% 4.13% 4.10% 4.42%
Non-interest expense to average assets 3.40% 3.04% 2.99% 2.85% 3.17%
Efficiency Ratio 77.43% 72.96% 70.14% 65.87% 70.36%
Avg interest-earning assets to average 124.57% 120.15% 116.83% 115.03% 114.51%
interest-bearing liabilities
Capital Ratios:
Average equity to average assets 14.18% 13.09% 12.34% 11.70% 11.11%
Equity to total assets at end of period 16.91% 12.72% 12.50% 11.74% 11.23%
Regulatory Capital Ratios:
Core capital (Tier 1 capital) 16.72% 12.73% 12.33% 11.68% 11.19%
Total Risk-based capital 30.01% 22.80% 22.20% 21.20% 21.40%
Asset Quality Ratios:
Nonperforming loans as percent of loans 0.34% 0.68% 1.11% 2.34% 2.54%
Nonperforming assets as percent of total assets 0.30% 0.54% 1.45% 2.22% 2.40%
Allowance for loan losses as a percent of loans 1.24% 1.43% 1.31% 1.23% 1.17%
Allowance for loan losses as a percent of 364.68% 210.32% 118.18% 52.52% 45.91%
non-performing loans
Other Data:
Number of:
Deposit accounts 33,475 34,693 34,003 34,218 34,536
Full service offices 4 4 4 3 3
</TABLE>
5
<PAGE>
Exhibit 13.1
ROME BANCORP, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Introduction:
On October 6, 1999, Rome Savings Bank, (the "Bank") completed its reorganization
from a New York mutual savings bank to a New York mutual holding company
structure whereby the Bank became a wholly owned subsidiary of Rome Bancorp Inc.
(the "Company"), a majority owned subsidiary of Rome, MHC. In connection with
the reorganization, the Company sold 1,598,365 shares of common stock to the
public and issued 68,015 shares to The Rome Savings Bank Foundation and
1,734,396 to Rome, MHC, its mutual holding company parent. Net proceeds of the
offering were approximately $8.8 million.
Rome Bancorp, Inc. is a Delaware corporation whose sole business is conducted by
its wholly-owned subsidiary, the Bank. The Bank's principal business is
accepting deposits from the general public and using those deposits to make
residential and commercial real estate loans, as well as commercial and consumer
loans to individuals and small businesses primarily in Oneida County and also
elsewhere in New York. The Bank also invests in long and short term marketable
securities and other liquid investments.
The Bank's results of operations depend primarily on its net interest income,
which is the difference between the interest income it earns on its loans and
investments and the interest it pays on its deposits and other interest-bearing
liabilities. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on these balances. The Bank's operations are also affected by
non-interest income, such as service fees and gain on sales of investment
securities and non-interest expense such as salaries and employee benefits,
occupancy costs, and other general and administrative expenses. The consolidated
financial condition and operating results of the Company are primarily dependent
on its wholly - owned subsidiary, the Bank, and all references to the Company
prior to October 6, 1999, except where otherwise indicated, are to the Bank.
Comparison of Financial Condition at December 31, 1999 and December 31, 1998:
Total assets at December 31, 1999 were $226.8 million versus $225.3 million at
December 31, 1998, an increase of $1.5 million or .7%. Securities, primarily
securities available for sale, were $59.8 million versus $56.5 million at
December 31, 1998, an increase of $3.3 million or 5.8%. This increase reflects a
growth in the securities portfolio of $5.0 million offset in part by unrealized
losses in the Bank's available for sale securities portfolio. At December 31,
1999, the securities available for sale, had an unrealized loss of $433,000
versus an unrealized gain of $1.3 million at December 31, 1998, a $1.7 million
decrease in the market value. This decrease was caused by the general increase
in market interest rates during the latter part of 1999, which had an adverse
impact on the market value of the Bank's securities. During the year ended
December 31, 1999, the Bank also sold securities with a market value of $3.2
million for a net gain of $111,000.
Net loans increased $6.6 million or 4.9% to $141.5 million at December 31, 1999
versus $134.9 million at December 31, 1998. Commercial loans grew by $2.7
million to $20 million while commercial real estate loans grew by $3.5 million
to $33 million.
Total deposits decreased $5.6 million or 3.0% to $183.5 million at December 31,
1999 versus $189.1 million at December 31, 1998. Time deposits decreased $7.6
million or 8.9% to $77.2 million as a result of management's decision not to
raise rates as fast as its competition. This action generated significant
savings to the Bank as explained under "Comparison of Operating Results for the
Years Ended December 31, 1999 and December 31, 1998." The decrease in time
deposits was partially offset by an increase of $1.9 million or 2.5% in savings
deposits to $77.9 million.
6
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
Total liabilities decreased $8.2 million or 4.2% to $188.5 million at December
31, 1999 from $196.6 million at December 31, 1998 primarily as a result of the
aforementioned decline in total deposits and a $2.7 million decrease to $1.3
million in investment securities purchases awaiting settlement.
Total equity increased $9.7 million or 33.8% to $38.4 million from $28.7 million
at December 31, 1998. This increase reflects the net proceeds from the offering
of $8.8 million, earnings of $1.4 million for the year ended December 31, 1999,
shares issued to The Rome Savings Bank Foundation at a value of $476,000, and
the release of 8,887 shares of unallocated ESOP shares at a cost of $56,000.
These increases to stockholders equity were partially offset by a $1.0 million
decrease in accumulated other comprehensive income for the year ended December
31, 1999 related to the aforementioned reduction in the market value of the
Bank's available for sale securities net of related taxes and a charge to
retained earnings of $100,000 for the capitalization of Rome, MHC.
Comparison of Operating Results for the Years Ended December 31, 1999 and
December 31, 1998:
General
Net income for the year ended December 31, 1999 decreased $79,000 or 5.2% to
$1.45 million from $1.53 million for the year ended December 31, 1998. The
decrease in net income was attributable to a $1.04 million increase in
non-interest expenses which was partially offset by a $606,000 increase in net
interest income after provision for loan losses, a $115,000 increase in
non-interest income, and a $240,000 decrease in income taxes. The increase in
non-interest expense was principally attributable to a $576,000 contribution to
The Rome Savings Bank Foundation which resulted in a one time charge to earnings
after taxes of $346,000. Net interest income after provision for loan losses
increased as a result of a $391,000 increase in net interest income and a
$215,000 decrease in provision for loan losses. The increase in net interest
income was a result of an increase in the Bank's net interest margin from 4.19%
for 1998 to 4.31% for 1999. The decrease in provision for loan losses reflected
management's assessment of various relevant factors in order to maintain the
allowance for loan losses at adequate levels. Finally, the decrease in income
taxes primarily reflected a decrease in the Bank's effective tax rate from 35.9%
in 1998 to 29.8% in 1999. The reduction in the Bank's effective rate was
primarily a result of a significant increase in the Bank's holdings of state and
municipal obligations which are exempt from federal income taxes.
