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|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549
|                                                                   
|FORM 10-Q                                                          

| |                                                                                   
| | ----------------------------------------------------------------------------------
| | (Mark One)                                                                        
| | SQuarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
| |                                                                                   
| | For the quarterly period ended June 30, 2005                                      
| |                                                                                   
| | £Transition report under Section 13 or l5(d) of the Exchange Act                  
| |                                                                                   
| | For the transition period from _______ to _______                                 

|                                                                        
|------------------------------------------------------------------------
|Commission file number 000-27481                                        
|                                                                        
|Rome Bancorp, Inc.(Exact Name of Registrant as Specified in its Charter)
|                                                                        

|Delaware(State or Other Jurisdiction ofIncorporation or Organization) | 16-1573070(I.R.S. EmployerIdentification No.)
|--------------------------------------------------------------------- | ---------------------------------------------
|                                                                      |                                              

|100 West Dominick Street, Rome, NY 13440-5810(Address of Principal Executive Offices)(315) 336-7300(Issuers Telephone Number, Including Area Code)N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the small
business issuer was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. 
Yes S   No £

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act.)  
Yes £   No S

Indicate the number of shares outstanding of each class of issuers classes of common stock as
of the last practicable date:

|Class                        | Outstanding atAugust 10, 2005 | 
|---------------------------- | ----------------------------- | 
|Common Stock, par value $.01 | 9,648,246                     | 
|                             |                               | 

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ROME BANCORP, INC.FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2005
TABLE OF CONTENTS
PAGEPART I
    
    FINANCIAL INFORMATION
    
    
    3ITEM 1.
    
    FINANCIAL STATEMENTS (unaudited):CONDENSED CONSOLIDATED BALANCE SHEET
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    
    
    4CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
    
    
    5AND COMPREHENSIVE INCOMECONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    6NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    24ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    25PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    25ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    25ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    25ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    25ITEM 5.
    
    OTHER INFORMATION
    
    
    26ITEM 6.
    
    EXHIBITS
    
    
    26SIGNATURES
    
    
    262
PART I  FINANCIAL INFORMATION
Item 1. Financial Statements
ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Balance SheetJune 30, 2005 and December 31, 2004(in thousands, except share data)
(unaudited)
    June 30,
    2005December 31,
    2004AssetsCash and due from banks
    $
    6,973
    
    $
    5,977Federal funds sold and other short-term investments
    
    34,404
    
    
    952Total cash and cash equivalents
    
    41,377
    
    
    6,929Securities available for sale, at fair value
    
    13,808
    
    
    17,494Securities held to maturity (fair value of $1,583 and $1,624
     at June 30, 2005 and December 31, 2004, respectively)
    
    1,590
    
    
    1,623Loans
    
    246,175
    
    
    233,272Less: Allowance for loan loss
    
    (2,295
    )
    
    (2,000
    )Net loans
    
    243,880
    
    
    231,272Premises and equipment, net
    
    4,641
    
    
    4,503Accrued interest receivable
    
    1,000
    
    
    1,002Other assets
    
    4,982
    
    
    5,329Total assets
    $
    311,278
    
    $
    268,152Liabilities & EquityLiabilitiesDeposits:Non-interest bearing
    $
    27,584
    
    $
    26,390Savings
    
    94,087
    
    
    95,848Money market
    
    5,221
    
    
    7,397Time
    
    67,214
    
    
    68,954Other interest bearing
    
    10,457
    
    
    10,198Total deposits
    
    204,563
    
    
    208,787Borrowings
    
    9,863
    
    
    18,843Other liabilities
    
    4,238
    
    
    4,264Total liabilities
    
    218,664
    
    
    231,894Shareholders equityCommon Stock, $.01 par value; authorized: 30,000,000 shares;
         issued: 9,645,246 shares; outstanding 9,645,246 shares at
         June 30, 2005: authorized 11,339,200 shares; issued 11,339,200 shares
         outstanding 9,591,934 shares at December 31, 2004
    
    96
    
    
    33Additional paid-in capital
    
    59,769
    
    
    10,756Retained earnings
    
    35,402
    
    
    34,627Treasury stock, at cost 0 shares at June 30, 2005 and
         1,747,266 shares at December 31, 2004)
    
    
    
    
    (8,963
    )Accumulated other comprehensive income
    
    196
    
    
    391Unallocated shares of employee stock ownership plan (ESOP); 489,050
         shares at June 30, 2005 and 272,099 shares at December 31, 2004
    
    (2,849
    )
    
    (560
    )Unearned compensation
    
    
    
    
    (26
    )Total shareholders equity
    
    92,614
    
    
    36,258Total liabilities and shareholders equity
    $
    311,278
    
    $
    268,152See accompanying notes to unaudited condensed consolidated financial statements.
3
ROME BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of IncomeFor the Three and Six Months Ended June 30, 2005 and 2004(in thousands, except  share data)(unaudited)
For the three months ended
    June 30,For the six months ended
  June 30,2005200420052004Interest income:Loans
    
    $
    3,658
    
    $
    3,281
    
    $
    7,230
    
    $
    6,602Securities
    
    
    167
    
    
    236
    
    
    341
    
    
    491Other short-term investments
    
    
    281
    
    
    15
    
    
    307
    
    
    30Total interest income
    
    
    4,106
    
    
    3,532
    
    
    7,878
    
    
    7,123Interest expense:Deposits
    
    
    640
    
    
    601
    
    
    1,272
    
    
    1,242Borrowings
    
    
    87
    
    
    141
    
    
    225
    
    
    296Total interest expense
    
    
    727
    
    
    742
    
    
    1,497
    
    
    1,538Net interest income
    
    
    3,379
    
    
    2,790
    
    
    6,381
    
    
    5,585Provision for loan losses
    
    
    
    
    
    25
    
    
    
    
    
    125Net interest income after provision for loan losses
    
    
    3,379
    
    
    2,765
    
    
    6,381
    
    
    5,460Non-interest income:Net gain on securities transactions
    
    
    17
    
    
    52
    
    
    46
    
    
    98Other
    
    
    565
    
    
    428
    
    
    1,006
    
    
    771Total non-interest income
    
    
    582
    
    
    480
    
    
    1,052
    
    
    869Non-interest expense:Salaries and employee benefits
    
    
    1,259
    
    
    1,269
    
    
    2,652
    
    
    2,621Building, occupancy and equipment
    
    
    410
    
    
    367
    
    
    868
    
    
    777Other
    
    
    738
    
    
    548
    
    
    1,369
    
    
    1,173Total non-interest expense
    
    
    2,407
    
    
    2,184
    
    
    4,889
    
    
    4,571Income before income tax expense
    
    
    1,554
    
    
    1,061
    
    
    2,544
    
    
    1,758Income tax expense
    
    
    584
    
    
    381
    
    
    935
    
    
    633Net income
    
    $
    970
    
    $
    680
    
    $
    1,609
    
    $
    1,125Basic earnings per share
    
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12Diluted earnings per share
    
