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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 September 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 September 30, 2000
----- ------------------
Common Stock, par value $.01 3,215,985
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
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ROME BANCORP, INC.
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Part I - FINANCIAL INFORMATION 3
Item 2. Management's Discussion and Analysis 9
Part II - OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
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Rome Bancorp, Inc.
Consolidated Statement of Condition
As of September 30 2000 and December 31, 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31
2000 1999
(Unaudited)
------------- -----------
<S> <C> <C>
Assets
Cash & due from banks $ 5,682 $ 8,431
Federal funds sold & other interest bearing deposits 5,187 7,630
Securities available for sale, at fair value 56,781 58,439
Securities held to maturity 1,818 1,353
Loans 159,417 143,288
Less: Allowance for loan loss (1,745) (1,776)
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Net Loans 157,672 141,512
Premises and equipment, net 3,459 3,739
Accrued interest receivable 1,636 1,513
Other assets 3,921 4,210
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Total assets $ 236,156 $ 226,827
============= ===========
Liabilities & Equity
Liabilities:
Deposits:
Savings $ 78,580 $ 77,867
Money Market 5,934 5,817
Time 71,971 77,165
Non-interest bearing 24,991 19,760
Other interest bearing 2,853 2,913
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Total deposits 184,329 183,522
Borrowings 10,000 -
Other liabilities 3,843 3,640
Due to broker 0 1,298
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Total liabilities 198,172 188,460
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Equity
Common Stock, $.01 par value, 5,000,000 shares authorized, 3,400,776 shares
issued, outstanding 3,215,985 shares as of September 30, 2000 and
3,400,776 shares as of December 31, 1999 34 34
Paid-in capital in excess of par value on common stock 10,216 10,214
Retained earnings 30,198 29,249
Unallocated shares of employee stock ownership plan (ESOP) 124,423
shares at September 30, 2000 and December 31, 1999 (824) (871)
Treasury Stock (184,791 shares as of September 30, 2000) (1,258) -
Unearned compensation (249) -
Accumulated other comprehensive income (loss) (133) (259)
------------- -----------
Total equity 37,984 38,367
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Total liabilities & equity $ 236,156 $ 226,827
============= ===========
</TABLE>
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Rome Bancorp, Inc.
Consolidated Income Statement
For the Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited, Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 3,120 $ 2,831 $ 9,076 $ 8,435
Securities 808 724 2,436 2,156
Other short-term investments 120 277 321 669
---------- ---------- ---------- ----------
Total Interest Income 4,048 3,832 11,833 11,260
Interest expense:
Deposits 1,622 1,722 4,796 5,181
Borrowed funds 30 0 30 0
---------- ---------- ---------- ----------
1,652 1,722 4,826 5,181
Net interest income before provision
for loan losses 2,396 2,110 7,007 6,079
Provision for loan losses 50 0 50 0
---------- ---------- ---------- -----------
Net interest income after provision
for loan losses 2,346 2,110 6,957 6,079
Other Income:
Net gain (loss) on sale of securities 0 0 (86) 265
Service charges & fees 244 241 731 692
---------- ---------- ---------- -----------
Total other income 244 241 645 957
Non-interest expenses:
Salaries and employee benefits 939 940 2,769 2,758
Building, occupancy and equipment 311 300 940 953
ATM service fees 56 49 161 140
Other 541 388 1,693 1,137
---------- ---------- ---------- -----------
Total non-interest expenses 1,847 1,677 5,563 4,988
Income before income taxes 743 674 2,039 2,048
Income taxes 223 227 592 680
---------- ---------- ---------- -----------
Net Income $ 520 $ 447 $ 1,447 $ 1,368
========== ========== ========== ===========
Basic earnings per share $ 0.17 $ 0.46
Diluted earnings per share $ 0.17 $ 0.46
</TABLE>
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The Rome Bancorp, Inc.
