U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-25518
SOBIESKI BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 35-1942803
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2930 W. Cleveland Road, South Bend, Indiana 46628
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (219) 271-8300
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes[X] No [ ]
As of November 3,1998, there were 761,900 shares of the registrant's
common stock issued and outstanding.
SOBIESKI BANCORP, INC.
AND SUBSIDIARY
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I. Financial Information
Item 1. Financial Statements
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Financial Condition
September 30,1998 and June 30,1998
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1998 1998
<S> <C> <C>
(Unaudited)
Cash, including interest-bearing
deposits in other financial
institutions of $ 3,078,376 and $ 442,725,
respectively $ 5,524,308 $ 1,291,426
Federal funds sold. 1,318,000
Investment securities, available-for-sale
(amortized cost of $399,573 and $499,267,
respectively) 400,345 499,720
Mortgage-backed securities, available-
for-sale (amortized cost of $573,108 and
$603,381, respectively) 564,106 594,550
Mortgage-backed securities, held-to-
maturity (market value of approximately
$ 9,287,279 and $ 9,888,300, respectively) 9,316,581 9,943,105
Loans receivable, net 81,222,741 76,712,631
Federal Home Loan Bank stock, at cost 1,162,500 922,500
Property and equipment, net 1,935,717 1,923,501
Other assets 650,944 609,130
Total assets $102,095,242 $ 92,496,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 64,962,405 $ 60,517,246
Federal Home Loan Bank advances 23,250,000 18,450,000
Advances from borrowers for taxes
and insurance 600,431 374,627
Accrued income taxes 116 105,735
Accrued interest and other expenses 307,338 184,565
Total liabilities 89,120,290 79,632,173
Stockholders' equity:
Preferred stock, $.01 par value:
500,000 shares authorized; none issued - -
Common stock, $.01 par value:
3,500,000 shares authorized;
966,000 shares issued 9,660 9,660
Additional paid-in capital 9,216,368 9,217,094
Retained earnings, substantially
restricted 7,053,024 6,963,420
Net unrealized depreciation of
securities available-for-sale (5,432) (5,529)
16,273,620 16,184,645
Less: Treasury stock, at cost,
200,275 and 201,821 shares,
2,794,820 2,816,402
Unallocated Employee Stock
Ownership Plan shares; 50,385 503,848 503,848
Total stockholders' equity 12,974,952 12,864,395
Total liabilities and
stockholders' equity $ 102,095,242 $ 92,496,568
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Income
for the three months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1998 1997
(Unaudited)
<S> <C> <C>
Interest Income:
Loans $ 1,567,780 $ 1,188,364
Mortgage-backed securities 141,131 206,731
Interest-bearing deposits 47,046 19,003
Investments and other 6,405 81,819
Total interest income 1,762,362 1,495,917
Interest expense:
Interest on deposits 748,623 673,149
Interest on borrowings 294,675 158,459
Total interest expense 1,043,298 831,608
Net interest income 719,064 664,309
Provision for loan losses 15,000 0
Net interest income after provision 704,064 664,309
for loan losses
Non-interest income:
Fees and service charges 39,369 27,435
Other income 48 19,907
Total non-interest income 39,417 47,342
Non-interest expenses:
Compensation and benefits 282,986 287,422
Occupancy and equipment 73,666 68,860
Federal deposit insurance premiums 9,184 9,363
Advertising and promotion 9,872 6,175
Service bureau expense 37,751 34,828
Other operating expenses 68,450 86,381
Total non-interest expenses 481,909 493,029
Income before income taxes 261,572 218,622
Provision for income taxes 109,400 95,000
Net income $ 152,172 $ 123,622
Other comprehensive income, net of tax:
Unrealized appreciation of available-
for-sale-securities 97 10,409
Comprehensive income $ 152,269 $ 134,031
Earnings per common share:
Basic $ 0.21 $ 0.18
Fully diluted $ 0.21 $ 0.17
Dividends per common share $ 0.08 $ 0.08
</TABLE>
See accompanying notes to condensed consolidated financial statements
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Cash Flows
for the three months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income $ 152,172 $ 123,622
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation of property and equipment 26,254 26,543
Provision for loan losses 15,000 -
Gain on sale of real estate owned, net - (2,085)
Contribution to Employee Stock
Ownership Plan 29,553 30,816
Contribution to Recognition and
Retention Plan 20,856 21,805
Amortization of premiums and accretion
of discounts, net 25,247 16,611
Amortization of deferred loan fees 8,706 (13,071)
Increase in other assets ( 41,864) (168,104)
Decrease in accrued income taxes (105,619) (17,422)
Increase in accrued interest
and other expenses 93,220 99,303
Net cash provided by operating activities 223,525 118,018