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12See accompanying notes to unaudited condensed consolidated financial statements.
4
ROME BANCORP, INC. AND SUBSIDIARY
  Condensed
Consolidated Statement of ShareholdersEquity and Comprehensive IncomeFor Six Months
Ended June 30, 2005 and 2004
(in thousands, except share and per share
data)(unaudited)
Common
    stock
  
  Additional
    paid-in
    Capital
  
  Retained
    earnings
  
  Treasury
    Stock
  
  Accumulated
    other
    comprehensive
    income
  
  Unallocated
    ESOP
    shares
  
  Unearned
    compensation
  
  TotalBalances at January 1, 2004
    $
    33
    
    $
    10,250
    
    $
    33,255
    
    $
    (6,992
    )
    $
    793
    
    $
    (622
    )
    $
    (78
    )
    $
    36,639Comprehensive income:Net Income
    
    
    
    
    
    
    
    1,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,125Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    
    
    
    
    
    (206
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919Purchase of 118,726 treasury shares
    
    
    
    
    
    
    
    
    
    
    (1,758
    )
    
    
    
    
    
    
    
    
    
    
    (1,758
    )Amortization of Unearned Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    26Dividends paid ($0.098 per share)
    
    
    
    
    
    
    
    (534
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (534
    )Exercise of stock options
    
    
    
    
    32
    
    
    (20
    )
    
    36
    
    
    
    
    
    
    
    
    
    
    
    48ESOP shares released for
    allocation (15,117 shares)
    
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    211Balances at June 30, 2004
    $
    33
    
    $
    10,462
    
    $
    33,826
    
    $
    (8,714
    )
    $
    587
    
    $
    (591
    )
    $
    (52
    )
    $
    35,551Balances at January 1, 2005
    $
    33
    
    $
    10,756
    
    $
    34,627
    
    $
    (8,963
    )
    $
    391
    
    $
    (560
    )
    $
    (26
    )
    $
    36,258Comprehensive income:Net Income
    
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,609Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    
    (195
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,414Proceeds of common stock offering and
    conversion of existing shares, net of expenses
    
    75
    
    
    57,769
    
    
    
    
    
    
    
    
    
    
    
    (2,360
    )
    
    
    
    
    55,484Retirement of 1,747,266 treasury shares
    
    (12
    )
    
    (8,963
    )
    
    
    
    
    8,963
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Amortization of Unearned Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    26Dividends paid ($0.132 per share)
    
    
    
    
    
    
    
    (834
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (834
    )Exercise of stock options
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Tax benefit of vested RRP shares
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73ESOP shares released for
    allocation (19,050 shares)
    
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    198Balances at June 30, 2005
    $
    96
    
    $
    59,769
    
    $
    35,402
    
    $
    
    
    $
    196
    
    $
    (2,849
    )
    $
    
    
    $
    92,614See accompanying notes to unaudited condensed consolidated financial statements.
5
ROME BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005 and 2004
(unaudited) (in thousands)
2005
    
    2004Cash flows from operating activities:Net income
    $
    1,609
    
    $
    1,125Adjustments to reconcile net income to net cashProvided by operating activities:Depreciation and amortization
    
    250
    
    
    250Increase in accrued interest receivable
    
    2
    
    
    118Net gain on securities sold
    
    (46
    )
    
    (98
    )Provision for loan losses
    
    
    
    
    125Net loss on sales of real estate owned
    
    
    
    
    7Net accretion on securities
    
    (2
    )
    
    17Proceeds from sales of loans
    
    293
    
    
    Net gain on loans sold
    
    (5
    )
    
    Decrease in other liabilities
    
    (26
    )
    
    (92
    )Decrease in other assets
    
    546
    
    
    115Allocation of ESOP shares
    
    198
    
    
    211Amortization of Unearned Compensation
    
    26
    
    
    26Net cash provided by operating activities
    
    2,845
    
    
    1,804Cash flows from investing activities:Net increase in loans
    
    (12,896
    )
    
    (12,131
    )Proceeds from sales of securities available for sale
    
    679
    
    
    1,309Proceeds from maturities and principal reductions of
           securities available for sale
    
    2,912
    
    
    3,359Purchases of securities available for sale
    
    (1
    )
    
    Redemption of Federal Home Loan Bank stock
    
    (175
    )
    
    (198
    )Proceeds from maturities and principal reductions of
               securities held to maturity
    
    27
    
    
    368Proceeds from sales of real estate owned
    
    
    
    
    25Additions to premises and equipment
    
    (384
    )
    
    (189
    )Net cash used in investing activities
    
    (9,838
    )
    
    (7,457
    )Cash flows from financing activities:Decrease in time deposits
    
    (1,740
    )
    
    (2,429
    )(Decrease) increase in other deposits
    
    (2,484
    )
    
    6,820Net proceeds of stock offering and conversion
    
    55,472
    
    
    Repayments of borrowings
    
    (11,980
    )
    
    (1,835
    )Additional borrowings
    
    3,000
    
    
    2,000Purchase of treasury stock
    
    
    
    
    (1,758
    )Dividends paid
    
    (834
    )
    
    (534
    )Exercise of stock options
    
    7
    
    
    16Net cash provided by financing activities
    
    41,441
    
    
    2,280Net (decrease) increase in cash and cash equivalents
    
    34,448
    
    
    (3,373
    )Cash and cash equivalents at beginning of period
    
    6,929
    
    
    14,055Cash and cash equivalents at end of period
    $
    41,377
    
    $
    10,682Condensed Consolidated Statements of Cash Flows continued on next page.
6
ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Statements of Cash FlowsFor the Six Months Ended June 30, 2005 and 2004(unaudited) (in thousands)
2005
    
    2004Supplemental disclosure of cash flow information:Non-cash investing activities:Transfer of loans to real estate owned
    
    
    
    $
    87Change in securities purchased and not settled
    
    
    
