Table Of Contents



Chairman

Financial Highlights............................................................... 	4

Management



Market for the Company

Independent Auditors

Consolidated Financial Statements....................................... 	20

Corporate Information............................................................ 	51

Chairman's Message

Dear Shareholder:



The directors, officers, and staff of Rome Savings Bank are dedicated to serving our customers in a highly individual and professional manner.  We feel that we provide the obvious alternative to the distant, impersonal manner of the larger banking conglomerates.  We also believe in bringing a high quality, personal touch to our customer service no matter who the customer is  individuals, families, or small businesses.  We offer a widening variety of quality financial services to assist our customers in making wise banking decisions.



Each of us at Rome Savings Bank takes our responsibility to our customers seriously with hard work, dedication, and professionalism that make us a financial leader in Central New York.  We also respect our obligation to maintain sound and stable banking standards and to map our future to ensure growth and profitability.  Your trust and confidence inspires us achieve to greater heights each year  increased revenues, improved efficiency, and greater profitability.



Our growth and profitability have consistently met the expectations of our shareholders; however we must continue to be proactive, visionary, and independent in order to continue delivering excellent customer service.  With this in mind, our board of directors unanimously approved management's 2002 request to upgrade our core operating system.



Our ultimate decision to partner with S1/Zeus and Aurum/Miser was based on both companies' proven experience and reliability.  We feel that with our final mainframe conversion, completed in May 2003, our customers have benefited from faster transactions at our teller lines, an expanded product line, newer and easier methods of doing day-to-day banking, and 24-hour access to their accounts.



Taking full advantage of our new capabilities, we are pleased to have introduced several new and exciting products and services to our customers in 2003.  Our MasterMoney Debit Card launched in May, was met with an overwhelmingly positive customer response.  Our ATMs became online, live systems in place of batch processing and overdraft privileges were extended to our customers.  Internet Banking and Bill Pay rounded out 2003 for our customers who value their time and money.



In today's world, more than ever before, customers appreciate the continuity of a strong financial institution with an extensive history of quality customer service.  Rome Savings Bank will continue to encourage long-term customer relationships with both our established customers and potential new customers in our area.  Once again, our entire staff thanks you for your loyalty and support.



Sincerely,



Charles M. Sprock

Chairman of The Board

President

CEO

























Sincerely,









Charles M. Sprock

Chairman of The Board

President

CEO



|                                   |                                                     | SELECTED FINANCIAL AND OTHER DATA |                                 |               
|---------------------------------- | --------------------------------------------------- | --------------------------------- | ------------------------------- | --------------
|                                   |                                                     |                                   |                                 | (in thousands)
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   | 2003                            | 2002          
|Selected Financial Condition Data: |                                                     |                                   |                                 |               
|                                   | Total assets                                        |                                   | $261,939                        | $250,075      
|                                   | Loans, net                                          |                                   | 207,656                         | 181,564       
|                                   | Securities                                          |                                   | 29,118                          | 43,207        
|                                   | Total cash and cash equivalents                     |                                   | 14,055                          | 15,698        
|                                   | Total deposits                                      |                                   | 203,190                         | 194,924       
|                                   | Borrowings                                          |                                   | 18,090                          | 14,920        
|                                   | Total equity                                        |                                   | 36,639                          | 36,193        
|                                   | Allowance for loan losses                           |                                   | 1,809                           | 1,730         
|                                   | Non-performing loans                                |                                   | 1,406                           | 1,516         
|                                   | Non-performing assets                               |                                   | 1,608                           | 1,571         
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   |                                 |               
|                                   |                                                     |                                   | For the Year Ended December 31,
|                                   |                                                     |                                   | 2003                            | 2002          
|                                   |                                                     |                                   |                                 |               
|Selected Operating Data:           |                                                     |                                   |                                 |               
|                                   | Interest income                                     |                                   | $14,810                         | $15,509       
|                                   | Interest expense                                    |                                   | 3,614                           | 4,981         
|                                   | Net interest  income                                |                                   | 11,196                          | 10,528        
|                                   | Provision for loan losses                           |                                   | 510                             | 330           
|                                   | Net interest income after provision for loan
losses | 10,686                            | 10,198                          | 9,480         
|                                   | Non-interest income:                                |                                   |                                 |               
|                                   | Service charges and other income                    |                                   | 1,165                           | 1,130         
|                                   | Net  gain (loss) on securities transactions         | (693)                             | 132                             | 47            
|                                   | Total non-interest income                           |                                   | 472                             | 1,262         
|                                   | Total non-interest expense                          |                                   | 8,835                           | 7,707         
|                                   | Income before income taxes                          |                                   | 2,323                           | 3,753         
|                                   | Income taxes                                        |                                   | 786                             | 1,268         
|                                   | Net income                                          |                                   | $ 1,537                         | $ 2,485       
|                                   |                                                     |                                   |                                 |               



|                                                                                                                            |                                                                                                                       |       |                         |         | At or for the |         |        
|--------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ----- | ----------------------- | ------- | ------------- | ------- | -------
|                                                                                                                            |                                                                                                                       |       | Year Ended December 31,
|                                                                                                                            |                                                                                                                       |       | 2003                    | 2002    | 2001          | 2000    | 1999   
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Selected Financial Ratios and Other Data                                                                                    |                                                                                                                       |       |                         |         |               |         |        
|                                                                                                                            | Performance Ratios:                                                                                                   |       |                         |         |               |         |        
|                                                                                                                            | Basic earnings per share                                                                                              |       | $0.37                   | $0.60   | $0.52         | $0.37   | $0.01  
|                                                                                                                            | Diluted earnings per share                                                                                            |       | $0.36                   | $0.58   | $0.51         | $0.37   | $0.01  
|                                                                                                                            | Return on average assets                                                                                              |       | 0.59%                   | 1.00%   | 0.94%         | 0.76%   | 0.64%  
|                                                                                                                            | Return on average equity                                                                                              |       | 4.16%                   | 6.86%   | 6.09%         | 4.62%   | 4.52%  
|                                                                                                                            | Net interest rate spread (tax equivalent)                                                                             |       | 4.27%                   | 3.95%   | 3.42%         | 3.71%   | 3.51%  
|                                                                                                                            | Net interest margin (tax equivalent)                                                                                  |       | 4.70%                   | 4.56%   | 4.31%         | 4.66%   | 4.31%  
|                                                                                                                            | Non-interest expense to average assets                                                                                |       | 3.42%                   | 3.09%   | 2.93%         | 3.21%   | 3.40%  
|                                                                                                                            | Efficiency Ratio (1)                                                                                                  |       | 70.22%                  | 64.85%  | 65.05%        | 67.25%  | 75.47% 
|                                                                                                                            | Average interest earning assets to average                                                                            |       |                         |         |               |         |        
|                                                                                                                            | interest-bearing liabilities                                                                                          |       | 128.15%                 | 128.68% | 129.02%       | 130.20% | 124.57%
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Capital Ratios:                                                                                                             |                                                                                                                       |       |                         |         |               |        
|                                                                                                                            | Average equity to average assets                                                                                      |       | 14.29%                  | 14.52%  | 15.40%        | 16.49%  | 14.18% 
|                                                                                                                            | Equity to total assets at end of period                                                                               |       | 13.99%                  | 14.47%  | 14.70%        | 15.54%  | 16.91% 
|                                                                                                                            | Book value per share                                                                                                  |       | $8.55                   | $8.41   | $8.22         | $8.00   | $7.52  
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Regulatory Capital Ratios:                                                                                                  |                                                                                                                       |       |                         |         |               |        
|                                                                                                                            | Core capital (Tier 1 capital)                                                                                         |       | 13.68%                  | 14.90%  | 14.54%        | 15.48%  | 16.84% 
|                                                                                                                            | Total Risk-based capital                                                                                              |       | 19.19%                  | 21.24%  | 21.75%        | 24.29%  | 30.21% 
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Asset Quality Ratios:                                                                                                       |                                                                                                                       |       |                         |         |               |        
|                                                                                                                            | Nonperforming loans as percent of loans                                                                               |       | 0.67%                   | 0.83%   | 0.45%         | 0.80%   | 0.34%  
|                                                                                                                            | Nonperforming assets as percent of total assets                                                                       | 0.61% | 0.63%                   | 0.31%   | 0.55%         | 0.30%  
|                                                                                                                            | Allowance for loan losses as a percent of loans                                                                       | 0.86% | 0.94%                   | 0.94%   | 1.01%         | 1.24%  
|                                                                                                                            | Allowance for loan losses as a percent of                                                                             |       |                         |         |               |         |        
|                                                                                                                            | non-performing loans                                                                                                  |       | 128.7%                  | 114.1%  | 211.5%        | 125.41% | 364.68%
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Other Data:                                                                                                                 |                                                                                                                       |       |                         |         |               |        
|                                                                                                                            | Number of:                                                                                                            |       |                         |         |               |         |        
|                                                                                                                            | Deposit accounts                                                                                                      |       | 34,443                  | 32,776  | 32,446        | 33,591  | 33,475 
|                                                                                                                            | Full service offices                                                                                                  |       | 4                       | 4       | 4             | 4       | 4      
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|Note: All per share amounts have been adjusted to reflect the Company's three-for-two  stock split effective June 16, 2003.
|                                                                                                                            | Basic and diluted earnings per share for the year ended December 31, 1999 are only from October 6, 1999, the date of 
|                                                                                                                            | conversion to a stock bank holding company, to the end of the year.                                                  
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|(1)                                                                                                                         | Non-interest expense divided by the sum of net interest income, the tax equivalent adjustment on tax-exempt municipal
|                                                                                                                            | securities and other non-interest income.                                                                            
|                                                                                                                            |                                                                                                                       |      
|                                                                                                                            |                                                                                                                       |      
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|                                                                                                                            |                                                                                                                       |       |                         |         |               |         |        
|                                                                                                                            |                                                                                                                       |       |                        



Management



General



Rome Bancorp, Inc. (the "Company") commenced operations on October 6, 1999, when The Rome Savings Bank (the "Bank") converted from a New York mutual savings bank to a New York mutual holding company structure whereby the Bank became a wholly owned subsidiary of the Company, a majority owned subsidiary of Rome, MHC.  In connection with the reorganization, the Company sold 2,397,548 shares of common stock to the public and issued 102,023 shares to The Rome Savings Bank Foundation and 2,601,594 shares to Rome, MHC, its mutual holding company parent.



The Company 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 State.  The Bank also invests in long and short-term marketable securities and other liquid investments.



