UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 September 30,
2009

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 |  | (I.R.S.
 Employer   
|incorporation
 or organization)  |  | Identification
 No.)

100 West Dominick Street, Rome, NY 13440-5810(Address of
Principal executive offices) (315) 336-7300(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 xNo o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes oNo o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated
filer x     Non-accelerated
filer o     Smaller
reporting company o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes oNo 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
 November 5, 2009
|                               |           |                                 
|Common
 Stock, par value $0.01 | 6,879,319

---



ROME BANCORP, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

|         |  |                                                                                       |  |      | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | 
|         |  |                                                                                       |  | PAGE | 
|         |  |                                                                                       |  |      | 
|PART I   |  | FINANCIAL INFORMATION                                                                 |  |      | 
|         |  |                                                                                       |  |      | 
|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 OFOPERATIONS |  | 19   | 
|ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
 RISK                           |  | 29   | 
|ITEM 4.  |  | CONTROLS AND PROCEDURES                                                               |  | 29   | 
|         |  |                                                                                       |  |      | 
|PART II  |  | OTHER INFORMATION                                                                     |  |      | 
|         |  |                                                                                       |  |      | 
|ITEM 1.  |  | LEGAL PROCEEDINGS                                                                     |  | 30   | 
|ITEM 1A. |  | RISK FACTORS                                                                          |  | 30   | 
|ITEM 2.  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
 PROCEEDS                          |  | 30   | 
|ITEM 3.  |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 31   | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 31   | 
|ITEM 5.  |  | OTHER INFORMATION                                                                     |  | 31   | 
|ITEM 6.  |  | EXHIBITS                                                                              |  | 31   | 
|         |  |                                                                                       |  |      | 
|         |  | SIGNATURES                                                                            |  | 33   | 

2

---



PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ROME BANCORP, INC. AND SUBSIDIARY 
Condensed Consolidated Balance Sheet 
September 30, 2009 and December 31, 2008 
(in thousands, except share data) 
(Unaudited)

|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ------------------ | - | ------- | -
|                                                                                                                                                                                                   |  | September 30,
 2009 |         | December 31,
 2008 |  
|                                                                                                                                                                                                   |  |                     |         |                    |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Assets                                                                                                                                                                                             |  |                     |         |                    |   |         |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Cash and due from banks                                                                                                                                                                            |  | $                   | 5,968   |                    | $ | 6,823   |  
|Federal funds sold and other short-term investments                                                                                                                                                |  |                     | 11,154  |                    |   | 2,756   |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total cash and cash equivalents                                                                                                                                                                    |  |                     | 17,122  |                    |   | 9,579   |  
|Securities available for sale, at fair value                                                                                                                                                       |  |                     | 9,374   |                    |   | 3,563   |  
|Securities held to maturity (fair value of $1,518 and $1,561 at
 September 30, 2009 and December 31, 2008,respectively)                                                                            |  |                     | 1,435   |                    |   | 1,447   |  
|Federal Home Loan Bank Stock                                                                                                                                                                       |  |                     | 3,455   |                    |   | 3,578   |  
|Loans                                                                                                                                                                                              |  |                     | 287,571 |                    |   | 300,389 |  
|Less: Allowance for loan loss                                                                                                                                                                      |  |                     | (2,082  | )                  |   | (1,936  | )
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Net loans                                                                                                                                                                                          |  |                     | 285,489 |                    |   | 298,453 |  
|Premises and equipment, net                                                                                                                                                                        |  |                     | 6,121   |                    |   | 6,372   |  
|Accrued interest receivable                                                                                                                                                                        |  |                     | 1,086   |                    |   | 1,085   |  
|Bank-owned life insurance                                                                                                                                                                          |  |                     | 9,312   |                    |   | 9,006   |  
|Other assets                                                                                                                                                                                       |  |                     | 4,641   |                    |   | 4,803   |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total assets                                                                                                                                                                                       |  | $                   | 338,035 |                    | $ | 337,886 |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Liabilities & Equity                                                                                                                                                                               |  |                     |         |                    |   |         |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Liabilities                                                                                                                                                                                        |  |                     |         |                    |   |         |  
|Deposits:                                                                                                                                                                                          |  |                     |         |                    |   |         |  
|Non-interest bearing                                                                                                                                                                               |  | $                   | 31,430  |                    | $ | 28,373  |  
|Savings                                                                                                                                                                                            |  |                     | 82,650  |                    |   | 79,221  |  
|Money market                                                                                                                                                                                       |  |                     | 15,879  |                    |   | 11,996  |  
|Time                                                                                                                                                                                               |  |                     | 72,345  |                    |   | 72,138  |  
|Other interest bearing                                                                                                                                                                             |  |                     | 14,118  |                    |   | 14,204  |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total deposits                                                                                                                                                                                     |  |                     | 216,422 |                    |   | 205,932 |  
|Borrowings                                                                                                                                                                                         |  |                     | 55,639  |                    |   | 66,324  |  
|Other liabilities                                                                                                                                                                                  |  |                     | 5,754   |                    |   | 5,286   |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total liabilities                                                                                                                                                                                  |  |                     | 277,815 |                    |   | 277,542 |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Shareholders
 equity                                                                                                                                                                              |  |                     |         |                    |   |         |  
|Common Stock, $.01 par value; authorized: 30,000,000 shares; issued
 and outstanding 9,895,757 and 6,879,319 shares at September 30, 2009 and
 9,893,716 and 7,058,866 shares at December 31, 2008 |  |                     | 99      |                    |   | 99      |  
|Additional paid-in capital                                                                                                                                                                         |  |                     | 62,684  |                    |   | 62,440  |  
|Retained earnings                                                                                                                                                                                  |  |                     | 37,296  |                    |   | 36,721  |  
|Accumulated other comprehensive income (loss)                                                                                                                                                      |  |                     | (1,912  | )                  |   | (2,212  | )
|Treasury stock 3,016,438 shares at September 30, 2009 and 2,834,850
 shares at December 31, 2008                                                                                                   |  |                     | (36,070 | )                  |   | (34,662 | )
|Unallocated shares of employee stock ownership plan (ESOP): 289,766
 shares at September 30, 2009 and 324,239 shares at December 31, 2008                                                          |  |                     | (1,877  | )                  |   | (2,042  | )
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total shareholders equity                                                                                                                                                                         |  |                     | 60,220  |                    |   | 60,344  |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                         |  | $                   | 338,035 |                    | $ | 337,886 |  
|                                                                                                                                                                                                   |  |                     |         |                    |   |         |  

See accompanying notes to unaudited condensed
consolidated financial statements.

3

---



ROME BANCORP, INC. AND SUBSIDIARY 
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2009 and 2008 
(in thousands, except share data) 
(unaudited)

|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|--------------------------------------------------- |  | ----------------------------------------- | ----- | ---------------------------------------- | - | ----- |  | ---- | ------ |  | - | ------ | 
|                                                    |  | For the three months ended
 September 30, |       | For the nine months ended
 September 30, |  
|                                                    |  |                                           |       |                                          |  
|                                                    |  | 2009                                      |       | 2008                                     |   | 2009  |  | 2008 |       
|                                                    |  |                                           |       |                                          |   |       |  |      |       
|                                                    |  |                                           |       |                                          |   |       |  |      |       
|Interest income:                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Loans                                               |  | $                                         | 4,148 |                                          | $ | 4,397 |  | $    | 12,626 |  | $ | 13,130 | 
|Securities                                          |  |                                           | 157   |                                          |   | 96    |  |      | 362    |  |   | 265    | 
|Other short-term investments                        |  |                                           | 4     |                                          |   | 6     |  |      | 8      |  |   | 21     | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Total interest income                               |  |                                           | 4,309 |                                          |   | 4,499 |  |      | 12,996 |  |   | 13,416 | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Interest expense:                                   |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Deposits                                            |  |                                           | 586   |                                          |   | 813   |  |      | 1,900  |  |   | 2,566  | 
|Borrowings                                          |  |                                           | 466   |                                          |   | 410   |  |      | 1,359  |  |   | 1,131  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Total interest expense                              |  |                                           | 1,052 |                                          |   | 1,223 |  |      | 3,259  |  |   | 3,697  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Net interest income                                 |  |                                           | 3,257 |                                          |   | 3,276 |  |      | 9,737  |  |   | 9,719  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Provision for loan losses                           |  |                                           |      |                                          |   | 100   |  |      | 200    |  |   | 100    | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Net interest income after provision for loan losses |  |                                           | 3,257 |                                          |   | 3,176 |  |      | 9,537  |  |   | 9,619  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Non-interest income:                                |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Net gain on securities transactions                 |  |                                           | 26    |                                          |   |      |  |      | 26     |  |   |       | 
|Other                                               |  |                                           | 639   |                                          |   | 609   |  |      | 1,806  |  |   | 1,700  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Total non-interest income                           |  |                                           | 665   |                                          |   | 609   |  |      | 1,832  |  |   | 1,700  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Non-interest expense:                               |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Salaries and employee benefits                      |  |                                           | 1,497 |                                          |   | 1,442 |  |      | 4,594  |  |   | 4,459  | 
|Building, occupancy and equipment                   |  |                                           | 465   |                                          |   | 485   |  |      | 1,434  |  |   | 1,451  | 
|Other                                               |  |                                           | 592   |                                          |   | 615   |  |      | 1,982  |  |   | 1,957  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Total non-interest expense                          |  |                                           | 2,554 |                                          |   | 2,542 |  |      | 8,010  |  |   | 7,867  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Income before income tax expense                    |  |                                           | 1,368 |                                          |   | 1,243 |  |      | 3,359  |  |   | 3,452  | 
|Income tax expense                                  |  |                                           | 460   |                                          |   | 428   |  |      | 1,096  |  |   | 1,157  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Net income                                          |  | $                                         | 908   |                                          | $ | 815   |  | $    | 2,263  |  | $ | 2,295  | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Basic earnings per share                            |  | $                                         | 0.14  |                                          | $ | 0.11  |  | $    | 0.34   |  | $ | 0.32   | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 
|Diluted earnings per share                          |  | $                                         | 0.14  |                                          | $ | 0.11  |  | $    | 0.34   |  | $ | 0.32   | 
|                                                    |  |                                           |       |                                          |   |       |  |      |        |  |   |        | 

See accompanying notes to
unaudited condensed consolidated financial statements.

