<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition report under Section 13 or l5(d) of the Exchange Act
For the transition period from to
--------- ---------
Commission file number 000-27481
Rome Bancorp, Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 16-1573070
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 West Dominick Street, Rome, NY 13440-5810
(Address of Principal Executive Offices)
(315) 336-7300
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Outstanding at
Class June 30, 2000
----- -------------
Common Stock, par value $.01 3,230,776
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
ROME BANCORP, INC.
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PAGE
----
Part I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis 8
Part II - OTHER INFORMATION 16
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
Rome Bancorp, Inc.
Consolidated Statement of Condition
As of June 30, 2000 and December 31, 1999
( Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31
2000 1999
(Unaudited)
------------- -----------
<S> <C> <C>
Assets
Cash & due from banks 5,681 8,431
Federal funds sold & other interest bearing deposits 8,485 7,630
Securities available for sale, at fair value 55,317 58,439
Securities held to maturity 1,839 1,353
Loans 147,182 143,288
Less: Allowance for loan loss (1,799) (1,776)
------ ------
Net loans 145,383 141,512
Premises and equipment, net 3,561 3,739
Accrued interest receivable 1,540 1,513
Other assets 4,188 4,210
----- -----
Total assets $225,994 $226,827
============= =============
Liabilities & Equity
Liabilities :
Deposits:
Savings 79,383 77,867
Money market 7,368 5,817
Time 71,652 77,165
Non-interest bearing 23,211 19,760
Other interest bearing 2,718 2,913
----- -----
Total deposits 184,332 183,522
Other liabilities 3,700 3,640
Due to broker 554 1,298
--- -----
Total liabilities 188,586 188,460
------- -------
Equity
Common Stock, $.01 par value, 5,000,000 shares authorized, 3,400,776 shares
issued, outstanding 3,230,776 shares as of June 30, 2000 and 3,434,776 shares
as of December 31, 1999 34 34
Paid-in capital in excess of par value on common stock 10,214 10,214
Retained earnings 29,820 29,249
Unearned ESOP Shares (840) (871)
Treasury Stock (170,000 shares as of June 30, 2000) (1,147) ----
Unearned compensation (350) ----
Accumulated other comprehensive income (loss) (323) (259)
---- ----
Total equity 37,408 38,367
------ ------
Total liabilities & equity $225,994 $226,827
============= =============
</TABLE>
3
<PAGE>
Rome Bancorp, Inc.
Consolidated Income Statement
For the Three and Six Months Ended June 30, 2000 and 1999
(Unaudited, Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
---------------------------------- -----------------------------------
2000 1999 2000 1999
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,995 $2,782 $5,955 $5,605
Securities 796 699 1,628 1,432
Other short-term investments 113 218 201 392
--- --- --- ---
Total Interest Income 3,904 3,699 7,784 7,429
Interest expense on deposits 1,583 1,727 3,174 3,460
Net interest income before
provision for loan losses 2,321 1,972 4,610 3,969
Provision for loan losses 0 0 0 0
- - - -
Net interest income after provision
for loan losses 2,321 1,972 4,610 3,969
Other Income:
Net gain (loss) on sale of securities (86) 265 (86) 265
Service charges & fees 256 197 490 451
--- --- --- ---
Total other income 170 462 404 716
Non-interest expenses:
Salaries and employee benefits 904 899 1,830 1,819
Building, occupancy and equipment 311 304 629 653
ATM service fees 57 47 104 90
Other 734 373 1,154 749
--- --- ----- ---
Total non-interest expenses 2,006 1,623 3,717 3,311
Income before income taxes 485 811 1,297 1,374
Income taxes 95 279 369 453
-- --- --- ---
Net income $390 $532 $928 $921
==== ==== ==== ====
Basic and diluted earnings per share $0.12 $0.29
Weighted average number of shares 3,164,200 3,220,277
</TABLE>
4
<PAGE>
The Rome Bancorp, Inc.