Cash flows provided by (used in)
investing activities:
Purchase of Federal Home Loan Bank stock (240,000) -
Proceeds from maturities of
investment securities 100,000 600,000
Principal reductions of mortgage-backed
securities 631,243 569,611
Net increase in loans made to customers
and principal collections on loans (4,533,816) (3,388,360)
Proceeds from sale of real estate owned - 13,122
Purchase of property and equipment (38,465) (7,131)
Net cash provided by (used in)
investing activities (4,081,038) (2,212,758)
Cash flows provided by (used in)
financing activities:
Net increase (decrease) in deposits 4,445,159 (921,205)
Increase in advances from borrowers
for taxes and insurance 225,804 305,362
Federal Home Loan Bank advances 10,400,000 10,450,000
Repayment of Federal Home Loan
Bank advances (5,600,000) (7,500,000)
Cash dividends (62,568) (63,827)
Net cash provided by
financing activities 9,408,395 2,270,330
Increase in cash and cash equivalents 5,550,882 175,590
Cash and cash equivalents,
beginning of period 1,291,426 1,251,373
Cash and cash equivalents, end of period $ 6,842,308 $ 1,426,963
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Sobieski Bancorp, Inc. And Subsidiary
Notes To Condensed Consolidated Financial Statements
A. GENERAL.
The accompanying condensed consolidated financial statements include the
accounts of Sobieski Bancorp, Inc. (the "Company") and its wholly owned
subsidiary, Sobieski Federal Savings and Loan Association of South Bend
(the "Association").
The condensed consolidated financial statements included herein have been
prepared by the registrant pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the registrant believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the Company's consolidated financial
position, results of operations and cash flows for the interim periods
presented. The consolidated results of operations for the interim periods
presented are not necessarily indicative of the results that may be
expected for the full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with
the Company's consolidated financial statements included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1998.
The Company cautions that any forward looking statements contained in this
report, in a report incorporated by reference to this report or made by
management of the Company involve risks and uncertainties and are subject
to change based on various factors. Actual results could differ materially
from those expressed or implied.
CONVERSION TO STOCK SAVINGS AND LOAN ASSOCIATION
On October 4, 1994, the Board of Directors of the Association adopted a
plan of conversion to convert the Association from a federally chartered
mutual savings and loan association to a federally chartered stock savings
and loan association (the "Conversion"). The Association obtained the
required regulatory approval for the Conversion in February 1995 and on
March 22, 1995 the plan of conversion was approved by a majority of the
votes eligible to be cast by the members of the Association.
The Company was organized as a Delaware corporation in December 1994 for
the purpose of acquiring all of the issued and outstanding capital stock
of the Association issued in the Conversion.
At the time of Conversion, the Association established a liquidation
account in an amount equal to the Association's retained earnings as
of September 30, 1994. The liquidation account will be maintained for
the benefit of depositors, as of the eligibility record date and
supplemental eligibility record date, who continue to maintain their
deposits with the Association after the Conversion. In the event of a
complete liquidation (and only in such event), each eligible depositor
will be entitled to receive a liquidation distribution from the
liquidation account, in the proportionate amount of the then current
adjusted balance for deposits then held, before any liquidation
distribution may be made with respect to the stockholders.
Sobieski Bancorp, Inc. And Subsidiary
Notes To Condensed Consolidated Financial Statements, Continued
Current regulations allow the Company to pay cash dividends on its stock
if its regulatory capital would not thereby be reduced below the amount
then required for the aforementioned liquidation account. Also, capital
distribution regulations limit the Company's ability to make capital
distributions which include dividends, stock redemptions, repurchases
and other transactions charged to the capital account based on its
capital level and supervisory condition. Federal regulations also
preclude any repurchase of the stock of the Company for three years
after conversion except for purchases of qualifying shares of a director
and repurchases pursuant to an offer made on a pro rata basis to all
stockholders and with prior approval of the Office of Thrift Supervision
or pursuant to an open-market stock repurchase program with certain
regulatory criteria.
