portfolio which management believes is well collateralized. The
Company’s year to date net loan charge-offs were $77,000 in the first nine
months of 2010, compared to $54,000 for the same period of 2009.
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 to $2.6 million for the first three quarters of 2010 from $1.8
million for the first nine months of 2009. The increase is attributable to
gains on sales of real estate and securities and an increase in fee revenue. In
the first quarter of 2010, the Company sold a parcel of non-operating
commercial real estate, realizing a gain of $418,000. During the first nine
months of 2010, the Company recorded gains of $156,000 on the sales of five
investment securities; by contrast in the same period of 2009 one security was
sold at a gain of $26,000.
Non-interest
expense increased to $8.4 million in the first nine months of 2010 compared to
$8.0 million in the same period of 2009, principally due to the increase in
professional fees incurred, as more described in the discussion for the third
quarter, above.
Income tax
expense for the first nine months of 2010 increased to $1.3 from $1.1 million
in the same period of 2009, principally due to the increase in pre-tax income.
Liquidity and Capital
Resources
The
Company’s primary sources of funds consist of deposits, scheduled amortization
and prepayments of loans, maturities of investments, interest-bearing deposits
at other financial institutions and funds provided from operations. The Bank
also has borrowing capacity with the FHLB that allows it to borrow up to $57.8
million which is collateralized by a portion of the residential mortgage
portfolio. At September 30, 2010, the Bank had no outstanding borrowings
against this line of credit, and outstanding advances and amortizing notes
totaling $37.9 million. At September 30, 2010, the Company also had
approximately $8.5 million in unused short term borrowing capacity at the
Federal Reserve Bank of New York, which is collateralized by a portion of the
consumer loan portfolio.
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, 2010, the Company originated loans of approximately $40.8
million, compared to $39.9 million of loans in the same period of 2009. For the
past several quarters, the Company has been selling a large percentage of its
residential loan originations into the secondary market. Loan sales through
nine months of 2010 were $14.1 million, compared to $7.3 million for the same
period of 2009. These loans are sold with the Company retaining the servicing
for the purchasers. Year to date 2010 security purchases were $5.4 million
compared to $7.2 million for the same period of 2009.
At
September 30, 2010, the Company had loan commitments to borrowers of
approximately $13.4 million, and available letters and lines of credit of approximately
$19.1 million.
Time
deposit accounts scheduled to mature within one year were $49.7 million at
September 30, 2010. Based on the Company’s deposit retention experience and
current pricing strategy, the Company anticipates
26
that a significant portion of these time deposits will remain with the
Company. The Company is committed to 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, 2010, the Bank exceeded each of the applicable regulatory capital
requirements. The Bank’s leverage (Tier 1) capital at September 30, 2010 was
$57.5 million, or 17.25% 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 $16.7 million, or 5.0% of adjusted assets. To be classified as a well-capitalized
bank by the OTS, the Bank must also have a Tier 1 risk-based capital ratio of
6% and a total risk-based capital ratio of 10.0%. At September 30, 2010, the
Bank had a Tier 1 risk-based capital ratio of 23.78% and a total risk-based
capital ratio of 24.85%.
The Company
paid cash dividends of $0.27 per share during the nine months ended September
30, 2010 totaling $1.8 million.
During the
first nine months of 2010, $201,000 was expended to repurchase 22,568 shares of
the Company’s common stock.
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.
I
tem 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, 2009. 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 2009 Form 10-K.
I
tem 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.
27
P
art II - OTHER INFORMATION
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|
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|
I
tem 1.