Interest Income
Total interest income remained essentially unchanged at $15.5 million for both
1999 and 1998. Total interest income, on a tax equivalent basis, increased
$242,000 to $15.9 million for 1999 compared to $15.7 million for 1998. The
average balance of tax exempt securities increased to $13.8 million in 1999 from
$6.0 million in 1998 resulting in a $205,000 or 125.8% increase in "tax
equivalent" interest income to $368,000 in 1999 from $163,000 in 1998. The
average balance of all earning assets increased $8.1 million or 4.0% to $210.2
million for 1999 from $202.2 million for the prior year. The yield on earning
assets decreased to 7.57% for 1999 from 7.75% in 1998 primarily due to a run off
of higher yielding loans originated during earlier years when prevalent interest
rates were generally higher combined with new originations at generally lower
rates. Interest on loans however, remained essentially unchanged at $11.4
million versus $11.3 million in 1998 as a decline in their yield to 8.31% in
1999 from 8.57% in 1998 was offset by a $4.4 million increase in the average
amount outstanding to $136.6 million from $132.3 million in 1998.
7
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
Interest Expense
Interest expense on deposits decreased $353,000 or 4.9% to $6.9 million for 1999
in comparison with $7.2 million for 1998. The cost of time deposits dropped
$466,000 to $4.2 million for 1999 compared with $4.6 million for 1998 as a
result of a drop in the average cost of time deposits from 5.47% for 1998 to
5.09% for 1999 and as a result of a $2.9 million decline in the average balance
of time deposits to $81.6 million for 1999 from $84.5 million for 1998. The drop
in the average cost of time deposits and the reduction in average balances
reflected management's decision not to raise the rates paid on time deposits in
line with the competition. The decrease in the cost of time deposits was
partially offset by a $113,000 increase in the cost of all other interest
bearing deposits due principally to a $3.1 million increase in the average
balance of savings deposits to $78.5 million.
Net Interest Income
Net interest income for 1999 increased $391,000 or 4.7% to $8.7 million from
$8.3 million for 1998. Net interest income on a tax equivalent basis for 1999
increased $596,000 or 7.03% to $9.1 million from $8.5 for 1998. Net interest
income changes are the result of the changes in interest income and interest
expense discussed above. Net interest margin, represented by net interest income
divided by average total interest-bearing assets, increased 12 basis points to
4.31% from 4.19% for 1998. This increase occurred largely as a result of the
increase in the Bank's ratio of average interest-earning assets to average
interest bearing liabilities as well as a 4 basis point increase in the net
interest rate spread between the yield on its average earning assets and the
cost of its average interest-bearing liabilities to 3.51% in 1999 from 3.47% for
1998.
Provision for Loan Losses
During 1999, the Bank provided $175,000 for possible loan losses, compared to
$390,000 for 1998. The decrease in the Bank's provision for loan losses reflects
management's 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. Future provisions for loan
losses will continue to be based upon this methodology.
Non-interest Income
Non-interest income was $1.2 million for 1999 compared to $1.1 million for 1998.
Service charges increased $72,000 or 12.8% to $634,000 versus $562,000 in 1998
primarily as a result of fees imposed in January of 1999 for non-bank depositor
usage of the Bank's ATM machines. Net gains on the sale of securities decreased
to $111,000 in 1999 versus $314,000 in 1998 primarily as a result of
management's decision to sell $2.5 million of municipal securities at a loss and
reinvest the proceeds in $1.5 million of higher yielding municipal securities as
well as $1.0 million of floating rate agency securities. Deferred directors
compensation income represents interest, dividends, and unrealized gains on the
deferred directors fees which fluctuates based on the performance of the
investments in the plan. Other income was $276,000 for 1999 versus $181,000 in
1998. This $95,000 increase was primarily the result of interest and late
charges collected on a large commercial loan charged off in a prior year.
8
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Balances, Interest and Average Yields of the following table sets forth
- ---------------------------------------------
certain information relating to the Company's average balance sheets and
reflects the average yield on interest-earning assets and average cost of
interest-bearing liabilities, interest earned and interest paid for the periods
indicated. Such yields and costs are derived by dividing income or expense by
average balance of Interest-caring assets or interest-bearing liabilities,
respectively, for the periods presented. Average balances are derived from
daily balances over the periods indicated. The average balances for loans are
net of allowance for loan losses, but include non-accrual loans. Interest income
on securities include a tax equivalent adjustment for bank qualified municipals.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Balances, Interest and Average Yields
- -------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999 For the Year Ended December 31, 1998
Interest Interest
Average Income/ Avg. Average Income/ Avg.
Balance Expense Yield/Cost Balance Expense Yield/Cost
------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $136,642 $11,349 8.31% $132,282 $11,334 8.57%
Investment Securities 55,780 3,674 6.59% 56,585 3,627 6.41%
Fed funds sold & Int Bearing deposits 17,807 894 5.02% 13,298 713,121 5.36
------ --- ----- ------ ------- ----
Total interest-earning assets 210,229 15,917 7.57% 202,165 15,674 7.75%
Noninterest-earning assets 15,285 15,989
------ ------
Total Assets $225,514 $218,154
======== ========
Savings accounts $78,521 $2,437 3.10% $75,438 $2,340 3.10%
Time Deposits 81,621 4,158 5.09% 84,497 4,625 5.47%
Money market accounts 6,020 189 3.14% 5,596 179 3.22%
Other Interest Bearing deposits 2,607 66 2.53% 2,732 59 2.16%
----- -- ----- ----- -- -----
Total interest-bearing liabilities 168,769 6,850 4.06% 168,263 7,203 4.28%
Noninterest-bearing deposits 20,863 18,064
Other liabilities 3,914 3,280
----- -----
Total liabilities 193,546 189,607
Equity 31,968 28,547
------ ------
Total liabilities and equity $225,514 $218,154
======== ========
Net Interest Income 9,067 8,471
Net Interest Rate Spread 3.51% 3.47%
Net Interest Margin 4.31% 4.19%
Ratio of interest-earning assets to
Interest-bearing liabilities 1.25 1.20
Tax equivalent adjustment on securities (368) (163)
----- -----
Net interest income per consolidated
Financial statements $8,699 $8,308
====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
Rate Volume Analysis, analyzes the dollar amount of changes in interest income and interest expense for each of the interest income
- --------------------
and interest expense for major components of interest-earning assets of interest-bearing liabilities. It shows the amount of the
change in interest volume 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 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 absolute value of the change due to volume and the change due to rate.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rate Volume Analysis
----------------------------------------------------------------------
Year Ended December 31, 1999 vs.