C. ACCOUNTING POLICIES.
Securities
Securities that may be sold as part of the Association's asset/liability
or liquidity management or in response to or in anticipation of changes
in interest rates and resulting prepayment risk, or for other similar
factors, are classified as available-for-sale and carried at fair market
value. Unrealized holding gains and losses on securities classified as
available-for-sale are reported net of related deferred income taxes as
a separate component of stockholders' equity. Securities that the
Association has the ability and positive intent to hold to maturity are
classified as held-to-maturity and carried at amortized cost. Trading
securities are carried at fair market value with unrealized holding gains
and losses included in earnings. Gains and losses on all securities
transactions are recognized when sold as determined by the identified
certificate method. The Association had no trading securities at
September 30, 1998.
Allowance For Loan Losses
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risks inherent in
its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored
by management. Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers among
other matters, loan classification, the estimated fair value of the
underlying collateral, economic conditions, historical loan loss
experience, the amount of loans outstanding and other factors that
warrant recognition in providing for an adequate allowance for loan
losses. A significant factor considered in the Company's allowance is
its historically low level of loans other than one-to-four family real
estate loans. The Company's allowance for loan losses and nonaccrual
loans at September 30,1998 aggregated $255,000 and $103,739 respectively.
Sobieski Bancorp, Inc. And Subsidiary
Notes To Condensed Consolidated Financial Statements, Concluded
Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." This Statement established standards for computing and
presenting earnings per share, simplified the standards for computation
and made the calculation comparable to international accounting standards.
"Primary" earnings per share was replaced by "basic" earnings per share
and the Statement requires that both "basic" and "diluted" earnings per
share be presented on the face of the income statement. SFAS No. 128
is effective for periods ending after December 15, 1997 and requires
restatement of prior period earnings per share upon adoption.
Basic earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding.
Accordingly, for the three month period ended September 30, 1998,
the weighted average number of common shares used in the computation
of basic earnings per share was 715,150. The weighted average number
of common shares for the same period in 1997 was 703,115.
Diluted earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding plus the
dilutive effect of outstanding stock options and nonvested shares awarded
under the RRP. For the three month period ended September 30, 1998, the
weighted average number of common shares used in the computation of
diluted earnings per share was 724,445. The weighted average number
of common shares for the same period in 1997 was 712,808.
The Company accounts for the shares of common stock acquired by its
Employee Stock Ownership Plan ("ESOP") and the restricted shares awarded
under its Recognition and Retention Plan ("RRP") in accordance with the
American Institute of Certified Public Accountants Statement of
Position 93-6, "Employers' Accounting For Employee Stock Ownership
Plans", which prescribes that shares held by the ESOP and the restricted
shares awarded under the RRP are not considered in the weighted average
number of shares outstanding until such shares are released for
allocation to an ESOP participant's individual account or vested, in the
case of the RRP.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standard
(SFAS) No. 130, "Reporting Comprehensive Income," effective July 1, 1998.
SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components in a full year set of general
purpose financial statements. Presently, the only component of
comprehensive income not already included in net income is unrealized
appreciation or depreciation on available-for-sale investment securities.
Non-Qualified Supplemental Benefit Plans
Effective July 1, 1998, The Company established non-qualified supplemental
benefit plans for certain of its officers and directors. These plans
generally provide for the payment of supplemental retirement benefits
over a period of ten (10) years, beginning with the later of (a) the
officer's or director's attainment of a specified retirement age; or
(b) upon termination of the officer's employment with The Company or
the director's termination as a member of The Company's Board of
Directors. The estimated aggregate present value of these future
benefits will be accrued over the average remaining service life of the
officer and director group commencing July 1, 1998. The Company will also
maintain life insurance contracts on the officers and directors to provide
funding for the retirement obligations. Compensation expense associated
with these agreements aggregated $12,100 for the three-month period ended
September 30, 1998
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations
Forward-Looking Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission (the "SEC"), in the Company's
press releases or other public or share- holder communications, and in
oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project", "believe" or similar
expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties, including,
among other things, changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area and competition, that
could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to
advise readers that the factors noted above could affect the Company's
financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation
to publicly release the result of any revisions which may be made to 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.