4

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ROME BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Shareholders Equity and
Comprehensive Income
For the Nine Months Ended September 30, 2009 and 2008
(in thousands, except share and per share data)(unaudited)

|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|-------------------------------------------------------------------------- |  | ------------ | -- | -------------------------- | - | ----------------- |  | -------------- | ------ | --------------------------------------------- | - | ----------------------- | - | ----- | ------ | - | - | ------ | - | - | ------ | -
|                                                                           |  | Common
stock |    | Additional
Paid-in
Capital |   | Retained
earnings |  | Treasury
Stock |        | Accumulated
other
comprehensive
Income (loss) |   | Unallocated
ESOP
shares |   | Total |       
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |       
|Balances at January 1, 2008                                                |  | $            | 99 |                            | $ | 61,884            |  | $              | 36,179 |                                               | $ | (26,488                 | ) | $     | (376   | ) | $ | (2,261 | ) | $ | 69,037 |  
|Comprehensive
income:                                                      |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Net Income                                                                 |  |              |   |                            |   |                  |  |                | 2,295  |                                               |   |                        |   |       |       |   |   |       |   |   | 2,295  |  
|Other comprehensive income                                                 |  |              |   |                            |   |                  |  |                |        |                                               |   |                        |   |       | 31     |   |   |       |   |   | 31     |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Total comprehensive income                                                 |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   | 2,326  |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Purchase of 645,550 treasury shares                                        |  |              |   |                            |   |                  |  |                |       |                                               |   | (7,341                  | ) |       |       |   |   |       |   |   | (7,341 | )
|Effect of changing pension plan measurement
date pursuant to ASC Topic 715 |  |              |   |                            |   |                  |  |                | 48     |                                               |   |                        |   |       |       |   |   |       |   |   | 48     |  
|Amortization of unearned compensation                                      |  |              |   |                            |   | 205               |  |                |       |                                               |   |                        |   |       |       |   |   |       |   |   | 205    |  
|Dividends paid ($0.255 per share)                                          |  |              |   |                            |   |                  |  |                | (1,812 | )                                             |   |                        |   |       |       |   |   |       |   |   | (1,812 | )
|ESOP shares released for allocation (34,473
shares)                        |  |              |   |                            |   | 222               |  |                |       |                                               |   |                        |   |       |       |   |   | 164    |   |   | 386    |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Balances at September 30, 2008                                             |  | $            | 99 |                            | $ | 62,311            |  | $              | 36,710 |                                               | $ | (33,829                 | ) | $     | (345   | ) | $ | (2,097 | ) | $ | 62,849 |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Balances at
January 1, 2009                                                |  | $            | 99 |                            | $ | 62,440            |  | $              | 36,721 |                                               | $ | (34,662                 | ) | $     | (2,212 | ) | $ | (2,042 | ) | $ | 60,344 |  
|Comprehensive
income:                                                      |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Net Income                                                                 |  |              |   |                            |   |                  |  |                | 2,263  |                                               |   |                        |   |       |       |   |   |       |   |   | 2,263  |  
|Other comprehensive income                                                 |  |              |   |                            |   |                  |  |                |       |                                               |   |                        |   |       | 300    |   |   |       |   |   | 300    |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Total comprehensive income                                                 |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   | 2,563  |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Purchase of 181,588 treasury shares                                        |  |              |   |                            |   |                  |  |                |       |                                               |   | (1,408                  | ) |       |       |   |   |       |   |   | (1,408 | )
|Amortization and tax effect of unearned
compensation                       |  |              |   |                            |   | 120               |  |                |       |                                               |   |                        |   |       |       |   |   |       |   |   | 120    |  
|Dividends paid ($0.255 per share)                                          |  |              |   |                            |   |                  |  |                | (1,688 | )                                             |   |                        |   |       |       |   |   |       |   |   | (1,688 | )
|ESOP shares released for allocation (34,473
shares)                        |  |              |   |                            |   | 124               |  |                |       |                                               |   |                        |   |       |       |   |   | 165    |   |   | 289    |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  
|Balances at
September 30, 2009                                             |  | $            | 99 |                            | $ | 62,684            |  | $              | 37,296 |                                               | $ | (36,070                 | ) | $     | (1,912 | ) | $ | (1,877 | ) | $ | 60,220 |  
|                                                                           |  |              |    |                            |   |                   |  |                |        |                                               |   |                         |   |       |        |   |   |        |   |   |        |  

See accompanying notes to
unaudited condensed consolidated financial statements.

5

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ROME BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008
(unaudited) (in thousands)

|                                                                                                       |  |      |         |      |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|                                                                                                       |  | 2009 |         | 2008 |  
|                                                                                                       |  |      |         |      |  
|Cash flows from operating
          activities:                                                        |  |      |         |      |   |         |  
|Net
          income                                                                                   |  | $    | 2,263   |      | $ | 2,295   |  
|Adjustments
          to reconcile net income to net cash                                              |  |      |         |      |   |         |  
|Provided
          by operating activities:                                                            |  |      |         |      |   |         |  
|Depreciation
          and amortization                                                                |  |      | 385     |      |   | 432     |  
|(Increase)
          decrease in accrued interest receivable                                           |  |      | (1      | )    |   | 51      |  
|Provision
          for loan losses                                                                    |  |      | 200     |      |   | 100     |  
|Net
          amortization on securities                                                               |  |      | (2      | )    |   | 2       |  
|Proceeds
          from sales of loans                                                                 |  |      | 7,325   |      |   | 861     |  
|Net
          gain on loans sold                                                                       |  |      | (119    | )    |   | (13     | )
|Originations
          of loans held for sale                                                          |  |      | (7,206  | )    |   | (848    | )
|(Gain)
          loss on sale of other real estate                                                     |  |      | (2      | )    |   | 3       |  
|Gain
          on securities transactions                                                              |  |      | (26     | )    |   |        |  
|Increase
          (decrease) in other liabilities                                                     |  |      | 468     |      |   | (148    | )
|Increase
          in cash surrender value of life insurance                                           |  |      | (306    | )    |   | (302    | )
|Increase
          in other assets                                                                     |  |      | (145    | )    |   | (228    | )
|Allocation
          of ESOP shares                                                                    |  |      | 289     |      |   | 386     |  
|Amortization
          of unearned compensation                                                        |  |      | 171     |      |   | 205     |  
|                                                                                                       |  |      |         |      |   |         |  
|Net
          cash provided by operating activities                                                    |  |      | 3,294   |      |   | 2,796   |  
|                                                                                                       |  |      |         |      |   |         |  
|                                                                                                       |  |      |         |      |   |         |  
|Cash flows from investing
          activities:                                                        |  |      |         |      |   |         |  
|Net
          decrease (increase) in loans                                                             |  |      | 12,572  |      |   | (14,108 | )
|Proceeds
          from sale of securities available for sale                                          |  |      | 470     |      |   |        |  
|Proceeds
          from maturities and principal reductions of securities available for
          sale |  |      | 1,149   |      |   | 752     |  
|Purchases
          of securities available for sale                                                   |  |      | (7,177  | )    |   | (2,010  | )
|Redemption
          (purchases) of Federal Home Loan Bank stock                                       |  |      | 123     |      |   | (914    | )
|Purchases
          of securities held to maturity                                                     |  |      |        |      |   | (326    | )
|Proceeds
          from maturities and principal reductions of securities held to maturity             |  |      | 7       |      |   | 18      |  
|Proceeds
          from sale of real estate owned                                                      |  |      | 525     |      |   | 94      |  
|Additions
          to premises and equipment                                                          |  |      | (129    | )    |   | (342    | )
|                                                                                                       |  |      |         |      |   |         |  
|Net
          cash provided by (used in) investing activities                                          |  |      | 7,540   |      |   | (16,836 | )
|                                                                                                       |  |      |         |      |   |         |  
|                                                                                                       |  |      |         |      |   |         |  
|Cash flows from financing activities:                                                                  |  |      |         |      |   |         |  
|Increase
          in time deposits                                                                    |  |      | 207     |      |   | (1,114  | )
|Increase
          in other deposits                                                                   |  |      | 10,283  |      |   | 5,803   |  
|Repayments
          of borrowings                                                                     |  |      | (24,304 | )    |   | (802    | )
|Additional
          borrowings                                                                        |  |      | 13,619  |      |   | 20,200  |  
|Purchase
          of treasury stock                                                                   |  |      | (1,408  | )    |   | (7,341  | )
|Dividends
          paid                                                                               |  |      | (1,688  | )    |   | (1,812  | )
|                                                                                                       |  |      |         |      |   |         |  
|Net
          cash (used in) provided by financing activities                                          |  |      | (3,291  | )    |   | 14,934  |  
|                                                                                                       |  |      |         |      |   |         |  
|                                                                                                       |  |      |         |      |   |         |  
|Net increase in cash and cash equivalents                                                              |  |      | 7,543   |      |   | 894     |  
|Cash and cash equivalents
          at beginning of period                                             |  |      | 9,579   |      |   | 8,018   |  
|                                                                                                       |  |      |         |      |   |         |  
|Cash and cash equivalents at end of period                                                             |  | $    | 17,122  |      | $ | 8,912   |  
|                                                                                                       |  |      |         |      |   |         |  

Condensed Consolidated
Statements of Cash Flows continued on next page.

6

---



ROME
BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008
(unaudited) (in thousands)

|                                                   |  |      |       |      |   |       | 
|-------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | 
|                                                   |  | 2009 |       | 2008 |  
|                                                   |  |      |       |      |  
|Supplemental
 disclosure of cash flow information: |  |      |       |      |   |       | 
|Non-cash investing activities:                     |  |      |       |      |   |       | 
|Transfers from loans to other real estate          |  | $    | 192   |      | $ | 174   | 
|Cash paid during the period for:                   |  |      |       |      |   |       | 
|Interest                                           |  |      | 3,227 |      |   | 3,611 | 
|Income taxes                                       |  |      | 719   |      |   | 1,100 | 

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
September 30, 2009 and December 31, 2008 and for the three and nine month
periods ended September 30, 2009 and 2008. 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. Management has evaluated all significant events and
transactions that occurred after September 30, 2009 through November 5, 2009
(financial statement issuance date), for potential recognition or disclosure in
these condensed consolidated financial statements.

The data in
the condensed consolidated balance sheet for December 31, 2008 was derived from
the Companys 2008 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 2008 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) Earnings
per Common Share

The Company
has stock compensation awards with non-forfeitable dividend rights which are
considered participating securities. As such, earnings per share is computed
using the two-class method as required by FASB Accounting Standards
Codification (ASC) Topic 260-10, Earnings per Share. Basic earnings per
common share is computed by dividing net income allocated to common stock by
the weighted average number of common shares outstanding during the period
which excludes the participating securities. ESOP shares are considered
outstanding for this calculation unless unearned. Diluted earnings per common
share includes the dilutive effect of additional potential common shares from
stock-based compensation plans, but excludes awards considered participating
securities.

The following
summarizes the computation of earnings per share for the three and nine month
periods ended September 30, 2009 and 2008.

8

---



|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | --------------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                                                                  |  | (in
 thousands, except share and per share data) |          
|                                                                                                  |  |                                                  |          
|                                                                                                  |  | Three months ended 
 September 30,               |           | Nine months ended 
 September 30, |  
|                                                                                                  |  |                                                  |           |                                   |  
|                                                                                                  |  | 2009                                             |           | 2008                              |   | 2009      |   | 2008 |          
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |          
|Basic earnings per share:                                                                         |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Distributed earnings allocated
 to common stock                                                   |  | $                                                | 551       |                                   | $ | 578       |   | $    | 1,668     |   | $ | 1,782     |  
|Undistributed earnings
 allocated to common stock                                                 |  |                                                  | 348       |                                   |   | 191       |   |      | 569       |   |   | 474       |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Net earnings allocated to
 common stock                                                           |  | $                                                | 899       |                                   | $ | 769       |   | $    | 2,237     |   | $ | 2,256     |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Weighted average common shares
 outstanding, including shares considered participating securities |  |                                                  | 6,946,764 |                                   |   | 7,224,868 |   |      | 7,002,420 |   |   | 7,431,910 |  
|Less: Unallocated ESOP shares                                                                     |  |                                                  | (301,257  | )                                 |   | (347,221  | ) |      | (312,664  | ) |   | (358,628  | )
|Less: Average participating
 securities                                                           |  |                                                  | (67,320   | )                                 |   | (100,980  | ) |      | (85,198   | ) |   | (118,916  | )
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Weighted average shares                                                                           |  |                                                  | 6,578,187 |                                   |   | 6,776,667 |   |      | 6,604,558 |   |   | 6,954,366 |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Basic earnings per common share                                                                   |  | $                                                | 0.14      |                                   | $ | 0.11      |   | $    | 0.34      |   | $ | 0.32      |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Diluted earnings per share:                                                                       |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Net earnings allocated to
 common stock                                                           |  | $                                                | 899       |                                   | $ | 769       |   | $    | 2,237     |   | $ | 2,256     |  
|Weighted average common shares
 outstanding for basic earnings per common share                   |  |                                                  | 6,578,187 |                                   |   | 6,776,667 |   |      | 6,604,558 |   |   | 6,954,366 |  
|Add: Dilutive effects of
 assumed exercises of common stock                                       |  |                                                  | 0         |                                   |   | 2,164     |   |      | 65        |   |   | 3,199     |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Weighted average shares and
 dilutive potential common shares                                     |  |                                                  | 6,578,187 |                                   |   | 6,778,831 |   |      | 6,604,623 |   |   | 6,957,565 |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  
|Diluted earnings per common share                                                                 |  | $                                                | 0.14      |                                   | $ | 0.11      |   | $    | 0.34      |   | $ | 0.32      |  
|                                                                                                  |  |                                                  |           |                                   |   |           |   |      |           |   |   |           |  

| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stock options for 354,000
 shares of common stock were not considered in computing diluted earnings per
 common share for the three and nine months ended September 30, 2009 and 2008
 because they were antidilutive.