1998
Increases (Decreases) Due to
Rate Volume Net
-------------------------------------
Loans ($359) $374 $15
Investment securities 99 (52) 47
Fed funds sold & Int Bearing deposits (61) 242 181
----- ---- ----
Total interest-earning assets (321) 564 243
Savings accounts ($1) ($96) ($97)
Time deposits 310 157 467
Money market accounts 5 (15) (10)
Other Interest Bearing deposits 10 3 (7)
----- ----- ----
Total interest bearing liabilities 304 49 353
Net Interest Income ($17) $613 $596
9
<PAGE>
ROME BANCORP, INC
1999 ANNUAL REPORT
- ------------------------------------------------------------------------------
Non-interest Expense
Non-interest expense increased $1.0 million to $7.7 million for 1999 compared to
$6.6 million for 1998. As noted previously, the increase in non-interest expense
was principally attributable to a $576,000 contribution to The Rome Savings Bank
Foundation. Excluding this expense, non-interest expense was $7.1 million versus
$6.6 million for 1998. Salaries and employee benefits increased $463,000 or
14.2% to $3.7 million for 1999 versus $3.3 million for 1998. Of this increase,
$56,000 was for the Company's Employee Stock Ownership Plan, (ESOP) which was
implemented as part of the Company's public offering while pension expense
increased $180,000. The increased pension expense was principally related to the
absence in 1999 of accounting credits related to the exhaustion of transition
assets that reduced pension expenses for 1998 and earlier years. The balance of
the increase represented routine salary increases. Building, occupancy and
equipment expenses increased $88,000 to $1.3 million as compared to $1.2 million
in 1998 primarily as a result of higher depreciation charges related to the
Bank's installation of new hardware and software to replace aging equipment,
ensure year 2000 compliance, and to expand its customer services. Expenses of
real estate owned decreased $361,000 to $22,000 for 1999 versus $383,000 in 1998
reflecting the decline in the balance outstanding of these properties from $1.6
million at the beginning of 1998 to $183,000 at the end of 1999. Finally, other
expenses increased $299,000 to $1.5 million from $1.2 million for 1998
reflecting the increased expense of the deferred directors compensation plan
which corresponds to the income discussed above, a general increase in operating
expenses and the increased costs of operating as a public company.
Income Taxes
Income tax expense decreased $240,000 to $613,000 for 1999 in comparison to
$853,000 for 1998. This decrease reflected a lower pretax income for 1999 of
$2.1 million versus $2.4 million for 1998. It also reflected a decline in the
Bank's effective tax rate to 29.8% for 1999 from 35.9% for 1998. The decline in
the effective rate reflects management's decision to increase its investment in
nontaxable municipal bonds. During 1999, the average balance of these securities
increased to $13.8 million from $6.0 million for 1998.
Liquidity and Capital Resources
The Bank's primary sources of funds consist of deposits, scheduled amortization
and prepayments of loans and mortgage-backed securities, maturities of
investments, interest bearing deposits at other financial institutions and funds
provided from operations. The Bank also has a written agreement with the Federal
Home Loan Bank of New York that allows it to borrow up to $22.5 million. At
December 31, 1999, the Bank 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.
The Bank's primary investing activities include the origination of loans and to
a lesser extent the purchase of investment securities. For the year ending
December 31, 1999, we originated loans of approximately $35.8 million and during
the year ending December 31, 1998 we originated loans of approximately $35.1
million. Purchases of investment securities were $33.2 million for 1998 and
$21.2 million for 1998.
At December 31, 1999, the Bank had loan commitments to borrowers of
approximately $8.8 million, and available letters and lines of credit of
approximately $6.0 million. Total deposits decreased $5.6 million during 1999
compared to an increase of $4.6 million during 1998. Deposit flows are affected
by the level
10
<PAGE>
ROME BANCORP, INC
1999 ANNUAL REPORT
- ------------------------------------------------------------------------------
of interest rates, the interest rates and products offered by competitors and
other factors. The loss in time deposits in 1999 was a result of management's
decision to lower its cost of deposits by not paying as much on new and renewing
time deposits as other competitors resulting in a substantial savings in
interest expense. These funds were replaced by the $8.8 million raised from the
Bank's public stock offering.
Time deposit accounts scheduled to mature within one year were $57.0 million at
December 31, 1999. Based on our deposit retention experience and current pricing
strategy, we anticipate that a significant portion of these time deposits will
remain with the Bank. 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. The marginal cost of new funding however, whether from deposits or
borrowings from the Federal Home Loan Bank, will be carefully considered as the
Bank monitors its liquidity needs. Therefore, in order to minimize its cost of
funds, the Bank may consider borrowings from the Federal Home Loan Bank in the
future.
At December 31, 1999, the Company and the Bank exceeded each of the applicable
regulatory capital requirements. The Company's and the Bank's leverage (Tier 1)
capital at December 31, 1999 was $38.4 million, and $33.1 million respectively
or 16.7% and 14.4% of average assets respectively. In order to be classified as
"well-capitalized" by the FDIC, the Bank is required to have leverage (Tier 1)
capital of $11.5 million, or 5.0% of average assets. To be classified as a
well-capitalized bank by the FDIC, the Bank must also have a risk-based total
capital ratio of 10.0%. At December 31, 1999 the Bank had a risk-based total
capital ratio of 26.2%.
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.
Management of Interest Rate Risk
Managing interest rate risk is of primary importance to the Company. The
Company's asset and liability management program includes a process for
identifying and measuring potential risks to earnings due to changes in interest
rates. The primary goal of the Company's interest rate risk management is to
minimize the potential loss in net interest income that could arise from changes
in interest rates. A simulation model is the primary tool used to assess the
impact of changes in interest rates on net interest income. Key assumptions used
in the model include prepayment speeds on loans and mortgage-backed securities,
loan volumes and pricing, customer preferences and sensitivity to changing
rates, and management's projected financial plans. These assumptions are
compared to actual results and revised as necessary. The Company's analysis
compares net interest income under a scenario of no change from current interest
rates with one of a 300 basis points increase in interest rates and one of a 300
basis points decrease in rates. The change in interest rates are assumed to
occur in the first 12 months following the current financial statement date. Net
interest income is measured for each of the three twelve month periods following
the balance sheet date. The Company's policy is that net interest income should
not vary by more than 20% for each of the three forecasted 12 month periods. At
December 31, 1999, based on simulation model results, the Company was within
these guidelines.
Another method the Company 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. 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
11
<PAGE>
ROME BANCORP, INC
1999 ANNUAL REPORT
- ------------------------------------------------------------------------------
assets. At December 31, 1999, the one year cumulative gap position as presented
in the table below, was $32.8 million liability sensitive, or 14.4% of total
assets.