Financial Condition
The Company's total assets increased $9.6 million during the three months
ended September 30, 1998 to $102.1 million from $92.5 million at
June 30, 1998. This increase was mainly due to an increase in net
loans of $4.5 million, along with increases in cash and due from financial
institutions of $1.6 million, interest-bearing demand deposit increases of
$2.6 million and federal funds investments of $1.3 million. These increases
were offset by a decrease of $.8 million in the security portfolio. The
increase in loans was a result of purchasing participation
interests in commercial loans, and increased originations of commercial,
home equity and mortgage loans.
The Company's total liabilities increased $9.5 million from $79.6 million
at June 30, 1998 to $89.1 million at September 30,1998. The increase was
primarily attributable to an increase in Federal Home Loan Bank ("FHLB")
advances of $4.8 million and increased deposits of $4.5 million. The FHLB
advances were primarily used to fund the increase in home equity loans
along with mortgage loans and purchases of participation interests in
commercial loans. The deposit increase of $4.5 million from $60.5 million
at June 30,1998 to $ 65.0 million at September 30, 1998 was the result of
competitive market pricing in a declining interest rate and lower stock
market environment.
Stockholders' equity increased by $110,000 from $12.86 million at
June 30, 1997 to $12.97 million at September 30,1998, principally the
result of net income offset by cash dividends.
Results of Operations
General. The Company recorded net income for the three months ended
September 30, 1998 of $152,000 which is an increase of $28,000 over
the income of $124,000 for the same period in 1997. The increase in
net income for the three month period was primarily the result of
improved net interest income along with reduced non-interest expenses
offset by provisions for credit losses and higher income taxes.
7
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
Net Interest Income.
The Company's net income is primarily dependent upon net interest income.
Net interest income increased by $55,000 to $719,000 for the three-month
period ended September 30,1998 from $664,000 for the three month period
ended September 30,1997. The increase was primarily a result of increased
income earned on loans reduced by increases in interest paid on deposits
and FHLB advances. The increase in interest income earned on loans was
generated by the increased volume of commercial loans, home equity and
residential mortgage loans.
Interest expense for the three month period ended September 30, 1998 was
$1.04 million, as compared to $832,000 for the comparable period in the
prior year. The increases of $212,000 in interest expense for the
three-month period ended September 30, 1998 was attributable to
$136,000 of added interest paid on FHLB advances, and a $76,000 increase
in interest paid on deposits.
Provisions for Loan Losses. During the three months ended
September 30, 1998, the Company's provision for loan losses was
$15,000. At September 30,1998, the company's allowance for loan losses
totaled $255,000 or .31% of net loans receivable and 246% of total
non-performing loans.
Although management believes that it uses the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making
the final determination. Future additions to the Company's allowance
for loan losses will be the result of periodic loan, property and
collateral reviews and thus cannot be predicted in advance. In
addition, federal regulatory agencies, as an integral part
of their oversight process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based upon their judgment of the
information available to them at the time of their examination.
Non-Interest Income. Non-interest income consists primarily of fees
and service charges on deposit accounts and other income. Non-interest
income decreased to $39,000 for the three months ended September 30, 1998
as compared to $47,000 for the same period last year. The decrease was
due primarily to non-recurring prior period loss recoveries offset by
$12,000 of increased service fees.
Non-Interest Expenses. Non-interest expenses decreased $11,000 to
$482,000 for the three-month period ended September 30, 1998, compared
to $493,000 for the same three-month period last year. The decrease
in expense was primarily the result of reduced compensation and benefits
expenses and lower other operating expenses offset by increased occupancy
and equipment expenses, higher advertising and promotions expenditures and
increased service bureau expenses.
Income Taxes/Benefit. Income taxes for three months ended
September 30, 1998 were $109,000 on pre-tax income of $262,000, an
effective tax rate of 41.8%. For the three months ended September 30, 1997,
an income tax of $95,000 resulted from the pre-tax income of $219,000.
The Company's effective tax rate for the three-month period ended
September 30, 1997 was 43.5%.
8
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
Liquidity and Capital Resources
The Company's principal sources of funds are deposits and principal and
interest payments on loans and investments. While scheduled loan
repayments and maturing investments are relatively predictable, deposit
flows and early loan prepayments are more influenced by interest rates,
general economic conditions and competition. Additionally, the Company
may borrow funds from the Federal Home Loan Bank of Indianapolis ("FHLB")
or utilize other borrowings of funds based on need, comparative costs and
availability at the time.