(3) Other
Comprehensive Income (Loss)

|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  
|------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ----- | ---------------------------------- | - | ---- |  | ---- | ----- | - | - | ----- | -
|                                                                                                 |  | Three
 months ended 
 September 30, |       | Nine
 months ended 
 September 30, |  
|                                                                                                 |  |                                     |       |                                    |  
|                                                                                                 |  | (in thousands)                      |      
|                                                                                                 |  |                                     |      
|                                                                                                 |  | 2009                                |       | 2008                               |   | 2009 |  | 2008 |      
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |      
|Pension and postretirement adjustments                                                           |  | $                                   | 94    |                                    | $ |     |  | $    | 282   |   | $ | 130   |  
|Net change in unrealized gain
 (loss) on available-for-sale securities arising during the period |  |                                     | 180   |                                    |   | 20   |  |      | 244   |   |   | (78   | )
|Reclassification adjustment for
 net realized gain included in net income                        |  |                                     | (26   | )                                  |   |     |  |      | (26   | ) |   |      |  
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  
|Other comprehensive income,
 before tax                                                          |  |                                     | 248   |                                    |   | 20   |  |      | 500   |   |   | 52    |  
|Deferred tax expense                                                                             |  |                                     | 99    |                                    |   | 8    |  |      | 200   |   |   | 21    |  
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  
|Other comprehensive income                                                                       |  |                                     | 149   |                                    |   | 12   |  |      | 300   |   |   | 31    |  
|Net income                                                                                       |  |                                     | 908   |                                    |   | 815  |  |      | 2,263 |   |   | 2,295 |  
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  
|Total comprehensive income                                                                       |  | $                                   | 1,057 |                                    | $ | 827  |  | $    | 2,563 |   | $ | 2,326 |  
|                                                                                                 |  |                                     |       |                                    |   |      |  |      |       |   |   |       |  

9

---



(4) Securities

| |                                                     
| | ----------------------------------------------------
| | Securities are summarized as follows (In thousands):

|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|------------------------------- |  | ------------------ | ----- | -------------------------- | - | --------------------------- |  | ------------ | -- |  | - | ----- | 
|                                |  |                    |      
|                                |  | September 30, 2009 |      
|                                |  |                    |      
|                                |  | Amortized 
 Cost   |       | Gross 
 unrealized 
 gains |   | Gross 
 unrealized 
 losses |  | Fair 
 value |   
|                                |  |                    |       |                            |   |                             |  |              |   
|Available-for-sale:             |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|State and municipal obligations |  | $                  | 2,294 |                            | $ | 144                         |  | $            |   |  | $ | 2,438 | 
|Corporate obligations           |  |                    | 5,945 |                            |   | 100                         |  |              | 41 |  |   | 6,004 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Total debt securities           |  |                    | 8,239 |                            |   | 244                         |  |              | 41 |  |   | 8,442 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Equity and other securities     |  |                    | 872   |                            |   | 60                          |  |              |   |  |   | 932   | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  | $                  | 9,111 |                            | $ | 304                         |  | $            | 41 |  | $ | 9,374 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Held-to-maturity:               |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|U.S. Government securities      |  | $                  | 1,317 |                            | $ | 83                          |  | $            |   |  | $ | 1,400 | 
|Mortgage-backed securities:     |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|GNMA                            |  |                    | 3     |                            |   |                            |  |              |   |  |   | 3     | 
|Other bonds                     |  |                    | 115   |                            |   |                            |  |              |   |  |   | 115   | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  | $                  | 1,435 |                            | $ | 83                          |  | $            |   |  | $ | 1,518 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  |                    |      
|                                |  | December 31, 2008  |      
|                                |  |                    |      
|                                |  | Amortized 
 Cost   |       | Gross 
 unrealized 
 gains |   | Gross 
 Unrealized 
 Losses |  | Fair 
 value |   
|                                |  |                    |       |                            |   |                             |  |              |   
|Available-for-sale:             |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|State and municipal obligations |  | $                  | 2,620 |                            | $ | 52                          |  | $            | 9  |  | $ | 2,663 | 
|Mortgage-backed securities      |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|FNMA                            |  |                    | 4     |                            |   |                            |  |              |   |  |   | 4     | 
|FHLMC                           |  |                    | 24    |                            |   |                            |  |              |   |  |   | 24    | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Total debt securities           |  |                    | 2,648 |                            |   | 52                          |  |              | 9  |  |   | 2,691 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Equity and other securities     |  |                    | 872   |                            |   |                            |  |              |   |  |   | 872   | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  | $                  | 3,520 |                            | $ | 52                          |  | $            | 9  |  | $ | 3,563 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|Held-to-maturity:               |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|U.S. Government securities      |  | $                  | 1,322 |                            | $ | 114                         |  | $            |   |  | $ | 1,436 | 
|Mortgage-backed securities      |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|GNMA                            |  |                    | 7     |                            |   |                            |  |              |   |  |   | 7     | 
|Other bonds                     |  |                    | 118   |                            |   |                            |  |              |   |  |   | 118   | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 
|                                |  | $                  | 1,447 |                            | $ | 114                         |  | $            |   |  | $ | 1,561 | 
|                                |  |                    |       |                            |   |                             |  |              |    |  |   |       | 

All of the gross unrealized losses on available for sale securities at
both September 30, 2009 and December 31, 2009 were less than one year in
duration. The detail of these losses and the carrying value (at estimated fair
value) of the underlying securities available for sale are summarized below (in
thousands):

|                                |  |                    |    |                   |   |                    |  |                  |   |  |   |     | 
|------------------------------- |  | ------------------ | -- | ----------------- | - | ------------------ |  | ---------------- | - |  | - | --- | 
|                                |  | September 30, 2009 |    | December 31, 2008 |  
|                                |  |                    |    |                   |  
|                                |  | Unrealized
 
 Loss |    | Carrying 
 Value  |   | Unrealized
 
 Loss |  | Carrying 
 Value |  
|                                |  |                    |    |                   |   |                    |  |                  |  
|One year or
 less:              |  |                    |    |                   |   |                    |  |                  |   |  |   |     | 
|Corporate obligations           |  | $                  | 41 |                   | $ | 1,752              |  | $                |  |  | $ |    | 
|State and municipal obligations |  |                    |   |                   |   |                   |  |                  | 9 |  |   | 995 | 
|                                |  |                    |    |                   |   |                    |  |                  |   |  |   |     | 
|Total                           |  | $                  | 41 |                   | $ | 1,752              |  | $                | 9 |  | $ | 995 | 
|                                |  |                    |    |                   |   |                    |  |                  |   |  |   |     | 

10

---



Management
evaluates securities for other than temporary impairment at least on a
quarterly basis, and more frequently when economic or market conditions warrant
such an evaluation. Included in the Companys equity securities is an
investment in a mutual fund which purchases blue chip common stocks. The
downturn in the equity markets during 2008 caused a decrease in the market
value of such fund. During the fourth quarter of 2008, in connection with its
ongoing review of long term asset values, the Company determined that this
investment had been other than temporarily impaired, as defined by generally
accepted accounting principles. Accordingly, an impairment charge of $265,000
(pre-tax) was recorded to lower the carrying value of this security to the fair
value of $472,000. There were no investments deemed by management to be other
than temporarily impaired at September 30, 2009.

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

|                                        |  |                    |       |             |   |       | 
|--------------------------------------- |  | ------------------ | ----- | ----------- | - | ----- | 
|                                        |  | September 30, 2009 |      
|                                        |  |                    |      
|                                        |  | Amortized
 Cost    |       | Fair
 Value |  
|                                        |  |                    |       |             |  
|Available-for-sale:                     |  |                    |       |             |   |       | 
|Due within one year                     |  | $                  | 1,040 |             | $ | 1,046 | 
|Due after one year through five
 years  |  |                    | 5,908 |             |   | 5,988 | 
|Due after five years through
 ten years |  |                    | 1,271 |             |   | 1,386 | 
|Due after 10 years                      |  |                    | 20    |             |   | 22    | 
|                                        |  |                    |       |             |   |       | 
|                                        |  | $                  | 8,239 |             | $ | 8,442 | 
|                                        |  |                    |       |             |   |       | 
|                                        |  |                    |       |             |   |       | 
|Held-to-maturity:                       |  |                    |       |             |   |       | 
|Due within one year                     |  | $                  | 3     |             |   | 3     | 
|Due after one year through five
 years  |  |                    | 1,317 |             |   | 1,400 | 
|Due after five years through
 ten years |  |                    |      |             |   |      | 
|Due after ten years                     |  |                    | 115   |             |   | 115   | 
|                                        |  |                    |       |             |   |       | 
|                                        |  | $                  | 1,435 |             | $ | 1,518 | 
|                                        |  |                    |       |             |   |       | 

Securities
pledged at both September 30, 2009 and December 31, 2008 had a carrying amount
of $1.3 million. These securities collateralize state and Treasury department
programs. As of these dates, there were no holdings of securities of any one
issuer in an amount greater than 10% of shareholders equity.

11

---



|    |                                 
|--- | --------------------------------
|(5) | Loans                           
|    |                                 
|    | Loans are summarized as follows:

|                                   |  |                    |         |                    |   |         | 
|---------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | 
|                                   |  | September 30, 2009 |         | December 31,
 2008 |  
|                                   |  |                    |         |                    |  
|                                   |  | (in thousands)     |        
|Mortgage
 loans:                   |  |                    |         |                    |   |         | 
|Residential (1-4 family)           |  | $                  | 157,541 |                    | $ | 170,197 | 
|Commercial                         |  |                    | 51,739  |                    |   | 49,231  | 
|Construction and land              |  |                    | 2,754   |                    |   | 5,827   | 
|                                   |  |                    |         |                    |   |         | 
|                                   |  |                    |         |                    |   |         | 
|Total Mortgage loans               |  |                    | 212,034 |                    |   | 225,255 | 
|                                   |  |                    |         |                    |   |         | 
|Other
 loans:                      |  |                    |         |                    |   |         | 
|Commercial                         |  |                    | 30,199  |                    |   | 28,472  | 
|Automobile loans                   |  |                    | 9,904   |                    |   | 12,927  | 
|Property improvement and equipment |  |                    | 19,062  |                    |   | 17,459  | 
|Other consumer                     |  |                    | 16,372  |                    |   | 16,276  | 
|                                   |  |                    |         |                    |   |         | 
|                                   |  |                    |         |                    |   |         | 
|Total Other loans                  |  |                    | 75,537  |                    |   | 75,134  | 
|                                   |  |                    |         |                    |   |         | 
|                                   |  |                    |         |                    |   |         | 
|Total Loans                        |  | $                  | 287,571 |                    | $ | 300,389 | 
|                                   |  |                    |         |                    |   |         | 

| |                                                                     
| | --------------------------------------------------------------------
| | Changes in the allowance for loan losses are
 summarized as follows:

|                                 |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|-------------------------------- |  | ---------------------------------- | ----- | --------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                 |  | Three months ended 
 September 30, |       | Nine months ended 
 September 30, |  
|                                 |  |                                    |       |                                   |  
|                                 |  | (in thousands)                     |      
|                                 |  | 2009                               |       | 2008                              |   | 2009  |   | 2008 |      
|                                 |  |                                    |       |                                   |   |       |   |      |      
|                                 |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Balance
 at beginning of period  |  | $                                  | 2,105 |                                   | $ | 1,918 |   | $    | 1,936 |   | $ | 1,910 |  
|Provision
 charged to operations |  |                                    |      |                                   |   | 100   |   |      | 200   |   |   | 100   |  
|Loans
 charged off               |  |                                    | (39   | )                                 |   | (150  | ) |      | (103  | ) |   | (187  | )
|Recoveries                       |  |                                    | 16    |                                   |   | 16    |   |      | 49    |   |   | 61    |  
|                                 |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|                                 |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Balance
 at end of period        |  | $                                  | 2,082 |                                   | $ | 1,884 |   | $    | 2,082 |   | $ | 1,884 |  
|                                 |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys recorded investment in loans that are
 considered impaired totaled $701,000 and $710,000 at September 30, 2009 and
 December 31, 2008, respectively. These impaired loans carried allowances of
 $242,000 and $246,000 September 30, 2009 and December 31, 2008, respectively.
 The average recorded investment in impaired loans was $705,000 and $461,000
 in the first nine months of 2009 and 2008, respectively. The Company
 recognized no interest on impaired loans during the three and nine month
 periods ended September 30, 2009 and 2008.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The principal balances of loans not accruing
 interest amounted to $1.7 million and $1.3 million at September 30, 2009 and
 December 31, 2008, respectively. The Company held loans 90 days past due                                                                                                                                                                                                                                                                                                                                                                 