Consolidated Statements of Equity and Comprehensive Income
For the Nine Months Ended September 30, 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned
Common Paid-In Retained Treasury Unearned Comprehensive ESOP
Stock Capital Earnings Stock Compensation Income Shares 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 1,447 1,447
Other Comprehensive
income, net of tax 126 126
--------
Total comprehensive income 1,573
Purchase of Treasury Stock (1,518) (1,518)
Stock awarded under Recognition 2 260 (262) 0
& Retention Plan
Amortization of Unearned 13 13
Compensation
Dividends declared (498) (498)
ESOP shares released for allocation 47 47
-------- ---------- --------- -------- ------------ ---------- -------- --------
Balances at September 30, 2000 $34 $ 10,216 $30,198 ($1,258) ($249) ($133) ($824) $37,984
======== ========== ========= ======== ============ ========== ======== ========
</TABLE>
5
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Rome Bancorp Inc.
Statement Of Consolidated Cash Flows
For the Nine Months Ended September 30, 2000 and
September 30, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows operating activities:
Net Income $ 1,447 $ 1,368
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 364 391
Increase in accrued interest receivable (123) (15)
Provision for loan losses 50 0
Net loss (gain) on sales of securities 86 (265)
Net (gains) losses on sale of real estate owned 8 (38)
Amortization and accretion of premiums and discounts (42) 7
Increase in other liabilities 203 98
Increase (decrease) in other assets 23 (729)
ESOP and RRP compensation expense 60 0
---------- ----------
Net cash provided by operating activities 2,076 817
Cash flows from investing activities:
Purchased loans (10,180) 0
Net increase in loans (6,435) (3,571)
Proceeds from sale of education loans 308 1,430
Proceeds from sales of AFS securities 2,532 806
Proceeds from maturities and principal reductions of AFS securities 5,113 21,683
Purchases of AFS securities (7,121) (26,227)
Purchases of HTM securities (1,040) 0
Proceeds from maturities and principal reductions of HTM securities 577 151
Proceeds from sale of real estate owned 271 182
Additions to premises and equipment (84) (277)
---------- ----------
Net cash used in investing activities (16,059) (5,823)
Cash flows from financing activities:
Decrease in time deposits (5,194) (4,418)
Increase in other deposits 6,001 15,563
Proceeds from long term borrowings 10,000
Purchase of Treasury Stock (1,518) --
Dividends paid (498) 0
---------- ----------
Net cash provided by financing activities 8,791 11,145
---------- ----------
Net increase (decrease) in cash and cash equivalents (5,192) 6,139
Cash and cash equivalents at beginning of period 16,061 25,214
---------- ----------
Cash and cash equivalents at end of period $ 10,869 $ 31,353
========== ==========
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Change in securities purchased not settled (1,298) (4,026)
Transfer of loans to real estate owned 97 34
Cash paid during the period for:
Interest 4,826 5,181
Income taxes 415 680
</TABLE>
6
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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 September
30, 2000 and December 31, 1999 and for the three and nine month periods ended
September 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 1,598,365 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."
(3) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative
7
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instruments, including certain derivatives embedded in other contracts, and for
hedging activities. This statement, as amended, is effective for fiscal quarters
of fiscal years beginning after June 15, 2000. This standard requires that all
derivative financial instruments be measured at fair value and recognized in the
statement of condition as either assets or liabilities. Changes in the fair
value of the derivative financial instruments will be reported in either
earnings or comprehensive income, depending on the use of the derivative and
whether or not it qualifies for hedge accounting. Consequently, there may be
increased volatility in net income and stockholders' equity on an ongoing basis
as a result of accounting for derivatives in accordance with SFAS No. 133.