Federal regulations require the Company to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based
upon the economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one
year or less during the preceding calendar month. Liquid assets for
purposes of this ratio include cash, certain time deposits, U.S. Government
obligations, government agency and other securities and obligations
generally having remaining maturities of less than five years. The
Company has maintained its liquidity ratio at levels in excess of those
required. At September 30, 1998, the Company's liquidity ratio was
26.20%.
At September 30, 1998, the Company had $23.3 million in outstanding
advances from the FHLB used primarily to fund purchases of participation
interests in commercial loans, internally originated loans, and other
investments.
The Company uses its liquidity resources principally to meet ongoing
commitments to fund maturing certificates of deposit and deposit
withdrawals and to meet operating expenses. At September 30, 1998, the
Company had outstanding commitments to extend credit which amounted to
$6.7 million (including $2.5 million in available home equity lines of
credit). Management believes that loan repayments and other sources of
funds will be adequate to meet the Company's foreseeable liquidity needs.
At September 30, 1998, the Association had tangible capital of $9.4 million
or 9.4% of adjusted total assets which was $7.9 million above the minimum
capital requirement of $1.5 million or 1.5% of adjusted total assets.
At September 30,1998, the Association had core capital of $9.4 million or
9.4% of adjusted total assets which was $6.4 million above the minimum
capital requirement of $3.0 million or 3.0% of adjusted total assets.
At September 30, 1998, the Association had total risk-based capital of
$9.6 million and risk-weighted assets of $51.6 million or total risk-based
capital of 18.7% of risk-weighted assets. This amount was $5.5 million
above the minimum regulatory risk-based capital requirement of $4.1 million,
or 8.0% of risk-weighted assets.
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued.
Financial Accounting Developments
In June 1997,Statement of financial Accounting standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise
and Related Information", was also issued. SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. This Statement is effective for financial
statements for periods beginning after December 15, 1997. The Company
adopted this statement for its fiscal year ending June 30, 1999. In the
year of adoption, companies will not be required to disclose this
information for interim periods.
Regulatory Developments
On September 30, 1996, federal legislation was enacted that required the
Savings Association Insurance Fund ("SAIF") be recapitalized with a
one-time assessment on virtually all SAIF-insured institutions, such as
the Association, equal to 65.7 basis points on each $100 of SAIF-insured
deposits maintained by those institutions as of March 31, 1995. The amount
of the Company's special assessment was $414,000, which was paid to the
FDIC in November 1996.
As a result of the SAIF recapitalization, the FDIC amended its regulation
concerning the insurance premiums payable by SAIF-insured institutions.
Effective January 1, 1997, the SAIF insurance premium is 6.5 basis points
per $100 of domestic deposits, as a result of an assessment to fund
repayment of the financing corporation (FICO) bond obligation. BIF
insured institutions will pay 1.3 cents per $100 of deposits until the
year 2000 when the assessment will be imposed at the same rate on all
FDIC insured institutions.
Year 2000 Computer Issues
The Company is aware of the current concerns by consumers and the business
community of reliance upon computer software programs that do not properly
recognize the year 2000 in date formats, often referred to as the
"Year 2000 Problem''. The Year 2000 Problem is the result of software
being written using two digits rather than four digits to define the
application year (i.e., "98'' rather than "1998''). The Company is
highly dependent on computer systems because of significant transaction
volumes and date dependency for interest calculations on financial
instruments such as loans and deposits. A failure of the Company's
computer systems could result in disruptions of operations, including
among other things, temporary inability to process transactions, send
statements or otherwise engage in routine business transactions on a daily
basis.
10
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Concluded
The Company has developed a plan to prepare for the Year 2000.
Started in 1997, the plan includes an inventory of software applications,
communication with third party vendors and suppliers and the obtaining of
certification of compliance with third party providers. The Company has
a comprehensive, written plan, which is regularly updated and monitored
by management and the board of directors. Plan status is regularly
reviewed by management of the Company and reported at least quarterly to
the Board. As of September 30, 1998, it is estimated that the plan is
over 75% complete.
The Company will continue to assess the impact of the Year 2000 issue on
the remainder of its computer-based systems and applications throughout
1998. The Company's goal is to perform tests of its systems and
applications during 1998 and have all systems and applications
Year 2000 compliant by December 31, 1998, allowing 1999 to be used for
full validation and testing. If, as a result of testing, further work
is required, the Company anticipates completing that work prior to
December 31, 1999.