12

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | and accruing interest totaling $91,000 and $0 at September
 30, 2009 and December 31, 2008, 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 nine months ended September 30,
 2009 and 2008 was $58,800 and $69,800, 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. The Company does not
 originate sub-prime mortgage loans and has not purchased investments
 collateralized by sub-prime loans.                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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 or in
 certain cases upon retirement. 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 2.52%, expected stock
 price volatility 8.25%, risk free interest rate 4.60% and an expected option
 life of 6.5 years. At May 24, 2006, certain awardees met the retirement
 eligibility criteria and accordingly, stock-based compensation expense of
 $350,000 related to their options was expensed immediately. As of September
 30, 2009, unrecognized compensation cost related to these options was
 $83,000. This expense is being amortized on a straight line basis over the
 remainder of the sixty month vesting period of the options.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Following is a summary of the Companys 2009 year to
 date stock option activity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                         |  |                                      |         |                                   |   |                               |  |   |      | 
|---------------------------------------- |  | ------------------------------------ | ------- | --------------------------------- | - | ----------------------------- |  | - | ---- | 
|                                         |  | Nine Months ended September 30, 2009 |        
|                                         |  |                                      |        
|                                         |  | (Dollars in thousands)               |        
|                                         |  |                                      |        
|                                         |  | Shares                               |         | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Fair Value | 
|                                         |  |                                      |         |                                   |   |                               | 
|Options outstanding, beginning of period |  |                                      | 356,726 |                                   | $ | 12.76                         |  | $ | 1.68 | 
|Exercised                                |  |                                      | (2,726  | )                                 |   | 2.19                          |  |   |     | 
|Granted                                  |  |                                      |        |                                   |   |                              |  |   |     | 
|                                         |  |                                      |         |                                   |   |                               |  |   |      | 
|Options outstanding at end of period     |  |                                      | 354,000 |                                   | $ | 12.84                         |  | $ | 1.69 | 
|                                         |  |                                      |         |                                   |   |                               |  |   |      | 
|Options exercisable at end of period     |  |                                      | 212,400 |                                   | $ | 12.84                         |  | $ | 1.69 | 
|                                         |  |                                      |         |                                   |   |                               |  |   |      | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The aggregate intrinsic value of all options
 outstanding and exercisable at September 30, 2009 was $0. The intrinsic value
 of options exercised during the quarters ended September 30, 2009 and
 September 30, 2008 was $0. The intrinsic value of options exercised during
 the nine months ended September 30, 2009 and September 30, 2008 was $18,000
 and $25,000, 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, or in certain cases upon retirement and the related unrecognized
 compensation cost related to this grant will be expensed over the same
 period. At May 24, 2006, certain awardees met the retirement eligibility
 criteria and accordingly, stock-based compensation expense of $1.1 million
 related to their 2006 Recognition and Retention Plan (RRP) awards was
 expensed immediately. At September 30, 2009, the unrecognized compensation
 cost attributable to restricted stock awards was $297,000. The aggregate
 intrinsic value of restricted stock that is expected to vest in the future
 was $591,000 at September 30, 2009.

13

---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Compensation cost for the Companys stock option
 plans in both the 2009 and 2008 third quarters was $12,000. In both of the
 nine month periods ended September 30, 2009 and 2008 compensation expense
 related to the stock option plans was $37,000. For both of the three month
 periods ended September 30, 2009 and 2008 compensation cost related to the
 restricted stock plan was $45,000.For
 the nine month periods ended September 30, 2009 and 2008 compensation cost
 related to the restricted stock plan was $134,000 and $187,000 respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | During the three months ended September 30, 2009 and
 2008, dividends of $6,000 and $9,000, respectively, were paid on unvested
 shares with non-forfeitable dividend rights. During the nine months ended
 September 30, 2009 and 2008, dividends of $23,000 and $31,000, respectively,
 were paid on unvested shares with non-forfeitable dividend rights. These
 dividend amounts were not included in net income as compensation expense due
 to the expectation that all of the awards will vest.                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(7) | Pension and Postretirement Medical Benefit Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The components of net periodic pension and
 postretirement benefit cost consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                         |  |                                  |      |                         |   |      |   |      |    |   |   |    |  
|---------------------------------------- |  | -------------------------------- | ---- | ----------------------- | - | ---- | - | ---- | -- | - | - | -- | -
|                                         |  | Three months ended September 30, |     
|                                         |  |                                  |     
|                                         |  | (in
 thousands)                  |     
|                                         |  | Pension benefits                 |      | Postretirement benefits |  
|                                         |  |                                  |      |                         |  
|                                         |  | 2009                             |      | 2008                    |   | 2009 |   | 2008 |   
|                                         |  |                                  |      |                         |   |      |   |      |   
|Components of net periodic pension cost: |  |                                  |      |                         |   |      |   |      |    |   |   |    |  
|Service cost                             |  | $                                |     |                         | $ |     |   | $    | 5  |   | $ | 5  |  
|Interest cost                            |  |                                  | 87   |                         |   | 88   |   |      | 37 |   |   | 37 |  
|Expected return
 on plan assets          |  |                                  | (108 | )                       |   | (168 | ) |      |   |   |   |   |  
|Amortization                             |  |                                  | 96   |                         |   |     |   |      | (2 | ) |   | (2 | )
|                                         |  |                                  |      |                         |   |      |   |      |    |   |   |    |  
|                                         |  |                                  |      |                         |   |      |   |      |    |   |   |    |  
|Net periodic
 pension cost               |  | $                                | 75   |                         | $ | (80  | ) | $    | 40 |   | $ | 40 |  
|                                         |  |                                  |      |                         |   |      |   |      |    |   |   |    |  

|                                         |  |                                  |      |                         |   |      |   |      |     |   |   |     |  
|---------------------------------------- |  | -------------------------------- | ---- | ----------------------- | - | ---- | - | ---- | --- | - | - | --- | -
|                                         |  | Nine
 months ended September 30, |     
|                                         |  |                                  |     
|                                         |  | (in thousands)                   |     
|                                         |  | Pension benefits                 |      | Postretirement benefits |  
|                                         |  |                                  |      |                         |  
|                                         |  | 2009                             |      | 2008                    |   | 2009 |   | 2008 |    
|                                         |  |                                  |      |                         |   |      |   |      |    
|Components of net periodic pension cost: |  |                                  |      |                         |   |      |   |      |     |   |   |     |  
|Service cost                             |  | $                                |     |                         | $ |     |   | $    | 15  |   | $ | 15  |  
|Interest cost                            |  |                                  | 261  |                         |   | 264  |   |      | 111 |   |   | 111 |  
|Expected return
 on plan assets          |  |                                  | (324 | )                       |   | (504 | ) |      |    |   |   |    |  
|Partial
 settlement                      |  |                                  |     |                         |   | 134  |   |      |    |   |   |    |  
|Amortization                             |  |                                  | 288  |                         |   |     |   |      | (6  | ) |   | (6  | )
|                                         |  |                                  |      |                         |   |      |   |      |     |   |   |     |  
|                                         |  |                                  |      |                         |   |      |   |      |     |   |   |     |  
|Net periodic
 pension cost               |  | $                                | 225  |                         | $ | (106 | ) | $    | 120 |   | $ | 120 |  
|                                         |  |                                  |      |                         |   |      |   |      |     |   |   |     |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | In December of 2002, the Companys Board of
 Directors amended the defined benefit pension plan to cease the accrual of
 further benefits. During the quarter ended September 30, 2008, the Company
 recorded a curtailment charge of $134,000 related to a partial settlement of
 the defined benefit plan. For the fiscal year ended December 31, 2009, the
 Company expects to make no contributions to the defined benefit pension plan.                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(8) | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In June 2009, the FASB issued ASC 105-10, (formerly
 Statement No. 168,)The FASB
 Accounting Standards CodificationTM(Codification) and the
 Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB
 Statement No. 162. The Codification has become the source of authoritative
 U.S. generally accepted accounting principles (GAAP) recognized by the FASB
 to be applied by non-governmental entities. Rules and interpretive releases
 of the Securities and Exchange

14

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Commission (SEC) under authority of federal
 securities laws are also sources of authoritative GAAP for SEC registrants.
 On its effective date, the Codification superseded all then-existing non-SEC
 accounting and reporting standards. All other non-grandfathered non-SEC
 accounting literature not included in the Codification became
 non-authoritative. This codification is effective for financial statements
 issued for interim and annual periods ending after September 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Company adopted FASB
 guidance now codified as ASC Topic 260-10, Earnings per Share, effective
 January 1, 2009. This topic requires the use of the two-class method for
 computing earnings per share when stock compensation awards with
 non-forfeitable dividend rights are present. Prior earnings per share amounts
 have be retrospectively adjusted to conform with the provisions of this
 topic. The effect of adopting ASC Topic 260-10 was not material on the
 computation of earnings per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In April 2009, the FASB
 issued guidance now codified as FASB ASC Topic 320-10-35, Investments Debt
 and Equity Securities, Subsequent Measurements, which amends existing
 guidance for determining whether impairment is other-than-temporary for debt
 securities. The standard requires an entity to assess whether it intends to
 sell, or it is more likely than not that it will be required to sell a
 security in an unrealized loss position before recovery of its amortized cost
 basis. If either of these criteria is met, the entire difference between
 amortized cost and fair value is recognized in earnings. For securities that
 do not meet the aforementioned criteria, the amount of impairment recognized
 in earnings is limited to the amount related to credit losses, while
 impairment related to other factors is recognized in other comprehensive
 income. Additionally, the ASC Topic 320-10-35 expands and increases the
 frequency of existing disclosures about other-than-temporary impairments for
 debt and equity securities. This topic became effective for interim and
 annual reporting periods ending after June 15, 2009, with early adoption permitted
 for periods ending after March 15, 2009. The Company adopted this
 topic in the second quarter, however, the adoption had no material effect on
 the results of operations or financial position.                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In April 2009, the FASB
 issued Staff Position No. 157-4, Determining Fair Value When the Volume and
 Level of Activity for the Asset and Liability Have Significantly Decreased
 and Identifying Transactions That Are Not Orderly, now codified as ASC Topic
 820-10-65-4. This standard emphasizes that even if there has been a
 significant decrease in the volume and level of activity, the objective of a
 fair value measurement remains the same. Fair value is the price that would
 be received to sell an asset or paid to transfer a liability in an orderly
 transaction (that is, not a forced liquidation or distressed sale) between
 market participants. Topic 820-10-65-4 provides a number of factors to
 consider when evaluating whether there has been a significant decrease in the
 volume and level of activity for an asset or liability in relation to normal
 market activity. In addition, when transactions or quoted prices are not
 considered orderly, adjustments to those prices based on the weight of
 available information may be needed to determine the appropriate fair value.
 The standard also requires increased disclosures. This topic is effective for
 interim and annual reporting periods ending after June 15, 2009, and shall be
 applied prospectively. The Company adopted this topic 820-10-65-4 in
 the second quarter, however, the adoption had no material effect on the
 results of operations or financial position.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In April 2009, the FASB
 issued guidance now codified as ASC Topic 825, Financial Instruments, which
 amended previous Topic 825 guidance to require disclosures about fair value
 of financial instruments for interim reporting periods of publicly traded
 companies that were previously only required in annual financial statements.
 This guidance became effective for interim reporting periods ending after
 June 15, 2009, with early adoption permitted for periods ending after March
 15, 2009. The Company adopted this topic in the second quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In May 2009, the FASB issued guidance now
 codified as ASC Topic 855, Subsequent Events which establishes general
 standards of accounting for and disclosure of events that occur after the
 balance sheet date but before financial statements are issued or available to
 be issued. ASC 855 sets forth (i) the period after the balance sheet
 date during which management of a reporting entity should evaluate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