    
    Cash paid during the period for:Interest
    
    1,504
    
    
    1,554Income taxes
    
    900
    
    
    224See accompanying notes to unaudited condensed consolidated financial statements.
7
ROME BANCORP, INC.Notes to Unaudited Condensed Consolidated Financial Statements
(1)           Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements include the accounts of Rome Bancorp,
Inc. (Rome Bancorp or the Company) and The Rome Savings Bank (the Bank),
a wholly-owned subsidiary of the Company, as of June 30, 2005 and December 31, 2004 and for the three
and six month periods ended June 30, 2005 and 2004. All inter-company accounts and transactions have
been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. In the opinion of management, the unaudited condensed
consolidated financial statements include all necessary adjustments, consisting of normal recurring
accruals, necessary for a fair presentation for the periods presented.
The Company believes that the disclosures are adequate to make the information presented not misleading;
however, the results of operations and other data presented for the periods presented are not necessarily
indicative of results to be expected for the entire fiscal year.
The data in the condensed consolidated balance sheet for December 31, 2004 was derived from the
Companys 2004 Annual Report on Form 10-KSB. That data, along with the interim financial information
presented in the condensed consolidated balance sheet, statements of income, statement of shareholders
equity and comprehensive income and statements of cash flows should be read in conjunction with the
2004 consolidated financial statements, including the notes thereto included in the Companys
Annual Report on Form 10- KSB.
Amounts in the prior periods consolidated financial statements are reclassified when necessary
to conform with the current periods presentation.
(2) Stock Offering and Conversion
On
March 30, 2005, the second step conversion of Rome MHC into a stock holding company structure and
the related stock offering of this new stock holding company was completed. As a result of the second-step
conversion, New Rome Bancorp, Inc. became the holding company for the Bank and was immediately renamed
Rome Bancorp, Inc. Rome Bancorp issued 5,900,000 shares of common stock at a price
of $10.00 per share in the related stock offering and exchanged 1,650,254 shares of common stock
of the now predecessor Rome Bancorp, Inc. into 3,742,246 shares of common stock of the newly formed
Rome Bancorp, Inc. pursuant to an exchange ratio of 2.26784, cashing out fractional shares. The reorganization
was accounted for as a change in corporate form with no resulting change in the historical basis
of the Companys assets, liabilities and equity. Direct offering costs totaling $3.2 million
were deducted from the proceeds of the shares sold in the offering. As a result of the exchange and
stock offering, as of March 30, 2005, the Company had 9,642,246 shares of common stock issued
8
and outstanding. Net proceeds of $53.5 million were raised in the stock offering, excluding $2.36 million
which was loaned by the Company to a trust for the Employee Stock Ownership Plan (ESOP) enabling
it to purchase 236,000 shares of common stock in the stock offering for allocation under such plan.
In addition, as part of the conversion and dissolution of Rome MHC, the Bank received $1.9 million
of cash previously held by Rome MHC.
As
a result of the second-step conversion, all share and per share amounts have been restated giving
retroactive recognition to the second-step conversion ratio of 2.26784. Options granted under the
Companys 2000 Stock Option Plan and common shares held by the Companys ESOP and Recognition
and Retention Plan prior to the conversion were also exchanged using the conversion ratio of 2.26784.
(3)  Earnings Per Share
The following summarizes the computation of earnings per share for the three and six month periods
ended June 30, 2005 and 2004.
Three and six months endedJune 30(in thousands, except share and per share data)
Three months endedSix months ended2005200420052004Basic earnings per share:Income available to common shareholders
    $
    970
    
    $
    680
    
    $
    1,609
    
    $
    1,125Weighted average basic shares outstanding
    
    9,349
    
    
    9,264
    
    
    9,347
    
    
    9,301Basic earnings per share
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12Diluted earnings per share:Income available to common shareholders
    $
    970
    
    $
    680
    
    $
    1,609
    
    $
    1,125Weighted average basic shares outstanding
    
    9,349
    
    
    9,264
    
    
    9,347
    
    
    9,301Effect of dilutive securities:Stock options
    
    197
    
    
    224
    
    
    202
    
    
    226Unearned compensation
    
    6
    
    
    24
    
    
    11
    
    
    24Weighted average diluted shares outstanding
    
    9,552
    
    
    9,512
    
    
    9,560
    
    
    9,551Diluted earnings per share
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.129
(4)  Other Comprehensive Income (Loss)
Three months ended
    June 30,Six months ended
    June 30,2005200420052004Net change in unrealized loss on
   available-for-sale securities arising during the period
    $
    (90
    )
    $
    (316
    )
    $
    (371
    )
    $
    (441
    )Reclassification adjustment for net realized gain
    included in net income
    
    (17
    )
    
    (51
    )
    
    (46
    )
    
    (98
    )Other comprehensive loss, before tax
    
    (73
    )
    
    (265
    )
    
    (325
    )
    
    (343
    )Deferred tax benefit
    
    (29
    )
    
    (106
    )
    
    (130
    )
    
    (137
    )Other comprehensive loss
    $
    (44
    )
    $
    (159
    )
    $
    (195
    )
    $
    (206
    )(5)  Securities
Securities are summarized as follows (in thousands):
June 30, 2005December 31, 2004Amortized
    CostFair
    valueAmortized
    costFair
    valueAvailable-for-sale:U.S. Government agencies
    $
    1,331
    
    $
    1,385
    
    $
    2,244
    
    $
    2,325State and Municipal obligations
    
    5,788
    
    
    5,950
    
    
    7,004
    
    
    7,266Mortgage-backed securitiesFNMA
    
    
    
    
    
    
    
    126
    
    
    129FHLMC
    
    776
    
    
    805
    
    
    840
    
    
    883Corporate bonds
    
    2,515
    
    
    2,554
    
    
    3,024
    
    
    3,116Total debt securities
    
    10,410
    
    
    10,694
    
    
    13,238
    
    
    13,719FHLB stock
    
    1,278
    
    
    1,278
    
    
    1,103
    
    
    1,103Equity and other securities
    
    1,793
    
    
    1,836
    
    
    2,500
    
    
    2,672Total available for sale
    $
    13,481
    
    $
    13,808
    
    $
    16,841
    
    $
    17,494Held-to-maturity:U.S. Government securities
    $
    1,314
    
    $
    1,301
    
    $
    1,320
    
    $
    1,313Mortgage-backed securitiesGNMA
    
    86
    
    
    91
    
    
    100
    
    
    108FHLMC
    
    4
    
    
    5
    
    
    6
    
    
    6Other bonds
    
    186
    
    
    186
    
    
    197
    
    
    197Total held to maturity
    $
    1,590
    
    $
    1,583
    
    $
    1,623
    
    $
    1,624FHLB stock is carried at cost since fair values are not readily determinable.Securities pledged at both June 30, 2005 and December 31, 2004 had a carrying
amount of $1.2 million. These securities collateralize state and Treasury department programs. As
of these dates, there were no holdings of securities of any one issuer, other than the U.S. Government
and its agencies, in an amount greater than 10% of shareholders equity.10
(6)       Loans
Loans are summarized as follows (in thousands):June 30,
    2005December 31,
    2004Mortgage loans:Residential (1-4 family)
    $
    122,252
    
    $
    114,138Commercial
    
    48,937
    
    
    49,364Construction and land
    
    4,457
    
    
    5,469Total Mortgage loans
    
    175,646
    
    
    168,971Other loans:Commercial
    
    24,241
    
    
    21,507Automobile loans
    
    17,390
    
    
    15,529Property improvement
     and equipment
    
    14,402
    
    
    12,766Other consumer
    
    14,496
    
    
    14,499Total Other loans
    
    70,529
    
    
    64,301Total Loans
    $
    246,175
    
    $
    233,272Changes in the allowance for loan losses are summarized as follows (in thousands):Three months ended
    June 30,Six months ended
    June 30,2005200420052004Balance at beginning of period
    $
    2,021
    
    $
    1,860
    
    $
    2,000
    
    $
    1,809Provision charged to operations
    
    
    