Because the cumulative gap analysis is only a snapshot at a particular date and
does not fully reflect that certain assets and liabilities may have similar
repricing periods but may in fact reprice at different times within that period
and at differing rate levels, management uses the interest rate sensitivity gap
only as a
<TABLE>
<CAPTION>
Amounts Maturing or Repricing as of December 31, 1999
Less than
---------
Six 6 Months 1 - 2 2 - 3 3 - 5 Over 5
--- -------- ----- ------ ------ -------
Months to 1 Year Years Years Years Years Total
------ --------- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $6,503 $9,537 $14,164 $10,585 $20,338 $37,238 $98,365
Consumer and other loans $20,218 $4,582 $7,614 $5,644 $3,993 $2,872 $44,923
Federal funds sold $7,630 $0 $0 $0 $0 $0 $7,630
Investment securities $8,885 $1,088 $14,626 $3,358 $9,327 $22,508 $59,792
------ ------ ------- ------ ------ ------- -------
Total interest-earning assets $43,236 $15,207 $36,404 $19,587 $33,658 $62,618 $210,710
Interest-bearing liabilities:
Savings accounts $13,814 $13,814 $3,781 $3,781 $42,676 $0 $77,867
Other Interest Bearing Deposits $801 $0 $0 $0 $0 $2,112 $2,913
Money market accounts $5,817 $0 $0 $0 $0 $0 $5,817
Time deposits $39,047 $17,905 $11,527 $4,080 $4,606 $0 $77,165
------- ------- ------- ------ ------ -- -------
Total interest-bearing liabilities $59,479 $31,719 $15,308 $7,862 $47,283 $2,112 $163,762
Interest sensitivity gap ($16,243) ($16,512) $21,096 $11,726 ($13,625) $60,506
Cumulative interest sensitivity gap ($16,243) ($32,755) ($11,659) $67 ($13,558) $46,948
Ratio of cumulative gap to total assets -7.16% -14.44% -5.14% 0.03% -5.98% 20.70%
Ratio of interest-earning assets to
interest-bearing liabilities 72.69% 47.94% 237.81% 249.17% 71.18% 2964.87%
</TABLE>
general indicator of the potential effects of interest rate changes on net
interest income. Management believes that the gap analysis is a useful tool only
when used in conjunction with its simulation model for net interest income
analysis and managing interest rate risk.
Accounting Matters
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. During the second quarter of 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No.
12
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
133." SFAS No. 137 defers the effective date of SFAS No. 133 by one year from
fiscal years beginning after June 15, 1999, to fiscal years beginning after June
15, 2000. Management is currently evaluating the impact, if any, of this
Statement on the Company's Consolidated Financial Statements.
Impact of Enactment of the Gramm-Leach-Bliley Act
On November 12, 1999, President Clinton signed the Gramm-Leach Bliley Act (the
"Act"), which among other things, establishes a comprehensive framework to
permit affiliations among commercial banks, insurance companies and securities
firms. Generally, the Act (i) repeals the historical restrictions and eliminates
many federal and state law barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers, (ii) provides
a uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
subsidiaries of national banks and state banks, (iv) provides an enhanced
framework for protecting the privacy of information gathered by financial
institutions regarding their customers and consumers, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance and
other measures designed to modernize the Federal Home Loan Bank System, (vi)
requires public disclosure of certain agreements relating to funds expended in
connection with an institution's compliance with the Community Reinvestment Act,
(vii) addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions,
including the functional regulation of bank securities and insurance activities.
The Act also requires financial institutions to disclose, on ATM machines, any
non-customer fees and to disclose to their customers upon the issuance of an ATM
card any fees that may be imposed by the institutions on ATM users. For older
ATMs, financial institutions will have until December 31, 2004 to provide such
notices.
We do not believe that the Act will have a material adverse affect upon our
operations in the near term. However, to the extent the Act permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.
Year 2000
Throughout 1998 and 1999, under the direction of the Company's Y2K Committee,
management undertook and executed a five-phase project to respond to the year
2000 issue. A contingency plan was formulated to assure business continuation in
the event of Year 2000 systems failures.
All of these efforts proved successful and we entered the year 2000 with all
operating systems functioning normally with no disruption in service to our
customers. A committee will continue to monitor and evaluate the Company's
efforts throughout 2000.
While the Company met its year 2000 compliance commitment without incurring
significant incremental expenses, the greatest cost of the year 2000 problem was
the management time spent on this issue versus other areas, such as new product
development. With the Year 2000 efforts successfully completed, we look forward
to redeploying the management resources to other opportunities available to the
Company.
13
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- -------------------------------------------------------------------------------
MARKET FOR THE COMPANY'S COMMON STOCK
<TABLE>
<CAPTION>
<S> <C>
The Company's common stock is traded on dividend of $.0525 per share to shareholders of
the Nasdaq National Market System under the record as of February 10, 2000. Our ability to
symbol "ROME." pay dividends depends on a number of factors including:
The Company's common stock began trading . investment opportunities available to the
on October 6, 1999, the date of the re- Bank or the Company;
organization and initial public offering. At . the Banks' capital requirements;
December 29, 1999, the last trading date in . our financial results;
the Company's fiscal year, the common stock of . tax considerations; and
the Company closed at $6.50 per share. At . general economic conditions.
March 20, 2000, there were 3,400,776 shares of
the Company's common stock outstanding, which
were held of record by approximately 920
stockholders. We do not guarantee that we will pay dividends,
or that we will not reduce or eliminate dividends
The table below shows the high and low in the future.
sales price of the Company common stock during
the periods indicated.
The Company did not pay a dividends in
fiscal year 1999, but did pay a quarterly cash
-------------
Price Range
-----------------------------
- -------------------------------------------------------------------------------------------------------------------------
Date High Low Dividends
- ------------------------------------------------------- ----------- --------------- ---------------------------
Fiscal Year Ended December 31, 1999
Quarter Ended December 31, 1999........................ $7.250 $6.000 --
</TABLE>
14
<PAGE>
ROME BANCORP, INC.
1999 ANNUAL REPORT
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Directors and Officers of Rome Bancorp, Inc. and The Corporate Information
Rome Savings Bank
Transfer Agent and Registrar
Directors Inquiries regarding stockholder administration and services
should be directed to:
Charles M. Sprock
Chairman of the Board, President and Chief Executive Registrar and Transfer Company
Officer 10 Commerce Drive
Cranford, NJ 07016-3572
Bruce R. Engelbert (800) 368-5948
Retired, Former Owner and President, Engelbert's
Jewelers, Inc., a retail jewelry business Independent Auditors
KPMG LLP
David C. Grow 113 South Salina Street
Partner, law firm of McMahon, Grow & Getty Syracuse, NY 13202
(315) 471-8167
Kirk B. Hinman
President, Rome Strip Steel Company, Inc. Special Legal Counsel
Thacher Proffitt & Wood
T. Richard Leidig 1700 Pennsylvania Avenue, NW
Business Consultant Suite 800
Washington, DC 20006
Richard H. McMahon (202) 347-8400
Partner, law firm of McMahon, Grow & Getty
Stock Information
Marion C. Scoville Rome Bancorp's common stock trades on the Nasdaq
Corporate Secretary and Executive Assistant to the National Market System under the symbol "ROME."
President
Investor Relations
Michael J. Valentine Inquiries regarding The Rome Savings Bank and Rome
President, Mele Manufacturing Company, Inc. Bancorp, Inc. should be directed to:
manufacturing jewel cases, stationery, custom packaging
and sports flooring Charles M. Sprock
The Rome Savings Bank
Executive Officers 100 W. Dominick Street
Rome, NY 13440-5810
Charles M. Sprock (315) 336-7300
President and Chief Executive Officer
Annual Meeting Of Stockholders
Anthony B. Bauer Rome Bancorp's Annual Meeting of Stockholders will be
Senior Vice President/Operations held at 6:30 p.m. local time, on Wednesday, May 3, 2000,
at the main office of The Rome Savings Bank, 100 W.