15

---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | events or transactions that may occur for potential
 recognition or disclosure in the financial statements, (ii) the
 circumstances under which an entity should recognize events or transactions
 occurring after the balance sheet date in its financial statements and
 (iii) the disclosures that an entity should make about events or
 transactions that occurred after the balance sheet date. This pronouncement
 became effective for the period ended June 30, 2009 and did not have a significant
 impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | In June 2009, the FASB issued guidance now codified
 as ASC Topic 860, Transfers and Servicing, that defines the term
 participating interest to
 establish specific conditions for reporting a transfer of a portion of a
 financial asset as a sale. If the transfer does not meet those conditions, a
 transferor should account for the transfer as a sale only if it transfers an
 entire financial asset or a group of entire financial assets and surrenders
 control over the entire transferred asset(s) in accordance with the
 conditions in this topic. Under the revised standards guaranteed mortgage
 securitizations are removed to require those securitizations to be treated
 the same as any other transfer of financial assets within the scope of the
 topic. If such a transfer does not meet the requirements for sale accounting,
 the securitized mortgage loans should continue to be classified as loans in
 the transferors statement of financial position. This topic requires that a
 transferor recognize and initially measure at fair value all assets obtained
 (including a transferors beneficial interest) and liabilities incurred as a
 result of a transfer of financial assets accounted for as a sale. The newly
 issued guidance under ASC Topic 860 is effective as of the beginning of each
 reporting entitys first annual reporting period that begins after November
 15, 2009, for interim periods within that first annual reporting period, and
 for interim and annual reporting periods thereafter. We do not expect that
 these revisions will have a material impact on our financial condition,
 results of operations or financial statement disclosures.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | In June 2009, the FASB issued guidance now codified
 as ASC Topic 810-10 Consolidation, to require an enterprise to perform an
 analysis to determine whether the enterprises variable interest or interests
 give it a controlling financial interest in a variable interest entity. This
 analysis identifies the primary beneficiary of a variable interest entity as
 the enterprise that has both of the following characteristics:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The power to direct the activities of a variable
 interest entity that most significantly impact the entitys economic
 performance                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The obligation to absorb losses of the entity that
 could potentially be significant to the variable interest entity or the right
 to receive benefits from the entity that could potentially be significant to
 the variable interest entity.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | Additionally, an enterprise is required to assess
 whether it has an implicit financial responsibility to ensure that a variable
 interest entity operates as designed when determining whether it has the
 power to direct the activities of the variable interest entity that most
 significantly impact the entitys economic performance. This revision of ASC
 Topic 810-10 is effective as of the beginning of each reporting entitys
 first annual reporting period that begins after November 15, 2009, for
 interim periods within that first annual reporting period, and for interim
 and annual reporting periods thereafter. We do not expect that adoption of
 this guidance will have a material impact on our financial condition, results
 of operations or financial statement disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(9) | Fair Value Measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                               
|    | The FASB ASC Topic 820, Financial Instruments,
 requires the disclosure of the estimated fair value of certain financial
 instruments. The Companys available for sale investment portfolio is subject
 to disclosure for interim reporting. Fair value is the price that would be
 received upon sale of an asset or paid to transfer a liability in an orderly
 transaction between market participants at the measurement date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

16

---



| |                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 following fair value hierarchy is used in selecting inputs, with the highest
 priority given to Level 1, as these are the most transparent or reliable.                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                         
| | Level 1 -
 Quoted prices for identical instruments in active markets that the Company
 has the ability to access as of the measurement date.                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                         
| | Level 2 
 Significant other observable inputs, such as quoted prices for similar
 instruments in active markets; quoted prices for identical or similar
 instruments in markets that are not active; and model-derived valuations in
 which all significant inputs are observable in active markets.                                                   
| |                                                                                                                                                                                                                                                                                                                                                         
| | Level 3 
 Significant unobservable inputs that reflect the Companys own assumptions
 about the assumptions that market participants would use in pricing an instrument.                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                         
| | The Company
 is responsible for the valuation process and as part of this process may use
 data from outside sources in establishing fair value. The Company performs
 due diligence to understand the inputs used or how the data was calculated or
 derived. The Company corroborates the reasonableness of external inputs in
 the valuation process.

To estimate
the market value of its available for sale security portfolio, the Company
obtains current market pricing from quoted market sources or using pricing for
similar securities. The fair value of impaired loans with specific
allocations of the allowance for loan losses is generally based on recent real
estate appraisals. These appraisals may utilize a single valuation approach or
a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers to
adjust for differences between the comparable sales and income data available.
Such adjustments are typically significant and result in a Level 3
classification of the inputs for determining fair value.

| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Assets
 measured at fair value on a recurring basis are summarized below (in
 thousands of dollars).

|                               |  |         |     |         |   |         |  |                                  |   |  |   |       | 
|------------------------------ |  | ------- | --- | ------- | - | ------- |  | -------------------------------- | - |  | - | ----- | 
|                               |  | Level 1 |     | Level 2 |   | Level 3 |  | TotalAssetsmeasuredat fair value |  
|September
 30, 2009            |  |         |     |         |   |         |  |                                  |   |  |   |       | 
|Available
 for sale securities |  | $       | 532 |         | $ | 8,842   |  | $                                |  |  | $ | 9,374 | 
|                               |  |         |     |         |   |         |  |                                  |   |  |   |       | 
|December 31, 2008              |  |         |     |         |   |         |  |                                  |   |  |   |       | 
|Available for sale securities  |  | $       | 500 |         | $ | 3,063   |  | $                                |  |  | $ | 3,563 | 

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Assets
 measured at fair value on a non-recurring basis are summarized below (in
 thousands of dollars).

|                    |  |         |   |         |   |         |  |                                  |     |  |   |     | 
|------------------- |  | ------- | - | ------- | - | ------- |  | -------------------------------- | --- |  | - | --- | 
|                    |  | Level 1 |   | Level 2 |   | Level 3 |  | TotalAssetsmeasuredat fair value |    
|September
 30, 2009 |  |         |   |         |   |         |  |                                  |     |  |   |     | 
|Impaired
 loans     |  | $       |  |         | $ |        |  | $                                | 459 |  | $ | 459 | 
|                    |  |         |   |         |   |         |  |                                  |     |  |   |     | 
|December 31, 2008   |  |         |   |         |   |         |  |                                  |     |  |   |     | 
|Impaired
 loans     |  | $       |  |         | $ |        |  | $                                | 464 |  | $ | 464 | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Impaired
 loans, which are measured for impairment using the fair value of the
 collateral for collateral dependent loans, had a carrying value of $701,000
 and $710,000 at September 30, 2009 and December 31, 2008, respectively. These
 loans carried a valuation allowance of $242,000 and $246,000 at September 30,
 2009 and December 31, 2008, respectively, resulting in no additional
 provision for loan losses for such periods.

17

---



The following
methods and assumptions were used by the Company in estimating fair values of
financial instruments:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents:
 For these short-term instruments that generally mature in ninety days or
 less, the carrying value approximates fair value.                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Securities: The fair values of securities available
 for sale are determined by obtaining quoted prices on nationally recognized
 securities exchanges (Level 1 inputs) or matrix pricing, which is a
 mathematical technique widely used to in the industry to value debt
 securities without relying exclusively on quoted prices for the specific
 securities but rather by relying on the securities relationship to other
 benchmark quoted securities (Level 2 inputs).                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Federal Home Loan Bank Stock:It
 is not practicable to determine the value of FHLB stock due to restrictions
 placed on its transferability.                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Loans: The fair
 values for all loans are estimated using discounted cash flow analyses, using
 interest rates currently being offered for loans with similar terms to
 borrowers of similar credit rating. The carrying amount of accrued interest
 receivable approximates its fair value. The Company has not considered market
 illiquidity in estimating the fair value of loans due to uncertain and
 inconsistent market pricing being experienced at measurement date.                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Deposits: The fair
 values of demand deposits (interest and non-interest checking) savings
 accounts and money market accounts are, by definition, equal to the amount
 payable on demand at the reporting date (i.e., their carrying amounts). Fair
 values for fixed-rate certificates of deposits, are estimated using a
 discounted cash flow calculation that applies interest rates currently being
 offered on these products to a schedule of aggregated expected monthly
 maturities on time deposits.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Borrowings:Fair
 values of long-term borrowings are estimated using a discounted cash flow
 approach, based on current market rates for similar borrowings. The fair
 value of accrued interest approximates carrying value.                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Off-balance-sheet instruments:
 Fair values for the Companys off-balance-sheet instruments (lines of credit
 and commitments to fund loans) are based on fees currently charged to enter
 into similar agreements, taking into account the remaining terms of the
 agreements and the counterparties credit standing. The fair value of these
 financial instruments is immaterial and has therefore been excluded from the
 table below.                                                                    

18

---



| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 estimated carrying values and fair values of the Companys financial
 instruments, not previously presented, for September 30, 2009 and December
 31, 2008 are as follows (in thousands):

|                              |  |                    |         |                   |   |                  |  |             |         |  |   |         | 
|----------------------------- |  | ------------------ | ------- | ----------------- | - | ---------------- |  | ----------- | ------- |  | - | ------- | 
|                              |  | September 30, 2009 |         | December 31, 2008 |  
|                              |  |                    |         |                   |  
|                              |  | Carrying
 amount   |         | Fair
 value       |   | Carrying
 amount |  | Fair
 value |        
|                              |  |                    |         |                   |   |                  |  |             |        
|                              |  |                    |         |                   |   |                  |  |             |         |  |   |         | 
|Financial assets:             |  |                    |         |                   |   |                  |  |             |         |  |   |         | 
|Cash and cash equivalents     |  | $                  | 17,122  |                   | $ | 17,122           |  | $           | 9,579   |  | $ | 9,579   | 
|Securities available for sale |  |                    | 9,374   |                   |   | 9,374            |  |             | 3,563   |  |   | 3,563   | 
|Securities held to maturity   |  |                    | 1,435   |                   |   | 1,518            |  |             | 1,447   |  |   | 1,561   | 
|Loans, net                    |  |                    | 285,489 |                   |   | 289,894          |  |             | 298,453 |  |   | 302,424 | 
|Federal Home Loan Bank Stock  |  |                    | 3,455   |                   |   | n/a              |  |             | 3,578   |  |   | n/a     | 
|Accrued interest receivable   |  |                    | 1,086   |                   |   | 1,086            |  |             | 1,085   |  |   | 1,085   | 
|Financial liabilities:        |  |                    |         |                   |   |                  |  |             |         |  |   |         | 
|Non-interest bearing deposits |  |                    | 31,430  |                   |   | 31,430           |  |             | 28,373  |  |   | 28,373  | 
|Interest bearing deposits     |  |                    | 184,992 |                   |   | 185,538          |  |             | 177,559 |  |   | 178,007 | 
|Borrowings                    |  |                    | 55,639  |                   |   | 56,411           |  |             | 66,324  |  |   | 67,276  | 
|Accrued interest payable      |  |                    | 153     |                   |   | 153              |  |             | 121     |  |   | 121     | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | It is not
 practicable to determine the fair value of FHLB stock due to restrictions
 placed on its transferability. Fair value estimates are made at a specific
 point in time, based on relevant market information and information about the
 financial instrument. These estimates are subjective in nature and involve
 uncertainties and matters of significant judgment and, therefore, cannot be
 determined with precision. Changes in assumptions could significantly affect
 the estimates.