    
    25
    
    
    
    
    
    125Loans charged off
    
    (148
    )
    
    (88
    )
    
    (184
    )
    
    (209
    )Recoveries
    
    422
    
    
    16
    
    
    479
    
    
    88Balance at end of period
    $
    2,295
    
    $
    1,813
    
    $
    2,295
    
    $
    1,813The Companys recorded investment in loans that are considered impaired totaled $248,000 and $268,000
at June 30, 2005 and December 31, 2004, respectively. These impaired loans carried allowances of
$87,000 at June 30, 2005 and $94,000 as of year-end 2004. The average recorded investment in impaired
loans was $255,000 and $274,000 in the six months ended June 2005 and 2004, respectively. The Company
recognized no interest on impaired loans during the three and six months ended June 30, 2005 and 2004.The principal balances of loans not accruing interest
amounted to $1.2 million and $743,000 at June 30, 2005 and December 31, 2004, respectively.
Loans 90 days past due and accruing interest11
amounted to $327,000 and $86,000 at June 30, 2005 and December 31, 2004 and 2003, 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 six months ended June 30, 2005 and 2004 was $41,100 and $32,400, 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.(7)
Stock-Based CompensationThe 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.The fair value of each option grant is estimated on the dates of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants made on September 28, 2000:
dividend yield of 2.00%; expected volatility of 47.50%; risk free interest rate of 6.30%; and expected
lives of five years. The estimated weighted average fair value of the options granted on September
28, 2000 was $0.93 per option.Pro forma disclosures for the Company for the periods ended June 30, 2004 and 2003 utilizing the estimated
fair value of the options granted and an assumed 5% forfeiture rate are as follows:Three
      months ended
      June 30,
    
    Six
      months ended
      June 30,**(in thousands, except per share data)**
  
  2005
  
  2004
  
  2005
  
  2004
  
  
  Net income:As reported
    $
    970
    
    $
    680
    
    $
    1,609
    
    $
    1,125Add:
      Stock based compensation expense included in netincome,
      net of related tax expense
    
    8
    
    
    8
    
    
    16
    
    
    16Deduct:
      Total stock based compensation expensedetermined
      under fair value method, net of relatedtax expense
    
    (17
    )
    
    (17
    )
    
    (34
    )
    
    (34
    )Pro forma
    $
    961
    
    $
    671
    
    $
    1,591
    
    $
    1,107Basic
      earnings per share:As reported
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12Pro forma
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12Diluted
      earnings per share:As reported
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.12Pro forma
    $
    0.10
    
    $
    0.07
    
    $
    0.17
    
    $
    0.1212
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 periods ended June
30, 2005 and 2004 may not be representative of the effects on reported net income or earnings per
share for future periods.In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R) establishes accounting standards for transactions in which a company exchanges its
equity instruments for goods or services. In particular, this Statement will require companies to
record compensation expense for all share-based payments, such as employee stock options, at fair
market value. This Statement is effective as of the beginning of the first interim reporting period
of 2006 (the Companys fiscal period beginning January 1, 2006). The Company is currently reviewing
the effect of this Statement as it relates to future stock option exercises on its consolidated financial
statements.(9)
  Pension and Postretirement Medical Benefit ExpensesThe components of net periodic pension and postretirement benefit cost consisted of the following:Three months ended June 30,(in thousands)Pension benefits
    
    Postretirement
      benefitComponents of net periodic pension cost:
    2005
    
    2004
    
    2005
    
    2004Service cost
    $
    
    
    $
    
    
    $
    8
    
    $
    8Interest cost
    
    104
    
    
    108
    
    
    37
    
    
    36Expected return on plan assets
    
    (164
    )
    
    (160
    )
    
    
    
    
    Curtailment charge
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    17
    
    
    20
    
    
    
    
    
    Net periodic pension cost
    $
    (43
    )
    $
    (32
    )
    $
    45
    
    $
    44Six months ended June 30,(in thousands)Pension benefits
    
    Postretirement
      benefitComponents of net periodic pension cost:
    2005
    
    2004
    
    2005
    
    2004Service cost
    $
    
    
    $
    
    
    $
    16
    
    $
    16Interest cost
    
    208
    
    
    216
    
    
    74
    
    
    72Expected return on plan assets
    
    (328
    )
    
    (320
    )
    
    
    
    
    Curtailment charge
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    34
    
    
    40
    
    
    
    
    
    Net periodic pension cost
    $
    (86
    )
    $
    (64
    )
    $
    90
    
    $
    8813
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, 2005, the Company expects to make no contributions to the defined benefit pension plan.(10)
  BorrowingsThe 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 (in thousands):At June 30,
    
    At December 31,2005
    
    2004Bearing interest at 2.62% fixed, due 3/15/05
    
    
    
    $
    4,500FHLB Overnight Line of Credit, bearing
    
    
    
    
    4,000interest at 2.38%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.At June 30,
    
    At December 31,2005
    
    2004Bearing interest at 3.67% fixed, due 7/3/15
    $
    2,622
    
    $
    2,728Bearing interest at 3.36% fixed, due 7/3/13
    
    4,625
    
    
    4,869Bearing interest at 3.59% fixed, due 11/26/08
    
    2,616
    
    
    2,746The following table summarizes the combined aggregate amount of maturities for the above advances and
notes for each of the five years after June 30, 2005, as well as remaining maturities beyond five
years:Due in one year
    $
    985Due one through two years
    
    1,020Due two through three years
    
    1,057Due three through four years
    
    2,578Due four through five years
    
    824Due past five years
    
    3,399Total
    $
    9,863At June 30, 2005, the Company had additional availability on its FHLB line of credit of $26.2 million.
This line of credit is subject to periodic review and renewal.
14
Item 2.  Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-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.
General
The Company is a Delaware corporation regulated by the Office of Thrift Supervision (OTS)
as a savings and loan holding company, 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.
Following its conversion to federal charter on April 27, 2004, the Bank has been regulated by the
OTS as a federal savings bank.
Overview
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
15
competing investments, customer preferences and levels of personal income and savings in the Banks
primary market area.
Net income for the second quarter of 2005 was $970,000, an increase of 42.7% over the prior years
second quarter net income of $680,000. The significant factors and trends impacting the second quarter
of 2005, which are discussed in greater depth below, were as follows:

2005 second quarter net interest income increased by $589,000 or 21.1% from the same quarter last year
as a result of an increase in interest earning assets of $50.5 million or 20.6%. This increase is
attributable to the proceeds of the Companys stock offering which closed on March 31, 2005.
Non-interest expense increased to $2.4 million in the second quarter of 2005 from $2.2 million in the
prior year primarily due to higher Sarbanes Oxley Act compliance and strategic planning costs.
Non-interest income increased $102,000 over second quarter 2004 levels principally due to the reimbursement
of previous year legal costs associated with a charged off commercial loan.
The Company recorded no provision for loan losses in the quarter ended June 2005, as compared to $25,000
in the prior year. The Company recorded a large recovery on the above referenced prior year charged
off loan which provided for any additional allowance needed in the current quarter.Critical Accounting Policies
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.
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
16
review each of the policies included in Note 2 to the consolidated financial statements reported on
the Companys 2004 Form 10-KSB to obtain a better understanding of how our financial performance
is reported.
Analysis of Net Interest Income.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 includes a tax equivalent adjustment
for bank qualified municipals.
Average
      Balances, Interest and Average YieldsFor
      the three months ended June 30, 2005
    