David C. Nolan Dominick Street, Rome, New York, 13440-5810. Holders
Treasurer and Chief Financial Officer of common stock as of March 20, 2000 will be eligible to
vote.
James F. Sullivan
Vice President/Senior Loan Officer
D. Bruce Fraser
Vice President/Branch Administration Security
Jeannette Remp Sawyer
Vice President/Residential Mortgage Lending
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rome Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Rome Bancorp,
Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholder's equity and comprehensive
income, and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with 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 Rome Bancorp, Inc.
and subsidiary at December 31, 1999 and 1998, 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
- -----------------
KPMG LLP
January 28, 2000
Syracuse, New York
2
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
Assets
<S> <C> <C>
Cash and due from banks $ 8,431 6,136
Federal funds sold and other short-term investments 7,630 19,078
Securities available for sale, at fair value 58,439 55,036
Securities held to maturity (fair value of $1,385 and $1,542
at December 31, 1999 and 1998, respectively) 1,353 1,472
Loans 143,288 136,804
Less: Allowance for loan losses 1,776 1,956
----------- ----------
Net loans 141,512 134,848
Premises and equipment, net 3,739 3,957
Accrued interest receivable 1,513 1,578
Other assets 4,210 3,168
----------- ----------
Total assets $ 226,827 225,273
=========== ==========
Liabilities
Liabilities:
Deposits:
Non-interest bearing 19,760 20,231
Savings 77,867 75,935
Money market 5,817 5,423
Time 77,165 84,739
Other interest bearing 2,913 2,802
----------- ----------
Total deposits 183,522 189,130
Due to broker 1,298 4,026
Other liabilities 3,640 3,455
----------- ----------
Total liabilities 188,460 196,611
----------- ----------
Shareholders' equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,400,776 shares issued and outstanding at
December 31, 1999 34 --
Additional paid-in capital 10,214 --
Retained earnings, substantially restricted 29,249 27,909
Accumulated other comprehensive income (loss) (259) 753
Unallocated shares of employee stock ownership plan (ESOP)
124,423 shares at December 31, 1999 (871) --
----------- ----------
Total shareholders' equity 38,367 28,662
----------- ----------
Total liabilities and
equity $ 226,827 225,273
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Interest income:
Loans $ 11,349 11,334
Securities 3,306 3,464
Other short-term investments 894 713
-------- --------
Total interest income 15,549 15,511
Interest expense on deposits 6,850 7,203
-------- --------
Net interest income 8,699 8,308
Provision for loan losses 175 390
-------- --------
Net interest income after provision for loan losses 8,524 7,918
-------- --------
Non-interest income:
Service charges 634 562
Net gain on sale of securities 111 314
Deferred trustees compensation income 176 25
Other income 276 181
-------- --------
Total non-interest income 1,197 1,082
-------- --------
Non-interest expenses:
Salaries and employee benefits 3,726 3,263
Building, occupancy and equipment 1,275 1,187
Trustees fees 145 127
Real estate owned, net 22 383
ATM service fees 189 169
Public relations and advertising 175 132
Contributions 622 152
Other 1,508 1,209
-------- --------
Total non-interest expenses 7,662 6,622
-------- --------
Income before income tax expense 2,059 2,378
-------- --------
Income tax expense 613 853
-------- --------
Net income $ 1,446 1,525
======== ========
Basic earnings per share (from October 6, 1999 to
December 31, 1999) $ 0.02 N/A
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
other
Additional comprehensive Unallocated
Common paid-in Retained income ESOP
stock capital earnings (loss) shares Total
-------- ---------- -------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ -- -- 26,384 410 -- 26,794
Comprehensive income:
Net income -- -- 1,525 -- -- 1,525
Other comprehensive income -- -- -- 343 -- 343
---------
Total comprehensive income 1,868
-------- -------- -------- --------- --------- ---------
Balances at December 31, 1998 -- -- 27,909 753 -- 28,662
Net proceeds from sale of 1,598,365 shares of
common stock 16 9,756 -- -- -- 9,772
Initial capital contributions and issuance of
shares to Rome MHC (1,734,396 shares) 17 (17) (100) -- -- (100)
Charitable contribution of common stock to
Rome Savings Bank Foundation
(68,015 shares) 1 475 -- -- -- 476
Common stock acquired by ESOP
(133,310 shares) -- -- -- -- (933) (933)
ESOP shares released for allocation
(8,887 shares) -- -- (6) -- 62 56
Comprehensive income:
Net income -- -- 1,446 -- -- 1,446
Other comprehensive loss -- -- -- (1,012) -- (1,012)
-------
Total comprehensive income 434
-------- -------- -------- --------- --------- ---------
Balances at December 31, 1999 $ 34 10,214 29,249 (259) (871) 38,367
======== ======== ======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financialstatements.
5
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,446 1,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 516 418
Decrease in accrued interest receivable 65 23
Provision for loan losses 175 390
Net gains on sales of securities (111) (314)
Net (gains) losses on sale of real estate owned (33) 21
Write down of real estate owned 27 199
Amortization and accretion of premiums and discounts 2 (36)
Increase in other liabilities 185 389
Deferred income tax (195) (194)
Decrease (increase) in other assets (279) (422)
Contribution of stock to Rome Savings Bank Foundation 476 --
Allocation of ESOP shares 56 --
------------ ----------
Net cash provided by operating activities 2,330 1,999
------------ ----------
Cash flows from investing activities:
Net increase in loans (8,576) (6,151)
Proceeds from sale of education loans 1,688 1,491
Proceeds from sales of securities available for sale 3,192 921
Proceeds from maturities and principal reductions of
securities available for sale 24,969 21,000
Purchases of securities available for sale (35,868) (17,060)
Purchases of securities held to maturity (78) (107)
Proceeds from maturities and principal reductions of
securities held to maturity 195 314
Proceeds from sale of real estate owned 162 1,509
Additions to premises and equipment (298) (635)
------------ ----------
Net cash (used in) provided by investing activities (14,614) 1,282
------------ ----------
Cash flows from financing activities:
Decrease in time deposits (7,574) (1,092)
Increase in other deposits 1,966 5,726
Net proceeds from issuance of common stock 8,839 --
Initial capital contribution to Rome MHC (100) --
------------ ----------
Net cash provided by financing activities 3,131 4,634
------------ ----------
Net increase (decrease) in cash and cash equivalents (9,153) 7,915
Cash and cash equivalents at beginning of year 25,214 17,299
------------ ----------
Cash and cash equivalents at end of year $ 16,061 25,214
============ ==========
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Change in securities purchased not settled (2,728) 4,026
Additions to real estate owned 49 397
Cash paid during the period for:
Interest 6,850 7,203
Income taxes 1,269 1,023
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(1) Business
Rome Bancorp, Inc. (the "Company") is a registered bank holding company,
organized under the laws of Delaware and is the parent company of The Rome
Savings Bank and subsidiaries (the "Bank"). The Company commenced
operations on October 6, 1999, when the Bank converted from a state
chartered mutual savings bank to a state chartered stock savings bank (the
"Conversion"). On that date, the Company sold 1,598,365 shares of common
stock in its initial public offering and received $9.8 million of net
proceeds from the sale. The shares sold included 133,310 shares purchased
by the Company's Employee Stock Ownership Plan (ESOP), which was funded by
a loan from the Company. The Company contributed an additional 68,015
shares plus $100,000 to the Rome Savings Bank Foundation as part of the
Conversion and an expense of $346,000 after taxes, was recorded in October
1999 due to this donation.