Management has estimated that if the Company had adopted SFAS No. 133 on
September 30, 2000, the initial adoption would not have had a material effect on
the Company's financial statements. Although management anticipates that
adoption of this statement will not be material to the Company's financial
statements, the effect of adoption on January 1, 2001 cannot be estimated with
certainty at this time as it is subject to unknown variables at that date such
as (1) actual derivatives and related hedge positions, (2) market values of
derivatives and related hedged items, and (3) further ongoing interpretation of
SFAS No. 133 by the FASB.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces identically titled SFAS No. 125 and carries forward most of SFAS
No. 125's provisions without change. It does revise accounting standards for
securitizations and certain other transfers of financial assets and collateral.
The statement is generally applied prospectively to transactions and servicing
activities occurring after March 31, 200 1, although provisions with respect to
collateral and certain disclosure requirements are effective for fiscal years
ending after December 15, 2000. This statement is not expected to have a
material impact on the consolidated financial statements of the Company.
8
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Item 2: Management Discussion and Analysis of Financial Condition and Results of
Operations
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 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 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 September 30, 2000 and December 31, 1999:
Total assets at September 30, 2000 were $236.2 million in comparison to
$226.8 million at December 31, 1999, an increase of $9.4 million or 4.1%.
Securities were $58.6 million at September 30, 2000 versus $59.8 million at
December 31, 1999, a decrease of $1.2 million or 2.0% The decrease was
attributable to a portion of the securities maturing during the period being
reinvested in higher yielding loans.
Net loans increased $16.2 million or 11.5% to $157.7 million at September
30, 2000 versus $141.5 million at December 31, 1999. Most of this growth
occurred in auto loans and commercial real estate loans. Auto loans increased by
$12.2 million or 117.3% to $22.5 million at September 30, 2000 while commercial
real estate loans increased $5.3 million or 16.1% to $38.3 million. The growth
in auto loans was principally the result of the purchase of $10.2 million of
these loans from another financial institution which agreed to provide full
recourse in the event of a default by any of the borrowers. The growth in
commercial real estate lending was due to the Bank's ongoing marketing efforts
to potential business customers.
Total deposits increased $807,000 or .4% to $184.3 million at September 30,
2000 versus $183.5 million at December 31, 1999. While deposits in total grew
slightly, time deposits decreased $5.2 million or 6.7% to $72.0 million at
September 30, 2000 from $77.2 million at December 31, 1999. The decrease in time
deposits reflects management's decision to not follow
9
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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 decline in time
deposits was offset by a $5.2 million or 26.3% increase in non-interest bearing
checking accounts to $25.0 million at September 30, 2000. The increase in
noninterest bearing checking reflects the Bank's continued efforts to promote
these accounts to consumers.
Stockholders' equity decreased $.4 million or 1.0% to $38.0 million at
September 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. The Company received
approval from the New York Superintendent of Banks in the second quarter of 2000
to conduct the stock repurchase program. The Company repurchased 170,000 shares
of its common stock at a cost of $1.1 million. Also 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. Of
these, 35,200 shares were used 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 balance of
14,791 shares are included as treasury stock. Stockholders' equity also
decreased as a result of the payment of $498,000 in dividends. Partially
offsetting these decreases were earnings of $1.4 million for the nine months
ended September 30, 2000, a $126,000 increase in accumulated other comprehensive
income for the nine months ended September 30, 2000 related to the appreciation
in the market value of the Company's available for sale securities net of
related taxes and the release of unallocated ESOP shares for $47,000.
Comparison of Operating Results for the Three Months Ended September 30, 2000
and September 30, 1999
General
Net income for the three months ended September 30, 2000 was $520,000 or
$.17 per share, basic and diluted, representing an increase of $73,000 or 16.3%
compared to $447,000 for the same period in 1999. Comparable earnings per share
for the three months and year to date periods ended September, 1999 are not
applicable as this was prior to the formation of the Company as a public entity.
The increase in net income resulted primarily from a $286,000 increase in net-
interest income before provision for loan losses, partially offset by a $50,000
increase in provision for loan losses and a $170,000 increase in non-interest
expense.