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. 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.

19

---



Since 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 Central New York area, therefore
its operations and earnings are influenced by the economics of such area.
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 third quarter of 2009 increased to $908,000, from the prior years third
quarter net income of $815,000. The significant factors and trends impacting
the third quarter of 2009, which are discussed in greater depth below, were as
follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net interest
 income before loan loss provision decreased by $19,000 or 0.6% from the same
 quarter last year as a result of increases in the level of interest earning
 assets and interest bearing liabilities as well as decreases in both yields
 on average earning assets and the Companys cost of funds. Rates on earning
 assets fell faster than the cost of the Companys other borrowings, resulting
 in the slight decline in overall net interest income.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | The Company
 recorded no provision for loan losses in the current quarter versus a
 $100,000 provision for loan losses in the third quarter of 2008.                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Non-interest
 income increased by $56,000, or 9.2%, from the third quarter 2008 levels
 primarily due to a gain on the sale of an investment security and an increase
 in gains on the sales of mortgages.                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Non-interest
 expense increased by $12,000 to $2.6 million in the quarter ended September
 30, 2009 from $2.5 million for the same period of 2008.                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Income tax
 expense for the third quarter of 2009 increased to $460,000 compared to
 $428,000 in the third quarter of 2008.                                                                                                                                                                                                                                                                                                                                            

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

20

---



factors
considered appropriate to estimate losses. Management uses presently available
information to estimate probable losses on loans; however, future additions to
the allowance may be necessary based on changes in estimates, assumptions or
economic conditions. Significant factors that could give rise to changes in
these estimates include, but are not limited to, changes in economic conditions
in the local area, concentrations of risk and declines of local property
values.

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

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, the Company encourages the reader to review each of the
policies included in Note 2 to the consolidated financial statements reported
on the Companys 2008 Annual Report on Form 10-K to obtain a better
understanding of how its financial performance is reported.

Analysis of Net
Interest Income

Average
Balances, Interest and Average Yields - The following table sets forth
certain information relating to the Companys average balance sheets and
reflects the average yield on interest-earnings assets and average cost of
interest-bearing liabilities, interest earned and interest paid for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods presented. Average balances are derived from
daily balances over the periods indicated. The average balances for loans are
net of allowance for loan losses, but include non-accrual loans. Interest
income on securities includes a tax equivalent adjustment for bank qualified
municipals.

21

---



|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|---------------------------------------------------------------- |  | ---------------------------------------------- | ------- | ---------------------------------------------- | - | --------------------- | - | ---------------- | ---- | -------------------------- | - | --------------------- |  | - | ----- | - |  | ---- | -
|                                                                 |  | Average
 Balances, Interest and Average Yields |        
|                                                                 |  |                                                |        
|                                                                 |  | For the
 three months ended September 30, 2009 |         | For the
 three months ended September 30, 2008 |  
|                                                                 |  |                                                |         |                                                |  
|                                                                 |  | Average
 Balance                               |         | Interest
 Income/
 Expense                     |   | Average
 Yield/
 Cost |   | Average
 Balance |      | Interest
 Income/
 Expense |   | Average
 Yield/
 Cost | 
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       | 
|                                                                 |  | (Dollars
 in thousands)                        |        
|                                                                 |  |                                                |        
|Assets:                                                          |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Interest-earning assets:                                         |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Loans                                                            |  | $                                              | 283,982 |                                                | $ | 4,148                 |   |                  | 5.80 | %                          | $ | 290,576               |  | $ | 4,397 |   |  | 6.02 | %
|Securities (1)                                                   |  |                                                | 12,689  |                                                |   | 159                   |   |                  | 4.98 |                            |   | 8,172                 |  |   | 101   |   |  | 4.91 |  
|Federal funds sold & other
interest bearing deposits             |  |                                                | 11,106  |                                                |   | 4                     |   |                  | 0.13 |                            |   | 1,163                 |  |   | 6     |   |  | 1.94 |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total interest-earnings
assets                                   |  |                                                | 307,777 |                                                |   | 4,311                 |   |                  | 5.56 |                            |   | 299,911               |  |   | 4,504 |   |  | 5.97 |  
|Noninterest-earning assets                                       |  |                                                | 27,334  |                                                |   |                       |   |                  |      |                            |   | 30,502                |  |   |       |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total assets                                                     |  | $                                              | 335,111 |                                                |   |                       |   |                  |      |                            | $ | 330,413               |  |   |       |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Liabilities and Shareholders
Equity:                            |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Interest-bearing liabilities:                                    |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Savings accounts                                                 |  | $                                              | 83,681  |                                                | $ | 84                    |   |                  | 0.40 |                            | $ | 81,395                |  | $ | 113   |   |  | 0.55 |  
|Time deposits                                                    |  |                                                | 72,203  |                                                |   | 440                   |   |                  | 2.41 |                            |   | 72,227                |  |   | 630   |   |  | 3.47 |  
|Money market accounts                                            |  |                                                | 15,863  |                                                |   | 47                    |   |                  | 1.18 |                            |   | 10,208                |  |   | 50    |   |  | 1.95 |  
|Other interest bearing
deposits                                  |  |                                                | 14,642  |                                                |   | 15                    |   |                  | 0.42 |                            |   | 14,299                |  |   | 20    |   |  | 0.53 |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total interest-bearing
deposits                                  |  |                                                | 186,389 |                                                |   | 586                   |   |                  | 1.25 |                            |   | 178,129               |  |   | 813   |   |  | 1.81 |  
|Borrowings                                                       |  |                                                | 55,081  |                                                |   | 466                   |   |                  | 3.35 |                            |   | 52,282                |  |   | 410   |   |  | 3.13 |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total interest-bearing
liabilities                               |  |                                                | 241,470 |                                                |   | 1,052                 |   |                  | 1.73 |                            |   | 230,411               |  |   | 1,223 |   |  | 2.11 |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Noninterest-bearing deposits                                     |  |                                                | 30,059  |                                                |   |                       |   |                  |      |                            |   | 30,512                |  |   |       |   |  |      |  
|Other liabilities                                                |  |                                                | 5,266   |                                                |   |                       |   |                  |      |                            |   | 5,772                 |  |   |       |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total liabilities                                                |  |                                                | 276,795 |                                                |   |                       |   |                  |      |                            |   | 266,695               |  |   |       |   |  |      |  
|Shareholders equity                                             |  |                                                | 58,316  |                                                |   |                       |   |                  |      |                            |   | 63,718                |  |   |       |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Total liabilities and
shareholders equity                       |  | $                                              | 335,111 |                                                |   |                       |   |                  |      |                            | $ | 330,413               |  |   |       |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Net interest income                                              |  |                                                |         |                                                |   | 3,259                 |   |                  |      |                            |   |                       |  |   | 3,281 |   |  |      |  
|Tax equivalent adjustment on securities                          |  |                                                |         |                                                |   | (2                    | ) |                  |      |                            |   |                       |  |   | (5    | ) |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Net interest income per consolidated financial
statements        |  |                                                |         |                                                | $ | 3,257                 |   |                  |      |                            |   |                       |  | $ | 3,276 |   |  |      |  
|                                                                 |  |                                                |         |                                                |   |                       |   |                  |      |                            |   |                       |  |   |       |   |  |      |  
|Net interest rate spread                                         |  |                                                |         |                                                |   |                       |   |                  | 3.83 | %                          |   |                       |  |   |       |   |  | 3.86 | %
|Net interest margin                                              |  |                                                |         |                                                |   |                       |   |                  | 4.20 | %                          |   |                       |  |   |       |   |  | 4.35 | %
|Ratio of interest-earning assets to
interest-bearing liabilities |  |                                                |         |                                                |   |                       |   |                  | 1.27 | x                          |   |                       |  |   |       |   |  | 1.30 | x

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

22

---



|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|---------------------------------------------------------------- |  | ---------------------------------------------- | ------- | --------------------------------------------- | - | --------------------- | - | ---------------- | ---- | -------------------------- | - | --------------------- |  | - | ------ | - |  | ---- | -
|                                                                 |  | Average
 Balances, Interest and Average Yields |        
|                                                                 |  |                                                |        
|                                                                 |  | For the
 nine months ended September 30, 2009  |         | For the
 nine months ended September 30, 2008 |  
|                                                                 |  |                                                |         |                                               |  
|                                                                 |  | Average
 Balance                               |         | Interest
 Income/
 Expense                    |   | Average
 Yield/
 Cost |   | Average
 Balance |      | Interest
 Income/
 Expense |   | Average
 Yield/
 Cost | 
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       | 
|                                                                 |  | (Dollars
 in thousands)                       
|                                                                 |  |                                               
|Assets:                                                          |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Interest-earning assets:                                         |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Loans                                                            |  | $                                              | 290,652 |                                               | $ | 12,626                |   |                  | 5.81 | %                          | $ | 285,648               |  | $ | 13,130 |   |  | 6.14 | %
|Securities (1)                                                   |  |                                                | 10,457  |                                               |   | 372                   |   |                  | 4.76 |                            |   | 7,129                 |  |   | 286    |   |  | 5.36 |  
|Federal funds sold & other
interest bearing deposits             |  |                                                | 6,711   |                                               |   | 8                     |   |                  | 0.17 |                            |   | 1,116                 |  |   | 21     |   |  | 2.48 |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total interest-earnings
assets                                   |  |                                                | 307,820 |                                               |   | 13,006                |   |                  | 5.65 |                            |   | 293,893               |  |   | 13,437 |   |  | 6.11 |  
|Noninterest-earning assets                                       |  |                                                | 27,601  |                                               |   |                       |   |                  |      |                            |   | 29,902                |  |   |        |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total assets                                                     |  | $                                              | 335,421 |                                               |   |                       |   |                  |      |                            | $ | 323,795               |  |   |        |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Liabilities and Shareholders
Equity:                            |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Interest-bearing liabilities:                                    |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Savings accounts                                                 |  | $                                              | 82,411  |                                               | $ | 247                   |   |                  | 0.40 |                            | $ | 81,401                |  | $ | 336    |   |  | 0.55 |  
|Time deposits                                                    |  |                                                | 72,424  |                                               |   | 1,464                 |   |                  | 2.70 |                            |   | 72,567                |  |   | 2,043  |   |  | 3.76 |  
|Money market accounts                                            |  |                                                | 14,886  |                                               |   | 147                   |   |                  | 1.32 |                            |   | 9,177                 |  |   | 135    |   |  | 1.97 |  
|Other interest bearing
deposits                                  |  |                                                | 13,970  |                                               |   | 42                    |   |                  | 0.40 |                            |   | 13,276                |  |   | 52     |   |  | 0.52 |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total interest-bearing
deposits                                  |  |                                                | 183,691 |                                               |   | 1,900                 |   |                  | 1.38 |                            |   | 176,421               |  |   | 2,566  |   |  | 1.94 |  
|Borrowings                                                       |  |                                                | 56,321  |                                               |   | 1,359                 |   |                  | 3.23 |                            |   | 46,546                |  |   | 1,131  |   |  | 3.25 |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total interest-bearing
liabilities                               |  |                                                | 240,012 |                                               |   | 3,259                 |   |                  | 1.82 |                            |   | 222,967               |  |   | 3,697  |   |  | 2.22 |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Noninterest-bearing
deposits                                     |  |                                                | 29,876  |                                               |   |                       |   |                  |      |                            |   | 29,317                |  |   |        |   |  |      |  
|Other liabilities                                                |  |                                                | 6,639   |                                               |   |                       |   |                  |      |                            |   | 5,852                 |  |   |        |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total liabilities                                                |  |                                                | 276,527 |                                               |   |                       |   |                  |      |                            |   | 258,136               |  |   |        |   |  |      |  
|Shareholders equity                                             |  |                                                | 58,894  |                                               |   |                       |   |                  |      |                            |   | 65,659                |  |   |        |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Total liabilities and
shareholders equity                       |  | $                                              | 335,421 |                                               |   |                       |   |                  |      |                            | $ | 323,795               |  |   |        |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Net interest income                                              |  |                                                |         |                                               |   | 9,747                 |   |                  |      |                            |   |                       |  |   | 9,740  |   |  |      |  
|Tax equivalent adjustment on securities                          |  |                                                |         |                                               |   | (10                   | ) |                  |      |                            |   |                       |  |   | (21    | ) |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Net interest income per consolidated financial
statements        |  |                                                |         |                                               | $ | 9,737                 |   |                  |      |                            |   |                       |  | $ | 9,719  |   |  |      |  
|                                                                 |  |                                                |         |                                               |   |                       |   |                  |      |                            |   |                       |  |   |        |   |  |      |  
|Net interest rate spread                                         |  |                                                |         |                                               |   |                       |   |                  | 3.83 | %                          |   |                       |  |   |        |   |  | 3.89 | %
|Net interest margin                                              |  |                                                |         |                                               |   |                       |   |                  | 4.23 | %                          |   |                       |  |   |        |   |  | 4.43 | %
|Ratio of interest-earning assets to
interest-bearing liabilities |  |                                                |         |                                               |   |                       |   |                  | 1.28 | x                          |   |                       |  |   |        |   |  | 1.32 | x