    For
      the three months ended June 30, 2004Average
      Balance
    
    Interest
      Income/
      Expense
    
    Average
      Yield/
      Cost
    
    Average
      Balance
    
    Interest
      Income/
      Expense
    
    Average
      Yield/
      CostAssets:
    (Dollars in thousands)Interest-earning
      assets:Loans
    
    $
    238,903
    
    $
    3,658
    
    
    6.14
    %
    $
    212,503
    
    $
    3,281
    
    
    6.19
    %Securities
      (1)
    
    
    16,295
    
    
    206
    
    
    5.06
    
    
    25,287
    
    
    288
    
    
    4.57Federal
      funds sold & otherInterest
      bearing deposits
    
    
    40,559
    
    
    281
    
    
    2.78
    
    
    7,514
    
    
    15
    
    
    0.79Total
      interest-earnings assets
    
    
    295,757
    
    
    4,145
    
    
    5.62
    
    
    245,304
    
    
    3,584
    
    
    5.86Noninterest-earning
      assets
    
    
    16,351
    
    
    
    
    
    
    
    
    18,386Total
      assets
    
    $
    312,108
    
    
    
    
    
    
    
    $
    263,690Liabilities
      and Shareholders Equity:Interest-bearing
      liabilities:Savings
      accounts
    
    $
    94,872
    
    $
    178
    
    
    0.75
    
    $
    94,951
    
    $
    177
    
    
    0.75Time
      deposits
    
    
    67,385
    
    
    440
    
    
    2.62
    
    
    67,274
    
    
    392
    
    
    2.34Money
      market accounts
    
    
    5,814
    
    
    10
    
    
    0.70
    
    
    9,838
    
    
    19
    
    
    0.77Other
      interest bearing deposits
    
    
    9,770
    
    
    12
    
    
    0.48
    
    
    6,924
    
    
    13
    
    
    0.74Total
      interest-bearing deposits
    
    
    177,841
    
    
    640
    
    
    1.44
    
    
    178,987
    
    
    601
    
    
    1.35Borrowings
    
    
    9,949
    
    
    87
    
    
    3.51
    
    
    16,603
    
    
    141
    
    
    3.41Total
      interest-bearing liabilities
    
    
    187,790
    
    
    727
    
    
    1.55
    
    
    195,590
    
    
    742
    
    
    1.52Noninterest-bearing
      deposits
    
    
    27,618
    
    
    
    
    
    
    
    
    27,990Other liabilities
    
    
    4,169
    
    
    
    
    
    
    
    
    4,544Total
      liabilities
    
    
    219,577
    
    
    
    
    
    
    
    
    228,124Shareholders
      equity
    
    
    92,531
    
    
    
    
    
    
    
    
    35,566Total
      liabilities and shareholders equity
    
    $
    312,108
    
    
    
    
    
    
    
    $
    263,690Net interest
      income
    
    
    
    
    
    3,418
    
    
    
    
    
    
    
    
    2,842Tax equivalent
      adjustment on securities
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    
    (52
    )Net
      interest income per consolidated
      financial statements
    
    
    
    
    $
    3,379
    
    
    
    
    
    
    
    $
    2,790Net interest
      rate spread
    
    
    
    
    
    
    
    
    4.07
    %
    
    
    
    
    
    
    
    4.34
    %Net interest
      margin
    
    
    
    
    
    
    
    
    4.64
    %
    
    
    
    
    
    
    
    4.65
    %Ratio of
      interest-earning assets to
          interest-bearing liabilities
    
    
    
    
    
    
    
    
    1.57
    x
    
    
    
    
    
    
    
    1.25
    x(1)
      Includes tax equivalent adjustment for the Companys tax-exempt municipal
      securities.17
Average
      Balances, Interest and Average YieldsFor
      the six months ended June 30, 2005
    
    For
      the six months ended June 30, 2004Average
      Balance
    
    Interest
      Income/
      Expense
    
    Average
      Yield/
      Cost
    
    Average
      Balance
    
    Interest
      Income/
      Expense
    
    Average
      Yield/
      CostAssets:
    (Dollars in thousands)Interest-earning
      assets:Loans
    
    $
    236,264
    
    $
    7,230
    
    
    6.12
    %
    $
    210,556
    
    $
    6,602
    
    
    6.27
    %Securities
      (1)
    
    
    17,063
    
    
    421
    
    
    4.93
    
    
    26,438
    
    
    594
    
    
    4.49Federal
      funds sold & otherInterest
      bearing deposits
    
    
    23,002
    
    
    307
    
    
    2.67
    
    
    7,609
    
    
    30
    
    
    0.80Total
      interest-earnings assets
    
    
    276,329
    
    
    7,958
    
    
    5.76
    
    
    244,603
    
    
    7,226
    
    
    5.91Noninterest-earning
      assets
    
    
    17,030
    
    
    
    
    
    
    
    
    18,169Total
      assets
    
    $
    293,359
    
    
    
    
    
    
    
    $
    262,772Liabilities
      and Shareholders Equity:Interest-bearing
      liabilities:Savings
      accounts
    
    $
    98,557
    
    $
    356
    
    
    0.72
    
    $
    93,627
    
    $
    372
    
    
    0.79Time
      deposits
    
    
    67,947
    
    
    861
    
    
    2.53
    
    
    68,073
    
    
    807
    
    
    2.37Money
      market accounts
    
    
    6,795
    
    
    29
    
    
    0.85
    
    
    9,092
    
    
    37
    
    
    0.82Other
      interest bearing deposits
    
    
    9,571
    
    
    26
    
    
    0.54
    
    
    6,631
    
    
    26
    
    
    0.78Total
      interest-bearing deposits
    
    
    182,870
    
    
    1,272
    
    
    1.39
    
    
    177,423
    
    
    1,242
    
    
    1.40Borrowings
    
    
    13,836
    
    
    225
    
    
    3.25
    
    
    17,055
    
    
    296
    
    
    3.47Total
      interest-bearing liabilities
    
    
    196,706
    
    
    1,497
    
    
    1.52
    
    
    194,478
    
    
    1,538
    
    
    1.59Noninterest-bearing
      deposits
    
    
    27,406
    
    
    
    
    
    
    
    
    27,335Other liabilities
    
    
    4,238
    
    
    
    
    
    
    
    
    4,419Total
      liabilities
    
    
    228,350
    
    
    
    
    
    
    