The Company provides traditional community banking services for individuals
and small-to medium-sized businesses, through the Bank's 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).
(2) 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
Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions are eliminated in consolidation.
7
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(b) Securities
The Company classifies its debt securities as either available-for-
sale or held-to-maturity as the Company does not hold any securities
considered to be trading. Held-to-maturity securities are those debt
securities the Company has the ability and intent to hold until
maturity. All other debt securities are classified as available for
sale.
Held-to-maturity securities are recorded at amortized cost. Available-
for-sale securities are recorded at fair value. 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 shareholders' equity, 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.
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 Company 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 payment is received. Loans are
generally returned to an accrual status when both principal and
interest become 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.
8
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(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
Company'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 Company's allowance for loan losses and may
require the Company to recognize additions to the allowance based on
their judgment of information available to them at the time of their
examination.
The allowance for loan losses is periodically evaluated by management
in order to maintain the allowance at a level sufficient to absorb
probable loan losses based upon known and inherent risks in the loan
portfolio.
The Company 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 Company 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 homogeneous and generally carry smaller
individual balances. The Company recognizes interest income on
impaired loans using the cash basis of income recognition. Cash
receipts on impaired loans are generally applied according to the
terms of the loan agreement, or as a reduction of principal, based
upon management judgement and the related factors discussed above.
9
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(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. Operating costs associated with the
properties are charged to expense as incurred.
(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.
(g) Employee Benefit Plans
The Company 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 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.
The Company also sponsors a non-contributory ESOP covering
substantially all employees. The number of shares allocable to Plan
participants is determined by the Board of Directors. Allocations to
individual participant accounts are based on participant compensation.
As shares are committed to be released to participants, the Company
reports compensation expense equal to the current market price of the
shares and the shares become outstanding for earnings per share
computations.
10
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(h) Income Taxes
The Company and its subsidiary file a consolidated tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary 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.
(j) Financial Instruments With Off-Balance Sheet Risk
The Company's off-balance sheet financial instruments are limited to
commitments to extend credit. The Company's policy is to record such
instruments when funded.
(k) Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year.
Prior to the conversion to a stock bank holding company, earnings per
share are not applicable as the mutual savings bank had no shares
outstanding. After conversion, earnings per share is determined from
October 6, 1999, the date of the conversion, to the end of the year
based upon the weighted average number of shares outstanding for the
period. The income included in the computation is based on the actual
results of operations only for the post-conversion period. Unallocated
shares held by the Company's ESOP are not included in the weighted
average number of shares outstanding.
(l) Segment Reporting
The Company's operations are solely in the financial services industry
providing traditional community banking services in the geographical
region of Oneida County and surrounding areas in New York State. The
Company has determined that it has no reportable segments as defined
by Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information.
11
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(3) Securities
Securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government securities $ 6,023 10 23 6,010
U.S. Government agencies 21,958 61 184 21,835
State and Municipal obligations 15,009 -- 371 14,638
Mortgage-backed securities 10,624 4 214 10,414
Corporate bonds 488 -- 5 483
------------- ----------- ------------ -----------
Total debt securities 54,102 75 797 53,380
FHLB stock 763 -- -- 763
Equity and other securities 4,007 341 52 4,296
------------- ----------- ------------ -----------
$ 58,872 416 849 58,439
============= =========== ============ ===========
Held-to-maturity:
U.S. Government securities 500 1 -- 501
Mortgage-backed securities 559 31 -- 590
Other bonds 294 -- -- 294
------------- ----------- ------------ -----------
$ 1,353 32 -- 1,385
============= =========== ============ ===========
<CAPTION>
December 31, 1998
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------- ----------- ------------ -----------
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>
12
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------
Amortized Fair
cost value
---------------- ---------------
<S> <C> <C>
Available-for-sale:
Due within one year $ 4,026 4,035
Due after one year through
five years 20,110 19,839
Due after five years through
ten years 25,612 25,107
Due after ten years 4,354 4,399
-------------- ---------------
$ 54,102 53,380
============== ===============
Held-to-maturity:
Due within one year 500 501
Due after one year through
five years 29 29
Due after five years through
ten years 358 376
Due after ten years 466 479
-------------- ---------------
$ 1,353 1,385
============== ===============
</TABLE>
Gross gains of $265,000 and $314,000 were realized on sales of securities in
1999 and 1998, respectively. Gross losses of $154,000 were realized on sales
of securities in 1999, and there were no gross losses realized on sales of
securities in 1998.
13
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(4) Loans
Loans are summarized as follows (in thousands) at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Mortgage loans:
Residential $ 64,258 65,752
Commercial 32,971 29,499
Construction and land 1,136 391
----------- ------------
98,365 95,642
----------- ------------
Other loans:
Commercial 19,984 17,271
Automobile loans 10,376 9,460
Property improvement
and equipment 1,883 2,108
Education 4,735 5,224
Other consumer 7,945 7,099
----------- ------------
44,923 41,162
----------- ------------
$ 143,288 136,804
=========== ============
</TABLE>
Loans serviced for other totaled $4,156,000 and $4,627,000 at December 31, 1999
and 1998, respectively.
Changes in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Balance at beginning of period $ 1,956 1,742
Provision charged to operations 175 390
Recoveries 255 235
Loans charged off (610) (411)
------------ ------------
Balance at end of period $ 1,776 1,956
============ ============
</TABLE>
14
<PAGE>
At December 31, 1999 and 1998, there were no impaired loans. The Bank
recognized no interest on impaired loans during years ended December 31, 1999
and 1998.
15
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
The principal balances of loans not accruing interest amounted to $358,000
and $799,000 at December 31, 1999 and 1998, 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 years ended
December 31, 1999 and 1998 was immaterial.
A substantial portion of the Company's loans are mortgage and consumer
loans in Oneida County. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is susceptible to
changes in market conditions in this area. A majority of the Company's loan
portfolio is secured by real estate. Other than general economic risks,
management is not aware of any material concentrations of credit risk to
any industry or individual borrower.
