|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON,
  DC 20549            
|                                  
|FORM 10-Q                         

Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

Commission file number 000-27481

|                                                      
|------------------------------------------------------
|Rome Bancorp, Inc.                                    
|(Exact name of registrant as specified in its charter)

|                                                                   |                                         
|------------------------------------------------------------------ | ----------------------------------------
|Delaware                                                           | 16-1573070                              
|(State or
  other jurisdiction of
  incorporation or organization) | (I.R.S.
  Employer
  Identification No.)

|                                                    
|----------------------------------------------------
|100 West Dominick Street, Rome, NY 13440-5810       
|(Address of Principal executive offices)            
|(315) 336-7300                                      
|(Registrants telephone number, including area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate
by check mark whether the registrant is a large accelerated file, an
accelerated filer, or a non-accelerated filer.

|                            |                       |                          
|--------------------------- | --------------------- | -------------------------
|Large
  accelerated filer o | Accelerated
  filer o | Non-accelerated
  filer x

Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act.)Yes o   No x

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

|                               |  |                                  | 
|------------------------------ |  | -------------------------------- | 
|Class                          |  | Outstanding at
  August 10, 2006 | 
|                               |  |                                  | 
|Common
  Stock, par value $.01 |  | 8,795,020                        | 

1

---



ROME BANCORP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

TABLE OF CONTENTS

|         |                                                                                         |  |     
|-------- | --------------------------------------------------------------------------------------- |  | ----
|         |                                                                                         |  | PAGE
|         |                                                                                         |  |     
|         |                                                                                         |  |     
|PART I   | FINANCIAL
  INFORMATION                                                                 |  | 3   
|         |                                                                                         |  |     
|ITEM 1.  | FINANCIAL
  STATEMENTS (unaudited):                                                     |  |     
|         | CONDENSED
  CONSOLIDATED BALANCE SHEET                                                  |  | 3   
|         | CONDENSED
  CONSOLIDATED STATEMENTS OF INCOME                                           |  | 4   
|         | CONDENSED
  CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME     |  | 5   
|         | CONDENSED
  CONSOLIDATED STATEMENTS OF CASH FLOWS                                       |  | 6   
|         | NOTES TO
  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                        |  | 8   
|         |                                                                                         |  |     
|ITEM 2.  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS |  | 15  
|ITEM 3.  | QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 24  
|ITEM 4.  | CONTROLS AND
  PROCEDURES                                                               |  | 25  
|         |                                                                                         |  |     
|PART II  | OTHER
  INFORMATION                                                                     |  |     
|         |                                                                                         |  |     
|ITEM 1.  | LEGAL
  PROCEEDINGS                                                                     |  | 25  
|ITEM 1A. | RISK FACTORS                                                                            |  | 25  
|ITEM 2.  | UNREGISTERED
  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 25  
|ITEM 3.  | DEFAULTS UPON
  SENIOR SECURITIES                                                       |  | 25  
|ITEM 4.  | SUBMISSION OF
  MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 25  
|ITEM 5.  | OTHER
  INFORMATION                                                                     |  | 26  
|ITEM 6.  | EXHIBITS                                                                                |  | 26  
|         |                                                                                         |  |     
|         | SIGNATURES                                                                              |  | 28  

2

---



PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Balance Sheet
June 30, 2006 and December 31, 2005
(in thousands, except share data)

|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ------------------- | - | ------- | -
|                                                                                                                                                                                                  |  | (unaudited)
  June 30,
  2006 |         | December 31,
  2005 |  
|                                                                                                                                                                                                  |  |                               |         |                     |  
|Assets                                                                                                                                                                                            |  |                               |         |                     |   |         |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Cash and due from banks                                                                                                                                                                           |  | $                             | 6,493   |                     | $ | 7,457   |  
|Federal funds sold and other
  short-term investments                                                                                                                                             |  |                               | 11,115  |                     |   | 26,778  |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total cash and cash equivalents                                                                                                                                                                   |  |                               | 17,608  |                     |   | 34,235  |  
|Securities available for sale,
  at fair value                                                                                                                                                    |  |                               | 5,159   |                     |   | 9,666   |  
|Securities held to maturity
  (fair value of $1,196 and $1,428 at June 30, 2006 and December 31, 2005,
  respectively)                                                                            |  |                               | 1,202   |                     |   | 1,440   |  
|Federal Home Loan Bank Stock                                                                                                                                                                      |  |                               | 813     |                     |   | 776     |  
|Loans                                                                                                                                                                                             |  |                               | 256,423 |                     |   | 253,878 |  
|Less: Allowance for loan loss                                                                                                                                                                     |  |                               | (1,954  | )                   |   | (1,960  | )
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Net loans                                                                                                                                                                                         |  |                               | 254,469 |                     |   | 251,918 |  
|Premises and equipment, net                                                                                                                                                                       |  |                               | 4,940   |                     |   | 4,503   |  
|Accrued interest receivable                                                                                                                                                                       |  |                               | 1,014   |                     |   | 1,053   |  
|Other assets                                                                                                                                                                                      |  |                               | 13,447  |                     |   | 5,262   |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total assets                                                                                                                                                                                      |  | $                             | 298,652 |                     | $ | 308,853 |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Liabilities
  & Equity                                                                                                                                                                            |  |                               |         |                     |   |         |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Liabilities                                                                                                                                                                                       |  |                               |         |                     |   |         |  
|Deposits:                                                                                                                                                                                         |  |                               |         |                     |   |         |  
|Non-interest bearing                                                                                                                                                                              |  | $                             | 29,703  |                     | $ | 30,039  |  
|Savings                                                                                                                                                                                           |  |                               | 88,070  |                     |   | 89,138  |  
|Money market                                                                                                                                                                                      |  |                               | 5,139   |                     |   | 4,929   |  
|Time                                                                                                                                                                                              |  |                               | 69,088  |                     |   | 66,298  |  
|Other interest bearing                                                                                                                                                                            |  |                               | 12,006  |                     |   | 11,064  |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total deposits                                                                                                                                                                                    |  |                               | 204,006 |                     |   | 201,468 |  
|Borrowings                                                                                                                                                                                        |  |                               | 8,878   |                     |   | 9,374   |  
|Other liabilities                                                                                                                                                                                 |  |                               | 4,772   |                     |   | 4,533   |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total liabilities                                                                                                                                                                                 |  |                               | 217,656 |                     |   | 215,375 |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Shareholders equity                                                                                                                                                                              |  |                               |         |                     |   |         |  
|Common Stock, $.01 par value;
  authorized: 30,000,000 shares; issued and outstanding 9,715,020 and 8,807,120
  shares at June 30, 2006 and 9,678,128 and 9,678,128 shares at December 31,
  2005 |  |                               | 97      |                     |   | 97      |  
|Additional paid-in capital                                                                                                                                                                        |  |                               | 58,908  |                     |   | 60,013  |  
|Retained earnings                                                                                                                                                                                 |  |                               | 36,267  |                     |   | 35,983  |  
|Accumulated other comprehensive
  income                                                                                                                                                          |  |                               | 38      |                     |   | 85      |  
|Treasury stock; 907,900 shares
  at June 30, 2006                                                                                                                                                 |  |                               | (11,723 | )                   |   |        |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Unallocated shares of employee
  stock ownership plan (ESOP); 439,153 shares at June 30, 2006 and 462,135
  shares at December 31, 2005                                                           |  |                               | (2,591  | )                   |   | (2,700  | )
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total shareholders equity                                                                                                                                                                        |  |                               | 80,996  |                     |   | 93,478  |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  
|Total liabilities and
  shareholders equity                                                                                                                                                      |  | $                             | 298,652 |                     | $ | 308,853 |  
|                                                                                                                                                                                                  |  |                               |         |                     |   |         |  

See
accompanying notes to unaudited condensed consolidated financial statements.

3

---



ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2006 and 2005
(in thousands, except share data)
(unaudited)

|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|----------------------------------------------------- |  | --------------------------------------- | ----- | ------------------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                      |  | For the
  three months ended
  June 30, |       | For the
  six months ended
  June 30, |  
|                                                      |  |                                         |       |                                       |  
|                                                      |  | 2006                                    |       | 2005                                  |   | 2006  |  | 2005 |      
|                                                      |  |                                         |       |                                       |   |       |  |      |      
|Interest
  income:                                    |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Loans                                                 |  | $                                       | 4,011 |                                       | $ | 3,658 |  | $    | 7,988 |  | $ | 7,230 | 
|Securities                                            |  |                                         | 100   |                                       |   | 167   |  |      | 230   |  |   | 341   | 
|Other short-term investments                          |  |                                         | 276   |                                       |   | 281   |  |      | 576   |  |   | 307   | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Total interest income                                 |  |                                         | 4,387 |                                       |   | 4,106 |  |      | 8,794 |  |   | 7,878 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Interest
  expense:                                   |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Deposits                                              |  |                                         | 774   |                                       |   | 640   |  |      | 1,479 |  |   | 1,272 | 
|Borrowings                                            |  |                                         | 79    |                                       |   | 87    |  |      | 159   |  |   | 225   | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Total interest expense                                |  |                                         | 853   |                                       |   | 727   |  |      | 1,638 |  |   | 1,497 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Net interest income                                   |  |                                         | 3,534 |                                       |   | 3,379 |  |      | 7,156 |  |   | 6,381 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Provision
  for loan losses                           |  |                                         |      |                                       |   |      |  |      | 115   |  |   |      | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Net interest income after provision for
  loan losses |  |                                         | 3,534 |                                       |   | 3,379 |  |      | 7,041 |  |   | 6,381 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Non-interest
  income:                                |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Net gain on securities transactions                   |  |                                         |      |                                       |   | 17    |  |      | 11    |  |   | 46    | 
|Other                                                 |  |                                         | 466   |                                       |   | 565   |  |      | 879   |  |   | 1,006 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Total
  non-interest income                           |  |                                         | 466   |                                       |   | 582   |  |      | 890   |  |   | 1,052 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Non-interest
  expense:                               |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Salaries and employee benefits                        |  |                                         | 1,333 |                                       |   | 1,259 |  |      | 2,749 |  |   | 2,652 | 
|Building, occupancy and equipment                     |  |                                         | 457   |                                       |   | 410   |  |      | 909   |  |   | 868   | 
|Other                                                 |  |                                         | 811   |                                       |   | 738   |  |      | 1,581 |  |   | 1,369 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Total non-interest expense                            |  |                                         | 2,601 |                                       |   | 2,407 |  |      | 5,239 |  |   | 4,889 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Income before income tax expense                      |  |                                         | 1,399 |                                       |   | 1,554 |  |      | 2,692 |  |   | 2,544 | 
|Income tax
  expense                                  |  |                                         | 538   |                                       |   | 584   |  |      | 1,023 |  |   | 935   | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Net income                                            |  | $                                       | 861   |                                       | $ | 970   |  | $    | 1,669 |  | $ | 1,609 | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Basic
  earnings per share                            |  | $                                       | 0.10  |                                       | $ | 0.10  |  | $    | 0.19  |  | $ | 0.17  | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 
|Diluted
  earnings per share                          |  | $                                       | 0.10  |                                       | $ | 0.10  |  | $    | 0.18  |  | $ | 0.17  | 
|                                                      |  |                                         |       |                                       |   |       |  |      |       |  |   |       | 

See
accompanying notes to unaudited condensed consolidated financial statements.