Consolidated Statements of Equity and Comprehensive Income
For the Six Months Ended June 30, 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Treasury Unearned Comprehensive Unearned
Stock Capital Earnings Stock Compensation Income ESOP Share: Total
------- --------- --------- --------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $34 $10,214 $29,249 $0 $0 ($259) ($871) $38,367
Comprehensive income:
Net income 928 928
Other Comprehensive income (64) (64)
---------
Total comprehensive income 864
Purchase of Treasury Stock (1,518) (1,518)
Stock awarded under Recognition
& Retention Plan (21) 371 (350) 0
Dividends declared (335) (335)
ESOP shares released for
allocation (1) 31 30
------- --------- --------- --------- --------- -------- ---------- ---------
Balances at June 30, 2000 $34 $10,214 $29,820 ($1,147) ($350) ($323) ($840) $37,408
=== ======= ======= ======= ===== ===== ===== =======
</TABLE>
5
<PAGE>
Rome Bancorp Inc.
Statement Of Consolidated Cash Flows
For the Six Months Ended June 30, 2000 and June 30, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows operating activities:
Net Income $928 $921
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 245 259
Increase in accrued interest receivable (27) (36)
Net loss (gain) on sales of securities 86 (265)
Net (gains) losses on sale of real estate owned 1 (35)
Amortization and accretion of premiums and discounts (23) 8
Increase in other liabilities 60 118
Increase in other assets (54) (245)
Allocation of ESOP shares 30 --
---------- -----------
Net cash provided by operating activities 1,246 725
Cash flows from investing activities:
Net increase in loans (4,201) (1,827)
Proceeds from sale of education loans 266 539
Proceeds from sales of AFS securities 2,532 806
Proceeds from maturities and principal reductions of AFS securities 4,775 15,342
Purchases of AFS securities (5,099) (20,640)
Purchases of HTM securities (1,040) 0
Proceeds from maturities and principal reductions of HTM securities 554 116
Proceeds from sale of real estate owned 182 160
Additions to premises and equipment (67) (165)
---------- -----------
Net cash used in investing activities (2,098) (5,669)
Cash flows from financing activities:
Dividends paid (335) --
Decrease in time deposits (5,513) (1,850)
Increase in other deposits 6,323 4,976
Purchase of Treasury Stock (1,518) --
---------- -----------
Net cash (used in) provided by financing activities (1,043) 3,126
---------- -----------
Net increase (decrease) in cash and cash equivalents (1,895) (1,818)
Cash and cash equivalents at beginning of period 16,061 25,214
---------- -----------
Cash and cash equvalents at end of period $14,166 $23,396
========== ===========
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Change in securities purchased not settled (744) (4,026)
Transfer of loans to real estate owned 64 34
Cash paid during the period for:
Interest 3,174 3,460
Income taxes 270 571
</TABLE>
6
<PAGE>
ROME BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Rome Bancorp, Inc. (the "Company") and subsidiaries as of June 30,
2000 and December 31, 1999 and for the three and six month periods ended June
30, 2000 and 1999. Material intercompany accounts and transactions have been
eliminated in consolidation. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management the unaudited consolidated financial
statements include all necessary adjustments, consisting of normal recurring
accruals, necessary for a fair presentation for the periods presented.
Rome Bancorp, Inc. believes that the disclosures are adequate to make the
information presented not misleading; however, the results for the periods
presented are not necessarily indicative of results to be expected for the
entire fiscal year.
(2) Reorganization to Mutual Holding Company
On October 6, 1999, under the Amended Agreement and Plan of Reorganization
of The Rome Savings Bank (the "Bank"), approved by the Bank's depositors at a
Special Meeting held on September 29, 1999, the Bank completed its
reorganization from a New York mutual savings bank to a New York mutual holding
company, whereby the Bank converted to a stock savings bank and became a wholly-
owned subsidiary of the Company, a Delaware corporation and a majority-owned
subsidiary of Rome, MHC, a New York mutual holding company (the "MHC"). In
connection with the reorganization, the Company sold 1,598,355 shares at a price
of $7.00 per share to the Bank's eligible depositors and to the Rome Bancorp,
Inc. Employee Stock Ownership Plan, and issued 1,734,396 shares to the MHC. In
addition, 68,015 shares were issued to The Rome Savings Bank Foundation. The
Company's common stock trades on the Nasdaq National Market under the Symbol
"ROME."
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Rome Bancorp, Inc. (the "Company") is a Delaware stock holding company for
The Rome Savings Bank (the "Bank "), a New York-chartered stock savings bank.