Interest Income
Total interest income increased $216,000 to $4.0 million for the three
months ended September 30, 2000, an increase of 5.6% from $3.8 million for the
three months ended September 30, 1999. Total interest income increased $223,000
or 5.7% to $4.2 million, from $3.9 million for the three months ended September
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 7.72% for the three months ended
September 30, 2000 from 7.38% for the same period last year. The increase in
interest income
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occurred primarily as a result of a shift of approximately $12.3 million in
federal funds sold and interest bearing deposits to higher yielding loans and
investments.
The average balance of net loans increased $11.7 million or 8.6% to $147.9
million for the three months ended September 30, 2000 from $136.2 million for
the same period in 1999. The yield on loans increased to 8.44% for the three
months ended September 30, 2000 from 8.25% for the same period last year as a
result of the general increase in market rates between the two periods.
The average balance of investments for the three months ended September 30,
2000 was $58.2 million, an increase of $3.2 million from $55.0 million for the
three months ended September 30, 1999. The yield on the investment portfolio
increased to 6.24% for the three months ended September 30, 2000 from 5.94% 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 $70,000 or 4.1% to $1.7 million for the
three months ended September 30, 2000 in comparison to the same period last
year. The decrease in interest expense was primarily the result of an $8.8
million decline in the average balance of interest bearing liabilities to $161.9
million for the three months ended September 30, 2000 from $170.7 million for
the three months ended September 30, 1999. This decrease in interest expense was
offset in part by an increase in their cost to 4.06% for the quarter ended
September 30, 2000 in comparison to 4.00% for the quarter ended September 30,
1999.
The decline in interest bearing liabilities was primarily caused by a $9.6
million decline in certificates of deposit to $71.5 million for the quarter
ended September 30, 2000 from $81.1 million for the same period in 1999. The
decline in the average balance of certificates of deposit reflects management's
decision to limit the increase in its own cost of new and renewing certificates
of deposits rather than matching market competition. The decline in average
interest bearing deposits was offset partially by $1.7 million of borrowings
from the Federal Home Loan Bank of New York for the three months ended September
30, 2000 in comparison to no borrowings for the same period in 1999. These
borrowings were used to purchase the auto loans referred to earlier in this
report.
Net Interest Income
Net interest income for the three months ended September 30, 2000 increased
$286,000 or 13.6% to $2.4 million. Net interest income on a tax equivalent basis
for the three months ended September 30, 2000 increased $293,000 or 13.3% to
$2.5 million from $2.2 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 50 basis points to 4.65%
from 4.15% for the same period in 1999.
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Provision for Loan Losses
The Company made a $50,000 provision for loan losses for the quarter ended
September 30, 2000 in comparison to none for the same period in 1999.
Management's decision to add to its loan loss allowance was based in part on the
growth of its loan portfolio exclusive of the full recourse purchased loans
referred to earlier. In considering the size of the provision, management also
considered the levels of non performing loans in comparison to recent years, the
level of the allowance to non-performing loans and total loans at September 30,
2000 and other factors.
Non performing loans increased to $1.6 million during the quarter ended
September 30, 2000 compared to $487,000 at December 31, 1999. The $1.1 million
increase in non performing loans is attributable to the deterioration of a $1.3
million commercial loan. As of September 30, 2000, the loan remains current as
to principal and interest payments. However, the borrower's overall financial
condition has worsened, resulting in uncertainty about the borrower's ability to
continue making payments in the future. Accordingly, the Bank's collateral
position has weakened. As of September 30, 2000, the Bank has downgraded the
credit and has classified the credit as non performing.
Non-interest Income
Non-interest income remained essentially unchanged at $244,000 for the
quarter ended September 30, 2000 in comparison to $241,000 for the quarter ended
September 30, 1999.