4

---



ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Statement of ShareholdersEquity and Comprehensive
Income 
For the Six Months Ended June 30, 2006 and 2005 
(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 |      | Total |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |  
|Balances at
  January 1, 2005                                                     |  | $              | 33  |                                | $ | 10,756              |   | $                | 34,627 |                                              | $ | (8,963                      | ) | $                       | 391  |       | $ | (560   | ) | $ | (26 | ) | $ | 36,258  |  
|Comprehensive
  income:                                                           |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Net Income                                                                        |  |                |    |                                |   |                    |   |                  | 1,609  |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 1,609   |  
|Other comprehensive
  loss                                                        |  |                |    |                                |   |                    |   |                  |        |                                              |   |                            |   |                         | (195 | )     |   |       |   |   |    |   |   | (195    | )
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Total
  comprehensive income                                                      |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   | 1,414   |  
|Proceeds of
  common stock offering and conversion of existing shares, net of tax |  |                | 75  |                                |   | 57,769              |   |                  |       |                                              |   |                             |   |                         |     |       |   | (2,360 | ) |   |    |   |   | 55,484  |  
|Retirement of
  1,747,266 treasury shares                                         |  |                | (12 | )                              |   | (8,963              | ) |                  |       |                                              |   | 8,963                       |   |                         |     |       |   |       |   |   |    |   |   | (12     | )
|Amortization of
  unearned compensation                                           |  |                |    |                                |   |                    |   |                  |       |                                              |   |                            |   |                         |     |       |   |       |   |   | 26  |   |   | 26      |  
|Dividends paid
  ($0.132 per share)                                               |  |                |    |                                |   |                    |   |                  | (834   | )                                            |   |                            |   |                         |     |       |   |       |   |   |    |   |   | (834    | )
|Exercise of stock
  options                                                       |  |                |    |                                |   | 7                   |   |                  |       |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 7       |  
|Tax benefit of
  vested RRP shares                                                |  |                |    |                                |   | 73                  |   |                  |       |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 73      |  
|ESOP shares
  released for allocation(19,050 shares)                              |  |                |    |                                |   | 127                 |   |                  |       |                                              |   |                            |   |                         |     |       |   | 71     |   |   |    |   |   | 198     |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Balances at June
  30, 2005                                                       |  | $              | 96  |                                | $ | 59,769              |   | $                | 35,402 |                                              | $ |                            |   | $                       | 196  |       | $ | (2,849 | ) | $ |    |   | $ | 92,614  |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Balances at
  January 1, 2006                                                     |  | $              | 97  |                                | $ | 60,013              |   | $                | 35,983 |                                              | $ |                            |   | $                       | 85   |       | $ | (2,700 | ) | $ |    |   | $ | 93,478  |  
|Comprehensive
  income:                                                           |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Net Income                                                                        |  |                |    |                                |   |                    |   |                  | 1,669  |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 1,669   |  
|Other
  comprehensive loss                                                        |  |                |    |                                |   |                    |   |                  |       |                                              |   |                            |   |                         | (47  | )     |   |       |   |   |    |   |   | (47     | )
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Total
  comprehensive income                                                      |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   | 1,622   |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Purchases of
  1,025,900 treasury shares                                          |  |                |    |                                |   |                    |   |                  |       |                                              |   | (13,234                     | ) |                         |     |       |   |       |   |   |    |   |   | (13,234 | )
|Transfer of
  treasury shares to RRP plan                                         |  |                |    |                                |   | (1,511              | ) |                  |       |                                              |   | 1,511                       |   |                         |     |       |   |       |   |   |    |   |   |        |  
|Amortization of
  unearned compensation                                           |  |                |    |                                |   | 53                  |   |                  |       |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 53      |  
|Dividends paid
  ($0.15 per share)                                                |  |                |    |                                |   |                    |   |                  | (1,385 | )                                            |   |                            |   |                         |     |       |   |       |   |   |    |   |   | (1,385  | )
|Exercise of stock
  options                                                       |  |                |    |                                |   | 186                 |   |                  |       |                                              |   |                            |   |                         |     |       |   |       |   |   |    |   |   | 186     |  
|ESOP shares
  released for allocation(19,050 shares)                              |  |                |    |                                |   | 167                 |   |                  |       |                                              |   |                            |   |                         |     |       |   | 109    |   |   |    |   |   | 276     |  
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  
|Balances at June
  30, 2006                                                       |  | $              | 97  |                                | $ | 58,908              |   | $                | 36,267 |                                              | $ | (11,723                     | ) | $                       | 38   |       | $ | (2,591 | ) | $ |    |   | $ | 80,996  |  
|                                                                                 
|                                                                                  |  |                |     |                                |   |                     |   |                  |        |                                              |   |                             |   |                         |      |       |   |        |   |   |     |   |   |         |  

See
accompanying notes to unaudited condensed consolidated financial statements.

5

---



ROME BANCORP, INC. AND SUBSIDIARYCondensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2006 and 2005
(unaudited) (in thousands)

|                                                                                     |  |      |         |      |   |         |  
|------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|                                                                                     |  | 2006 |         | 2005 |  
|                                                                                     |  |      |         |      |  
|Cash flows from operating activities:                                                |  |      |         |      |   |         |  
|Net income                                                                           |  | $    | 1,669   |      | $ | 1,609   |  
|Adjustments to reconcile net income to net
  cash                                    |  |      |         |      |   |         |  
|Provided by operating activities:                                                    |  |      |         |      |   |         |  
|Depreciation and amortization                                                        |  |      | 268     |      |   | 250     |  
|Increase in accrued interest receivable                                              |  |      | 40      |      |   | 2       |  
|Net gain on securities sold                                                          |  |      | (11     | )    |   | (46     | )
|Provision for loan losses                                                            |  |      | 115     |      |   |        |  
|Loss on disposal of fixed asset                                                      |  |      | 7       |      |   |        |  
|Net accretion on securities                                                          |  |      | (6      | )    |   | (2      | )
|Proceeds from sales of loans                                                         |  |      | 543     |      |   | 293     |  
|Net gain on loans sold                                                               |  |      | (8      | )    |   | (5      | )
|Originations of loans held for sale                                                  |  |      | (535    | )    |   | (288    | )
|Increase (decrease) in other liabilities                                             |  |      | 238     |      |   | (26     | )
|(Increase) decrease in other assets                                                  |  |      | (210    | )    |   | 546     |  
|Allocation of ESOP shares                                                            |  |      | 276     |      |   | 198     |  
|Amortization of unearned compensation                                                |  |      | 53      |      |   | 26      |  
|                                                                                     |  |      |         |      |   |         |  
|Net cash provided by operating activities                                            |  |      | 2,439   |      |   | 2,557   |  
|                                                                                     |  |      |         |      |   |         |  
|                                                                                     |  |      |         |      |   |         |  
|Cash flows from investing activities:                                                |  |      |         |      |   |         |  
|Net increase in loans                                                                |  |      | (2,612  | )    |   | (12,608 | )
|Purchase of Bank owned life insurance                                                |  |      | (8,000  | )    |   |        |  
|Proceeds from sales of securities available
  for sale                               |  |      | 365     |      |   | 679     |  
|Proceeds from maturities and principal
  reductions of securities available for sale |  |      | 4,087   |      |   | 2,912   |  
|Purchases of securities available for
sale                                           |  |      |        |      |   | (1      | )
|Purchases of Federal Home Loan Bank stock                                            |  |      | (37     | )    |   | (175    | )
|Proceeds from maturities and principal
  reductions of securities held to maturity   |  |      | 232     |      |   | 27      |  
|Additions to premises and equipment                                                  |  |      | (709    | )    |   | (384    | )
|                                                                                     |  |      |         |      |   |         |  
|Net cash used in investing activities                                                |  |      | (6,674  | )    |   | (9,550  | )
|                                                                                     |  |      |         |      |   |         |  
|                                                                                     |  |      |         |      |   |         |  
|Cash flows from financing activities:                                                |  |      |         |      |   |         |  
|Increase (decrease) in time deposits                                                 |  |      | 2,790   |      |   | (1,740  | )
|Decrease in other deposits                                                           |  |      | (252    | )    |   | (2,484  | )
|Net proceeds of stock offering and
  conversion                                      |  |      |        |      |   | 55,472  |  
|Repayments of borrowings                                                             |  |      | (497    | )    |   | (11,980 | )
|Additional borrowings                                                                |  |      |        |      |   | 3,000   |  
|Purchase of treasury stock                                                           |  |      | (13,234 | )    |   |        |  
|Dividends paid                                                                       |  |      | (1,385  | )    |   | (834    | )
|Exercise of stock options                                                            |  |      | 186     |      |   | 7       |  
|                                                                                     |  |      |         |      |   |         |  
|Net cash (used in) provided by financing
activities                                  |  |      | (12,392 | )    |   | 41,441  |  
|                                                                                     |  |      |         |      |   |         |  
|                                                                                     |  |      |         |      |   |         |  
|Net (decrease) increase in cash and cash
  equivalents                               |  |      | (16,627 | )    |   | 34,448  |  
|Cash and cash equivalents at beginning of
  period                                   |  |      | 34,235  |      |   | 6,929   |  
|                                                                                     |  |      |         |      |   |         |  
|                                                                                     |  |      |         |      |   |         |  
|Cash and cash equivalents at end of period                                           |  | $    | 17,608  |      | $ | 41,377  |  
|                                                                                     |  |      |         |      |   |         |  

Condensed
Consolidated Statements of Cash Flows continued on next page.