On October 6, 1999, the Bank, under an Amended Agreement and Plan of
Reorganization, reorganized into a "two tiered" mutual holding company structure
(the "Reorganization"). Under the Reorganization, (1) the Bank formed Rome, MHC
(the "MHC"), a New York-chartered mutual holding company, which is the majority
owner of the Company; (2) the Bank converted from a mutual savings bank to a
stock savings bank and issued 100% of its capital stock to the Company; and (3)
the Company issued shares of its common stock, $0.01 par value per share, at a
price of $7.00 per share, in a stock offering (the "Offering") to eligible
members of the Bank and to the Company's Employee Stock Ownership Plan ("ESOP").
In the Offering, 1,598,365 shares of the Company's common stock, or 47% shares
issued in the Reorganization, were sold to the Bank's eligible depositors and to
the Company's ESOP, and 1,734,396 shares were issued to the MHC, or 51% of the
shares issued in the Reorganization. In addition, 68,015 shares were issued to
a charitable foundation, The Rome Savings Bank Foundation, which was formed as
part of the Reorganization. Net proceeds of the Offering were approximately $8.8
million.
The Company's sole business activity consists of the business of the Bank.
The Company also invests in long and short-term investment grade marketable
securities and other liquid investments. The Company's common stock is traded on
the Nasdaq National Market System under the symbol "ROME."
The Bank is a New York mutual savings bank, chartered in 1851 and is the
only bank headquartered in Rome, New York. The Bank operates through 4 full
service banking offices in Oneida County, New York - three of which are located
in Rome and one in New Hartford, New York. At June 30, 2000, the Company had
total assets of $226 million and total deposits of $184 million. The Bank is a
community and customer oriented retail savings bank offering traditional deposit
products, residential mortgage loans, commercial real estate, commercial and
consumer loans. In addition, the Bank 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.
The Bank's revenues are derived principally from interest on loans and
interest and dividends on investment securities. Its 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. The Bank has not borrowed funds in recent years.
The Bank's savings deposits are insured up to the maximum allowable amount by
the Bank Insurance Fund of the FDIC and it is regulated by the New York State
Department of Banking and the FDIC. Unless other wise disclosed, the information
presented in this Report on Form 10-QSB represents the activity of the Company
and its subsidiaries.
Forward - looking Statements:
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
8
<PAGE>
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) certain vendors of critical systems or services
failing to comply with Year 2000 programming issues, (5) changes in the
regulatory environment, and (6) changes in general business and economic trends.
The foregoing list should not be construed as exhaustive, and the Company
disclaims any obligation to subsequently revise any forward-looking statements
to reflect events or circumstances after the date of such statements, or to
reflect the occurrence of anticipated or unanticipated events.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999:
Total assets at June 30, 2000 were $226.0 million virtually unchanged
from $226.8 million at December 31, 1999. Securities were $57.2 million at
June 30, 2000 versus $59.8 million at December 31, 1999, a decrease of $2.6
million or 4.4%. The decrease was attributable to a portion of the securities
maturing during the period being reinvested in more profitable loans.
Net loans increased $3.9 million or 2.8% to $145.4 million at June 30,
2000 versus $141.5 million at December 31, 1999. Most of this growth occurred
in consumer loans and commercial real estate loans. The consumer loan portfolio
increased by $3.0 million or 12.1% to $27.9 million at June 30, 2000 while
commercial real estate loans increased $4.4 million or 13.3% to $37.4 million.
The growth in the consumer loan portfolio was principally the result of the
Bank's efforts to strengthen its dealer referral program for new and used
vehicles while the majority of the growth in commercial real estate lending was
due to the Bank's ongoing marketing efforts to potential business customers.
Partially offsetting this growth was declines of $2.1 million in other mortgage
loans, principally residential loans, to $63.3 million, and $1.4 million in
commercial loans to $18.6 million. These declines reflect normal seasonal and
cyclical fluctuations rather than any change in lending emphasis.
Total deposits increased $800,000 or .4% to $184.3 million at June 30, 2000
versus $183.5 million at December 31, 1999. While deposits in total remained
essentially unchanged, time deposits decreased $5.5 million or 7.1% to $71.7
million at June 30, 2000 from $77.2 million at December 31, 1999. The decrease
in time deposits reflects management's decision to not follow competitive
pressures to raise the rates paid on new and renewing deposits in order to
control its cost of funds and net interest margin. Offsetting the decline in
time deposits was a $3.4 million or 17.2% increase in non-interest bearing
checking accounts to $23.2 million at June 30, 2000 as well as a $1.5 million or
1.9% increase in savings deposits to $79.4 million at June 30, 2000 and a $1.6
million or 27.6% increase in money market deposits to $7.4 million. The
increases in savings and money market deposits principally reflect transfers of
maturing time deposits to these accounts while the increase in non-interest
bearing checking reflects the Bank's continued efforts to promote these accounts
to consumers.