|
Legal Proceedings
|
Following
the public announcement of the execution of the merger agreement between Rome
Bancorp and Berkshire Hills Bancorp, on October 18, 2010, Stephen Bushansky
filed a stockholder class action lawsuit in the Supreme Court of the State of
New York, County of the Bronx, and, on October 27, 2010, James and Liliana
DiCastro filed a stockholder class action lawsuit in the Chancery Court of the
State of Delaware, each against Rome Bancorp, Inc., Berkshire Hills Bancorp,
Inc., and the directors of Rome Bancorp, Inc. Each lawsuit purports to be
brought on behalf of all of Rome Bancorp’s public stockholders and alleges that
the directors of Rome Bancorp breached their fiduciary duties to Rome Bancorp’s
stockholders by failing to take steps necessary to obtain a fair and adequate
price for Rome Bancorp’s common stock. The lawsuit seeks to enjoin the proposed
merger from proceeding and seeks unspecified compensatory and/or rescissory
damages on behalf of Rome Bancorp’s stockholders. Each lawsuit is in a
preliminary stage. Rome Bancorp believes that the lawsuits are meritless and
intends to vigorously defend itself against the allegations.
The
recent adoption of regulatory reform legislation may have a material effect on
our operations and capital requirements.
On July 21,
2010, President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Reform Act”). The Reform Act is intended to
address perceived weaknesses in the U.S. financial regulatory system and to
prevent future economic and financial crises. There are many provisions of the
Reform Act which are to be implemented through regulations to be adopted by the
federal bank regulatory agencies within specified time frames following the
effective date of the Reform Act, which creates a risk of uncertainty as to the
effect that such provisions will ultimately have. We do not believe that the
Reform Act will have a material impact on our core operations. However, we
believe the following provisions of the Reform Act will have an impact on us,
though it is not possible for us to determine at this time whether and to what
extent the Reform Act will have a material effect on our business, financial
condition or results of operations:
|
|
|
|
•
|
New Regulatory Regime
. On July 21, 2011,
unless the Secretary of the Treasury opts to delay such date for up to an
additional nine months, the OTS will be eliminated and the OCC will take over
the regulation of all federal savings associations, such as Rome Bancorp. The
FRB will acquire the OTS’s authority over all savings and loan holding
companies, such as Rome Bancorp, and will also become the supervisor of all
subsidiaries of savings and loan holding companies other than depository
institutions. As a result, we will now be subject to regulation, supervision
and examination by two federal banking agencies, the OCC and the FRB, rather
than just by the OTS, as is currently the case. The Reform Act also provides
for the creation of the Bureau of Consumer Financial Protection, or the CFPB.
Although the CFPB will have only limited supervisory authority over
institutions with less than $10 billion in assets, such as Rome Bancorp,
Inc., the establishment of the CFPB could result in more stringent consumer
protection regulations than those imposed by bank regulatory agencies
previously.
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|
|
|
|
•
|
Consolidated Holding Company Capital Requirements
.
The Reform Act requires the federal banking agencies to establish
consolidated risk-based and leverage capital requirements for insured
depository institutions, depository institution holding companies and
systemically important nonbank financial companies. These requirements must
be no less than those to which insured depository institutions are currently
subject, and the new requirements will effectively eliminate the use of trust
preferred securities as a component of Tier 1 capital for depository
institution holding companies of our size. As a result, on
|
28
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|
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|
|
the fifth anniversary of the effective date of the Reform Act, we
will become subject to consolidated capital requirements to which we have not
been subject to previously.
|
|
|
|
|
•
|
Roll Back of Federal Preemption
. The Reform
Act significantly rolls back the federal preemption of state consumer
protection laws that is currently enjoyed by federal savings associations and
national banks by (i) requiring that a state consumer financial law prevent
or significantly interfere with the exercise of a federal savings
association’s or national bank’s powers before it can be preempted, (ii)
mandating that any preemption decision be made on a case by case basis rather
than a blanket rule and (iii) ending the applicability of preemption to
subsidiaries and affiliates of national banks and federal savings
associations. As a result, we may now be subject to state consumer protection
laws in each state where we do business, and those laws may be interpreted
and enforced differently in different states.
|
The Reform
Act also includes provisions, subject to further rulemaking by the federal bank
regulatory agencies, that may affect our future operations, including
provisions that create minimum standards for the origination of mortgages,
restrict proprietary trading by banking entities, restrict the sponsorship of
and investment in hedge funds and private equity funds by banking entities and
that remove certain obstacles to the conversion of savings associations to
national banks. We will not be able to determine the impact of these provisions
until final rules are promulgated to implement these provisions and other
regulatory guidance is provided interpreting these provisions.