6

---



ROME BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2006 and 2005
(unaudited) (in thousands)

|                                                    |  |      |       |      |  |       | 
|--------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | 
|                                                    |  | 2006 |       | 2005 | 
|                                                    |  |      |       |      | 
|Supplemental
  disclosure of cash flow information: |  |      |       |      |  |       | 
|Non-cash investing activities:                      |  |      |       |      |  |       | 
|Transfer of loans to real estate owned              |  | $    | 54    |      |  |      | 
|Cash paid during the period for:                    |  |      |       |      |  |       | 
|Interest                                            |  |      | 1,639 |      |  | 1,504 | 
|Income taxes                                        |  |      | 925   |      |  | 900   | 

See
accompanying notes to unaudited condensed consolidated financial statements.

7

---



ROME BANCORP, INC.


Notes to
Unaudited Condensed Consolidated Financial Statements


(1) 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, 2006 and December 31, 2005 and for the three and six month periods ended
June 30, 2006 and 2005. 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, 2005 was
derived from the Companys 2005 Annual Report on Form 10-K. 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 2005
consolidated financial statements, including the notes thereto included in the
Companys Annual Report on Form 10-K.

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

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 were 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 $3.1 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 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.

8

---



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, 2006 and 2005.

|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|--------------------------------------------- |  | -------------------------------------------------------------------------------------- | ----- | ---------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                              |  | Three and six months ended
  June 30
  (in thousands, except share and per share data) |      
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|                                              |  | Three months ended                                                                     |       | Six months ended |  
|                                              |  |                                                                                        |       |                  |  
|                                              |  | 2006                                                                                   |       | 2005             |   | 2006  |  | 2005 |      
|                                              |  |                                                                                        |       |                  |   |       |  |      |      
|Basic
  earnings per share:                   |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Income available to common
  shareholders     |  | $                                                                                      | 861   |                  | $ | 970   |  | $    | 1,669 |  | $ | 1,609 | 
|Weighted average basic
  shares outstanding   |  |                                                                                        | 8,766 |                  |   | 9,349 |  |      | 8,996 |  |   | 9,347 | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Basic earnings per share                      |  | $                                                                                      | 0.10  |                  | $ | 0.10  |  | $    | 0.19  |  | $ | 0.17  | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Diluted
  earnings per share:                 |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Income available to common
  shareholders     |  | $                                                                                      | 861   |                  | $ | 970   |  | $    | 1,669 |  | $ | 1,609 | 
|Weighted average basic
  shares outstanding   |  |                                                                                        | 8,766 |                  |   | 9,349 |  |      | 8,996 |  |   | 9,347 | 
|Effect of dilutive
  securities:              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Stock options                                 |  |                                                                                        | 140   |                  |   | 197   |  |      | 154   |  |   | 202   | 
|Unearned compensation                         |  |                                                                                        |      |                  |   | 6     |  |      |      |  |   | 11    | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Weighted average diluted
  shares outstanding |  |                                                                                        | 8,906 |                  |   | 9,552 |  |      | 9,150 |  |   | 9,560 | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 
|Diluted earnings per share                    |  | $                                                                                      | 0.10  |                  | $ | 0.10  |  | $    | 0.18  |  | $ | 0.17  | 
|                                              |  |                                                                                        |       |                  |   |       |  |      |       |  |   |       | 

(4) Other
Comprehensive Income (Loss)

|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  
|------------------------------------------------------------------------------------------ |  | ----------------------------- | --- | --------------------------- | - | ---- | - | ---- | --- | - | - | ---- | -
|                                                                                           |  | Three months ended
  June 30, |     | Six months ended
  June 30, |  
|                                                                                           |  |                               |     |                             |  
|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  
|                                                                                           |  | 2006                          |     | 2005                        |   | 2006 |   | 2005 |    
|                                                                                           |  |                               |     |                             |   |      |   |      |    
|Net change in unrealized loss on
available-for-sale securities
  arising during the period |  | $                             | (53 | )                           | $ | (90  | ) | $    | (89 | ) | $ | (371 | )
|Reclassification adjustment for net realized
gain included in net
  income                 |  |                               |    |                             |   | (17  | ) |      | (11 | ) |   | (46  | )
|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  
|Other comprehensive loss, before tax                                                       |  |                               | (53 | )                           |   | (73  | ) |      | (78 | ) |   | (325 | )
|Deferred tax benefit                                                                       |  |                               | (21 | )                           |   | (29  | ) |      | (31 | ) |   | (130 | )
|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  
|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  
|Other comprehensive
loss                                                                   |  | $                             | (32 | )                           | $ | (44  | ) | $    | (47 | ) | $ | (195 | )
|                                                                                           |  |                               |     |                             |   |      |   |      |     |   |   |      |  

9

---



(5) Securities

Securities
are summarized as follows (in thousands):

|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|-------------------------------- |  | ---------------- | ----- | ----------------- | - | ---------------- |  | ------------ | ----- |  | - | ----- | 
|                                 |  | June 30, 2006    |       | December 31, 2005 |  
|                                 |  |                  |       |                   |  
|                                 |  | Amortized
  Cost |       | Fair
  value      |   | Amortized
  cost |  | Fair
  value |      
|                                 |  |                  |       |                   |   |                  |  |              |      
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Available-for-sale:              |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|U.S. Government
agencies         |  | $                | 577   |                   | $ | 596              |  | $            | 949   |  | $ | 985   | 
|State and Municipal
obligations  |  |                  | 2,480 |                   |   | 2,525            |  |              | 4,506 |  |   | 4,595 | 
|Mortgage-backed securities
FHLMC |  |                  | 400   |                   |   | 400              |  |              | 570   |  |   | 583   | 
|Corporate bonds                  |  |                  | 502   |                   |   | 502              |  |              | 2,008 |  |   | 2,017 | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Total debt
securities            |  |                  | 3,959 |                   |   | 4,023            |  |              | 8,033 |  |   | 8,180 | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Equity and other
securities      |  |                  | 1,137 |                   |   | 1,136            |  |              | 1,491 |  |   | 1,486 | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Total available for
sale         |  | $                | 5,096 |                   | $ | 5,159            |  | $            | 9,524 |  | $ | 9,666 | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Held-to-maturity:                |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|U.S. Government
securities       |  | $                | 1,002 |                   | $ | 994              |  | $            | 1,208 |  | $ | 1,193 | 
|Mortgage-backed
securities       |  |                  |       |                   |   |                 |  |              |      |  |   |       | 
|GNMA                             |  |                  | 34    |                   |   | 36               |  |              | 48    |  |   | 51    | 
|FHLMC                            |  |                  | 3     |                   |   | 3                |  |              | 3     |  |   | 3     | 
|Other bonds                      |  |                  | 163   |                   |   | 163              |  |              | 181   |  |   | 181   | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|Total held to
maturity           |  | $                | 1,202 |                   | $ | 1,196            |  | $            | 1,440 |  | $ | 1,428 | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 
|FHLB Stock                       |  | $                | 813   |                   | $ | 813              |  | $            | 776   |  | $ | 776   | 
|                                 |  |                  |       |                   |   |                  |  |              |       |  |   |       | 

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

Securities pledged at both
June 30, 2006 and December 31, 2005 had a carrying amount of $1.0 million and
$1.1 million, respectively. 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,
  2006 |         | December 31,
  2005 |  
|                                     |  |                 |         |                     |  
|Mortgage loans:                      |  |                 |         |                     |   |         | 
|Residential (1-4 family)             |  | $               | 129,723 |                     | $ | 126,422 | 
|Commercial                           |  |                 | 51,043  |                     |   | 52,748  | 
|Construction and land                |  |                 | 5,501   |                     |   | 3,317   | 
|                                     |  |                 |         |                     |   |         | 
|                                     |  |                 |         |                     |   |         | 
|Total Mortgage loans                 |  |                 | 186,267 |                     |   | 182,487 | 
|                                     |  |                 |         |                     |   |         | 
|Other loans:                         |  |                 |         |                     |   |         | 
|Commercial                           |  |                 | 23,030  |                     |   | 23,832  | 
|Automobile loans                     |  |                 | 18,238  |                     |   | 18,321  | 
|                                     |  |                 |         |                     |   |         | 
|Property improvement and
  equipment |  |                 | 15,339  |                     |   | 15,434  | 
|Other consumer                       |  |                 | 13,549  |                     |   | 13,804  | 
|                                     |  |                 |         |                     |   |         | 
|                                     |  |                 |         |                     |   |         | 
|Total Other loans                    |  |                 | 70,156  |                     |   | 71,391  | 
|                                     |  |                 |         |                     |   |         | 
|                                    
|Total Loans                          |  | $               | 256,423 |                     | $ | 253,878 | 
|                                     |  |                 |         |                     |   |         | 