    
    226,232Shareholders
      equity
    
    
    65,009
    
    
    
    
    
    
    
    
    36,540Total
      liabilities and shareholders equity
    
    $
    293,359
    
    
    
    
    
    
    
    $
    262,772Net interest
      income
    
    
    
    
    
    6,461
    
    
    
    
    
    
    
    
    5,688Tax equivalent
      adjustment on securities
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    
    (103
    )Net
      interest income per consolidated
      financial statements
    
    
    
    
    $
    6,381
    
    
    
    
    
    
    
    $
    5,585Net interest
      rate spread
    
    
    
    
    
    
    
    
    4.24
    %
    
    
    
    
    
    
    
    4.32
    %Net interest
      margin
    
    
    
    
    
    
    
    
    4.72
    %
    
    
    
    
    
    
    
    4.69
    %Ratio of
      interest-earning assets to
        interest-bearing liabilities
    
    
    
    
    
    
    
    
    1.40
    x
    
    
    
    
    
    
    
    1.26
    x(1)
      Includes tax equivalent adjustment for the Companys tax-exempt municipal
      securities.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.
18
Rate Volume AnalysisThree months ended June 30, 2005 
      Compared to Three months ended June 30, 2004
    
    Six months ended June 30, 2005 
      Compared to Six months ended June 30, 2004Increases (decreases) due to
    
    Increases (decreases) due toRate
    
    Volume
    
    Net
    
    Rate
    
    Volume
    
    Net(thousands)
    
    
    
    
    
    (thousands)Assets:Interest-earning assets:Loans
    $
    (28
    )
    $
    405
    
    $
    377
    
    $
    (155
    )
    $
    783
    
    $
    628Securities (1)
    
    20
    
    
    (102
    )
    
    (82
    )
    
    37
    
    
    (210
    )
    
    (173
    )Federal funds sold & other
      Interest bearing deposits
    
    201
    
    
    65
    
    
    266
    
    
    215
    
    
    62
    
    
    277Total interest-earnings assets
    
    193
    
    
    368
    
    
    561
    
    
    97
    
    
    635
    
    
    732Interest-bearing liabilities:Savings accounts
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    19
    
    
    (16
    )Time deposits
    
    47
    
    
    1
    
    
    48
    
    
    55
    
    
    (1
    )
    
    54Money market accounts
    
    (1
    )
    
    (8
    )
    
    (9
    )
    
    1
    
    
    (9
    )
    
    (8
    )Other interest bearing deposits
    
    (6
    )
    
    6
    
    
    
    
    
    (11
    )
    
    11
    
    
    Total interest-bearing deposits
    
    40
    
    
    (1
    )
    
    39
    
    
    10
    
    
    20
    
    
    30Borrowings
    
    3
    
    
    (57
    )
    
    (54
    )
    
    (15
    )
    
    (56
    )
    
    (71
    )Total interest-bearing liabilities
    
    43
    
    
    (58
    )
    
    (15
    )
    
    (5
    )
    
    (36
    )
    
    (41
    )Net change in interest income (1)
    $
    (150
    )
    $
    426
    
    $
    576
    
    $
    102
    
    $
    671
    
    $
    773(1) Includes tax equivalent adjustment for the Companys tax-exempt municipal securities.Comparison of Financial Condition at June 30, 2005 and December 31, 2004:
Total
assets at June 30, 2005 were $311.3 million, an increase of $43.1 million from $268.2 million at
December 31, 2004. Cash and federal funds increased by $34.4 million in the first six months of 2005
from $6.9 million at December 31, 2004 to $41.3 million at June 30, 2005 due to receipt of the
proceeds of the Companys stock offering which closed on March 30, 2005. Securities decreased
by $3.7 million from $19.1 million to $15.4 million over the same period. The decrease in securities
was attributable to the sale of shares in an equity mutual fund, as well as maturities in the investment
portfolio. These decreases were utilized to fund increases in the Companys loan portfolio.
The Companys loan portfolio increased by $12.9 million, or 5.5%, during the first half of 2005
from $233.3 million at December 31, 2004 to $246.2 million at June 30, 2005. During the first half
of 2005, the Company originated approximately $30.4 million of loans, as compared to approximately
$35.4 million of loans originated in the same period of 2004. The majority of the growth in the loan
portfolio this year to date has been in the mortgage area. This growth is attributable to the Companys
emphasis on marketing these products as well as a lower volume of loan prepayments. Non-performing
loans as a percentage of total loans increased to 0.62% at June 30, 2005 as compared to 0.36% at
December 31, 2004. The allowance for loan losses as a percentage of total loans was 0.93% and 0.86%
at June 30, 2005 and December 31, 2004, respectively. In addition, the allowance for loan losses
as a percent of non-performing loans was 150.2% at June 30, 2005, as compared to 241.3% at December 31, 2004.
Total deposits decreased from
$208.8 million at year-end to $204.6 million at June 30, 2005. The overall decrease in deposits is
attributable to the purchase of stock in the second-step offering by depositors using funds on deposit.
During the first half of 2005, savings deposits and time deposits decreased by $1.8 million, or 1.9%,
and $1.7 million, or 2.5%, respectively. Money market accounts decreased over the same period by
$2.2 million, or 29.4%. Non-interest bearing deposits grew by $1.2
19
million or 4.5% during the first half of 2005. Other interest bearing deposits increased $259,000,
or 2.5% over the same time period.
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2005 and 2004
General
During
the three months ended June 30, 2005, the Company recorded net income of $970,000 as compared to
$680,000 for the second quarter of 2004. The increase in net income is comprised of a $589,000 increase
in net interest income before loan loss provision, a reduction of loan loss provision of $25,000
and an increase of $102,000 in non-interest income, which were partially offset by an increase in
non-interest expense of $223,000 and a $203,000 increase in income tax expense.
Diluted earnings per share were $0.10 per diluted share for the three months ended June 30, 2005 in
comparison to $0.07 per diluted share for the same quarter of 2004. The increase in earnings per
share is directly attributed to the above referenced increase in second quarter net income.
Net Interest Income
Net interest income before loan loss provision for the quarter ended June 30, 2005 increased by $589,000
or 21.1% as compared to the same quarter of 2004. This increase is attributable to growth in the
Companys portfolio of earning assets and reduced interest expense paid on borrowings.
Interest Income
Interest income increased to $4.1 million for the quarter ended June 30, 2005 from $3.5 million for
the same quarter of 2004. The increase in interest income was attributable to the growth in the Companys
average earning assets from $245 million for the second quarter of 2004 to $296 million in the current
quarter. Average loan balances for the second quarter of 2005 were $238.9 million, an increase of
$26.7 million over the average outstanding loans for the second quarter of 2004. The yield on the
Companys loan portfolio for the quarter ended June 30, 2005 was 6.14% in comparison to a yield
of 6.19% for the same period last year. Interest income on securities declined $69,000 from $236,000
for the quarter ended June 30, 2004 to $167,000 for the quarter ended June 30, 2005. Comparatively,
the average balance of securities declined by $9.0 million, or 35.6% from the second quarter of 2004
to $16.3 million for the current quarter and the yield on the Companys securities increased
from 4.57% to 5.06% for the same periods, respectively. Finally, interest income on federal funds
sold and other interest bearing deposits increased by $266,000 to $281,000 for the quarter ended
June 30, 2005 from the same quarter in 2004 due to increased both increased average balances and yields.
Interest Expense
Interest expense decreased from $742,000 in the quarter ended June 30, 2004 to $727,000 for the same
quarter of 2005. Interest expense on deposits increased to $640,000 for the quarter ended June 30,
2005 from $601,000 for the quarter ended June 30, 2004, due rising rates paid on time deposits consistent
with current market rates. Interest expense on borrowed funds decreased to $87,000 for the quarter
ended June 30, 2005 from $141,000 for the comparative quarter of 2004 primarily due to a decrease
in the average balance of borrowings to $9.9 million in the current quarter as compared to $16.6
million in the second quarter of 2004.
20
Provision for Loan Losses
The
Company recorded no provision for loan losses in the first quarter of 2005 as compared to a provision
of $25,000 in the same quarter of 2004. Asset quality was less favorable at June 30, 2005, than at
year end 2004 with non-performing loans as a percent of loans of 0.62% and the allowance for loan
losses as a percent of non-performing loans of 150.2% at June 30, 2005, as compared to 0.36% and
241.3%, respectively at December 31, 2004. Accordingly, the allowance for loan losses as a percentage
of loans has been increased to 0.93% at June 30, 2005 from 0.86% at the prior year end. During the
current quarter, the Company received a large recovery on a commercial loan that had been charged
off in 2000. Receipt of this recovery increased the allowance to an appropriate level without the
need for an additional provision.
In determining the appropriate provision for loan losses, management considers the level of and trend