Non-interest Expense
Non-interest expense increased $170,000 or 10.1% to $1.9 million for the
three months ended September 30, 2000 in comparison to $1.7 million for the same
period in 1999. The increase in non-interest expense was caused primarily by the
incurrence of $77,000 in consulting fees, an increase of $56,000 in legal and
accounting fees and $18,000 in expenses related to the sale of foreclosed real
estate. The consulting fees were for assistance in establishing a real estate
investment trust as well as for improving the Company's operating efficiency and
marketing expertise. Fees paid for improving the Company's operating efficiency
and marketing expertise are expected to lower the Company's non-interest expense
in the future and improve its non-interest income and net interest income. The
increase in legal and accounting fees reflects the increased costs associated
with being a publicly held corporation. Finally, the $18,000 expense associated
with the sale of foreclosed real estate reflects the Bank's decision to sell the
foreclosed property at a loss so that it could reinvest the proceeds of the sale
in interest earning assets. As a result of the sale, the Bank has no investment
in foreclosed property at September 30, 2000 compared to $204,000 at September
30, 1999.
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Income Taxes
Income tax expense decreased $4,000 to $223,000 for the three months ended
September 30, 2000 in comparison to the same period last year. The decrease in
the Company's income tax expense was caused by a reduction in the effective tax
rate from 33.7% for the quarter ended September 30, 1999 to 30.0% for the
quarter ending September 30, 2000. The drop in the effective tax rate reflects
the implementation of a real estate investment trust during the second quarter
of 2000. The decrease in the Company's effective tax rate was offset in part by
an increase in pre-tax income of $69,000 to $743,000 for the quarter ended
September 30, 2000 in comparison to the same period last year.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
September 30, 1999:
General
Net income for the nine months ended September 30, 2000 totaled $1.4
million or $.46 per share, an increase of $79,000 from the nine months ended
September 30, 1999. As noted above, comparable earnings per share for the year
to date periods ended September 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 $928,000 increase in net interest income and an $88,000
decrease in income taxes, partially offset by a $50,000 provision for loan
losses, a $312,000 decrease in non-interest income and a $575,000 increase in
non-interest expense.
Interest Income
Total interest income increased by $573,000 or 5.1% for the nine months
ended September 30, 2000 to $11.8 million from $11.3 million for the nine months
ended September 30, 1999. Total interest income on a tax equivalent basis
increased by $602,000 or 5.2% for the nine months ended September 30, 2000 to
$12.1 million from $11.5 million for the nine months ended September 30, 1999.
The increase in interest income reflected an increase in the yield on earning
assets to 7.70% for the nine months ended September 30, 2000 from 7.38% for the
same period last year. As noted earlier, the increase in the yield on the
Company's earning assets reflects 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
$10.9 million during the nine months ended September 30, 2000 to $7.2 million.
The average balance of net loans increased $9.5 million to $145.0 million
for the nine months ended September 30, 2000 in comparison to the year earlier
period. The average yield increased to 8.36% versus 8.32% for the nine months
ended September 30, 1999. The average balance of investment securities was $58.4
million for the nine months ended September 30, 2000, an increase of $3.2
million from the year earlier period. The yield on these securities increased to
6.27% for the nine months ended September 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.
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Interest Expense
Total interest expense decreased $355,000 or 6.9% to $4.8 million for the
nine months ended September 30, 2000 compared with $5.2 million for the nine
months ended September 30, 1999. The decrease in interest expense was a result
of an $8.4 million decline in the average balance of interest bearing
liabilities to $161.6 million for the nine months ended September 30, 2000 from
$170.0 million for the nine months ended September 30, 1999, combined with a
decrease in their cost to 3.99% for the nine months ended September, 2000 from
4.08% for the same period last year. The decrease in interest bearing
liabilities was primarily a result of a $9.7 million decline in certificates of
deposits to $73.1 million for the nine months ended September 30, 2000 from
$82.8 million for the same period in 1999. The loss of these deposits was offset
in part by the proceeds from the Company's common stock offering. The decrease
in the average cost of interest-bearing liabilities was primarily a result of
decline in the cost of certificates of deposits. For the nine months ended
September 30, 2000 the average cost of certificates of deposits fell to 5.05%
from 5.13% for the same period in 1999.