In April of 1998, the Company budgeted $60,000 to remediate Year 2000
issues through December 31, 1999. These costs primarily will consist of
renovation and upgrading of its computer systems and testing of equipment
and programs for Y2K compliance. The Company is investing in new or
upgraded technology that has definable value lasting beyond 2000. In
these instances, where Year 2000 compliance is merely ancillary, the
Company may capitalize and depreciate such an asset over its estimated
useful life.
In addition to reviewing its own computer operating systems and
applications, the Company has initiated formal communications with
its significant suppliers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to
resolve their own Year 2000 issues. There is no assurance that the
systems of other companies on which the company's systems rely will
be timely converted. If such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have an
adverse impact on operations of the Company. Therefore, the Company
is in the process of developing a contingency plan as to not disrupt
operations should its suppliers not be timely converted
The Company's significant suppliers are an online computer services firm
(provides data processing services), the Federal Home Loan Bank of
Indianapolis and utility services. The representations from these
firms are that they are all making efforts to become Year 2000 compliant
by December 31, 1998 and to test and validate their systems during 1999.
The Company continues to monitor the progress of these suppliers by
requesting regular updates of the suppliers' progress and believes
that these suppliers will be Year 2000 compliant before
December 31, 1999. The Management of the Company does know of
alternative suppliers for the services provided by these entities, but
believes a conversion to these suppliers of the Company's data processing
capabilities during 1999 will be very difficult to accomplish before the
Year 2000.
The Company currently has several significant borrowers for which the
bank has made direct loans or holds a participation interest. Management
of the Company is communicating with these borrowers about Year 2000
issues and does not expect any Year 2000 problems of these borrowers
will have an adverse effect on the Company.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Company's financial conditions, results of
operations or liquidity.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be
achieved and actual results could differ from those anticipated.
Specific factors that might cause differences include, but are not
limited to, the ability of other companies on which the Company's
systems rely to modify or convert their systems to be year 2000 compliant,
and/or the ability to locate and correct all relevant computer codes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) On October 19,1998, the Company held its Annual Meeting
of Stockholders.
(b) At that meeting, Leonard J. Dobosiewicz and Joseph A. Gorny
were elected Directors for terms to expire in 2001.
(c) Stockholders also voted on the following matters:
(i) The election of the following Directors of the Company,
Votes
Broker
For Withheld Non-Votes
Leonard J. Dobosiewicz 554,716 21,476 205,908
Joseph A. Gorny 553,771 22,421 205,908
(ii) The ratification of the appointment of PricewaterhouseCoopers as
independent auditors of the Company for the fiscal year ending
June 30,1999.
Votes
Broker
For Against Abstain Non-Votes
575,504 188 500 205,908
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Sobieski Bancorp, Inc.
(Registrant)
Date: November 13,1998
By: /s/s Thomas F. Gruber
Thomas F. Gruber
President and Chief Executive Officer
Date: November 13,1998
By: /s/s Arthur Skale
Arthur Skale
Chief Financial Officer
13
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MO
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] SEP-30-1998
[CASH] 5,524,308
[SECURITIES] 11,599,032
[RECEIVABLES] 81,477,741
[ALLOWANCES] 255,000
[INVENTORY] -0-
[CURRENT-ASSETS] 1,813,444
[PP&E] 1,935,717
[DEPRECIATION] -0-
[TOTAL-ASSETS] 102,095,242
[CURRENT-LIABILITIES] 89,120,290
[BONDS] -0-
[PREFERRED-MANDATORY] -0-
[PREFERRED] -0-
[COMMON] 9,660
[OTHER-SE] 12,965,292
[TOTAL-LIABILITY-AND-EQUITY] 102,095,242
[SALES] -0-
[TOTAL-REVENUES] 1,801,779
[CGS] -0-
[TOTAL-COSTS] -0-
[OTHER-EXPENSES] 481,909
[LOSS-PROVISION] 15,000
[INTEREST-EXPENSE] 1,043,298
[INCOME-PRETAX] 261,572
[INCOME-TAX] 109,400
[INCOME-CONTINUING] -0-
<DISCOUNTINUED> -0-
[EXTRAORDINARY] -0-
[CHANGES] -0-
[NET-INCOME] 152,172
[EPS-PRIMARY] .21
[EPS-DILUTED] .21
</TABLE>