(5) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -----
<S> <C> <C>
Land $ 836 836
Buildings and improvements 4,480 4,384
Furniture and equipment 4,884 4,690
------- -----
10,200 9,910
Less accumulated depreciation and
amortization 6,461 5,953
------- -----
$ 3,739 3,957
======= =====
</TABLE>
Depreciation and amortization expense included in building, occupancy and
equipment expense amounted to $522,000 and $418,000 during the years ended
December 31, 1999 and 1998, respectively.
16
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(6) Deposits
Contractual maturities of time deposits at December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Within one year $56,952
One through two years 11,527
Two through three years 4,080
Three through four years 3,302
Four through five years 1,304
-------
Total time deposits $77,165
=======
</TABLE>
At December 31, 1999 and 1998, time deposits with balances of $100,000 or
more totaled approximately $10,163,000 and $10,244,000, respectively.
Interest expense on deposits for the years ended December 31 is summarized as
follows (in thousands):
1999 1998
------ -----
Savings $2,437 2,340
Money market 189 180
Time 4,158 4,624
Other interest bearing 66 59
------ -----
$6,850 7,203
====== =====
(7) Borrowings
At December 31, 1999, the Company had available an unused line of credit of
$22,547,000 with the Federal Home Loan Bank of New York which is subject to
review and renewal. There were no outstanding borrowings for the years
ended December 31, 1999 and 1998.
17
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(8) Income Taxes
The components of income tax expense (benefit) attributable to income from
operations for the years ended December 31 consist of (in thousands):
1999 1998
------------ ------------
Current:
Federal $ 751 825
State 57 222
------------ ------------
808 1,047
------------ ------------
Deferred:
Federal (236) (147)
State 41 (47)
------------ ------------
(195) (194)
------------ ------------
$ 613 853
============ ============
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 for
the years ended December 31 are as follows (in thousands):
1999 1998
---------- ----------
Computed "expected" tax expense $ 700 809
Increases (decreases) in income
taxes resulting from:
State taxes, net of Federal
tax benefit 65 116
Tax exempt interest (183) (87)
Other, net 31 15
---------- ----------
$ 613 853
========== ==========
29.8% 35.9%
========== ==========
18
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for December
31 are (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Deferred tax assets:
Losses on real estate owned $ 81 104
Allowance for loan losses 468 549
Accrued postretirement benefits 731 698
Deferred compensation 214 147
Unrealized losses on available-for-sale
securities 174 --
Charitable contribution carry forward 154 --
Other 47 39
------ -----
Total gross deferred tax assets 1,869 1,537
------ -----
Deferred tax liabilities:
Accumulated depreciation on
premises and equipment 81 98
Prepaid pension cost 212 224
Unrealized gains on available-
for-sale securities -- 502
Other 48 56
------ -----
Total gross deferred tax liabilities 341 880
------ -----
Net deferred tax assets $1,528 657
====== =====
</TABLE>
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.
In accordance with SFAS No. 109, the Company has not recognized deferred tax
liabilities with respect to the Bank's Federal and state base-year reserves
of approximately $3.4 million at December 31, 1999, since the Company does
not expect that these amounts will become taxable in the foreseeable future.
Under the tax laws, as amended, events that would result in taxation of these
reserves include redemptions of the Bank's stock or certain excess
distributions to the Holding Company. The unrecognized deferred tax
liability at December 31, 1999 with respect to the base-year reserve was
approximately $1.4 million.
19
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(9) Employee Benefits
The following table sets forth the changes in the Company's pension and
postretirement plans' accumulated benefit obligations, fair value of assets
and funded status and amounts recognized in the consolidated balance sheets
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Pension benefits Postretirement benefits
------------------ -------------------------
(in thousands) 1999 1998 1999 1998
--------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $ 6,064 5,542 2,034 1,521
Service cost 171 148 44 36
Interest cost 395 396 129 127
Amendments -- -- -- 31
Actuarial loss (gain) (631) 454 (165) 369
Benefits paid (194) (476) (75) (68)
Participant contributions -- -- 23 18
------- ----- ------ ------
Benefit obligation at end of year 5,805 6,064 1,990 2,034
------- ----- ------ ------
Change in plan assets:
Fair value of plan assets
at beginning of year 6,677 7,165 -- --
Actual return on plan assets 1,181 (12) -- --
Employer contributions -- -- 52 50
Participant contributions -- -- 23 18
Benefits paid (194) (476) (75) (68)
------- ----- ------ ------
Fair value of plan
assets at end of year 7,664 6,677 -- --
------- ----- ------ ------
Funded status 1,859 613 (1,990) (2,034)
Unrecognized net actuarial loss (gain) (1,276) 9 88 258
Net transition asset -- (15) -- --
Unrecognized prior service cost (39) (47) 25 28
------- ----- ------ ------
Prepaid (accrued) benefit cost $ 544 560 (1,877) (1,748)
======= ===== ====== ======
Assumptions as of
December 31:
Discount rate 7.75% 6.5% 7.75% 6.5%
Expected return
on plan assets 8.0% 8.0% -- --
Rate of compensation
increase 5.5% 4.5% -- --
</TABLE>
20
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
The components of net periodic benefit cost includes the following:
<TABLE>
<CAPTION>
Pension benefits Postretirement benefits
------------------ -----------------------
(in thousands) 1999 1998 1999 1998
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Service cost $ 171 148 44 36
Interest cost 395 396 129 127
Expected return on assets (527) (568) -- --
Amortization (23) (140) 8 2
----- ---- ---- ----
Net periodic benefit cost (benefit) $ 16 (164) 181 165
===== ==== ==== ====
</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.
The Company 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 Company matches
50% of each employee's contributions up to a limit of 3% of the employee's
base pay.
Contributions to the defined contribution 401(k) Savings Plan were $58,000
and $56,000 during the years ended December 31, 1999 and 1998, respectively.
In connection with establishing the Employee Stock Ownership Plan (ESOP) in
1999, the ESOP borrowed $933,000 from the Company to purchase 133,310 shares
of the Company's common stock. The loan bears interest at 8% and is payable
in fifteen annual installments. At December 31, 1999, 8,887 shares were
released or committed to be released and 124,423 remained as unallocated
shares. The fair value of the unallocated shares on December 31, 1999 was
$809,000. The Company recognized compensation expense of $55,000 in 1999 in
connection with the ESOP.
21
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(10) Comprehensive Income
Comprehensive income represents net income and other comprehensive income
which is the net change in the unrealized gains or losses on securities
available-for-sale net of taxes. The following summarizes the components
of other comprehensive income (in thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net change in unrealized gain (loss) on
available-for-sale securities $ (1,577) 886
Reclassification adjustment for net realized
gain included in net income (111) (314)
------------- -------------
Other comprehensive income (loss), before tax (1,688) 572
Deferred tax expense (benefit) (676) 229
------------- --------------
Other comprehensive
income (loss), net of tax $ (1,012) 343
============= ==============
</TABLE>
(11) Commitments and Contingencies
The Company 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 Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company 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 extend
credit, if exercised, will represent loans secured by real estate.