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

|                                |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|------------------------------- |  | ----------------------------- | ----- | --------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                |  | Three months ended
  June 30, |       | Six months ended
  June 30, |  
|                                |  |                               |       |                             |  
|                                |  | 2006                          |       | 2005                        |   | 2006  |   | 2005 |      
|                                |  |                               |       |                             |   |       |   |      |      
|                                |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|Balance at beginning of period  |  | $                             | 1,958 |                             | $ | 2,021 |   | $    | 1,960 |   | $ | 2,000 |  
|Provision charged to operations |  |                               |      |                             |   |      |   |      | 115   |   |   |      |  
|Loans charged off               |  |                               | (83   | )                           |   | (148  | ) |      | (244  | ) |   | (184  | )
|Recoveries                      |  |                               | 79    |                             |   | 422   |   |      | 123   |   |   | 479   |  
|                                |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|                                |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|Balance at end of period        |  | $                             | 1,954 |                             | $ | 2,295 |   | $    | 1,954 |   | $ | 2,295 |  
|                                |  |                               |       |                             |   |       |   |      |       |   |   |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  Companys recorded investment in loans that are considered impaired totaled
  $333,000 and $211,000 at June 30, 2006 and December 31, 2005, respectively.
  These impaired loans carried allowances of $187,000 at June 30, 2006 and
  $127,000 as of year-end 2005. The average recorded investment in impaired
  loans was $358,000 and $255,000 in the first six months of 2006 and 2005,
  respectively. The Company recognized no interest on impaired loans during the
  six month periods ended June 30, 2006 and 2005.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The
  principal balances of loans not accruing interest amounted to $1.0 million
  and $871,000 at June 30, 2006 and December 31, 2005, respectively. Loans 90
  days past due and accruing interest amounted to                                                                                                                                                                                                                                                                                                                    

11

---



|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                              | $72,000 and
  $75,000 at June 30, 2006 and December 31, 2005, 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 three months ended
  June 30, 2006 and 2005 was $48,800 and $41,100, 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 Compensation
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                              | Effective
  January 1, 2006, the Company adopted the fair value method of accounting
  for share-based compensation arrangements in accordance with Statement of
  Financial Accounting Standards No. 123 (revised 2004), Share-Based
  Payment (FAS 123(R)), using the modified prospective method of transition.
  Under the provisions of FAS 123(R), the estimated fair value of share-based awards
  granted is recognized as compensation expense over the service period. Using
  the modified prospective method, compensation expense is recognized beginning
  with the effective date of adoption of FAS 123(R) for all share-based
  payments (i) granted after the effective date of adoption and (ii) granted
  prior to the effective date of adoption and that remain unvested on the date
  of adoption. The Company had no unvested stock options outstanding at the
  date of adoption.
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                              | Prior to
  January 1, 2006, the Company accounted for share-based employee
  compensation plans using the intrinsic value method of accounting in
  accordance with Accounting Principles Board Opinion No. 25, Accounting
  for Stock Issued to Employees (APB 25), and its related interpretations.
  Under the provisions of APB 25, no compensation expense was recognized when
  stock options were granted with exercise prices equal to or greater than
  market value on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                       
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                              | Prior to the
  adoption of FAS 123(R), the Company presented all tax benefits resulting from
  share-based compensation as cash flows from operating activities in the
  condensed consolidated statements of cash flows. FAS 123(R) requires cash
  flows resulting from tax deductions in excess of the grant-date fair value of
  share-based awards to be included in cash flows from financing activities.
  This tax benefit of $106,000 related to share-based compensation in the first
  half of 2006 has been included in cash flows from financing activities.                                                                                                                                                                                                                                                                                                                                   
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                              | Under the
  modified prospective method of transition, the Company is not required to
  restate its prior period financial statements to reflect disclosures of its
  net income and earnings per share for the prior year period. The following
  table illustrates the effect on net income and earnings per share if the
  Company had applied the fair value recognition provisions of FAS 123 to
  stock-based employee compensation for the three and six months ended June 30,
  2005:                                                                                                                                                                                                                                                                                                                                                                                                               

12

---



|                                                                                                                  |  |                                            |      |            |   |       |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ---- | ---------- | - | ----- | -
|                                                                                                                  |  | Three and six months ended
  June 30, 2005 |     
|                                                                                                                  |  |                                            |     
|                                                                                                                  |  | (in thousands, except per share data)      |     
|                                                                                                                  |  |                                            |      |            |   |       |  
|                                                                                                                  |  | Three Months                               |      | Six Months |  
|                                                                                                                  |  |                                            |      |            |  
|Net income:                                                                                                       |  |                                            |      |            |  
|As reported                                                                                                       |  | $                                          | 970  |            | $ | 1,609 |  
|Add: Stock based compensation
  expense included in net income, net of related tax  expense                       |  |                                            | 8    |            |   | 16    |  
|Deduct: Total stock based
  compensation expense determined under fair value
  method, net of related tax expense |  |                                            | (17  | )          |   | (34   | )
|                                                                                                                  |  |                                            |      |            |   |       |  
|Pro forma                                                                                                         |  | $                                          | 961  |            | $ | 1,591 |  
|                                                                                                                  |  |                                            |      |            |   |       |  
|                                                                                                                  |  |                                            |      |            |   |       |  
|Basic earnings per share:                                                                                         |  |                                            |      |            |   |       |  
|As reported                                                                                                       |  | $                                          | 0.10 |            | $ | 0.17  |  
|Pro forma                                                                                                         |  | $                                          | 0.10 |            | $ | 0.17  |  
|                                                                                                                  |  |                                            |      |            |   |       |  
|Diluted earnings per share:                                                                                       |  |                                            |      |            |   |       |  
|As reported                                                                                                       |  | $                                          | 0.10 |            | $ | 0.17  |  
|Pro forma                                                                                                         |  | $                                          | 0.10 |            | $ | 0.17  |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 24,
  2006, the Companys Board of Directors issued 354,000 stock options to
  directors and key employees with an exercise price equal to the market price
  of the Companys stock on that day. These options have a ten year life and
  vest ratably over a five year period. The fair value of the options granted
  is estimated at grant date using a Black-Scholes option pricing model based
  upon the following assumptions: expected dividend yield 2.45%, expected stock
  price volatility 13.636%, risk free interest rate 5.073% and an expected
  option life of 10 years. As of June 30, 2006, unrecognized compensation cost
  related to these options was $1.0 million. This expense is being amortized on
  a straight line basis over the sixty month vesting period of the options.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Following is
  a summary of the Companys 2006 year to date stock option activity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                         |  |                                |         |                                     |   |                                 |  |   |      | 
|---------------------------------------- |  | ------------------------------ | ------- | ----------------------------------- | - | ------------------------------- |  | - | ---- | 
|                                         |  | Six Months ended June 30, 2006 |        
|                                         |  |                                |        
|                                         |  | (Dollars in thousands)         |        
|                                         |  |                                |        
|                                         |  | Shares                         |         | Weighted
  Average
  Exercise Price |   | Weighted
  Average
  Fair Value | 
|                                         |  |                                |         |                                     |   |                                 | 
|Options outstanding, beginning of period |  |                                | 219,798 |                                     | $ | 2.19                            |  | $ | 0.94 | 
|Exercised                                |  |                                | (36,892 | )                                   |   | 2.19                            |  |   | 0.94 | 
|Granted                                  |  |                                | 354,000 |                                     |   | 12.84                           |  |   | 2.89 | 
|                                         |  |                                |         |                                     |   |                                 |  |   |      | 
|Options outstanding at end of period     |  |                                | 536,906 |                                     | $ | 9.21                            |  | $ | 2.23 | 
|                                         |  |                                |         |                                     |   |                                 |  |   |      | 
|Options exercisable at end of period     |  |                                | 182,906 |                                     | $ | 2.19                            |  | $ | 0.94 | 
|                                         |  |                                |         |                                     |   |                                 |  |   |      | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  aggregate intrinsic value of all options outstanding and exercisable at June
  30, 2006 was $1,975,000. The intrinsic value of options exercised during the
  quarter and six months ended June 30, 2006 was $241,000 and $359,000,
  respectively.                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On May 24,
  2006, the Companys Board of Directors awarded 168,300 shares of restricted
  stock to directors and certain key employees. These shares vest to the
  recipients ratably over a five year period and the related unrecognized
  compensation cost related to this grant will be expensed over the same
  period. At June 30, 2006, the unrecognized compensation cost attributable to
  restricted stock awards was $2.1 million. The aggregate intrinsic value of
  restricted stock that is expected to vest in the future was $2.2 million at
  June 30, 2006.

13

---



|                                                        |                                                                                                                                                                                                                                                                                                
|------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                        | Compensation
  cost for the Companys stock option and restricted stock plans in the 2006
  and 2005 second quarters was $53,000 and $13,000, respectively. For the six
  months ended June 30, 2006 and 2005 compensation cost related to these plans was
  $53,000 and $26,000, respectively.
|                                                        |                                                                                                                                                                                                                                                                                                
|(8) Pension and Postretirement Medical Benefit Expenses
|                                                        |                                                                                                                                                                                                                                                                                                
|                                                        | The
  components of net periodic pension and postretirement benefit cost consisted
  of the following:                                                                                                                                                                                         

|                                         |  |                             |      |                         |   |      |   |      |    |   |   |    | 
|---------------------------------------- |  | --------------------------- | ---- | ----------------------- | - | ---- | - | ---- | -- | - | - | -- | 
|                                         |  | Three months ended June 30, |     
|                                         |  |                             |     
|                                         |  | (in thousands)              |     
|                                         |  | Pension benefits            |      | Postretirement benefits |  
|                                         |  |                             |      |                         |  
|                                         |  | 2006                        |      | 2005                    |   | 2006 |   | 2005 |   
|                                         |  |                             |      |                         |   |      |   |      |   
|Components of net periodic pension cost: |  |                             |      |                         |   |      |   |      |    |   |   |    | 
|Service cost                             |  | $                           |     |                         | $ |     |   | $    | 6  |   | $ | 8  | 
|Interest cost                            |  |                             | 106  |                         |   | 104  |   |      | 34 |   |   | 37 | 
|Expected return on plan assets           |  |                             | (177 | )                       |   | (164 | ) |      |   |   |   |   | 
|Curtailment charge                       |  |                             |     |                         |   |     |   |      |   |   |   |   | 
|Amortization                             |  |                             | 17   |                         |   | 17   |   |      | (2 | ) |   |   | 
|                                         |  |                             |      |                         |   |      |   |      |    |   |   |    | 
|                                         |  |                             |      |                         |   |      |   |      |    |   |   |    | 
|Net periodic pension cost                |  | $                           | (54  | )                       | $ | (43  | ) | $    | 38 |   | $ | 45 | 
|                                         |  |                             |      |                         |   |      |   |      |    |   |   |    | 