The Bank is subject to regulation by the New York State Banking Department and the Federal Deposit Insurance Corporation (FDIC). On October 15, 2003, the Board of Directors of the Company and the Bank adopted a Plan of Charter Conversion pursuant to which the Bank will convert to a federal charter.  Pursuant to the Plan of Charter Conversion, the Bank will convert from a New York-chartered savings bank regulated by the New York State Banking Department and the Federal Deposit Insurance Corporation to a federal savings bank regulated by the Office of Thrift Supervision (OTS).  The Company will remain a Delaware-chartered holding company but will be regulated as a savings and loan holding company by the OTS. The Plan of Charter Conversion is subject to the regulatory approval of the OTS.



Overview



The following discussion focuses on the factors affecting the consolidated financial condition and the results of operations of Rome Bancorp, Inc. for the two years ended December 31, 2003. The consolidated financial statements and related notes as of December 31, 2003 and 2002 should be read in conjunction with this review.



The preparation of consolidated financial statements requires management to make estimates and assumptions.  Changes in these estimates and assumptions affect the reported amounts of certain assets, liabilities, revenue and expenses.  Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies.

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-bearing 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 gains and losses on sales of securities, the provision for loan losses and non-interest expense such as salaries and employee benefits, occupancy costs, and other general and administrative expenses.  Financial institutions in general, including the Bank, are significantly affected by economic conditions, competition and the monetary and fiscal policies of the federal government.  Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions and funds availability.  The Bank's operations and lending are principally concentrated in the Central New York area, therefore its operations and earnings are influenced by the economics of the area it operates in. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences and levels of personal income and savings in the Bank's primary market area.



Net income for 2003 was $1.5 million as compared to $2.5 million in the prior year. The significant factors and trends impacting 2003, which are discussed in greater depth below, were as follows:

- In the third quarter of 2003, the Company as part of its continual review of long lived asset values recorded an other than temporary impairment charge against its holding in a blue chip mutual fund. The resulting impairment charge of $1.0 million (pre-tax) was recorded to lower the carrying value of this security to the then current fair market value of $5.1 million.  This charge reduced net earnings by $636,000, or $0.15 per diluted share. The other than temporary write-down does not necessarily mean that the value has been permanently lost. The fair market value of the security may increase or decrease on a going forward basis.  During the fourth quarter, the Company sold approximately one-third of its investment in this fund, realizing book gains of $101,000 over the revised carrying value of the shares sold.
- 2003 net interest income increased by $668,000 or 6.3% over the prior year. This improvement is principally due to increased lending volume. The Company's loan portfolio increased by $26.2 million, or 14.3 % in 2003. Funding of the loan portfolio growth was achieved by decreasing the Company's investment portfolio and by increasing FHLB borrowings. The current low interest rate environment decreased yields earned on the Company's assets while conversely lowering the cost of the Company's interest bearing liabilities.

- Non-interest expense was $8.8 million in 2003, up from $7.7 million in the prior year. Much of this increase is attributable to administrative costs incurred related to new product offerings and the upgrade of the Bank's core processing system.
- Non-interest income increased $251,000 in 2003 (exclusive of the $1.0 million (pre-tax) impairment charge) primarily due to net securities sales gains of $348,000.  The Company used these proceeds to fund loan originations.  Also, a high performance checking program initiated in the fourth quarter of 2003 resulted in an increase in customer fee income and contributed to the growth in non-interest income.
- The Company's provision for loan losses was $510,000 in 2003, an increase of $180,000 primarily due to the charge-off of a loan with a balance in excess of $100,000 and the growth in the Company's loan portfolio.

Critical Accounting Policies



It is management's opinion that accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making these estimates. Management of the Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required for probable credit losses and the material effect that such judgments can have on the results of operations. Management's quarterly 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. Significant factors that could give rise to changes in these estimates include, but are not limited to, changes in economic conditions in the local area, concentrations of risk and declines of local property values.



Management also considers the accounting policy relating to the impairment of long lived assets to be a critical accounting policy due to the subjectivity and judgment involved and the material effect an impairment loss could have on the results of operations.A decline in the fair value of long lived asset 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 asset.  Management continually reviews the current value of its long lived assets for evidence of other than temporary impairment.



These critical policies and their application are reviewed periodically by the Audit Committee and the Board of Directors. All accounting policies are important, and as such, we encourage the reader to review each of the policies included in note 2 to the consolidated financial statements to obtain a better understanding of how our financial performance is reported.





Comparison of Financial Condition at December 31, 2003 and December 31, 2002:



The Company's total assets at December 31, 2003 were $261.9 million, an increase of $11.8 million or 4.7% from $250.1 million at December 31, 2002.



Federal funds sold and other short-term investments decreased to $8.4 million at December 31, 2003, from $10.1 million at December 31, 2002 as management has chosen to utilize a portion of those funds to fund loan originations.



Securities available for sale were $26.3 million at December 31, 2003, a decrease of $14.1 million or 34.9% from $40.4 million at December 31, 2002.  This decrease is due to maturities, principal reductions, the sale of several securities and an impairment charge recorded against the book value of the Company's investment in a mutual fund. Proceeds from the maturities and sale of investment securities were used to fund loan originations.



The majority of the Company's equity holdings represent investments in a mutual fund which purchases blue chip common stocks.  The downturn in the equity markets over the past two years has caused a decrease in the market value of the fund. During the third quarter of 2003, in connection with its ongoing review of long term asset values, the Company determined that this investment  had been other than temporarily impaired, as defined by generally accepted accounting principles. Accordingly, an impairment charge of $1.0 million (pre-tax) was recorded to lower the carrying value of this security to the then current fair market value of $5.1 million.  This charge reduced net earnings by $636,000, or $0.15 per diluted share. As this investment is classified as an available for sale security, stockholders' equity had already been reduced by the amount of the unrealized loss, net of taxes. The "other than temporary" write-down does not necessarily mean that the value has been permanently lost. The fair market value of the security may increase or decrease on a going forward basis.  During the fourth quarter, the Company sold approximately one-third of its investment in this fund, realizing book gains of $101,000 over the revised carrying value of the shares sold.



Total loans increased $26.2 million or 14.3% to $209.5 million at December 31, 2003 from $183.3 million at December 31, 2002. The majority of the loan growth was in the residential mortgage and construction loan portfolio, which grew by 37.2%, reflecting a strategic management decision to grow the Bank's presence in that market as well as the continued record low mortgage rates. The remainder of the loan portfolio decreased by 0.9%, due to the Company's sale of its student loan portfolio and a decline in auto lending which was primarily attributable to the attractive financing incentives offered consumers by the automotive industry.



Deposits grew by $8.3 million or 4.3% to $203.2 million at December 31, 2003, primarily due to the perceived safety of these deposits as opposed to the current uncertain equity market, as well as the bank's introduction and marketing of several new demand deposit products.



Comparison of Results of Operations for the Years Ended December 31, 2003 and December 31, 2002:



Net income for the year ended December 31, 2003 was $1.5 million, a decrease of $948,000 from $2.5 million for the year ended December 31, 2002.  The decrease in net income was principally a result of a $1.0 million asset impairment charge detailed above, a $1.1 million increase in non-interest expense and a $180,000 increase in the Company's provision for loan losses partially offset by an increase of $668,000 in net interest income, a $251,000 increase in non-interest income (exclusive of the above impairment charge) and a $482,000 decrease in income taxes.



Net Interest Income



Net interest income was $11.2 million in 2003, an increase of $668,000 or 6.3% from $10.5 million in 2002.  The improvement is primarily due to an increase in the volume of loans outstanding and a decrease in the rate of interest paid on deposits and borrowings, partially offset by lower yields earned in 2003 on the Bank's earning assets. Net interest income was also impacted by a decrease in the Bank's average investments throughout 2003.



Average loans increased to $193.2 million in 2003 from $173.6 million in 2002.  Interest income earned on the loan portfolio remained steady, as the volume increases achieved throughout 2003 offset a decline in yield due to lower prevailing market rates.  The yield on loans in 2003 was 6.78% compared to 7.53% in 2002.



Interest income on securities decreased in 2003 due to declines in both volume and yield.  As securities matured and were sold, management utilized the proceeds to fund the aforementioned growth in the loan portfolio, thereby enhancing the yield on those available funds. Average securities decreased from $45.7 million in 2002 to $38.5 million in 2003 while their yields decreased from 5.23% to 4.75% over the same period. The Company reduced its average balance of other interest bearing funds from $16.5 million in 2002 to $11.3 million in 2003, as the yield on these funds dropped from 1.59% to 0.98% over the same period.



Interest expense on deposit accounts declined in 2003 due to the Company decreasing the rate paid on these accounts, consistent with the decline in market rates.  The average rate paid on interest bearing deposits in 2003 was 1.76% compared to 2.41% in 2002. The average balance of these deposits increased to $173.0 million in 2003 from $167.6 million in the prior year.





Average Balances, Interest and Average Yields - The following table sets forth certain information relating to the Company's average balance sheets and reflects the average yield on interest-earnings 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 the average balance of interest-earning 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.



|                                        |                                 |                                           | Average Balances, Interest and Average Yields
|--------------------------------------- | ------------------------------- | ----------------------------------------- | ---------------------------------------------
|                                        |                                 |                                           | For the year ended December 31, 2003         
|                                        |                                 |                                           |                                              
|                                        |                                 |                                           | Average                                      
|                                        |                                 |                                           | Balance                                      
|Assets:                                 |                                 |                                           |                                              
|Interest-earning assets:                |                                 |                                           |                                              
|                                        | Loans                           | $     193,240                             | $       13,092                               
|                                        | Securities                      | 38,497                                    | 1,828                                        
|                                        | Federal funds sold & other      |                                           |                                              
|                                        |                                 | interest bearing deposits                 | 11,343                                       
|                                        |                                 | Total interest-earnings assets            | 243,080                                      
|Noninterest-earning assets              | 15,399                          |                                           |                                              
|                                        |                                 | Total assets                              | $      258,479                               
|Liabilities and Shareholders'Equity:    |                                 |                                           |                                              
|Interest-bearing liabilities:           |                                 |                                           |                                              
|                                        | Savings accounts                | $        89,927                           | $           911                              
|                                        | Time deposits                   | 72,187                                    | 2,001                                        
|                                        | Money market accounts           | 8,164                                     | 89                                           
|                                        | Other interest bearing deposits | 2,684                                     | 36                                           
|                                        |                                 | Total interest-bearing deposits           | 172,962                                      
|                                        | Borrowings                      | 16,717                                    | 577                                          
|                                        |                                 | Total interest-bearing liabilities        | 189,679                                      
|Noninterest-bearing deposits            | 27,503                          |                                           |                                              
|Other liabilities                       | 4,361                           |                                           |                                              
|                                        | Total liabilities               | 221,543                                   |                                              
|Shareholders'equity                     | 36,936                          |                                           |                                              
|                                        |                                 | Total liabilities and shareholders'equity | $     258,479                                
|Net interest income                     |                                 | 11,418                                    |                                              
|Tax equivalent adjustment on securities |                                 | (221)                                     |                                              
|Net interest income per consolidated    |                                 |                                           |                                              
|financial statements                    |                                 | $        11,196                           |                                              
|                                        |                                 |                                           |                                              
|Net interest rate spread                |                                 |                                           | 4.27%                                        
|Net interest margin                     |                                 |                                           | 4.70%                                        
|Ratio of interest-earning assets to     |                                 |                                           |                                              
|                                        | interest-bearing liabilities    |                                           |                                              