9
<PAGE>
Stockholder's equity decreased $1.0 million or 2.6% to $37.4 million
at June 30, 2000 from $38.4 million at December 31, 1999 due primarily to the
Company's stock repurchase program and shares purchased by the Recognition and
Retention Plan Trust ("RRP Trust") in the second quarter. During the quarter
ended June 30, 2000, the Company repurchased 170,000 shares of its common stock
at a cost of $1.1 million. The Company received approval from the New York
Superintendent of Banks in the second quarter to conduct the stock repurchase
program and holds the shares repurchased as treasury shares. During the quarter
ended June 30, 2000, 49,991 shares of the Company's common stock were purchased
in the open market by the RRP Trust at a weighted average price of $7.42 per
share to satisfy restricted stock awards under the Rome Bancorp, Inc.
Recognition and Retention Plan ("RRP") approved by the Company's stockholders at
the Company's annual meeting on May 3, 2000. The aggregated purchase price of
all unvested shares acquired by the RRP Trust is reflected as a reduction of
stockholder's equity as unearned compensation. At June 30, 2000 the cost of all
unvested shares was $371,000. Stockholder's equity also decreased as a result of
the payment of $335,000 in dividends and a $64,000 decrease in accumulated other
comprehensive income for the six months ended June 30, 2000 related to the
reduction in the market value of the Company's available for sale securities net
of related taxes. Partially offsetting these decreases, were earnings of
$928,000 for the six months ended June 30, 2000, and the release of unallocated
ESOP shares for $30,000.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
June 30, 1999
General
Net income for the three months ended June 30, 2000 was $390,000 or
$.12 per share, representing a decrease of $142,000 or 26.7% compared to
$532,000 for the same period in 1999. Comparable earnings per share for the
three months and year to date periods ended June 30, 1999 are not applicable as
this was prior to the formation of the Company as a public entity. The decrease
in earnings resulted primarily from a $383,000 increase in non-interest expense,
and a $292,000 decrease in non-interest income partially offset by a $349,000
increase in net interest income and a $184,000 decrease in income taxes.
Interest Income
Total interest income increased $205,000 to $3.9 million for the three
months ended June 30, 2000, an increase of 5.5% from $3.7 million for the three
months ended June 30, 1999. Total interest income increased $214,000 or 5.6%
to $4.0 million, from $3.8 million for the three months ended June 30, 1999
after giving effect to the reduction of income taxes from interest earned on
municipal securities. The increase in interest income reflected an increase in
the yield on earning assets to 7.70% for the three months ended June 30, 2000
from 7.32% for the same period last year. The increase in interest income
occurred primarily as a result of a shift of approximately $11.0 million in
federal funds sold and interest bearing deposits to higher yielding loans and
investments.
The average balance of net loans increased $9.2 million or 6.8% to
$144.5 million for the three months ended June 30, 2000 from $135.3 million for
the same period in 1999. The yield on loans increased marginally to 8.29% for
the three months ended June 30, 2000 from 8.25% for the same period last year.
10
<PAGE>
The average balance of investments for the three months ended June 30,
2000 was $57.3 million, an increase of $3.3 million from $54.0 million for the
three months ended June 30, 1999. The yield on the investment portfolio
increased to 6.30% for the three months ended June 30, 2000 from 5.89% for the
year earlier period reflecting the general increase in market rates, the sale
and reinvestment of $3.0 million of securities and the Company's continued
efforts to reinvest into higher yielding securities as current securities
mature.
Interest Expense
Total interest expense decreased $144,000 or 8.3% to $1.6 million for
the three months ended June 30, 2000 in comparison to the same period last year.