|                                         |  |                           |      |                         |   |      |   |      |    |   |   |    | 
|---------------------------------------- |  | ------------------------- | ---- | ----------------------- | - | ---- | - | ---- | -- | - | - | -- | 
|                                         |  | Six months ended June 30, |     
|                                         |  |                           |     
|                                         |  | (in thousands)            |     
|                                         |  | Pension benefits          |      | Postretirement benefits |  
|                                         |  |                           |      |                         |  
|                                         |  | 2006                      |      | 2005                    |   | 2006 |   | 2005 |   
|                                         |  |                           |      |                         |   |      |   |      |   
|Components of net periodic pension cost: |  |                           |      |                         |   |      |   |      |    |   |   |    | 
|Service cost                             |  | $                         |     |                         | $ |     |   | $    | 12 |   | $ | 16 | 
|Interest cost                            |  |                           | 212  |                         |   | 208  |   |      | 68 |   |   | 74 | 
|Expected return on plan assets           |  |                           | (354 | )                       |   | (328 | ) |      |   |   |   |   | 
|Curtailment charge                       |  |                           |     |                         |   |     |   |      |   |   |   |   | 
|Amortization                             |  |                           | 34   |                         |   | 34   |   |      | (4 | ) |   |   | 
|                                         |  |                           |      |                         |   |      |   |      |    |   |   |    | 
|                                        
|Net periodic pension cost                |  | $                         | (108 | )                       | $ | (86  | ) | $    | 76 |   | $ | 90 | 
|                                         |  |                           |      |                         |   |      |   |      |    |   |   |    | 

| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2006, the Company expects to make no contributions to the
  defined benefit pension plan.

14

---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In July 2006, the FASB released Interpretation No.
  48, Accounting for Uncertainty in Income Taxes. This Interpretation revises
  the recognition tests for tax positions taken in tax returns such that a tax
  benefit is recorded only when it is more likely than not that the tax
  position will be allowed upon examination by taxing authorities. The amount
  of such a tax benefit to record is the largest amount that is more likely
  than not to be allowed. Any reduction in deferred tax assets or increase in
  tax liabilities upon adoption will correspondingly reduce retained earnings.
  The Company has not yet determined the effect of adopting this
  Interpretation, which is effective for it on January 1, 2007.

Item 2. Managements
Discussion and Analysis of Financial
Condition and Results of Operations

Forward-Looking Statements

Statements included in this
discussion and in future filings by Rome Bancorp, Inc. (Rome Bancorp or the
Company) with the Securities and Exchange Commission, in Rome Bancorp 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 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 actual results, and could cause Rome Bancorp, Inc.
actual financial performance to differ materially from that expressed in any
forward-looking statement: (1) changes in the real estate market or
local economy, (2) changes in interest rates, (3) changes in laws and
regulations to which we are subject, and (4) competition in our primary market
area. Rome Bancorp 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 Rome
Savings Bank (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 a 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

15

---



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 the second quarter of 2006 was
$861,000, a decrease of 11.2% over the prior years second quarter net income
of $970,000. The significant factors and trends impacting the second quarter of
2006, which are discussed in greater depth below, were as follows:

| |   |                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net interest income increased by $155,000 or 4.6%
  from the same quarter last year as a result of an increase in the yield on
  earning assets, partially offset by an increase in deposit interest expense.
  The Companys net interest margin increased from 4.64% in the second quarter
  of 2005 to 5.02% in the same quarter of 2006.
| |   |                                                                                                                                                                                                                                                                                                                                             
| |  | Non-interest expense increased to $2.6 million in
  the second quarter of 2006 from $2.4 million in the same quarter of the prior
  year, primarily due to higher benefit costs and professional fees.                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                             
| |  | Non-interest income decreased by $116,000 from
  second quarter 2005 levels primarily due to a non-recurring settlement
  received in June of 2005 and a decrease in securities gains, partially offset
  by increased fee revenue.                                                                                                         

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.

The Companys 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 reported on the Companys 2005 Form 10-K
to obtain a better understanding of how our financial performance is reported.

16

---



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 Yields |        
|                                                                                              |  |                                               |        
|                                                                                              |  | For the three months ended June 30, 2006      |         | For the three months ended June 30,
  2005 |  
|                                                                                              |  |                                               |         |                                            |  
|                                                                                              |  | Average
  Balance                             |         | Interest
  Income/
  Expense               |   | Average
  Yield/
  Cost |   | Average
  Balance |      | Interest
  Income/
  Expense |   | Average
  Yield/
  Cost | 
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         | 
|                                                                                              |  | (Dollars in thousands)                        |        
|Assets:                                                                                       |  |                                               |        
|Interest-earning assets:                                                                      |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Loans                                                                                         |  | $                                             | 252,772 |                                            | $ | 4,011                   |   |                   | 6.37 | %                            | $ | 238,903                 |  | $ | 3,658 |   |  | 6.14 | %
|Securities (1)                                                                                |  |                                               | 8,305   |                                            |   | 120                     |   |                   | 5.82 |                              |   | 16,295                  |  |   | 206   |   |  | 5.06 |  
|Federal funds sold & other                                                                    |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Interest bearing deposits                                                                     |  |                                               | 22,795  |                                            |   | 276                     |   |                   | 4.85 |                              |   | 40,559                  |  |   | 281   |   |  | 2.78 |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-earnings assets                                                                |  |                                               | 283,872 |                                            |   | 4,407                   |   |                   | 6.23 |                              |   | 295,757                 |  |   | 4,145 |   |  | 5.62 |  
|Noninterest-earning assets                                                                    |  |                                               | 20,048  |                                            |   |                         |   |                   |      |                              |   | 16,351                  |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total assets                                                                                  |  | $                                             | 303,920 |                                            |   |                         |   |                   |      |                              | $ | 312,108                 |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Liabilities and Shareholders Equity:                                                         |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Interest-bearing liabilities:                                                                 |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Savings accounts                                                                              |  | $                                             | 88,947  |                                            | $ | 166                     |   |                   | 0.75 |                              | $ | 94,872                  |  | $ | 178   |   |  | 0.75 |  
|Time deposits                                                                                 |  |                                               | 68,605  |                                            |   | 569                     |   |                   | 3.32 |                              |   | 67,385                  |  |   | 440   |   |  | 2.62 |  
|Money market accounts                                                                         |  |                                               | 4,934   |                                            |   | 22                      |   |                   | 1.81 |                              |   | 5,814                   |  |   | 10    |   |  | 0.70 |  
|Other interest bearing deposits                                                               |  |                                               | 11,371  |                                            |   | 17                      |   |                   | 0.60 |                              |   | 9,770                   |  |   | 12    |   |  | 0.48 |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-bearing deposits                                                               |  |                                               | 173,857 |                                            |   | 774                     |   |                   | 1.79 |                              |   | 177,841                 |  |   | 640   |   |  | 1.44 |  
|Borrowings                                                                                    |  |                                               | 8,965   |                                            |   | 79                      |   |                   | 3.51 |                              |   | 9,949                   |  |   | 87    |   |  | 3.51 |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-bearing liabilities                                                            |  |                                               | 182,822 |                                            |   | 853                     |   |                   | 1.87 |                              |   | 187,790                 |  |   | 727   |   |  | 1.55 |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Noninterest-bearing deposits                                                                  |  |                                               | 28,258  |                                            |   |                         |   |                   |      |                              |   | 27,618                  |  |   |       |   |  |      |  
|Other liabilities                                                                             |  |                                               | 4,561   |                                            |   |                         |   |                   |      |                              |   | 4,169                   |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total liabilities                                                                             |  |                                               | 215,641 |                                            |   |                         |   |                   |      |                              |   | 219,577                 |  |   |       |   |  |      |  
|Shareholders equity                                                                          |  |                                               | 88,279  |                                            |   |                         |   |                   |      |                              |   | 92,531                  |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total liabilities and shareholders
equity                                                    |  | $                                             | 303,920 |                                            |   |                         |   |                   |      |                              | $ | 312,108                 |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net interest income                                                                           |  |                                               |         |                                            |   | 3,554                   |   |                   |      |                              |   |                         |  |   | 3,418 |   |  |      |  
|Tax equivalent adjustment on securities                                                       |  |                                               |         |                                            |   | (20                     | ) |                   |      |                              |   |                         |  |   | (39   | ) |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net interest income per consolidated financial
  statements                                   |  |                                               |         |                                            | $ | 3,534                   |   |                   |      |                              |   |                         |  | $ | 3,379 |   |  |      |  
|                                                                                              |  |                                               |         |                                            |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net interest rate spread                                                                      |  |                                               |         |                                            |   |                         |   |                   | 4.36 | %                            |   |                         |  |   |       |   |  | 4.07 | %
|Net interest margin                                                                           |  |                                               |         |                                            |   |                         |   |                   | 5.02 | %                            |   |                         |  |   |       |   |  | 4.64 | %
|Ratio of interest-earning assets to
  interest-bearing liabilities                            |  |                                               |         |                                            |   |                         |   |                   | 1.55 | x                            |   |                         |  |   |       |   |  | 1.57 | x
|                                                                                             
|(1)
  Includes tax equivalent adjustment for the Companys
  tax-exempt municipal securities. | 