Rate Volume Analysis 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 to 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 absolute value of the change due to volume and the change due to rate.





|                              |                                 |                                    | Rate Volume Analysis        
|----------------------------- | ------------------------------- | ---------------------------------- | ----------------------------
|                              |                                 |                                    | Year Ended December 31, 2003
|                              |                                 |                                    |                             
|                              |                                 |                                    | Increases (decreases) due to
|                              |                                 |                                    | Rate                        
|                              |                                 |                                    |                             
|Assets:                       |                                 |                                    |                             
|Interest-earning assets:      |                                 |                                    |                             
|                              | Loans                           | $(1,433)                           | $         1,443             
|                              | Securities                      | (185)                              | (379)                       
|                              | Federal funds sold & other      |                                    |                             
|                              |                                 | Interest bearing deposits          | (69)                        
|                              |                                 | Total interest-earnings assets     | (1,687)                     
|                              |                                 |                                    |                             
|Interest-bearing liabilities: |                                 |                                    |                             
|                              | Savings accounts                | (305)                              | 79                          
|                              | Time deposits                   | (713)                              | (30)                        
|                              | Money market accounts           | (27)                               | 1                           
|                              | Other interest bearing deposits | (4)                                | 4                           
|                              |                                 | Total interest-bearing deposits    | (1,049)                     
|                              | Borrowings                      | (435)                              | 63                          
|                              |                                 | Total interest-bearing liabilities | (1,484)                     
|                              |                                 |                                    |                             
|Net change in interest income | $        (203)                  | $            866                   | $        663                





Provision for Loan Losses



The provision for loan losses was $510,000 in 2003 compared to $330,000 in 2002.  The allowance for loan losses was $1.8 million or 0.86% of total loans at December 31, 2003 comparable to $1.7 million and 0.94% of total loans at December 31, 2002.  The allowance for loan losses as a percent of non-performing loans was 129% at December 31, 2003 compared to 114% at December 31, 2002.  Non-performing loans, consisting of non-accrual loans and loans 90 days past due and still accruing, decreased to $1,406,000 or 0.67% of total loans at December 31, 2003 compared to $1,516,000 or 0.83% at December 31, 2002. Approximately one third of the non-performing loans at December 31, 2003 were residential real estate loans.  The Company believes that these loans are adequately secured and therefore, do not require as high a percentage of loan loss allowance provided. The level of non-performing loans at December 31, 2003 is indicative of the current economic climate in our region.  Net loan charge-offs increased to $431,000 from $197,000 in the previous year, primarily due to the charge-off of one loan with a balance in excess of $100,000 in the current year; no similarly large charge-offs were necessitated in 2002. This charge-off, as well as the growth in the Company's loan portfolio resulted in the Company recording a higher provision for loan losses in 2003.



We establish provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level management considers necessary to absorb probable incurred credit losses in the loan portfolio. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or later events occur. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses in order to maintain the adequacy of the allowance.





Non-interest Income



The following table summarizes changes in the major components of non-interest income:







|                             | 2003        | 2002             | $ Change    | % Change
|---------------------------- | ----------- | ---------------- | ----------- | --------
|Securities impairment charge | $  (1,041)  | $              - | $  (1,041)  | -       
|Gain on securities sold      | 348         | 132              | 216         | 163.64% 
|Gain on sale of loans        | 39          | 61               | (22)        | (36.07)%
|Service charges              | 927         | 873              | 54          | 6.19%   
|Other income                 | 199         | 196              | 3           | 1.53%   
|Total non-interest income    | $       472 | $      1,262     | $     (790) | (62.60)%





Non-interest income decreased by $790,000 to $472,000 in 2003, primarily due to the investment impairment charge of $1.0 million discussed above. Partially offsetting this non-cash charge, the Company recorded net securities sales gains of $348,000 in 2003 compared to similar gains of $132,000 in 2002. The Company sold more securities in 2003, using the proceeds to fund loan originations. The remaining increase in other non-interest income is principally due to an increase in customer fee income, much of which was the result of a high performance checking program initiated in the fourth quarter of 2003.



Non-interest Expense



The following table summarizes changes in the major components of non-interest expense:





|                                | 2003       | 2002          | $ Change      | % Change
|------------------------------- | ---------- | ------------- | ------------- | --------
|Salaries and employee benefits  | $    5,044 | $       4,126 | $         918 | 22.25%  
|Occupancy and equipment expense | 1,409      | 1,260         | 149           | 11.83%  
|Marketing expense               | 279        | 217           | 62            | 28.57%  
|Outside consulting              | 254        | 90            | 164           | 182.22% 
|Other expense                   | 1,849      | 2,014         | (165)         | (8.19)% 
|Total non-interest expense      | $    8,835 | $      7,707  | $     1,128   | (14.64)%





Non-interest expense was $8.8 million for the year ended December 31, 2003 compared to $7.7 million for the year ended December 31, 2002.  The increase in non-interest expense was primarily the result of higher personnel, outside consulting and marketing expenses related to the Bank's new product offerings, increased employee benefit costs primarily related to the Company's ESOP and retirement benefit plans, as well as higher data processing related expenses as a result of the Bank's upgrade of its core processing systems during the year. The expense for the ESOP plan increased by $108,000, as it is based on the average market price of Company stock, which increased by 84.75% in 2003, while the cost of the Company's other retirement benefit plans increased by $163,000.



Income Tax Expense



Income tax expense was $786,000 for 2003, a decrease of $482,000 from 2002 income tax expense of $1.3 million.  The decrease is directly attributable to the decrease in pre-tax income.



Liquidity and Capital Resources



Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. The Company



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 Company



At December 31, 2003, the Company had loan commitments to borrowers of approximately $9.5 million, and customer available letters and lines of credit of approximately $9.1 million. Total deposits were $203.2 million at December 31, 2003, an increase of 4.3% from $194.9 million at December 31, 2002.



Time deposit accounts scheduled to mature within one year were $48.4 million at December 31, 2003.  Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain with the Company.  We are committed to maintaining a strong liquidity position, therefore, the Company monitors its liquidity position on a daily basis.  The Company 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 Company monitors its liquidity needs.  Therefore, in order to minimize its cost of funds, the Company may consider additional borrowings from the Federal Home Loan Bank in the future.



At December 31, 2003 and 2002, the Company and the Bank exceeded each of the applicable regulatory capital requirements.  The Company



On May 28, 2003, the Company's Board of Directors announced a three-for-two stock split of Rome Bancorp's common shares. The additional shares were distributed to shareholders of record as of May 29, 2003 on June 16, 2003. All share and per share data presented have been adjusted to reflect this split. The Company also retired 101,164 common shares held in treasury in the second quarter of 2003. This retirement had no net effect on the Company's earnings, statement of condition or cash flow.



The Company paid cash dividends of $0.29 per share and repurchased 43,748 shares of common stock in 2003, requiring cash outlays of $1.2 million and $1.0 million, respectively. During 2003, the Company invested $1.3 million in capital projects, primarily related to the upgrade of its core banking system and the purchase of land adjacent to its main office.



The Company 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 debt as described in Note 7 of Notes to the Consolidated Financial Statements and the commitments and unused lines and letters of credit noted above.



The Company is contractually obligated to make payments as follows:





|                                  |            | Payments due by Period:
|--------------------------------- | ---------- | -----------------------
|                                  |            | Less than              
|                                  | Total      | 1 year                 
|Federal Home Loan Bank Borrowings | $   18,090 | $    7,748             
|Software Maintenance Contracts    | 194        | 49                     
|Total Contractual Obligations     | $  18,284  | $   7,797              

Off-Balance Sheet Arrangements



The company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.



Management of Interest Rate Risk



Interest rate risk is the most significant market risk affecting the Company.  Other types of market risk, such as movements in foreign currency exchange rates and commodity prices, do not arise in the normal course of the Company's business operations.  Interest rate risk can be defined as an exposure to a movement in interest rates that could have an adverse effect on the Company's net interest income.  Interest rate risk arises naturally from the imbalance in the repricing, maturity and/or cash flow characteristics of assets and liabilities.  In periods of falling interest rates, prepayments of loans typically increase, which would lead to reduced net interest income if such proceeds could not be reinvested at a comparable spread.  Also in a falling rate environment, certain categories of deposits may reach a point where market forces prevent further reduction in the interest rate paid on those instruments.  Generally, during extended periods when short-term and long-term interest rates are relatively close, a flat yield curve, net interest margins could become smaller, thereby reducing net interest income.  The net effect of these circumstances is reduced interest income, offset only by a nominal decrease in interest expense, thereby narrowing the net interest margin.



Managing interest rate risk is of primary importance to the Company.  The responsibility for interest rate risk management is the function of the Company's Asset/Liability Committee ("ALCO") which includes the President and CEO, Treasurer and CFO and certain members of the Company's Board of Directors. The Company's ALCO meets at least monthly to review the Company's asset/liability policies and identify and measure 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 and customer preferences and sensitivity to changing rates.  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 400 basis point increase in interest rates and one of a 100 basis point decrease in rates.  The change in interest rates is assumed to occur in the first twelve 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 twelve-month periods.  At December 31, 2003, based on simulation model results, the Company was within these guidelines.



As of December 31, 2003 mortgage loans which totaled $150.7 million represented 61.0% of the Company's earning assets in comparison to $126.7 million or 53.6% of the Company's earning assets as of December 31, 2002. The growth in mortgage lending primarily reflected the increase in fixed rate residential loans to $77.6 million or 31.4% of earning assets at December 31, 2003 in comparison to $54.2 million or 22.9% of earning assets at December 31, 2002.  The increase in fixed rate residential lending reflected strong market demand in part as a result of the general decline in interest rates and the consequent refinancing demand created.  The increase also reflected increased emphasis on this type of lending by the Company.



To minimize the potential negative impact on the Company's net interest income of holding fixed rate residential loans during periods of rising interest rates, the company generally originates only those loans with an original maturity of 20 years or less except for bi-weekly mortgages which may be up to 30 years in maturity.  These loans, however, typically have amortization periods which are substantially less than their stated maturity.  Further, the Company has entered into an agreement with the Federal Home Loan Bank of New York to sell mortgage loans to its Mortgage Partnership Funding (MPF) program. This is a secondary market program similar to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae") programs. The Company is under no obligation to sell any mortgages but may do so in the future as its continues to monitor its existing levels of interest rate risk. 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" 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 assets.  At December 31, 2003, the one-year cumulative gap position, as presented in the table below, was $17.9 million asset sensitive, or 6.82% of total assets.