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|
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|
It
em 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, 2010.
COMPANY
PURCHASES OF EQUITY SECURITIES
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2010 through July 31, 2010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,894
|
|
|
August 1, 2010 through August 31, 2010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,894
|
|
|
September 1, 2010 through September 30,
2010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,894
|
|
|
|
|
|
It
em 3.
|
Defaults Upon Senior Securities
|
|
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None.
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|
|
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|
It
em 4.
|
Submission of Matters to a Vote of Security
Holders
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29
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None.
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|
It
em 5.
|
Other Information
|
|
|
|
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|
None.
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|
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|
It
em 6.
|
Exhibits
|
|
|
|
|
2.1
|
Amended and Restated Plan
of Conversion and Agreement and Plan of Reorganization. (1)
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|
2.2
|
Agreement and Plan of
merger dated as of October 12, 2010 by and between Berkshire Hills Bancorp,
Inc. and
|
|
|
Rome Bancorp, Inc. (9)
|
|
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)
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|
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)
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|
10.5
|
Amended and restated form
of One Year Change in Control Agreement by and among certain officers and
Rome Bancorp, Inc. and The Rome Savings Bank. (8)
|
|
10.6
|
Amended and restated form
of Employment Agreement between New Rome Bancorp, Inc. and Charles M. Sprock.
(8)
|
|
10.7
|
Amended and restated form
of Employment Agreement between The Rome Savings Bank and Charles M. Sprock.
(8)
|
|
10.8
|
Rome Bancorp, Inc. 2000
Stock Option Plan. (3)
|
|
10.9
|
Rome Bancorp, Inc. 2000
Recognition and Retention Plan. (3)
|
|
10.10
|
Amended and Restated
Benefit Restoration Plan of Rome Bancorp, Inc. (4)
|
|
10.11
|
Amended and Restated
Directors’ Deferred Compensation Plan of Rome Bancorp, Inc. (4)
|
|
10.12
|
Loan Agreement by and
between the Employee Stock Ownership Plan Trust of Rome Bancorp, Inc. and
Rome Bancorp, Inc. (5)
|
|
10.13
|
Amendment No. 3 to the
Employee Stock Ownership Plan of Rome Bancorp, Inc. (6)
|
|
10.14
|
Rome Bancorp, Inc. 2006
Stock Option Plan. (7)
|
|
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.
|
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|
(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.
|
|
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|
(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.
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|
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(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.
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|
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(4)
|
Incorporated
by reference to Rome Bancorp, Inc.’s Form 8-K filed with the Commission on
December 27, 2005.
|
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|
(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.
|
|
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|
(7)
|
Incorporated
by reference to Rome Bancorp, Inc.’s Form S-8 filed with the Commission on
May 19, 2006, as amended.
|
|
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(8)
|
Incorporated
by reference to Rome Bancorp, Inc.’s Form 8-K filed with the Commission on
December 3, 2007.
|
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|
(9)
|
Incorporated
by reference to Rome Bancorp, Inc.’s Form 8-K filed with the Commission on
October 12, 2010.
|
30
SI
GNATURES
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.
R
OME
B
ANCORP,
I
NC.
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|
|
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Name
|
|
Title
|
|
Date
|
|
|
|
|
|
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|
|
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|
|
/s/Charles
M. Sprock
|
|
Chairman of
the Board, President and Chief Executive Officer (Principal Executive Officer)
|
|
November 8, 2010
|
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|
|
Charles M.
Sprock
|
|
|
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|
|
/s/David C.
Nolan
|
|
Executive
Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
November 8, 2010
|
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|
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|
|
|
|
David C.
Nolan
|
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|
|
/s/Mary
Faith Messenger
|
|
Vice
President and Controller (Principal Accounting Officer)
|
|
November 8, 2010
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Mary Faith
Messenger
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31
Rome Bancorp, Inc. (MM) (NASDAQ:ROME)
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Rome Bancorp, Inc. (MM) (NASDAQ:ROME)
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