17

---



|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | ---------------------------------------- | - | ----------------------- | - | ----------------- | ---- | ---------------------------- | - | ----------------------- |  | - | ----- | - |  | ---- | -
|                                                                                            |  | Average Balances, Interest and Average Yields |        
|                                                                                            |  |                                               |        
|                                                                                            |  | For the six months ended June 30, 2006        |         | For the six months ended June 30,
  2005 |  
|                                                                                            |  |                                               |         |                                          |  
|                                                                                            |  | Average
  Balance                             |         | Interest
  Income/
  Expense             |   | Average
  Yield/
  Cost |   | Average
  Balance |      | Interest
  Income/
  Expense |   | Average
  Yield/
  Cost | 
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         | 
|                                                                                            |  | (Dollars in thousands)                        |        
|Assets:                                                                                     |  |                                               |        
|Interest-earning
  assets:                                                                  |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Loans                                                                                       |  | $                                             | 252,539 |                                          | $ | 7,988                   |   |                   | 6.38 | %                            | $ | 236,264                 |  | $ | 7,230 |   |  | 6.12 | %
|Securities (1)                                                                              |  |                                               | 9,968   |                                          |   | 276                     |   |                   | 5.58 |                              |   | 17,063                  |  |   | 421   |   |  | 4.93 |  
|Federal funds sold & other                                                                  |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Interest bearing deposits                                                                   |  |                                               | 25,453  |                                          |   | 576                     |   |                   | 4.56 |                              |   | 23,002                  |  |   | 307   |   |  | 2.67 |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-earnings assets                                                              |  |                                               | 287,960 |                                          |   | 8,840                   |   |                   | 6.19 |                              |   | 276,329                 |  |   | 7,958 |   |  | 5.76 |  
|Noninterest-earning
  assets                                                                |  |                                               | 18,349  |                                          |   |                         |   |                   |      |                              |   | 17,030                  |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total
  assets                                                                              |  | $                                             | 306,309 |                                          |   |                         |   |                   |      |                              | $ | 293,359                 |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Liabilities and Shareholders Equity:                                                       |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Interest-bearing
  liabilities:                                                             |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Savings accounts                                                                            |  | $                                             | 89,358  |                                          | $ | 333                     |   |                   | 0.75 |                              | $ | 98,557                  |  | $ | 356   |   |  | 0.72 |  
|Time deposits                                                                               |  |                                               | 67,501  |                                          |   | 1,076                   |   |                   | 3.22 |                              |   | 67,947                  |  |   | 861   |   |  | 2.53 |  
|Money market accounts                                                                       |  |                                               | 5,154   |                                          |   | 36                      |   |                   | 1.40 |                              |   | 6,795                   |  |   | 29    |   |  | 0.85 |  
|Other interest bearing deposits                                                             |  |                                               | 11,310  |                                          |   | 34                      |   |                   | 0.60 |                              |   | 9,571                   |  |   | 26    |   |  | 0.54 |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-bearing deposits                                                             |  |                                               | 173,323 |                                          |   | 1,479                   |   |                   | 1.72 |                              |   | 182,870                 |  |   | 1,272 |   |  | 1.39 |  
|Borrowings                                                                                  |  |                                               | 9,089   |                                          |   | 159                     |   |                   | 3.53 |                              |   | 13,836                  |  |   | 225   |   |  | 3.25 |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total interest-bearing liabilities                                                          |  |                                               | 182,412 |                                          |   | 1,638                   |   |                   | 1.81 |                              |   | 196,706                 |  |   | 1,497 |   |  | 1.52 |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Noninterest-bearing
  deposits                                                              |  |                                               | 28,041  |                                          |   |                         |   |                   |      |                              |   | 27,406                  |  |   |       |   |  |      |  
|Other
  liabilities                                                                         |  |                                               | 4,898   |                                          |   |                         |   |                   |      |                              |   | 4,238                   |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total liabilities                                                                           |  |                                               | 215,351 |                                          |   |                         |   |                   |      |                              |   | 228,350                 |  |   |       |   |  |      |  
|Shareholders equity                                                                        |  |                                               | 90,958  |                                          |   |                         |   |                   |      |                              |   | 65,009                  |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Total liabilities and shareholders
equity                                                  |  | $                                             | 306,309 |                                          |   |                         |   |                   |      |                              | $ | 293,359                 |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net
  interest income                                                                       |  |                                               |         |                                          |   | 7,202                   |   |                   |      |                              |   |                         |  |   | 6,461 |   |  |      |  
|Tax
  equivalent adjustment on securities                                                   |  |                                               |         |                                          |   | (46                     | ) |                   |      |                              |   |                         |  |   | (80   | ) |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net
  interest income per consolidated financial statements                                 |  |                                               |         |                                          | $ | 7,156                   |   |                   |      |                              |   |                         |  | $ | 6,381 |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|                                                                                            |  |                                               |         |                                          |   |                         |   |                   |      |                              |   |                         |  |   |       |   |  |      |  
|Net
  interest rate spread                                                                  |  |                                               |         |                                          |   |                         |   |                   | 4.38 | %                            |   |                         |  |   |       |   |  | 4.24 | %
|Net
  interest margin                                                                       |  |                                               |         |                                          |   |                         |   |                   | 5.04 | %                            |   |                         |  |   |       |   |  | 4.72 | %
|Ratio
  of interest-earning assets to interest-bearing liabilities                          |  |                                               |         |                                          |   |                         |   |                   | 1.58 | x                            |   |                         |  |   |       |   |  | 1.40 | x
|                                                                                           
|(1) Includes tax equivalent adjustment for the Companys
  tax-exempt municipal securities. | 

18

---



Rate
Volume Analysis  The
following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities.  It shows
the amount of the change in interest income or expense caused by either changes
in outstanding balances (volume) or changes in interest rates.  The effect of a change in volume is measured
by applying the average rate during the first period 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                         |    
|                                     |  |                                              |    
|                                     |  | Three months ended June 30, 2006             |     | Six months ended June 30, 2006             |  
|                                     |  | Compared to Three months ended June 30, 2005 |     | Compared to Six months ended June 30, 2005 |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|                                     |  | Increases (decreases) due to                 |     | Increases (decreases) due to               |  
|                                     |  | Rate                                         |     | Volume                                     |   | Net  |   | Rate |     | Volume |   | Net | 
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     | 
|                                     |  | (in thousands)                               |     | (in thousands)                             |  
|Assets:                              |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Interest-earning
  assets:           |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Loans                                |  | $                                            | 144 |                                            | $ | 209  |   | $    | 353 |        | $ | 268 |  | $ | 490  |   | $ | 758  |  
|Securities (1)                       |  |                                              | 16  |                                            |   | (101 | ) |      | (85 | )      |   | 30  |  |   | (175 | ) |   | (145 | )
|Federal funds
  sold & other         |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Interest bearing
  deposits          |  |                                              | 118 |                                            |   | (123 | ) |      | (5  | )      |   | 236 |  |   | 33   |   |   | 269  |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Total
  interest-earnings assets     |  |                                              | 278 |                                            |   | (15  | ) |      | 263 |        |   | 534 |  |   | 348  |   |   | 882  |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Interest-bearing
  liabilities:      |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Savings accounts                     |  |                                              |    |                                            |   | (11  | ) |      | (11 | )      |   | 10  |  |   | (33  | ) |   | (23  | )
|Time deposits                        |  |                                              | 120 |                                            |   | 8    |   |      | 128 |        |   | 221 |  |   | (6   | ) |   | 215  |  
|Money market
  accounts              |  |                                              | 14  |                                            |   | (2   | ) |      | 12  |        |   | 14  |  |   | (7   | ) |   | 7    |  
|Other interest
  bearing deposits    |  |                                              | 3   |                                            |   | 2    |   |      | 5   |        |   | 3   |  |   | 5    |   |   | 8    |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Total
  interest-bearing deposits    |  |                                              | 137 |                                            |   | (3   | ) |      | 134 |        |   | 248 |  |   | (41  | ) |   | 207  |  
|Borrowings                           |  |                                              |    |                                            |   | (8   | ) |      | (8  | )      |   | 11  |  |   | (77  | ) |   | (66  | )
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Total
  interest-bearing liabilities |  |                                              | 137 |                                            |   | (11  | ) |      | 126 |        |   | 259 |  |   | (118 | ) |   | 141  |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  
|Net change in
  interest income (1)  |  | $                                            | 141 |                                            | $ | (4   | ) | $    | 137 |        | $ | 275 |  | $ | 466  |   | $ | 741  |  
|                                     |  |                                              |     |                                            |   |      |   |      |     |        |   |     |  |   |      |   |   |      |  

(1) Includes tax equivalent
adjustment for the Companys
tax-exempt municipal securities.

Comparison of Financial Condition at June 30, 2006 and
December 31, 2005:

Total
assets at June 30, 2006 were $298.7 million, a decrease of $10.2 million from
$308.9 million at December 31, 2005.
Cash and federal funds decreased by $16.6 million in the first six
months of 2006 from $34.2 million at December 31, 2005 to $17.6 million at June
30, 2006 due to investments in treasury stock and bank owned life insurance.
Securities decreased by $4.7 million from $11.9 million to $7.2 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.

The
Companys loan portfolio increased by $2.5 million, or 1.0%, during the first
half of 2006 from $253.9 million at December 31, 2005 to $256.4 million at June
30, 2006. During the first half of 2006, the Company originated approximately
$22.3 million of loans, as compared to approximately $30.4 million of loans
originated in the same period of 2005. The majority of the loan originations
this year to date has been in the mortgage area. Non-performing loans as a
percentage of total loans increased to 0.42% at June 30, 2006, as compared to
0.37% at December 31, 2005. The allowance for loan losses as a percentage of
total loans was 0.76% and 0.77% at June 30, 2006 and December 31, 2005,
respectively. In addition, the allowance for loan losses as a percent of
non-performing loans was 181.4% at June 30, 2006, compared to 207.0% at
December 31, 2005.

19

---



Total
deposits increased to $204.0 million at June 30, 2006 from $201.5 million at
December 31, 2005.  During the first
half of 2006, balances of time deposits and other interest bearing deposits
increased by $2.8 million, or 4.2%, and $942,000, or 8.5%, respectively. Money
market accounts also increased over the same period by $209,000, or 4.2%.
Savings deposits and non-interest bearing deposits decreased by $1.0 million or
1.1%, and $334,000, or 1.1% respectively, during the first half of 2006.

In
June of 2006, the Company invested in bank owned life insurance covering
certain key employees. This $8.0 million investment is classified as an other
asset, and is the reason for the increase in these assets from $5.3 million at
December 31, 2005 to $13.4 million at June 30, 2006.