Amounts Maturing or Repricing as of December 31, 2003



|                                                                 |   | Less than              |   | Six Months |   | 1 - 2   |   | 2 - 3   |   | 3 - 5   |   | Over 5   |   |        
|---------------------------------------------------------------- | - | ---------------------- | - | ---------- | - | ------- | - | ------- | - | ------- | - | -------- | - | -------
|                                                                 |   | Six Months             |   | to OneYear |   | Years   |   | Years   |   | Years   |   | Years    |   | Total  
|                                                                 |   | (Dollars in thousands)
|Interest-earning assets:                                         |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Mortgage loans                                                   | $ | 19,994                 | $ | 22,555     | $ | 23,249  | $ | 20,670  | $ | 29,891  | $ | 34,294   | $ | 150,653
|Consumer and other loans                                         |   | 29,102                 |   | 6,150      |   | 10,430  |   | 6,941   |   | 4,789   |   | 1,400    |   | 58,812 
|Federal funds sold                                               |   | 8,384                  |   | -          |   | -       |   | -       |   | -       |   | -        |   | 8,384  
|Investment securities                                            |   | 6,907                  |   | 4,275      |   | 3,749   |   | 4,787   |   | 2,132   |   | 7,268    |   | 29,118 
|Total interest-earning assets                                    | $ | 64,387                 | $ | 32,980     | $ | 37,428  | $ | 32,398  | $ | 36,812  | $ | 42,962   | $ | 246,967
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Interest-bearing liabilities:                                    |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Savings accounts                                                 | $ | 8,169                  | $ | 7,801      | $ | 5,131   | $ | 4,784   | $ | 8,616   | $ | 57,158   | $ | 91,659 
|Other Interest Bearing Deposits                                  |   | 4,221                  |   | -          |   | -       |   | -       |   | -       |   | 1,543    |   | 5,764  
|Money market accounts                                            |   | 2,675                  |   | 515        |   | 316     |   | 295     |   | 531     |   | 3,582    |   | 7,914  
|Time deposits                                                    |   | 30,925                 |   | 17,439     |   | 12,451  |   | 4,462   |   | 5,522   |   | -        |   | 70,799 
|Total interest-bearing deposits                                  |   | 45,990                 |   | 25,755     |   | 17,898  |   | 9,541   |   | 14,669  |   | 62,283   |   | 176,136
|Borrowings                                                       |   | 1,835                  |   | 5,913      |   | 968     |   | 1,002   |   | 3,748   |   | 4,624    |   | 18,090 
|Total interest-bearing liabilities                               | $ | 47,825                 | $ | 31,668     | $ | 18,866  | $ | 10,543  | $ | 18,417  | $ | 66,907   | $ | 194,226
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Interest sensitivity gap                                         | $ | 16,562                 | $ | 1,312      | $ | 18,562  | $ | 21,855  | $ | 18,395  | $ | (23,945) |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Cumulative interest sensitivity gap                              | $ | 16,562                 | $ | 17,874     | $ | 36,436  | $ | 58,291  | $ | 76,686  | $ | 52,741   |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Ratio of cumulative gap to total assets                          |   | 6.32%                  |   | 6.82%      |   | 13.91%  |   | 22.25%  |   | 29.28%  |   | 20.14%   |   |        
|                                                                 |   |                        |   |            |   |         |   |         |   |         |   |          |   |        
|Ratio of interest earning assets to interest bearing liabilities |   | 134.63%                |   | 104.14%    |   | 198.38% |   | 307.29% |   | 199.88% |   | 64.21%   |   |        







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 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.





































Recent Accounting Pronouncements



Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), was issued in May 2003.  This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity.  Under SFAS No. 150, certain freestanding financial instruments that embody obligations of the issuer, and that are now classified as equity, must be classified as liabilities (or as assets in some circumstances).  SFAS No. 150 also includes required disclosures for financial instruments within its scope.  For SEC registrants such as the Company, SFAS No. 150 was generally effective for financial instruments entered into or modified after May 31, 2003 and otherwise at the beginning of the first interim period beginning after June 15, 2003 (July 1, 2003 for the Company).  The effective date has been deferred indefinitely for certain types of mandatorily redeemable financial instruments.  The Company currently does not have any financial instruments that are within the scope of SFAS No. 150.

In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 (revised), "Consolidation of Variable Interest Entities" ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and, accordingly, should consolidated the variable interest entity ("VIE").  FIN 46R replaces FASB Interpretation No. 46 that was issued in January 2003.  As a public company that is a small business issuer (as defined in applicable SEC regulations), the Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003.  For variable interests in VIEs created before January 1, 2004, FIN 46R will be applied beginning January 1, 2005.  For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts, and any difference between the net amount added to the balance sheet and any previously recognized interest would be recorded as the cumulative effect of an accounting change.  If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE.  The adoption of FIN 46R is not expected to have a significant effect on the Company's consolidated financial statements.



Forward-Looking Statements



Statements included in this discussion 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) competitive pressures among depository and other financial institutions may increase significantly; (2) revenues may be lower than expected; (3) changes in the interest rate environment may reduce interest margins; (4) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (5) legislative or regulatory changes, including changes in accounting standards, may adversely affect the business in which the Company is engaged; (6) competitors may have greater financial resources and developed products that enable such competitors to compete more successfully than the Company; and (7) adverse changes may occur in the securities markets or with respect to inflation.  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 or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events.









MARKET FOR THE COMPANY





The Company's common stock is traded on the Nasdaq National Market under the symbol "ROME".



The Company's common stock began trading on October 6, 1999, the date of the reorganization and initial public offering.  At December 31, 2003, the last trading date in the Company's fiscal year, the common stock of the Company closed at $31.06 per share.  At March 5, 2004, there were 4,263,101shares of the Company's common stock outstanding, which were held of record by approximately 801registered shareholders.



The table below shows the high and low sales price of the Company common stock during the periods indicated.  The Company paid quarterly cash dividends of $0.073 per share in 2003.  The Company also paid a quarterly cash dividend of $0.073 per share to shareholders of record as of February 9, 2004.  Our ability to pay dividends depends on a number of factors including:



- investment opportunities available to the Bank or the Company;
- the Bank's capital requirements;
- our financial results;
- tax considerations; and
- general economic conditions.



We do not guarantee that we will pay dividends, or that we will not reduce or eliminate dividends in the future.





|                                 | Price Range    
|-------------------------------- | ---------------
|Date                             | High           
|                                 |                
|Year ended December 31, 2003     |                
|                                 |                
|Quarter ended March 31, 2003     | $         17.70
|Quarter ended June 30, 2003      | 23.25          
|Quarter ended September 30, 2003 | 26.50          
|Quarter ended December 31, 2003  | 32.19          
|                                 |                
|Year ended December 31, 2002     |                
|                                 |                
|Quarter ended March 31, 2002     | $        14.50 
|Quarter ended June 30, 2002      | 14.60          
|Quarter ended September 30, 2002 | 17.17          
|Quarter ended December 31, 2002  | 17.38          

All per share amounts are adjusted to reflect the three for two stock split that occurred June 16, 2003.











Independent Auditors



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, 2003 and 2002, and the related consolidated statements of income, shareholders'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 auditing standards generally accepted in the United States of America.  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, 2003 and 2002, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.





/s/ KPMG LLP

KPMG LLP



Syracuse, New York

February 17, 2004

|ROME BANCORP, INC. AND SUBSIDIARY                                                                      
|-------------------------------------------------------------------------------------------------------
|                                                                                                       
|Consolidated Balance Sheets                                                                            
|                                                                                                       
|December 31, 2003 and 2002                                                                             
|                                                                                                       
|(in thousands, except share data)                                                                      
|Assets                                                                                                 
|                                                                                                       
|Cash and due from banks                                                                                
|Federal funds sold and other short-term investments                                                    
|                                                                                                       
|Securities available for sale, at fair value                                                           
|Securities held to maturity (fair value of $2,844 and $2,880                                           
|                                                                                                       
|Loans                                                                                                  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Premises and equipment, net                                                                            
|Accrued interest receivable                                                                            
|Other assets                                                                                           
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Liabilities                                                                                            
|                                                                                                       
|Liabilities:                                                                                           
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Shareholders' equity:                                                                                  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|See accompanying notes to consolidated financial statements.                                           
|Share data has been adjusted to reflect the three-for-two stock split distributed on June 16, 2003.    
|ROME BANCORP, INC. AND SUBSIDIARY                                                                      
|                                                                                                       
|Consolidated Statements of Income                                                                      
|                                                                                                       
|Years ended December 31, 2003 and 2002                                                                 
|                                                                                                       
|(in thousands, except share data)                                                                      
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Interest income:                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Interest expense:                                                                                      
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Provision for loan losses                                                                              
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Non-interest income:                                                                                   
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Non-interest expense:                                                                                  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Income tax expense                                                                                     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Basic earnings per share                                                                               
|Diluted earnings per share                                                                             
|                                                                                                       
|See accompanying notes to consolidated financial statements.                                           
|Per share data has been adjusted to reflect the three-for-two stock split distributed on June 16, 2003.





|ROME BANCORP, INC. AND SUBSIDIARY                                                                      
|-------------------------------------------------------------------------------------------------------
|Consolidated Statements of Shareholders' Equity and Comprehensive Income                               
|Years ended December 31, 2003 and 2002                                                                 
|                                                                                                       
|(in thousands, except share data)                                                                      
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Balances at December 31, 2001                                                                          
|                                                                                                       
|Comprehensive income:                                                                                  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Purchase of treasury stock (132,920 shares)                                                            
|Exercise of stock options and related tax benefit (16,050 shares, net)                                 
|Amortization and tax benefits of Unearned Compensation                                                 
|Dividends paid ($0.24 per share)                                                                       
|ESOP shares released for allocation (13,330 shares)                                                    
|                                                                                                       
|Balances at December 31, 2002                                                                          
|                                                                                                       
|Comprehensive income:                                                                                  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Retirement of 101,164 treasury shares                                                                  
|Purchase of treasury stock (43,748 shares)                                                             
|Exercise of stock options and related tax benefit (22,986 shares, net)                                 
|Amortization and tax benefits of Unearned Compensation                                                 
|Dividends paid ($0.29 per share)                                                                       
|ESOP shares released for allocation (13,330 shares)                                                    
|                                                                                                       
|Balances at December 31, 2003                                                                          
|                                                                                                       
|See accompanying notes to consolidated financial statements.                                           
|Per share data has been adjusted to reflect the three-for-two stock split distributed on June 16, 2003.