in non-performing loans, the level of and trend in net loan charge-offs, the dollar amount and
mix
of the loan portfolio, as well as general economic conditions and real estate trends in the
Companys
market area, which can impact the inherent risk of loss in the Companys loan
portfolio.
Non-Interest Income and Non-Interest Expense
Non-interest income grew by $102,000 to $582,000 in the second quarter of 2005, a 21.3% increase over
the same period of 2004. This increase is primarily attributable to the reimbursement of prior year
legal fees expended in relation to the above referenced loan loss recovery totaling $167,000. Partially
offsetting this increase was a decrease in gains on securities sales of $35,000 as compared to the
same quarter of 2004.
Non-interest expense increased by $223,000 to $2.4 million in the current quarter compared to $2.2
million in the same period of 2004, primarily due to increased expenditures related to compliance
with Sarbanes Oxley Act Section 404 and strategic planning initiatives.
Income tax expense for the second quarter of 2005 increased to $584,000 from $381,000 in the same period
of 2004, directly due to the increase in pre-tax income.
Comparison of Operating Results for the Six-Month Periods Ended June 30, 2005 and 2004
General
During
the six months ended June 30, 2005, the Company recorded net income of $1,609,000 as compared to
$1,125,000 for the first half of 2004. The increase in net income is comprised of a $796,000 increase
in net interest income before loan loss provision, a reduction of loan loss provision of $125,000
and an increase of $183,000 in non-interest income, which were partially offset by an increase in
non-interest expense of $318,000 and a $302,000 increase in income tax expense.
Diluted earnings per share were $0.17 per diluted share for the six months ended June 30, 2005 in comparison
to $0.12 per diluted share for the same period of 2004. The increase in earnings per share is directly
attributed to the above referenced increase in year to date net income.
Net Interest Income
21
Net interest income before loan loss provision for the six months ended June 30, 2005 increased by
$796,000 or 14.3% as compared to the same period of 2004. This increase is attributable to growth
in the Companys portfolio of earning assets and reduced interest expense paid on borrowings.
Interest Income
Interest income increased to $7.9 million for the six months ended June 30, 2005 from $7.1 million
for the same period of 2004. The increase in interest income was attributable to the growth in the
Companys average earning assets from $245 million for the first half of 2004 to $276 million
in the current year to date. Average loan balances for the first six months of 2005 were $236.3 million,
an increase of $25.7 million over the average outstanding loans for the same period of 2004. The
yield on the Companys loan portfolio for the six months ended June 30, 2005 was 6.12% in comparison
to a yield of 6.27% for the same period last year. Interest income on securities declined $150,000
from $491,000 for the six months ended June 30, 2004 to $341,000 for the six months ended June 30,
2005. Comparatively, the average balance of securities declined by $9.4 million, or 35.5% from the
first half of 2004 to $17.1 million for the current year to date and the yield on the Companys
securities increased from 4.49% to 4.93% for the same periods, respectively. Finally, interest income
on federal funds sold and other interest bearing deposits increased by $277,000 to $307,000 for the
first half of 2005 from the same period in 2004 due to increased both increased average balances and yields.
Interest Expense
Interest expense remained constant at $1.5 million for the six months ended June 30, 2005 and 2004.
Interest expense on deposits increased to $1.3 million for the half ended June 30, 2005 from $1.2
million for the six months ended June 30, 2004, due to higher average outstanding balances as well
as rising rates paid on time deposits consistent with current market rates. Interest expense on borrowed
funds decreased to $225,000 for the six months ended June 30, 2005 from $296,000 for the comparative
period of 2004 primarily due to a decrease in the average balance of borrowings to $13.8 million
in the current half as compared to $17.1 million in the six months ended 2004.
Provision for Loan Losses
The
Company recorded no provision for loan losses in the first half of 2005 as compared to a provision
of $125,000 in the same period of 2004. Asset quality was less favorable at June 30, 2005, than at
year end 2004 with non-performing loans as a percent of loans of 0.62% and the allowance for loan
losses as a percent of non-performing loans of 150.2% at June 30, 2005, as compared to 0.36% and
241.3%, respectively at December 31, 2004. Accordingly, the allowance for loan losses as a percentage
of loans has been increased to 0.93% at June 30, 2005 from 0.86% at the prior year end. During the
second quarter of 2005, the Company received a large recovery on a commercial loan that had been
charged off in 2000. Receipt of this recovery increased the allowance to an appropriate level without
the need for an additional provision.
In determining the appropriate provision for loan losses, management considers the level of and trend