Comparison of Operating Results for the Three-Month Periods
Ended June 30, 2006 and 2005

General

During
the three months ended June 30, 2006, the Company recorded net income of
$861,000, compared to $970,000 for the second quarter of 2005.  The decrease in net income is comprised of a
decrease in non-interest income of $116,000 and an increase in non-interest expense
of $194,000, which were partially offset by a $155,000 increase in net interest
income before loan loss provision and a $46,000 decrease in income tax expense.

Diluted
earnings per share were $0.10 per diluted share for the both the three month
periods ended June 30, 2006 and 2005.
Average diluted shares decreased to 8,905,956 for the second quarter of
2006 from 9,551,582 in the same period of 2005 due to the Companys stock
buyback program.

Net Interest Income

Net
interest income before loan loss provision for the quarter ended June 30, 2006
increased by $155,000 or 4.6% as compared to the same quarter of 2005. This
increase is attributable to higher yields earned on the Companys portfolio of
earning assets partially offset by increased interest expense on deposit
accounts.

Interest Income

Interest
income increased to $4.4 million for the quarter ended June 30, 2006 from $4.1
million for the same quarter of 2005.
Average loan balances for the second quarter of 2006 were $252.8
million, an increase of $13.9 million over the average outstanding loans for
the second quarter of 2005. The yield on the Companys loan portfolio for the
quarter ended June 30, 2006 was 6.37% in comparison to a yield of 6.14% for the
same period last year. Interest income on securities declined $67,000 from
$167,000 for the quarter ended June 30, 2005 to $100,000 for the quarter ended
June 30, 2006. Comparatively, the average balance of securities declined by
$8.0 million, or 49.0% from the second quarter of 2005 to $8.3 million for the
current quarter and the yield on the Companys securities increased from 5.06%
to 5.82% for the same periods, respectively. Finally, interest income on
federal funds sold and other interest bearing deposits decreased by $5,000 to
$276,000 for the quarter ended June 30, 2006 from the same quarter in
2005.  Average balances of federal funds
sold decreased by $17.8 million, to $22.8 million at June 30, 2006 from $40.6
million at June 30, 2005, as the Company has continued to invest the proceeds
of its March 30, 2005 stock offering.

Interest Expense

Interest
expense increased to $853,000 in the quarter ended June 30, 2006 from $727,000
for the same quarter of 2005. Interest expense on deposits increased to $774,000
for the quarter ended June 30, 2006 from $640,000 for the quarter ended June
30, 2005, due to rising rates paid on time deposits consistent with current
market rates. Interest expense on borrowed funds decreased to $79,000 for the
quarter ended June 30, 2006 from $87,000 for the comparative quarter of 2005
primarily due to a decrease in the average balance of borrowings to $9.0
million in the current quarter as compared to $9.9 million in the second
quarter of 2005.

20

---



Provision for Loan Losses

The
Company recorded no provision for loan losses in either the second quarter of
2006 or 2005. Asset quality was slightly less favorable at June 30, 2006 than
at December 31, 2005 with non-performing loans as a percent of loans of 0.42%
and the allowance for loan losses as a percent of non-performing loans of
181.4% at June 30, 2006, as compared to 0.37% and 207.0%, respectively, at
December 31, 2005. The allowance for loan losses as a percentage of loans has
remained consistent at 0.76% at June 30, 2006 and 0.77% at December 31, 2005.
During the current quarter, the Company had a minimal level of loan charge-off
activity, leaving the allowance at an appropriate level without the need for an
additional provision. In the quarter ended June 30, 2005, the Company recorded
net recoveries of $274,000, primarily due to the receipt of a large recovery on
a commercial loan that had been charged off in 2000.

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 decreased by $116,000 to $466,000 in the second quarter of 2006 from
$582,000 in the same period of 2005. This decrease is primarily attributable to
the 2005 reimbursement of prior year legal fees expended in relation to the
above referenced loan loss recovery totaling $167,000. In addition, in 2005,
the Company recorded second quarter gains on securities sales totaling $17,000,
while no securities were sold in the quarter ended June 20, 2006. Partially
offsetting these decreases was an increase in customer fee revenue over the
level earned in the same quarter of 2005 and earnings on recently acquired bank
owned life insurance in the amount of $33,000.

Non-interest
expense increased by $194,000 to $2.6 million in the current quarter compared
to $2.4 million in the same period of 2005, primarily due to increased benefit
costs and expenditures related to compliance with Section 404 of the Sarbanes
Oxley Act and strategic planning initiatives.

Income
tax expense for the second quarter of 2006 decreased to $538,000 from $584,000
in the same period of 2005, directly due to the decrease in pre-tax income.

Comparison of Operating Results for the Six-Month Periods
Ended June 30, 2006 and 2005

General

During
the six months ended June 30, 2006, the Company recorded net income of
$1,669,000 compared to $1,609,000 for the first half of 2005.  The increase in net income is comprised of a
$775,000 increase in net interest income before loan loss provision, partially
offset by an increases in loan loss provision of $115,000, non-interest expense
of $350,000, income tax expense of $88,000 and a decrease of $162,000 in
non-interest income.

Diluted
earnings per share were $0.18 per diluted share for the six months ended June
30, 2006 in comparison to $0.17 per diluted share for the same period of 2005.  The increase in earnings per share is
directly attributed to the above referenced increase in year to date net income
and a decrease in average outstanding diluted shares from 9,561,005 to
9,149,750.

21

---



Net Interest Income

Net
interest income before loan loss provision for the six months ended June 30,
2006 increased by $775,000, or 12.1%, as compared to the same period of 2005.
This increase is attributable to growth in the Companys portfolio of earning
assets and net interest margin.

Interest Income

Interest
income increased to $8.8 million for the six months ended June 30, 2006 from
$7.9 million for the same period of 2005.
The increase in interest income was attributable to the growth in the
Companys average earning assets to $288 million for the first half of 2006
from $276 million for the same period of the prior year, and an increase in
overall yields to 6.19% from 5.76% over the same period. Average loan balances
for the first six months of 2006 were $252.5 million, an increase of $16.2
million over the average outstanding loans for the same period of 2005. The
yield on the Companys loan portfolio for the six months ended June 30, 2006
was 6.38% compared to a yield of 6.12% for the same period last year,
reflecting current market trends. Interest income on securities declined
$111,000 from $341,000 for the six months ended June 30, 2005 to $230,000 for
the six months ended June 30, 2006. Comparatively, the average balance of
securities declined by $7.1 million, or 41.5%, from the first half of 2005 to
$10.0 million for the current year to date and the yield on the Companys
securities increased from 4.93% to 5.58% for the same periods, respectively.
Finally, interest income on federal funds sold and other interest bearing
deposits increased by $269,000 to $576,000 for the first half of 2006 from the
same period in 2005 due to increased yields and to a lesser extent, increased
average balances.

Interest Expense

Interest
expense increased to $1.6 million for the first half of 2006 from $1.5 million
for the six months ended June 30, 2005. Interest expense on deposits increased
to $1.5 million for the half ended June 30, 2006 from $1.3 million for the six
months ended June 30, 2005, due to rising rates paid on time deposits
consistent with current market rates. Interest expense on borrowed funds decreased
to $159,000 for the six months ended June 30, 2006 from $225,000 for the
comparative period of 2005 primarily due to a decrease in the average balance
of borrowings to $9.1 million in the current half as compared to $13.8 million
in the six months ended 2005.

Provision for Loan Losses

The
Company recorded a provision for loan losses of $115,000 in the first half of
2006 as compared to no provision for loan losses in the first half of 2005.
Asset quality was slightly less favorable at June 30, 2006, than at year end
2005 with non-performing loans as a percent of loans of 0.42% and the allowance
for loan losses as a percent of non-performing loans of 181.4% at June 30,
2006, compared to 0.37% and 207.0%, respectively at December 31, 2005. The
allowance for loan losses as a percentage of loans has remained consistent at
0.76% at June 30, 2006 and 0.77% at the prior year end. In the quarter ended
June 30, 2005, the Company recorded net recoveries of $274,000, primarily due
to the receipt of a large recovery on a commercial loan that had been charged
off in 2000. Receipt of this recovery prevented the need to record a loan loss
provision in the first half of 2005.

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.

22

---



Non-Interest Income and Non-Interest Expense

Non-interest
income decreased by $162,000 to $890,000 for the first six months of 2006
compared to $1.1 million in the same period of 2005. 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. In addition, the
Company recognized $35,000 less gains on securities sales in the first half of
2006 compared to the same period of 2005, due to a lower level of sales
activity. Partially offsetting these decreases was an increase in customer fee
revenue over the level earned in the same quarter of 2005 and earnings on
recently acquired bank owned life insurance in the amount of $33,000.

Non-interest
expense increased to $5.2 million in the first six months of 2006 compared to
$4.9 million in the same period of 2005, primarily due to higher benefit costs
related to the Companys stock compensation plans and increased expenditures
related to compliance with Section 404 of the Sarbanes Oxley Act and strategic
planning initiatives.

Income
tax expense for the first half of 2006 increased to $1.0 million from $935,000
in the same period of 2005, 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 $31.6 million.
At June 30, 2006, the Bank had no outstanding borrowings on this line of
credit, but did have outstanding advances and amortizing notes totaling $8.9
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.

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, 2006, the
Company originated loans of approximately $22.3 million, compared to $30.4 of
loans originated in the first half of 2005.

At
June 30, 2006, the Company had loan commitments to borrowers of approximately
$16.2 million, and available letters and lines of credit of approximately $14.0
million.

In
June of 2006, the Company invested in bank owned life insurance in the amount
of $8.0 million, covering certain key employees.

Time
deposit accounts scheduled to mature within one year were $45.6 million at June
30, 2006.  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, 2006, the Bank exceeded each of the applicable regulatory capital
requirements.  The Banks leverage (Tier
1) capital at June 30, 2006 was $60.8 million, or 20.42% of adjusted assets. In
order to be

23

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classified as well-capitalized by the OTS, the Bank
is required to have leverage (Tier 1) capital of $14.9 million, or 5.0% of
adjusted assets. To be classified as a well-capitalized bank by the OTS, the
Bank must also have a total risk-based capital ratio of 10.0%. At June 30,
2006, the Bank had a total risk-based capital ratio of 29.0%.