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

23

---



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.

|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|---------------------------------- |  | ----------------------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------- | - | --- | - | ---- | ---- | ------ | - | ---- | - | - | --- | - | - | ---- | -
|                                   |  | Three
 months ended September 30, 2009
 Compared to Three months ended September 30, 2008 |      | Nine
 months ended September 30, 2009
 Compared to Nine months ended September 30, 2008 |  
|                                  
|                                   |  | Increases
 (decreases) due to                                                             |     
|                                   |  | Rate                                                                                      |      | Volume                                                                                  |   | Net |   | Rate |      | Volume |   | Net  |  
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |  
|                                   |  | (in
 thousands)                                                                           |     
|Assets:                            |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Interest-earning
 assets:          |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Loans                              |  | $                                                                                         | (153 | )                                                                                       | $ | (96 | ) | $    | (249 | )      | $ | (737 | ) | $ | 233 |   | $ | (504 | )
|Securities (1)                     |  |                                                                                           | 3    |                                                                                         |   | 55  |   |      | 58   |        |   | (48  | ) |   | 134 |   |   | 86   |  
|Federal funds sold & other         |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Interest bearing deposits          |  |                                                                                           | (51  | )                                                                                       |   | 49  |   |      | (2   | )      |   | (116 | ) |   | 103 |   |   | (13  | )
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Total interest-earnings assets     |  |                                                                                           | (201 | )                                                                                       |   | 8   |   |      | (193 | )      |   | (901 | ) |   | 470 |   |   | (431 | )
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Interest-bearing
 liabilities:     |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Savings accounts                   |  |                                                                                           | (32  | )                                                                                       |   | 3   |   |      | (29  | )      |   | (93  | ) |   | 4   |   |   | (89  | )
|Time deposits                      |  |                                                                                           | (190 | )                                                                                       |   |    |   |      | (190 | )      |   | (575 | ) |   | (4  | ) |   | (579 | )
|Money market accounts              |  |                                                                                           | (31  | )                                                                                       |   | 28  |   |      | (3   | )      |   | (72  | ) |   | 84  |   |   | 12   |  
|Other interest bearing deposits    |  |                                                                                           | (4   | )                                                                                       |   | (1  | ) |      | (5   | )      |   | (13  | ) |   | 3   |   |   | (10  | )
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Total interest-bearing deposits    |  |                                                                                           | (257 | )                                                                                       |   | 30  |   |      | (227 | )      |   | (753 | ) |   | 87  |   |   | (666 | )
|Borrowings                         |  |                                                                                           | 33   |                                                                                         |   | 23  |   |      | 56   |        |   | (10  | ) |   | 238 |   |   | 228  |  
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Total interest-bearing liabilities |  |                                                                                           | (224 | )                                                                                       |   | 53  |   |      | (171 | )      |   | (763 | ) |   | 325 |   |   | (438 | )
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  
|Net change
 (1)                    |  | $                                                                                         | 23   |                                                                                         | $ | (45 | ) | $    | (22  | )      | $ | (138 | ) | $ | 145 |   | $ | 7    |  
|                                   |  |                                                                                           |      |                                                                                         |   |     |   |      |      |        |   |      |   |   |     |   |   |      |  

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

Comparison of Financial Condition at
September 30, 2009 and December 31, 2008:

Total
assets at September 30, 2009 remained relatively constant at $338.0 million
compared to $337.9 million at December 31, 2008. Changes within the categories
of assets include a contraction in the Companys net loan portfolio, which
decreased by $13.0 million, or 4.4%, from $298.5 million at December 31, 2008
to $285.5 million at September 30, 2009. As a result of the current economic
climate, demand for loans declined from normal levels during the third quarter
of 2009. During the first nine months of 2009, the Company originated
approximately $39.9 million of loans, compared to approximately $49.4 million
of loans originated in the same period of 2008. The majority of the loan
originations for this year to date have been mortgage loans. In addition, the
Company has been selling a larger percentage of its residential loan
originations into the secondary market. Loan sales through nine months of 2009
were $7.3 million, compared to $861,000 for the first nine months of 2008.
Partially offsetting the decrease in the loan portfolio was an increase in the
balance of available for sale securities resulting from investment purchases of
$7.2 million during the first three quarters of 2009. Cash balances increased
to $17.1 million at September 30, 2009, from $9.6 million at year end 2008, due
to an influx of deposits and the aforementioned reduction in the loan
portfolio.

The
continued uncertainty in the United States investment markets has encouraged
investors to exit those markets in favor of insured deposit accounts. Total
deposits increased to $216.4 million at September 30, 2009 from $205.9 million
at December 31, 2008. During the first nine months of 2009, savings deposits
increased by $3.4 million, or 4.3%, and money market balances increased by $3.9
million, or 32.4%. Time deposits increased by $207,000, or 0.3%, to $72.3
million at September 30, 2009 from $72.1 million at year end

24

---



2008. Balances
of non-interest bearing deposits increased by $3.1 million, or 10.8%, while
other interest bearing deposits decreased by $86,000, or 0.6%, over the first
three quarters of 2009.

As
a result of decreased loan originations and increases in deposit balances, the
Company was able to pay down debt during the first nine months of 2009.
Borrowings from the Federal Home Loan Bank of New York (FHLB) decreased from
$66.3 million at December 31, 2008 to $55.6 million at the end of the current
quarter.

Comparison of Operating Results for the
Three-Month Periods Ended September 30, 2009 and 2008

General

During
the three months ended September 30, 2009, the Company recorded net income of
$908,000, compared to $815,000 for the third quarter of 2008. The increase in
net income is comprised of a reduction in the provision for loan losses of
$100,000 and an increase in non-interest income of $56,000, partially offset by
a decrease in net interest income before the provision for loan losses of
$19,000, an increase in non-interest expense of $12,000 and an increase in
income tax expense of $ 32,000.

Diluted
earnings per share increased to $0.14 per diluted share for the quarter ended
September 30, 2009 from $0.11 per diluted share in the quarter ended September
30, 2008. Average diluted shares decreased to 6,578,187 for the third quarter
of 2009 from 6,778,831 in the same period of 2008 due to the Companys stock
repurchases over the past year.

Net Interest Income

Net
interest income before loan loss provision for the quarter ended September 30,
2009 decreased by $19,000 or 0.6%, compared to the same quarter of 2008. This
decrease is attributable to decreases in market rates on interest earning
assets and interest bearing liabilities. Rates on earning assets fell faster
than the cost of the Companys other borrowings, resulting in the slight
decline in overall net interest income.

Interest Income

Interest
income decreased to $4.3 million for the quarter ended September 30, 2009 from
$4.5 million for the same quarter of 2008. Average loan balances for the third
quarter of 2009 were $284.0 million, a decrease of $6.6 million from the
average outstanding loans for the third quarter of 2008. The yield on the
Companys loan portfolio for the quarter ended September 30, 2009 decreased to
5.80% from a yield of 6.02% for the same period last year, reflecting the
effect of decreases in the prime rate over the past year. Interest income on
securities increased by $61,000 from $96,000 for the quarter ended September
30, 2008 to $157,000 for the quarter ended September 30, 2009. The average
balance of securities increased by $4.5 million, or 54.9%, from the third
quarter of 2008 to $12.7 million for the current quarter and the tax equivalent
yield on the Companys securities increased to 4.98% to 4.91%. Finally,
interest income on federal funds sold and other interest bearing deposits
decreased by $2,000 to $4,000 for the quarter ended September 30, 2009 from the
same quarter in 2008 due primarily to lower interest rates paid on those funds.
By contrast, the average balance of interest bearing deposits increased to
$11.1 million in the third quarter of 2009 from $1.2 million in the same period
of 2008.

Interest Expense

Interest
expense decreased to $1.1 million for the quarter ended September 30, 2009 from
$1.2 million for the same quarter of 2008. Interest expense on deposits
decreased to $586,000 for the quarter ended September 30, 2009 from $813,000
for the quarter ended September 30, 2008, due to lower rates paid on deposits
consistent with market trends over the past year. This was partially offset by
an increase in the average

25

---



balance of
interest-bearing deposits to $186.4 million for the quarter ended September 30,
2009, from $178.1 million for the same period of 2008. Interest expense on
borrowed funds increased to $466,000 for the quarter ended September 30, 2009
from $410,000 for the comparative quarter of 2008 due to an increase in the average
balance of borrowings to $55.1 million in the current quarter compared to $52.3
million in the third quarter of 2008. The rate on the Companys borrowings
increased to 3.35% during the third quarter of 2009 from 3.13% in the same
quarter of 2008 as the Company restructured its short-term debt into longer
maturity advances.

Provision for Loan Losses

The
Company recorded no provision for loan losses in the third quarter of 2009,
compared to a $100,000 loan loss provision in the same period of 2008. During
the current quarter, net loan charge-offs decreased to $23,000, compared to net
charge-offs of $134,000 in the third quarter of 2008. Asset quality remained
favorable at September 30, 2009 with non-performing loans as a percent of loans
of 0.62% and the allowance for loan losses as a percent of non-performing loans
of 115.9% at September 30, 2009, compared to 0.42% and 152.1%, respectively, at
December 31, 2008. While the Company has seen an increase in non-performing
loans in 2009, management believes that these loans are adequately
collateralized. The allowance for loan losses as a percentage of loans
increased to 0.72% at September 30, 2009 compared to 0.64% at December 31,
2008.

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 increased $56,000 to $665,000 in the third quarter of 2009 from $609,000
in the same period of 2008. In the third quarter of 2009, the Company sold one
investment security, realizing a gain of $26,000; there were no securities
sales in the same period of 2008. The remainder of the increase in non-interest
income is directly attributable to an increase in the gains realized on sales
of residential mortgages to the secondary market as a greater volume of loans
have been sold in 2009.

Non-interest
expense slightly increased by $12,000 to $2.6 million in the third quarter of
2009 from $2.5 million in the same quarter of 2008. Income tax expense for the
third quarter of 2009 increased to $460,000 from $428,000 in the same period of
2008, primarily due to the increase in pre-tax income.

Comparison of Operating Results for the
Nine-Month Periods Ended September 30, 2009 and 2008

General

Net
income for both the nine months ended September 30, 2009 and 2008 was $2.3
million. Net interest income before loan loss provision remained constant at
$9.7 million for year to date 2009 and 2008. During the nine months ended
September 30, 2009, the Company recorded an additional $100,000 in the
provision for loan losses, additional non-interest income of $132,000, an
increase in non-interest expense of $143,000, and a $61,000 reduction in income
tax expense, compared to the same period of 2008.