|ROME BANCORP, INC. AND SUBSIDIARY                            |                                                      |                                   |                                            |                                          
|------------------------------------------------------------ | ---------------------------------------------------- | --------------------------------- | ------------------------------------------ | -----------------------------------------
|                                                             |                                                      |                                   |                                            |                                          
|Consolidated Statements of Cash Flows                        |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            |                                          
|Years ended December 31, 2003 and 2002                       |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            |                                          
|(in thousands)                                               |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            |                                          
|Cash flows from operating activities:                        |                                                      |                                   |                                            |                                          
|                                                             | Net income                                           |                                   |                                            |                                          
|                                                             | Adjustments to reconcile net income to net cash      |                                   |                                            |                                          
|                                                             |                                                      | provided by operating activities: |                                            |                                          
|                                                             |                                                      |                                   | Depreciation and amortization              |                                          
|                                                             |                                                      |                                   | Decrease in accrued interest receivable    |                                          
|                                                             |                                                      |                                   | Provision for loan losses                  |                                          
|                                                             |                                                      |                                   | Securities impairment charge               |                                          
|                                                             |                                                      |                                   | Net gain (loss) on securities transactions |                                          
|                                                             |                                                      |                                   | Gain on sales of student loans             |                                          
|                                                             |                                                      |                                   | Net premium amortization on securities     |                                          
|                                                             |                                                      |                                   | Gain on sale of other real estate          |                                          
|                                                             |                                                      |                                   | Decrease in other liabilities              |                                          
|                                                             |                                                      |                                   | Deferred income tax expense                |                                          
|                                                             |                                                      |                                   | Decrease in other assets                   |                                          
|                                                             |                                                      |                                   | Allocation of ESOP shares                  |                                          
|                                                             |                                                      |                                   | Amortization of Unearned Compensation      |                                          
|                                                             |                                                      |                                   | Tax benefit from exercise of stock options |                                          
|                                                             |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            | Net cash provided by operating activities
|                                                             |                                                      |                                   |                                            |                                          
|Cash flows from investing activities:                        |                                                      |                                   |                                            |                                          
|                                                             | Net increase in loans                                |                                   | (28,070)                                   |                                          
|                                                             | Proceeds from sale of student loans                  |                                   | 1,305                                      |                                          
|                                                             | Proceeds from sales of securities available for sale |                                   | 6,697                                      |                                          
|                                                             | Proceeds from maturities and principal reductions of |                                   |                                            |                                          
|                                                             |                                                      | securities available for sale     |                                            | 7,657                                    
|                                                             | Purchases of securities available for sale           |                                   | (91)                                       |                                          
|                                                             | Purchases of securities held to maturity             |                                   | (284)                                      |                                          
|                                                             | Proceeds from maturities and principal reductions of |                                   |                                            |                                          
|                                                             |                                                      | securities held to maturity       |                                            | 219                                      
|                                                             | Proceeds from sale of real estate owned              |                                   | 61                                         |                                          
|                                                             | Purchases of premises and equipment                  |                                   | (1,286)                                    |                                          
|                                                             |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            | Net cash used in investing activities    
|                                                             |                                                      |                                   |                                            |                                          
|Cash flows from financing activities:                        |                                                      |                                   |                                            |                                          
|                                                             | Decrease in time deposits                            |                                   | (1,563)                                    |                                          
|                                                             | Increase in other deposits                           |                                   | 9,829                                      |                                          
|                                                             | Repayments of borrowings                             |                                   | (8,330)                                    |                                          
|                                                             | Advances on borrowings                               |                                   | 11,500                                     |                                          
|                                                             | Purchase of treasury stock                           |                                   | (1,028)                                    |                                          
|                                                             | Dividends                                            |                                   |                                            |                                          
|                                                             | Exercise of stock options                            |                                   | 121                                        |                                          
|                                                             |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            | Net cash provided by financing activities
|                                                             |                                                      |                                   |                                            |                                          
|Net decrease in cash and cash equivalents                    |                                                      | (1,643)                           |                                            | (8,224)                                  
|Cash and cash equivalents at beginning of year               |                                                      | 15,698                            |                                            | 23,922                                   
|                                                             |                                                      |                                   |                                            |                                          
|Cash and cash equivalents at end of year                     | $                                                    | 14,055                            | $                                          | 15,698                                   
|Supplemental disclosure of cash flow information:            |                                                      |                                   |                                            |                                          
|                                                             | Non-cash investing activities:                       |                                   |                                            |                                          
|                                                             |                                                      | Additions to real estate owned    | $                                          | 202                                      
|                                                             | Cash paid during the period for:                     |                                   |                                            |                                          
|                                                             |                                                      | Interest                          |                                            |                                          
|                                                             |                                                      | Income taxes                      |                                            |                                          
|                                                             |                                                      |                                   |                                            |                                          
|                                                             |                                                      |                                   |                                            |                                          
|See accompanying notes to consolidated financial statements. |                                                      |                                   |                                            |                                          











Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002









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 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).



On October 15, 2003, the Board of Directors of the Company and the Bank adopted a Plan of Charter Conversion pursuant to which the Bank will convert to a federal charter.  Pursuant to the Plan of Charter Conversion, the Bank will convert from a New York-chartered savings bank regulated by the New York State Banking Department and the Federal Deposit Insurance Corporation to a federal savings bank regulated by the Office of Thrift Supervision (OTS).  The Company will remain a Delaware-chartered holding company but will be regulated as a savings and loan holding company by the OTS. The Plan of Charter Conversion is subject to the regulatory approval of the OTS. The Charter Conversion is anticipated to be completed during the first half of 2004.





(2)	Summary of Significant Accounting Policies

(a)	Basis of Presentation



The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  Amounts in the prior year's consolidated financial statements are reclassified when necessary to conform with the current year's presentation.  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.  Significant estimates include the allowance for loan losses, valuation of securities, deferred tax assets and employee benefit obligations. 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.





















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(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 deferred and amortized over the life of the related loans.  The Company has the ability and intent to hold its loans to maturity.



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.





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(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 evaluated on a quarterly basis by management in order to maintain the allowance at a level sufficient to absorb probable incurred 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 non-accrual status 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's judgement and the related factors discussed above.





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(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 full time employees.  The Company's Board of Directors amended the plan in December of 2002 to cease the accrual of any further benefits. 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 Company'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 Company provides health care and life insurance benefits to certain retired full time employees.  The estimated costs of providing benefits are accrued over the years the employees render services necessary to earn those benefits.



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.



The Company also sponsors a non-contributory Employee Stock Ownership Plan (ESOP) covering substantially all full time 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.



























ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(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)	Stock Option Plan



The Company applies APB Opinion No. 25 and related Interpretations in accounting for its Stock Option Plan.  Accordingly, compensation expense is recognized only if the exercise price of the option is less than the fair value of the underlying stock at the grant date.  Statement of Financial Accounting Standards (SFAS) No. 123 requires companies not using a fair value based method of accounting for stock options or similar plans, to provide pro forma disclosure of net income and earnings per share as if that method of accounting had been applied.



Pro forma disclosures for the Company for the years ended December 31, 2003 and 2002 utilizing the estimated fair value of the options granted and an assumed 5% forfeiture rate are as follows:





|                                                      |    | 2003                                  |    | 2002          
|----------------------------------------------------- | -- | ------------------------------------- | -- | --------------
|                                                      |    | (in thousands, except per share data)
|Net income:                                           |    |                                       |    |               
|As reported                                           |    | $         1,537                       |    | $        2,485
|Add; Stock based compensation expense included in net |    |                                       |   
|income, net of related tax expense                    | 35 |                                       | 35
|Deduct: Total stock based compensation expense        |    |                                       |   
|determined under fair value method, net of related    |    |                                       |   
|tax expense                                           |    | (69)                                  |    | (69)          
|Pro forma                                             |    | $         1,503                       |    | $       2,451 
|                                                      |    |                                       |    |               
|Basic earnings per share:                             |    |                                       |    |               
|As reported                                           |    | $           0.37                      |    | $         0.60
|Pro forma                                             |    | $           0.36                      |    | $         0.59
|                                                      |    |                                       |    |               
|Diluted earnings per share:                           |    |                                       |    |               
|As reported                                           |    | $           0.36                      |    | $         0.58
|Pro forma                                             |    | $           0.35                      |    | $         0.57



ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





Because the Company's stock options have characteristics significantly different from those of traded options for which the Black-Scholes model was developed, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of its stock options.  In addition, the effect on reported net income and earnings per share for the years ended December 31, 2003 and 2002 may not be representative of the effects on reported net income or earnings per share for future years.





(j)	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.



(k)	Financial Instruments With Off-Balance Sheet Risk



The Company's off-balance sheet financial instruments are limited to commitments to extend credit and standby letters of credit.  The Company's policy is to record such instruments when funded.



(l)	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.  Stock options and unvested stock grants are regarded as common stock equivalents and are considered in earnings per share calculations if dilutive.  Unallocated shares held by the Company's ESOP are not included in the weighted average number of shares outstanding.



On May 28, 2003, the Company's Board of Directors announced a three-for-two stock split of Rome Bancorp's common shares. The additional shares were distributed to shareholders of record as of May 29, 2003 on June 16, 2003. All share and per share data presented have been adjusted to reflect this split.

(m)	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 SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.





















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(n)	Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), was issued in May 2003.  This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity.  Under SFAS No. 150, certain freestanding financial instruments that embody obligations of the issuer, and that are now classified as equity, must be classified as liabilities (or as assets in some circumstances).  SFAS No. 150 also includes required disclosures for financial instruments within its scope.  For SEC registrants such as the Company, SFAS No. 150 was generally effective for financial instruments entered into or modified after May 31, 2003 and otherwise at the beginning of the first interim period beginning after June 15, 2003 (July 1, 2003 for the Company).  The effective date has been deferred indefinitely for certain types of mandatorily redeemable financial instruments.  The Company currently does not have any financial instruments that are within the scope of SFAS No. 150.



In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 (revised),"Consolidation of Variable Interest Entities" ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and, accordingly, should consolidated the variable interest entity ("VIE").  FIN 46R replaces FASB Interpretation No. 46 that was issued in January 2003.  As a public company that is a small business issuer (as defined in applicable SEC regulations), the Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003.  For variable interests in VIEs created before January 1, 2004, FIN 46R will be applied beginning January 1, 2005.  For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts, and any difference between the net amount added to the balance sheet and any previously recognized interest would be recorded as the cumulative effect of an accounting change.  If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE.  The adoption of FIN 46R is not expected to have a significant effect on the Company's consolidated financial statements.











































|ROME BANCORP, INC. AND SUBSIDIARY         
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|                                          
|Years ended December 31, 2003 and 2002    
|                                          
|(3)                                       
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          

FHLB stock is carried at cost since fair values are not readily determinable.

ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





The following table presents the amortized cost and fair value of debt securities based on the contractual maturity date (in thousands).  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.





|                    |                              |               | December 31, 2003
|------------------- | ---------------------------- | ------------- | -----------------
|                    |                              |               | Amortized        
|                    |                              |               | cost             
|Available-for-sale: |                              |              
|                    | Due within one year          | $       5,090 | $     5,186      
|                    | Due after one year through   |               |                  
|                    |                              | five years    | 10,787           
|                    | Due after five years through |               |                  
|                    |                              | ten years     | 2,681            
|                    | Due after ten years          | 1,751         | 1,848            
|                    |                              |               |                  
|                    |                              |               | $    20,309      
|Held-to-maturity:   |                              |              
|                    | Due within one year          | $      2,268  | $      2,306     
|                    | Due after one year through   |               |                  
|                    |                              | five years    | 230              
|                    | Due after five years through |               |                  
|                    |                              | ten years     | 141              
|                    | Due after ten years          | 151           | 151              
|                    |                              |               |                  
|                    |                              |               | $      2,790     



Gross gains of $348,000 and $132,000 were realized on sales of securities in 2003 and 2002, respectively.



The majority of the Company's equity holding represent investments in a mutual fund which purchases blue chip common stocks.  The downturn in the equity markets over the past two years has caused a decrease in the market value of the fund. During the third quarter of 2003, in connection with its ongoing review of long term asset values, the Company determined that this investment  had been other than temporarily impaired, as defined by generally accepted accounting principles. Accordingly, an impairment charge of $1.0 million (pre-tax) was recorded to lower the carrying value of this security to the current fair market value of $5.1 million.  This charge reduced net earnings by $636,000, or $0.15 per diluted share. As this investment is classified as an available for sale security, stockholders equity had already been reduced by the amount of the unrealized loss, net of taxes. The "other than temporary" write-down does not necessarily mean that the value has been permanently lost. The fair market value of the security may increase or decrease on a going forward basis.  During the fourth quarter, the Company sold approximately one-third of its investment in this fund, realizing book gains of $101,000 over the revised carrying value of the shares sold.



ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002

(4)	Loans



Loans are summarized as follows (in thousands) at December 31:





|                |                       |                  | 2003           | 2002        
|--------------- | --------------------- | ---------------- | -------------- | ------------
|Mortgage loans: |                       |                 
|                | Residential           | $         96,217 | $       71,687
|                | Commercial            | 50,239           | 53,530        
|                | Construction and land | 4,197            | 1,520         
|                |                       |                  |                |             
|                |                       |                  | 150,653        | 126,737     
|Other loans:    |                       |                 
|                | Commercial            | 19,189           | 16,752        
|                | Automobile loans      | 15,780           | 17,628        
|                | Property improvement  |                  |               
|                |                       | and equipment    | 9,420          | 6,422       
|                | Education             | -                | 1,451         
|                | Other consumer        | 14,423           | 14,304        
|                |                       |                  |                |             
|                |                       |                  | 58,812         | 56,557      
|                |                       |                  |                |             
|                |                       |                  | $     209,465  | $    183,294



The Company serviced loans for third parties totaling $4,327,000 and $2,589,000 at December 31, 2003 and 2002 respectively.



Changes in the allowance for loan losses are summarized as follows (in thousands):





|                                | Years ended 
|------------------------------- | ------------
|                                | December 31,
|                                | 2003        
|                                |             
|Balance at beginning of period  | $     1,730 
|Provision charged to operations | 510         
|Loans charged off               | (540)       
|Recoveries                      | 109         
|                                |             
|Balance at end of period        | $     1,809 















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





The Company's recorded investment in loans that are considered impaired totaled $284,000 and $307,000 at December 31, 2003 and 2002, respectively.  These impaired loans carried allowances of $85,000 at December 31, 2003 and $92,000 as of year-end 2002. The average recorded investment in impaired loans was $320,000 and $330,000 in 2003 and 2002, respectively. The Company recognized no interest on impaired loans during the years ended December 31, 2003 and 2002.



The principal balances of loans not accruing interest amounted to $1,340,000 and $1,056,000 at December 31, 2003 and 2002, respectively.  Loans 90 days past due and accruing interest amounted to $66,000 and $460,000 at December 31, 2003 and 2002, respectively. The differences between the amount of interest income that would have been recorded if non-accrual 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, 2003 and 2002 was $83,800 and $87,400, respectively. There are no commitments to extend further credit on non-accruing loans.



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):





|                                  |                    | 2003             | 2002           
|--------------------------------- | ------------------ | ---------------- | ---------------
|                                  |                    |                  |                
|Land                              | $            1,404 | $            904
|Buildings and improvements        | 5,110              | 4,983           
|Furniture and equipment           | 6,312              | 5,653           
|                                  |                    |                  |                
|                                  |                    | 12,826           | 11,540         
|Less accumulated depreciation and |                    |                 
|                                  | amortization       | 8,127            | 7,692          
|                                  |                    |                  |                
|                                  |                    | $          4,699 | $         3,848



Depreciation and amortization expense included in building, occupancy and equipment expense amounted to $435,000 and $377,000 during the years ended December 31, 2003 and 2002, respectively.









ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(6)	Deposits



Contractual maturities of time deposits at December 31 are summarized as follows (in thousands):





|                         |                     | 2003            
|------------------------ | ------------------- | ----------------
|                         |                     |                 
|Within one year          | $          48,363  
|One through two years    | 12,451             
|Two through three years  | 4,463              
|Three through four years | 3,630              
|Four through five years  | 1,892              
|                         |                     |                 
|                         | Total time deposits | $         70,799





At December 31, 2003 and 2002, time deposits with balances of $100,000 or more totaled approximately $10,418,000 and $9,529,000, respectively.



Interest expense on deposits for the years ended December 31 is summarized as follows (in thousands):





|                       | 2003        | 2002       
|---------------------- | ----------- | -----------
|                       |             |            
|Savings                | $     911   | $     1,138
|Money market           | 89          | 113        
|Time                   | 2,001       | 2,744      
|Other interest bearing | 36          | 37         
|                       |             |            
|                       | $     3,037 | $     4,032































ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(7)	Borrowings



The Company is a member of the Federal Home Loan Bank of New York (FHLB).  As a member, the Company is required to own capital stock in the FHLB and is authorized to apply for advances from the FHLB.  The following is a summary of advances from the FHLB at December 31 (in thousands):





|                                              |  | 2003      |  | 2002     
|--------------------------------------------- |  | --------- |  | ---------
|Bearing interest at 1.89% fixed, due 10/7/03  |  | -         |  | $   5,500
|Bearing interest at 2.30% fixed, due 12/15/04 |  | $   4,500 |  | 4,500    



The Company is indebted to the FHLB under the following amortizing notes.  The Company has a blanket pledge on their one-to-four family mortgage loans as collateral for these borrowings.





|                                              |  | 2003      |  | 2002     
|--------------------------------------------- |  | --------- |  | ---------
|Bearing interest at 6.79% fixed, due 9/15/04  |  | $   2,312 |  | $   4,921
|Bearing interest at 3.67% fixed, due 7/3/15   |  | 2,933     |  | -        
|Bearing interest at 3.36% fixed, due 7/3/13   |  | 5,345     |  | -        
|Bearing interest at 3.59% fixed, due 11/26/08 |  | 3,000     |  | -        







The following table summarizes the combined aggregate amount of maturities for the above advances and notes for each of the five years after December 31, 2003, as well as remaining maturities beyond five years:







|Due in one year              | $       7,748
|---------------------------- | -------------
|Due one through two years    | 968          
|Due two through three years  | 1,003        
|Due three through four years | 1,038        
|Due four through five years  | 2,709        
|Due past five years          | 4,624        
|Total                        | $     18,090 





At December 31, 2003, the Company had available an unused line of credit of $25,004,000 with the FHLB which is subject to review and renewal.





















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(8)	Income Taxes

The components of income tax expense attributable to income from operations for the years ended December 31 consist of (in thousands):





|          |         | 2003             | 2002            
|--------- | ------- | ---------------- | ----------------
|Current:  |         |                 
|          | Federal | $            479 | $            977
|          | State   | 95               | 147             
|          |         |                  |                 
|          |         | 574              | 1,124           
|Deferred: |         |                 
|          | Federal | 270              | 200             
|          | State   | ( 58)            | ( 56)           
|          |         |                  |                 
|          |         | 212              | 144             
|          |         |                  |                 
|          |         | $            786 | $         1,268 

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, as follows (in thousands):





|                                |                                       |                                         |                             | 2003        | 2002       
|------------------------------- | ------------------------------------- | --------------------------------------- | --------------------------- | ----------- | -----------
|                                |                                       |                                         |                             |             |            
|Computed "expected" tax expense | $       790                           | $     1,276                            
|                                | Increases (decreases) in income taxes |                                         |                            
|                                |                                       | resulting from:                         |                             |            
|                                |                                       | State taxes, net of Federal tax benefit | 25                          | 60         
|                                |                                       |                                         | Tax exempt interest         | (131)       | (129)      
|                                |                                       |                                         | Non-deductible ESOP expense | 81          | 44         
|                                |                                       |                                         | Other, net                  | 21          | 17         
|                                |                                       |                                         |                             |             |            
|                                |                                       |                                         |                             | $       786 | $     1,268
|                                |                                       |                                         |                             |             |            
|                                |                                       |                                         |                             | 33.8%       | 33.8%      



ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



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):





|                          |                                    |                                      | 2003            | 2002       
|------------------------- | ---------------------------------- | ------------------------------------ | --------------- | -----------
|                          |                                    |                                      |                 |            
|Deferred tax assets:      |                                    |                                     
|                          | Allowance for loan losses          | $            585                     | $         537  
|                          | Accrued postretirement benefits    | 851                                  | 846            
|                          | Deferred compensation              | 340                                  | 460            
|                          | Capital loss carry-forward         | 184                                  | -              
|                          | State tax credit carry-forward     | 43                                   |                
|                          | Other                              | 83                                   | 87             
|                          |                                    |                                      |                 |            
|                          |                                    | Total gross deferred tax assets      | 2,086           | 1,930      
|                          |                                    |                                      |                 |            
|Deferred tax liabilities: |                                    |                                     
|                          | Depreciation                       | 190                                  | 69             
|                          | Prepaid pension cost               | 670                                  | 536            
|                          | Undistributed income of subsidiary | 68                                   | 4              
|                          | Unrealized gains on available-     |                                      |                
|                          |                                    | for sale securities                  | 529             | 196        
|                          | Deferred loan costs                | 79                                   | 30             
|                          | Other                              | 17                                   | 17             
|                          |                                    |                                      |                 |            
|                          |                                    | Total gross deferred tax liabilities | 1,553           | 852        
|                          |                                    |                                      |                 |            
|                          |                                    | Net deferred tax assets              | $           533 | $     1,078

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, 2003, 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, 2003 with respect to the base-year reserve was approximately $1.3 million.