The
Company paid cash dividends of $0.075 per share during the three-month period
ended June 30, 2006 totaling $693,000.

During
the second quarter of 2006, the Companys Board of Directors authorized the
repurchase of 1,383,000 of the Companys outstanding common shares over the
following twelve month period. Since that date and as of the filing of this
report, $13.4 million has been expended to repurchase shares.

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

FASB
Staff Position on FAS No. 115-1 and FAS No. 124-1 (the FSP), The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,
was issued in November 2005 and addresses the determination of when an
investment is considered impaired, whether the impairment is
other-than-temporary, and how to measure an impairment loss. The FSP also
addresses accounting considerations subsequent to the recognition of an
other-than-temporary impairment on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance on
Emerging issues Task Force (EITF) Issue No. 03-1 with references to
existing authoritative literature concerning other-than-temporary
determinations. Under the FSP, losses arising from impairment deemed to be
other-than-temporary, must be recognized in earnings at an amount equal to the
entire difference between the securities cost and its fair value at the
financial statement date, without considering partial recoveries subsequent to
that date. The FSP also required that an investor recognize an other-than-temporary
impairment loss when a decision to sell a security has been made and the
investor does not expect the fair value of the security to fully recover prior
to the expected time of sale. The FSP became effective for reporting periods
beginning after December 15, 2005 and its initial adoption of this
statement had no material impact on the Companys consolidated financial
statements.

In
July 2006, the FASB released Interpretation No. 48, Accounting for Uncertainty
in Income Taxes. This Interpretation revises the recognition tests for tax
positions taken in tax returns such that a tax benefit is recorded only when it
is more likely than not that the tax position will be allowed upon examination
by taxing authorities. The amount of such a tax benefit to record is the
largest amount that is more likely than not to be allowed. Any reduction in
deferred tax assets or increase in tax liabilities upon adoption will
correspondingly reduce retained earnings. The company ahs not yet determined
the effect of adopting this Interpretation, which is effective for it on
January 1, 2007.

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, 2005. For a more complete discussion of the Companys asset and
liability management policies see Managements Discussion and Analysis of
Financial Condition and Results of Operations in the Companys 2005 Form 10-K.

24

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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 to ensure
that information required to be disclosed in the reports the Company files and
submits under the Exchange Act is (i) recorded, processed, summarized and
reported as and when required and (ii) accumulated and communicated to the
Companys management, including the Companys President and Chief Executive
Officer and the Executive Vice President and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

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
  1A. | Risk
  Factors                                                                                                                                                                                                                                                                    
|           |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                       
|           | There have been no material changes to the Companys
  risk factors previously disclosed in the Companys Form 10-K for the year
  ending December 31, 2005.                                                                                                                      
|           |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                       
|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 May 3, 2006. 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 one director
  to serve for a three-year term to expire at the 2009 Annual Meeting. The
  number of votes cast with respect to this matter was as follows:

|             |  |           |  |          |  |                 
|------------ |  | --------- |  | -------- |  | ----------------
|Nominee      |  | For       |  | Withheld |  | Broker Non-votes
|             |  |           |  |          |  |                 
|Dale A Laval |  | 8,706,842 |  | 319,292  |  |                

The
following directors terms continued after the meeting: Kirk B. Hinman, Charles
M. Sprock, Michael J. Valentine, Bruce R. Engelbert, David C. Grow, and T.
Richard Leidig.

25

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| |    |                                                                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Ratification of the appointment of Crowe Chizek and
  Company LLC as the Companys independent registered public accounting firm
  for the fiscal year ending December 31, 2006;

|          |  |           |  |         |  |                 
|--------- |  | --------- |  | ------- |  | ----------------
|For       |  | Withheld  |  | Abstain |  | Broker Non-votes
|          |  |           |  |         |  |                 
|7,828,705 |  | 1,169,269 |  | 28,160  |  |                

| |    |                                                                                                                                  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------
| | 3. | Adoption of the Rome Bancorp, Inc. 2006 Stock Option
  Plan. The number of votes cast with respect to this matter was as follows:

|          |  |          |  |         |  |                 
|--------- |  | -------- |  | ------- |  | ----------------
|For       |  | Withheld |  | Abstain |  | Broker Non-votes
|          |  |          |  |         |  |                 
|5,783,120 |  | 574,712  |  | 45,888  |  |                

| |    |                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | Adoption of the Rome Bancorp, Inc. 2006 Recognition
  and Retention Plan. The number of votes cast with respect to this matter was
  as follows:

|          |  |          |  |         |  |                 
|--------- |  | -------- |  | ------- |  | ----------------
|For       |  | Withheld |  | Abstain |  | Broker Non-votes
|          |  |          |  |         |  |                 
|5,536,391 |  | 820,233  |  | 47,094  |  |                

|          |                    
|--------- | -------------------
|Item
  5. | Other
  Information
|          |                    
|          | None.              
|          |                    
|Item
  6. | Exhibits           

|      |                                                                                                                                     
|----- | ------------------------------------------------------------------------------------------------------------------------------------
|2.1   | Amended and Restated Plan
  of Conversion and Agreement and Plan of Reorganization. (1)                                             
|      |                                                                                                                                     
|3.1   | Certificate of
  Incorporation of New Rome Bancorp, Inc. (1)                                                                        
|      |                                                                                                                                     
|3.2   | Bylaws of New Rome
  Bancorp, Inc. (1)                                                                                              
|      |                                                                                                                                     
|4.1   | Form of Stock Certificate
  of New Rome Bancorp, Inc. (1)                                                                           
|      |                                                                                                                                     
|10.1  | Form of Employee Stock
  Ownership Plan of Rome Bancorp, Inc. (2)                                                                   
|      |                                                                                                                                     
|10.2  | Amendment No. 1 to
  Employee Stock Ownership Plan of Rome Bancorp, Inc. (1)                                                        
|      |                                                                                                                                     
|10.3  | Amendment No. 2 to
  Employee Stock Ownership Plan of Rome Bancorp, Inc. (1)                                                        
|      |                                                                                                                                     
|10.4  | Form of Executive Employment
  Agreement by and between Charles M. Sprock and Rome Bancorp, Inc. (2)                                
|      |                                                                                                                                     
|10.5  | Form of One Year Change in
  Control Agreement by and among certain officers and Rome Bancorp, Inc. and
  The Rome Savings Bank. (1)
|      |                                                                                                                                     
|10.6  | Form of Employment
  Agreement between New Rome Bancorp, Inc. and Charles M. Sprock. (1)                                            
|      |                                                                                                                                     
|10.7  | Form of Employment
  Agreement between The Rome Savings Bank and Charles M. Sprock. (1)                                             
|      |                                                                                                                                     
|10.8  | Rome Bancorp, Inc. 2000
  Stock Option Plan. (3)                                                                                    
|      |                                                                                                                                     
|10.9  | Rome Bancorp, Inc. 2000
  Recognition and Retention Plan. (3)                                                                       
|      |                                                                                                                                     
|10.10 | Amended and Restated
  Benefit Restoration Plan of Rome Bancorp, Inc. (4)                                                           
|      |                                                                                                                                     
|10.11 | Amended and Restated
  Directors Deferred Compensation Plan of Rome Bancorp, Inc. (4)                                              
|      |                                                                                                                                     
|10.12 | Loan Agreement by and
  between the Employee Stock Ownership Plan Trust of Rome Bancorp, Inc. and
  Rome Bancorp, Inc. (5)          
|      |                                                                                                                                     
|10.13 | Amendment No. 3 to the
  Employee Stock Ownership Plan of Rome Bancorp, Inc. (6)                                                    
|      |                                                                                                                                     
|10.14 | Rome Bancorp, Inc. 2006
  Stock Option Plan. (7)                                                                                    

26

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|      |                                                              
|----- | -------------------------------------------------------------
|      |                                                              
|10.15 | Rome Bancorp, Inc. 2006
  Recognition and Retention Plan. (7)
|      |                                                              
|31.1  | Rule 13a-14a/15d-14a
  Certification.                        
|      |                                                              
|31.2  | Rule 13a-14a/15d-14a
  Certification.                        
|      |                                                              
|32.1  | Section 1350
  Certification.                                
|      |                                                              
|32.2  | Section 1350
  Certification.                                

|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Incorporated by reference to Rome Bancorp, Inc.s
  Form S-1 (Registration No. 333-121245), filed with the Commission on December
  14, 2004, as amended.     
|    |                                                                                                                                                               
|(2) | Incorporated by reference to Rome Bancorp, Inc.s
  Form SB-2 (Registration No. 333-80487), filed with the Commission on June 11,
  1999, as amended.         
|    |                                                                                                                                                               
|(3) | Incorporated by reference to Rome Bancorp, Incs
  Proxy Statement on Schedule 14A, filed with the Commission on April 5, 2000
  and amended on April 2, 2001.
|    |                                                                                                                                                               
|(4) | Incorporated by reference to Rome Bancorp, Inc.s
  Form 8-K filed with the Commission on December 27, 2005.                                                  
|    |                                                                                                                                                               
|(5) | Incorporated by reference to Rome Bancorp, Inc.s
  Form 8-K filed with the Commission on March 29, 2005.                                                     
|    |                                                                                                                                                               
|(6) | Incorporated by reference to Rome Bancorp, Inc.s
  Form 8-K filed with the Commission on August 29, 2005.                                                    
|    |                                                                                                                                                               
|(7) | Incorporated by reference to Rome Bancorp, Inc.s
  Proxy statement on Schedule 14A, filed with the Commission on March 29, 2006.                             

27

---



SIGNATURES

Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly 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,
  President and Chief
  Executive Officer
  (Principal Executive
  Officer) |  | August 4, 2006
|                      |  |                                                                                                    | 
|Charles M. Sprock     |  |                                                                                                    | 
|                      |  |                                                                                                    | 
|                      |  |                                                                                                    |  |               
|/s/ David C. Nolan    |  | Executive Vice President
  and Chief Financial
  Officer (Principal
  Financial Officer)           |  | August 4, 2006
|                      |  |                                                                                                    | 
|David C. Nolan        |  |                                                                                                    | 

28

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