Net Interest Income
Net interest income for the nine months ended September 30, 2000 increased
$928,000 or 15.3% to $7.0 million. Net interest income on a tax equivalent basis
for the nine months ended September 30, 2000 increased $957,000 or 15.1% to $7.3
million. Net interest margin for the nine months ended September 30, 2000
increased 57 basis points to 4.64% from 4.07% for the nine months ended
September 30, 1999.
Provision for Loan Losses
As discussed earlier, the Company made a $50,000 provision for loan losses
for the nine months ended September 30, 2000 in comparison to none for the same
period in 1999. Management believes the September 30, 2000 allowance for loans
losses to be adequate at 1.09% of total loans.
Non-interest Income
Non-interest income decreased $312,000 or 32.6% to $645,000 for the nine
months ended September 30, 2000 from $957,000 for the nine months ended
September 30, 1999. The decrease was the result of a $86,000 loss on sale of
securities for the nine months ended September 30, 2000 in comparison to the
$265,000 gain for the same period in 1999. The decrease was offset in part by a
$39,000 increase in service charges and fees to $731,000 for the nine months
ended September 30, 2000 from $692,000 for the same period in 1999. The increase
in service charges and fees was principally attributable to higher checking and
ATM fees.
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Non-interest Expense
Non-interest expense increased $575,000 or 11.5% to $5.6 million for the
nine months ended September 30, 2000 from $5.0 million for the nine months ended
September 30, 1999. The increase principally reflected the incurrence of
$303,000 in consulting fees primarily for the aforementioned implementation of a
real estate investment trust as well as for assistance in improving the
Company's operating efficiency and marketing expertise. It also reflected
$159,000 increase in legal and accounting fees and $101,000 increase in other
expenses associated with being a publicly held corporation, and $73,000 in
expenses related to the sale of foreclosed real estate in order to invest the
proceeds of such sales into interest earning assets.
Income Taxes
Income tax expense decreased to $592,000 for the nine months ended
September 30, 2000 from $680,000 for the same period in 1999. The decrease
reflected a $9,000 decrease in pre-tax income as well as a reduction in the
effective tax rate from 33.2% for the nine months ended September 30, 1999 to
29.0% for the same period in 2000. The drop in the effective tax rate reflects
the implementation of the 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 September 30, 2000, the Bank had no outstanding borrowings on this line of
credit but did have $10.0 million outstanding in a self amortizing note.
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 both the
three months ended September 30, 2000 and the three months ended September 30,
1999, the Bank originated approximately $8.2 million of loans. Additionally, the
Bank purchased $10.2 million of auto loans from another financial institution
during the three months ended September 30, 2000. Purchases of investment
securities were $2.0 million for the three months ending September 30, 2000 and
$5.6 million for the same period in 1999. The decrease in purchases of
investment securities for the three months ended September 30, 2000 versus the
same period in 1999, primarily reflects a decrease in investment maturities and
sales during the three months ending September 30, 2000 in comparison to the
same period in 1999.
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At September 30, 2000, Rome Savings had loan commitments to borrowers of
approximately $6.8 million, and available letters and lines of credit of
approximately $5.9 million. Total deposits were $184.3 million at September 30,
2000, a decrease of $16.0 million from $200.3 million at September 30, 1999.
Time deposit accounts scheduled to mature within one year were $50.8
million at September 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. The Bank is committed to maintaining a
strong liquidity position; therefore, it 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 additional borrowings from the
Federal Home Loan Bank in the future.
At September 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 September 30, 2000 was $38.0 million, and $34.7
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 $11.3 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 September 30, 2000, the Bank had a
risk-based total capital ratio of 23.8%.
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.
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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
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibit 11.1 - Calculation of Earning per Share
(b) Exhibit 27.1 - Financial Data Schedule*
*Submitted only with filing in electronic format.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there unto
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: November 17, 2000