The decrease in average interest expense was a result of a $9.2 million decline
in the average balance of interest bearing liabilities to $161.0 million for
the three months ended June 30, 2000 from $170.3 million for the three months
ended June 30, 1999, combined with a decrease in their cost to 3.95% for the
three months ended June 30, 2000 from 4.07% for the same period last year. The
decrease in interest bearing liabilities was primarily a result of a $10.7
million decline in certificates of deposit to $72.5 million for the quarter
ended June 30, 2000 from $83.2 million for the same period in 1999. The
decrease in the average cost of interest-bearing liabilities was primarily a
result of decline in the cost of certificates of deposit to 5.01% for the
quarter ended June 30, 2000 from 5.11% for the quarter ended June 30, 1999. The
decline in the cost of certificates of deposit reflects management's decision to
not follow competitive pressures to raise the rates paid on new and renewing
deposits.
Net Interest Income
Net interest income for the three months ended June 30, 2000 increased
$349,000 or 17.7% to $2.3 million. Net interest income on a tax equivalent
basis for the three months ended June 30, 2000 increased $358,000 or 17.3% to
$2.4 million from $2.1 million for the same period in 1999. 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 67 basis points to
4.65% from 3.98% for the same period in 1999.
Provision for Loan Losses
The Company did not make any provision for loan losses in the quarter
ended June 30, 2000, nor the same period in 1999. 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. Management
believes the June 30, 2000 allowance for loans losses to be adequate at 1.22% of
total loans.
Non-interest Income
Non-interest income decreased $292,000 or 63.2% to $170,000 for the three
months ended June 30, 2000 in comparison to $462,000 for the same period in
1999. The decrease in non-interest income was caused by the Company incurring
losses of $86,000 on the sale of investment securities during the three months
ending June 30, 2000 versus $265,000 of gains on the sale of investment
securities during
11
<PAGE>
the same period in 1999, offset in part by a $59,000 increase in service charges
and fees from $197,000 for the three months ending June 30, 1999 to $256,000 for
the same period in 2000. The loss on the sale of securities during the three
months ended June 30, 2000 reflected management's decision to sell $2.5 million
in US Treasury Notes and mortgage backed securities in order to reinvest the
proceeds in higher yielding corporate securities. The gain on securities during
the quarter ending June 30, 1999 was from the sale of a portion of the Company's
investment in an institutional mutual fund.
Non-interest Expense
Non-interest expense increased $383,000 or 23.6% to $2.0 million for the
three months ended June 30, 2000 in comparison to $1.6 million for the same
period in 1999. The increase in non-interest expense was caused primarily by
the incurrence of $197,000 in consulting fees as well an increase of $129,000 in
legal, accounting, and directors fees as a result of the Company becoming a
publicly held corporation in October 1999. The consulting fees were for
formation of a Real Estate Investment Trust as well as for assistance in
improving the Company's operating efficiency. Fees paid for improving the
Company's operating efficiency are expected to eventually lower the Company's
non-interest expense, as well as to improve its non-interest income and net
interest income.
Income Taxes
Income tax expense decreased $184,000 to $95,000 for the three months ended
June 30, 2000 in comparison to the same period last year. The decrease in the
Company's income tax expense was caused by $326,000 decrease in pre-tax income
as well as a reduction in the effective tax rate from 34.4% for the quarter
ended June 30, 1999 to 19.6% for the quarter ending June 30, 2000. The drop in
the effective tax rate reflects the formation of a Real Estate Investment Trust
during the second quarter of 2000, as well as an increase in the proportion of
non-taxable municipal investment interest income to total pre-tax income during
the quarter ended June 30, 2000 in comparison to the quarter ended June 30,
1999.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and June
30, 1999:
General
Net income for the six months ended June 30, 2000 totaled $ 928,000 or
$.29 per share, an increase of $7,000 from $921,000 for the six months ended
June 30, 1999. As noted above, comparable earnings per share for the year to
date periods ended June 30, 1999 are not applicable as this was prior to the
formation of the Company as a public entity. The earnings increase resulted
primarily from a $641,000 increase in net interest income and an $84,000
decrease in income taxes, partially offset by a $312,000 decrease in non-
interest income and a $406,000 increase in non-interest expense.
Interest Income
Total interest income increased by $355,000 or 4.8% for the six months
ended June 30, 2000 to $7.8 million, from $7.4 million for the six months ended
June 30, 1999. Total interest income on a tax equivalent basis increased by
$379,000 or 5.0% for the six months ended June 30, 2000 to $8.0 million,
12
<PAGE>
from $7.6 million for the six months ended June 30, 1999. The increase in
interest income reflected an increase in the yield on earning assets to 7.68%
for the six months ended June 30, 2000 from 7.39% for the same period last year.