in non-performing loans, the level of and trend in net loan charge-offs, the dollar amount and
mix
of the loan portfolio, as well as general economic conditions and real estate trends in the
Companys
market area, which can impact the inherent risk of loss in the Companys loan
portfolio.
Non-Interest Income and Non-Interest Expense
Non-interest income grew by $183,000 to $1.1 million for the first six months of 2005, a 21.1% increase
over the same period of 2004. This increase is primarily attributable to the reimbursement of
22
prior year legal fees expended in relation to the above referenced loan loss recovery totaling $167,000
and a $67,000 year to date increase in fee revenue. Partially offsetting these increases was a decrease
in gains on securities sales of $52,000 as compared to the same period of 2004.
Non-interest expense increased to $4.9 million in the first six months of 2005 compared to $4.6 million
in the same period of 2004, primarily due to increased expenditures related to compliance with Sarbanes
Oxley Act Section 404 and strategic planning initiatives, as well as higher occupancy costs.
Income tax expense for the first half of 2005 increased to $935,000 from $633,000 in the same period
of 2004, directly due to the increase in pre-tax income.
Liquidity and Capital Resources
The Companys primary sources of funds consist of deposits, scheduled amortization and prepayments
of loans and mortgage-backed securities, maturities of investments, interest bearing deposits at
other financial institutions and funds provided from operations. The Bank also has a written agreement
with the Federal Home Loan Bank of New York that allows it to borrow up to $26.2 million. At June
30, 2004, the Bank had no outstanding borrowings on this line of credit, but did have outstanding
advances and amortizing notes totaling $9.9 million.
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.
On March 30, 2005, the Company closed on its second-step conversion and stock offering.
As a result of the stock offering, the Company received net proceeds of $53.5 million, excluding
$2.36 million which was loaned by the Company to the ESOP enabling it to purchase 236,000 shares
of common stock in the stock offering for future allocation to participants. In addition, the Company
received $1.9 million previously held by Rome MHC as part of the reorganization. Of the proceeds
received, $11.5 million were utilized to pay down FHLB advances and overnight lines of credit.
The Companys primary investing activities include the origination of loans and to a lesser extent
the purchase of investment securities. For the six months ended June 30, 2005, the Company originated
loans of approximately $30.4 million, as compared to $35.4 of loans originated in the first half
of 2004.
At June 30, 2005, the Company had loan commitments to borrowers of approximately $9.3 million, and
available letters and lines of credit of approximately $11.8 million.
Time deposit accounts scheduled to mature within one year were $44.1 million at June 30, 2005. 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 June 30, 2005, the Bank exceeded each of the applicable regulatory capital requirements. The Banks
leverage (Tier 1) capital at June 30, 2005 was $56.4 million, or 18.12% of adjusted assets.
23
In order to be classified as well-capitalized by the FDIC, the Bank is required to have
leverage (Tier 1) capital of $15.6 million, or 5.0% of adjusted assets. To be classified as a well-capitalized
bank by the FDIC, the Bank must also have a total risk-based capital ratio of 10.0%. At June 30,
2005, the Bank had a total risk-based capital ratio of 27.25%.
The Company paid cash dividends of $0.132 per share during the six-month period ended June 30, 2005
at a cost of $834,000.
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 the commitments
and unused lines of credit noted above.
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.
Recent Accounting Pronouncements
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act)
became law in the United States. The Act introduces a prescription drug benefit under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to the Medicare benefit. We maintain a postretirement benefit
plan that may be impacted by the Act. In May 2004, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position (FSP) No. FAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This
FSP provides authoritative guidance on the accounting for the effects of the Act and supersedes FSP
FAS 106-1. FSP No. 106-2 is effective for the first interim or annual period beginning after June
15, 2004 which, for the Company, is July 1, 2004. However, if the effects of the Act are not a significant
event as defined in FSP No. 106-2, or if benefits under the Companys plan are not actuarially
equivalent to the Medicare benefit, then effects of the Act will be measured at the next measurement
date for the plan. The next measurement date for the Companys postretirement benefit plan is December 31, 2005.
Net periodic benefit costs for postretirement benefits in footnote nine do not reflect any amount associated
with the subsidy provided by the Act because the Company was unable to conclude whether the benefits
provided by its plan are actuarially equivalent to Medicare Part D under the Act.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R) establishes
accounting standards for transactions in which a company exchanges its equity instruments for goods
or services. In particular, this Statement will require companies to record compensation expense
for all share-based payments, such as employee stock options, at fair market value. This Statement
is effective as of the beginning of the first interim reporting period of 2006 (the Companys
fiscal period beginning January 1, 2006). The Company is currently reviewing the effect of this Statement
on its consolidated financial statements as it relates to future option grants.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in the Companys interest rate risk profile since December 31,
2004. For a more complete discussion of the Companys asset and liability management policies
see
24
Managements Discussion and Analysis of Financial Condition and Results of Operations
in the Companys 2004 Form 10-KSB.
As a result of receipt of the proceeds of the Companys reorganization and stock offering on March
30, 2005, the Company had deposit balances with two financial institutions in the amounts of $17.3
million and $16.6 million at June 30, 2005. This asset concentration is temporary in nature and will
diminish as the stock offering proceeds are deployed into other earning assets.
Item 4. Controls and Procedures
Management,
including the Companys President and Chief Executive Officer and the Chief Financial Officer,
has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.
Based upon that evaluation, the President and Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, in all material respects, to
ensure that information required to be disclosed in the reports the Company files and submits under
the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no significant changes in the Companys internal controls over financial reporting
identified in connection with the evaluation that occurred during the Companys last fiscal
quarter that has materially affected, or that is reasonably likely to materially affect, the Companys
internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1.            Legal Proceedings
None.
Item 2.            Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item 3.            Defaults
Upon Senior Securities
None.
Item 4.            Submission
of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders (Meeting) on June 1, 2005. All of the
proposals submitted to the shareholders at the Meeting were approved. The proposals submitted to
the shareholders and the tabulation for votes for each proposal is as follows:1.
Election of three directors to serve for a three-year term on the Board of Directors.The number of votes cast with respect to this matter was a follows:Nominee
    For
    
    Withheld
    
    Broker Non-VotesKirk B. Hinman
    7,939,233
    
    411,204
    
    Charles M. Sprock
    7,935,833
    
    414,604
    
    Michael J. Valentine
    7,939,259
    
    411,178
    
    25
The following directors terms continued after the meeting: Bruce R. Englebert, David C. Grow,
T. Richard Leidig, Richard H. McMahon and Marion C. Scoville.2.   Ratification of the appointment of Crowe Chizek and Company, LLC as independent auditors
for the fiscal year ended December 31, 2005.The number of votes cast with respect to this matter was as follow:For
    
    Withheld
    
    Abstain
    
    
    Broker Non-Votes7,502,360
    
    792,685
    
    
    55,391
    
    
    Item 5.            Other Information
None.
Item 6.            Exhibits
and Reports on Form 8-K
(a)
Exhibits:31 - Rule 13a-14(a)/15d-14(a) Certifications32 - Section 1350 CertificationsSIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.ROME BANCORP, INC.
Name
    
    Title
    
    Date/s/Charles M. Sprock
    
    Chairman of the Board,
    
    August 9, 2005Charles M. Sprock
    
    President and Chief 
      Executive Officer
      (Principal Executive 
      Officer)August 9, 2005/s/David C. Nolan
    
    Treasurer and ChiefDavid C. Nolan
    
    Financial Officer
      (Principal Financial 
      Officer)26