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(9)	Pension and Postretirement 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, 2003 and 2002:





|                              |                                         |                                          | Pension benefits | Postretirement benefits
|----------------------------- | --------------------------------------- | ---------------------------------------- | ---------------- | -----------------------
|(in thousands)                | 2003                                    | 2002                                     | 2003             | 2002                   
|Change in benefit obligation: |                                         |                                          |                  |                        
|                              | Benefit obligation at beginning of year | $   7,426                                | $   6,614        | $   2,014              
|                              | Service cost                            | 49                                       | 187              | 26                     
|                              | Interest cost                           | 446                                      | 475              | 136                    
|                              | Amendments and settlements              | (15)                                     | 47               | 72                     
|                              | Actuarial loss                          | 386                                      | 455              | 222                    
|                              | Curtailment                             | (891)                                    | -                | -                      
|                              | Benefits paid                           | (329)                                    | (352)            | (168)                  
|                              | Participant contributions               | -                                        | -                | 21                     
|                              |                                         |                                          |                  |                        
|                              |                                         | Benefit obligation at end of year        | 7,072            | 7,426                  
|                              |                                         |                                          |                  |                        
|Change in plan assets:        |                                         |                                          |                  |                        
|                              | Fair value of plan assets               |                                          |                  |                        
|                              |                                         | at beginning of year                     | 6,579            | 7,214                  
|                              | Actual return on plan assets            | 758                                      | (871)            | -                      
|                              | Employer contributions                  | 300                                      | 588              | 147                    
|                              | Settlements                             | (15)                                     | -                | -                      
|                              | Participant contributions               | -                                        | -                | 21                     
|                              | Benefits paid                           | (329)                                    | (352)            | (168)                  
|                              |                                         |                                          |                  |                        
|                              |                                         | Fair value of plan assets at end of year | 7,293            | 6,579                  
|                              |                                         |                                          |                  |                        
|Funded status                 | 221                                     | ( 847)                                   | (2,323)          | (2,014)                
|                              | Unrecognized net actuarial loss (gain)  | 1,504                                    | 2,294            | 127                    
|                              | Unrecognized prior service cost         | -                                        | 32               | 11                     
|                              |                                         |                                          |                  |                        
|                              |                                         | Prepaid (accrued) benefit cost           | $   1,725        | $   1,479              
|                              |                                         |                                          |                  |                        
|Assumptions as of measurement |                                         |                                          |                  |                        
|                              | date, September 30:                     |                                          |                  |                        
|                              |                                         | Discount rate                            | 6.25%            | 6.75%                  
|                              |                                         | Expected return on plan assets           | 9.00%            | 9.00%                  
|                              |                                         | Rate of compensation increase            | N/A              | 4.00%                  





The long term rate of return on plan assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5-9% and 2-6%, respectively. The long term inflation rate was estimated to be 3%. When these overall return expectations are applied to the plan's target allocation, the expected rate of return is determined to be 9%, which is roughly the midpoint of the range of expected return.

ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





The Company's pension plan weighted average allocations at September 30, 2003 and 2002, by asset category are summarized in the following table:



|                  |  | Plan assets at September  30,
|----------------- |  | -----------------------------
|Asset Category    |  | 2003                         
|Equity Securities |  | 62%                          
|Debt Securities   |  | 38%                          
|Total             |  | 100%                         

The Company's long-term investment objective is to be invested 65% in equity securities and 35% in debt securities.



The components of net periodic benefit cost includes the following:



|                            | Pension benefits | Postretirement benefits
|--------------------------- | ---------------- | -----------------------
|(in thousands)              | 2003             | 2002                   
|                            |                  |                        
|Service cost                | $          49    | $        187           
|Interest cost               | 446              | 475                    
|Expected return on assets   | (581)            | (635)                  
|Curtailment charge          | 31               |                        
|Amortization                | 109              | (81)                   
|                            |                  |                        
|Net periodic (benefit) cost | $        54      | $       (54)           



In December of 2002, the Company's Board of Directors amended the defined benefit pension plan to cease the accrual of further benefits. For the fiscal year ended December 31, 2004, the Company expects to make no contributions to the defined benefit pension plan.



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. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("Medicare Act") was signed into law.  The Medicare Act introduced both a Medicare prescription-drug benefit and a federal subsidy to sponsors of retiree health-care plans that provide a benefit at least "actuarially equivalent" to the Medicare benefit.  These provisions of the Medicare Act will affect accounting measurements under SFAS No. 106.  Accordingly, the FASB staff has issued guidance allowing companies to recognize or defer recognizing the effects of the Medicare Act in annual financial statements for fiscal years ending after enactment of the Medicare Act.  The Company has elected to defer recognizing the effects of the Medicare Act in its December 31, 2003 consolidated financial statements.  Accordingly, the reported measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost do not include the effects of the Medicare Act.  When issued, the specific authoritative literature on accounting for the federal subsidy could require the Company to revise its previously reported information.











ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(10)	Stock Option Plan



On May 3, 2000, the Company's shareholdersapproved the Rome Bancorp, Inc. 2000 Stock Option Plan (the "Stock Option Plan").  The primary objective of the Stock Option Plan is to provide officers and directors with a proprietary interest in the Company and an incentive to encourage such persons to remain with the Company.

Under the Stock Option Plan, 249,957 shares of authorized but unissued common stock are reserved for issuance upon option exercises.  The Company also has the alternative to fund the Stock Option Plan with treasury stock.  Options under the plan may be either non-qualified stock options or incentive stock options.  Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value on the date of grant.  On June 28, 2000, 168,600 options were awarded at an exercise price of $4.96 per share.  These options have a ten-year term and vest at a rate of 20% per year from the grant date.  At December 31, 2003 and 2002 the remaining contractual life of these options was 6.5 years and 7.5 years, respectively.

The following table presents the stock option activity for the years ended December 31, 2003 and 2002 (in thousands):



|                                 |  |          | 2003 |                 |  | 2002    
|-------------------------------- |  | -------- | ---- | --------------- |  | --------
|                                 |  |          |      | Weighted        |  |         
|                                 |  |          |      | Average         |  |         
|                                 |  |          |      | Exercise        |  |         
|                                 |  | Shares   |      | Price           |  | Shares  
|                                 |  |          |      |                 |  |         
|Outstanding at beginning of year |  | 142,710  |      | $          4.96 |  | 158,760 
|Exercised                        |  | (23,150) |      | 4.96            |  | (16,050)
|Outstanding at end of year       |  | 119,560  |      | 4.96            |  | 142,710 
|Exercisable at end of year       |  | 52,120   |      | $          4.96 |  | 41,550  







(11)	Recognition and Retention Plan



The Company's shareholders approved the Rome Bancorp, Inc. 2000 Recognition and Retention Plan ("RRP") on May 3, 2000.  The purpose of the plan is to promote the long-term interests of the Company and its shareholders by providing a stock-based compensation program to attract and retain officers and directors.

During 2000, 52,800 shares were awarded under the RRP.  The shares vest at a rate of 20% per year from the grant date.  The fair market value of the shares awarded under the plan was $262,000 at the grant date, and is being amortized to compensation expense on a straight-line basis over the vesting periods of the underlying shares.  Compensation expense of $52,000 was recorded in both 2003 and 2002.  The remaining unearned compensation cost is shown as a reduction of shareholders' equity.  The shares awarded under the RRP were transferred from treasury stock at cost with the difference between the fair market value on the grant date and the cost of the shares recorded as additional paid-in capital.













ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002









(12)	Other Employee Benefits



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 $63,000 and $54,000 during the years ended December 31, 2003 and 2002, respectively.



In connection with establishing the ESOP in 1999, the ESOP borrowed $933,000 from the Company to purchase 199,965 shares of the Company's common stock.  The loan bears interest at 8% and is payable in fifteen annual installments.  At December 31, 2003, 66,652 shares had been released or committed to be released and 133,313 remained as unallocated shares.  The fair value of the unallocated shares on December 31, 2003 was $4,141,000.  The Company recognized compensation expense of $300,000 and $192,000 in 2003 and 2002, respectively in connection with the ESOP.

















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(13)	Comprehensive Income (Loss)



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 (loss) (in thousands):





|                                              |                             |                     |                           | Years ended December 31,
|--------------------------------------------- | --------------------------- | ------------------- | ------------------------- | ------------------------
|                                              |                             |                     |                           | 2003                    
|Unrealized holding gains (losses)             |                             |                    
|                                              | arising during the period   | $             139   | $           (123)        
|Other than temporary write-down of securities | 1,041                       | -                  
|Reclassification adjustment for net realized  |                             |                    
|                                              | gain included in net income | (348)               | (132)                    
|                                              |                             |                     |                           |                         
|Other comprehensive income (loss), before tax | 832                         | (255)              
|Deferred  tax expense (benefit)               | 333                         | (101)              
|                                              |                             |                     |                           |                         
|                                              |                             | Other comprehensive |                           |                         
|                                              |                             |                     | income (loss), net of tax | $             499       







(14)	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.









ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





At December 31, 2003 and 2002 the Company was committed to originate mortgage and other loans of approximately $9,519,000 and $9,296,000, respectively.  Commitments under unused lines of credit and letters of credit were approximately $9,074,000 and $6,739,000 at December 31, 2003 and 2002, respectively.



In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No. 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others; An Interpretation of FASB Statements No. 5, 57 and 107 and recission of FASB Interpretation No. 34." FIN No. 45 requires certain new disclosures and potential liability recognition for the fair value at issuance of guarantees that fall within its scope. Under FIN No. 45, the Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.



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.



(15)	Earnings Per Share

The following summarizes the computation of earnings per share for the years ended December 31 (in thousands except per share data):





|                                            | 2003              | 2002            
|------------------------------------------- | ----------------- | ----------------
|Basic earnings per share:                   |                   |                 
|Net Income available to common shareholders | $          1,537  | $          2,485
|Weighted average basic shares outstanding   | 4,116             | 4,161           
|                                            |                   |                 
|Basic earnings per share                    | $            0.37 | $           0.60
|                                            |                   |                 
|Diluted earnings per share:                 |                   |                 
|Net Income available to common shareholders | $          1,537  | $          2,485
|Weighted average basic shares outstanding   | 4,116             | 4,161           
|Effect of dilutive securities:              |                   |                 
|Stock options                               | 108               | 98              
|Unearned compensation                       | 11                | 14              
|Weighted average diluted shares outstanding | 4,235             | 4,273           
|                                            |                   |                 
|Diluted earnings per share                  | $           0.36  | $           0.58





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





(16)	Shareholders' Equity and Regulatory Matters



The Bank is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank of New York.  The amount of this reserve requirement, included in cash on hand, is $750,000 at December 31, 2003.



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 and the Bank are subject to various regulatory requirements administered by the federal banking agencies and the Bank is further regulated 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.