As noted earlier, the increase in the yield on the Company's earning assets to a
large extent reflected a redeployment of funds from federal funds sold and
interest bearing deposits to higher yielding loans and investments. The average
balance of federal funds sold and interest bearing deposits decreased by $9.9
million during the six months ended June 30, 2000 as compared to the same period
last year.
The average balance of net loans increased $8.3 million to $143.6 million
for the six months ended June 30, 2000 in comparison to the year earlier period.
The average yield was virtually unchanged at 8.34% versus 8.36% for the six
months ended June 30, 1999. The average balance of investment securities was
$58.6 million for the six months ended June 30, 2000, an increase of $3.1
million from the year earlier period. The yield on these securities also
increased to 6.30% for the six months ending June 30, 2000 from 5.89% for the
year earlier period. The increase in yield reflected both the general increase
in market rates and the Company's efforts to reinvest maturing and sold
securities into higher yielding investments.
Interest Expense
Total interest expense decreased $286,000 or 8.3% to $3.2 million for the
six months ended June 30, 2000 compared with $3.5 million for the six months
ending June 30, 2000. The decrease in interest expense was a result of an $8.2
million decline in the average balance of interest bearing liabilities to $161.4
million for the six months ended June 30, 2000 from $169.6 million for the six
months ended June 30, 1999, combined with a decrease in their cost to 3.95% for
the six months ended June 30, 2000 from 4.11% for the same period last year.
The decrease in interest bearing liabilities was primarily a result of a $9.7
million decline in the average balance of certificates of deposits to $74.0
million for the six months ended June 30, 2000 from $83.7 million for the same
period in 1999. The decrease in the average cost of interest-bearing
liabilities was like the quarter ended June 30, 2000, primarily a result of
decline in the cost of certificates of deposits. For the six months ended June
30, 2000, the average cost of certificates of deposit fell to 4.98% from 5.18%
for the same period in 1999.
Net Interest Income
Net interest income for the six months ended June 30, 2000 increased
$641,000 or 16.2% to $4.6 million. Net interest income on a tax equivalent
basis for the six months ended June 30, 2000 increased $664,000 or 16.0% to
$4.8 million. Net interest margin for the six months ended June 30, 2000
increased 60 basis points to 4.63% from 4.03% for the six months ended June 30,
1999.
Provision for Loan Losses
The Company did not make any provision for loan losses for the six months
ended June 30, 2000, nor for the same period in 1999. As noted under the
discussion for the three months ended June 30, 2000 in comparison to June 30,
1999, 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.
13
<PAGE>
Future provisions for loan losses will continue to be based upon our
assessment of the overall loan portfolio and the underlying collateral, trends
in non-performing loans, current economic conditions and other relevant factors
in order to maintain the allowance for loan losses at adequate levels to provide
for estimated losses.
Non-interest Income
Total non-interest income decreased $312,000 or 43.6% to $404,000 for the
six months ended June 30, 2000 from $716,000 for the six months ended June 30,
1999. The decrease was the result of the aforementioned $86,000 security loss
for the six months ended June 30, 2000 in comparison to the $265,000 gain for
the same period in 1999 offset in part by a $39,000 increase in service charges
and fees to $490,000 for the six months ended June 30, 2000 from $451,000 for
the same period in 1999. The increase in service charges and fees was
principally attributable to higher checking and ATM fees.
Non-interest Expense
Total non-interest expense increased $406,000 or 12.3% to $3.7 million for
the six months ended June 30, 2000 from $3.3 million for the six months ended
June 30, 1999. The increase principally reflected the incurrence of $226,000 in
consulting fees for the aforementioned formation of a Real Estate Investment
Trust as well as for assistance in improving the Company's operating efficiency.
It also reflected $168,000 increase in legal, accounting, and directors fees as
a result of the Company becoming a publicly held corporation in the fourth
quarter of last year.
Income Taxes
Income tax expense decreased to $369,000 for the six months ended June 30,
2000 from $453,000 for the same period in 1999. The decrease reflected a
$77,000 decrease in pre-tax income as well as a reduction in the effective tax
rate from 33.0% for the six months ended June 30, 1999 to 28.5% for the same
period in 2000. The drop in the effective tax rate reflects the formation of a
Real Estate Investment Trust during the second quarter of 2000.
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 $22.6 million.