Diluted
earnings per share increased to $0.34 per diluted share for the nine months
ended September 30, 2009 in comparison to $0.32 per diluted share for the same
period of 2008. The year-to-date 2009 average outstanding diluted shares
decreased to 6,604,623 from 6,957,623 due to treasury stock purchases.

26

---



Net Interest Income

Net
interest income before loan loss provision was $9.7 million in both the nine
months ended September 30, 2009 and 2008. Throughout 2009 the Company has
realized decreases in both the yields on earning assets and its cost of funds
as well as increases in the average balances of earning assets and interest
bearing liabilities.

Interest Income

Interest
income decreased to $13.0 million for the nine month period ended September 30,
2009 from $13.4 million for the first nine months of 2008. Average earning
assets for the first half of 2009 increased to $307.8 million from $293.9
million in the same period of 2008. The yield on earning assets decreased to
5.65% for the nine months ended September 30, 2009, from 6.11% for the same
period of 2008. Average loan balances for the first nine months of 2009 were
$290.7 million, an increase of $5.1 million over the average outstanding loans
for the same period of 2008. The yield on the Companys loan portfolio for the
nine months ended September 30, 2009 was 5.81% compared to a yield of 6.14% for
the same period last year, reflecting decreases in underlying interest rates.
Interest income on securities increased $97,000 from $265,000 for the nine
months ended September 30, 2008 to $362,000 for the nine months ended September
30, 2009 as the average balance of the investment portfolio increased to $10.5
million for the first three quarters of 2009 from $7.1 million during the same
period of 2008. Finally, interest income on federal funds sold and other
interest bearing deposits decreased by $13,000 to $8,000 for the first nine
months of 2009 from the same period in 2008 due to rate decreases.

Interest Expense

Interest
expense decreased to $3.3 million for the nine months ended September 30, 2009
from $3.7 million for the nine months ended September 30, 2008. Interest
expense on deposits decreased to $1.9 million for the nine months ended
September 30, 2009 from $2.6 million for the nine months ended September 30,
2008 as a result of a decrease in the cost of these deposits from 1.94% to
1.38% partially offset by an increase in the average balance of interest
bearing deposits to $183.7 million this year to date from $176.4 million during
the first nine months of 2008. Interest expense on borrowed funds increased to
$1.4 million for the nine months ended September 30, 2009 from $1.1 million for
the comparative period of 2008 primarily due to an increase in the average
balance of borrowings to $56.3 million in the current year to date as compared
to $46.5 million in the nine months ended 2008. The increase in outstanding
debt was partially offset by a decrease in the rate paid on these borrowings
from 3.25% for the nine months ended September 30, 2008 to 3.23% for the same
period this year. The increased borrowings were used to fund the aforementioned
investments in loans, securities and purchases of treasury stock that have been
made over the past year.

Provision for Loan Losses

The
Company recorded a $200,000 provision for loan losses in the first three
quarters of 2009 versus $100,000 in the first nine months of 2008. The higher
2009 provision was deemed necessary due to managements judgment that one of
its commercial creditors may be experiencing financial difficulties, despite
that borrowers current ability to service its loans. The Companys loss
experience for the first nine months of 2009 remains favorable with year to
date net loan charge-offs of $54,000, compared to net loan charge-offs of
$126,000 for the same period of 2008.

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.

27

---



Non-Interest Income and Non-Interest Expense

Non-interest
income increased to $1.8 million for the first three quarters of 2009 from $1.7
million for the same period of 2008. The increase is attributable to gains on
sales of residential mortgages and a $26,000 gain on the sale of an investment
security.

Non-interest
expense increased to $8.0 million in the first nine months of 2009 compared to
$7.9 million in the same period of 2008, principally due to an increase in
deposit insurance and regulatory assessments of $250,000, increasing to
$339,000 for the first nine months of 2009 from $89,000 for the same period of
2008. This increase was the result in the industry-wide increase in Federal
Deposit Insurance Corporation (FDIC) regular deposit insurance rates. On
February 27, 2009, the FDIC adopted a final rule that initially raised the
assessment rate schedule, uniformly across all four risk categories into which
the FDIC assigns insured institutions, by seven basis points (annualized) of
insured deposits beginning on January 1, 2009. Under the final rule, the Banks
assessment rate was 8.44 basis points (annualized) for the third quarter of
2009. On September 29, 2009, the FDIC published a Notice of Proposed Rulemaking
that would require insured institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011
and 2012. The FDIC also voted to adopt a uniform three-basis point increase in
assessment rates effective on January 1, 2011. We expect that we may be
required to prepay an estimated $830,000 on December 30, 2009 for our fourth
quarter of 2009 and all of 2010, 2011 and 2012 FDIC assessments.

Income
tax expense for the first nine months of 2009 decreased to $1.1 million from
$1.2 million in the same period of 2008, due to the decrease in pre-tax income
and an increase in favorable permanent tax benefits.

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 FHLB that
allows it to borrow up to $44.1 million. At September 30, 2009, the Bank had no
outstanding borrowings against this line of credit, and outstanding advances
and amortizing notes totaling $55.6 million. During the first nine months of
2009 the Company decreased its overall FHLB borrowings by $10.7 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 nine months
ended September 30, 2009, the Company originated loans of approximately $39.9
million, compared to $49.4 of loans in the same period of 2008. The Company has
been selling a larger percentage of its residential loan originations into the
secondary market. Loan sales through nine months of 2009 were $7.3 million,
compared to $861,000 for the first nine months of 2008. During 2009, the
Company has invested in bonds, as available yields have become more attractive.
Year to date 2009 bond purchases were $7.2 million, compared to purchases of
$2.3 million in the same period of 2008.

At
September 30, 2009, the Company had loan commitments to borrowers of
approximately $8.2 million, and available letters and lines of credit of
approximately $19.3 million.

Time
deposit accounts scheduled to mature within one year were $51.9 million at
September 30, 2009. Based on the Companys deposit retention experience and
current pricing strategy, the Company anticipates that a significant portion of
these time deposits will remain with the Company. The Company is committed to

28

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maintaining a
strong liquidity position; therefore, the Company monitors its liquidity
position on a daily basis. The Company anticipates that the Company will have
sufficient funds to meet the Companys current funding commitments. The
marginal cost of new funding however, whether from deposits or borrowings from
the FHLB, 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 FHLB in the future.

At
September 30, 2009, the Bank exceeded each of the applicable regulatory capital
requirements. The Banks leverage (Tier 1) capital at September 30, 2009 was
$53.0 million, or 15.58% of adjusted assets. In order to be classified as
well-capitalized by the OTS, the Bank is required to have leverage (Tier 1)
capital of $17.0 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 September 30, 2009, the Bank had a total risk-based
capital ratio of 22.51%.

The
Company paid cash dividends of $0.255 per share during the nine-month period
ended September 30, 2009 totaling $1.7 million.

During
the first quarter of 2009, the Companys Board of Directors authorized the
repurchase of 446,000 shares of the Companys outstanding common stock. Through
September 30, 2009, $1.4 million was expended to repurchase 181,588 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.

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, 2008. 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 2008 Form 10-K.

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 the 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 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.

29

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Part II - OTHER INFORMATION

|         |                  
|-------- | -----------------
|Item 1.  | Legal Proceedings
|         |                  
|         | None.            
|         |                  
|Item 1A. | Risk Factors     



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The FDICs recently adopted restoration plan and the
related increased assessment rate schedule may have a material effect on our
results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Market
developments have significantly depleted the insurance fund of the FDIC and
reduced the ratio of reserves to insured deposits. The FDIC adopted a
restoration plan that raised the deposit insurance assessment rate schedule,
uniformly across all four risk categories into which the FDIC assigns insured
institutions, by seven basis points (annualized) of insured deposits
beginning on January 1, 2009. Additionally, beginning with the third quarter
of 2009, the initial base assessment rates were increased further depending
on an institutions risk category, with adjustments resulting in increased
assessment rates for institutions with a significant reliance on secured
liabilities and brokered deposits. The FDIC also adopted a final rule on May
22, 2009, imposing a five basis point special assessment on each insured
depository institutions assets minus Tier 1 capital as of June 30, 2009,
which was collected on September 30, 2009. Our FDIC special assessment was in
the amount of $142,000, increasing our non-interest expense for the three and
nine months ended September 30, 2009. The final rule also allows the FDIC to
impose possible additional special assessments of up to five basis points thereafter
to maintain public confidence in the FDIC Deposit Insurance Fund (DIF).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | In
addition, the FDIC recently announced a proposed rule that would require
insured depository institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009 and for all of 2010,
2011 and 2012. If the proposed rule is adopted, the prepaid assessments would
be collected on December 30, 2009. We have estimated that the total prepaid
assessments would be approximately $830,000, which would be recorded as a
prepaid expense (asset) as of December 30, 2009. As of December 31, 2009 and
each quarter thereafter, we would record an expense for its regular quarterly
assessment for the quarter and an offsetting credit to the prepaid assessment
until the asset is exhausted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | There
is no guarantee that the higher premiums and special assessments described
above will be sufficient for the DIF to meet its funding requirements, which
may necessitate further special assessments or increases in deposit insurance
premiums. Any such future assessments or increases could have a further
material impact on our results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

There
have been no other material changes to the Companys risk factors previously
disclosed in the Companys Form 10-K for the year ending December 31, 2008.

|        |                                                            
|------- | -----------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds

The
following table provides information with respect to purchases made by or on
behalf of the Company or any affiliated purchases (as defined in Rule 106-18
(a)(3) under the Securities Exchange Act of 1934) of the Companys common stock
during the quarter ended September 30, 2009.

30

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COMPANY PURCHASES OF EQUITY SECURITIES

|                                             |  |                                                 |   |                                            |  |                                                                                                 |  |                                                                                                                             |   |  |  |         | 
|-------------------------------------------- |  | ----------------------------------------------- | - | ------------------------------------------ |  | ----------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- | - |  |  | ------- | 
|Period                                       |  | (a) Total Number
of Shares (or
Units) Purchased |   | (b) Average Price
Paid per Share
(or Unit) |  | (c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs |  | (d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that may yet be
Purchased under
the Plans or
Programs |  
|                                             |  |                                                 |   |                                            |  |                                                                                                 |  |                                                                                                                             |  
|June 1, 2009 through June 30, 2009           |  |                                                 |  |                                            |  |                                                                                                |  |                                                                                                                             |  |  |  | 291,662 | 
|July 1, 2009 through July 31, 2009           |  |                                                 |  |                                            |  |                                                                                                |  |                                                                                                                             |  |  |  | 291,662 | 
|September 1, 2009 through September 30,
2009 |  |                                                 |  |                                            |  |                                                                                                |  |                                                                                                                             |  |  |  | 291,662 | 
|Total                                        |  |                                                 |  |                                            |  |                                                                                                |  |                                                                                                                             |  |  |  | 291,662 | 

|        |                                                    
|------- | ---------------------------------------------------
|Item 3. | Defaults Upon Senior Securities                    
|        |                                                    
|        | None.                                              
|        |                                                    
|Item 4. | Submission of Matters to a Vote of Security Holders
|        |                                                    
|        | None.                                              
|        |                                                    
|Item 5. | Other Information                                  
|        |                                                    
|        | None.                                              
|        |                                                    
|Item 6. | Exhibits                                           

|     |                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------
|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)                                                                     

31

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|      |                                                                                                                       
|----- | ----------------------------------------------------------------------------------------------------------------------
|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)                                                                        
|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 Form S-8 filed with the Commission on
May 19, 2006, as amended.                                         

32

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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) |  | November 5, 2009
|                      |  |                                                                                            | 
|Charles M.
Sprock     |  |                                                                                            | 
|                      |  |                                                                                            | 
|                      |  |                                                                                            | 
|                      |  |                                                                                            |  |                 
|/s/ David C.
Nolan    |  | Executive
Vice President
and Chief Financial
Officer (Principal
Financial Officer)         |  | November 5, 2009
|                      |  |                                                                                            | 
|David C.
Nolan        |  |                                                                                            | 
|                      |  |                                                                                            | 

33

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