22
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
At December 31, 1999 and 1998 the Company was committed to originate
mortgage and other loans of approximately $8,769,000 and $3,727,000
respectively. Commitments under unused lines of credit and letters of
credit were approximately $5,951,000 and 5,718,000 at December 31, 1999 and
1998, respectively.
The Company'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 Company
uses the same credit policies in making commitments as it does for on-
balance sheet instruments. The Company 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 Company.
(12) Shareholders' Equity and Regulatory Matters
The Company's ability to pay dividends is primarily dependent upon the
ability of its subsidiary bank to pay dividends to the Company. The payment
of dividends by the Bank is subject to continued compliance with minimum
regulatory capital requirements. In addition, regulatory approval is
generally required prior to the Bank declaring dividends in an amount in
excess of net income for that year plus net income retained in the
preceding two years.
The Company the Bank are subject to various regulating requirements
administered by the federal banking agencies and the Bank is further
requested by the New York State Banking Department.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and 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 regulators
about components, risk weightings, and other factors. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by the regulators that, if undertaken,
could have a direct material effect on the Company's and Bank's financial
statements.
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.
23
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
As of June 30, 1999, 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 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 December 31, 1999,
that the Company and Bank meet all capital adequacy requirements to which
they are subject.
The following is a summary of the Company's and Bank's actual capital amounts
and ratios compared to the regulatory 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 December 31, 1999:
Total capital (to risk
weighted assets):
Company $ 40,171 30.0% 10,708 =>8% N/A
Bank 34,939 26.2% 10,687 =>8% 13,358 =>10%
Tier 1 Capital (to risk
weighted assets):
Company $ 38,367 28.7% 5,354 =>4% N/A
Bank 33,138 24.8% 5,343 =>4% 8,015 =>6%
Tier 1 Capital (to
average assets):
Company $ 38,367 16.7% 9,176 =>3% N/A
Bank 33,138 14.4% 9,180 =>3% 11,476 =>5%
As of December 31, 1998:
Total capital (to risk
weighted assets): $ 29,869 22.8% 10,480 =>8% 13,100 =>10%
Tier 1 Capital (to risk
weighted assets): $ 27,909 21.3% 5,240 =>4% 7,860 =>6%
Tier 1 Capital (to
average assets): $ 27,909 12.7% 8,768 =>4% 10,961 =>5%
</TABLE>
24
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
In order to grant priority in the Conversion to the eligible depositors,
the Bank established a special account at the time of conversion in an
amount equal to its total net worth at September 30, 1999. In the event of
a future liquidation of the converted bank (and only in such event),
eligible account holders who continue to maintain accounts shall be
entitled to receive a distribution from the special account. The total
amount of the special account will be decreased (as balances of eligible
accounts are reduced) on annual determination dates. No cash dividends may
be paid to the stockholders and no shares may be repurchased by the Company
if such actions would reduce the Bank's stockholders' equity below the
amount required for the special account. At December 31, 1999, the amount
remaining in this liquidation account was approximately $29.8 million.
(13) 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: For these short-term instruments that
generally mature in ninety days or less. The carrying value approximates
fair value.
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 receivable approximates its fair value.
Deposits: The fair values of demand deposits (interest and non-interest
checking) savings accounts and money market accounts 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,
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.
25
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
Off-balance-sheet instruments: Fair values for the Company'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.
These estimated fair valued do not include the value of core deposit
relationships which comprise a significant portion of the Company's
deposit base. Management believes that the Company's core deposit
relationships provide a relatively stable low-cost funding source which
has a substantial intangible value separate from the deposit balances.
The estimated carrying values and fair values of the Company's financial
instruments for December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 16,061 16,061 25,214 25,214
Securities available for sale 58,439 58,439 55,036 55,036
Securities held to maturity 1,353 1,385 1,472 1,542
Loans, net 141,512 140,152 134,848 137,594
Financial liabilities:
Non-interest bearing
deposits 19,760 19,760 20,231 20,231
Interest bearing deposits 163,762 163,649 168,899 169,475
</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.
26
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(14) Parent Company Only Financial Statements
Presented below is the condensed balance sheet as of December 31, 1999 and
statement of income and statement of cash flows for the period from October
6, 1999 to December 31, 1999 for Rome Bancorp, Inc. (in thousands):
<TABLE>
<CAPTION>
Condensed Balance Sheet 1999
-------------
<S> <C>
Assets:
Cash and due from banks $ 4,371
Investment in subsidiary bank 32,879
Loan receivable from ESOP 871
Other assets 246
-------------
Total assets $ 38,367
=============
Total shareholders' equity $ 38,367
=============
Condensed Statement of Income 1999
-------------
Interest income $ 18
-------------
Total operating income 18
-------------
Donation to charitable foundation 576
Other operating expenses 12
-------------
Total operating expenses 588
-------------
Loss before income taxes and equity in undistributed
income of subsidiary bank (570)
Income tax benefit 230
Equity in undistributed income of subsidiary bank 411
-------------
Net income $ 71
=============
</TABLE>
27
<PAGE>
ROME BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows 1999
------------
<S> <C>
Operating activities:
Net income 71
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in undistributed earnings of subsidiary
bank (411)
Increase in other assets (246)
Donation of stock to charitable foundation 476
------------
Net cash used by operating activities (110)
------------
Investing activities:
Loan to ESOP (871)
Purchase of subsidiary bank (4,420)
-------------
Net cash used in investing activities (5,291)
------------
Financing activities:
Net proceeds from issuance of common
stock 9,772
------------
Net cash provided by financing activities 9,772
------------
Cash and cash equivalents at end of year $ 4,371
============
</TABLE>
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Balance Sheet as of December 31, 1999 and the consolidated
statement of income for the year ended December 31, 1999 for Rome Savings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,431
<INT-BEARING-DEPOSITS> 3,230
<FED-FUNDS-SOLD> 4,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,439
<INVESTMENTS-CARRYING> 1,353
<INVESTMENTS-MARKET> 1,385
<LOANS> 143,288
<ALLOWANCE> 1,776
<TOTAL-ASSETS> 226,827
<DEPOSITS> 183,522
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,938
<LONG-TERM> 0
0
0
<COMMON> 34
<OTHER-SE> 38,333
<TOTAL-LIABILITIES-AND-EQUITY> 226,827
<INTEREST-LOAN> 11,349
<INTEREST-INVEST> 3,306
<INTEREST-OTHER> 894
<INTEREST-TOTAL> 15,549
<INTEREST-DEPOSIT> 6,850
<INTEREST-EXPENSE> 6,850
<INTEREST-INCOME-NET> 8,699
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 111
<EXPENSE-OTHER> 7,662
<INCOME-PRETAX> 2,059
<INCOME-PRE-EXTRAORDINARY> 1,446
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,446
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 4.31
<LOANS-NON> 358
<LOANS-PAST> 129
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,793
<ALLOWANCE-OPEN> 1,956
<CHARGE-OFFS> 610
<RECOVERIES> 255
<ALLOWANCE-CLOSE> 1,776
<ALLOWANCE-DOMESTIC> 1,776
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