At June 30, 2000, 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 both the
three months ended June 30, 2000 and the three months
14
<PAGE>
ended June 30, 1999, the Company originated approximately $7.9 million of loans.
Purchases of investment securities were $3.0 million for the three months ending
June 30, 2000 and $12.6 million for the same period in 1999. The decrease in
purchases of investment securities for the three months ended June 30, 2000
versus the same period in 1999, primarily reflects a decrease in investment
maturities and sales during the three months ending June 30, 2000 in comparison
to the same period in 1999.
At June 30, 2000, Rome Savings had loan commitments to borrowers of
approximately $5.9 million, and available letters and lines of credit of
approximately $5.9 million. Total deposits were $184.3 million at June 30, 2000,
a decrease of $8.0 million from $192.3 million at June 30, 1999. The decrease
in deposits reflects a reduction in time deposits of $11.2 million offset, in
part, by an increase of $2.6 million in non-interest bearing checking deposits.
The decrease in time deposits was, as previously noted, a result of management's
decision to not follow competitive pressures to raise the rates paid on new and
renewing deposits in order to control its cost of funds and net interest margin.
The growth in non-interest bearing checking reflects management's decision to
promote this source of funding. The net decrease in deposits was offset by the
growth in the shareholder's equity which increased $8.4 million to $37.4 million
from $29.0 million at June 30, 1999 largely as a result of the Company's equity
offering related to it becoming a public company in October 1999.
Time deposit accounts scheduled to mature within one year were $51.5
million at June 30, 2000. Based on our deposit retention experience and current
pricing strategy, we anticipate that a significant portion of these time
deposits will remain with Rome Savings. We are committed to maintaining a strong
liquidity position; therefore, Rome Savings monitors its liquidity position on a
daily basis. The Bank anticipates that it will have sufficient funds to meet its
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, the Bank may in
order to minimize its cost of funds, consider borrowings from the Federal Home
Loan Bank in the future.
At June 30, 2000, 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 June 30, 2000 was $37.4 million, and $34.1 million respectively or
16.7% and 15.3% 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 $11.2 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 June 30, 2000, the Bank had a risk-based total capital ratio
of 25.4%.
The Bank does not anticipate any material capital expenditures, nor does it
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.
15
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders ("Meeting") on May 3,
2000. All of the proposals submitted to the shareholders at the Meeting were
approved. The proposals submitted to shareholders and the tabulation of votes
for each proposal is as follows:
1. Election of two candidates to the Board of Directors, both to serve
for a term of three years.
The number of votes cast with respect to this matter was as follows:
--------------------------------------------------------------------------------
Nominee For Withheld Broker Non-Votes
--------------------------------------------------------------------------------
Richard H. 3,144,572 25,087 0
McMahon
--------------------------------------------------------------------------------
Marion C. 3,144,572 25,087 0
Scoville
--------------------------------------------------------------------------------
2. Ratification of the appointment of KPMG LLP as independent auditors for
fiscal year ending December 31, 2000.
The number of votes cast with respect to this matter was as follows:
--------------------------------------------------------------------------------
For Against Abstain Broker Non-Votes
--------------------------------------------------------------------------------
3,159,813 1,653 8,192 0
--------------------------------------------------------------------------------
3. Approval of the Rome Bancorp, Inc. 2000 Stock Option Plan.
The number of votes cast with respect to this matter was as follows
16
<PAGE>
--------------------------------------------------------------------------------
For Against Abstain Broker Non-Votes
--------------------------------------------------------------------------------
894,995 155,012 5,055 380,037
--------------------------------------------------------------------------------
4. Approval of the Rome Bancorp, Inc. 2000 Recognition and Retention Plan.
The number of votes cast with respect to this matter was as follows:
--------------------------------------------------------------------------------
For Against Abstain Broker Non-Votes
--------------------------------------------------------------------------------
876,315 178,867 3,605 380,037
--------------------------------------------------------------------------------
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule*
(b) Reports on Form 8-K
None
*Submitted only with filing in electronic format.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Age, the registrant
caused this report to be signed on its behalf by the undersigned, therunto duly
authorized.
ROME BANCORP, INC.
By: /s/ Charles M. Sprock
---------------------------------------
Charles M. Sprock
President and Chief Executive Officer
By: /s/ David C. Nolan
---------------------------------------
David C. Nolan
Treasurer and Chief Financial Officer
Date: August 14, 2000
18