As March 31, 2003, 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, 2003, that the Company and Bank meet all capital adequacy requirements to which they are subject.



















ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002





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):



|                         |                         |                   |         |                  |              |                 |              | To be classified as
|------------------------ | ----------------------- | ----------------- | ------- | ---------------- | ------------ | --------------- | ------------ | -------------------
|                         |                         |                   |         |                  |              |                 |              | well-capitalized   
|                         |                         |                   |         |                  |              | Minimum capital | under prompt
|                         |                         |                   |         |                  |              | adequacy        |              | corrective action  
|                         |                         |                   |         | Actual           | requirements | provisions     
|                         |                         |                   |         | Amount           | Ratio        | Amount          | Ratio        | Amount             
|As of December 31, 2003: |                         |                   |         |                  |              |                
|                         | Total capital (to risk  |                   |         |                  |              |                 |             
|                         |                         | weighted assets): |         |                  |              |                 |              |                    
|                         |                         |                   | Company | $         37,797 | 19.2%        | 15,760          | >= 8%        |                    
|                         |                         |                   | Bank    | 34,392           | 17.5%        | 15,725          | >=8%         | 19,656             
|                         |                         |                   |         |                  |              |                 |              |                    
|                         | Tier 1 Capital (to risk |                   |         |                  |              |                 |             
|                         |                         | weighted assets): |         |                  |              |                 |              |                    
|                         |                         |                   | Company | 35,846           | 18.2%        | 7,880           | >=4%         |                    
|                         |                         |                   | Bank    | 32,441           | 16.5%        | 7,862           | >=4%         | 11,793             
|                         |                         |                   |         |                  |              |                 |              |                    
|                         | Tier 1 Capital (to      |                   |         |                  |              |                 |             
|                         |                         | average assets):  |         |                  |              |                 |              |                    
|                         |                         |                   | Company | 35,846           | 13.7%        | 7,859           | >=3%         |                    
|                         |                         |                   | Bank    | 32,441           | 12.1%        | 8,025           | >=3%         | 13,375             
|                         |                         |                   |         |                  |              |                 |              |                    
|As of December 31, 2002: |                         |                   |         |                  |              |                
|                         | Total capital (to risk  |                   |         |                  |              |                 |             
|                         |                         | weighted assets): |         |                  |              |                 |              |                    
|                         |                         |                   | Company | $         38,995 | 21.2%        | 14,690          | >= 8%        |                    
|                         |                         |                   | Bank    | 35,756           | 19.7%        | 14,516          | >=8%         | 18,145             
|                         |                         |                   |         |                  |              |                 |              |                    
|                         | Tier 1 Capital (to risk |                   |         |                  |              |                 |             
|                         |                         | weighted assets): |         |                  |              |                 |              |                    
|                         |                         |                   | Company | 37,265           | 20.3%        | 7,345           | >=4%         |                    
|                         |                         |                   | Bank    | 34,025           | 18.8%        | 7,258           | >=4%         | 10,887             
|                         |                         |                   |         |                  |              |                 |              |                    
|                         | Tier 1 Capital (to      |                   |         |                  |              |                 |             
|                         |                         | average assets):  |         |                  |              |                 |              |                    
|                         |                         |                   | Company | 37,265           | 14.9%        | 7,504           | >=3%         |                    
|                         |                         |                   | Bank    | 34,025           | 13.6%        | 7,485           | >=3%         | 12,475             





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(17)	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:



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.



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.

The estimated carrying values and fair values of the Company's financial instruments for December 31 are as follows (in thousands):





|                       |                               | 2003           | 2002           
|---------------------- | ----------------------------- | -------------- | ---------------
|                       |                               | Carrying       | Fair           
|                       |                               | amount         | value          
|Financial assets:      |                               |                |                
|                       | Cash and cash equivalents     | $       14,055 | $        14,055
|                       | Securities available for sale | 26,328         | 26,328         
|                       | Securities held to maturity   | 2,790          | 2,844          
|                       | Loans, net                    | 207,656        | 210,697        
|                       | Accrued interest receivable   | 1,205          | 1,205          
|                       |                               |                |                
|Financial liabilities: |                               |                |                
|                       | Non-interest bearing deposits | 27,054         | 27,054         
|                       | Interest bearing deposits     | 176,136        | 176,710        
|                       | Borrowings                    | 18,090         | 18,303         



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.









ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002



(18)	Parent Company Only Financial Statements



Presented below is the condensed balance sheet of the Parent Company as of December 31, 2003 and 2002 and statement of income and statement of cash flows for the years ended December 31, 2003 and 2002 (in thousands):





|Condensed Balance Sheet                                                                          | 2003                          | 2002                                                                                                                   
|------------------------------------------------------------------------------------------------ | ----------------------------- | -----------------------------------------------------------------------------------------------------------------------
|                                                                                                 |                               |                                                                                                                        
|Assets:                                                                                          |                               |                                                                                                                        
|                                                                                                 | Cash and due from banks       | $      2,189                                                                                                           
|                                                                                                 | Investment in subsidiary bank | 33,234                                                                                                                 
|                                                                                                 | Loan receivable from ESOP     | 690                                                                                                                    
|                                                                                                 | Other assets                  | 817                                                                                                                    
|                                                                                                 |                               |                                                                                                                        
|                                                                                                 |                               | Total assets                                                                                                           
|                                                                                                 |                               |                                                                                                                        
|Total liabilities                                                                                | $        291                  | $         433                                                                                                          
|Total shareholders'equity                                                                        | 36,639                        | 36,193                                                                                                                 
|                                                                                                 |                               |                                                                                                                        
|                                                                                                 |                               | Total liabilities and shareholders'equity                                                                              
|                                                                                                 |                               |                                                                                                                        
|                                                                                                 |                               |                                                                                                                        
|Condensed Statement of Income                                                                    |                               |                                                                                                                        
|                                                                                                 |                               |                                                                                                                        
|Interest income                                                                                  | $          79                 | $           70                                                                                                         
|Dividends from subsidiary bank                                                                   | 4,500                         | 1,600                                                                                                                  
|                                                                                                 |                               |                                                                                                                        
|                                                                                                 |                               | Total operating income                                                                                                 
|                                                                                                 |                               |                                                                                                                        
|Other operating expenses                                                                         | 294                           | 305                                                                                                                    
|                                                                                                 |                               | Net income before income taxes and dividends in excess of net income/equity in undistributed income of subsidiary bank.
|                                                                                                 |                               |                                                                                                                        
|(Dividends in excess of net income)/equity in            undistributed income of subsidiary bank | (2,748)                       | 1,120                                                                                                                  
|                                                                                                 |                               |                                                                                                                        
|                                                                                                 |                               | Net income                                                                                                             





ROME BANCORP, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



Years ended December 31, 2003 and 2002









|Condensed Statement of Cash Flows                    | 2003                       | 2002                                       
|---------------------------------------------------- | -------------------------- | -------------------------------------------
|                                                     |                            |                                            
|Operating activities:                                |                            |                                            
|                                                     | Net income                 | $     1,537                                
|                                                     |                            | Adjustments to reconcile net income to cash
|                                                     |                            | provided by operating activities:          
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|Investing activities:                                |                            |                                            
|                                                     | Decrease in loan to ESOP   | 44                                         
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|Financing activities:                                |                            |                                            
|                                                     | Purchase of treasury stock | (1,028)                                    
|                                                     | Dividends                  | (1,226)                                    
|                                                     | Exercise of stock options  | 121                                        
|                                                     |                            |                                            
|                                                     |                            |                                            
|                                                     |                            |                                            
|Net increase (decrease) in cash and cash equivalents | 2,006                      | (1,026)                                    
|                                                     |                            |                                            
|Cash and cash equivalents at beginning of year       | 183                        | 1,209                                      
|                                                     |                            |                                            
|Cash and cash equivalents at end of year             | $    2,189                 | $     183                                  







|Directors of Rome Bancorp, Inc. & The Rome Savings Bank         | Corporate Information                         
|--------------------------------------------------------------- | ----------------------------------------------
|Charles M. Sprock                                               | Transfer Agent and Registrar                  
|Chairman of the Board, President and Chief Executive Officer    | Inquiries regarding stockholder administration
|                                                                | and services should be directed to:           
|Bruce R. Engelbert                                              |                                               
|Retired, Former Owner and President, Engelbert's Jewelers, Inc. |                                               
|                                                                |                                               
|David C. Grow                                                   |                                               
|Partner, law firm of McMahon & Grow                             |                                               
|                                                                |                                               
|Kirk B. Hinman                                                  | Independent Auditors                          
|President, Rome Strip Steel Company, Inc.                       | KPMG LLP                                      
|                                                                | 113 South Salina Street                       
|T. Richard Leidig                                               | Syracuse, NY  13202                           
|Business Consultant                                             | (315) 471-8167                                
|                                                                |                                               
|Richard H. McMahon                                              | Special Legal Counsel                         
|Partner, law firm of McMahon & Grow                             | Thacher Proffitt & Wood LLP                   
|                                                                | 1700 Pennsylvania Avenue, NW                  
|Marion C. Scoville                                              | Suite 800                                     
|Retired, Former Corporate Secretary and Executive Assistant     | Washington, DC  20006                         
|to the President, The Rome Savings Bank                         | (202) 347-8400                                
|                                                                |                                               
|Michael J. Valentine                                            | Stock Information                             
|President, Mele Manufacturing Company, Inc.                     | Rome Bancorp's common stock trades on the     
|                                                                | Nasdaq National Market System under the       
|Executive Officers of The Rome Savings Bank                     | symbol"ROME".                                 
|Charles M. Sprock                                               |                                               
|President and Chief Executive Officer                           | Investor Relations                            
|                                                                | Inquiries regarding The Rome Savings Bank     
|David C. Nolan                                                  | and Rome Bancorp, Inc. should be directed to: 
|Treasurer and Chief Financial Officer                           |                                               
|                                                                |                                               
|James F. Sullivan                                               |                                               
|Vice President, Senior Loan Officer                             |                                               
|                                                                |                                               
|D. Bruce Fraser                                                 |                                               
|Vice President, IT, Human Resources and Security                |                                               
|                                                                | Annual Meeting of Stockholders                
|C. Francis Thalmann                                             | Rome Bancorp's Annual Meeting of Stockholders 
|Vice President, Operations and  Branch Administration           | will be held at 6:00 p.m. local time, on      
|                                                                | Wednesday, May 5, 2004, at the main office of 
|George L. Barzee                                                | The Rome Savings Bank, 100 W. Dominick        
|Vice President,  Sales and Residential Lending                  | Street, Rome, New York, 13440-5810.  Holders  
|                                                                | of common stock as of March 12, 2004 will     
|Sandra L. Smith                                                 | be eligible to vote.                          
|Vice President, Consumer Loans                                  |